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Friday, February 16, 2018

Health Care Reform Articles - February 16, 2018

How Big Medicine Can Ruin Medicare for All

by Philip Longman - Washington Monthly - November/December, 2017

Berning question: Bernie Sanders's "Medicare for All" proposal has finally brought single-payer into the Democratic mainstream—but doesn't solve the problem of rising costs.
Many of us still remember the moment during the debate over the Affordable Care Act when a powerful Democratic senator not only blocked supporters of single-payer health care from testifying before his committee, but even had some arrested. Well, reports are that Max Baucus has been born again. “My personal view is we’ve got to start looking at single-payer,” the now-retired senator recently told a political gathering in his hometown of Bozeman, Montana. “We’re getting there. It’s going to happen.”
Not long ago, politicians advocating for single-payer health care were taken to be on the lefty fringe. But now Democrats of every stripe, including some with plausible presidential aspirations, are using the term to describe what they think America needs now. In 2013, Bernie Sanders couldn’t find a single cosponsor for his single-payer plan, which would replace private insurance with Medicare-like coverage for all Americans regardless of age or income. Today the roll call of supporters for his latest version includes Cory Booker, Kirsten Gillibrand, Kamala Harris, and Elizabeth Warren. Others embrace what they describe as alternative single-payer plans, like Senator Chris Murphy’s legislation that would allow any American to buy into Medicare instead of getting their insurance through their employers or the individual market. It’s enough to make an exasperated Dana Milbank publish a column in the Washington Post under the headline “The Democrats Have Become Socialists.”
But have they? Actually, no. Real socialized medicine, as we’ll see, might work brilliantly, as it has in some other countries. But what these folks are talking about, often without seeming to realize it, is something altogether different. And it could lead to disastrous outcomes unless we get smart about what’s really going on.
Adopting a single-payer system might have done a lot of good—twenty years ago. But since then, a massive wave of corporate consolidations has transformed the American health care delivery system in ways that make the single-payer approach highly problematic. Most Americans now live in places where there is little or no competition among medical providers. In market after market, hospitals, clinics, physician practices, labs, and other key health care infrastructure have been merged into monopolies controlling nearly all aspects of health care in the areas in which they operate.
Switching to single-payer wouldn’t, on its own, address the fact that the lack of competition leaves these Goliaths with almost no pressure to keep costs down. Since medical monopolies are becoming too big for either party to challenge, a single-payer, Medicare-for-all-type plan would likely degenerate into super-high-cost corporate welfare, rather than achieving lower prices or improved quality. The only sure way to avoid that outcome would be to simultaneously enact aggressive antitrust and pro-competition policies to bust up the monopolies and oligopolies that now dominate health care delivery in nearly every community in America.
To see what is really at stake here, we need to begin with a distinction that is typically lost in our health care debates. There is such a thing as socialized medicine, but it’s not synonymous with single-payer. In Great Britain, for example, a socialist government nationalized the health care sector after World War II, and today the British government still owns and operates most hospitals and directly employs most health care professionals.
Another example of socialized medicine is the system run by the U.S. Department of Veterans Affairs. The VA owns and operates hospitals and clinics in every state. These are staffed by government employees, most of whom belong to public employee unions. As such, the VA is double-rectified, Simon-pure socialized medicine, even if most members of the American Legion might not put it that way.
Both of these examples of socialized medicine are far from perfect, but they have demonstrable virtues. The UK’s National Health Service produces much more health per dollar than ours, largely because it doesn’t overpay specialists or waste money on therapies and technologies of dubious clinical value. Though they smoke and drink more, Britons live longer than Americans while paying 40 percent less per capita for health care. Meanwhile, a vast peer-reviewed literature shows that the VA, despite dismal press coverage and a few real lapses, actually outperforms the rest of the U.S. health care system on most key measures of health care quality, including wait times and the use of evidence-based medicine. (The health care journalist Suzanne Gordon and I recently wrote a paper for the American Legion, “VA Health Care: A System Worth Saving,” that explores how well VA coverage works.)
For better or worse, what the Democrats marching under the banner of single-payer are advocating is nothing like these examples of real socialized medicine. What they are calling for, instead, is vastly expanding eligibility for the existing Medicare program, or for a new program much like it.
So, what does Medicare do?
It doesn’t produce health care.
Rather, it pays bills submitted by private health care providers.
Thus, under a single-payer, Medicare-for-all plan, the provision of health care itself—its modes of production, if you will—would remain almost entirely in the hands of private enterprise. Meanwhile, its financing would become exclusively a burden borne by government.
The conceptual confusion about Medicare runs so deep that when conservatives call for making the VA outsource its care to private-sector health care providers, liberals generally (and rightly) label such plans “privatization.” Yet these same liberals characterize a Medicare-for-all plan that does essentially the same thing as somehow striking a blow against private control of health care. Meanwhile, many conservatives continue to assert that Medicare is “socialized medicine,” when it’s really the same thing they propose for the VA: a government subsidy for private providers.
So now that we’ve defined our terms a bit better, what can we say a single-payer system would be likely to accomplish? One clear benefit would be to reduce the excessively high administrative costs that weigh down the existing system. Automatically covering every American with a single-payer plan would free up most of the resources that providers and insurance companies currently waste on paperwork and efforts to shift costs to some other player. Patients wouldn’t have to worry about whether the doctor they want to see is “in network” and would avoid a host of other hassles, like having to change doctors every time their employer decides to switch to a cheaper plan.
Having one universal health care insurance plan would also allow the government to stop devoting so much time and money trying to figure out who does or does not meet eligibility requirements for public programs like Medicaid and VA health care. Resources currently spent on sorting out which Medicaid recipients earned too much money to qualify this month, or which of a vet’s maladies are caused by aging and which by his service in Vietnam, could instead go into the hands-on delivery of health care.
The savings could be significant. In 1991, the General Accounting Office estimatedthat if the U.S. adopted a
Canadian-style, universal single-payer system, the reduction in administrative costs alone would have been enough not only to finance health care coverage for every American, but to do away with all deductibles and co-payments. That’s probably not true anymore. Today, only about 7 percent of U.S. health spending goes to paperwork, largely because the prices of everything else have spiked so dramatically. Still, the U.S. spends a far larger share than other countries on administration, and we could have fixed that a generation ago by moving to single-payer.
We might also have retarded a much more fundamental factor driving health care inflation. Back in the 1990s, single-payer advocates stressed that the real savings would come by giving government “monopsony” power in health care markets. If you are the only buyer in a market with many suppliers—that is, the single payer—that makes you a monopsonist, and it gives you a lot of leverage to negotiate for lower prices. Making government the single payer in health care markets would have allowed it to jawbone doctors, hospitals, drug companies, and medical device makers into charging less and providing safer, more effective health care.
This is what Canada did when it adopted a system in the early 1970s under which each provincial government became the sole purchaser of health care within its own borders. Provincial governments used their monopsony power to negotiate fee schedules with doctors and fixed budgets with hospitals and medical suppliers that left Canadians with a far thriftier, more efficient system. The process was noisy and contentious, but it was carried out in the sunshine and resulted in much lower prices and rates of medical inflation than were occurring in the United States, even as Canadians got greater access to doctors, better health, and longer lives.
So it’s reasonable to think that following the Canadian example twenty-five years ago could have done a lot to restrain health care prices in the U.S. That, in turn, would have made a much bigger difference than most people realize in averting the unsustainably high overall costs of contemporary American health care. That’s because those costs are driven mostly by the prices we pay, rather than by our consuming more care than people in other rich countries.
This is a point worth dwelling on, because it speaks again to how mixed up the terms of debate over health care reform have become. Conservatives often assert that Americans consume too much health care because we don’t pay for it using enough of our own money. Accordingly, they argue that the way to lower costs is to force us to pay more out of pocket through higher deductibles and medical savings accounts, while submitting to narrower provider networks that limit our access to specialists and therefore our consumption of care.
But it turns out that other advanced countries can offer their citizens universal access to government-financed health care, as well as higher volumes of most forms of beneficial treatment, while still having much lower per capita costs. Canadians see more doctors per year than Americans do while spending about 50 percent less per head on health care. Similarly, the average German is seen by a doctor more than nine times a year, compared to four for the average American. Germans also receive far more hip replacement surgeries per capita and about the same number of knee surgeries, and get to stay in the hospital longer while recovering. Yet the average hospital stay in Germany costs just one-third of what it does in the U.S.
So the big reason why Americans pay more for health care than their counterparts in other rich nations is not complicated. As the health care economist Uwe Reinhardt once put it, “It’s the prices, stupid.”
Most Americans are aware that they pay far more for drugs than their peers abroad. For the thirty most commonly prescribed drugs, prices in the U.S. are roughly double the average for other rich countries. Yet drugs account for only 10 percent of total U.S. health care spending, so they are not the main reason our health costs are so high.
A much bigger factor is the price of physician and clinical services, which account for about a fifth of total U.S. health care spending. Adjusted for differences in the cost of living, the average orthopedic surgeon in the U.S. has a net income nearly three times what France’s equally well-trained orthopedic surgeons make for performing the same procedures. It’s true that many doctors are overworked and underpaid, particularly sole practitioner physicians trying to make a living in an increasingly consolidated sector. Yet the income of the highest-paid doctors, most of whom are specialists and many of whom have substantial investment and business income as well, keeps pulling away. Medical professionals now outnumber lawyers and bankers among the ranks of the 1 percent.
Even salaried doctors are doing well compared to their counterparts in other professions. In the 1980s, an American doctor on salary typically earned about 20 percent more per hour than other American professionals with comparable levels of education. But in recent years, according to a study published in Health Affairs, that income advantage has increased to nearly 50 percent. The McKinsey Global Institute found that if U.S. doctors earned the same amount as their counterparts in other advanced countries, America’s doctor bill would be roughly 35 percent lower.
A still larger factor in driving up costs are the inflated prices charged by hospitals. Hospital care accounts for about a third of total U.S. health care spending. While prices vary dramatically from one hospital to another (depending on how much competition they face), and from patient to patient (depending on their insurance plan), U.S. hospital prices overall are simply astronomical compared to what hospitals in other advanced countries charge for the same services. According to a 2012 study by the Commonwealth Fund, the average hospital visit costs nearly three times more in the U.S. than the average for other advanced countries.
All this means that if the federal government could use the monopsony power created by a single-payer system to negotiate for more reasonable health care prices, it would be a very big deal. And back in the 1970s, ’80s, and even into the ’90s, something like that just might have been possible. But today, the vast corporate consolidation of ownership in most health care markets in the U.S. makes that a dubious proposition.
Health care delivery in the United States a generation ago was still in many ways a cottage industry. As late as 1995, fully sixty independent drug companies competed in America’s pharmaceutical markets, compared to just ten today. Independent, locally owned pharmacies had not yet been displaced in most communities by giant chains like CVS and Walgreens. More significantly, most doctors still worked as independent sole practitioners or in small group practices. Most hospitals were locally owned, community-focused institutions. In most metro regions of any size, they still faced real competition from other local hospitals over insured patients.
That competition was far from perfect. Regulatory barriers to entry tightly constrained the supply of health care professionals and limited the building of new hospitals. Informal cartels and kickback arrangements between hospitals and doctors were not uncommon. But it was rare for providers to exercise full-fledged monopoly power. In fact, starting in the 1980s and continuing through the ’90s, most found themselves at the mercy of increasingly monopolistic health insurance companies. Doctors and hospitals were put on the defensive as insurers merged with one another and forced providers to make price concessions if they wanted to keep their insured patients. Insurers used their increasing monopsony power to put the screws on drug companies and everyone else in the medical supply chain. This explains why, for a brief moment in the 1990s, the nation’s overall health care bill actually declined.
But then came a counterrevolution that has proven far more consequential. Not only did sixty drug companies combine into ten, but hospitals, outpatient facilities, physician practices, labs, and other health care providers began merging vertically and horizontally into giant, integrated, corporate health care platforms that increasingly dominated the supply side of medicine in most of the country. Like Amazon or Google, these platforms extend their power by controlling the very marketplace in which customers and suppliers have to do business. Even nominally independent surgeons, for example, can’t stay in business if the only hospital in town won’t grant them admitting privileges, or if it grants “affiliated” surgical teams better terms. Many of these platforms became part of large chains operating in multiple regions; others achieved dominance in a single city, which still gave them extraordinary market power.
Local power is everything in health care. Most health care services can’t be imported from China or even from the next county over. Yes, you could drive for hours to see a doctor, or even fly to India or Costa Rica to get an operation, as some people do, but for most people with most conditions that’s not practical. Instead, no matter where you are, most health care is produced and consumed locally, meaning that if providers become organized as a local monopoly it’s a very big deal. In a local market that’s been cornered, even the largest purchasers of health care, including insurance companies and large national employers, become price takers, not price makers.
According to a study headed by Harvard economist David M. Cutler, between 2003 and 2013 the share of hospitals controlled by large holding companies increased from 7 percent to 60 percent. A full 40 percent of all hospital stays now occur in health care markets where a single entity controls all hospitals. Another 20 percent occur in regions where only two competitors remain. To use another measure, according to the standard metric used by the Federal Trade Commission to measure degrees of concentration, not a single highly competitive hospital market remains in any region of the United States, and nearly half of all markets are uncompetitive. A study recently published in Health Affairs found that hospital ownership in 90 percent of metro areas is so concentrated that it exceeds what antitrust regulators have historically regarded as the threshold for when action is needed to avoid inefficiency and collusion.
This consolidation in health care shows no sign of abetting. Just the first six months of this year saw fifty-eight major mergers among hospitals and health care systems, with six of those involving corporations boasting $1 billion or more in revenue. The absorption of IASIS Healthcare by Steward Health Care, the country’s largest private for-profit hospital operator, will leave Steward with thirty-six hospitals in ten states. This robust merger rate exceeds last year’s. And in 2015, hospital mergers and acquisitions were up by 18 percent over the prior year and 70 percent since 2010.
The effect of this massive consolidation on prices is predictable. According to a studyby Yale economist Zack Cooper and others, if you stay in a hospital that faces no competition, your bill will be $1,900 higher on average than if you stay in a hospital facing four or more competitors. The CEOs on top of these chains may be the biggest winners, and it doesn’t matter whether or not the institutions have a “nonprofit” tax status. Toby Cosgrove, the cardiologist who heads the nonprofit Cleveland Clinic, pulled down some $4 million in reportable compensation in 2014.
As hospitals combine into local and regional monopolies, they can leverage their power by buying out local physician practices. Consider the anticompetitive effects of these deals. Doctors play a large role in steering patients to different hospitals, and anti-kickback laws prevent hospitals from paying doctors for these referrals. Yet those laws become inoperative when a hospital simply buys a doctor’s practice and puts him or her on its payroll. Such a deal not only allows a hospital to effectively buy referrals, it also forecloses future competition. To win the business of these referred patients, a rival hospital would generally first need to convince them to change doctors.
The absorption of physicians into monopolistic enterprises is highly inflationary. A 2014 study of physician organizations in California found that groups owned by local hospitals charge 10 percent more per patient than physician-owned groups. Meanwhile, groups owned by multi-hospital systems, which tend to be even more monopolistic, charge nearly 20 percent more per patient. A 2015 study by the National Academy of Social Insurance found that “there is growing evidence that hospital-physician integration has raised physician costs, hospital prices and per capita medical care spending.”
Americans pay for consolidation in other ways. For example, when hospitals in a community merge, one or more often ends up closing its doors, forcing many patients to travel long distances to access the last remaining hospital in their region. Hospital mergers also often result in fewer jobs for nurses and lower-skilled health care workers, in turn eroding their ability to bargain for fair wages and decent working conditions. Though consolidation can sometimes lead to economies of scale and reduce labor costs, the overwhelming consensus of health care economists is that these savings are not passed on to consumers, who instead experience higher prices and lower quality.
So what would happen today if a government program like Medicare were given responsibility for purchasing all health care in the United States? At first it might seem that giving the government that kind of concentrated purchasing power is just what we need to contain the growing monopoly power of hospitals.
But what happens when a single payer finds itself negotiating with a single provider?
If you want a hint at what that would look like, think about how well our “single-payer” Pentagon procurement system does when it comes to bargaining with sole-source defense contractors. Not a pretty picture. In theory, the government could just set the price it’s willing to pay for the next generation of fighter jets or aircraft carriers and refuse to budge. But in practice, a highly consolidated military-industrial complex has enough economic and political muscle to ensure not only that it is paid well, but also that Congress appropriates money for weapons systems the Pentagon doesn’t even want.
The dynamic would be much the same if a single-payer system started negotiating with the monopolies that control America’s health care delivery systems. Think about how members of Congress representing, say, western Pennsylvania would be likely to respond if Medicare-for-all dared to reject the terms demanded by the University of Pittsburgh Medical Center, the region’s dominant health care provider. Notwithstanding its academic name and origins, UPMC is a Goliath that controls nearly 60 percent of the inpatient medical-surgical market in the greater Pittsburgh area.
In 90 percent of metro areas, hospital ownership is so concentrated that it makes inefficiency and collusion likely.
Who would blink first if the government threatened to exclude UPMC from its health care plan, which would be the only one available? There are millions of people who live in western Pennsylvania and need access to the hospitals, doctors, and other health care infrastructure UPMC controls. Without access to the system, they might have to drive hundreds of miles to find a doctor or hospital. It would be an instant health care crisis.
Moreover, UPMC is the largest single employer in the Pittsburgh area and one of the biggest in the state. And as it keeps buying more and more hospitals throughout the rest of Pennsylvania, its political power continues to grow. The commercials it would run to get what it wanted from a single-payer system almost write themselves. “The people of Pennsylvania deserve access to the health care they’ve paid for. Tell Congressman Smith to vote no on denying you access to the hospitals and doctors serving our community.”
Of course, in the vision of some single-payer supporters, the government would not negotiate with the likes of UPMC over prices; it would just dictate prices. But it’s unrealistic to expect members of Congress to stand up to corporations that, thanks to unchecked consolidation, not only control the lion’s share of medical professionals and health care infrastructure in their communities, but also are often the largest single providers of jobs and campaign contributions.
Long before consolidation reached the extreme level it’s at today, lobbies for different sectors of the health care system routinely kicked the federal government around. The American Medical Association was so strong that the federal government for years allowed it to set the prices Medicare paid surgeons and other physicians for performing different procedures. Similarly, Big Pharma made sure that the Affordable Care Act contained language forbidding the federal government from engaging in cost-benefit analysis of drugs, and has dissuaded Congress from allowing Medicare to bargain over drug prices. Similarly, hospital supply cartels have fought off government regulation despite the demonstrably high prices they were extracting from the system. It is frankly naive to expect that health care regulators won’t become even more captured than they already are if the industry they are supposed to regulate gains even more concentrated economic, and therefore political, power.
The choice before us is thus stark. True socialized medicine might work to contain prices and make the U.S. health care system sustainable. But short of flat-out nationalizing America’s health care delivery system, the only other option is to make sure that the market power of hospitals and other providers is sufficiently dispersed that it remains politically possible to regulate them.
Single-payer is therefore doomed to fail unless supporters fuse it with another reform: the aggressive use of antitrust and other competition policies not just to lower drug prices but, even more crucially, to bust up the monopolies that dominate the American health care delivery system. To that end, new legislation would be useful, but even simply leaning on regulators to enforce existing laws would ensure that at least two or three competing health care systems remain in every major metro area. Doing this is not in itself enough to fix America’s health care crisis, but it is a cause to rally around if we are ever to have a sustainable, universal health care system in America.

What Is The US Health Spending Problem?

David Cutler - Health Affairs - February 12, 2018

Is increased spending on medical care harmful to the US economy? The overall share of the gross domestic product spent on medical care is not a problem, provided that the services bought are worth more than their cost. However, high and rising costs expose two often-overlooked problems. First, spending is too high because many dollars are wasted. Estimates suggest that unnecessary medical spending costs the typical American family thousands of dollars each year. Second, high medical costs combined with stagnant incomes for a large share of the population and the inability of governments at all levels to raise tax dollars leads to increased health and economic disparities: fewer people covered by private insurance, the rationing of care in public health programs, and the lack of funds for other social programs. These distribution issues, coupled with the large waste, imply that efforts to address medical spending need to be among our highest priorities.
The latest national health expenditure projections forecast modest but increasing growth in medical spending as a share of the economy over the next decade.1 The Centers for Medicare and Medicaid Services actuaries suggest that cost increases will be driven by price increases, though to a smaller extent than in the past, and that there will be continued increases in utilization and population aging.
Rising medical spending inevitably leads to political concern, and these forecasts seem destined to do the same. Is there some limit on what is reasonable for a country to spend on health? In this perspective I consider the economics of medical spending and, in particular, whether the US spends too much. I argue that there are harms from spending as much as the US does but that those harms are not what is commonly feared.
Start with the central fear about medical spending: The US economy will suffer if we devote increasing amounts of our income to just one industry. On the contrary, there is no economic law that governs how much money should be spent on any industry. In fact, the shares of different industries in economic output vary greatly. In 1900 one-third of value added was in agriculture. In 1950 one-quarter was in manufacturing. Today those two industries combined account for only 13 percent of the gross domestic product (GDP). At least some of medical care’s increasing share of the GDP is a natural response to food and manufactured goods becoming cheaper and thus demand moving elsewhere. There is no obvious harm in this reallocation.
There are two reasons why high medical spending is problematic: It is associated with substantial waste, and it makes society more unequal.
However, noting that high spending on medical care is not prima facie problematic does not imply that we needn’t worry about the level of such spending in the United States. There are two reasons why high and rising medical spending is problematic: It is associated with substantial waste, and it makes society more unequal.

A Large Part Of Spending Is Wasteful

A large number of studies have estimated the waste in health care. Estimates suggest that between one-quarter and one-half of medical spending is not associated with improved health,27although this view is not without controversy.8 Waste in medical care comes in many forms. One clear cause is misallocated treatments: spending on care that is not clinically valuable or not spending on preventive services. Examples of overuse include preterm elective induction of childbirth for women at low risk,9back surgery for lower back pain,10 and excessive end-of-life care.11 Wasteful undertreatment includes recurrent use of emergency departments and hospitalizations for people with inadequately treated congestive heart failure.
High prices are a second form of wasteful spending. Prices for the same services vary greatly across the country and between the US and other countries.12,13Pharmaceutical price differences are the most notable international price differences, but physicians and hospitals are paid more in the US as well.14 Estimates suggest that even very valuable medications are now priced so high in the US that the costs may exceed the clinical benefits.15
Excessive administrative costs are a third form of wasteful spending. About one-quarter of US medical spending is estimated to be spent on administrative costs—twice what is spent on cardiovascular disease, and three times what is spent on cancer.16 Finally, fraud and abuse may account for up to 10 percent of costs for some payers, though the exact amount is difficult to know.17
The magnitude of wasteful spending deserves particular attention. If one-third of medical spending is wasteful, the aggregate waste in medical care is about 6 percent of GDP. That is equal to the amount collected in Social Security and Medicare taxes, and it is two-thirds of the amount raised by individual income taxes. It amounts to about $3,500 per person annually.
The fact that there is so much waste in medical care does not mean that spending more is necessarily bad. If a new drug came along that materially slowed the progression of Alzheimer disease, we should not decide to pass up that drug because we are overtreating people with lower back pain. But neither should we assume that all spending increases reflect value, as indicated by the rising prices of established drugs or of services from newly merged hospitals. Most fundamentally, the presence of significant waste argues that we ought to pay at least as much attention to ways of improving efficiency as we do to whether and how people should get covered.

Rising Spending Worsens Inequality

The second problem with medical spending is that it feeds into the already severe harms caused by growing income inequality. The most important fact about the income distribution in the United States is that it is becoming increasingly unequal: Real incomes have soared at the very high end, risen modestly in the next few deciles, and been stagnant or falling at the bottom.18
Rising medical costs combined with stagnant incomes for a large share of the population mean that more people will need help paying for medical care. A family at the median income level, whose income is relatively constant, has had no easy way to pay the roughly $10,000 rise in the cost of a family health insurance policy between 1999 and 2017.19
At the same time that needs are increasing, however, government resources are being cut. Governments at all levels are loath to raise taxes, and some are even cutting them. Total government revenue as a share of GDP has been relatively constant for several decades and is projected to fall with enactment of the federal tax bill in December 2017.
This combination of increased need for help and fewer resources to spend inevitably creates problems. Three problems are particularly apparent.

Fewer People Are Covered By Private Insurance

Rising medical costs make private insurance more valuable in some ways and less valuable in others. When medicine can do more for the sick, people naturally want to guarantee access to the medical system. Thus, the desire for insurance rises with spending. It is likely not a coincidence that demand for Medicare to cover prescription drugs rose after expensive new drugs were launched in the 1990s.
However, not everyone wants insurance more when medical costs rise. This is especially the case when the benefits derived from higher spending are concentrated in a small, isolated share of the population. For example, high and rising prices for drugs that treat rare diseases such as hemophilia or multiple sclerosis will have little effect on the value of insurance for people without those conditions and for whom the probability of developing them in the following year is very low. Many medical conditions are predictable, at least in the short run—for example, chronic heart disease, neurological disorders, and mental illness. As costs for treating those conditions increase and insurance premiums as a whole rise, the tendency is for people without those conditions to drop insurance.
A further effect is that for low-income people, the high cost of medical care makes being uninsured relatively more attractive. People bear some liability for medical care when they are uninsured, but this liability is limited by bankruptcy laws. Once people exhaust their income and assets, it doesn’t matter how much above that limit their medical care costs.20 In contrast, paying for health insurance means paying for all of the care costs, above or below the person’s assets. Thus, being uninsured is relatively more attractive when medical care costs rise.
These latter effects seem to outweigh the coverage-increasing effects, and the result has been a steady decline in private insurance coverage over time. For example, employer-sponsored insurance coverage rates among people with incomes of 100–250 percent of the federal poverty level fell from 53 percent in 1999 to 38 percent in 2014.21
Estimating how much private insurance coverage rates would rise if medical costs fell is difficult, because there are many sources of coverage and the residual effect of the mandate in the Affordable Care Act (ACA) to consider. A consensus estimate is that lowering premiums by 25 percent would lead 2–6 percent of the uninsured population to take up nongroup coverage.22 Therefore, eliminating the one-third of medical care that might be wasteful could be a coverage stimulus somewhat smaller than, but on the order of, the ACA’s subsidy for expanded coverage.

Public Programs Turn To Rationing

In the public sector, high medical costs also lead to reduced access, although in a somewhat different fashion. Because of federal eligibility requirements, Medicaid programs are not able to cut enrollment as readily as private companies can when medical costs rise, but they can and do limit access to care.
Consider what occurred with the introduction of new medications to treat hepatitis C. The first of these drugs, introduced in late 2013, originally cost $84,000 for a course of treatment. As more of the drugs have entered the market, costs have fallen, but they remain high—$30,000 or more per treated person. The result has been rationing: The majority of state Medicaid programs restrict use of the new medications to people with very severe liver failure, or at least they did so until lawsuits forced them to cover the treatment for everyone.23 For example, in 2014 more than 90 percent of state Medicaid programs limited access to the new medications to people with stage 3 or 4 liver disease. Even in 2016, 52 percent of the programs limited access to people with more advanced liver failure. Sobriety requirements are also the norm. More than 40 percent of states require six months of drug and alcohol sobriety before approving treatment for hepatitis C, and 7 percent require abstention for a year. The situation is even worse in prisons: An estimated 10 percent of prisoners have hepatitis C, yet only 1 percent of prisoners with hepatitis C have been treated.24
Rationing occurs in more subtle ways as well. As resources become tight, state governments reduce the reimbursement rates for providers.25 Thus, the more that is spent on some treatments, the lower are reimbursement rates across the board. This creates a situation in which not all providers are willing to treat Medicaid patients. About 30 percent of physicians nationally do not accept Medicaid patients, and many others limit the number they will accept.26
High prices for new medications limit access under private insurance as well. It was common for private insurers to impose restrictions such as those in the public sector when hepatitis C medications were new. No studies have examined how these rules have changed with the medications’ reduction in prices, and a comparative study of how high prices affect access in public and private insurance plans would be valuable.
There is nothing inherently wrong with people choosing to cut back on care when prices are high. Trade-offs always have to be made when some goods increase in cost. But several points about this trade-off should be noted.
First, we should not necessarily presume that the rationing choices made in the public sector are optimal. One can readily imagine a situation where higher-income taxpayers know they pay more in taxes than they receive in benefits and so push for overall taxes to remain lower than people as a whole would want if they made decisions for everyone in society. Or perhaps health care providers have significant political power and push for greater health care funding, even if that means less spending for other goods and services. Ultimately, how rising medical costs affect the optimality of the coverage decisions made by governments is an empirical question.
Second, even if health care is rationed optimally given the prices that governments face, that is not necessarily socially optimal. The reason is that the marginal cost of many health care services is below the price that is charged. Consider again the medications to treat hepatitis C. In countries where generic versions are available (such as India) or where the brand-name manufacturer has authorized steeply discounted prices, the price of the medication is about $500 per person treated.27 At that price, many more people in the US would be treated than are now. What deters use is not the high cost of manufacturing pills but rather the combination of high fixed costs for drug development and the drive for profits. Limiting use because of high fixed costs is not efficient.
To put this point another way, a four-tier pharmaceutical pricing system is evolving internationally: Prices are highest in the United States; other rich countries pay high prices, though somewhat lower; middle-income countries pay between what the rich countries pay and the manufacturing cost; and the poorest countries pay the manufacturing cost. Relative to this pricing regime, people with middle and low incomes in the United States are probably comparable to those in Southern Europe or East Asia in their ability to afford medications, yet the prices they face are closer to those paid by high-income insured people in their own country. Not surprisingly, access to care suffers. If pricing in the US could more closely match that in the rest of the world—with high prices for the wealthy and well insured and lower prices for middle- and low-income people—access would improve, and profits might be higher as well.

Other Social Programs Are Crowded Out

Even with both explicit and implicit rationing, rising costs for medical care translate into higher overall government spending. Given the constraint on raising money, this necessarily means that less money is available for other government services—for example, spending on early childhood education or income subsidies for low-income workers. If US society wants to address issues of income inequality, we need to free up resources invested in health care.
A further difficulty is that even program changes that seem to be neutral between rich and poor may disproportionately harm the poor. For example, one proposed solution to the problem of rising Medicare and Medicaid costs is to raise the ages of eligibility to receive Medicare and Social Security benefits.28 This proposal has superficial plausibility because life expectancy at age sixty-five is rising, so that today’s typical sixty-five-year-old will spend more years receiving benefits than the typical sixty-five-year-old did a few decades ago.
But taking account of the growing disparity in health by socioeconomic status shows that this proposal is highly regressive. Essentially all of the health improvement that occurred in the 1980s and 1990s was realized by people who had higher levels of education (at least some college education, and often a college degree).29 Life expectancy was stagnant for people who dropped out of or did not go further than high school. Between 2001 and 2014 life expectancy rose by two to three years for people at the top of the income distribution, but by six months or less for people near the bottom.30 Raising the eligibility ages for Medicare and Social Security in response to high medical spending would thus be a large cut in eligibility years for low-income people and a much smaller one for high-income people. Such regressivity is not desirable.

Conclusion

Additional medical spending brings both benefits and costs to society. For this reason, the question about how much money a country such as the United States can afford to spend on medical care is not well formulated. But that ambiguity does not mean that additional medical spending is innocuous. The United States is being pulled apart as a country, separating into rich and poor. Every dollar that is spent on medical care is one less dollar available for addressing the problems of an unequal society, and one more dollar that is difficult for much of the population to pay. One of the goals for health policy must be to reduce social and economic disparities, not increase them.

POLLIN: WHY SINGLE PAYER, NOW, IS FOR REAL

by Robert Pollin - The Intercept - July 10, 2017

The following piece is a response to a recent article in The Intercept by David Dayen.
IS A SINGLE-PAYER health care system workable in California? My short answer is “yes.” I reached that conclusion by writing a research study, along with co-authors James Heintz, Peter Arno, and Jeannette Wicks-Lim, of the Healthy California single-payer bill (HB562) that was introduced into the California state Senate last spring. Our study was commissioned by the California Nurses Association, a lead supporter of the bill.
The basic finding of our study is that the Healthy California bill could deliver decent health care to all 39 million California residents while also lowering overall costs of health care by about 8 percent relative to the existing system. Under the existing system, California will spend about $370 billion in health care in 2017 (about 14 percent of the state’s overall GDP) but about 15 million Californians — 40 percent of the population — are still either uninsured or are underinsured — i.e., they have insurance but the costs of deductibles and co-payments are prohibitively high.
On May 31, I presented the main results of our study in Sacramento, both in a press conference and to private meetings with state senators, fiscal analysts, and various interested groups. On June 1, one day after my Sacramento presentations, the California Senate voted 23 to 14 to endorse Healthy California. I would love to convince myself that the senators voted for Healthy California due to our study’s dazzling logic. But the fact is that the Senate was responding to years of dedicated and effective organizing by the California Nurses Association and other groups, resulting in about 70 percent of all California’s now supporting single payer. Equally critical is that the current dysfunctional state of our health care system is almost certainly going to get even worse under the stewardship of Donald Trump and the Republican Congress.
The Healthy California bill was scheduled to move into debate in the California Assembly within a few weeks of its Senate passage. However, in a surprise move on June 23, Assembly Speaker Anthony Rendon removed the bill from consideration for this year, even though he had previously expressed support for the single-payer approach. Rendon called the Senate version of the bill “woefully inadequate” in providing the necessary details to make the bill workable.
One may surmise that Rendon might have been influenced by the private health insurance industry, which has donated to his political campaigns. But let’s take Rendon at his word. If he is indeed a single-payer proponent, as he states, and he finds the version of the Healthy California bill that passed in the Senate to be inadequate on specifics, then why wouldn’t he, as speaker of the Assembly, be prepared to lead the legislative process that would have added the necessary detail to make the bill viable?
Not surprisingly, Rendon has offered no clear answer to this question. What has been surprising is that a number of progressive journalists have either come to Rendon’s defense outright or have provided cover by claiming that the Healthy California bill is indeed unworkable, virtuous intentions notwithstanding.
David Dayen, writing in The Intercept on June 30, was especially fervent, asserting that the backers of the bill, including the California Nurses Association, “are perfectly aware that SB562 is a shell bill that cannot become law without a ballot measure approved by voters. Rather than committing to raising the millions of dollars that would be needed to overcome special interests and pass that initiative, they would, apparently, rather deceive their supporters, hiding the realities of California’s woeful political structure in favor of a morality play designed to advance careers and aggrandize power.” Dayen did back off, but only slightly, in response to criticism in The Intercept from CNA Policy Director Michael Lightly.
Kevin Drum, writing in Mother Jones on June 28, claimed to know that the new tax revenues needed to finance Healthy California were about $100 billion more than what our study has estimated, while providing no evidence to support his conclusion. He also asserts that, under Trump, there was zero chance that the level of funding that the federal government would be obligated by law to provide for Healthy California — i.e., the amount they now provide for Medicare, Med-Cal, and smaller federal programs — would ever arrive.
Paul Waldman, writing in The Week on July 5, asserts that establishing single payer in one state is “nearly impossible,” without providing any explanation as to why that is so. In addition to citing the current stalled effort in California, Waldman mentions that “Vermont tried to do it and then abandoned the effort” and that “Colorado voters rejected it at the polls last year.” But he ignores the fact that a perfectly viable single-payer framework for Vermont had been developed in 2011 by the Harvard University health economist William Hsiao, perhaps the leading authority in the world on the issue. The fact that the initiative died in Vermont for political reasons, including the inevitable massive opposition of the private health insurance industry, hardly means that Hsiao’s plan, or the state-level single-payer approach more generally, is unworkable.
We can take as a given that insurance and pharmaceutical companies will mount relentless oppositional campaigns against any and all single-payer proposals in the United States, regardless of whether they are at the state or federal levels. If that is the basis for pronouncing single payer “nearly impossible” to implement, then we should simply resign ourselves to continue living with our current health care system that even Warren Buffett, a single-payer supporter, calls “the tapeworm of American competitiveness.”
On the other hand, if we are serious about creating a health care system that can provide everyone with decent care while lowering overall costs — including costs for families at almost all levels and businesses of almost all sizes — then we need to continue advancing the arguments in support of single payer at both the state and federal levels.
What are some of the critical questions at hand with the current Healthy California fight?
  1. What makes Healthy California financially viable?
California will spend about $370 billion on health care in 2017. Assuming the state’s existing system stayed intact, the cost of extending coverage to all California residents, including the nearly 15 million people who are currently uninsured or underinsured, would increase health care spending by about 10 percent, to roughly $400 billion.
But enacting single payer will also yield considerable savings relative to the existing system by lowering administrative costs, controlling the prices of pharmaceuticals and fees for physicians and hospitals, reducing unnecessary treatments, and expanding preventive care. Based on the research literature, my co-authors and I found that Healthy California could conservatively produce about 18 percent savings overall, bringing health care spending down to about $330 billion, even with all California residents now receiving decent health care.
  1. Where does California find $330 billion?
Right now, federal, state and municipal financing covers about 70 percent of all health care expenditures in California. Existing federal law requires the federal government to continue providing this current level of spending even if a state organizes its own health care system differently than the prevailing federal system, as long as the state-run system provides its residents with at least the same quality of care as the prevailing system. Under this law, existing public funding will cover about $225 billion of the total $330 billion in total spending needed to operate Healthy California.
These are the federal government funds that Kevin Drum claims will never arrive into California’s coffers as long as Trump is president. It is true that the Trump administration, or any other federal administration, may attempt to violate the law. But if one supports single payer, why would one assume right off the block that existing laws will obviously be abrogated and that California will have no recourse when this happens?
Assuming instead that federal laws will be enforced, this then means that California will still need to raise an additional $105 billion to bring total funding to $330 billion. To do that, we propose two new taxes: (1) a gross receipts tax on all California businesses of 2.3 percent, but with the first $2 million in business receipts exempted from the tax. This means that small businesses will pay no gross receipts taxes; (2) a 2.3 percent sales tax increase. This would exempt spending on housing, utilities and food. It would also provide a 2 percent income tax credit for low-income families who are now on MediCal (the California-based version of Medicaid).
  1. Everybody hates paying taxes. Why would anybody support these new taxes?
Both the gross receipts tax and the sales tax are quite progressive in their overall impact after we factor in exemptions and the low-income tax credit. In addition, because Healthy California will reduce the state’s overall health care costs, families and businesses will end up saving money, because their new tax obligations will be less than what they now pay for private health insurance.
Thus, on average, net health care spending for middle-income families would fall significantly, by between about 3 and 9 percent of their income. For medium-sized businesses, costs will fall by an average of between 7 and 13 percent relative to payroll. Even large firms will see costs fall by an average of between about 1 and 5 percent of payroll.
  1. California law requires 40 percent of all state funding support primary/secondary education. Now what?
This is the law that David Dayen claims is a nearly insurmountable obstacle to passing Healthy California. This is also why Dayen claims that single-payer organizers are “deceiving their supporters” until they admit that, before they can try to pass single payer itself, they must first raise millions of dollars to have a chance of repealing this law through a ballot initiative.
What has convinced Dayen that he knows more about organizing for single payer than the organizers themselves? From the actual organizers’ standpoint, what is the downside, much less deceitfulness, of advancing Healthy California as far as possible within the existing legislative process, building momentum on behalf of the measure at each step? If, at some point, it does become necessary to amend the state’s budget rules, either through legislation or a ballot initiative, then this administrative barrier to single payer can be attacked as one large challenge among many in the long march toward creating a decent health care system. Indeed, if California’s voters, state legislators, and governor all commit to endorsing single payer, then it follows logically that they are also advocating an adjustment in the state’s technical budget rules that will enable an amended version of Healthy California to become law.
Commentators of all persuasions, but especially progressive ones, are doing nobody a favor by offering up overwrought pronouncements on why Healthy California must inevitably fail — especially when these pronouncements are grounded neither in evidence nor the growing political support for creating a decent health care system in California and the U.S. overall.

Safe, happy and free: does Finland have all the answers?

In the first of our new series, The Upside, we look at how the country went from famine to topping nearly every global social ranking