Archive for the ‘Healthcare’ Category

Medicare Changes in the Ryan Budget

May 5, 2011

On April 15, 2011 Republicans in the U.S. House of Representatives passed the Ryan Budget (all Democrats voted no) and sent it to the Senate.  Then they went back to their home districts and faced some criticism from their constituents, especially on the plan to privatize Medicare.  Rep. Paul Ryan and his colleagues explained disingenuously that people over the age of 55 would not be affected by the proposed changes.

While it is true that the voucher-like healthcare system would not start until 2022, the following changes would affect people over 55 immediately on passage:

The proposal would repeal the ACA provision that expanded subsidies for the “coverage gap” in Medicare Part D (a range of spending in which many enrollees have to pay all of their drug costs, sometimes called the doughnut hole).

The proposal would repeal the Community Living Assistance Services and Supports (CLASS) program for long-term care insurance, as well as a number of mandatory grant programs including funds for so-called high-risk pools, reinsurance for early retirees, and prevention and public health activities.[i]

Republicans also say that after taking effect, the proposed legislation would create a healthcare insurance system for seniors like the current healthcare insurance system for federal employees.  This is not true, either.  Federal employees pay a fixed portion of their healthcare insurance costs, but that would not be true for the new Republican Medicare substitute.

Under the House Republican proposal, starting in 2022 new Medicare beneficiaries would receive coverage through private insurance plans, and Medicare would subsidize the cost.   The federal payment for a typical 65-year-old would be set at $8,000 a year in 2022, about the same as what Medicare is expected to spend under current law.

The eligible age for federal benefits would increase two months per year until the eligible age would reach 67 in the year 2034.  Presumably, Ryan expects people between the ages of 65 and 67 to get healthcare insurance from their employers or in the private market.  The CBO did not analyze the extent to which additional people would apply for disability insurance benefits or Medicaid because of the increased eligibility age for privatized Medicare.

Beneficiary costs under the Ryan plan would be higher than under traditional Medicare.  Administrative costs are higher for private healthcare insurance than for Medicare, but that is only the beginning.  The premium support payment would be adjusted for age, health status, income of the beneficiary, as well as general inflation, measured by the Consumer Price Index.  But healthcare costs and insurance premiums have, for years, been rising faster than consumer prices in general.[ii]  So, under the Republican plan, Medicare would pay a shrinking share of beneficiaries’ total health costs, and seniors would pay a growing share. For a typical 67-year-old, that share would be 68% in 2030 versus 25% under current law, the Congressional Budget Office said.  

There is nothing in the Republican plan to reduce the rate of growth of healthcare costs per enrolled beneficiary (“bend the curve”).  Indeed, the House legislation would repeal the parts of the Affordable Care Act that initiate several proposals to try to reduce that rate of growth.  The net result is that the Ryan Plan increases beneficiary costs more than it reduces government costs.  Part of the reduction in overall healthcare costs to the federal government is particularly insidious.  Since the beneficiary share of the total healthcare insurance costs would be higher under the Ryan budget, participation rates for eligible elderly persons would be lower than under traditional Medicare.

The Ryan plan includes rules that would govern the Medicare exchange—including requiring insurers to issue insurance to all people eligible for Medicare who apply, requiring that each insurer charges the same premium for all enrollees of the same age, and using a risk-adjustment mechanism. However, the Ryan plan would allow insurance companies to increase premiums with beneficiary age.  Ryan says that the support payments would be greater for the poor, but it is not clear that the increase in federal healthcare support payments would be enough to prevent participants from dropping out of the federal plan as they got older.

Healthcare experts agree that the primary problem with healthcare is health care inflation. The secondary problem is the long-term Medicare deficit.  For decades, the United States has relied on a private healthcare insurance for people under 65, and fee-for-service government healthcare insurance for people over 65.   Neither system has helped to rein in healthcare inflation.  Republicans want to scrap Medicare and revert to a private healthcare insurance system for everyone. However, the free market for healthcare insurance has failed to rein in healthcare inflation for people under 65, just as Medicare has failed to control healthcare costs for the elderly.   Despite the lack of supporting evidence, the Ryan plan would repeal all federal pilot programs designed to reduce the rate of growth of healthcare costs, relying on blind faith in free markets to control costs.  It is foolish to suppose that a solution that has failed repeatedly to control healthcare costs will succeed in the future if we solve the secondary problem of the long-term Medicare deficit.

The Ryan Plan would end traditional Medicare to solve the secondary problem of the long-term Medicare deficit, and substitute a system that would increase the burden on the elderly to pay their own healthcare costs and increase the number of uninsured elderly.  James Kwak, who calls the Ryan Plan “ just one bad idea dressed up with the false precision of lots of numbers” has suggested a better and simpler way:  “Index the Medicare payroll tax to actual health care costs. This should automatically solve the Medicare deficit because as Medicare’s costs go up, its funding will go up at the same rate.*

“This may sound like just raising taxes whenever the government wants to spend more. But the key is that the more taxes you pay, the more you get back. To see this, assume for now that Medicare is a pure price taker: it has no impact on health care costs but just has to pay what the market charges. Then, if health care costs go up by 5 percent, your taxes go up by 5 percent, but the expected value of your future Medicare benefits also goes up by 5 percent. You get all the insurance benefits of traditional Medicare, but now that insurance is worth 5 percent more, so you should be willing to pay 5 percent more.**

“Raising taxes can have macroeconomic effects, but anything that solves the Medicare deficit problem will have macroeconomic effects: any solution involves either higher revenues or lower spending. Furthermore, increasing payroll taxes in line with health care costs is no different in substance than increasing premiums for employer-sponsored plans in line with health care costs, which has been going on every year for decades.”[iii]

With that solution in mind, we can reject the Ryan Plan and let healthcare experts discuss various ways to bring healthcare cost inflation under control.


Healthcare Public Option and Costs

July 4, 2009

Let me start by saying that for more than 50 years, I have favored universal healthcare.  The question is how do we get it?

I have been receiving solicitations for support of the Healthcare Public Option.  They say, please send a fax to your senators, or sign a petition to Congress urging them not to abandon the Public Option so that everyone will have a choice of private healthcare insurance or the Public Option.  Here are four Healthcare Reform criteria recommended by one of the emails I received:

  • Available to all of us: A strong public health insurance option should be available to anyone who chooses to participate. If you like your current plan, you can keep it; if you want to participate in the public health insurance plan, you can choose that.
  • A national plan with real bargaining clout: In order to truly control costs and compete with private health insurance plans, a strong public health insurance option must be available nationwide.
  • Ready on day one: Every day we wait on real reform, health care costs continue to rise. A strong public health insurance option with a broad network of providers right out of the gate is key to building a competitive program that will help control costs.
  • A truly public plan: To ensure it’s held to the highest standards of accountability, a public health insurance option must be truly publicly run—accountable and transparent to Congress and to voters.

This sounds like Medicare for everyone

There seems to be an assumption that a national public healthcare insurance organization can use its bargaining power to reduce healthcare costs.  This point of view may be a little naïve.  Nancy-Ann DeParle and her staff at the White House have been holding weekly seminars on healthcare reform, and serious discussion of controlling costs usually leads to a consensus that we need a different model of healthcare delivery to control healthcare costs.

Medicare is certainly better than being old with no health insurance.  However, Medicare is a fee-for-service health insurance plan whose costs have been rising rapidly, at a rate far exceeding the rate of inflation.  The only way that Congress has agreed to fix the escalating costs of Medicare is to cap payments to doctors and hospitals, and threaten to actually reduce the fee schedule.

Medicare needs reform.  Medicare does not pay for preventive care; it should, even if it does not substantially reduce overall healthcare costs.  Medicare does not pay for immunization; it should.  Medicare does not pay physicians for telephone or email consultations.

In my opinion, the Medicare fee schedule pays primary care physicians too little, and in many cases pays specialists too much.  We need a healthcare system that allows people to go to the physician of their choice, including both primary care physicians and specialists, but encourages people to use their primary care physicians to coordinate their care when they have complex conditions or chronic diseases.

We need a healthcare system that pays for treatment of a disease or condition, rather for each procedure performed.

We all want to control healthcare costs; who does not?  It would be nice to have a list of major healthcare cost categories, so that we could focus on the major cost categories.

Here is my list of major healthcare cost categories:

  • Care during last year of life.
  • Treatment of chronic diseases such as diabetes, Parkinson’s disease, Cerebral Palsy.
  • Lifestyle issues such as obesity, smoking, nutrition, and lack of regular exercise.
  • Mental health problems such as depression.
  • Emergency room visits by the uninsured
  • Insurance administrative costs (healthcare providers and insurers)

The Public Option may reduce the last two costs, but what about the first four cost categories?  It is difficult to find credible data on what these costs are in the U.S. Nevertheless, I assert that these categories need to be addressed by healthcare reform.  How is the Public Option going to reduce costs for these categories better than a system of non-profit healthcare cooperatives?

Dr. J. Deane Waldman, MD, gives the following list[i] of what drives up healthcare costs:

There are nine reasons for escalating health care costs.
1. New value (new medical capabilities) resulting in
2. More people who live longer.
3. Inefficiency, Reconciliation and Disconnection
4. Regulatory compliance and unfunded mandates
5. Perverse incentives
6. Defensive medicine
7. Adverse outcomes and errors
8. Profits taken out of healthcare (insurance and medical malpractice)
9. Fraud and embezzlement

As Dr. Waldman writes, we want to preserve the first two items while reducing the others.  Again, it is difficult to find credible data quantifying these reasons for health care costs.  Nevertheless, any comparison of the Public Option versus the Non-Profit Healthcare Cooperatives Option should address these causes of rising healthcare costs.

I hasten to explain that I support President Obama’s overall objectives and guiding principles for healthcare reform, whereas Dr. Waldman has been very negative about President Obama’s program.  Remember, however, that the President has stated that he would like to achieve a bipartisan agreement on healthcare reform.  Therefore, I call on Dr. Waldman to tell us what program he would propose in place of the Public Option proposed by the Obama Administration.  How would Dr. Waldman design legislation to reduce the factors driving up healthcare costs?

There seems to be a consensus on the creation of a healthcare insurance exchange from which people could choose a healthcare plan if they don’t get one from their employers.  The debate is over whether the choices offered through the healthcare insurance exchange should include a publicly managed option in addition to private insurance plans.

Senator Kent Conrad (D, ND) has proposed a national network of healthcare cooperatives as an alternative to the public health insurance option favored by the Obama Administration.  Rather than being dismayed by this proposal, I am reminded of the Japanese healthcare system.

Japan spends 8% of GDP on healthcare, versus 16% for the United States, but Japan has lower infant mortality and the Japanese live longer than we Americans.  Although genetics and diet may play small roles, Japan must be doing something right with their universal healthcare system.  The Japanese government requires everyone to have health insurance.  Many Japanese get their healthcare insurance through their employer, but if not, they can get healthcare insurance through a nonprofit community-based insurer.  These insurers are not allowed to deny anyone coverage, or charge extra, because of pre-existing conditions.  Only the poor get a government subsidy for their healthcare insurance.

The Japanese healthcare system is highly competitive.  There is no gatekeeper requirement.  Anyone can go to their internist, or directly to a specialist of his/her own choosing.  Unlike the British National Health System, 80% of Japanese hospitals are privately owned and managed by doctors.

To hold down costs, Japan regulates the prices of healthcare procedures in great detail.[ii] The Japanese regulators hold biannual meetings with doctors and hospitals to negotiate prices.  There is constant pressure to increase efficiency and reduce prices for healthcare procedures such as MRIs and quadruple coronary bypass surgery.

The argument for a public option is that it will provide competitive pressure to hold down healthcare costs.  The tacit assumption is that Japanese-style price regulation is not possible in the United States, so we must rely on artificial market forces to control healthcare costs. Of course, you can imagine the Republicans howling about the giant government bureaucracy that would be required to regulate healthcare prices in the United States, despite the fact that the Japanese Health Ministry is not so large.  The rest of us should howl about the high cost of our current healthcare system.

Fundamentally, we must make a commitment that everyone in the country is entitled to good quality healthcare.  We need to end a system that provides incentives to insurance companies to drop sick people and deny coverage to people with pre-existing conditions, or make premiums for those people so expensive that they cannot afford their healthcare insurance.  I think we should take the profit out of healthcare insurance, crack down on fraud and abuse, pay doctors well but not exorbitantly, and relieve new doctors of the huge debts that they now face by public financing of accredited medical schools.   Germany has competitive healthcare insurance companies, even though they are not allowed to make a profit.  Just the prospect of higher executive salaries for growing insurance companies is enough to keep the companies competitive [ii]. If we made all U.S. healthcare insurance companies nonprofit, we would not need a “public option”.



Brits are Healthier than (White) Americans

January 25, 2009

Benefits of single-payer vs. fee-for-service medicine

Similar longitudinal surveys in different countries are beginning to reveal the institutional and cultural variations in these life cycle dynamics. A new investment in international longitudinal surveys on aging may eventually unravel the changing dynamics at the end of the life cycle across time and countries. One recent comparison showed that health improved with socio-economic status in both England and the United States. It also showed, however, that English health status is better than in the United States at each socio-economic level.

J. Banks, M. Marmot, Z. Oldfield, J. P. Smith, JAMA 295, 2037 (2006).

Thanks to John Wirt.

FDA and Prescription Drug Reform

January 4, 2009

The FDA budget needs to be doubled to deal with the safety of the food supply and the crisis in the integrity of the pharmaceutical industry.  Many articles have been written about the pharmaceutical industry promoting their proprietary drugs despite questionable efficacy.  There are many documented cases of drug companies suppressing test results that might question the efficacy of their proprietary drugs.  The FDA should be more vigilant in dealing with issues of drug efficacy.

There is another, less widely discussed problem with prescription drugs.  Americans expect their pharmacies to dispense the drugs prescribed by their doctors, with the correct dosage on the label.  However, there is a growing problem of prescription drugs from unregulated factories not meeting quality standards.

American and European drug plants are closing as Chinese and Indian plants undercut them in price.  The Chinese and Indian drugs are purportedly pharmaceutically identical to the American and European drugs they replace, but is that assertion really true and are they safe?  No-one really knows, because the FDA rarely inspects drug manufacturing plants outside the United States.  Any company importing drugs or pharmaceutical ingredients into the United States is supposed to test the supplies before using them.  However, Chinese manufacturers are notorious for giving samples that pass tests and then changing the ingredients or the manufacturing process after passing the sample test.  In 2008, Chinese manufacturers substituted a cheap fake for dried pig intestines used to make heparin, which is used to prevent clotting during surgery and dialysis.  81 people died of allergic reactions and tens of thousands of people around the world were exposed to danger before the FDA got the situation under control.  This is not an isolated case.  It is estimated that 8% of over-the-counter drugs in China are counterfeit.[i]

One often-mentioned way to reduce medical expenses is to encourage the use of generic drugs.  The asserted reason is that generic drugs are not only much less expensive, but also pharmacologically equivalent to brand name drugs.  However, the healthcare reform discussion often neglects the lack of FDA regulation of generic drug manufacturers, especially the lack of inspection of the increasing number of drug manufacturing plants outside the United States.  Not only are generic drugs often different from their supposed brand-name equivalents, but drug potency varies from manufacturer to manufacturer.

For example, practicing pharmacists are aware that warfarin, the generic version of coumadin, is not actually equivalent to coumadin.  Coumadin (and warfarin) is an anticoagulant drug, and the wrong dosage of this drug can lead to internal bleeding, including hemorrhage, with serious consequences.  Hungarian warfarin has been found to be 20% higher effective dosage than Indian warfarin of the same nominal dosage, with brand-name Coumadin falling in between.  (I found this out when I refilled a warfarin prescription that was randomly dispensed with warfarin manufactured in a different country, and my INR changed by 30% at the next weekly test.)

Another example is the recent (September 24, 2008) FDA list of 32 finished drugs and 7 active pharmaceutical ingredients manufactured by Dewas and Paonta Sahib facilities of Ranbaxy Laboratories, banned because those sites failed to pass FDA inspections.  We do not know how long those drugs were on the market in the United States before the inspections.

The FDA budget should be doubled.  The FDA should promulgate a rule that neither drugs (whether prescription or over-the-counter) nor their ingredients may be imported into the United States unless the FDA has inspected the manufacturing plant within a year of importation.  The inspection costs should be recovered by fees imposed on the drug manufacturers.  Improve the FDA drug manufacturing plant database.  Also develop a source database system for all produce sold in the United States.