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Crisis of Abundance - Rethinking How We Pay For Health Care Arnold Kling (Cato Institute, 2006): Note this is published by the libertarian Cato Institute. The author is an economist. He claims high US health care costs are due to "premium medicine" - "frequent referrals to specialists; extensive use of high-tech diagnostic procedures; and increased numbers and variety of surgeries" (p. 4). In spite of this premium medicine, he notes that "If our high levels of health care spending are the result of so-called premium medicine, we should be demonstrably healthier. Yet when we attempt to examine average longevity at a national level, there seems to be no connection between American's high levels of health care spending and life span." (p. 25). The reason is that people want to try anything, whether it is likely to work or not. MRI and CRT screening tests that only show problems in a small percentage of patients cost a lot, but with minor numbers of people benefiting. Thus health care in other countries is deemed equivalent by most. He points out that countries with government health care control costs by reducing benefits. He proposes government funding of health care only for the poor and chronically ill (and not for the elderly rich).

He makes a number of interesting observations and chronicles some health care history: People can make cost benefit tradeoffs - PPO or HMO, colonoscopy or less invasive sigmoidoscopy, dilating eyes vs. more expensive digital picture without dilation. The use of specialist referrals driven by availability in a region according to studies - areas with more specialists get more referrals. He argues that at the margin, harmful effects of excessive treatment can cancel out benefits. He notes that Blue Cross and Blue Shield, the original insurance companies, were created mostly to benefit health care providers, to bring in more patients. Medicare is already running at a deficit (future deficits predicted more than 5 times the projected deficits of Social Security, pg. 86), which will get worse because of (1) baby boomers retiring, (2) people living longer, (3) new procedures and drugs being more expensive - we've already developed the easy treatments with the most benefits - future treatments will be more costly with less benefit. He points out that in our system the spendthrift obtains Medicaid coverage for a nursing home, and the saver must pay entirely out of pocket. The employer contribution tax deduction distorts the market, causing people to buy more than they need, putting individuals and small business workers at comparative disadvantage. It is a tax subsidy that favors excessive coverage. Modernizing computer systems and records won't help as long as health care is fragmented - that is cause of fragmented records, systems.

The Cure, Dr. David Gratzner (Encounter Books, 2006).

The author is a Canadian doctor who is also a fellow at the Manhattan Institute for Policy Research, a conservative think-tank. He points out that employer provided health benefits subsidized by taxpayers. Since mostly larger companies provide health card, the self-employed and those working for small companies or companies without health care are paying for this subsidy. This is, in effect, a subsidy for the middle class and wealthy. The higher the tax bracket of the person getting employer health care, the higher the subsidy since more taxes are avoided. (p.27) Even though employees pay extra for higher cost plans (PPO v. HMO), since this is with before tax dollars, the employee selecting the HMO is subsidizing the one with the PPO through taxes. Also, the single employee is subsidizing the much more expensive health plan of the employees with families.

This subsidy causes over-insurance in US (p. 31). Health insurance currently is unlike any other insurance because of this. Car insurance, for example, covers accidents, but not oil changes and standard maintenance. Health insurance covers everything, which is reflected in the cost.

He suggests that if the individual were paying for health care, there would be more cost consciousness. Without a tax deduction, people would choose higher deductibles (p. 187). Americans buy new advertised drugs no better than old ones because the cost (co-pay) is the same to them (p. 147). A RAND study showed that those on a free plan had costs 40% more than those on an HSA, but were no healthier (p. 70).

He addresses the objection that consumers can't make these choices. To make the right choices, consumers need information. There is an abundance of information on hotels on the Internet, but a dearth on the much more important decision of who is a good surgeon. (p.61) Some companies, such as Aetna, have now provided information about hospitals on their website. Companies are providing web site information to help those with HSAs make choices. (p.71). An example of a cost decision he gives is a woman who had foot surgery. The choice was an expensive general anesthesia vs. cheaper local, antibiotics and painkillers. She chose the cheaper, and got both prescriptions but just filled the antibiotic prescription and waited to see if there was significant pain (there wasn't, p.66)

He suggests putting the consumer in charge, and letting the free market work. Health care is currently overregulated (p.77), providers offer cookie cutter care based on standard billing codes (p.79). Requiring insurance companies to cover a broad range is like requiring poor to shop for clothes at Nieman Marcus (p.91) Examples of what is required include pastoral counseling, marriage counseling, chiropractors, acupuncture, massage therapist, social workers, IV fertilization, and hair prosthesis (p. 95). Government intrusion in the market has kept it from functioning well.

He points out that a whole legal industry of Medicaid estate planning for long-term care has arisen. People are shown how to transfer assets, buy a more expensive exempted house, etc., to qualify as "poor" for long-term care (p.116). This cuts market for private long-term care insurance and raises taxpayer costs.

He also suggests that to reduce drug costs, the FDA should just test for safety, not do costly trials for effectiveness. This could even be done by private companies, that are just monitored by the FDA. Examples of companies that do safety testing are Consumers Union or Underwriters Laboratories (p. 155). Effectively we already have only safety, not efficacy, for many drugs because of off-label prescribing - using drugs for other than what they were tested for by the FDA (p. 195). An example of just safety testing is cars - they are tested for safety, not whether it is a good drive.

He points out that other countries do better on infant mortality and life expectancy, but the US is better on cancer survival because of earlier and better screening tests (p. 175).

Severed Trust, George D. Lundberg (Basic Books, 2004)

The author is a physician and former JAMA editor. He is concerned about the quality of care, and believes autopsies are not routinely done anymore to improve practices, because of the fear of malpractice suits. His proposal for health care reform is:

  1. Government pays for scientifically proven preventive care.
  2. Insurance for scientifically proven catastrophic, expensive care.
  3. Everything else paid for by the patient.
He also makes a number of other suggestions:
- Insurers cause unneeded administration costs - patients could control costs more effectively
- control the number of doctors
- ban health care advertising
- doctors should help patients die
- disclosure should be not just form, but explained
- expert of the court should be used for lawsuits, not experts hired by parties
- quality should be improved by more autopsies to discover errors.
- don't release drugs, herbs without scientific study first

He provides an interesting history of healthcare in the US, major highlights of which are:

1929 - US starts measuring health care costs. No real change until 1955 - average 3.5-4.5 % of GDP. In 1929, nuns staffed hospitals.

Federal laws required better pay for health care workers, health care became more sophisticated, and thus more expensive, and an increased number of elderly has pushed costs up.

In the 1930's Blue Cross plans were sold to employers. In 1935 Kaiser started a prepaid plan.

In the 50's and 60's there was increased automation for lab tests, but costs didn't come down because insurance or Medicaid was paying. There was no negotiation of prices by doctors.

In 1946 the NIH expanded. The entire VA hospital system was financed.

In 1960"s Lyndon Johnson passed funding to increase the number of doctors. Instead, it increased the number of specialists.

In 1965 Medicaid (federal, state, local care for indigent) and Medicare (insurance for elderly) were enacted. Medicare and Medicaid now cost around $400 billion a year.

In the 80's, insurance companies started "cherry-picking" companies with younger, healthier employees. The Reagan administration switched from cost-based reimbursement for Medicare to an average cost for a given diagnosis.

In the 90's, HMOs capped costs by (1) contracts with hospitals to refer patients and keep the hospitals full, (2) contracts with doctors, to refer patients, and (3) require approval before a patient gets service. However, after the turn of the century, health costs have increased again. Right to life groups force costly interventions for pre-term babies and the dying elderly.

Sick, Jonathan Cohn (HarperCollinsPublishers, 2007). The author is a writer for the New Republic, a liberal magazine. He points out the problems of our health care system and argues for a single-payer plan regulated by the government. He points out that Medicare or the French system would be better, but ignores the possibility that changes to our profit based health care system would be better yet. He explains the problems with our present system - the cutting back of coverage by employers, the inability to get coverage by those with pre-existing conditions, the forced bankruptcy of people in these positions. He illustrates this with case studies of real people. He does admit that in many of these cases other factors were involved - the person didn't fill out the paperwork, the cancer treatment denied is actually unproven and costly, and the woman is in the last weeks of her life, etc. The fact that there always seems to be such an asterisk makes one wonder how big the problem really is.

Cohn provides some history of the US health care system throughout the book. He points out that the US resisted Government health care when other countries adopted it. Corporations feared it might lead to more interference in private economy, doctors didn't want government meddling (p. 7). In the late 40's, private insurers wouldn't allow groups to obtain coverage for members after retirement. This spurred Medicare, which covered the elderly (pp. 91-92). In order to obtain passage, Medicare provided only limited coverage so there would be a market for private insurance. Also Medicare was not made free. Part A of Medicare (hospital portion) has cost sharing, and deductibles, while Part B (Physician services, outpatient) has premiums (p.90). Medicaid (state coverage for the poor) was able to be enacted because it was health coverage for a small group (poor) that private insurers didn't want to touch.

Cohn also describes the structural problems with our profit-based health card. A problem with any type of insurance is "adverse selection" (p.33) - insurance bought by individuals is more often bought by those with problems or potential problems - thus raising costs. Insurance companies naturally don't want to insure those with problems, and deny coverage (p. 37). The limited enrollment periods we see in group plans are designed to protect against adverse selection in such plans (p. 101).

HMOs were originally mostly non-profits that focused on preventative care. When the HMO act was signed by Nixon in 1973, the small non-profits couldn't handle the demand, and for profit insurance companies came to dominate the market. The emphasis on preventative care was replaced by cost reduction - preventative care reduces costs in the long run, but it decreases the short term profits of insurance companies focusing on the current quarter's profits. The insurance companies couldn't offer the groups of physicians cooperating under one roof. Instead, they contracted with existing physicians in separate practices as "approved providers," and imposed bureaucratic cost limiting rules from afar. When the public eventually rebelled in the late 90s, the insurance companies ameliorated the features that most rankled average beneficiaries, while leaving in place some of the hidden incentives and limits that made trouble for a few high cost patients.(p. 84)

The theory of HMOs was that there would be competition on price and quality. But in reality they only compete on price, since the services are paid for by employers, who don't directly experience the quality - employees experience the quality (p. 79). Unfortunately, managed care is characterized by garbled communications, confusion over benefits, and difficulty in getting coverage (p. 74)

- Texas law giving right to sue over denial of treatment invalidated by US Supreme Court in 2004.

- HSAs - no incentive for doctors and hospitals to change practices (p. 221) [need competition]. Consumers don't know enough to shop for good care, make decisions. If poor health or death aren't enough to change behavior, why would medical costs at some point in the future change behavior?

- rationing (what's covered, effective) decided by government in France, Insurance companies in US (p. 227). We also ration by income and medical condition (p. 228).

[fear factor - losing job]

The Over treated American, The Real State of the Union (2004) - This article is in a compilation by the New America Foundation, a Centrist policy institute. The author is Shannon Brownlee, listed as a Senior Fellow, with no credentials described. She says studies show 20-30% of US health care spending is for things that do nothing to improve the quality or length of life, while treatments with clear benefits aren't reaching many. She points out that significant regional variations in costs are largely (40%) due to variations in the numbers of specialists and available hospital beds. Where there are more MRI machines, more MRI tests are ordered. Excessive time in a hospital actually can hurt ones health, with the possibilities of medial error, wrong drugs, infections an unnecessary treatments.

She argues that the problem is the way we pay for health services, based on what is done, not quality. She argues for payment based on quality, saying this would actually reduce costs. She acknowledges there is currently insufficient data for quality decisions. Some studies that have been done have shown that more expensive treatments can actually increase health risks (hormone replacement therapy) or be no better than the less expensive alternative (calcium channel blockers vs. diuretics). She proposes creating a National Clinical Sciences Institute to gather data on outcomes from hospitals, and to fund clinical studies if data isn't available. They could also fund head-to-head comparisons of drugs and cheaper generics.

She points out that such changes may be politically difficult, because they will be branded as rationing, and patients are afraid of rationing. However, if it is explained as improving quality, it may be possible. Once studies show hospitals with longer stays, etc., have worse results, patients will get the message, as will hospitals, which will reduce excessive treatment to improve quality so they can compete. Even currently, when given the choice, patients often opt for lower costs not because they are paying for it, but because the more expensive treatment entails greater risk, or because they would simply prefer to spend the last days of their lives at home, not in a hospital.

The 2% Solution, Matthew Miller, chapter on "Universal Coverage, American Style" (Public Affairs, member of Perseus Book Group, 2003) Miller believes a compromise solution is needed. He thinks Government Health care is not the answer, and would regulate innovation out of health care, an area poised for lots of innovation. He proposes individuals be able to buy policies with a tax credit, rather than our current employer-based system. He would pay the amount of the credit directly to those too poor to pay taxes. The subsidy would be enough to buy a "Chevrolet" plan (not a Cadillac). An insurance pool would assure affordable rates.

The chapter discusses his presentation of this broad outline to a Republican congressman, McCrery, and a Democrat congressman, McDermott. The ensuing discussion outlines where they could compromise. They could both get behind the general proposal. A "community rating" could be used to avoid discrimination against those with pre-existing conditions (a community rating is what employer do defacto - every employee gets the same rate). Insurance companies could make it work if they could charge differently based on sex and age [but not health status].

The proposal would basically be a transition from one federal subsidy to another. The government currently subsidizes employer health plans, but not individual ones. This is an unfair subsidy, since in these plans the young subsidize the old and the rich - who get the gold-plated health plans - get the biggest subsidies. The proposal would require employers to "cash out" employees, by giving them a wage increase corresponding to the health benefit no longer provided. McCrery proposed the tax credit would be on a sliding scale, tapering off with increased income. McDermott was willing to look at this.

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