The Amazing Maze of US Health Care

Last week there was a rash of articles critical of AARP and accusing it of taking nearly $650 million in revenues from its endorsements of insurance products, $450 million of it from health insurance products.

The media took its lead from the Republicans, but criticism of AARP is not limited to Republicans and their media outlets.  Even respectable writers on the left, like James Ridgeway, find a conflict of interest with AARP’s collection of royalty fees and AARP’s advocacy position.

My interest in this is two-fold.  First, there is a certain hypocrisy in the Republican attack.  Second, the issue of fees to AARP can shed some light on the hidden costs of our fragmented patient delivery system.

In the interest of full disclosure and like Mr. Ridgeway, I too carry an AARP membership card.  I am not, however, enrolled in any of AARP’s insurance products.  That was not an easy decision after AARP’s disappointing advocacy of George W. Bush’s Medicare Part D prescription drug plan.

AARP’s conflict of interest?

Why are Republicans upset with this so called “conflict of interest”?  This summer, right wing nut cases furiously attempted to disrupt discussion of health care reform with obvious distortions about death panels, Medicare cuts and cries from distressed seniors urging politicians to keep their government hands off their Medicare.

What did AARP do?  They attempted to set the record straight.

So where is the conflict of interest?  Could it be because AARP is unwilling to back HR 676, the Medicare for All legislation?   That they cannot conclude that what is good for seniors could be good for all Americans?  Does anyone really think that would attract the ire of Republican politicians?

No, AARP supports the current House legislation HR 3962.

What about the NFIB?

But the NFIB, the National Federation of Independent Business does not support the current form of health insurance reform.

The NFIB also markets health insurance products to its members.  Who is asking the NFIB how much money they receive from their vendors?

There is no group in the economy that stands to benefit more from meaningful health reform than small business.  Most of the uninsured work for small businesses.  Small businesses pay 18% more than their larger competitors.  Yet the NFIB health reform proposals are lifted directly from the Republican policy book.  They oppose HR 3962.

Out of touch

Evidence that the NFIB has lost touch with its constituents can be seen in the emergence of the Mainstreet Alliance and the Small Business Majority,  groups that have emerged specifically to urge for health care reform on behalf of small businesses.  Could this disconnect between NFIB policy positions and the interests of its members have anything to do with the money it receives from health insurance companies?

They need the money

But there is another aspect of this issue that is illuminating.  It cost money to offer a health insurance plan.  There are marketing and communication costs, enrollment and disenrollment costs, information system costs, customer service costs.  The only opportunity to pay for those costs is from the premiums paid by plan participants.

Plan participants aren’t going to write two checks each month, so they write one and the health insurance company sends some of it back to the plan sponsor to cover its costs.  I don’t know a single group purchasing arrangement that doesn’t work this way.  It could be AARP, the NFIB, a local chamber of commerce or business or union coalition.  Each of these organizations offers a portal through which people gain access to health care.  Monitoring that portal costs money.

Employer sponsors of health insurance plan pay those costs now.  They likely are not counted as part of our national health expenditures.

It’s the sytem

A system that permits multiple and sometimes simultaneous portals into health care is an inefficient system.  Recently I spent time with one of our members whose eligibility to stay on our plan as a widow had ended.  But she could not enroll in AARP’s plan because United Health Care’s computers indicated that she still had coverage with our plan.  It took almost an hour and half on the phone with the member, AARP, and United Health Care.

I tell this story not to point the finger at one actor but at a system that is inefficient by design.  It is that inefficient design that that opens opportunity for profit and for distorting one’s political policy inclinations.

By NICHOLAS D. KRISTOF

November 4, 2009

The moment of truth for health care is at hand, and the distortion that perhaps gets the most traction is this:

We have the greatest health care system in the world. Sure, it has flaws, but it saves lives in ways that other countries can only dream of. Abroad, people sit on waiting lists for months, so why should we squander billions of dollars to mess with a system that is the envy of the world? As Senator Richard Shelby of Alabama puts it, President Obama’s plans amount to “the first step in destroying the best health care system the world has ever known.”

Op-Ed Columnist – Unhealthy America – NYTimes.com

There is nothing simple about our health care maze.  Fixing it is not easy.

I prefer to look for the simple.  The complexity will evolve naturally.

Congress prefers to start with the complex and make it more so.

Spreading the medical risk

There  are two major challenges to fixing the customer side of the health care mess – spreading the medical risk and spreading the financial costs.

Spreading medical risk requires that everyone be in the system.  That spreads medical risk evenly between the sick and the healthy.  That can be accomplished by a system of automatic eligibility or a system of required enrollment.

Automatic eligibility describes a single payer system.  All citizens are enrolled by virtue of their citizenship.  To draw from known models, automatic enrollment describes Part A Medicare, Department of Defense medicine, and to a lesser extent, the Veterans Administration.

Funding for those programs is separate from enrollment and may or may not rely on direct participant financing.

A system of mandatory enrollment implies a system of mandatory participant financing.  That is where we bump into the second challenge.

Spreading the financial costs

How do we transfer money from those who have it to those who need it?

This is not a new problem.  Since the creation of Medicare and Medicaid, the federal and state governments have developed a complex and confusing mix of approaches to fund directly or indirectly the recognized social good of delivering health care to those who cannot afford it.  It includes:

• General federal tax revenues
• Specific designated taxes (FICA)
• Tax incentives for employer sponsored health insurance
• Mandates on employer sponsored health insurance
• Federal support of state efforts
• State tax revenues

What’s proposed?

How does the house bill propose to shuffle money from where it is to where it’s needed?

• A 5.4% surtax on Adjusted Gross Incomes (AGI) above $500,000
• A Tax on medical device companies
• An 8% payroll tax on businesses who do not provide health insurance
• Penalty payments on uninsured individuals
• Smaller tax exemption on Flexible Spending accounts

But these don’t quite get the money to where it is needed.  It only makes it available.  Individuals have to apply and have to qualify for what the law call “affordability credits.”

In addition, there are a host of exemptions that will still leave an unacceptable number of uninsured.

In a nutshell, we take money from different pots of private money, we combine it with other pots of public money, assign it to a larger pot of public money that can be remixed with private money and used to buy public or private health care insurance.

A simpler approach

Let me suggest a simpler approach – the germ of which is in the current proposal.

Tax all compensation at 8% – absolutely no exceptions.  The tax should be on all forms of employee and owner compensation, whether it’s wages, bonuses, or compensation to independent contractors.  No exceptions – none. The tax would be directly offset by the employer expense of providing health insurance that meets some minimum standard.  Low wage industries that provide health insurance that exceeds 8% would receive a straight credit for the amount above 8%.

Adjustments would need to be made for small businesses, not just in the level of the tax but also in defining what exactly gets taxed.

A straightforward subsidy

It should be immediately apparent that high wage industries will subsidize low wage industries.  There is no secret to that. It is just more obvious, less convoluted and simpler and less expensive to administer.

This is not un-American

There is a precedent for this way of thinking.  There are companies now that charge their employees a percentage of income.  Some even charge a higher percentage for higher earners.

An even better example is the multi-employer plans.  Almost all multi-employer plans base employer contributions into the benefit trust fund on either compensation or hours worked.

Two employees, one who works 1200 hours and another who works 2400 hours, will both have the same level of benefits. But the money from the first person’s employer will be half of that from the second person’s employer.  There is no complicated bureaucracy to transfer money from the second employee to the first.  It does not matter whether either employee has a family or not.  This design has existed for decades and the participants in those plans like it because they know that there will be years in which they may be the one working 1200 hours.

In order to simplify the process we need to make a change in our fundamental approach to health care financing.  Payments into the system should be based on ability to pay – not on the cost of health care insurance to each individual.

And for those who think this is an atheist plot, I refer them to Acts 4: 34-35.

For the rest, I suggest it simply makes practical sense.

How often have you heard the phrase, “The United States has the best health care system in the world.”?

What is wrong with that statement is the word “system”.

We could rephrase it – The United States can deliver some of the best health care services in the world (to those who can pay for it).

We could even argue  – The United States has some of the best health care systems in the world: the Mayo Clinic, the Veteran’s Administration, the Department of Defense.

But to assert that we have a system or that Americans (all Americans) receive the best care in the world is a stretch.  Why?

Over the last two weeks I wrote about our fragmented health care system and the closely related fragmented payment system.

I wrote about how patients are equally fragmented, migrating during their lives through several health plans, what I call patient delivery systems.

Why does this matter?

In most measures of health system performance the United States ranks embarrassingly near the bottom or at the bottom among industrialized countries.  From 2000 to 2009 male life expectancy fell six slots to 24^th in the world and female life expectancy fell from 28^th to 35^th.  Some would counter that life style, diet, or poverty had more influence on those drops than health care.

Isn’t that fragmented thinking?  If we had a health care “system” then it would take comprehensive approach to population health.

What are the incentives for doctors and hospitals?  Just as sunflowers follow the sun, health care providers, like the rest of us, follow the money.  And the money is paid for doing stuff, surgeries and tests, for example.  It is not paid for talking with or listening to patients, giving them lifestyle or treatment compliance assistance.

What are the incentives for patients?

Patients often lack the freedom to choose just any doctor.  Their incentive is to change doctors to conform with their current health plan rules. Read the rest of this entry »

Art by donna K mcgee

How many health plans have you belonged to?

If you are old enough to read this, you are the exception if you can count them.

Because you weren’t paying attention before adulthood, we will ignore the number of times you changed health plans as a child.

Maybe you are one of those very few employees who has stayed in the same job your entire working career.  Even then, your employer has most likely changed health plans several times during your career.

And then you will retire.

How many health plans may you encounter during your life time? Read the rest of this entry »