Category Archives: health care

America’s Best Health Care Practices

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Peter G. Peterson is an 88 year old billionaire from Kearney NE.  His Peterson Foundation has just established the Peterson Center on Healthcare whose purpose is “developing a comprehensive approach to finding existing innovative solutions in healthcare that improve quality and lower costs, and accelerating their adoption on a national scale.”
Working with Stanford University’s Clinical Excellence Research Center (CERC), the Peterson team looked at 15,000 single and multi-specialty physician practices around the country and winnowed the list to those practices which were in the top 25% on quality measures and in the lowest 25% in cost.
CaptureThe second step was to identify the features of practices that help explain their exceptional performance.  This led to the identification of the 11 most exceptional physician practices (see above map) around the country.  The study found that total annual health spending was 58% lower for patients cared for by these exceptional practices compared to their national peers.  Further analysis finds that nationwide adoption of the observed features of these practices would conservatively save $300 billion per year.
These extraordinary high-performing practices shared three basic features distinguishing them from others as follows:

  • Their patient relationships are deeper: always on, conscientious observation, and complaints are gold.
  • They have wider interaction with the healthcare system: responsible in-sourcing, staying close, and closing the loop.
  • They have a team-based practice organization: upshifted staff roles, hived (highly collaborative) workstations, balanced compensation, and investment in people rather than space and equipment.

These findings debunk the myth that excellent value only exists by replicating methods used by very large health systems with an efficiency culture cultivated over many years.  For example, “an independent three physician practice in a low-income neighborhood can be among the best.”
The Peterson Center on Healthcare is in the process of showing that free enterprise health care can achieve remarkable gains in both high quality and low cost.  This is hugely important at a time when total U.S. spending on healthcare is already way too high and growing rapidly.
If private enterprise and the free market cannot figure out how to provide quality healthcare at a much lower cost, it is almost inevitable that the U.S. will eventually end up with a single-payer national healthcare system like most of the rest of the world.

Is Health Care Spending Really Under Control?

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The New York Times has two recent articles about health care spending, “Good News inside the Health Spending Numbers” and “The Battle over Douglas Elmendorf – and the Inability to See Good News.”  These two articles focus on the fact, clearly evident in the chart just below, that the rate of increase in overall health care spending has slowed down since 2009.  In fact health care spending has been a constant 17.4% of GDP for the past four years, while it increased by 1.9% of GDP in the four years before that.  More precisely, health care spending rose by 3.6% in 2013, down from 4.1% in 2012.
CaptureIt is, of course, very good news that increases in health care spending have dropped dramatically since the recession in 2007-2009, but is it really surprising that this has happened in the midst of so much economic pain, with a very high rate of unemployment as well as stagnant incomes for most Americans?  In fact, even in these circumstances, health care spending is still growing at twice the rate of inflation, which has been under 2% during this same time period.
A more realistic view of health care spending has just been presented to the Health Subcommittee of the House Committee on Energy and Commerce by Marc Goldwein, from the non-partisan Committee for a Responsible Federal Budget, a Washington D.C. think tank focused on fiscal responsibility.  Mr. Goldwein makes the following points:

  • Despite the recent slowdown in health care spending, it remains incredibly important that policymakers pursue reforms to reduce future projected health care costs.
  • Policymakers should focus first and foremost on health care “benders” that would improve incentives in order to slow the overall growth of health care spending.
  • Policymakers should next look to health cost “savers” which reduce federal costs by better allocating resources within the federal health programs.
  • Given the aging of the population, health reforms will be necessary but not sufficient to put the debt on a sustainable long-term track.

Slowing down the rate of growth of health care is going to be a huge challenge for our national leaders.  I will elaborate on how to do this in forthcoming blog posts.

Let’s Do Something about Corporate Welfare and Crony Capitalism!

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The American Enterprise Institute is one of my favorite Washington think tanks.  It defines its mission as “research and education on issues of government, politics, economics and social welfare.”  I especially like its interest in social welfare which translates for me as being fiscally conservative with a heart.
CaptureThe AEI’s Timothy Carney has just proposed “An anti-corporate welfare, anti-cronyism agenda for the 114th Congress.” Most candidates for Congress condemn crony capitalism and corporate welfare.  This generally means any policies which tilt the playing field, picking winners and losers and rewarding well-connected insiders.  Such actions contribute to the public perception that the “game” is rigged and harm economic growth and innovation.  Here are some prime examples discussed by Mr. Carney:

  • Health Care: repeal Obamacare’s insurer bailout (the “risk corridors”) so that health insurers compete totally on price.
  • Health Care: end the individual mandate which forces people to buy a product from a private industry. An alternative incentive for individuals to remain covered would be limiting enrollment periods, for example, to a brief six-week sign-up period every two years.
  • Energy: end tax breaks and subsidies for both renewable energy (including ethanol) and oil and gas. Make all forms of energy compete in the market.
  • Taxes: make corporate taxes simpler, lower and more neutral. Besides being fairer, such changes will boost the economy.
  • Finance: Rein in Fannie Mae and Freddie Mac by treating them the same as all big banks. This means the same capital requirements, the same tax treatment and the same consumer protection regulation.
  • Finance: Kill Dodd-Frank’s too-big-to-fail designation. It acts as a moat, protecting the big guys from competition.
  • Trade: Kill the Export-Import Bank.
  • Trade: Repeal the Jones Act. It requires all shipping between U.S. ports be done on U.S. flagged vessels.
  • Agriculture: End the Sugar Program which costs consumers $3 billion per year.
  • Agriculture: Reform the Federal Crop Insurance Program by making it self-supporting.

These mostly well-known examples of corporate welfare represent just the tip-of-the-iceberg.  Nevertheless they provide a good place to start in cleaning things up!

The Reality of Today’s Healthcare: Cost Is Critical

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My last two posts have been devoted to discussing the prospects for a true free-market healthcare system in the U.S.  Let’s bring this discussion down to earth with two specific examples.
CaptureIn Omaha NE, where I live, there are three major hospital systems and one of them, Catholic Health Initiatives, is 30% more expensive than the other two.  The major insurer, Blue Cross Blue Shield, has reacted by canceling its contract with CHI, making it out-of-network for Blue Cross policy holders.
As reported in today’s Omaha World Herald, “Non-CHI health clinics, hospitals handling influx,” the Nebraska Medical Center and Methodist Hospital System are seeing a large influx of Blue Cross insured patients.  This is exactly what has been expected to happen and will eventually put pressure on CHI to lower its prices in line with the other two hospital systems.
The second example, “Unable to Meet the Deductible or the Doctor” is the title of an article in yesterday’s New York Times.  The article reports that 7.3 million Americans are now enrolled in insurance coverage through the Affordable Care Act.  However the average deductible for a bronze plan on the exchange – the least expensive coverage – is $5,081 for an individual.  This compares to the average deductible of $1,217 for individual coverage in employer-sponsored plans.
Not surprisingly, relatively low-income people obtaining subsidized coverage through an exchange are likely to want a low cost policy.  But with a high deductible they will then be hard-pressed to have to pay the full price of routine care out of there possibly meager budgets.  This is going to be a larger and larger problem as more and more people obtain coverage through the exchanges.
Since all of an individual’s medical bills should go through the insurer for processing, insurance companies are in a position to, and should be expected to, help control costs by bargaining with providers to make sure that prices are not excessive.
Conclusion: here are two examples of price competition in today’s healthcare market place.  This is the reality that more and more Americans are going to have to learn to live with.  It is the only way that our excessive healthcare costs can be brought under control.

How Do We Establish A Free Market Healthcare System in the U.S.?

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As I discussed in my last post, it is critical and urgent for the U.S. to sharply reduce the cost of healthcare, both public and private.  There are basically two different ways to do this: with either a “single payer” system like most of the rest of the developed world has, or with a more nearly free market system than we have at the present time.
Capture1Both Switzerland and Singapore have largely free market systems with universal coverage and they operate at far less public cost, as shown above, than for other developed countries including the U.S.  The Singapore model features Catastrophic Care insurance, coupled with Health Savings Accounts, for all citizens, with subsidies for those with low-income.  The Swiss model employs exchanges, similar to our own Affordable Care Act, to subsidize, on a sliding scale, health insurance for the low income.  In Switzerland only 20% of the people receive an insurance subsidy compared to 85% in the U.S.
The Manhattan Institute’s Avik Roy has proposed a true free market system for the U.S., “Transcending Obamacare: a patient-centered plan for near-universal coverage and permanent fiscal solvency,” which is modeled on the Swiss system.  Mr. Roy’s plan sets up universal exchanges to offer insurance, subsidized if necessary, to everyone who does not receive it from their employer.
He proposes that over time Medicare and Medicaid recipients as well as Veterans would migrate into the exchange system.  This means that eventually the 30% of Americans (elderly, poor and veterans) who now receive direct government (single payer) support would become part of the exchange system. Mr. Roy’s Universal Exchange Plan is projected to reduce deficit spending by $8 trillion over the 30 year period which it will take to fully phase in the exchanges.  This will go a long way towards solving our serious fiscal problems.
Conclusion:  both Singapore and Switzerland have high quality, cost efficient free market health care systems which proves that a free market approach is possible.  Mr. Roy adapts and expands the Swiss model for the much larger and more complex American market.  It isn’t necessarily the last word in healthcare reform but it takes a big step in the right direction.

Is A Free Market Possible in Health Care?

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With a total national debt of $17.8 trillion, of which close to $13 trillion is public debt (on which we pay interest), it is easily understood that the U.S. has a very serious fiscal problem. At the present time the public debt is 74% of GDP and this already high percentage is predicted by the Congressional Budget Office to keep growing indefinitely.
The biggest driver of spending growth going forward is the cost of healthcare.  For example just the three programs, Medicare ($492 billion), Medicaid ($280 billion) and Veterans Healthcare ($54 billion), cost a total of $826 billion per year in federal dollars.  And these costs are all increasing rapidly.  Of course, private healthcare spending, currently about $2 trillion per year, is also growing rapidly.  Overall, the U.S. spends 17.3% of GDP on healthcare spending, public and private, almost twice as much as any other developed country.
How are we going to address this enormous cost issue going forward? The Affordable Care Act (aka Obamacare) doesn’t do it.  What it does do is to provide healthcare to more people under our current model of employer provided health insurance with Medicare for the elderly and Medicaid for the poor.  It is this model which is broken and must be reformed. Basically we have two choices for how to do this.  Either we switch over to a “single payer” system like most of the other developed countries have or we establish a far more efficient free market system.
Capture  As the above chart shows, right now we have a composite system and it is just not cost-effective. There are plenty of experts who claim that a free market cannot work in healthcare.  For example, the tax lawyer, Edward Kleinbard, in a new book, “We Are Better than This: how government should spend our money” argues that what a free market gives us is:  unavoidable controversy for excluded pre-existing conditions, moral hazard for risky behavior, uncertain premiums for permanent insurance, fragmented healthcare markets, monopoly provider organizations leading to price opacity, very high administrative costs, etc.
Capture1The Manhattan Institute’s Avik Roy has a different point of view.  In his proposal, “Transforming Obamacare,” (http://www.manhattan-institute.org/pdf/mpr_17.pdf) he points out that there are two countries, Switzerland and Singapore, which operate highly regarded free-market healthcare systems at very low public cost. Stay tuned for further discussion!

Income Inequality and Rising Health-Care Costs

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There seems to be a general consensus on the reality of increasing income inequality in the U.S. and even some agreement on its two main causes: globalization and the rapid spread of technology. The slow growth of the economy since the end of the recession has made the inequality problem that much worse.
CaptureNot surprisingly, slow economic growth in the past five years has led to stagnant wages for many workers.  My last post addressed this problem.  The above chart from the New York Times shows that incomes for top wage earners have been rising in recent years while they have been stagnant for middle- and lower-income workers.
But there is more to it than this.  In yesterday’s Wall Street Journal, Mark Warshawsky and Andrew Biggs point out that, “Income Inequality and Rising Health-Care Costs,” in the years 1999 – 2006, total pay and benefits for low income workers rose by 41% while wages rose by only 28%, barely outpacing inflation.  For workers making $250,000 or more total compensation rose by a lesser 36% while wages grew by a greater 35%.  This apparent anomaly is explained by the fact that health insurance costs are relatively flat across all income categories, thus comprising a much larger percentage of the total pay package of low-income workers than for high-income workers.
Capture1In fact, the Kaiser Foundation has shown that low-wage workers tend to pay higher health insurance premiums, as well as receiving lower insurance benefits, than higher paid workers (see the above chart).
Overall, what this means is that employer provided healthcare is taking a huge chunk out of the earnings of low-income workers which makes income inequality much worse than it would be otherwise. Of course, the cost of healthcare is a huge burden for the entire U.S. economy, currently eating up 17.3% of GDP, twice as much as for any other developed country.
For both of these reasons it is an urgent matter for the U.S. to get healthcare costs under control.  Avik Roy of the Manhattan Institute has an excellent plan to do just this as I have discussed in several recent posts.

What Happens When We All Live to 100?

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This is the title of an article in the current issue of Atlantic. Of course, it is a rhetorical question, but it raises a very serious issue.  There are 43 million Americans age 65 or older today and this number is expected to reach 108 million by 2050.  How will society cope with so many more senior citizens?
CaptureThis blog is concerned with the most critical fiscal and economic problems facing our country.  The biggest fiscal problem we have is how to pay for the three major entitlement programs: Social Security, Medicare and Medicaid.  Social Security can be shored up with small adjustments to either the benefits formula or by raising taxes a little bit.  Medicaid can be kept under control by block-granting the program to the states.  But Medicare is a much bigger problem.
Capture1The cost of healthcare, both public and private, is rising rapidly as shown in the above chart from the New York Times.  We badly need a new approach to control costs and Avik Roy from the Manhattan Institute has given us such a plan “Transcending Obamacare: A Patient-Centered Plan for Near-Universal Coverage and Permanent Fiscal Solvency.”
The problem is that, as Mr. Roy explains, “by creating a universal, single-payer health care program for every American over 65, regardless of financial or medical need, the drafters of Medicare made the program extremely difficult to reform.”  But now we have to reform it because the costs are becoming so huge.  How do we do it?
First of all, Mr. Roy’s plan keeps the exchanges created by the Affordable Care Act and turns them all into state-based exchanges.  It also eliminates both the individual and employer mandates, replacing these mandates with financial incentives.
Mr. Roy’s core Medicare reform is very simple.  The plan increases the Medicare eligibility age by four months each year.  The result is to preserve Medicare for current retirees, and to maintain future retirees – in the early years of their retirement – on their exchange-based or employer-sponsored health plans.  In other words, retirees will gradually be migrated to the same system, with the same level of subsidy, as for working people.
Everyone, workers and retirees alike, will be treated the same. Not only is this an eminently fair system, it insures that Medicare remains affordable, for both retirees and the whole country.

Three Cheers for Blue Cross Blue Shield Nebraska!

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As I reported in my last post healthcare costs in the U.S. are expected to start climbing rapidly in next few years as the economy continues to recover and insurance coverage expands.
The Manhattan Institute’s Avik Roy has proposed a comprehensive new plan, ”Transforming Obamacare” to achieve, at the same time, both near-universal coverage and stringent cost control for healthcare.  Mr. Roy emphasizes the need to regulate hospital system consolidation which is especially responsible for driving up the cost of healthcare.
CaptureIn Omaha NE, where I live, there are three hospital systems: Catholic Health Initiatives, the Nebraska Medical Center and the Methodist Hospital System.  According to the insurance company, Blue Cross Blue Shield Nebraska (OWH 9/6/14), “CHI prices are 10 to 30 percent higher than for the Nebraska Medical Center and Methodist Hospital System.”  BCBS insists that CHI cut its prices.  As of September 1, CHI hospitals are out of network for BCBS and so patients who are insured by BCBS have to pay higher hospital rates.
“We are ready and willing to meet with them when they propose an agreement that gets serious about the cost issue,” said Lee Handke, a senior vice-president for Blue Cross Blue Shield.
Reports the OWH  “Blue Cross’ biggest customers are the region’s employers, whose 560,000 workers and family members supply 80% of Blue Cross’ revenue each year.  A big share of these people are CHI customers, too. … Blue Cross has told us (an insurance benefits broker) they understand that they might lose some business over this deal, but they feel that the point they have to make on the cost disparity is more important.”
For one hospital system to charge 30% more than two others for the same services is totally unacceptable.  It means that customers for the other two systems are paying higher insurance costs in order to subsidize the system with the higher prices.
In the Omaha market, Blue Cross has the clout and the will to force CHI to lower its prices.  But many other communities may not be as fortunate.

The High Cost of U.S. Health Care and What To Do About It

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The United States spends 17.2% of GDP on healthcare costs, public and private, almost twice as much as any other developed country, and this percentage is gradually increasing.  In today’s New York Times there is a good discussion about these rising costs (see below).
Capture1My recent post, “Fixing Obamacare Rather Than Replacing It,” discusses a comprehensive new healthcare reform proposal by Avik Roy of the Manhattan Institute.  Mr. Roy’s plan both expands health insurance coverage beyond ACA levels as well as reining in the huge costs of healthcare. As Mr. Roy says “Among the industrialized member countries of the OECD, the average hospital stay cost $6,222 and lasted 7.7 days in 2009.  In the United States, the average hospital stay cost $18,142, despite lasting only 4.9 days.  In other words, the average daily cost of a hospital stay in the U.S. was 4.6 times the OECD average.”  Mr. Roy goes on to show that it is hospital system consolidation which is especially responsible for driving up the cost of health insurance.
CaptureThere is a clear example of this situation in Omaha NE where I live.  There are three hospital systems here: Catholic Health Initiatives, the Nebraska Health System and the Methodist Health System.  As stated by the CEO of Blue Cross and Blue Shield of Nebraska in the Omaha World Herald on August 28, 2014, “Our experience in addressing health care costs is precisely what led us to our current negotiations with Denver-based Catholic Health Initiatives.  CHI’s Alegent Creighton Health network of hospitals and physicians charges our members up to 30 percent more than other providers in Omaha for the same services. … These numbers reinforce a simple truth: We cannot allow one provider group to charge our members more for the same services they can receive elsewhere.”
We are fortunate in Omaha to have a choice of three different hospital systems and an insurance company with sufficient clout and integrity to fight price gouging by one of these systems.  But not every community is as fortunate as Omaha in this respect.  This is just one simple example of why cost control needs to be at the center of healthcare reform.