Friday, July 31, 2009

Biggest banks in US reward stars with huge bonuses

Original Link:


Even when their profits dried up and they turned to taxpayers to stay afloat, the nation's biggest banks kept paying huge bonuses. But much of the money went not to top executives, but to star traders and salesmen, even as the economy battled through the worst recession in a generation.

The bonuses — including $1 million or more for each of nearly 4,800 bankers at nine of the largest firms — were paid for 2008, along with scores of smaller checks to thousands of rank-and-file employees. But their revelation this week has renewed criticism of companies relying on government aid.

The House of Representatives voted Friday to sharply restrict how Wall Street pays its executives and workers, barring compensation that rewards excessive risk-taking. But the bill only applies to future payments and do not cover the bonuses for last year, revealed in a report by New York Attorney General Andrew Cuomo.

That report, based on information subpoenaed from the banks, does not identify individual bonus recipients or their jobs. But it makes clear that a relatively small number of people enjoyed the largest payouts. Experts on Wall Street compensation said that, in many cases, the biggest bonuses went to star producers, whose work generated substantial profits even as their companies were struggling.

"Most of the money doesn't go to what we usually call executives," said Alan Johnson of Johnson Associates, a New York compensation consultant to companies including large banks. "It's going to highly paid production workers."

At Bank of New York Mellon, for example, none of the company's top five executives was paid a bonus. But the bank still paid 74 of its worker bonuses of at least $1 million each. Senior executives at Wells Fargo & Co. — which lost $43 billion last year — also did not pocket bonuses, even as the firm paid bonuses of at least $1 million to 62 of its employees.

The biggest bonus pool was paid out by J.P. Morgan Chase & Co., where $8.7 billion was distributed, a sum far larger than the $5.6 billion in earnings the bank reported. More than 1,600 Morgan Chase employees took home bonuses of $1 million or more.

Johnson, the pay consultant, said many of the traders and salesmen receiving big bonuses count on the checks for 75 percent of their yearly pay. Those employees have long been paid for individual performance — how many bonds a bond salesman sold and how much money those deals generated for the company — rather than on the overall results that are supposed to be used to set pay for top executives.

Banks have continued to pay even as some lost money, fearful a rival will woo their highest producers away.

"For Wall Street banks, their main assets are their people," said Broc Romanek, editor of, a Web site providing advice to corporate boards. "The ones that are performing year to year, they don't want to lose them."

But the recession and large losses at many of the banks paying big bonuses has exposed the weaknesses of the system.

Banks distribute bonuses far down the corporate ladder, but the payments are much smaller for rank-and-file employees. A secretary to a trader might make $50,000 a year and get a $5,000 or $10,000 bonus, Johnson said.

Overall, the banks are on track to pay out more than they did before the recession began. If current patterns hold, the biggest banks will pay their workers $156 billion in 2009, compared to the $143 billion paid in 2006, adjusted for inflation, said Lucian Bebchuk, a Harvard University professor and leading expert on corporate pay.

"The good days of compensation are back," Bebchuk said Friday.

Cuomo and other critics say the bonuses are excessive and show banks have abandoned their long-stated practice of basing pay on corporate results.

"Even a cursory examination of the data suggests that in these challenging economic times, compensation for bank employees has become unmoored from the bank's financial performance," the New York attorney general said in the report released by his office Wednesday.

But Johnson said Cuomo is incorrectly focused on a link between pay and corporate performance when it's individual performance that guides bonus payments.

"The most uncomfortable position for that kind of (pay) model is when a small group of people — the mortgage unit, for example — blows the whole firm up, and the majority of people have done what you've asked them to do," he said.

Thursday, July 30, 2009

Blue Dogs Delay, Water Down House Health Care Bill

Original Link:

By Jeff Muskus

Conservative Blue Dog Democrats on the House Energy and Commerce Committee are celebrating their success in delaying a full floor vote on health care legislation past the August recess and in slightly weakening two key provisions during their negotiations with committee Chairman Henry Waxman.

"We have successfully pushed a floor vote to September," Mike Ross (D-Ark.) told reporters Wednesday afternoon. "The American people want us to slow down, and that's what we're doing here."

The Blue Dogs wrestled some concessions out of Waxman (D-Calif.), particularly related to a public health care option and employer mandates. The committee's current version of the public option now more closely resembles that of the health committee in the Senate.

For instance, rather than linking the public option to the rates enjoyed by Medicare, the new language would require a separate agreement without Medicare's bargaining power, Rep. Jerrold Nadler (D-N.Y.) said. Secretary of Health and Human Services Kathleen Sebelius would be responsible for negotiating deals with service providers from day one of the public plan's existence, rather than year three. States can also set up co-op insurance plans in addition to the public option, but not in its stead.

"The public option must go out and negotiate with providers, just like private health insurance companies do," Ross said. "It's strictly optional. It won't be mandated on anyone. It will not be based on Medicare rates."

Under the terms of the compromise, close to 86 percent of small businesses -- those with an annual payroll of $500,000 or less -- will be exempt from the mandate to provide employees with health insurance, Ross said, although the Blue Dogs weren't alone in pushing for that change. Those with an annual payroll between $500,000 and $750,000 must provide graduated partial assistance.

"That's as close as you can get to totally removing the mandate without removing it," Ross said. "Quite frankly, once you get up to three-quarter million a year in annual payroll, as a former small business owner myself, most of them are already providing health insurance, and if they're not, they should."

Under the original draft legislation, Ross said, barely one-fifth the number of businesses would have been exempted.

Republicans Have Government Insurance, Why Can’t Everyone?

Original Link:

For weeks I have been listening to all the BS Republicans have spewed about health care reform. Republicans shouted it was socialized medicine and when that didn’t work they came up with other untruths. The fact of the matter is all members of Congress use the public option plan. Republicans are willing to deny all Americans health care that they get the minute they are sworn in. Priceless!

As a Federal employee, let me give you a very clear picture of the public option Obama is talking about. All Federal Employees, Congress included, get their insurance from The Federal Employees Health Benefits (FEHB) Program.

The Federal Employees Health Benefits (FEHB) Program can help you and your family meet your health care needs. Federal employees, retirees and their survivors enjoy the widest selection of health plans in the country. You can choose from among Consumer-Driven and High Deductible plans that offer catastrophic risk protection with higher deductibles, health savings/reimbursable accounts and lower premiums, or Fee-for-Service (FFS) plans, and their Preferred Provider Organizations (PPO), or Health Maintenance Organizations (HMO) if you live (or sometimes if you work) within the area serviced by the plan.
Once a year I am allowed to change my health insurance without being denied coverage even if I have a pre-existing condition. My choices are from a variety of provided, Blue Cross Blue Shield, Humana, Aetna and United HealthCare just to name a few. Now here is something that will definitely upset you, I pay $80.00 per month for full PPO coverage. I admit I’m single but it’s far less than single friends of mine in the private sector paying a minimum of $25o.oo per month. One of my co workers pays under $200.00 per month for herself, her husband and their four children. And Congress, well they pay what I pay and what my co worker pays, but Republicans want you to continue to be screwed.

Here’s another Republican line of BS, “the government will tell your doctor what to do and control your care.” Reality is, when I go to the doctor, I don’t have to deal with the government interfering with my health care or the decisions my doctor and I make. There are no government agents in my doctors office. By the way, I have the same doctors I had when I was in the private sector. The only thing that changed was my premium by about $240.00 less per month.

Republicans insist on using the term National Health Insurance, again to mislead. In reality National health insurance does not equate to government run or government financed health care, but is usually established by national legislation.

This is what Republicans are calling government run system. This is the very same plan Republicans have and want to keep away from all Americans. Republicans are banking on the stupidity and laziness of Americans. After all, part of the housing crisis was people not understanding or reading what they were getting involved in. Health care is much the same, complicated rules that no one bothers to read and payments not many can afford to make.

The Republican’s were againt Medicare, which operates as a single payer system, and it’s government run. Today more than 44 million Americans depend on that program. Where would they be today had Republicans killed Medicare in the 1960’s? Ask yourself, where would I be without insureance and the Republicans block health care reform. Don’t forget, Republicans will keep their governemnt health care and well…… you’ll keep the vaseline.

Sunday, July 26, 2009

Too Sick for Health Care

Original Link:

By Peter Harbage

How Insurers Limit and Deny Care in the Individual Health Insurance Market.

All of the roughly 170 million Americans with private health insurance share concerns about skyrocketing costs and shrinking benefits. But there are even greater challenges for the roughly one in four Americans who either purchase their insurance on the individual market or have considered doing so. The individual market is confusing, complex, and typically costs more for less coverage—if coverage is available at all.

Conservatives claim that comprehensive health care reform will lead to government control and rationing of care. Yet private insurers already effectively limit and deny the health care that their policyholders can access, especially those who have to find coverage in the individual market. And make no mistake—the insurance companies are well aware that just 20 percent of patients are responsible for 80 percent of health care costs in the United States. That’s why insurers try to limit the coverage of this 20 percent, especially in the individual insurance market.

The recent testimony of former insurance company executive Wendell Potter before the Senate Commerce Committee offers insight into the practices that protect insurers’ economic interests at the expense of their policyholders’ best interests. In an effort to limit their costs, Potter explained the techniques that insurers use to try to drop sick individuals from coverage. One approach is “purging,” where the monthly costs for some individuals are significantly increased in the hopes that the individual will choose to drop coverage.

Health reform will bring an end to insurers’ practices that limit care and bring stability to families’ insurance coverage. To their credit, the health care insurance industry has stated that they would accept changes to improve the stability of coverage under certain circumstances. But the industry actively opposes the creation of a public health insurance plan as part of an insurance exchange that will enable employers and individuals to purchase insurance as a group under market reforms that prohibit screening for pre-existing conditions and other conditions that insurers like to use to deny coverage. These reforms will finally make insurance affordable and available for all while creating a marketplace that has a choice of plans that will have to compete with one another.

In addition, to make the market more efficient and fair, specific changes will be made in the health care marketplace that will make insurance easy to obtain, easy to keep, affordable, and a meaningful source of protection when people need care. For too long, our system of market rules has allowed insurance companies to deny and limit health care. It’s time to fix the problem to bring down health care costs in the United States so they are fair and affordable for everyone.

There are four basic problems with our current health care system that allow insurers to limit our access to health care: insurance policies are too expensive, too easily manipulated in order to limit or deny coverage, too hard to keep, and too weak to be effective. Comprehensive health care reform offers four solutions that will improve the system by making insurance affordable, available to everyone, easy to maintain, and adequate for all medical situations. Let’s consider each of these problems and solutions in turn.

Problem: Health insurance is too expensive
Health insurance premium costs put coverage out of reach for too many American families, and many more have problems paying their medical bills because they are underinsured. The fact is, more and more Americans fail to get the care they need based on their inability to pay.

Over the past decade, health insurance premiums have risen 119 percent nationally, while wages (adjusted for inflation) have remained relatively flat. Today, the average family premium for employer-sponsored health insurance exceeds $13,000, while total average medical costs can account for as much as 16.2 percent of income for low-income families. High premium costs contribute to the number of uninsured Americans.

While premiums have been growing so too have out-of-pocket costs, or those costs not covered by insurance such as deductibles and copays. High out-of-pocket costs have contributed to the total estimated 25 million underinsured Americans—those with insurance but not enough to protect them from financial risk. Paying for the rising cost of health care is a particularly severe problem for people without coverage through their employers. Those individuals who have to buy their insurance on the individual insurance market face:

High premium costs. Insurers in 31 states have no limit at all on what they can charge for individual insurance. This leaves families vulnerable to not being able to afford their coverage over time, or to spikes in insurance costs from one year to the next.

High out-of-pocket costs. Health insurance on the individual market also tends to come with high out-of-pocket cost sharing. Deductibles, for example, average about $2,000 per person for so-called Preferred Provider Organization plans, the managed care health insurance networks many Americans receive care through. Being underinsured—facing very high out-of-pocket costs—is often little better than being uninsured in terms of having access to health care services. Higher deductibles and other cost-sharing requirements make it less likely that individuals will seek out health care—even if they need it.

Solution: Health reform will make insurance affordable

Health care reform will help families to buy comprehensive health insurance at an affordable rate and strengthen employer-based insurance. In addition, health reform can mandate maximum out-of-pocket costs for private insurance. Under the plans being discussed by progressives, health care reform will:

Control the cost of health care by promoting competition and increasing efficiency. With a new health insurance exchange in place, consumers will receive better information about health insurance plans. This means insurers will have to compete for policyholders by bringing down costs while offering quality coverage. And with a public health insurance plan on offer, consumers will have a benchmark for quality insurance at a competitive price, which will also drive competition by offering a quality insurance product but without the higher administrative costs and profits of private insurers. With individuals able to freely choose from a range of plans, competition will drive improvement in plan offerings. Health reform also will lower costs by redesigning care payment systems that will, for example, increase the incentives to providers to offer chronic care and preventive services.

Offer subsides for health insurance premiums. Tax credits or subsidies to help low- and middle-income families will make health insurance affordable for all Americans.

Cap out-of-pocket costs. This will ensure costs do not prevent families from seeking needed care, and will protect Americans from excessive medical debt and medical bankruptcies if they get really sick.
Support small business. Small businesses and the self-employed today pay more for health insurance and get less coverage than those who work for large businesses with employer-sponsored health care plans. A health insurance exchange will help small businesses by improving their purchasing power with subsidies to offset employee premium costs. The health exchange also will improve the purchasing power of the self employed and individuals who do not have employer-sponsored coverage by enabling them to buy into a health insurance pool, which will attract discounts from health care providers similar to those now enjoyed by big employer-sponsored plans. One recent report estimates that health care reform could save small business up to $855 billion in costs.
Problem: Insurance companies use a range of reasons to charge some people more for health insurance or deny it altogether

Health insurance is supposed to protect us when we get sick. Yet study after study documents that people with pre-existing conditions find it nearly impossible to get the coverage they need. One survey shows that 89 percent of the people who tried to purchase coverage on the individual market ultimately did not, either because it was unavailable or it was unaffordable. In the vast majority of states, insurers can refuse to sell coverage to individuals based on their health status, and insurers face few restrictions on the rates that they can charge.

Then there’s the application process. Insurers want to limit their exposure to customers that could need medical care—and cost the insurer money. So insurers use long and confusing insurance applications to look at all aspects of an applicant’s life and medical history to identify factors that could make them more costly. Insurers then charge higher premiums for those with real or perceived risk factors. Insurers look specifically for:

Health status and chronic illness. It is common practice for health insurers to use the application process to determine an individual's health status to decide both how much coverage to offer and at what cost. In one survey, half of those in fair or poor health found it very difficult or impossible to find the coverage they needed. And for those offered coverage, poor health status is used as a reason to charge higher premiums or limit coverage.

Prescription drug use. Taking prescription medications makes millions of Americans ineligible for coverage on the individual market. Case in point: Insurance companies in California bar individuals from coverage if they take any of 8 of the 20 most popular prescription medications sold in the United States. That list includes the top-selling drug in the country, Lipitor, which has been prescribed to more than 26 million Americans to treat cholesterol.

Height and weight. For the approximately one-third of adults who are medically obese—defined by a body mass index of 30 or higher; a recommended BMI ranges from 19 to 25—health insurance will cost more if it is available at all. Those with a BMI of more than 35 are simply denied coverage. But it isn’t just the obese who can be turned down. Coverage can more expensive, or denied, for those deemed too short, too tall, or too skinny.

Age. Age discrimination is prevalent in the individual market. On average, someone 60 to 64 years old and healthy is going to pay significantly more for health insurance than an 18- to 24-year-old. Of course, that is only for those who are offered coverage. Of those ages 60 to 64, 29 percent are turned down for individual coverage compared to just 4 percent of those ages 18 to 24.

Gender. Women are more likely to have to seek coverage on the individual market than men as they are less likely to qualify for employer-sponsored coverage. However, being a woman means paying more for health insurance. Pregnancy has long been a reason insurance companies use to charge women higher rates for health insurance, even though many individual insurance policies don’t even cover maternity benefits.

Occupation. Insurers will use your occupation to decide if you can buy insurance. Roofing, window cleaning, lumber work, and asphalt work are occupations that insurers will sometimes not cover. Volunteer firefighters, a common occupation in rural areas, can be denied coverage even if their full-time occupation only involves office work.

Hobbies. Even hobbies such as scuba diving and skydiving can mean being denied coverage.

If individuals are offered coverage after clearing all of these hurdles, the next challenge they face is the scarce information on how to compare benefit packages. Given the number of ways insurers can vary benefit packages to limit coverage—from not including some services to high cost sharing to low-benefit limits—successful applications find it hard to truly understand what coverage they are purchasing. One study showed that 75 percent of policyholders didn’t understand the policy they purchased, and more than 50 percent didn’t know if their policy limited out-of-pocket spending.

Solution: Health reform will make insurance more available

Comprehensive health care reform will make it much easier for families to find insurance, compare benefit packages, and then purchase the one that works best for them. Under the plans being discussed by progressives, health care reform will:

Make insurance available to everyone. Insurers will be required to offer insurance to all individuals and employers who apply for coverage, and will no longer be able to deny coverage to people with pre-existing conditions, or price coverage out of reach for people with health problems.

Make insurance understandable. Minimum benefit standards and a guarantee that all policies will offer meaningful insurance will create tools for helping families sort through insurance plans and understand their benefits and out-of-pocket costs.

Problem: Health insurance is hard to keep

When individuals lose their health coverage just when they need it the most, care is being rationed. In the vast majority of states it is possible for insurance companies to cancel individual market coverage once it is found that expensive claims are being made on the policy. Such claims often trigger post-claims underwriting, insurance jargon for insurers investigating a policyholder’s already-completed application and medical history to find evidence of preexisting conditions. Even if errors or omissions on an application were unintentional, in many states they can be grounds to cancel coverage going forward, rescind or retroactively cancel coverage, or limit coverage to exclude the preexisting condition.

All three of these steps ration care for those who need medical attention. Rescissions go further by sticking former policyholders with the bill for services they sought believing they had coverage. At a recent congressional hearing, it was revealed that just three insurers rescinded at least 20,000 individuals between 2003 and 2007. In one case, a nurse had her coverage rescinded when she developed breast cancer—after failing to disclose that she had seen a dermatologist for acne. When insurance industry executives were asked if they would end the practice of rescissions, the answer was “no.”

Individuals and families also are at risk of losing insurance during life transitions that limit their access to coverage. Losing a job, going through a divorce, or graduating from college can automatically make some individuals or families ineligible for employer-sponsored coverage. While federal law offers some protections for individuals and families who are moving from one job to another, or from group insurance to the individual market, how those protections are enforced varies by state. Families uncertain of their options, or those without the resources to pay often very high premiums, are at risk of becoming uninsured.

Solution: Health reform will make insurance easy to keep
Comprehensive health care reform will ensure individuals always have access to coverage no matter their health status. Health care reform will:

Make insurance always available. The new insurance exchange will make it possible for everyone to have access to health insurance and give applicants more details about the kinds of coverage they can purchase. If policyholders pay their premiums, insurers will be required to keep their side of the bargain to pay for covered benefits. Insurers will be required to accept all applicants and maintain coverage for all policyholders no matter their health status.

Help families transition between insurance plans. The new insurance exchange can promote auto enrollment to ensure seamless health insurance coverage. Also, the new exchange will conduct outreach and consumer education so that families understand their options, including new subsidies that can make coverage more affordable.

Problem: Health insurance benefits are weak

Health insurance that does not cover the services individuals and families need, at cost-sharing levels they can afford, is a way of rationing care. Thirty-four percent of people seeking coverage on the individual market reported having trouble finding coverage that met their needs. And almost half have trouble when they have a pre-existing condition. Insurance companies limit their risk by limiting benefits. Specifically, insurers:

Exclude basic benefits. Insurance companies ration care by offering coverage on the individual market that covers fewer services than coverage available through employer-sponsored plans. Today, every state mandates a different set of medical services be included in every health insurance policy, but there is no national minimum for what services health insurance must cover. The result: depending on the state, families with coverage on the individual market may not have access to needed services such as chemotherapy or even well-child visits, which are so critical for basic preventative care.

Cap lifetime benefits. Insurance companies can limit the total amount a policy will pay out for policyholders over the course of their lives. While these lifetime limits are in the millions of dollars, if individuals with serious illnesses reach those limits they essentially no longer have health coverage. Over 90 percent of Preferred Provider Organization policies on the individual market have lifetime limits, putting individuals at risk for costs.

Exclude preexisting medical conditions. Insurers try to limit benefits by selling people policies that specifically exclude care for the medical conditions they already have. In nine states, insurers are allowed to permanently exclude preexisting conditions from coverage. Just four states limit the waiting period insurers can impose to less than a year. In 32 states and the District of Columbia, having a symptom of a medical condition, even if it went undiagnosed or untreated, counts as a pre-existing condition. All of these exclusions mean there are cases where an individual is found to have a pre-existing condition when they didn’t even know they had one. To determine if there is a preexisting condition, 25 states and the District of Columbia say that insurance companies can review your medical history going back further than a year. Thirteen have no limit on how far back they can look.

Solution: Health reform will make coverage adequate

Health reform will include the basic medical services that families need, such as the services listed in the health reform bill being drafted in the house, which include:


Prescription drugs.

Maternity benefits.

Well-child care.

This comprehensive coverage will ensure all families can purchase insurance that covers the benefits they need and deserve. No one plans to get sick, or knows what kind of medical care they may one day need. Comprehensive health care reform will ensure that no one has to find out when they get sick that a necessary treatment has been excluded from their coverage.


Comprehensive health care reform will ensure all American know they can purchase health coverage that will meet their needs today and in the future. Our health care system will no longer allow insurance companies to ration care based on who is healthy enough not to need it, or wealthy enough to pay for it.

Exposing the Studies Behind Health Care Hit Pieces

Original Link:

By ExElephant

The leading study cited by the Heritage Foundation, and other 'inteelectual engines' flat earth society, cited over a dozen times on the House floor alone, and repeated ad infinitum in hearings and in the right wing echo machine is produced by an outfit called the Lewin Group.

Nowhere it is mentioned that this "Group" is in fact owned by a subsidiary of the 'double our profits by cutting coverage' heroes from United Health Care....

The right in General, and Heritage in particular; have placed great emphasis on a 'study', by the Lewin Group in attacking 'Obamacare'.

As a vet of 93-94 battle over the Clinton proposal, and schooled in the dark art of economics, I decided to read the report thinking I would find many dubious assumptions.

I only had to go to footnote 1 :

The Lewin Group is not an advocate for or against any legislation. The Lewin Group is part of Ingenix, Inc., which is a wholly owned subsidiary of the UnitedHealth Group. To assure the independence of its work, The Lewin Group has editorial control over all of its work products

United Healthcare is the giant insurer that provoked outrage- or applause from the wingnut fringe last week when announcing a doubling of profits, while reducing coverage.

So a group in effect owned by United Health Care, has according to THOMAS, been cited by the right over a dozen times in the Congressional Record alone:

Mr. BURTON of Indiana. There's been an awful lot of misinformation about the Democrat health care proposal, Mr. Speaker, and so I would like to take just a couple of minutes tonight to talk to my colleagues about what's really happening and what will happen if this bill becomes law.

According to the Lewin Group , there will be 114 million Americans who could lose their current coverage under the bill according to this organization.....

and who knows how many more times in hearings, public statements etc.

In the immortal words of Senator to be John Blutarsky in Animal House ....'Bullshit"

Editorial control - you mean like Goldman Sachs oil analysts are independent of those at the manipulation desk ....

while most here are familiar with the work of Paul Krugman, let me suggest
visiting the site of another Princeton professor,Uwe Reinhardt - you might find some analysis and insight that is not self serving

The Republican 10 Point Plan for Health Care

Original Link:

By Jon Perr

After Rep. Roy Blunt, leader of the supposed House GOP Health Care Solutions Group, suggested Thursday that Republicans won't offer a health care plan of their own, Minority Leader John Boehner insisted one was still in the works.

Of course, the Republican plan as in 1993 is to stop health care reform at all costs to prevent an enduring Democratic majority. Bill Kristol, who told Republicans 16 years ago that there was "no crisis" justifying health care reform then, now simply calls on his party to "kill it." With spinmeisters Frank Luntz and Alex Castellanos supplying the talking points that a supposed "government takeover of health care" is "too much, too fast, too soon," obstructionists like Oklahoma Senator James Inhofe boasted his party would "stall" President Obama's health care initiative to ensure a "huge gain" in the 2010 election. In a nutshell, the GOP is proposing to extend the status quo for a nation gripped by a collapsing health care system.

Here, then, is the Republican 10-Point Plan for Health Care:

50 Million Uninsured in America
Another 25 Million Underinsured
Employer-Based Coverage Plummets Below 60%
Employer Health Costs to Jump by 9% in 2010
One in Five Americans Forced to Postpone Care
62% of U.S. Bankruptcies Involve Medical Bills
Current Health Care Costs Already Fueling Job Losses
94% of Health Insurance Markets in U.S Now "Highly Concentrated"
Dramatic Decline in Emergency Room Capacity
Perpetuating Red State Health Care Failure
For the details and data behind each, continue reading.

1. 50 Million Uninsured in America
Despite Senate Minority Leader Mitch McConnell's oft-repeated claim that Americans don't want health care reform that "reform that denies, delays, or rations health care," de facto rationing is precisely what defines the U.S. system today.

The latest U.S. Census Bureau in 2007 placed the number of uninsured* in America at 45.7 million, up from 37 million since the last time Republicans successfully blocked health care reform in 1993. But a February analysis by the Center for American Progress found that the recession added four million more to the rolls of the uninsured, a group which a study by Families USA in March found included 86.7 million Americans over a two-year span. And a Gallup poll released this week revealed the percentage of American adults without coverage catapulted to 16% from 14.8% since the start of the Bush recession in December 2007. All told, likely another five million people have pushed the ranks of the uninsured over 50 million.

2. Another 25 Million Underinsured
The crisis doesn't end there. In June 2007, a devastating assessment from the Commonwealth Fund showed fully 25 million more Americans were "underinsured," a staggering 60 percent jump since 2003. As the study showed, the number of "people who have health coverage that does not adequately protect them from high medical expenses" has skyrocketed:

As of 2007, there were an estimated 25 million underinsured adults in the United States, up 60 percent from 2003.

Much of this growth comes from the ranks of the middle class. While low-income people remain vulnerable, middle-income families have been hit hardest. For adults with incomes above 200 percent of the federal poverty level (about $40,000 per year for a family), the underinsured rates nearly tripled since 2003.

All in all, 75 million Americans - 42% of the people in the United States under age 65- have insufficient insurance or simply none at all.

3. Employer-Based Coverage Plummets Below 60%
Making matters much worse is the rapid deterioration of employer-provided health insurance coverage. A 2007 report from the Economic Policy Institute showed a dramatic decline in employer-provided health care. That drop-off from 64.2% of Americans covered through workplace insurance in 2000 to just 59.7% in 2006 alone added 2.3 million more people to those without coverage. Census data since showed workplace coverage dipped further in 2007, down to an alarming 59.3%. (A recent Thomson Reuters survey put the figure for 2009 at a stunning 54.6%.)

4. Employer Health Costs to Jump by 9% in 2010
To be sure, Americans' health care expenditures are spiraling out of control, expanding at triple the rate of wages. That annual tab now tops $12,000. Of that, a recent analysis by the Center for American Progress found that "8 percent of families' 2009 health care premiums--approximately $1,100 a year--is due to our broken system that fails to cover the uninsured."

And with successful Republican obstruction of Democratic health care initiatives, those jaw-dropping costs would only continue their steep climb. A new report from the consulting firm PricewaterhouseCoopers forecast employers will face a 9% increase in health insurance costs in 2010. 42% of those business surveyed will pass at least some the new burden on to their workers. As PWC's Michael Thompson concluded:

"If the underlying costs go up by 9%, employees' costs actually go up by double digits," he said, noting that will have a "major, major impact" when many employers also are freezing or cutting pay.

5. One in Five Americans Forced to Postpone Care
Of course, McConnell's dystopian future of health care delayed is already Americans' nightmare present. The Thomson Reuters survey released in April found that 1 in 5 Americans "have delayed or postponed medical care, mostly doctor visits, and many said cost was the main reason," a staggering jump from 15.9% in 2006. As study leader Gary Pickens summed up the grim findings:

"The results of this survey have serious implications for public health officials, hospital administrators, and healthcare consumers. We are seeing a positive correlation between Americans losing their access to employer-sponsored health insurance and deferral of healthcare."

6. 62% of U.S. Bankruptcies Involve Medical Bills
Given the deterioration of the employer-provided health coverage and the skyrocketing costs of out-of-pocket care, it's no wonder, as a June 2009 study funded by the Robert Wood Johnson Foundation determined, medical bills are involved in over 60% of U.S. personal bankruptcies:

More than 75 percent of these bankrupt families had health insurance but still were overwhelmed by their medical debts, the team at Harvard Law School, Harvard Medical School and Ohio University reported in the American Journal of Medicine.

"Using a conservative definition, 62.1 percent of all bankruptcies in 2007 were medical; 92 percent of these medical debtors had medical debts over $5,000, or 10 percent of pretax family income," the researchers wrote. "Most medical debtors were well-educated, owned homes and had middle-class occupations."

7. Current Health Care Costs Already Fueling Job Losses
While John Boehner trumpets his claim that Democratic health care initiatives "will kill American jobs," a new analysis from the RAND Corporation found that current excess U.S. health care expenses are already having a devastating effect on the economy. As BusinessWeek noted (via The Plum Line):

In a first-of-its-kind study, the non-profit Rand Corp linked the rapid growth in U.S. health care costs to job losses and lower output. The study, published online by the journal Health Services Research, gives weight to President Barack Obama's dire warnings about the impact of rising costs if Congress does not enact health care reform.

As it turns out, today's stratospheric growth in health care costs has the most crippling effects in precisely those industries where more workers have employer-sponsored insurance (ESI):

For example, the study estimated that a 10% increase in excess health care costs would reduce employment by about 0.24 percent in an industry such as motor vehicles, where about 80% of workers have ESI, compared with about 0.13% percent drop in the retail trade, where about one-third of workers have ESI. Economy-wide across all the 38 industries, a 10% increase in excess health care costs growth would result in about 120,800 fewer jobs, $28 billion in lost revenues, and about $14 billion in lost value added.

8. 94% of Health Insurance Markets in U.S Now "Highly Concentrated"
Republican critics of a public option tout regulatory reforms - still undefined - which would allow "insurance companies compete for your business and you can shop around for the best coverage and price."

But as the Commonwealth Fund revealed in a report titled, "Failure to Protect: Why the Individual Insurance Market Is Not a Viable Option for Most U.S. Families," that is a far cry from today's actual private insurance market, one in which Americans are simply priced out:

Over the last three years, nearly three-quarters of people who tried to buy coverage in this market never actually purchased a plan, either because they could not find one that fit their needs or that they could afford, or because they were turned down due to a preexisting condition.

Behind that market failure is the rapid emergence of health insurance monopolies in most areas of the United States. The past 13 years have seen over 400 corporate mergers involving health insurers. As the American Medical Association found, "94 percent of insurance markets in the United States are now highly concentrated, and insurers are thriving in the anti-competitive marketplace, raking in enormous profits and paying out huge CEO salaries." As I noted in 2006:

In most states, the AMA concludes, the idea of choice among competing insurance providers is a myth. The study showed that in each of 43 states, a small group of insurers exerts such market dominance as to merit the Justice Department "highly concentrated" market methodology for assessing potential anti-trust action. In 166 of 294 metropolitan areas surveyed, a single insurer controls over half the preferred provider network and HMO underwriting. In North Dakota, for example, Blue Shield owns 90% of the market. It's no wonder that Jim Rohack, an AMA trustee, concluded, "This problem is widespread across the country, and it needs to be looked at."

9. Dramatic Decline in Emergency Room Capacity
Last week, Mitch McConnell reassured NBC's David Gregory's regarding the 47 million uninsured by announcing, "Well, they don't go without health care." With that asinine statement, McConnell was only following in the footsteps of Tom Delay and George W. Bush, who in July 2007 declared:

"I mean, people have access to health care in America. After all, you just go to an emergency room."

As it turns out, the disturbing trends above are having a cascading effect on waiting times and treatment at American emergency rooms. While high-profile cases of the deaths of untreated ER patients in Los Angeles and New York put a face on the crisis, a 2006 report by the Institute of Medicine revealed that U.S. emergency rooms can barely cope with the volume of patients in the best of circumstances, let alone in the wake of crises such as a terrorist attack or flu epidemic:

The study cited three contributing problems to the rise in emergency room visits: the aging of the baby boomers, the growing number of uninsured and underinsured patients, and the lack of access to primary care physicians.

The report found that 114 million people, including 30 million children, visited emergency rooms in 2003, compared with 90 million visits a decade ago. In that same period, the number of U.S. hospitals decreased by 703, the number of emergency rooms decreased by 425, and the total number of hospital beds dropped by 198,000, mainly because of the trend toward cheaper outpatient care, according to the report.

10. Perpetuating Red State Health Care Failure
In May, the Washington Post rightly noted it would be blue state residents funding health care reform for their more conservative cousins in an article titled, "A Red State Booster Shot." (The same one-way flow of taxpayer dollars from Washington to red states, of course, is a permanent feature of federal spending in general.)

As I detailed in 2007, Americans' health is worst in precisely those states that voted for George W. Bush:

The Commonwealth Fund report, "Aiming Higher: Results from a State Scorecard on Health System Performance," examined states' performance across 32 indicators of health care access, quality, outcomes and hospital use. Topping the list were Hawaii, Iowa, New Hampshire, Vermont and Maine. Bringing up the rear were the Bush bastions of Kentucky, Louisiana, Nevada, Arkansas, Texas, with Mississippi and Oklahoma. The 10 worst performing states were all solidly Republican in 2004.

The extremes in health care performance are startling. For example, 30% of adults and 20% of children in Texas lacked health insurance, compared to 11% in Minnesota and 5% in Vermont, respectively. Premature death rates from preventable conditions were almost double (141.7 per 100,000 people) in Tennessee, Arkansas, Louisiana and Mississippi compared to the top performing states (74.1 per 100,000). Adults over 50 receiving preventative care topped 50% in Minnesota compared to only 33% in Idaho. Childhood immunizations reached 94% in Massachusetts, compared to just 75% in the bottom five states. As the report details, federal and state policies including insurance requirements and Medicaid incentives clearly impact health care outcomes.

For more on the performance of the American health care system, including international comparisons, see "U.S. Health Care by the Numbers." For a demolition of Republican talking points, see "Ten Myths About Health Care Reform" at ThinkProgress.

* It's worth noting, as the Kaiser Family Foundation did in its analysis, that "although legal and undocumented non-citizens accounted for 22% of the nonelderly uninsured in 2006, citizens still made up the bulk of the uninsured (78%). Further, the majority (76%-80%) of the growth in the number of uninsured from 2000 to 2006 occurred among citizens, not legal and undocumented non-citizens."

Internal RNC Memo: "Engage In Every Activity" To Slow Down Health Care Reform

Original Link:

By Sam Stein

A private memo distributed by the Republican National Committee calls for like-minded advocates to help defeat President Barack Obama's health care proposals by delaying its consideration.

The memo, which was obtained by the Huffington Post from a Democratic source, provides the clearest illustration to date of the political playbook being used to stop Democratic attempts at a health care overhaul. Much of the material mirrors the speeches and presentations made by conservatives both inside and out of elected office to date. Obama's plan for health care is deemed an "experiment" and a "risk" that could bankrupt the country and dangerously change the doctor-patient relationship.

In particular, the 12-page memo makes the case that it is a Republican priority to slow down the consideration of health care reform before it can become codified.

"The Republican National Committee will engage in every activity we can to slow down this mad rush while promoting sensible alternatives that address health care costs and preserve quality," the memo affirmatively declares.

In an effort to buttress its claims, the RNC highlights internal polling it conducted from June 15 to 17, in which 56 percent of respondents said they would be more likely to vote for a congressional candidate who was a "check and balance" on the president's agenda. Thirty-five percent said they preferred a candidate who would help Obama.

"Every Republican should stand up for health care reform that controls cost, preserves quality and provides the health care that Americans deserve," the memo reads. "This means standing up against President Obama's health care plan. The Obama administration is acting with extreme haste, hoping to push through their health care experiment as fast as they can. Make no mistake -- their timeline is based on what works for them politically, not on what will result in the best health care policy for Americans. The reckless speed with which they are attempting to jam through this experiment is a grave threat to America's health care, and America's health."

In an effort to slow down reform, the RNC advises its advocates to use a whole host of political tools, from organizing town halls, to writing letters to the editor, to booking surrogates on radio and television, to engaging in "Street Theater" protests outside Democratic events. And in a bit of irony, the memo's authors encourage readers to frame the president as the one acting out of political motivations.

"Despite the president's increasingly skeptical reviews, it should also be noted that the Obama administration is fantastic at the PR game," the memo reads. "In some cases, they are even a little too good at it, selling things that are demonstrably untrue."

Story continues below

"The president's PR team uses rhetoric to mask reality, and the White House spin machine is in overdrive trying to convince Americans as well as our nation's health care professionals that their plan is the cure for what ails us," it argues at another point. "Republicans will not allow the Democrats' rhetoric to define this debate."

As for a Republican alternative to the president's agenda, the RNC memo doesn't offer much in the way of details, save to make the argument that the status quo isn't as bad as it is being painted.

"The Republican Party knows we have the best health care system in the world," the memo declares. "The Republican Party also knows it is a system in need of reform because it is costing our families and our businesses too much."

In regard to specific talking points, the RNC Memo has nine of them:

* President Obama and Democrats are conducting a grand experiment with our economy, our country, and now our health care.

* President Obama's massive spending experiments have created more debt than at any other time in our nation's history.

* The President experimented with a $780 billion dollar budget-busting stimulus plan and unemployment is still rising. The President experimented with banks and auto companies, and now we're on the hook for tens of billions of dollars with no exit plan.

* Now the President is proposing more debt and more risk through a trillion dollar experiment with our health care.

* Democrats are proposing a government controlled health insurance system, which will control care, treatments, medicines and even what doctors a patient may see.

* This health care experiment will have consequences for generations, but President Obama and Democrats want to ram this legislation through Congress in two months.

* President Obama's health care experiment is too much, too fast, too soon. Our country cannot afford to fix health care through a rushed experiment.

* Americans want health care reform that addresses, not increases, cost or debt.

* Government takeover is the wrong way to go -- health care decisions should remain between the doctor and the patient.

Officials with the RNC did not immediately return a request for clarification or comment on the memo's subject matter. While documents like these commonly are passed around behind the scenes by like-minded partisans on both sides of the aisle they usually don't make their way into the public. At the very least, it provides an insight into how the Republican Party believes it can gain the upper hand, politically, in the current health care reform debate.

Saturday, July 25, 2009

Health Insurers Fight a Public Plan, but Rarely Each Other

Original Link:

By Catherine Arnst

Health insurers are on board with many congressional proposals for health-care reform. But they are vociferously opposed to the creation of a publicly financed insurer, arguing that they couldn't possibly compete against a low-cost public plan that has no need to earn profits. They may have a point. Many economists say insurers face very little competition now across large swaths of the U.S.

Various studies have found that health insurance is one of the most concentrated markets in the U.S., and that the lack of competition may be one factor behind sharply rising premiums. Each year, the American Medical Assn. surveys the competitive landscape for commercial health insurers; the latest report found that out of 314 metropolitan areas across the nation, 94% can be defined as highly concentrated, with two companies or even a single provider dominating the market. In 15 states, one insurer has half or more of the entire market, and in seven states, a single insurer has 75% or more.

This concentration has become a potent argument for supporters of a public plan, President Obama among them. Such a plan would theoretically lower administration costs. And with no need to generate profits for shareholders, it could offer lower premiums—thus applying precisely the kinds of pressures that are most needed. On July 21, in White House remarks urging action on his health-care initiative—something he now does on almost a daily basis—Obama again spoke of the need for a public plan. "Americans will be able to compare the price and quality of different plans, and pick the plan that they want. If you like your current plan, you will be able to keep it," he said. "And each bill provides for a public option that will keep insurance companies honest, ensuring the competition necessary to make coverage affordable."

Industry Ad Campaign Launched July 20

Insurers argue that such a plan would be a disaster for their industry. They point to an analysis by the Lewin Group, a subsidiary of UnitedHealthcare (UNH), that predicts that 103 million Americans would jump to the cheaper public option, out of the 160 million now insured commercially (the Congressional Budget Office estimates that only 9 million to 10 million would choose a public plan by 2019). Karen Ignagni, president of the industry lobbying group America's Health Insurance Plans, or AHIP, said in a letter to Congress that a public plan would "significantly increase costs for those who remain in private coverage."

Insurers believe they are already offering up plenty of other changes to their business practices to help further reform, and should be spared the burden of the public plan. AHIP has come out in favor of ending different premiums based on health status and eliminating coverage denials because of pre-existing conditions. It also supports the creation of a publicly run insurance exchange that would make it easy for consumers to compare policies from different companies, bringing price transparency to an industry that can be frustratingly opaque. "We think comprehensive reform is needed," says Alissa Fox, senior vice-president of Blue Cross Blue Shield.

AHIP even launched an ad campaign on July 20, but it is far different from the devastating "Harry and Louise" ads of the early 1990s that helped sink President Clinton's efforts at reform. This time around, the industry's ads are supportive of reform proposals, and they don't mention the public plan option. That could be because, as Charles Boorady, health-care analyst with Citi Investment Research (C), says: "The health insurers…have a difficult PR battle."

Not-so-Healthy Competition

Certainly there are plenty of statistics and studies that come out against the industry on the issue of competitiveness. Insurance companies complain about the AMA's methodology in its market-concentration studies, but the nonpartisan U.S. Government Accountability Office reached many of the same conclusions in a recent report. It found that, for small group coverage, the largest insurer in a state has on average 43% of the market, up from 33% in 2002. In nine states the largest carrier has more than 50% of the market. "There is obviously a need for more competition in this market," says Karen Davis, president of the nonprofit Commonwealth Fund, which does research on health-care issues.

The industry itself doesn't see it that way. Insurers argue that, with some 1,300 companies in the business, it can be cutthroat. "It doesn't feel like the market is not competitive to us," says Bradley Fluegel, chief strategy officer for WellPoint (WLP), the nation's largest insurer.

The benefits of healthy competition, however, are hard to spot. Between 2000 and 2007, annual increases in premiums averaged around 9%, while health-care spending increased only 6.7%. Over the past 10 years health insurance premiums have increased 120%, compared to cumulative inflation of 44% and cumulative wage growth of 29% over the same period, according to a Henry J. Kaiser Family Foundation survey.

Facing Dominant Hospitals

Part of the problem, says Commonwealth's Davis, is that the insurers cannot use their market power to bring medical costs down, because they are facing off against hospitals with just as much power. A 2006 study found that 88% of the nation's large metropolitan markets were dominated by one or two major hospitals. "You've got a dominant insurer up against a dominant provider of health care in a lot of markets," says Davis. "That just doesn't work out well for lowering costs."

Study Blames 18,000 Deaths in USA on Lack of Insurance

Original Link:

By Steve Sternberg

More than 18,000 adults in the USA die each year because they are uninsured and can't get proper health care, researchers report in a landmark study released Tuesday.

The 193-page report, ''Care Without Coverage: Too Little, Too Late,'' examines the plight of 30 million -- one in seven -- working-age Americans whose employers don't provide insurance and who don't qualify for government medical care.

About 10 million children lack insurance; elderly Americans are covered by Medicare.

It is the second in a planned series of six reports by the Institute of Medicine (IOM) examining the impact of the nation's fragmented health system. The IOM is a non-profit organization of experts that advises Congress on health issues.

Overall, the researchers say, 18,314 people die in the USA each year because they lack preventive services, a timely diagnosis or appropriate care.

The estimated death toll includes about 1,400 people with high blood pressure, 400 to 600 with breast cancer and 1,500 diagnosed with HIV.

''Our purpose is simply to deliver the facts, and the facts are unequivocal,'' says Reed Tuckson, an author of the report and vice president for consumer health at UnitedHealth Group in Minnetonka, Minn.

Among the study's findings is a comparison of the uninsured with the insured:

* Uninsured people with colon or breast cancer face a 50% higher risk of death.

* Uninsured trauma victims are less likely to be admitted to the hospital, receive the full range of needed services, and are 37% more likely to die of their injuries.

* About 25% of adult diabetics without insurance for a year or more went without a checkup for two years. That boosts their risk of death, blindness and amputations resulting from poor circulation.

Being uninsured also magnifies the risk of death and disability for chronically sick and mentally ill patients, poor people and minorities, who disproportionately lack access to medical care, the landmark study states.

''The report documents the immense consequence of having 40 million uninsured people out there,'' says Ray Werntz, a consumer health expert with the Employee Benefit Research Institute. ''We need to elevate the problem in the national conscience.''

Calculating the cost in human suffering, he says, ''is one way to get there.''

Healthcare CEOs Shoot Themselves in the Foot

Original Link:

By Kevin Drum

Yesterday the House Subcommittee on Oversight and Investigations decided to investigate the practice of recission. This is when you pay your premiums for years to a healthcare insurer, then get sick, and then have your insurance cancelled. The insurance industry executives at the hearing did not exactly cover themselves with glory:

A Texas nurse said she lost her coverage, after she was diagnosed with aggressive breast cancer, for failing to disclose a visit to a dermatologist for acne.

The sister of an Illinois man who died of lymphoma said his policy was rescinded for the failure to report a possible aneurysm and gallstones that his physician noted in his chart but did not discuss with him.

....Late in the hearing, [Bart] Stupak, the committee chairman, put the executives on the spot. Stupak asked each of them whether he would at least commit his company to immediately stop rescissions except where they could show "intentional fraud."

The answer from all three executives: "No."

Rep. John Dingell (D-Mich.) said that a public insurance plan should be a part of any overhaul because it would force private companies to treat consumers fairly or risk losing them. "This is precisely why we need a public option," Dingell said.

Even the Republicans on the committee couldn't defend the insurance company position. A few more hearings like this and getting a public option into healthcare reform is suddenly going to look like a real possibility. Nice going, guys.


Original Link:

By Steve Benen

In light of the current policy debate, it was awfully nice of insurance industry executives to help demonstrate why a public option is so necessary as part of the broader reform effort. (via Kevin Drum)

Executives of three of the nation's largest health insurers told federal lawmakers in Washington on Tuesday that they would continue canceling medical coverage for some sick policyholders, despite withering criticism from Republican and Democratic members of Congress who decried the practice as unfair and abusive. [...]

An investigation by the House Subcommittee on Oversight and Investigations showed that health insurers WellPoint Inc., UnitedHealth Group and Assurant Inc. canceled the coverage of more than 20,000 people, allowing the companies to avoid paying more than $300 million in medical claims over a five-year period.

It also found that policyholders with breast cancer, lymphoma and more than 1,000 other conditions were targeted for rescission and that employees were praised in performance reviews for terminating the policies of customers with expensive illnesses.

The insurance industry -- you know, the one conservative lawmakers and the AMA are so desperate to protect at all costs -- has this unpleasant habit called "rescission." Customers have insurance, and they pay their premiums, but once they get sick and require expensive medical treatment, the companies drop the coverage.

And in testifying before Congress, executives of these insurers not only confirmed the rescission practice, but said they had no plans to change the money-saving tactic.

One executive said rescission is about "stopping fraud and material misrepresentations that contribute to spiraling healthcare costs." So, for example, when a woman in Texas was diagnosed with aggressive breast cancer, her insurer dropped her coverage because the company found an instance in which she visited a dermatologist for acne, and didn't tell the insurance company about it. This, the insurer said, was an example of "fraud and material misrepresentation."

Late in the hearing, [Rep. Bart Stupak (D-Mich.)], the committee chairman, put the executives on the spot. Stupak asked each of them whether he would at least commit his company to immediately stop rescissions except where they could show "intentional fraud."

The answer from all three executives: "No."

Rep. John Dingell (D-Mich.) added, "This is precisely why we need a public option."

Lobbyists the silver lining in health care storm?

Original Link:


A strong force, perhaps as powerful in Congress as President Barack Obama, is keeping the drive for health care going even as lawmakers seem hopelessly at odds.


The drug industry, the American Medical Association, hospital groups and the insurance lobby are all saying Congress must make major changes this year. Television ads paid for by drug companies and insurers continued to emphasize the benefits of a health care overhaul — not the groups' objections to some of the proposals.

"My gut is telling me that something major can pass because all the people who could kill it are still at the table," said Ken Thorpe, chairman of health policy at Emory University in Atlanta. "Everybody has issues with bits and pieces of it, but all these groups want to get something done this year." As a senior official at the Health and Human Services department in the 1990s, Thorpe was deeply involved in the Clinton administration's failed effort.

President Barack Obama on Saturday continued his full-court press to pass health care reform legislation. In his weekly Internet and radio address, Obama cited a new White House study indicating that small businesses pay far more per employee for health insurance than big companies — a disparity he says is "unsustainable — it's unacceptable."

"And it's going to change when I sign health insurance reform into law," Obama said, adding that he has "a sense of urgency about moving this process forward."

This time, the health care industry groups see a strategic opportunity. As lawmakers squabble, the groups are focused on how to come out ahead in the end game.

"We're still optimistic that we can get health care reform accomplished," said Robert Zirkelbach, spokesman for America's Health Insurance Plans, the main insurance industry trade group. "There is strong support from policymakers and from across the health care sector. "

It's all got to do with shifts in the economy. Even before the recession hit, employer-sponsored health coverage had been steadily shrinking, and many people couldn't afford the premiums for individual policies. Meanwhile, government programs have been expanding — and they've gotten increasingly friendly to private insurance companies. Insurers now play major roles as middlemen in Medicare, Medicaid and the children's insurance program.

And if the government requires everybody to get coverage — just what the overhaul legislation calls for — it could guarantee a steady stream of customers subsidized by taxpayers not only for insurers, but for all medical providers.

What I'm concerned about is the damage that's being done right now to the health of our families, the success of our businesses, and the long-term fiscal stability of our government," Obama said in his address.

Obama criticized what he said were tactics by opponents to block health care overhaul "as a way to inflict political damage on my administration. I'll leave it to them to explain that to the American people."

"Today, after a lot of hard work in Congress, we are closer than ever before to finally passing reform that will reduce costs, expand coverage and provide more choices for our families and businesses," Obama said.

The industry groups have invested heavily to make sure their views get taken into account. The health care sector gave $167 million in campaign contributions to congressional candidates in the 2008 election cycle, according to the watchdog group Health care companies poured $484 million into lobbying efforts in 2008, and are on pace to exceed that this year.

Separately, the drug companies have offered up $80 billion over 10 years to reduce prescription costs of seniors if a deal goes through, while major hospital groups agreed to a $155-billion reduction in Medicare and Medicaid payments to free up funds that would help subsidize coverage for the uninsured.

The political infighting on Capitol Hill has strengthened the hand of the health care groups, since liberals have been thwarted so far in their attempts to win speedy passage of the legislation through the House and Senate.

One of the liberals' main objectives is to include a strong government-sponsored insurance plan in the legislation, to compete against private insurance. Stopping or weakening the government plan is a top priority for the insurance industry. Other health care interest groups are also leery because the public plan could put a dent in their budgets. The House version, modeled on Medicare, would pay doctors and hospitals less than private insurance.

All eyes are now on Senate Finance Committee Chairman Max Baucus, D-Mont., who has never been friendly to the idea of a government-sponsored insurance plan. Baucus is trying to broker a bipartisan deal with a handful of Republican colleagues.

It's not clear if Baucus will succeed, but his group is looking at creating nonprofit co-ops that would lack Medicare's power to dictate payment levels and tell providers to take it or leave it. Instead, the co-ops would have to negotiate payment rates with hospitals, doctors and drug makers — just like private insurance plans do.

"We are hopeful at the end of the day a bipartisan plan will emerge that benefits both patients and the U.S. economy," said Ken Johnson, senior vice president of the Pharmaceutical Research and Manufacturers of America, the drug industry lobby.

Obama has endorsed the notion of a strong public plan, the kind liberals want to see. But if Baucus gets a bipartisan deal, the president may have to swallow hard and embrace it — or accept defeat of his top domestic priority.

"There is a way out of it — a bipartisan compromise_ but so far the liberals have found that to be anathema," said Robert Laszewski, a health care industry consultant.

Laszewski is pessimistic about the prospects for overhaul legislation this year. But he thinks insurers in particular look like they're in a win-win situation.

"The health insurance industry is in a fantastic position," he said. Democratic liberals overreached and can't move a bill over the objections of their moderate and conservative colleagues.

"Democrats can't blame the industry if this goes down," Laszewski added. "So the health insurance industry is happy to let this thing take its course."

Reinventing Health Care -- The Role of States

Original Link:

By David Osborne

Health care is bankrupting America. Since 1960, costs have accelerated 10 percent a year -- doubling every 7.5 years.1 We spend 16 percent of our gross domestic product on health care, almost double the European average,2 yet the World Health Organization in 1997 ranked the United States 37th in the world for the overall quality of its health-care system.3 Large American firms are at a competitive disadvantage because they spend so much more on health care than their foreign competitors.

But the fiscal squeeze is particularly debilitating in the public sector. By 2005, state and local governments were spending 21 percent of their money on health, almost double the figure from 1972.4 States spent one-third of their money on health by 2005,5 and within a decade, if present trends continue, the health sector alone will devour one-half of state spending. Similarly, Medicaid and Medicare under current policy would consume one-half of all federal revenues within 15 years.6

Yet all this money does not always buy us high-quality health care. According to the Rand Corporation, patients receive the right care only about half of the time. Between 48,000 and 98,000 patients die annually because of medical errors in hospitals.

Meanwhile, 45.7 million people have no health insurance, and the Institute of Medicine reports that 18,000 of them die prematurely every year because they cannot get the non-emergency care available to those with insurance. Many more suffer poor health because they lack care.

Our health-care system is in slow-motion collapse. No one is happy with it: not doctors, not nurses, not hospital administrators, and surely not patients. Tinkering around the edges will not fix it, and simply expanding access to insurance is not enough. Unless we are prepared to pay significantly higher taxes, we have to control costs while we expand access and improve quality.

The federal government must be involved in the solutions, because it finances roughly 56 percent of all health care in America.7 But health-care markets differ from state to state: Urban states have different practice patterns than rural states, for example. Some states have significant numbers of large, integrated health plans, such as the Mayo Clinic, Kaiser Permanente, and Intermountain Healthcare; in others, such integrated plans barely exist. Hence, successful reform models will differ from state to state.

While the federal government should lead, it can use the states as its laboratories. Federal action should encourage the states to experiment and identify best practices, so we all learn which models are most effective in which types of markets. Washington should provide some up-front funding, and then set goals for the states, with regard to both cost control and healthcare outcomes. The federal government should reward states that exceed the goals with extra funding to offset their costs for covering the uninsured. For states that fail to meet the goals, the federal government should implement a backup plan that would allow consumers to pick high-quality, lower-cost health plans sponsored through federal reform.

Recent examples show just how successful this approach can be. State action with a federal backup plan is the same approach Congress used to improve health-insurance regulation under the 1997 Health Insurance Portability and Accountability Act. Allowing states to act as laboratories of innovation was also the methodology behind welfare reform; by the time the federal bill passed in 1996, thirty-six states had already achieved welfare reform, using federal waivers.

With federal support and incentives, states can cut the Gordian knot of our profligate, dysfunctional health-care system. To cut costs by 25 percent, improve quality, and cover every citizen, states should pursue seven big strategies:

Invest in public health and encourage healthy behavior;

Replace fee-for-service payment with managed competition among health plans that charge annual per-patient fees;

Encourage integrated, managed service-delivery systems that use information technology and best practices;

Encourage health plans to purchase "cycles of care" for medical conditions;

Create statewide electronic health-records systems;

Institute new policies to encourage rational end-of-life care; and

Develop a new system of health courts to contain medical-malpractice costs.
This paper will explore all seven of these strategies. First, though, it will briefly survey the present state of health care in America -- and the consequences of adhering to a failed status quo.

The Costs

Health care has turned into the Pac-Man of the public sector, eating up tax dollars that once went to education, transportation, even public safety.

Figure 1 shows the 35-year trend at the state and local level, where growth in health-care expenditures has accompanied declines in spending on other vital needs.

Because states pay for almost one-half of Medicaid, the problem is most acute at the state level. Figure 2 shows that if current trends continue, health care will devour half of all state spending within 10 years.8 Every time health care gobbles up another percentage point -- every 1.2 years -- we lose the equivalent of 150,000 teachers.9

The worst cost explosion is occurring at the federal level, because Washington pays for Medicare and more than one-half of Medicaid. In 1972, these two programs consumed 5.6 percent of the federal budget; by 2006, the figure was 20.9 percent.10 Figure 3 shows the most frightening data: According to projections made by the Congressional Budget Office, under current policy Medicaid and Medicare would consume one-half of all federal revenues within 15 years, while Social Security and interest on the debt would consume the other half.11

As these graphs demonstrate, solving the insurance problem without solving the cost problem is a mirage. Pennsylvania Governor Ed Rendell had it exactly right when he told The New York Times, "If we're ever going to have accessible health insurance for all Americans, we have to begin by containing costs. If costs continue to spiral out of control, there is no way the government can afford to pay for it."12

Fortunately, high-quality health care costs less, because it keeps people healthier, eliminates waste, and ensures that patients get the right care the first time.

The Diagnosis

To develop a workable solution, it helps to understand four basic problems our system faces.

First, the core purpose of our current system is to treat symptoms, not to sustain health. We spend most of our energy and money responding to illness, rather than preventing it.

Second, most medical institutions are designed to provide episodic care for acute illnesses, but the real burden has shifted to chronic problems that need continuing and coordinated care, such as diabetes, asthma, cancer, heart disease, and AIDS. "In fact," report health-care experts Alain Enthoven and Laura Tollen, "about 45 percent of noninstitutionalized Americans have chronic illnesses, and they account for 75 percent of personal health-care spending."13 More than 40 percent of them have more than one chronic condition.14 Unfortunately, our health-care institutions were not designed to provide coordinated care for chronic conditions.

Third, our system is so fragmented among myriad medical practices, hospitals, and insurance companies that it produces enormous waste. Complex administrative processes consume 25 percent to 30 percent of all health-care dollars.15 Because multiple specialists dealing with the same patient rarely coordinate their care, patients fall through the cracks. According to a 2004 report by the President's Information Technology Advisory Committee, one out of five lab tests must be repeated because previous records are not available, and one of seven hospital admissions occurs for the same reason.16

Fourth, our fee-for-service payment system creates perverse incentives. Providers make more money by performing more services. Indeed, if a hospital makes a mistake or omits something important and the patient has to be treated again, that hospital makes more money than it would have if the procedure had gone well.

Studies prove that fee-for-service payment leads to more care but worse outcomes. It actually creates disincentives to improve quality or make care more cost-effective, because practitioners who find ways to cut back on procedures make less money.

John Wennberg and Elliott Fisher at Dartmouth University have studied Medicare data for decades. Their research shows that in regions with more doctors, rates of hospitalization and procedures are far higher -- often twice the level of regions with fewer doctors. Yet this higher spending does not yield better outcomes or more satisfied patients -- it yields just the opposite.17 Other studies show the same pattern with Blue Cross Blue Shield insurance.18 Christine Cassell, president of the American Board of Internal Medicine, sums it up succinctly: "There is a stark correlation between reduced utilization and better outcomes."19

Wennberg believes that up to a third of the $2.4 trillion we spend on health care each year is wasted on unnecessary treatments, overpriced drugs, and end-of-life care that yields nothing. "The Medicare system could reduce spending by at least 30 percent while improving the medical care of the most severely ill Americans," he argues.20

The Cure: Seven Strategies for States

Reformers have put forth two general models to fix this ailing system. Some propose a single-payer, single-administrator system to cut administrative costs. They cite the fact that Medicare spends only 4 percent of its budget on administration, and their ideal model often looks like Medicare for all. Unfortunately, this model would leave fee-for-service payment in place -- insuring continued rapid cost inflation. Nor does it address the fragmentation that creates so much waste. On a practical level, it would require us to put the health-insurance industry out of business, a daunting political task.

Conservatives typically prefer to intensify the market dynamics in the system by making consumers more sensitive to the price of medical services. They propose to do so by maintaining insurance for catastrophic costs, but with high deductibles. Many conservatives also favor health-savings accounts (HSAs), which give individuals money they can use to purchase medical services. Experience suggests that this would change consumer behavior, in both good ways (more efficient use of health care) and bad (less use of needed drugs and therapies by the chronically ill, leading to hospitalization and higher costs).

This "consumer-directed" strategy fails to address the real cost drivers in the system, because it leaves fee-for-service medicine in place. It also fails to change the incentives guiding the vast majority of health-care purchases. By most estimates, 90 percent of health-care costs are incurred by only 30 percent of the population.21 These people will quickly exceed their deductibles, at which point 100 percent of their medical bills will be covered, and any incentive to shop for cheaper care will disappear.

The truth is, market dynamics in health care are unlike those in other industries, and simply pushing harder on those dynamics will not solve the problem. Third-party payment is inevitable if we want people to get health care when they become seriously or chronically ill, but third-party payment also destroys a consumer's incentive to shop for the best deal.

In addition, many consumers are incapable of shopping effectively. Health care is extraordinarily complex, and patients often find it difficult to make informed choices among treatments and doctors.

Finally, while technological advances drive costs down in most markets, they drive costs up in health care. When we buy a car or a computer, we use it for a time and then dispose of it to purchase another model, one that happens to be better and cheaper, because technology has advanced. But health care is different. Each of us gets only one body, and we naturally do everything we can to keep that body going.

In health care, when new technologies succeed, they keep people alive. When those people get old, their systems begin to fail. At that point, we use more technology, at great expense. This timeless but inconvenient fact explains much about the economics -- and the politics -- of modern health care.

We need a third way, an approach to health care that goes beyond the ideologies of left and right. It is built on the seven proposed initiatives introduced earlier, each of which will now be discussed in detail.

1. Invest in health.

One way of describing America's health-care problem is that we experience too much care and not enough health. Our most important goal, after all, is not health care, but health. And the biggest obstacle to good health for many Americans is not a lack of care, it is their own behavior.

According to the U.S. Centers for Disease Control and Prevention, four big factors influence our health: personal behavior; the environment (elements in our air, water, homes, communities, workplaces, and food); access to health care; and our genetic makeup.

Of these four, personal behavior accounts for 50 percent of the variance in our health. The environment (physical and social) and genetics account for about 20 percent each, and health care for only 10 percent.22

Nevertheless, we spend 88 percent of our health resources on treatment, but only 4 percent on changing personal behavior.23 (See Figure 4.)

If we want better health, we must invest in changing behavior and cleaning up the environment. We all know that smoking causes cancer, heart disease, and other health problems, and for 40 years, our governments have been working to reduce smoking rates, with substantial success. But obesity has become an even greater problem. According to the Centers for Disease Control, by 2006, one in four Americans was obese and 36.5 percent were overweight.25 Obesity leads to diabetes, heart disease, and many other health problems. Medical research proves that consistent exercise lowers the risk of obesity, diabetes, heart disease, cancer, osteoporosis, depression, and high blood pressure,26 yet fewer than one-half of American adults get the minimum exercise necessary to enjoy these rewards -- 30 minutes of aerobic activity most days of the week.27

State leaders should pick the top five behaviors that undermine health in their states -- such as poor diet, inadequate exercise, smoking, drinking, drug use, and poor parenting -- and lead massive public campaigns to change those behaviors.

For instance, a state might create a Healthy Lives Trust with the power to define the 25 food and beverage products that create the most harm and levy taxes on them based on the amount of health-care spending they generate. The trust could then be empowered to use that money to create financial incentives for people to exercise, stop smoking, and the like.

We could require health plans to include similar incentives -- such as discounts for people who regularly use an exercise facility, do not smoke, and have healthy weights -- and to charge extra for those who smoke, are overweight, or drink to excess. (United Healthcare, the nation's largest health insurer, recently unveiled just such a plan, based on successful experience with this approach by some employers.28) We could also give employers financial incentives to create effective "wellness programs" for their employees, with the same goals.

Schools, both public and private, can play a role. Twenty states fall below the national health objective of providing seven recommended vaccinations to 95 percent of kindergartners. In those states, and in any other states that fall below the national standard, public-health departments could organize universal vaccinations for schoolchildren.29 All states could provide annual dental checkups in school, because only one-half of children ages 2 to 17 get them.30 Finally, why not ask schools to require participation in physical education or sports every day, as we did a generation ago? If the school day must be lengthened to accomplish this, so be it. Creating healthy habits at a young age will pay dividends for a lifetime.

Another necessary element of a health-promotion agenda is "secondary prevention": Once a condition occurs, we must ensure that it is managed well, to minimize its effects. For instance, we should make sure that people with diabetes change their diets and receive proper care. Many diabetics find their illness difficult to control, and some develop expensive complications: Between 1988 and 1994, diabetes accounted for nearly 9 percent of adult hospitalizations, 12 percent of nursing-home admissions, and 10 percent of adult deaths.31

Programs such as Enhance Wellness, in Seattle; Active for Life, in Austin; and a Matter of Balance, in Boston; educate patients and their families and help them manage such chronic conditions. Canada, the United Kingdom, and Australia have adopted such strategies.32 States could do likewise, contracting with proven disease-management programs to implement statewide efforts. They could also create incentives to encourage health providers to focus on secondary prevention.

2. Replace fee-for-service reimbursement with managed competition among health plans that charge annual per-patient fees.

In a Rand Corp. study, group medical practices that charged a set prepaid fee cost 25 percent to 30 percent less than those operating on a fee-for-service basis.33 The fundamental reason was that the prepaid physicians had clear financial incentives to become more cost-effective, as Enthoven and Tollen explain:

"Prepayment rewards doctors for keeping patients healthy, for solving their problems in economical ways, and for avoiding errors. It encourages superior ambulatory care for patients with chronic conditions, thereby reducing their need for hospitalization. In contrast, the fee-for-service payment system gives doctors powerful financial incentives to do more (and more costly) procedures, which may not be in patients' best interests, financially or clinically."
Enthoven and Tollen go on to argue that prepaid delivery systems, such as health maintenance organizations (HMOs), have similar incentives and even more weapons to improve quality:

"... [A] system prepaid for total costs can examine the full spectrum of care to find opportunities for cost reduction, not just shifting costs to other parts of the system. For example, a prepaid delivery system can evaluate new technologies for their cost-effectiveness and impact on quality and can deploy them as needed. ...
"Prepaid (and partially prepaid) integrated delivery systems are far ahead of small groups and individual doctors in the use of quality-enhancing decision support tools, disease registries, guidelines, automated reminders, performance feedback, patient self-management, linkages to community resources, and electronic medical records."34
To capture some of these benefits, states should create purchasing pools involving all their programs -- Medicaid, the State Children's Health Insurance Program (SCHIP), state employees' and retirees' plans, and others -- and invite health plans to compete for this market on a prepaid basis, based on both price and quality. They should partner with any private and nonprofit employers willing to join the pool.

Wisconsin's insurance program for state employees offers a good example of how states can use prepayment to stimulate price competition between health plans. The program defines a basic benefit package, asks health plans to submit bids specifying the annual dollar amount they would charge for this package, and then ranks those bids.

The Wisconsin program uses price and quality measures to define three tiers. Plans in Tier 1, which are low in price and high in quality, cost the least for state employees. If they prefer a more expensive plan -- because their family physician is not part of a Tier 1 plan, for instance -- they are free to choose it and pay part of the difference. The vast majority of members choose Tier 1 plans, and this fact creates an incentive for health plans to lower their prices. (Members can switch plans once a year.)

Wisconsin put this three-tier approach into effect in 2003. In Dane County, which includes Madison, the state employee plan covers 25 percent to 30 percent of the private (non-Medicare and Medicaid) market. By 2006, costs in Dane County for individual and family plans had fallen 14 percent below the statewide average and 30 percent below the most expensive regions of the state.35

Cost increases would probably slow even more in Dane County if the competition were sharpened and people had to pay more for Tier 2 and Tier 3 plans. Pool participants should have to pay the full cost difference between the Tier 1 plan and any Tier 2 or Tier 3 plan they choose, in order to maximize the incentive to pick a Tier 1 plan.

The one danger of prepayment is that health plans and providers could make money by simply withholding care from members, such as by refusing to do certain procedures or making it difficult to schedule appointments. Plans that did this would quickly lose most of their subscribers, of course. To prevent such behavior in the first place, states could include points for quality in the formula used to rank health plans. They could also generate quality and customer-service rankings of the health plans that bid for state business each year, and make them available to the public. This would create a powerful market incentive for prepaid plans to deliver sound customer service.

If a state crafted such a purchasing pool for all its programs, each plan in the system would provide the same essential benefit package, although individuals and employers would be free to purchase additional coverage. The state and its private-sector partners would define the benefits package based on hard evidence about which services were most cost-effective.

To control drug costs, the package would include a preferred drug list. Generic drugs would require the lowest co-payments; non-generics on the preferred list would be slightly more expensive; and those not on the preferred list would be the most expensive. The state would use the size of its pool to negotiate steep discounts for drugs on the preferred list. By creating joint purchasing consortia with other states, it could increase its bargaining power even more.

The benefits package could have a deductible and require co-payments, to discourage wasteful use of medical care. Preventive care and chronic care should be covered without deductibles or co-payments, however, because such charges can discourage people from getting the treatment they need. (A recent study of three managed-care plans with co-payments of more than $10 for drugs showed a 20 percent reduction in the use of diabetes medications.36) This leads to more emergency-room visits, more hospitalizations, and more nursing-home care. As the New England Journal of Medicine explained in an editorial:

"Attempts to save money through the redesign of insurance plans -- involving caps on benefits and increases in out-of-pocket spending for prescription drugs -- result in the delivery of poor care to chronically ill patients. ... We should be reducing the barriers to treatment and encouraging patients to take appropriate medications for the recommended duration, rather than increasing these barriers by limiting benefits."37
Health savings accounts (HSA s) could also be useful elements of the benefit package, for those with jobs and sufficient incomes. By creating a $1,200 annual deductible and offering an $800 annual health-savings account, for example, a state could give residents an incentive to shop carefully for health services, as well as the ability to select from an expanded menu of choices, because they could use the HSA to buy services not covered by the benefits package. To make this mechanism more effective, states would need to help consumers understand the prices of different medical services, perhaps by requiring that providers post their prices on a state-sponsored web site.

To protect against "adverse selection," in which unlucky health plans attract older or sicker people who drive up their costs, each individual covered by the state purchasing pool would be "risk-adjusted" -- meaning that the price the state paid to health plans would reflect the individual's degree of risk upon entry. In addition, a state would be wise to offer reinsurance to health plans, to cover the cost of catastrophic cases. Without risk adjustment and reinsurance, health plans would submit higher bids, to limit their risks.

One of the most important contributions a true reform package could make would be to separate health insurance from employment. Under our current approach, employers who provide health insurance are at a severe disadvantage in the marketplace, a fact that is driving more and more of them to drop this benefit. Employees are reluctant to change jobs, for fear of losing their health insurance. People with pre-existing health conditions live in fear of losing their jobs, because they could never get insurance on their own. They can even face obstacles to getting new jobs, because their insurance is so costly.

The political hurdles to shifting from employer-based insurance to a tax-financed system would be daunting, however. Insurance companies would face a huge loss of market. Hospitals and doctors would see their power to charge higher prices severely limited by the competitive dynamics of the new marketplace. State leaders would have to convince businesses and individuals to pay higher taxes in order to fund the system.

An analysis by the Lewin Group of one such proposal in Wisconsin indicated that employers' health-care costs would decline more than their taxes would go up, in part because firms that did not provide insurance would now have to pay their share.38 Still, any proposal for a significant tax increase faces tough sledding.

The alternative is to build a pool that captures at least 30 percent of the market and use it to reshape the system, as Wisconsin has in Dane County. A state would begin with its own government employees and retirees, Medicaid, the State Children's Health Insurance Program (SCHIP), and other state health plans, and then add local government and education employees to the pool. In the typical state, these groups total more than 21 percent of the market.39

In addition, states should invite private and nonprofit employers to join the pool. If a state adopted a mandate that residents have health insurance and offered subsidies for low-income people, it could also add many of the uninsured to the pool -- another 16 percent of the population in the average state.

Once the system had demonstrated the power to restrain health-care inflation, more employers would join in order to save money. Because more participants would increase the system's power to control costs, the state could offer businesses guaranteed prices for several years, to induce them to join. If the model could slow annual price increases, more and more employers would be tempted to join the pool. Once half of the state was in the pool, the politics of moving to a tax-financed system that covered all residents would get easier.

3. Encourage integrated, managed service-delivery systems that use information technology and best practices.

The approach I described would reward integrated, managed health systems and provider groups, as it has in Dane County, because they are more efficient. Examples of such systems include HMOs like Kaiser Permanente and Minnesota's HealthPartners; medical groups like the Mayo Clinic, the Cleveland Clinic, and Geisinger Health System; and emerging networks like North Carolina's Community Care, which serves 745,000 Medicaid patients.

Some of these systems employ physicians as staff members, while others pay independent practitioners. Some, like Kaiser, are fully integrated, even owning their hospitals. Others, like Community Care, are virtual networks that knit together many private practitioners and hospitals to act as one coherent system.

According to Wennberg and Fisher, regions dominated by integrated, managed systems have costs up to one-third lower than other areas.40 One reason is that integrated plans have the financial resources to create Electronic Health Record (EHR) systems, which reduce both waste and error rates.

A second reason is that they have a built-in incentive to prevent disease, because prevention brings down their overall costs. A third is that they have both the resources and incentives to use best practices ("evidence-based standards of care," in industry lingo). Fourth and finally, they can use a more cost-effective mix of personnel: fewer doctors, more nurse practitioners, midwives, medical assistants, and nutritionists.

Several of these factors help such systems deliver higher quality, as well. Their integrated nature also helps: Patients fall through the cracks less often. In the fragmented world of most private practices, when a physician refers a patient to a specialist, there is often no coordination. For patients with complex conditions, this can lead to problems.

For instance, a specialist might prescribe a medication that interacts badly with medications the patient is already on, because the specialist is unaware of the patient's medications and the patient has forgotten to tell him or her. Integrated, managed systems typically require that every member have a medical "home" -- a physician who acts as his or her primary caregiver and is responsible for coordinating his or her care. States could require that every person in the state purchasing pool have such a medical home.

Some systems even provide "case management" for patients who consume a great deal of health care. (One percent of the population uses 27 percent of all health-care dollars, and 5 percent consumes more than one-half of all medical expenditures.41) These are typically people with chronic conditions that require a great deal of care, often by multiple doctors.

Sometimes the doctors do not coordinate, as noted. Sometimes patients do not comply with their physicians' instructions -- because they are elderly, or do not speak English, or are alcoholics, or have mental problems. They do not take the medications prescribed; they do not return for follow-up visits; they do not follow the doctor's behavioral recommendations.

Community Care in North Carolina has begun to use case managers to work with these patients and their physicians to ensure better compliance, better coordination among multiple physicians, and thus better health.42 Similarly, the Monroe Plan, a managed-care organization in Rochester, N.Y. , has reduced admissions of babies to neonatal intensive-care units by helping pregnant women on Medicaid get prenatal care and avoid risky behaviors. Every dollar invested in the program has saved $2.43

States could push the adoption of all these practices faster with incentives, such as extra points in the ranking system for degrees of integration and management. They could even reward integrated systems that demonstrate efficiency and high quality with "charter health plan" status. As with charter schools, charter health plans could be given greater flexibility under state (and federal, if possible) regulations, in return for greater accountability for outcomes.

Some may say this model is simply "managed care," which has been tried and rejected. Indeed, managed care by integrated health-maintenance organizations was on the rise throughout the 1970s and 1980s, and it did help slow health care inflation in the 1990s. But it was derailed by a backlash from consumers and doctors in the late 1990s.

The use of managed care was flawed in three ways. First, most employers did not give consumers a choice of plans -- they chose one plan and offered it to all employees, who were unhappy if their doctor was not in the chosen plan.44 Second, few employers encouraged maximum price competition, because they chose one plan and paid virtually the entire premium for employees. Third, managed care did not penetrate enough of the market in most regions to drive prices down significantly.45

A few large employers got the incentives right, however. They asked various plans to bid, then paid a fixed price for plans and let their members choose any plan -- but required them to pay extra for more expensive ones. This created a powerful incentive for plans to lower costs. According to Enthoven and Tollen, "When employers pay a fixed-dollar amount and each employee can keep the full savings, experience shows that high percentages of employees choose economical care. For example, 70 percent to 80 percent of active employees and dependents covered by the University of California, CalPERS, and Wells Fargo in California choose HMOs."46

Wisconsin's experience in Dane County indicates that both patients and doctors can be satisfied in such a system, as long as they have choices. It also demonstrates that a government can restrain costs by including just 30 percent of the market in its managed competition arrangement. This is true because most health plans compete for state employees, and when they make changes to become more efficient and effective to capture that market, those changes affect the rest of their business.

4. Encourage health plans to purchase "cycles of care" for medical conditions.

While health plans would compete to reduce prices in the system we have described, many would still be stuck paying fees for services to physicians and hospitals. States should work to move them to payment for packages of care for specific medical conditions, such as nine months of obstetrical care and delivery, a knee replacement, or a year of treatment for diabetes.

In Redefining Health Care, Michael Porter and Elizabeth Olmsted Teisberg argue that we will get better, cheaper care if medical providers have to compete based on the price and quality of full "cycles of care" for medical conditions. If medical groups had to compete based on price and the results they produced over a full cycle of care (which could be multiple years), they would face very different incentives.

In short, they would be rewarded not just for performing procedures, but for driving down their costs by eliminating errors, managing chronic patients more effectively, providing care in doctor's offices rather than hospitals, helping their patients make healthy lifestyle choices, and the like. As Porter and Teisberg point out, care that produces better outcomes is often cheaper, because preserving health is cheaper than managing disease.

To make this possible, we will need to measure and report risk-adjusted medical outcomes for each condition and provider -- a big job, one that is perhaps best suited to the federal government.

As the data become available, states should not require health plans to purchase cycles of care, but they should certainly encourage it. Staff-model HMOs may not need to do this, because they own their hospitals, have physicians on salary, and do not use fee-for-service reimbursement.

As long as health plans have to compete on price and quality, those that provide the best outcomes for the money will win the competition. In the process, however, states should create incentives to encourage plans to abandon fee-for-service payment.

For instance, states could take off points in the rating system for plans that stick with fee-for-service reimbursement of physicians and hospitals. To enable conversion to payment for cycles of care, states could create electronic exchanges -- websites on which physicians and hospitals would list their prices and outcomes for each cycle of care, enabling health plans (and individuals) to purchase the most cost-effective options.

States might even encourage plans to offer a voucher option: If a woman became pregnant, for example, she might be given a voucher for $5,800, which she could use to purchase nine months of care and delivery. If she could find the same care for $5,300, she could pocket the savings; if her preferred doctor charged $6,500, she would have to pay the extra amount. In this way, health plans could give providers an incentive to offer lower prices.

5. Create statewide electronic health record systems.

As noted, one of every five medical tests must be repeated, and one in seven hospitalizations is ordered because records are missing or information is unavailable. The price tag for all of this needless repetition is enormous: The redundant hospital admissions alone cost $30 billion a year.47

Many integrated-delivery systems now have EHR systems, but the majority of American physicians and hospitals do not yet use them, and most private systems cannot interact with one another. Perhaps the best system has come from a surprising quarter: the Veterans Health Administration (VHA). Between 1995 and 2005, while the rest of the country suffered through a doubling of health-care costs, the VHA's cost per patient remained level. With 10,000 fewer staff members, the VHA more than doubled the number of patients it served.48

The VHA's EHR system is the most advanced in the world. Leaders from Britain, Germany, and other countries seeking to create EHR systems visit to learn about it, and the government of Mexico is installing it in its largest health-care provider system. In 2006, the VHA system won a prestigious Innovation in American Government Award.

How does it work? Every VHA physician is linked by computer to the system. He or she has access to every patient's entire medical record, including all X-rays, CT-scans, and test results. The doctor enters all notes and prescribes all medications electronically.

The VHA has mined the data the system has accumulated -- and other sources of medical knowledge -- to develop best-practice guidelines, which the system provides to physicians through timely reminders. For instance, it might remind a doctor that a patient with diabetes is due for a retinal exam, or that an older patient should be immunized against pneumonia. If a doctor is prescribing a medication that will interact with another drug the patient takes -- or to which the patient is allergic -- the computer will flag it.

The system costs the VHA $78 per patient per year: less than the cost of repeating a single lab test. It has saved billions of dollars while dramatically improving quality. Errors on prescriptions -- which are bar-coded, not handwritten -- fell from the national average of 5 percent to a fraction of 1 percent. Study after study has concluded that the VHA's quality of care is superior to private-sector care. Not surprisingly, customer satisfaction has soared: On surveys using the American Customer Satisfaction Index, the VHA outscores private health-care providers.

EHR is not the only reform responsible for these improvements, but it has had a huge impact. And believe it or not, the VHA's software is available to anyone who wants it, free of charge.

The federal government is already offering states outcome data on providers from its Medicare database, if they will create electronic information exchanges. Governors should use their bully pulpits to convene the leaders of every major health care provider, insurance company, and employer into a consortium devoted to creating a statewide system as good as the VHA's within five years. (Some states might simply choose to adopt the VHA software.)

Financing could be shared among the state and those who would benefit the most: insurance companies and integrated-delivery systems. To encourage widespread adoption, a governor could announce that at the end of five years, his or her state would cease reimbursing any provider not using the system.

The potential for improvement is enormous. In addition to the kind of savings and quality improvements experienced by the VHA, EHR systems could give individuals access to their own records, test results, and the like on a web portal. (To protect their privacy, individuals could determine who was allowed access to their records.) To extend the system's reach, a patient's entire medical record could be put on a smart card that could be read by any computer.

Some day we may even be able to pay for our health services instantaneously, with a swipe of our smart cards. States could also use the EHR system to gather data on quality and outcomes and make this information available to patients on the web portal.

6. Institute new policies to encourage rational end-of-life care.

No one knows exactly how many of our health-care dollars go to elderly people in their last year of life, but 25 percent is a good guess. This is one reason American health care is so expensive: We succeed in keeping many people alive into their eighties, and then spend an enormous amount in their last few months, as their systems collapse. In many cases, this serves no rational purpose and pleases no one. But doctors and nurses are taught to do everything they can to help patients, and in the absence of specific policies that tell them otherwise, that is what they do.

Should a state pay for a knee replacement for an 82-year-old who is expected to die of lung cancer within a year? Should it pay for heart bypasses for 89-year-olds? Governors should engage the public in a wide and deep consultation process to begin to answer such questions. In addition, they should require that all members of the state purchasing pool have living wills, and define a default living will for anyone in the state pool who has not created one.

Including nursing homes and other forms of long-term care in the state purchasing pool is also critical. Medicaid spends 68 percent of its money on long-term care for the aged, blind, and disabled, who make up only 27 percent of its enrollees.49 It pays for nearly half of all long-term care.50

Most long-term care is provided on a fee-for-service basis, with little coordination. Managed care for fixed prices -- in which members can choose their plans and switch annually if they are not happy -- provides incentives for health plans to find the most cost-effective setting for each person, whether in his or her residence, a nursing home, a rehabilitation hospital, a chronic long-term care hospital, or a day program.

Oregon, Arizona, Florida, Texas, and Wisconsin have already proven that such programs improve quality and cost-effectiveness.51 Oregon's case-management approach has reduced claims by roughly 50 percent.52 "Cash and Counseling" programs in several states, which give patients some Medicaid money each month to purchase their own goods and services, also show promise by helping people make choices that keep them out of nursing homes and hospitals.53

The next step would be to integrate managed care for those who are eligible for both Medicaid and Medicare -- among the most challenging populations, because they are both poor and elderly. Medicare and Medicaid policies do not always mesh well, and when both programs are paying for services, overall costs tend to be higher.54

Minnesota's Senior Health Options Program, which integrates Medicare and Medicaid in one managed-care program, has significantly reduced the number of preventable hospital and emergency-room admissions.55 Massachusetts also has a small integrated program, called Senior Care Options. The Commonwealth Care Alliance, which manages care for 2,000 people under this program, has reduced costs significantly in two years while registering impressive customer satisfaction and very low levels of disenrollment.56

After integrating care for the "dual eligibles," a state could ask Medicare for a waiver to integrate all Medicare recipients into its managed-care purchasing pool.

7. Develop a system of health courts to contain medical malpractice costs.

Finally, we need to rethink the way we handle medical malpractice. Our current approach drives physicians to practice "defensive medicine," performing more tests and procedures than necessary so they can prove they covered all the bases if they are sued. Meanwhile, more than 99 percent of those who suffer medical negligence are never compensated,57 and physicians get no clear signals about standards of care.58

This is a dysfunctional system. David Kendall at the Progressive Policy Institute has come up with a bold solution: Create a system of health courts, similar to the system that handles workers' compensation claims, to make it easier and cheaper for patients to seek reimbursement. Kendall explains:

"A health court system would be similar to the workers' compensation system in two ways. First, there would be a schedule of benefits to compensate patients for medical injuries. Second, a health court system would be designed to provide quick, consistently fair damage awards. ... An injured patient would submit a simple claim form, available through her health care provider, to a local health court review board. These boards would investigate claims and determine if they are clear, uncontestable cases of malpractice. In such cases, they would simply order the injured patient's health care provider to pay damages according to a schedule of benefits.

"After a health court review board has ruled whether or not a case is cut-and-dry, appeals of that decision, along with cases that are not clear-cut, would go to trial before a health court judge. ... Lawyers would represent both parties. But unlike malpractice cases in civil trials, health courts would render decisions that would help shape clear legal standards for medical practice. In addition, the health court judges, not the plaintiffs or defendants, would hire expert witnesses to settle questions about medical standards. When health court judges find incidents of malpractice, they would determine awards using the same schedule of benefits applied by the review board."59
Kendall believes that health courts would be less expensive than today's system because more than 50 percent of court awards go to legal costs and lawyers' fees. Medical malpractice premiums should fall, he reasons, as compensation becomes more predictable and the new system clarifies standards of practice.


Almost every idea in this paper is already working somewhere in the country, with the exception of end-of-life policies and health courts. All are achievable, with the proper application of political will. If, by employing the measures spelled out in this paper, a state could hold annual health-care cost inflation to 3.5 percent, while the rest of the country continued to experience the customary 10 percent inflation, it would cut health costs by 26 percent in just five years. At that point, universal coverage would be more affordable.

But the most powerful argument for this approach is the cost of not taking it. Within 10 years, if we do nothing, health care will consume one-half of state revenues and almost one-half of federal revenues.

Where would we find the money to meet such runaway costs? If the future is like the past, we will throw people off Medicaid, narrow the list of treatments covered, and increase deductibles and co-payments for state employees. We will lay off teachers and eliminate extracurricular programs in our schools. We will cut aid to local governments, who will in turn lay off police. We will defer maintenance on our infrastructure, even as our bridges collapse and more people clog the roads and rails. And we will raise taxes.

Meanwhile, 50 million Americans will be without health insurance.

This is a future none of us wants. The time to act is now.