A Fresh Look at Health Care Reform; Part I of II

Most plans for health care reform that stress “choice” give families the opportunity to choose from a menu of plans that offer insurance at different prices. In effect, families are “free to choose” the health care plan that they can afford. (More accurately, they are “forced to choose” the plan they can afford.)

Imagine, instead, a proposal for health care reform that guarantees free, high quality health care for all Americans. No premiums. No deductibles. Under this plan, the government insists that all insurers offer the same comprehensive benefits to everyone including: office and home visits, hospitalization, preventive screening tests, prescription drugs, some dental care, inpatient and outpatient mental health care and physical and occupational therapy.

These benefits are more generous than Medicare’s and more comprehensive than what 85 percent of all employers offer their employees. (Individuals who want to purchase coverage for additional services like concierge medicine, experimental drugs for serious conditions, complementary medicines or more mental health benefits could do so.)

If this all sounds too good to be true, you need to read Health Care, Guaranteed by Dr. Ezekiel Emanuel. Published this month, Health Care, Guaranteed offers a bold, refreshing plan for health care in America. The charm of the proposal is four-fold:  It faces up to the fact that reform won’t pay for itself, and it offers a funding mechanism that is fair, efficient and could deliver high quality care nationwide. It regulates insurers, forcing them to concentrate on quality.  Finally, and perhaps most importantly, this plan insulates our health care system from the lobbyists who, today, have far too much control over our health care system.

Dr. Emanuel has the background and experience needed to help draft a blueprint for health care reform. An oncologist who also has a Ph.D. in political science and now serves as Chair of the Department of Bioethics at the Clinical Center of the National Institutes of Health, Emanuel is attuned to the ethics as well as the politics of medicine, and he understands the needs of seriously ill patients.

Emanuel’s ambitious plan would replace employer-based insurance with
insurance that offers generous benefits to everyone who is not now
covered by Medicare, Medicaid or SCHIP.  (Anyone now enrolled in one of
these three programs could, if they wish, switch to the new Guaranteed
Healthcare Access Plan.  Over 15 years, Medicare, Medicaid and SCHIP
would be phased out.) 

Affordable, High Quality Care

Under the proposal, all Americans would receive a health certificate
entitling the individual or family to enroll in the health care plan of
their choice. In most cases, they would keep their current physician.
The certificate would not be a “cash card” to buy services; instead it
would be a voucher that gives the individual or family the right to
enroll in whatever insurance plan they choose.

Thus, under Emanuel’s plan, all Americans are treated equally. The
vouchers are of equal value, and the health plans must all offer the
same rich package of benefits. No cheap “Swiss Cheese” plans riddled
with hidden holes. No high-deductible plans.  To distinguish
themselves, health care plans would have to compete on quality, not on
price.

Emmanuel’s plan also eliminates vexing problems like mandates that
require all Americans to purchase insurance. No one would be forced to
buy insurance; everyone would simply receive a voucher that entitled
them to an equal place in our healthcare system—at no charge.

How Do We Pay For It?

But what is most intriguing about the Guaranteed Healthcare Access
System is its financing. Emanuel would pay for the nation’s health care
with a 10 percent value-added tax (VAT). Revenue from the tax could not
be diverted to other uses such as the military or Social Security. No
other tax revenues would be use to pay for the Plan.  And although
Emanuel calls for a new tax to support the program, in the end, we as a
nation would be paying no more than the $2.2 trillion that we now spend
on healthcare. The money would simply be collected in a more equitable
way and spent in a more rationally, avoiding waste and excessive
administrative costs.

Unlike many health care reformers, Emanuel doesn’t shy away from
acknowledging the true cost of providing high quality care for all
Americans. Unless they are funded, other plans might provide health
insurance to everyone, but not affordable health care.

As Bob Laszewski points out today
on Healthcare Policy and Marketplace Review, the Massachusetts plan has
demonstrated that if we don’t make major structural changes in the
system, money can easily become the biggest obstacle to health care
reform.  Like most other would-be reformers, Massachusetts
underestimated what universal coverage would cost—and did not make the
changes needed to reduce waste and contain costs. As a result,
Laszewski observes:

“The 2006 Massachusetts Health Insurance Law is looking to be little
more than an expensive expansion of Medicaid and that does not bode
well for Barack Obama who has used the Massachusetts health reform law
as the template for much of his own health care reform plan––as did all
major Democratic candidates including Hillary Clinton.”

While the Massachusetts plan has enrolled some 176,000 citizens who
qualified for subsidies, “the Massachusetts Health Insurance Law is
doing almost nothing for the middle-class because people can’t afford
the premiums––leading the state to also back-off on the individual
mandate for these people,” Laszewski explains. “For example, almost all
families would need an income of at least $110,000 a year” in order to
afford the insurance.

“The cost for the program in its first year––July 1, 2007 to July 1,
2008––was first estimated to come in at $472 million when the bill was
passed in 2006” Laszewski points out.. “Now, in May, in a statement to
bond rating agencies, the Governor has estimated that the fiscal year
2008-2009 costs will be more like $1.1 billion––a 50% increase over the
original estimate from less than two years ago!”

By contrast, Emanuel begins by calculating costs, and estimates that a
10 percent value-added-tax (VAT) could raise enough money to provide
free, comprehensive health care for all citizens—with minimal co-pays
and no deductibles. 

Isn’t a VAT Regressive?

Granted, at first glance, a VAT sounds like an extraordinarily
regressive solution. A VAT, like a sales tax, adds to the cost of
everything that we buy. This can place an unfair burden on low-income
families that must spend a much higher percentage of their incomes just
to buy necessities.

But before considering the impact of the VAT on middle-class families,
take a look at how it works.  Under a VAT system, consumption is taxed
throughout the chain of production, not just at the point of consumer
purchases. When a manufacturer purchases raw materials from a supplier,
it pays a tax to the government; when the manufacturer turns around and
sells the good to the retailer, the retailer again pays a tax with its
purchase; and the consumer pays the VAT when he or she buys the final
product from the retailer. The amount that each player pays is a fixed
percentage of the transaction price (in Emanuel’s plan, it would be 10
percent).

Critics who argue that a VAT is regressive have a point. But instead of
just looking at how the taxes are collected, you need to look at how
those tax dollars are distributed. Do that and you discover that
because, in this case, the VAT is used solely to fund health care,
working-class and middle-class families would receive
more-than-full-value for their VAT dollars.

For example, a median income family earning $50,000 a year might well
spend the entire $50,000  on housing, food, utilities,  clothing,
transportation, etc. Under a 10 percent VAT, they would pay $5,000 a
year to help fund universal coverage. But, in return, Emanuel points
out, they would receive health insurance worth at least $12,500 (the
going price for an employer-based family plan).

But what about high-spending, high income families—would they think a
VAT was fair?  Consider the impact of a 10 percent VAT tax on a family
that earns $200,000 and spends $170,000 a year.  Suddenly, that
household would be paying an extra $17,000 in taxes. Granted, it would
be receiving health insurance worth $12,500.  But today, most families
in that income bracket already have insurance through their employer.
And, as we’ve discussed here
on HealthBeat, the typical “higher-wage” worker pays only about 25% of
the premium, or roughly $3,000 for a family plan. Under Emanuel’s plan
that family would be paying an additional $14,000 dollars ($17,000 in
VAT taxes minus $3,000 that they no longer pay toward the premium).

But, Emanuel points out, if employers are no longer required to offer
health benefits, workers can expect a one-time raise roughly equal to
what the employer was paying toward the employee’s benefits.  In a
phone interview last week, Emanuel acknowledged that not all employers
would be that generous, but if they wanted to hold onto their most
valuable employees, most would hand out raises. In that scenario, the
family earning $200,000 would be likely to receive a $9,000 raise—
roughly equivalent to what the employer was paying toward its
healthcare. That family is now spending only $5,000 more than they had
in the past ($14,000 minus the $9,000 raise.)

And it’s likely that, for a family earning $200,000, a cut in state
taxes would more than cover the extra $5,000. Today, the average state
spends more than one third of its budget on health insurance for state
employees, Medicaid and SCHIP. The very first year, states would no
longer have to cover employees, and both Medicaid and SCHIP would begin
to shrink. Ultimately, as those two programs were phased out, the
savings would be enormous. ““What state governor wouldn’t like to be
able to cut taxes by, say 25 percent, and still have change left over
to improve education?” asks Emanuel.

For high-spending, affluent families who would be paying more in VAT
taxes pay raises and state tax cuts would probably make up for the
extra taxes. But middle-income families also would benefit from lower
taxes and higher wages. Moreover, Emanuel expects that since employers
would no longer be burdened with health benefits, they might well hire
more employees, which would be good for workers on every rung of the
income ladder.

In part 2 of this post, I’ll answer three questions:

  • Why introduce the possibility of a new tax into an already
    fraught health care debate? If we do ultimately need to raise taxes to
    fund health care reform, why not just raise income taxes in the upper
    brackets?   
  • How exactly would this plan control costs so that we don’t have to raise the VAT every other year?
  • How does Emanuel shield his plan from the lobbyists and politicians who might ruin it?

24 thoughts on “A Fresh Look at Health Care Reform; Part I of II

  1. Maggie,
    I look forward to reading Part II. Within the cost control segment, I’ll be especially interested in his thoughts about (1) getting away from the fee for service payment model, (2) reducing defensive medicine by reforming the dispute resolution system, and (3) setting limits fairly (rationing).
    In the meantime, I think there are several potential problems with the proposal as described. First, the 10% VAT rate is unlikely to raise anywhere near the amount of money required to pay for the scope of health insurance benefits proposed which is much more generous than most people currently receive. VAT’s in Europe apply to, at most, 40%-45% of GDP. There are a host of exemptions (or at least lower rates) for necessities like food and rent. What about all the goods and services (including healthcare) that government purchases? Would the 10% VAT apply to those? What about services that governments provide like police, fire and elementary and secondary education? Would it apply to college tuition? Second, low income people who currently don’t have health insurance and are having trouble making ends meet now would, under this proposal, find everything they buy suddenly costs 10% more, but they won’t get a raise from their employer because the employer doesn’t provide health insurance. Third, the elderly, for their part, who built up savings by investing after tax income during their working years and are now gradually consuming their wealth during retirement will not appreciate having to pay 10% more for everything they buy.
    To raise 10% of GDP to fund health insurance for all, excluding Medicare and Medicaid which would remain as is for the time being, I think the VAT rate would have to be closer to 20% to 25% if its scope is comparable to the European approach, and that would be a tough sell politically. Once in place, a VAT is easy to increase which makes it attractive to governments but scary to taxpayers.
    If you want to finance health insurance with tax dollars, a payroll tax is a better approach which is used in several European countries. It also has the virtue of transparency and would appear on every pay stub so everyone knows exactly how much he or she is paying. The poor could be protected by adjusting the Earned Income Tax Credit and we could integrate the income, FICA and healthcare payroll tax to make sure that nobody pays more than, say, 33%-35% of gross income in total federal taxes combined including payroll taxes nominally paid by the employer. We would also need an Alternative Minimum Tax to insure that investors who derive all or most of their income from capital gains and qualified dividends pay a total tax burden that is at least comparable to what the middle class pays, which is not the case under the current system.

  2. Barry–
    I too was concerned as to whether the 10% VAT would raise enough money.
    But when I interviewed Emanuel by phone last week, he explained that the 10% figure raises enough money to cover everyone who is now covered by employers (including states) or uninsured.
    A significant part of the $2.2 trillion that we now spend on healthcare is government spending on the Veterans Administration,
    support for public hospitals, programs in schools, etc. The VAT tax is not trying to cover these expenditures.
    In addition, a significant share of the $2.2 trillion is spent on adminstrative costs that have nothing to do with private insurers, but rather, are driven by the fact that so many private insurers are selling to so many private employers.
    As you know, the fragmentation of the system is very expensive.
    Emanuel expects that under his plan, many fewer insurers would stay in the game . And they would not have to market to zillions of employers. Nor would employers have to pay human resource departments to choose among so many insurers.
    Most importantly, under Emanule’s plan, comparative effectiveness research will ultimately reduce spending on over-priced, ineffective treatments while the incentives which force insurers to compete on quality should lead them to become more creative about raising quality while reducing costs. (I talk about all of this in part 2 of the post. Here, it’s very important that Emanuel’s plan insulates both the health care plan and comparative effectiveness research from both politicians and lobbyists. I’m posting part 2 tomorrow.
    I won’t try to go into detail here, but Emanuel is not fluffing the numbers. We spent some time talking about them; he’s very intelligent and honest. Trust me, they work.
    I thought of you as I read Emanuel’s book. I think you would appreciate it.
    I have never been a fan of a VAT tax. But Emanuel persuades me that in this case, it makes sense (See part 2 on why it’s better than more income taxes.)
    He makes a very interesting argument that by collecting the money more efficiently (through a tax that’s hard to cheat on) and distributing it more rationally (weeding out less effective, over-priced care) the money that we spend now (as a percent of GDP) could provide high qauality care for all.
    I can imagine that you might be concered that the lack of deductibles plus low co-pays might lead to
    patients over-using care. But the experience of Euopean countres where preventive care and tests are available at no charge suggests that this is not a problem. It’s well wroth dropping the $25 co-pay to get people to come in for
    care that we know works.
    Meanwhile, if we elminate the unproven care, we save the millions spent on care advertised DTC that hypes unproven treatments while exploiting patients’ hopes.

  3. Barry–
    I too was concerned as to whether the 10% VAT would raise enough money.
    But when I interviewed Emanuel by phone last week, he explained that the 10% figure raises enough money to cover everyone who is now covered by employers (including states) or uninsured.
    A significant part of the $2.2 trillion that we now spend on healthcare is government spending on the Veterans Administration,
    support for public hospitals, programs in schools, etc. The VAT tax is not trying to cover these expenditures.
    In addition, a significant share of the $2.2 trillion is spent on adminstrative costs that have nothing to do with private insurers, but rather, are driven by the fact that so many private insurers are selling to so many private employers.
    As you know, the fragmentation of the system is very expensive.
    Emanuel expects that under his plan, many fewer insurers would stay in the game . And they would not have to market to zillions of employers. Nor would employers have to pay human resource departments to choose among so many insurers.
    Most importantly, under Emanule’s plan, comparative effectiveness research will ultimately reduce spending on over-priced, ineffective treatments while the incentives which force insurers to compete on quality should lead them to become more creative about raising quality while reducing costs. (I talk about all of this in part 2 of the post. Here, it’s very important that Emanuel’s plan insulates both the health care plan and comparative effectiveness research from both politicians and lobbyists. I’m posting part 2 tomorrow.
    I won’t try to go into detail here, but Emanuel is not fluffing the numbers. We spent some time talking about them; he’s very intelligent and honest. Trust me, they work.
    I thought of you as I read Emanuel’s book. I think you would appreciate it.
    I have never been a fan of a VAT tax. But Emanuel persuades me that in this case, it makes sense (See part 2 on why it’s better than more income taxes.)
    He makes a very interesting argument that by collecting the money more efficiently (through a tax that’s hard to cheat on) and distributing it more rationally (weeding out less effective, over-priced care) the money that we spend now (as a percent of GDP) could provide high qauality care for all.
    I can imagine that you might be concered that the lack of deductibles plus low co-pays might lead to
    patients over-using care. But the experience of Euopean countres where preventive care and tests are available at no charge suggests that this is not a problem. It’s well wroth dropping the $25 co-pay to get people to come in for
    care that we know works.
    Meanwhile, if we elminate the unproven care, we save the millions spent on care advertised DTC that hypes unproven treatments while exploiting patients’ hopes.

  4. Maggie,
    I would actually like to believe that something like this could work, but I’m having a hard time. First, back to the VAT itself, if it is modeled after the European approach, it is unlikely to raise more than 4.0%-4.5% of GDP. While I’m unclear as to just how much of current healthcare spending it is intended to replace, even if Medicare, Medicaid, the VA, NIH and CDC all remain in place funded the way they are now, it doesn’t look like nearly enough money. Moreover, since states and cities generally view sales taxes (which the VAT is at its core) as one of the key revenue raising approaches available to them, they won’t like the federal government encroaching on what they view as their turf. I think a payroll tax would be a better way to go, though it is easier to avoid paying for sole proprietors and small business people who operate largely on a cash basis.
    With respect to administrative savings, I don’t think corporate HR spending, paying consultants to help them choose an insurer, etc. amounts to all that much in the overall scheme of things. Indeed, it could be even more expensive if insurers have to market to individuals one person at a time like they do now for Medicare Advantage and Part D. In most states, there has already been lots of consolidation among insurers. Usually, the local Blue and some combination of United, Aetna, Cigna and Humana have most of the business. Wellpoint (Anthem) has 14 Blues licensees itself. Doctors’ fees account for 22% of healthcare spending of which about half goes for their practice expenses. Of the 11% for practice expenses, 6.5%-7.0% is for office staff, and, of that, probably only half at most relates to billing and dealing with insurers to get authorization for treatments, etc. Other staff can include NP’s, techs to draw blood, etc., people to make appointments, transcribe records and the like, all of which would be needed under any system. Hospitals, for their part, spend very little of their revenue for billing and dealing with insurers – probably well under 1% at most.
    The most talked about other cost reduction strategies are likely to prove disappointing, at least in the short run. Health IT will be expensive to put in place. It could have great value longer term to facilitate data collection and analytics but is more likely to cost money than save it in the short term. Prevention is also overrated. Any near term savings from keeping people healthy is likely to be swamped by bringing the currently uninsured into the system. Finally, while I’m a big believer in the potential savings to be had from a good sound Comparative Effectiveness Institute, it could take several years for it to gear up and tell us which drugs, devices and treatments are worth paying for and which aren’t.

  5. A VAT simply puts all American-made product at a 10% disadvantage and corporations will move even more jobs overseas. Instead we need a 10% tariff on imported goods, which is admittedly regressive but it will bring jobs back to the US. Alternatively, lift the cap on Medicare taxes and have the citizenry pay on the basis of income for a Medicare-for-all system.

  6. Maggie,
    A couple of follow-up comments.
    First, perhaps you can clarify this, but it sounds like Emanuel also assumes that wage increases that offset what was previously spent for health insurance would be fully subject to both income and FICA taxes. On a conference call with investors yesterday, Dr. Jonathan Gruber of MIT pegged the value of this subsidy at $225 billion per year.
    A look at how this combined approach might affect a $60,000 per year wage earner with good employer provided family coverage is instructive. I assume the insurance policy costs $12,500 per year of which the employee pays 20% or $2,500 (pretax) and the employer pays $10,000. While the employee typically perceives his income as $60,000, economists would also include the employer’s share of FICA taxes ($4,590 in this case) plus the $10,000 contribution toward health insurance for total compensation of $74,590. For the sake of simplicity, I’m ignoring other benefits like disability insurance,401-K matching contributions and the like. In a high tax state like NY, NJ, MA, IL or CA, the combined tax burden on the $60,000 of wages could be 30% including income and FICA taxes at the federal level plus state income and sales taxes as well as local property taxes, gasoline taxes, etc. His true total tax burden under the current system is $22,590 on total compensation of $74,590 or 30.3%.
    Under Emanuel’s proposal, the employee’s $2,500 contribution would disappear. His salary would rise by $10,000 / 1.0765 or $9,289 because the employer also has to cover an incremental $711 of FICA taxes. I assume the employee pays the same 30% combined tax burden on the extra $9,289 of wages and the $2,500 contribution to health insurance that is no longer required plus, implicitly, the employer’s $711 of extra FICA taxes. That works out to $4,248 of additional taxes on $9,289 of higher wages and $11,789 of incremental gross cash flow including the former health insurance contribution. Assuming the employee spends $40,000 per year on living expenses that will now be subject to the 10% VAT, that’s an additional $4,000 in taxes. So, that’s $8,248 extra for taxes but it replaces $12,500 formerly spent by the employer and employee combined for health insurance.
    While the employee with these circumstances is left approximately $3,500 per year net better off from a cash flow standpoint, his total tax burden is now 41.7% instead of 30.3%. Higher income employees and those who only need single coverage are likely to be considerably worse off financially under Emanuel’s proposal.
    I am also troubled by the one size fits all nature of it. Basically, it sounds like he is proposing enhanced Medicare for All with no choice regarding deductibles and scope of coverage but the opportunity to buy additional coverage beyond the (very comprehensive) basic plan.
    I am also concerned about overuse of the system if there are no deductibles and co-pays. I can recall numerous times over the years when I got a cold, sore throat, mild fever, etc. which resolved itself in a day or two. If I could get an appointment on a timely basis and didn’t have to pay anything, I would be tempted to go to the doctor just to seek reassurance that it’s nothing serious and will resolve itself soon. Multiply this millions of times and it’s easy to envision both high costs and crowded doctors’ offices. I think we’ll probably just have to agree to disagree on this. I think co-pays and deductibles are a prudent way to control utilization for minor problems. I think most adults know their own bodies well enough to tell when they should get to a doctor quickly and when they can safely wait awhile.

  7. Everyone–Answers to some of your questions will be part of Part 2 of this post. We’re puttin it up this afternoon, so I won’t reply now, except to Barry’s most recent comment:
    Barry–
    Yes– under this plan the employee no longer enjoys tax-free health insurance benefits.
    But those tax-free insurance benefits are probably going to disappear, even if we don’t have health care reform.
    Congress has become increasingly aware of the fact that this is a tax break which favors high income employees–who are most likely to a) have employer-baed insurance and b)have 75% to 100% of the premium paid by their employer.
    This is an enormous tax shelter. Since the employer deducts the cost of the benefit on his corporate income tax, this is income that is never taxed.
    Given the economic problems the coutry is going to be facing, and given that the Democrats are likely to have a majority in Congress, this is a tax shelter whose days are numbered.
    On the effect of low co-pays and no deductible, all I can do is refer you to all of the research which shows that people are in much better health in countries like Germany, Sweden, etc. where there is no payment at point of service.
    And in this country, we know that when co-pays are removed, women go for mammograms, vets go to smoking cesssation clinics. Everyone knows that mammograms are effective, but a $15 co-pay acts as a barrier.
    You and I may think this is foolish, but that really doesn’t matter. We’ll all wind up paying for the woman you gets breast cancer.

  8. Dear Maggie,
    Surely if a VAT tax would work as well as Emanuel believes, the savvy industrialized democracies around the world would be using a VAT to fund health care for their people. As far as I know, most have opted for progressive payroll and personal taxes instead. No premiums, no deductibles, no co-pays, no denials, no recissions, no uninsured. And no high-profit insurers! Why should we continue to funnel our tax dollars monies to unnecessary insurers –even regulated insurers?
    In a May 1 floor speech in the Senate, Sen. Ron Wyden, cited Dr.Orszag, head of the Congressional Budget Office, remaking that “evidence suggests as much as 30 percent of the health care dollar is spent in a fashion that produces very little value.”
    We know where that 30 percent is going, don’t we?
    If we could use that 30 percent for a “Medicare for all system,” doctors would be fairly reimbursed. It’s my view that the Bush administration is deliberately trying to starve Medicare in order to undo it.
    It is frustrating to see so many machinations by those attempting to protect the private insurers who are, in no way, health care providers.
    And as to the “moral hazard” argument posted, i think, by Barry Carol. That argument has been refuted by research in Canada. When was the last time you wanted to sit in a doctor’s office for the fun of it?
    Support HR 676–the single payer solution.
    And thanks for this good blog.

  9. I did my weekly DKos diary on this last week; Trying to Split the Difference – SinglePayer-MultiPlan:
    DKoshttp://www.dailykos.com/story/2008/5/23/164828/966/275/521440
    Depsite their borrowing the vouchers terminology from the U.S. Education debate, what this really is a trying to shoehorn the current system with private for profit insurers into a France or Germany like system. The hope is that the for profit insurance companies are too powerful for HR-676 to even be considered, but that they will allow themselved to be regulated into good behavior (comprehensive quality coverage, community rating; guaranteed enrollment, etc). From a single payer activist perspective it is valiant but silly. Meanwhile we await Maggie covering single payer, PNHP, CNA, Conyers, Nationwide Grassroots campaign, etc. as much as a new book by some has-been academics. Still waiting.

  10. Dr. Steve b–
    In Daily Kos, you write “However, it is not a trivial difference that in those countries (France and Germany) the “Funds”, the Plans, are all not-for profit. They are very tightly regulated and really do have to offer the services to everybody, universal pool & guaranteed issue, but also minimal personal out of pocket costs. They are really more like old-style regulated quasi-private utilities.”
    That’s all true. And Emanuel assumes that the vast majority for-profit insurers would drop out rather than remaining in this highly-regulated plan.
    Who would remain in? Kaiser, for one and other good insurers. Ideally large multi-specialty clinics might offer insurance.
    When Kaiser introduced its high-deductible plan they told me they thought this was terrible public policy, but had no choice because they had to compete with for-profit insures.
    Good not-for-profits and some good for-profits (of which there are fewer) might well accept the regulation.
    Here is the upside for them: they are guaranteed a market. (Right now for-profit health insuers are in trouble because a) employers are backing out
    b) they known that the next Congress is likely to take away the bonus for Medicare Advantage and c) they have invested too much in too many sub-prime mortgage products.
    As for insurers having to take everyone in a community and charge them the same price, young or old, sick or healthy–this what we do in New York State now, and it works.
    The argument that Emanuel makes about single payer in the book is powerful: he points out that under single-payer the health care system has to go to Congress for annual appropriations.
    This means that the lobbyists would control our health care system.
    Under his plan, a VAT dedicated soley to healthcare funds the plan independently. Neither the Health Care Board nor–most importantly– the Institute that assess the quality of
    drugs, devices and procedures would have to go to Congress for appropriations.
    I have been wracking my brain as to how to insulate reformed health care from politicians and lobbyists. This is what I love about the VAT.
    Could single payer be funded by a VAT? Perhaps, but if it was a health care plan wholly run by the government I think it would be much harder to keep it separate . . .
    Do insurers add any value?
    The very good ones–that actually attempt to “manage care” to produce higher quality at a lower cost– do. Kaiser in Northern California is very good.
    I can remember the time when virtually all health care insurers were not-for-profit. As you probably know, this all changed after Reagan came in in 1980 and rescinded the tax breaks for not-for-profit
    health insurers.
    That’s when the for-profits came into the market. Aetna etc. had never sold health insurance.
    By the early 1990s for-profits were squeezing out the not-for-profits. That’s what doomed “managed care.”
    Paul Ellwood’s original idea was that not-for-profit insurers would compete on quality, not price.
    Under the voucher system in Emanuel’s plan, insurers couldn’t compete on price. They all would be paid with vouchers of equal value. To distinguish themselves they would have to compete on quality. . .

  11. I still grapple with what to me is the fundamental question: what actual value do insurance companies add to healthcare? The answer, to me, is none. Still, I can see drsteveb’s point (in his Kos post he links to) about the Netherlands–a lot of folks just want some choice, even if it would be among essentially identical plans.

  12. >>> “This means that [under single-payer] the lobbyists would control our health care system.”
    What lobbyists? Under a Medicare-for-all system the health care lobbyists can perhaps seek higher payments, but that is about all. Clearly, if we could mandate that they could not lobby with cash in hand, that would go a long way toward reducing even that control.

  13. Hariette & Jac
    Thanks for your comment.
    AS I’ve said in the past, I like the single-payer concept but we are so very far away from having the votes in Congress that it doesn’t seem practical.
    The last 8 years have not given people a lot of confidence in the federal government running anything.
    Also, see part 2 of this post where Emanuel explains how his plan would be much better insulated from lobbyists because it would not have to go to Congress for
    appropriations–it would be completely funded by a dedicated VAT tax.
    Could a dedicated VAT tax fund single-payer? This might be possible, but if it was truly totally run by the government this would be very, very difficult. Congress would be in charge of it. Which is to say lobbyists would be in charge of it.
    Jack– Emanuel’s plan includes a 10 percent tax on imports. If foreigners pay the 10% VAT it is refundable (just as I get a refund if I pay a VAT while visiting Canada.
    Harriet- Europeans don’t use a VAT to fund healthcare because they already have a VAT. It would be “more of the same”–see part 2 of the post on how more income taxes would be “more of the same” here.
    the 30% that Ortzag is talking about is spent on “unncessary tests, unproven sometimes unwanted treatments, and over-priced drugs and devices.” He has written about this in detail, referring to the Dartmouth reserach that I also have written about. (in a rush now, but remind me and I’ll give you a link)
    Private insurers actually don’t add that much to the
    cost of care. But they do add something, and the question is: do they add any value in return for the extra cost.? See my reply to Dr. Steve below. I think well-regulated insurers could add value, especially if they were not-for-profit.
    Kaiser, for example, has deloped electronic records that help it deliver better care and is working on chronic disease management.
    The big problem with private insurers is not that they add to costs but that they sell policies that are filled with holes, and that in states where they are allowed to, they “cherry pick” refusing to cover sick patients–or charging exorbitant rates.

  14. Maggie,
    I think the overall health status of the population in Western European countries is better than in the U.S. primarily because of their much lower incidence of obesity. Data that I’ve seen show that the U.S. obesity rate (defined as a Body Mass Index above 30) among the 15 and older population is 31%. In most Western European countries, the range is 9% to 13% except in the UK where it’s 23%. I think cultural differences in diet and, to a lesser extent, exercise are the primary drivers of these differences.
    Even within countries, there are considerable differences that are only partly related to socioeconomic status. In the U.S., for example, people in the South eat more fried foods. In the UK, the incidence of smoking increases as you move from south to north. I don’t think the presence or absence of health insurance co-pays have anything to do with these differences.
    Also, as Allan points out, differences in the rates of violent death and traffic accident fatality rates can have at least some bearing on life expectancy rates. As for differences in infant mortality rates, there are indeed meaningful differences in how a live birth is defined in different countries with the U.S. employing the strictest World Health Organization criteria in its definition. Other countries don’t count babies that are smaller than 30 centimeters or those that are born more than 13 weeks early. While life expectancy and infant mortality stats can be easily measured, to some extent, it’s garbage in and garbage out and is not a very good measure of healthcare system quality.
    Finally, with respect to a $15 co-pay standing in the way of a woman getting a mammogram, any middle class or upper middle class woman that lets a small co-pay stop her from getting a preventive exam like that and then develops breast cancer is not going to get much sympathy from me. I can see waiving the co-pay for the poorest among us, but for the rest of us, personal responsibility counts for something.

  15. Responding to Allan: there is a fallacy in your argument that US mortality and morbidity numbers look bad because of our social problems of drug addiction. Europe has just as bad a problem with drugs and violence as we do in the US. Yet their citizens are still healthier.

  16. Allan said this:
    “That makes me sad because this country is a leader in the provision of high quality medical care…our system has provided very high quality care.”
    To whom and what is your definition of high quality? You do know we’re referring to healthcare in the United States on this blog? And if we’re doing such a great job delivering high quality care (we are not), then why do you also say this: “We are all looking for solutions…”
    What problems are you seeking solutions for, Allan? Those of us who read this blog appreciate Maggie’s thoughtful and informed posts, the time she spends researching, and would appreciate thoughtful and informed replies from you with your own suggestions instead of criticisms of what you opine Maggie did wrong. This is Maggie’s world and you just live in it.

  17. Jack, Barry, Amy and Chris
    Jack– Lobbyists do more than lobby for higher prices for their goods. The most destructive thing they do is to lobby to have Medicare (or a Medicare for all program)
    cover products and procedures that have not been full tested and should not be in the marketplace.
    They have been very, very successful with their lobbbying efforts. It’s estimated that 1/3 of Medicare dollars are now spent on unproven tests and treatments, ineffective sometimes unwanted procedures and drugs and devices that have not been fully tested and are no better than the less expensive drugs and devices already on the market–but they are riskier.
    This is not just a waste of money; it is hazardous to your health.
    You are right, we need drastic campaign finance reform. But it’s not happening. And without it, Medicare-for-all would be subject to just as much corruption.
    IF you could figure out a way to insulate Medicare from Congress–so that it’s not dependent on Congress for appropriations, that would be great. But so far, no one has been able to do it.
    (This is not as much of a problem in other countires because their campaigns are much, much shorter and much, much less expensive. So they don’t need millions in campaign contributions. And laws about campaign financing are stricter in some places.
    Amy–
    You are basically right.
    When white Americans are compared to white Europeans, the Europeans still are healthier.
    Black and Latino Americans are much more likely to be the victims of violence and are much more likely to be addicted to drugs. When reserachers exclude them from the comparison they are now comparing white Americans to white Euorpeans who are about equally likely to be victims of violence or to take drugs.
    Barry–
    We are more obese than most Europeans but they smoke more (the single most lethal “behavioral” cause of death) and in many countries they drink much more alcohol. (The French and Italians have wine with every meal. The Irish and English consumer staggering amounts of hard liquor (whiskey etc.) plus beer.
    Moreover, growing obesity in the U.S. is a relatively new phenomena.
    Yet you could go back 25 or 30 years and you’d still find that Europeans are healthier.
    Regarding obesity and economic status. Sure, people in the South eat more fried foods, but if you’ve spent time there you know that poorer people are still much more likely to be obese. There diet is less varied because they can’t afford more expensive foods. They don’t have swimming pools in their backyards. They don’t belong to a gym. They are more likely to suffer from depression–which can lead to over-eating.
    Barry, there is an overwhelming correlation between poverty, obesity and smoking. You can look at the public health statistics. Or you can just look around on the street.
    The newest reserach from UCSF (which has done the best work on smoking) shows that 50 percent of U.S. adults who smoke are mentally ill. Many are drug addicts or alcoholics as well. This helps explain why they don’t stop smoking; these are clinically depressed, sometimes schizophrenic, often suicidal people who don’t have much reason to try to kick the habit in order to lengthen their very painful lives.
    AS for the woman who doesn’t get the mammogram when there is a $15 co-pay, this is not about whether you sympathize. (I
    understand why you don’t.)
    But that’s not the point.
    The point is that if she gets cancer, she is going to cost all of us a lot more. Unless you think that we should just refuse to treat upper-middle class women with breast cancer who didn’t get their mammograms . .
    So it’s in everyone’s interest to raise money needed for mammograms through taxes –based on how much people earn, or how much they spend or on some other sliding scale–and then offer mammograms without a co-pay. That way the upper-middle class woman contributes to the cost of her mammogram, and doensn’t have another excuse for not going.
    (Many women hate mammograms. They are terrified of a postiive result–or a false-positive, which are very common and very upsetting.
    Mammograms can be painful for some women, depending on size and shape of breast. Inevitably, there are some women in the waiting room who are crying. All in all, it is not a fun outing. And so when you add a co-pay, or there is a deductible . . .
    Chris–
    Insurers can add value–and this plan would force more of them to try to do it.
    For instance, you may remember the “shared decision-making” programs that I have talked about. Some insurers provide the shared decision-making tools and coaches, free of charge, to their customers.
    Here’s how it works: Doctors at the non-profit Center for Informed DecisionMaking make videos and pamplets that help patients make decisions about elective surgeries such as angiolplasties, treatment for early-stage prostate cancer, mastectomy versus lumpectomy for breast cancer,knee implant, hip replacements, by- pass surgery etc.
    These are called “elective surgeries” because you have a choice. There are risks and there are benefits. When you decide to have the surgery you are making a wager that the benefits will outweigh the risks or side effects.
    The pamphlets lay out the risks and benefits very clearly, as well as the “odds” for certain types of patients–depending on age, how far advanced the disease is, etc.–that you will benefit or that you will suffer side effects.
    The videos show several different patients who made a decision about the same surgery explaining how they arrived at their decision. Usually the patient can identify with one of them.
    Some insurers have begun buying these videos and pamphlets from a company that has a contract to sell the Center for Informed Decision-Making’s intellectual property.
    These insurers also have set up an 800 phone number where nurse-practioners who are specially trained in “shared decisionmaking” can talk to patients about what they read and what they saw on the videos.
    Most importantly, these coaches help patients articulate their own hopes and fears. Some are most worried about a side effect like impotence. Others just want to have the sugery–they’re terrified of cancer. Some are more risk-tolerant than others.
    The coaching is called “non-directive counsling”–the goal is to let the patient figure out his own priorities.
    The patient then goes back to the doctor in a much better position to make an informed decision. Patients who go through this process rarely regret their decisions.
    In many cases (20 percent to 40 percent) after being given a chance to really consider both benefits and risks, the patients decided not to go ahead with the procedure.
    This can save money–though that is not the goal. The goal is to make sure every patient gets “as much health care as he needs, no more than he wants.”
    Insurers who provide this service are adding value.

  18. What!? You haven’t devised your own health care reform plan yet!?

    Hey, everyone’s doing it. In the past week, two new entrants in the health care reform plan derby are AHIP and Ezekiel Emanuel. AHIP’s potpourri includes a bunch of stuff that’s happening anyway (e.g., better management of chronic conditions), a…

  19. When it comes to health insurance, the plan that would hurt our economy the least is Hillary Clinton’s plan. Everyone would have health insurance. WA, NJ, NY and a few other states who have already tried Obama’s proposed health insurance plan of not mandating coverage. These states have driven out of the better insurance companies. When anybody can get health insurance without having to go through medical underwriting, people won’t get coverage until they absolutely need it. Usually because of a serious illness. This causes health premiums to sky-rocket. That’s because insurance companies are only paying claims for unhealthy people. The plans in these states tend to not be that great either. If everyone has health benefits, the premiums would be less because healthy people would factor in on determining the premium.

  20. John, your post and where I find so many proposals lacking, is they’re only focusing on how to pay for health care, and the vision stops at “once everybody has insurance, premiums will go down.” In my opinion this type of thinking falls very short, as it completely overlooks significant cost-driving issues like quality and inefficiency. Simply providing “coverage for all” doesn’t mean we get more efficient and the quality improves, the quality of care, not the quality of the insurance company, so costs will continue to escalate if we endorse short-sighted proposals.
    I think this is why there’s no unity in the reform movement. People like me (and there are many) would never support such an empty and useless proposal (ie: forcing me to purchase a defective product to pay for a defective service) because we can easily identify the source is misinformed and insincere.
    Dr. Emanual’s VAT proposal is clearly all-encompassing, and so far I can’t see where he’s overlooked anything. (regarding healthcare issues that need to be addressed and improved). For this reason alone, I can easily identify this as a sincere proposal from an informed and knowledgable source and it warrants serious consideration. I also agree with Garth, the dollar bill needs to be removed from the patient-doctor relationship.
    Sorry for the delayed response, we had to put our dog to sleep. : (

  21. John & Lisa–
    Thanks for your comments.
    John–I agree that we need a system where insurers can’t cherry-pick and where everyone has insurance.
    BTW: In New York state everyone does have to get health insurance. You can’t just sign up for it once you are sick. When I was self-employed, writing my books, for example, anytime I decided to switch insurers I had to show that I was already insured by someone else. No one will let you sign up for insurance unless you already have it. That is, in effect, a mandate.
    And we have “community rating”–insurers cannot charge someone more because they are older or because of pre-existing conditions.
    This means insurance is more expensive in N.Y. than in many states because we are all helping to pay for the people who are sicker or older.
    But finally, as Lisa suggests, getting everyone insured won’t solve the problem unless the insurance is comprehensive and actually provides access to equally high quality care for everyone at a price everyone can afford.
    Lisa–
    I agree. I am very afraid that Congress will
    “compromise” on national
    health reform by making sure that everyone has something called “health insurance.” As you say what people need is health care.

  22. Hi, I liked your article, and agree that the Dutch system sounds promising. I hope Obama tasks Hillary Clinton with leading a task force to look into this. For more information on the US Healthcare coverage system, check out my new web site The Healthcare Coverage Post at http://www.healthcoveragepost.com

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