Wednesday, September 30, 2009

MEDICAL REFORM: TIME FOR A "STRANGE BEDFELLOWS" COALITION

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Public discussion of medical reform may have gotten more intelligent lately, but the legislation making its way through Congress has become increasingly outlandish. Recent reductions in the proposed fines for individuals who do not buy insurance totally undermine the purpose the fines were intended to serve. If all individuals are not required to get insurance it will be impossible to require insurers to sell policies without regard to preexisting conditions, an essential part of any reforms.

The legislation currently on the table will take our intolerable situation in medicine and make it even worse. It creates a hodgepodge of employer mandates, individual mandates (with exceptions!), taxpayer-funded subsidies, taxes on medical equipment, providers, and even on some insurance plans. We should not even be considering anything this complicated!

If we are going to require that everybody be insured, why not just go for a taxpayer financed single-payer system and be done with it? This would simplify life, minimize complexity, and eliminate all of the transaction costs involved in privately purchased insurance. (Putting the private insurance companies out of business should not be a deal-breaker. Life is tough. After enduring the bankruptcy of airlines, auto companies, and banks, we should not hesitate to put the insurance companies out of their misery if it is what the public welfare requires.)

President Obama’s unwise promise that taxes would not be raised on the vast bulk of the population has forced him to take a single-payer system “off the table” and to deny the obvious fact that compulsory purchase of private insurance is also a tax increase.

A single-payer system would require that taxes be increased on the general population, since there are not enough rich people to finance such a system no matter how much they are soaked. But increased taxes to support a single-payer system might command widespread public support since they would be offset by reductions in the payments people now are making to medical providers and insurance companies.

A powerful educational campaign would be necessary to convince people to support such a general tax increase. Such a campaign cannot succeed overnight. It would have to overcome the unfortunate fact that most people have no idea how much medical insurance is already costing them since a large percentage of the money is being paid on their behalf by employers, reducing the amount they would otherwise pay as wages. This misperception of what insurance is already costing us in reduced wages is probably the single biggest impediment to fixing our current problems.

Time will be needed to build the public understanding and support that will allow Congress to enact a single-payer system. The highest priority now must therefore be to prevent the current legislative proposals, which could permanently block real reforms, from being enacted. The obvious way to do this is for supporters of a single-payer system to join with conservative opponents of any real reforms to form a majority against the current proposals.

Coalitions of strange bedfellows are common enough in politics, for better or for worse. This is one time when such a coalition will be a really good idea.

Thursday, September 3, 2009

TWO DIFFERENT KINDS OF MEDICAL "COSTS"

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We are told that one reason medical system reforms are needed is that medical costs are increasing so rapidly.

“Medical costs”, however, is an ambiguous term. “Costs” may refer to the total amount of money (or percentage of the GDP) being spent on medical care each year in the United States. Or “costs” may refer to how much is charged for a specific medical procedure such as an MRI, a colonoscopy, installation of a filling, or delivery of a baby.

The percentage of GDP going to medical care is up to 16% and rising. But there is no way to know how much of the GDP ought to be spent on medical treatments. As the population ages and new medical treatments and technologies are invented, it would not be surprising if total costs were to increase. This type of increase in medical costs is therefore not inherently alarming.

If the costs of specific medical procedures are increasing, however, this is something we really need to be concerned about.

There can be no doubt that the costs of many procedures are going way up. A few years ago I found an old receipt indicating that my grandfather, a dentist, had put in a filling back in the mid-1930s for $1. Adjusting that figure for inflation, the current charge for a filling would be about $14.

The hospital bill when our daughter was born in 1969 recently turned up. My wife and our new daughter were in the hospital six days. The total bill was $471.22. (We paid $47.50 and our insurance paid the rest.) If the real (constant dollars) price for delivering a baby hadn’t increased the charge today would be $2,733.27 (but only if mother and daughter stayed in the hospital for six days).

Typical charges for having a baby in 2009 at the Corvallis hospital average between $5,000 and $6,000 but may sometimes be as much as $8,000 according to a hospital official. (This does not include doctors’ fees, which was also the case with our hospital bill in 1969.) And this is assuming mother and baby are only in the hospital two days. .

Hospitalization to have a baby----a specific procedure----now costs at least twice as much (in constant dollars) as it did in 1969.

The breakdown of costs in our 1969 bill gives further food for thought. Back then the daily charge for a hospital room (including private room surcharge and “routine nursing”) was $33.64, or $195.42 in 2009 dollars. The 2009 daily charge for a private or semiprivate room at the Corvallis hospital is $1,357, or seven times as much.

One would expect the costs of specific services and procedures to remain about the same (after adjusting for inflation) or even decrease thanks to efficiency improvements, improved technology, and economies of scale. But instead in many cases these costs have greatly increased. Somebody needs to figure out why this is and what might be done about it.

Perhaps too much attention is now being paid to the costs of medical insurance and too little to the costs of the medical services and procedures for which insurance pays. If the costs of the procedures can be gotten under better control, insurance premiums will reflect this fact and themselves become more manageable, whatever insurance system we then have.


[This article has appeared in the Portland Oregonian, The Detroit Free Press, The Adrian (Michigan) Daily Telegram, and elsewhere.]

Friday, July 17, 2009

Medical Reform Deal Breaker: Enforcement, Transaction Costs

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(This article was published in the Corvallis, Oregon Gazette-Times on July16, 2009)

Congress seems to be moving towards a Massachusetts-style insurance system. Individuals will be required to purchase insurance and those who don’t will be fined. Insurers will be required to sell to all comers and cannot discriminate against pre-existing conditions.

A recent Wall Street Journal column noted that people in Massachusetts have been gaming the system. They pay for insurance just long enough to get thousands of dollars of medical care, then discontinue it and pay the nominal fine instead to save money. If they get sick again, they can once again sign up for insurance. This is like letting people carry no insurance on their houses, and then sign up for insurance after the house has burned down.

It might be possible to tweak the Massachusetts system to prevent such gaming, but this would not fix the more fundamental problems that any compulsion to buy insurance would have: enforcement costs and transaction costs.

To make purchase of insurance truly compulsory the fine for not being insured would have to be comparable to the costs of insurance----in other words, very high. A large, intrusive, and expensive governmental bureaucracy would be needed to administer such compulsion.

Transaction costs would fall directly on Americans as individuals. We would all have to choose between a large number of complex insurance policies with no way to make systematic comparisons of costs and benefits between them. It would be impossible for most of us to be sure exactly what coverage we were buying. We might benefit from expert advice, but advice would cost something, and there would still be the problem of deciding which expert to consult.

Insurance purchased household-by-household would inevitably cost more than insurance purchased on behalf of employees by businesses---retail costs are always higher than wholesale, and group bargaining is more efficient than individual bargaining.

Complexity and those transaction costs due to complexity might be reduced if insurance companies were restricted to offering only a few government-designed standard contracts, as is now the case for medigap policies purchased by many Medicare members, policy A, policy B, etc. This would help people understand what they are buying and shop for the best price.

But if we are going to require that everybody be insured, why not just go for a taxpayer financed single-payer system and be done with it? This would simplify life, minimize complexity, and eliminate all of the transaction costs involved in privately purchased insurance.

True, a single payer system would require a tax increase. But requiring people to buy insurance is also a tax increase, even though it doesn’t show up on our tax forms or in government budgets. And increased taxes would be offset by eliminating the premiums that we now pay directly, or indirectly when our employers write the insurance check.

The fact that a single-payer system would put the private insurance companies out of business (they could still sell other kinds of insurance) should not be a deal-breaker. Life is tough. A country which has survived the bankruptcy of airlines, auto companies, and banks should not hesitate to put the insurance companies out of their misery if it is what the public welfare requires
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Saturday, June 27, 2009

Time For A Bipartisan Commission

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President Obama and the 535 members of Congress seem to have at least 600 different national medical insurance proposals, some of our leaders being of two or more minds on the subject. Analysts writing in the press push additional panaceas and utter platitudes in abundance. Mixed in with all this is propaganda from insurance companies' spin-doctors and from other corporations with major interests at stake.

Policy affecting one sixth of our gross domestic production should not be created by such a haphazard approach.

Agreement on major legislation does not seem likely in the near future. But it should be possible for Republican and Democratic leaders to create a process which could produce legislation most Americans could agree on during the second half of President Obama’s first term.

Congress should establish a bipartisan commission on National Medical Policy. Although the commission would hear testimony from representatives of the medical and health care professions and the drug and insurance companies, none of the commissioners should be representatives of these self-interested parties.

The main job of the commission would be to study all of the major countries that have national health insurance programs. It would analyze the respective advantages and disadvantages of these various national systems.

The commission would then be charged with drafting a proposal---appropriate to American circumstances--- that would to the greatest possible degree incorporate the strengths of these other systems while avoiding their weaknesses. Hopefully, a proposal would emerge from the commission that could command bipartisan support in Congress.

Our expectations for the commission should not be too high. Any possible medical system will have some defects, given the many conflicting interests and considerations. Services covered must be limited to some extent since medical technologies now exist that are too expensive to provide them to everyone who might benefit.

If the new system is a single-payer one, it will be necessary to raise taxes in order to pay for it. But this would be offset for the average person by elimination of the medical insurance premiums that we now pay, directly or indirectly in the form of reduced wages when our employer writes the check for the insurance. If the system is not a single-payer one, it will force people to make complex choices that may be beyond most of us, and may include mandatory purchase of private insurance that would be a tax in everything but name.

The commissioners must be willing to follow the evidence wherever it leads. If it leads, as I expect, to a single-payer system, the fact that this might put the private insurance companies out of business (they could still sell other kinds of insurance) should not be a deal-breaker. Life is tough. A country which has survived the bankruptcy of airlines, auto companies, and banks should not hesitate to put the insurance companies out of their misery if it is what the public welfare requires. Jobs would be lost at the insurance companies, but new jobs would be created administering the new system.

Over two thousand years ago, Aristotle compared the constitutions of the various Greek city states in his effort to determine an ideal form of government. It would likewise be intelligent for Americans to study the experience of others before coming to any conclusions about major medical reforms.

Wednesday, June 17, 2009

A thoughtful comparison of Medicare and private insurance

Medicare: comparing before and after

by Stephen Gregg

Tomorrow is my 65th birthday. I just left my private-sector health insurance roots behind and enrolled in Medicare. I'm both pleased and troubled by the transition. That split attitude was striking for me, given my long-standing philosophical and ideological commitment to "private" and "free market" views. How could I possibly view participation and dependency on a government-run Medicare program as an improvement?


Well, Medicare is a very sweet deal.

The Social Security Administration indicates my Medicare tax contributions over my working career have been $57,700. That seems far less than the costs my wife and I are likely to incur over the remainder of our lives. Surely, it will be convenient to allow politicians, lobbyists and organizations such as AARP to run the show, no matter the larger consequences. I know politics offers considerable protection of my interests. In large part, this is not a story about how the government has taken over yet another sector of our society, but how far the private sector has wandered from steadfastly serving its customers.

Turning 65 is a rare moment, allowing one to contrast before and after. "Before" meant buying individual private insurance for the past 15 years. Employer group insurance is far more benign financially. The dominant characteristics of individual insurance included:

--Volatile premium increases.

--Benefit designs loaded with popular fluff, while leaving me wondering whether coverage for the unanticipated and serious was there.

--Insistence on using predetermined provider networks irrespective of better or cheaper alternatives.

--Spotty administrative support. Changing insurance providers during those 15 years was always an iffy exercise.

The "after," of course, remains to be fully appreciated, but the initial Medicare signals seem favorable, bordering on a breath of fresh air:

--Stable premium increases.

--Ubiquitous access to almost any provider in the country.

--Assurance that the best price has been extracted (extorted?).

--Standardized supplemental insurance policies covering super-catastrophic and first-dollar coverage for just slightly higher premiums.

--A wide range of supplemental insurers.

--Ability to switch carriers, no questions asked, once a year.

--So far, decent public-private customer service throughout.
--Very little uncertainty as to whether I am covered for all the possibilities.

It's a challenge to argue that Medicare is an inferior alternative to a more responsive and dynamic private sector.

This is disturbingly superficial and self-centered, but it's where I fear many people are today. It's no one's fault in particular, and all of our faults collectively. Certainly there is near universal acknowledgment that the math of Medicare just does not work in the mid to long term.


But as disastrous as the future financial plight of Medicare is, it may prove to be secondary to political demands to reform a health care system that isn't meeting many people's needs.

Do I think the private sector has a grasp of all this? I don't see it. Perhaps you do. What a predicament we have.

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Stephen Gregg is a retired Portland (Oregon)-area managed-care and hospital administration executive.

Thursday, May 21, 2009

As David Souter prepares to go north . . . .

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HOW TO MAKE THE SUPREME COURT MUCH MORE REPRESENTATIVE


With the coming retirement of Justice David Souter, there is great interest in just who President Obama will appoint to succeed him. Spokespersons for various groups think that the Supreme Court should be more “representative.” Hispanics want a Hispanic, since one in six Americans is Hispanic. Women want a woman, noting that women are more than half of the population and yet only one current justice is a woman.

There is a group of Americans much more conspicuously absent from the Court than either Hispanics or women: people who are not lawyers. There are about 800,000 lawyers in the U.S., a tiny fraction of one percent of our 300,000,000 people. But every single current member of the Supreme Court is a lawyer, and this is also true of all previous justices.

We are told that diversity is important because it gives the justices more empathy with the different kinds of people who will be affected by their decisions. Also, diversity might give the justices different perspectives from which to view the legal questions facing the Court. If this is true, then having a non-lawyer on the Court could be tremendously helpful.

One or more non-lawyers on the Court might reduce its willingness to make American law more complicated by their own decisions and to tolerate excess complexity in acts of Congress.

The Court’s Fourth Amendment decisions governing arrests, searches and seizures, for example, have sometimes made the inherently difficult jobs of police officers nearly impossible. These decisions require the police to make decisions that even trained attorneys would consider close calls. The courts then have to devote scarce judicial time to second-guessing decisions made on the streets.
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Tax legislation enacted by Congress has become so complex that a high percentage of Americans now have to pay experts to prepare their tax returns, or at least buy software to help them do their own. The Due Process clause of the Fifth Amendment, which requires that people have “notice” of their legal duties, might seem to forbid tax laws which are so complicated that only experts (if anyone!) can understand them. But our lawyer-dominated judiciary has never seen fit to reign Congress in here.

Lawyers are much better equipped than normal people to cope with outrageous complexity, indeed they seem to thrive on it, so they may be inclined to ignore the practical implications of their decisions. That is why we need at least one non-lawyer on the Supreme Court.

There is no constitutional obstacle to appointing non-lawyers to the Supreme Court. Indeed, the Constitution states absolutely no prerequisites for membership on the Court: no citizenship requirement, no age requirement, no educational requirement. While I doubt that the Founders had our present situation in mind when drafting the Constitution, we should be grateful that their words give us the flexibility to take the next step in improving our Supreme Court by including non-lawyers in its membership.

French prime minister Georges Clemenceau once said that “War is too important to be left to the generals.” Likewise, law is too important to be left to the lawyers.


[This column has run in the Detroit Free Press and the Portland Oregonian.]

The President at Notre Dame

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Could St. Thomas Aquinas Address Notre Dame Graduates?

The uproar over President Obama’s speech at Notre Dame University has drawn nation-wide attention, not least so in the Pacific Northwest where I now live after 36 years in Southeastern Michigan.

The protesters’ argument that a Catholic university should not invite an abortion supporter to speak at its commencement, or last least should not have awarded him an honorary degree, is based on serious confusion about the relationship between law and morality.

The official position of the Catholic Church is that abortion is immoral and although I am not a Catholic I believe this position is a correct one. But the immorality of an action does not automatically produce the conclusion that it should be illegal. An immoral action may be good in the sense that it is the least bad option available under the circumstances.

St. Thomas Aquinas, the outstanding Catholic philosopher, pointed out that the side effects of trying to outlaw all sin may be worse than the benefits. Government has only limited resources for enforcing its laws and can easily spread itself too thin. It must therefore concentrate on preventing actions that destroy all possibility of civilization and human fellowship.

Under the unfortunate circumstances of the modern United States, laws against abortion would probably produce an increased total amount of evil and a further deterioration in our circumstances. Sexual promiscuity and illegitimate births are rampant. Were it not for the large number of abortions currently performed a higher and higher percentage of children would be brought up in underprivileged homes. Already intolerable pressures on the welfare and schooling systems would be increased.

Thus as a policy the Supreme Court’s decision unleashing abortions from the shackles of law was probably wise. The real scandal here, however, is not so much what was done, but by whom it was done. The Supreme Court is not supposed to make basic policy decisions. The constitutional reasoning which it invoked to support its Roe v. Wade decision was so flimsy that Roe supporters have been terrified ever since that a future Supreme Court might overrule it. What the Supreme Court can arbitrarily give, it could arbitrarily take away.

Congress is the branch of government in our system that is supposed to make basic policy decisions. If Congress had enacted laws protecting the right to have an abortion we could have been spared the vicious politics that have surfaced every time the Supreme Court has had a vacancy for over 30 years.

The whole situation, in a word, is a political, legal, and moral mess. One wonders how President Obama’s critics would react if St. Thomas Aquinas were brought in by time machine to speak to Notre Dame graduates next year. It is quite possible that after carefully studying the current scene, Aquinas would conclude that, although abortion remains immoral (an arena where the Church has something to say), it should not therefore be made illegal.

Would today’s protesters return to denounce Notre Dame for bringing in perhaps the greatest Catholic philosopher?

Fortunately, no time machine is likely to be available.