Update: Will Virginia and New Jersey be Canaries in the 2010 Coal Mine?

Back in early September I urged you to watch the off year elections in VA and NJ very closely, arguing that two GOP victories would indicate a high level of GOP intensity, Independent willingness to vote GOP, and, most deadly, Democratic apathy. Today marks the one week countdown to Election Day 2009 and I think that it is a good time to revisit the states. There appears to be nothing left to do in VA other than ask how large Republican Bob McDonnell's margin of victory will be.  The three most recent polls show McDonnell crushing Democrat Creigh Deeds by 11, 15, and 17 points. Despite (or perhaps because of) high profile help from Bill Clinton, and other leading Democrats, Deeds is in fee-fall. Now comes word that President Obama will campaign for Deeds today (October 27). This could prove to be embarrassing for the president if Deeds goes on to lose by double digits in a state that is central to Obama's reelection plans. As if the news in VA could not get worse for Democrats, Republicans appear poised to win (reclaim) all statewide posts.

New Jersey is bit more complicated. Back in September Republican Chris Christie appeared to be heading for certain victory over the Democrat John Corzine, the state's unpopular incumbent governor. But things began to shift during late September and early October as Independent candidate Chris Daggett gained traction after Corzine launched a scathing barrage of negative ads seeking to discredit Christie - even making multiple (not so veiled) references to Christie's weight problem. As a result, Christie began to lose support as Daggett's support began to rise. Interestingly, Corzine's support has budged little - stuck around 40%. Normally that would be a death sentence for an incumbent, but the presence of a strong third-party candidate meant that Corzine could win with only 40% support. Although Christie's once clear lead over Corzine has evaporated the most recent polls from NJ suggest that Christie has rebounded (slightly) and that Daggett is losing steam. The last three polls have Christie ahead by 2, 3, and 4 points - certainly too close for comfort, but all show a trend back toward Christie, away from Daggett, and absolutely no momentum for Corzine - despite high profile visits from the President and Vice President and reports that Corzine is outspending Christie by a 3 to 1 margin.

At this point - one week out - I predict with confidence that Republicans will sweep VA setting the stage for a tough battle for Obama in 2012. I also predict that Chris Christie will win a very narrow victory in reliably blue NJ (probably a 2% margin). Democrats will argue that the races have no national implications, Republicans will claim that they represent a repudiation of the Democratic agenda - the truth will be somewhere in between. Expect a clear Republican victory in both states to embolden the party and to further depress Democratic enthusiasm and momentum. A clear Republican victroy in both states will also cause many a Blue Dog Democrat to reconsider their support for a range of issues from health reform to cap and trade as the 2010 midterms begin to take center stage.

The wild card to watch next week is the special election in New York's 23rd Congressional District. A reliably Republican distrcit where the GOP nominated a liberal Republican, Dede Scozzafava, to run against Democrat Bill Owens. Not pleased with the Scozzafava choice the Conservative Party nominated conservative Republican Doug Hoffman. Initial fears within the GOP were that Scozzafava and Hoffman would split the GOP vote and deliver the district to Owens - but two recent polls (each with small sample sizes) show that Hoffman has pulled into the lead. Though the polls showing a Hoffman lead were partisan polls with small sample sizes a review of polls taken since late September show a clear trend in the race. Democrat Owens has been stuck at about 30%, Scozzafava has been losing support, and Hoffman has been rising. If Hoffman wins this race it will show that conservative voters - many of whom sat out the 2008 election - are re-energized. In mid-term and off-year elections few things matter more than an energized base.

See you next Tuesday night...

The Need for Real Health Care Reform

The current reform proposals being considered in the House and the Senate will not solve the systemic problems in the American health care system - in fact they will likely make the problems worse. The current reform proposals maintain our fragmented system and will even add to the fragmentation.... read the rest at the FreeStater Blog.

Gay Marriage: It's a Simple Question of Equality

Perhaps it is appropriate that an 86 year old WWII vet reminds us that equality has always been the American ideal.... in a simple way this is a man standing up for his son, in more profound way it is veteran demanding that his nation live up up to the ideals for he so many have fought and died - freedom, liberty, equality.

Deciphering Public Opinion on Health Care Reform

Trying to understand what all of these health reform polls mean? I argue that Democrats are correct when they say that the public supports a public option, and Republicans are correct when they say that the public opposes the health reform proposals currently being considered in Congress... How can both be true? Check out the FreeStater Blog to find out.

Rationing Health Care: What We Already Do, Done Better

It's a dirty word that no politician dares to utter, but any discussion of health reform, and of cost containment, demands that we talk about rationing. As stated by ethicist Peter Singer argued this past summer "The debate over health reform in the United States should start from the premise that some form of health care rationing is both inescapable and desireable. Then we can ask, What is the best way to do it?" My goal with this post is to better explain rationing, show why it need not be a dirty word, and show how we already engage in health care rationing everyday.

Let's start our discussion in Oregon circa 1987. Oregon's Medicaid program only covered adults with earnings below 60% of the federal poverty level (FPL), but the state wanted to find a way to cover everyone up to 100% FPL - but the state could not spend any additional money. A state commission was formed to determine how to achieve this goal. The commission looked at all services provided by Medicaid and divided them into approximately 700 treatment groups. The groups were then ranked based on medical and cost effectiveness. Treatments that scored well were given a low number, treatments that fared poorly were assigned a high number. Figure 1 shows the treatment groups on the horizontal and the income level of the population on the vertical - the grey area represents treatments that are not covered.

Oregon was providing access to all 700 treatment groups to every Medicaid recipient with earnings below 60% FPL, but nothing was covered for those earning 60% FPL or above (the grey area in figure 1). The Oregon legislature decided that in order to provide health insurance to everyone below 100% FPL they would stop covering the least effective (high numbers in figure 1) treatments. The state stopped covering treatment categories that fell above treatment group 550 (figure 2). This saved enough money that the state was able to provide coverage for treatment groups 1 to 550 for everyone earning below 100% FPL. It was explicit rationing of care, those services deemed to be the least medically or cost effective were dropped, but the state was able to increase the number of people covered by Medicaid by 50%.

So what are the national implications of all of this? Imagine that the 700 treatment groups identified in Oregon were extrapolated to the entire country. Currently, those with good insurance, in Medicare, in Medicaid (other than in Oregon), and those who are wealthy have access to all 700 treatment groups. But access to those treatment groups declines as income (and likely the quality or presence of insurance) drops. Figure 3 shows how health care is already rationed in the United States everyday. The poorest Americans, those lacking adequate health care, have limited access to any of the 700 treatment groups. As income rises so does access to care. This is rationing, but unlike the Oregon experiment, this rationing is driven entirely by one's ability to pay for care. Rather than rationing to ensure that everyone has equal access to a set standard of care it is rationing that provides some unfettered access to care while others can access very little. And it's all based on ability to pay, not on need.

The solution, based on the Oregon example, would be to limit access to the least effective services, and with the money saved, extend equal coverage to everyone (figure 4). In Oregon, the state was dealing with a finite pool of funds for the Medicaid program. Nationally, we would be dealing with a finite pool of funds drawn from the population via taxes to fund universal health care. The inclusion of the entire population in the purchasing pool would likely mean fewer excluded treatments.

In a prior post I argued that the only way to effectively control costs was to implement a single-payer model of health care delivery in the United States. I cited the McKinsey Global Institute's finding that America spends 30% more on health care than we should - largely due to overuse of services. Ending the overuse of services, and therefore saving substantial sums of money from our $2.5 trillion health care economy can only be achieved effectively via single-payer. Achieving those cost savings would require empowering some governmental agency to review service use and determine which treatments are most and least effective, and therefore which services to be covered with our finite resources. It would be explicit rationing, but unlike our current approach to rationing health care, it would be based on providing equal access to the same standard of care – regardless of income.

Special credit goes to Donald Barr and his terrific book “Introduction to U.S. Health Policy” for key information and concepts used to inform this post.

Public Support for Health Reform: Increasing or Collapsing or Neither?

Interesting data from Pollster.com on health reform - seems clear that support for health reform has not been on the rise as some have suggested.

According to Pew, Obama's approval is down and the public clearly opposes Congressional health reform proposals - and this is from a sample with only 23% Republicans. Gallup puts it at 51% in favor to 41% oppose, the AP puts it at 40% to 40%, and Quinnipiac has it 47% opposed and 40% in favor.

Taken together, the numbers suggest that the public is either opposed or indifferent. The best that could be said by reform proponents is that opposition has leveled off and stopped rising, while support has stopped falling and leveled off.

Public support needs to be higher to bring Republicans on board - even with the urging of former party leaders like Bob Dole.

The Economic Case for Single-Payer Health Care Reform

The Center for Budget and Policy Priorities (CBPP) has provided compelling justification for comprehensive health care reform – not the insurance reform that is likely to emerge from the House and Senate, but true health care reform. In their report “Updated Long-Term Fiscal Deficit and Debt Projections,” the CBPP used data from the Congressional Budget Office to estimate long term debt, deficit, and spending trends for the federal budget – the findings show that 1) the U.S. is on an unsustainable spending path and 2) it all comes down to the rising cost of health care.

“The main driver of the long-term fiscal imbalance is the rising per-person cost of health care, which will increase spending and reduce revenues…”

How will it reduce revenues?

“…as health care costs rise, workers are likely to receive more of their compensation in the form of tax-exempt health care benefits and less in the form of taxable wages, so total revenues decline.”

This assumption is confirmed by the fact that employee health care costs have increased by 130% in the past 10 years even as our wages have barely kept pace with inflation. As our wages shrink, so does our taxable income and therefore federal tax revenue.

But it gets worse, because we all buy health care from the same market of providers and facilities the forces driving up private health care costs are also driving up the cost of Medicare and Medicaid. The CBPP estimates that those two programs will grow from their current 5.1% of GDP to 12.8% of GDP by 2050 (Figure 2) – put another way, these programs will more than double in expense in relation to total economic output. Currently, spending on Medicare and Medicaid is equal to 32.7% of all federal revenue ($0.33 of every dollar the government raises via taxes is spent on those two programs), by 2050 that will rise to 67.7% of all federal revenue – meaning that every other federal obligation, including Social Security and national defense, will be fighting for the remaining 32.3% or we’ll have to engage in heavy borrowing or drastic tax increases.

In short, if we are to enjoy a sustainable and healthy economic future, we need to bring down the cost of health care and control its meteoric annual cost increases.

Neither the House, the Senate, nor the President have proposed any such reform.  Rather they have focused on ways to expand coverage while shifting costs around to create the illusion of a decreased federal burden. But the problem with cost shifting is that it does nothing to control costs, nor does it change the ultimate trajectory of rising costs system wide. System wide change is what is needed.

Consider this – in 2007 Canada spent an average of $3,173 per capita on health care, the United Kingdom spent $2,560, and Germany $3,171. The U.S. spent $6,096 – starting to get a sense of the problem? Between 2003 and 2007, US health care spending grew at a rate 22% faster than Germany and Canada and twice as fast as in the UK. As a percent of overall economic output in 2007, health expenditures accounted for 10.1% of GDP in Canada, 10.4% in Germany, and 8.4% in the UK. In the U.S. the figure was 16%.

Finding a New American Way
The U.S. needs to find a way to effectively control costs and reduce per capita health expenditures; our economic health depends upon it.

Canada, the UK, and Germany have all established their own unique approach to health care organization, delivery, and cost containment – but there are many similarities.

Canada employs what is commonly referred to as a single-payer system. Universal health care is funded via taxes paid to the federal and provincial governments. Providers and health care facilities are private, but the government, operating as a monopsony, sets prices. Every province establishes an annual budget for health care; if a provider or hospital exceeds the allotted budget then no additional money is provided. This approach forces coordination of care and the efficient use of resources to ensure that allocated funds last the year. It also means that sometimes elective surgeries and other non-emergency procedures are delayed until the next budget year.

In the UK one will find what is commonly referred to as socialized medicine. Universal coverage is funded via taxation. Hospitals are owned by the National Health Service, specialists are employed by it, and general practitioners accept a negotiated capitated (pre-payment) salary for caring for patients. Health care organization, delivery, and resource allocation are handled by regional health authorities. There is an annual budget for health care. The system is marked by long wait times, and service delivery is often determined based on strict cost/benefit analysis, but everyone is covered, costs are contained, and the World Health Organization ranks the UK health system as 18th in the world (the U.S. is ranked 37th).

In Germany, universal health care is funded via payroll taxes paid by employers and employees. Insurance is provided via non-profit “sickness funds” or insurers. Coverage for kids is funded via general taxes and retirees and the unemployed pay for insurance via deductions from their respective benefits. Germany uses the power of regulation to maintain costs, sickness funds cannot raise premiums at a rate faster that wage growth, and there are limits set on how much hospitals and providers can bill in a year – essentially an annual health budget. If a doctor were to prescribe medication that exceeds the average in his area he would be required to partially cover the cost.

All of these systems share similarities – they all provide universal coverage, they all rely on one system to provide care (unlike the U.S. where we have Medicare, Medicaid, SCHIP, Employer Sponsored Insurance, Large Group, Small Group… need I go on), and they all rely on the government – either as payer or regulator – to handle the distribution of resources. Because each of these nations establish variations of an annual health budget patients are viewed differently as well. In the U.S. every patients and every procedure provided is a source of revenue (provide more services, get more money) – in Canada, the UK, and Germany every service provided represents a depletion of limited funds. This forces hospitals and physicians to prioritize and coordinate care. Do they ration? Certainly, but its rationing based on assessed individual need relative to overall needs and available resources.

We ration in America as well, but it has nothing to do with need. Rather we ration based on an individual’s ability to pay. Forty million lack insurance and millions more have limited access to care due to high deductibles and other out of pocket expenses. There is another important point about these countries; because there is a single source of payment there is no opportunity for cost shifting. In the U.S. if the government cuts Medicare reimbursement hospitals or providers will try to shift the cost onto the privately insured. If an insurer raises prices, an employer will negotiate lower prices by cost shifting to employees in the form of higher co-pays and deductibles. The end result of all of this shifting means that no money is actually saved system wide, it’s just shifted from one payer to another – this cannot happen when you have one payer and a set budget.

The fragmentation of our system and the fact that we spend more than any other nation might be tolerable if we were benefiting in some way. Are we healthier? Do we get extra benefits for all the extra spending? The simple and clear answer is “No.” A recent study by the McKinsey Global Institute (MGI) found that the U.S. spends about 31% more per year on health than would be expected based or our wealth, cost of living, and health. In a $2.5 trillion health care economy that translates into $775 billion in excess spending.  Why do we over spend? We have higher administrative costs owing to the fragmentation in our system, but mostly the problem is the manner in which we pay for services. Since every patient and procedure is a source of revenue providers over-provide. Because our insurance frequently has no limit on the utilization of services, we over-consume. According to the MGI report:

“The higher utilization of care may be attributable to a number of factors such as greater patient convenience and a reduction in risks associated with less-invasive surgery. It also appears likely that this increased usage relates to the fee-for-service nature of outpatient care reimbursement, which creates incentives to providers to render more care... From a supply perspective, outpatient care, particularly for specialist care and diagnostic procedures, is very profitable.”

Why Single-Payer?
What approach should we take? Canadian style single-payer is the only real option as it would preserve our private system of care delivery (hospitals and physicians).  The German model seems appealing at first, but in the end it would be easier to eliminate the health insurance industry than it would be to turn insurers into heavily regulated non-profit entities. So single-payer, like Canada, and like Medicare. Reducing health care costs by 30% would have a dramatic impact on our economic security. Health expenditures would shrink to $4,267 per capita and 11.4% of GDP, we would save over $700 billion in a single year (roughly the size of the American Recovery and Reinvestment Act of 2009). By setting an annual budget we could better control the annual growth in federal health care spending and alter our current unsustainable path. Though we would still be saddled with a need to pay interest on our accumulated debt, we would no long accrue new debt to fund Medicare and Medicaid. States would benefit as well. Medicaid consumes approximately $0.25 of every tax dollar raised by a state.

Replacing Medicaid with a new universal federal program would eliminate that funding need and immediately solve nearly every state budget shortfall. Although we would still need to fund the new program via taxes, we would no longer be paying health insurance premiums and neither would our employers so our wages would rise and no longer be depressed by the rising cost of health care. At the state level, there would no longer be taxes to support Medicaid. At the federal level, there would be no taxes to support Medicare. Instead, a new tax would fund a health care system that costs approximately 30% less than the current system – and everyone would be covered. Sound too good to be true? Tell that to Canada, the UK, or Germany.

So how do we do it? The only way that we can bring health care spending under control, and therefore be able to provide coverage to everyone, is if we move beyond our aversion to government intervention. Only government can effectively allocate our health care resources in a manner the responds to need rather than wealth. Only government can establish an annual health care budget and ensure that facilities and providers abide by the annual limits. Only government can affect our change from a system driven by the perverse incentive to deliver care as a means to generate revenue to a system based on the proper management of care in order to conserve resources. The logical approach would be to restructure Medicare and make it universal. And it must be universal. The only way to get the public on board, and to accept the change, is to have us all in the same system, all guaranteed the same level of care, all sharing the same resources, and the costs. This is what other nations do, and what we must do.

Cost Containment v. Universal Coverage - Part I

The Senate Finance Committee has essentially completed work on the Baucus health reform effort, the committee is waiting for the preliminary CBO score before taking a final vote. That report should come by mid-week. I suspect that it will find somewhat less in savings than did the CBO score of Baucus’ original bill – but will still see the promise of deficit reduction. I also expect that one or two Democrats on the panel will vote "no." Not moderate Democrats opposed to a liberal bill, but rather more liberal Democrats concerned that the bill does not do enough. Ron Wyden (D-OR) and Jay Rockefeller (D-WV) are likely candidates. With 2 defections, Baucus would need one GOP vote and I suspect that he’ll get it from Olympia Snowe (R-ME) – all other Republicans will vote "no." In the end, committee members know that the bill has to be reported out of committee in order to move this process along. The bill will then be placed in the less than capable and uninspiring hands of Harry Reid, a majority leader unlikely to survive the 2010 mid-term election.

Unknown is what any final bill will look like. The LA Times reports that the White House has begun a concerted behind the scenes effort to win support of a public option, but – but as I argued in a post to the FreeStater Blog – not all public options are built the same.

Enter into all of this a new wrinkle. The US insurance industry signaled support for reform at the start of this latest endeavor to reform our health system. They were willing to accept a requirement that they cover all comers, (guarantee issue) with no pre-existing condition limitations, so long as any reform contained employer and individual mandates. Insurers knew that the pre-existing condition folks would be more expensive and increase an insurer’s risk, but that new risk would be more than offset by requiring young, healthy people to purchase insurance and by requiring that employers provide insurance (the employed tend to be healthy). So for insurers the deal with the Obama administration was simple – “we’ll take the bad, but you better send us the good.”

That deal is now starting to sour. The only way that an individual and employer mandate can work is if the penalty for non-compliance is sufficient to compel someone to buy insurance. However, to placate Democratic and Republican concerns over imposing new costs on business and individuals the Finance Committee dramatically reduced the penalty for not obtaining coverage and essentially eliminated the employer mandate. Originally, the bill would have imposed a penalty not to exceed $3,800 for families and $950 for a person for a failure to obtain insurance. These amounts were important as they corresponded to the average employee share of an employer sponsored insurance plan – so a rational person would opt to accept employer sponsored insurance instead of paying the fine.

Those fines have now been reduced to a maximum of $1,500 per family and $750 per person – and the fine would be phased in between 2013 and 2017 (see page 35 of the Finance plan). Taken together, employers would not be compelled to offer insurance and with the reduced penalty for non-compliance individuals would be less likely to purchase what is offered (if anything), even a public option. So insurers will be required to cover high risk folks with pre-existing conditions, but will not get to bring all of those young, healthy folks into the risk pool – suddenly reform looks like a bad deal for the insurance industry – and they are expressing their concern. The insurance industry is a powerful lobbying force that has shaped health policy for more than four decades. If they turn against reform it will mark an entirely new, and from the Obama Administration’s perspective, unwelcome chapter in the reform battle.

In 1993, the leading managed care insurers initially endorsed the Clinton health reform efforts. Then, as now, they were promised individual and employer mandates and a dominant role for managed care. In the end, insurers turned against the plan after President Clinton proposed heavy regulation of the insurers and the creation of National Health Board to regulate the health care market and control costs. Insurers reacted by working, effectively, to defeat reform.

In 1993/1994, as now, the key conflict was between the competing interests of universal coverage and cost containment – this battle has been at the heart of reform battles since President Carter and Senator Kennedy tussled over reform in the late 1970s. So long as we pursue policies that simply seek to provide coverage, without addressing the problem of ever rising costs, cost containment will always win the day and universal coverage will always wait. How we go about controlling costs, and why no politician wants to go down that path, will be the subject of a future post. Stay tuned.

Saturday Night Live Offers a Funny and Scathing Assessment of the President's Accomplishments.

This is just a scathing bit of "satire" from Saturday Night Live - and it's important. It signifies that the media love affair that has shielded President Obama from scrutiny and criticism (among mainstream media outlets) is ending. Now that SNL has opened the floodgates, expect O'Brien, Letterman, Stewart and others to start bursting through. Until now, most comedians, especially John Stewart made real bad sycophantic jokes… “oh Mr. President your awesomeness is just so funny…” "Your feet must get wet from walking on water..." Something tells me we are about to enter a whole new phase… one that George W. Bush, Jimmy Carter, and Gerald Ford were quite familiar with, we'll have to see how team Obama handles it.

Does Harry Reid Really Plan to Include a Public Option... and Just What Would the Option Be?

Check out the FreeStater blog for my take on Senate Majority Leader Harry Reid's latest expression of support for a "public option."