A Most Sincere and Irreverent Letter to John McCain

Dear John McCain,

It seems that you have only listened to half of what the health care experts have told you and then were shamed into cobbling some rhetoric to cover the glaring gaps. Let me help you.

Let’s first go over what is good about your plan. I like most of your tax reform. Tax credits are better than tax deductions. They are fairer and more progressive. However, you still may want to give a small incentive for employers to stay in the game. I would hate to lose their support, and with your plan they might just all get up and leave. If they do it seems that the small government plan you are envisioning may have to grow to fill the gap. But you have the general right idea with tax credits and $2,500 per individual and $5,000 per family is getting close to the price of insurance, but still falls short. Does everyone get this credit? Is it related to income? Does it rise with inflation, or even better yet rise with health care inflation? Just wondering. Those damn details.

Cost reduction. That’s big with you and you are right to emphasize it. We spend too much on health care – over $6,000 per person. Almost double what the next most generous country spent. And some of your ideas are fine. They are the same as your Democratic rivals (good copying skills), and will only nibble at the corners, but important nonetheless. We should invest in electronic health records, have improved coordinated care, generic drugs, re-importation of drugs (very maverick of you), smoking cessation, state flexibility to encourage creativity, increased focus on chronic conditions, tort reform, and Medicaid and Medicare reform. All good suggestions. Your two sentences on each of them really demonstrates your breadth of understanding. And again your competition beat you to the punch on almost all of these. I like the bipartisan spirit, but I was hoping that since cost reduction was your big thing you might have a new trick up your sleeve. I guess your big price reducer is increased competition. So let’s talk about that.

Your plan will cripple the employer-based health care system. Not a bad thing, but since health care accounts for 16% of our GDP and you are recommending pulling the foundation out from under it (I admit a shaky foundation) you might want to say a little more than you want to put health care decisions back in the hands of the patient. So under your plan the patient would select their health plan, right? And you are assuming that the patient has the information to sort through all of the health plans to choose what is best. Surveys on this topic show that the typical person shopping for insurance bases their decision on things that do not reflect quality. How do you plan to educate America on this? Remember for a market system to work you need an informed consumer. The quality reporting systems in America are improving, but any plan that puts the insurance decisions with the consumer better focus more on quality measurement and reporting than you do. I would suggest you expand on that a bit.

Lastly, Elizabeth Edwards. You two have been so cute fighting in your sandbox, but I would listen to her. I think you have. You realized that she is right saying your plan would leave out the sick. Maybe a person with a history of melanoma? We know that insurers compete by avoiding high-risk people. Risk avoidance is where the profits are – not quality delivery systems. That pre-existing condition thing. That age discrimination thing. Shoot foiled again, and you know it. In the last minute you threw in the line, “We will work with the States,” to make sure these people are covered. What does that mean. High risk pools, perhaps? Well, that is really expensive. Under your plan the really high cost people (up to 30% of the national health care bill) would be denied coverage by insurers (remember since they are not under an employers plan they could be denied) and potentially fall into these groups which would be subsidized heavily with tax dollars. Oops, that sounds like a big government plan. So I would suggest you rethink how you are going to pool people together. Did you know that the premise behind insurance is pooling? You have to find a way for the high-risk people to be pooled with the low risk people based on something besides health. That is what employer-based health insurance was all about.

And lastly, many States have their ways of dealing with these issues. For example New York uses community rating. Under your plan with cross-state purchasing these New York plans would all collapse because nobody who is healthy would join. So much for State flexibility.

I would suggest that you go back to the table and provide a bit more detail. Again, I like the tax credits and I am okay with leaving the employer-based model, but you have to have thought through what’s next. I look forward to your third draft.

Sincerely,

Lucas Pauls

Growing Old is Not for Everybody

It was about the third story in the newcast one evening this past week, a few pages into most newspapers, and this Sunday it was below the line in the “Week in Review” in the New York Times.  The story read that the assumption that each American generation would outlive the preceeding may not be true for all Americans. Since 1933 the average American lived to 61 years. In 2005 the average age had climbed to 78 years. A remarkable gain (only 42nd in the world though), but this seemingly ever increasing trend may have stopped and even reversed for some. Yes, rising obesity rates, smoking, sedentary lifestyles, and pollution have slowed life spans, but it was thought that cardiac advances, medical miracles, better food supplies, and the ever advancing human condition outweighed our bad habits.  But what the report out of Harvard, and published in PLoS Medicine, shows is that there is an increasing lifespan disparity between the poor and the rich despite our bad habits. The ”least deprived” don’t see this dying young trend, but the “most deprived” do. This gap has always been present. Wealth is a known indicator – along with education – for improved health, but the gap between the two groups has been growing.  Since 1983 the gap has grown by 3.3 years in women and 5.4 years in men.  In large swaths of the country the life span is shrinking. The concentration of this trend is located in the deep south, Appalachia, and around the southern Mississippi River. The map says it all and it is disturbing. As the New York Times points out – these findings give creedence to John Edwards stump speech, “Two Americas.” The second America can now expect to live shorter lives than their parents.

 

Two side notes:

The Congressional Budget Office (CBO) backed up much of this research. The CBO pointed out that the social security benefit is becoming less and less progressive as the rich live longer and reap more benefits, while the poor die younger seeing less benefits.    

Countries with large wealth discrepancy (large gap between the richest and the poorest), regardless of overall wealth, do worse on almost all measures of health than those countries that have smaller wealth discrepancies. Further, the richest in America are sicker than the richest in more equitable societies. What does this say about or values, priorities, and way of life?  I’ll leave that for discussions, but it gives one pause to think that maybe our “survival of the fittest” mentality has its downside.

The Second Step – Tax Reform

Part of the “My Prescription” series

Yes, I’m bored already as well, and I apologize in advance. I especially feel bad as I just read “What White People Like,” and it is much more entertaining than tax reform (and it described me well. I have several New Balance sneakers). But in order for “My Prescription” series to move forward I must talk tax reform. Here goes.

Let’s first lay out the current situation. If you receive insurance through your employer both you and your employer will not pay any taxes on the money put toward the insurance (totaling $208.6 billion). Cool!

But if you buy insurance on your own you pay for that insurance with post-taxed money. Not so cool and I would add that it seems unfair, doesn’t it?

Let’s do the numbers:

The average subsidy totals $2,778 per employer sponsored employee.

In firms where half of the employees earn less than 10.43/hour (low income) the subsidy is $2,268 per employee.

In firms where more than half make more than $23.07/hour (high income) the subsidy is $3,283 per employee, that’s 45% higher.

A different analysis in 2004 puts the subsidy for families earning over $100,000 received a tax subsidy of $2,780 where families earning between $40,000 and $50,000 received a subsidy of $1,448. And for those earning less than $10,000 the subsidy totals $102.

So the more you make the greater the handout for health insurance. And we wonder why the poor have a hard time getting insurance. Not only do they have to buy the same insurance with less income, but they get less help (if any at all) than the rich do. That’s some good policy!

So I suggest getting rid of the tax deductible insurance policy and change that in for refundable, advanceable, and assignable tax credits based on income. So the people who need more help getting insurance will get it and those that don’t need the help will get a bit less. Now I still want to encourage employers to kick in for insurance.  It seems silly to lose their help by removing their carrot, so I would still offer a tax break to employers to kick in funds, but the employees’ contribution would come from the tax credit based on income (and employer contribution), not pre-tax dollars.

This adjustment will provide a more equitable tax policy.  Add that to the tax exchanges and removing the employer from sponsorship of health insurance you now have a foundation that we can build upon.  Next time we will build.

“Stuff White People Like”

I’m sure many of you already frequent this blog, “What White People Like.” It’s very popular (and I’ll be waiting for my “thank you” for all the added traffic today) and very funny. Two days ago they ran a post titled, “Free Health Care.” Although inaccurate, it is very funny and plays to all of our misunderstandings and stereotypes regarding health care. Check it out.

The First Step – Health Exchanges

Part of the “My Prescription” series.

I know some out there have already decided they don’t like this plan. The decision was made as their eyes rolled over the words, “Health Exchanges.” It’s not good when you lose people in your title, but I encourage those who have turned away to stick around a bit longer.

In previous posts I have detailed why employer-based health insurance is the basis of our health care system and why I think we as a workforce have evolved past employer-based health insurance. Read here and here. If we are going to consider serious reform of our health care system we need to move away from our current foundation, and health exchanges are my recommendation for doing so. 

Employer-based health insurance was how we as a society pooled people together to spread out risk, however, we know many people are left out of these pools and portability of plans is basically non-existent. The health exchanges would facilitate pooling while allowing for complete portability of plans.  The exchanges would be run by the States (could be regional as well) and would act as clearinghouses  in which insurers would compete for workers’ business while playing under standardized rules. All insurers would be required to operate within the exchanges (possible exceptions under ERISA – too complicated to explain here). Butler equates it to the stock exchange.  Neither the stock exchange nor the health exchange sells either stock or health insurance, but both provide the venue and the rules that regulate their industries.

With the exchanges in place employers would no longer sponsor health insurance meaning that they would no longer pick the available plans or if they are a small company be limited by their small workforce. The exchange would provide the pooling and spread the risk thus allowing more people entrance to the large pool insurance world. Self-employed individuals could also use the exchange making their prices equivalent to the their employed counterparts.

Further, the exchanges allow a worker to select their health plan and then to keep their insurance as they move from one job to another within their geographic area (most likely States). Now we have portability and continuous care – a huge improvement in quality of care.

The exchanges also provide the ability for the States to create risk adjustment schemes, re-insurance schemes, and/or other tactics to provide the best care for their residents.  Each exchange could set its own rules (perhaps under broad federal rules). I will talk about these possibilities in future posts, however, my point now is that the exchanges open up possibilities that are not available now.

Under this set-up employers would no longer sponsor health insurance, but they still would facilitate it.  By facilitate I mean they could still contribute to an employees plan (some dollar amount), deduct payments from payroll and adjust taxes accordingly. Employers seem to do a good job of this administrative work, and I see no reason they should stop providing this service.  Further, employers could still use their contribution to the employees plan as a way to attract workers through fringe benefits.

Ultimately, employers would no longer be sponsors, but facilitators of health insurance.    

Second step - tax reform. Aren’t you excited?

Outdated Employer-Based Health Care

Part of the “My Prescription” series.

There was a day when a typical employee was loyal to a company for the length of a career. Or maybe there was a time when the company was loyal to the employee. I don’t know, but there was a day when an employee stayed with an employer for many years and often decades. Increasingly today’s workforce is mobile. Today a quarter of the workforce changes jobs every year. In 1983 two-thirds of men in their fifties had been with their current employer for ten or more years. In 2004 that number dropped to 50% (Department of Labor). I’m willing to speculate that this number will continue to drop as my generation approaches their fifties.

Further, the workforce is becoming increasingly independent meaning independent contractors, freelancers, etc. Over the past ten years people with these work arrangements have increased by 20% to about 11% of the workforce today.

So the workforce is mobile and mobility is good. It means entrepreneurship. It leads to creativity, advances, and growth. But I would argue that we do a poor job of supporting this independent spirit by making health insurance practically immobile. If you change jobs you change your insurance. Maybe you have to change your doctor? Maybe your prescriptions?

Let’s role-play. A talented MBA grad working for a large fortune five hundred company who feels stifled by the corporate world. He has ideas, but is scared to go out on his own. He is scared to be without insurance, and until he gets up an running he cannot afford to pay his own. What would you do? What if you have kids? Tough choice.

Another problem. Small businesses do a poor job of providing health care. Companies with a 1,000 employees provide health care to 80% of their employees. Companies with 10 or fewer employees offer insurance to less than 50% of their employees. It all has to do with increasing risk when pooling small number of people, and as long as health insurance is strictly based on ones employer, this scenario will continue.

I think it pretty clear that the employer-sponsored insurance system that we have today is eroding and is no longer capable of being the foundation of our health insurance system.

Employer-Based Health Care, How Come?

Part of the“My Prescription” series.

Only in the U.S. is health insurance linked to a specific job. Why have we chosen this path? The truth is we have not chosen it at all. We have literally stumbled upon it. Here are a few key events that lead us to our current system (a watered-down and simplified history):

I. Prior to WWII there was very little in the terms of health insurance in the U.S. Meanwhile many European countries had already moved to universal coverage in an attempt to maintain a healthy workforce. The U.S. was behind. During WWII the government implemented wage controls. However, U.S. business found the loophole and started offering fringe benefits to get around wage controls (health insurance began as a wage insurance – the insured retained wages when they were sick, but had limited coverage of medical costs).

II. Medical advancement gave legitimacy to medicine (many advancements came out of the war effort especially trauma care – improved anesthesia and sterile practices. Antibiotics were also instrumental in establishing legitimacy). Hospitals began the transformation from a place for the poor and indigent to a place where medical care was sought by the middle classes.

III. A 1948 ruling by the National Labor Relations Board allowed for health benefits to be a subject of collective bargaining. The Unions ran with it to legitimize their presence.

IV. A 1954 federal tax law exempted many of these fringe benefits from taxation providing an incentive to bolster employment-based benefits including health coverage.

V. Medical advancements have accelerated what is possible making quality care more and more expensive. As more conditions are treatable more money is needed to treat them. Insurance begins to fill that gap after WWII.

That’s the history in brief. Here are maybe the more important reasons it worked (fairly well) for a few decades. Pooling people based on place of employment – not health status – makes the insurer less vulnerable to adverse selection. Thus people are enrolling based on employment (healthier people) and not based on illness (unhealthy people). Any pooling mechanism has to minimize adverse selection and employment-based coverage does that for a majority of our citizens. Second, employers offer economies of scale. Employers can administratively manage health insurance cheaper than other settings would be able to based on volume. Also, based on volume, employers (especially large ones) have the leverage to negotiate prices. Economies of scale definitely played a role in making employer-based health insurance cheaper than individual-based health insurance.

This is why we have employer-based insurance. Employer-based insurance certainly is not the result of a great vision of how to achieve optimal health care. It is more of a reaction to a lack of vision. As a nation we stumbled and patched together a system that met temporary needs left by the void of inaction.