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Health Care Reform

Online Debate

Last Updated at 11:00 AM, Friday, October 27, 2009

The current debate about health care reform is to a significant extent a debate about what role the federal government can and should play in the provision of health care. What is the proper role of the federal government in the patient/physician relationship? Are there aspects of the current health care and insurance relationships now governed by private contract or state regulation that would be better addressed by the federal government? If so, what are they, and why is an increased federal role warranted? Is it possible that what is called for is the opposite approach -- i.e. less regulation and more room for contract? Are there relevant constitutional limits on Congress's powers here and if so, what are they?
 
The debate will focus on these issues as well as several proposals set forth in competing House and Senate legislation as well as the President's proposals. The participants of this installment of Originally Speaking are John HoffDavid A. HymanTimothy S. JostWilliam M. SagePaula M. Stannard, and Peter Urbanowicz.

Questions and Answers:

Peter Urbanowicz: The current debate on health care reform highlights again the historical, political and philosophical differences regarding the proper role and scope of the federal government in addressing significant economic and public policy issues. What is the proper role of the federal government in enacting a federally-backed guarantee to all Americans for health care? Should health care and insurance relationships that are currently governed either by state regulation or private contract be superseded by new federal regulation? Should the federal government play a role in the patient / physician relationship?

As health care reform legislation has moved to the forefront of national issues, I am delighted that our esteemed group of contributors has agreed to debate these issues as well as the several proposals set forth in competing House and Senate legislation. Some of the questions and issues we will weigh in on in the coming weeks of debate will hopefully include the following:

  • Is there or should there be a "right" to health care in the United States?
  • Historically, most health care has been provided through employer-provided insurance. Is it proper to continue to tie health insurance to employment?
  • Is the "individual mandate" that all Americans have health insurance advisable and / or constitutional?
  • Should the government directly enter the private insurance markets with the sponsorship of a "public option" health insurance program? What are the merits and problems with a "public option?"
  • If the federal government absorbs a greater share of health care coverage costs, should it be done via: expansion of current government programs – Medicaid and Medicare – or through tax credits and vouchers or a mix of all?
  • Is it proper or advisable to have a federal panel of experts suggest or mandate "best practices" in medicine or advise on medical items, services or drugs that should or should not be provided?
  • Would additional regulation of health care delivery and payment in fact lead to rationing of health care?
  • Should health insurance and the delivery of health care be regulated at the federal level or the state level?
  • How should health care reform be paid for?
  • What are some alternative ideas for increasing access to health care and health insurance?

The issues to debate are many and the viewpoints manifold. We will endeavor to approach each point and counter-point with facts, reason, civility and (hopefully) a sense of humor.

So to the primary issue: "Is there or should there be a ‘right' to health care" guaranteed by the federal government?"

Let's go back nearly one year to October 9, 2008, the scene of the second presidential debate between candidates Barack Obama and John McCain. Moderator Tom Brokaw put it bluntly to each candidate: "Is health care in America a privilege, a right, or a responsibility?

Senator McCain was measured and said, "I think it's a responsibility, in this respect, in that we should have available and affordable health care to every American citizen, to every family member."

Senator Obama was more emphatic: "Well, I think it should be a right for every American. In a country as wealthy as ours, for us to have people who are going bankrupt because they can't pay their medical bills -- for my mother to die of cancer at the age of 53 and have to spend the last months of her life in the hospital room arguing with insurance companies because they're saying that this may be a pre-existing condition and they don't have to pay her treatment, there's something fundamentally wrong about that." President Obama returned to that theme in his speech to the Congress last week: "We are the only advanced democracy on Earth – the only wealthy nation – that allows hardships for millions of its people."

There are some legal scholars, who in fact believe that there is a legal right to health care akin to other human rights. They point to various United Nations conventions, statements and treaties that speak to health care as being a fundamental human right that must not only be guaranteed but provided for by the government. And there are religious leaders who advocate a "right" to healthcare. During the health care reform debate of 1993, the United States Conference of Catholic Bishops issued a resolution stating this "simple but fundamental principle" – "Every person has a right to adequate health care. This right flows from the sanctity of human life and the dignity that belongs to all human persons who are made in the image of God. Healthcare is more than a commodity; it is a basic human right, an essential safeguard of human life and dignity." ("A Framework for Comprehensive Health Care Reform: Protecting Human Life, Promoting Human Dignity, Pursuing the Common Good.") Indeed this theological view of health care has over the centuries animated and established systems of hospitals, orphanages and nursing homes by scores of religious denominations and traditions as a matter of faith-based mission.

If there is a "right" to healthcare, should it be a legal right or simply remain a moral aspiration. To date, on the legal side in this country, the right to health care has not been recognized as a constitutional right. Perhaps because unlike other rights that are either expressly enumerated and protected by the Constitution – rights to free speech, religious practice, assembly, bearing firearms, etc. and rights against unreasonable search and seizure, etc. – and those rights not expressly enumerated but recognized through Supreme Court decision – right to choice of education, against sterilization, privacy, right to travel, etc. -- the right to healthcare, as it is suggested requires someone, i.e., the government, to pay for it if it can't be paid for by the patient. So as framed, the argument is not really about a "right" to healthcare, or not having health care choices mandated or unduly burdened by the state (see Skinner v. OklahomaRoe v. Wade and Cruzan v. Missouri), but a right to have health care paid for or provided by the state if unaffordable or unavailable to the patient.

With the exception of the "right to counsel" for the indigent recognized in Gideon v. Wainright, one cannot think of a federal constitutional right that requires mandatory state financing of the exercise of that right, i.e., the right to "free speech" or free exercise of religion does not mandate the state to pay for television stations or church buildings. Indeed the Supreme Court ruled – Maher v. Roe – that state Medicaid programs are not required to pay for abortion procedures, notwithstanding the abortion right recognized in Roe v. Wade. In a similar vein, while the right to a free public primary and secondary education is recognized by most state constitutions, the Supreme Court declined to recognize primary and secondary education as a "fundamental right" in San Antonio Independent School District v. Rodriguez.

As British physician Andrew Daniels noted recently: "If there is a right to health care, someone has a duty to provide it. Inevitably that 'someone' is the government." ("Is There a Right to Healthcare? Wall St. Journal, July 28, 2009.) Since the 1960s the way in which we have thought about a "right" to healthcare on the federal level is via entitlement programs – Medicare and Medicaid – which provide medical care and insurance for seniors and for the indigent. But these are entitlements that were created as a matter of budget policy and can be – though quite unlikely ever – eliminated by vote of the Congress. The only other notable federal guarantee of health care came in 1986 via the Emergency Medical Treatment and Active Labor Act ("EMTALA"), which requires that hospitals receiving Medicare or Medicaid funding provide certain "emergency" care – or deliver babies – without regard to the patient's ability to pay. But EMTALA didn't mandate the hospitals to provide the care for free. It directed only that the care be provided before questions were asked about insurance or ability to pay. Once the care is provided, hospitals can still bill for the services, though in most cases such care is written off by hospitals either as "charity care" or uncollectible bad debt.

I come down on the side of the view of Dr. Daniels. Making sure everyone has access to affordable health care is good, charitable, and morally right. But in our debate over health care, why should payment for health care be advanced to permanent legal right above other "noble and necessary preconditions of human existence" to use Dr. Daniel's phrase – "such as food, shelter and clothing – which are not guaranteed as rights." Dr. Daniels is a little more emphatic on the point: "[T]he universality of government health care in pursuance of the abstract right to it in Britain has not ensured equality … There is no right to healthcare – any more than there is a right to chicken Kiev every second Thursday of the month."

Timothy S. Jost: If the question is whether or not there is a constitutional right to health care products and services in the United States, the answer is clearly no (except, ironically, for prisoners (Estelle v. Gamble, 429 US 97 (1976), who have a right to minimal health care under the Eighth Amendment.)  There were attempts to establish such a right in the 1970s, but they never got traction.  Most of the world's constitutions (about 2/3 according to Eleanor Kinney's study) do provide a right to health or health care, but few have enforced them judicially.  A notable exception is the Indian Supreme Court which has recognized an enforceable right under India's right to life clause.  A few other countries, such as South Africa, have recognized a limited constitutional right.  In most countries, however, the right is merely rhetorical. 

A right to health care is, on the other hand, widely recognized as a basic human right. Article 25 of the 1948 Universal Declaration of Human Rights provides that "Everyone has a right to a standard of living adequate for health and well-being…, including…medical care…and the right to security in the event of sickness and disability."  The International Covenant on Economic, Social, and Cultural Rights provides at article 12 that "The States Parties…recognize the right to everyone to the enjoyment of the highest attainable standard of physical and mental health" and commits the signatories to make medical services available in the event of sickness.  The US has not signed the ISCER, but over 90 other countries have.  Finally, a host of regional covenants and covenants addressing specific issues (like the rights of minors and women) also recognize health-related rights.  Again, however, these rights are by and large not judicially enforceable, but rather the state parties commit themselves, in the case of the ISCER, to progressive realization of the right to the extent of available resources.
 
If the question is whether religion, philosophy, or ethics support such a right, I claim no expertise, although I certainly have opinions.  As a Christian, I would note that healing was a primary ministry of Jesus and of the Church since the earliest times.  Jesus and the prophets both demanded justice for the oppressed and generous treatment of the poor.  Many Christian organizations today are calling for access to health care for all.  A range of philosophical arguments for equal access to heath care have also been made, including arguments based in fairness (equality of opportunity for those disadvantaged by health conditions) or efficiency (making society more productive, addressing externalities such as infectious diseases).  Polls I have seen over the years show a broad acceptance by Americans of a generalized right to health care, although there is less consensus on how to bring it about.
 
Congress could clearly enact a universal right to health care, as it has created an entitlement to health care for the elderly and disabled (Medicare) and the "worthy poor" (Medicaid).  It is true that these programs could be repealed, but all of the Republicans on the Energy and Commerce Committee recently voted against an amendment put forward by a Democrat to declare Medicare socialized medicine and repeal it.  These programs are here to stay.  I hope that Congress at some point in the very near future recognizes a de facto universal right to health care.  Then we will have to figure out what it means in terms of actual Americans in concrete situations.  It will, of course, never mean an absolute right to everything that is medically possible, but it will, I hope, mean access to basic care.  Most developed countries now recognize such a right, and although every health care system has problems, none pay as much for health care as we do, none deny access to so many of their citizens, and most provide care that is equal to ours in quality – better in some things, worse in others.

John Hoff: Peter Urbanowicz has well introduced the issues surrounding the concept of a "right to health care." As science and technology advance, health care is increasingly effective, but, at least initially, often at great cost. It is simply a fact that many people cannot afford to pay for their own health care (or more accurately even their allocated share spread through insurance). As a society, we should be–and indeed are–willing to subsidize care for our fellow citizens who cannot pay. But the phrase "right to health care" does not inform the decision on how much and under what circumstances care for some should be subsidized by others.

Every time someone invokes such a "right" (often casually and as if it could not be gainsaid), I sense that the discussion is not going to be helpful. In reality, this formulation has no useful meaning, shortcuts the necessary policy considerations, and actually is counterproductive to the goals of those who invoke it.
  
As Timothy Jost and Peter Urbanowicz describe, the U.S. domestic law does not recognize or provide a right to health care. The phrase actually is used here to create a right, not to fulfill one: it is brought out as an argument for legislation to provide some aspect of taxpayer financing for care; whatever the legislation eventually provides becomes the right (or more accurately an entitlement)—which of course can be changed by future legislation. (Interestingly, the phrase never seems to be invoked when government prevents providers and patients from freely contracting for care, for instance, by so-called planning legislation.) 
  
The phrase, moreover, has no operational meaning. It does not address the relevant issues that must be considered in considering taxpayer subsidies for health care: How much health care is to be paid for by the taxpayer, for what beneficiaries, and under what circumstances? Does it include the most advanced or experimental treatment? Indeed, what is health care? Long term care? What are the parameters of self-responsibility? Should there be taxpayer subsidies for smokers, drug abusers, and dare-devils? And which taxpayers should be paying? Should the working young and low-income workers subsidize the health care costs of those who are wealthier and sicker? These are political judgments that we have barely addressed, and they are camouflaged by invocation of a broad principle of a right to health care.
 
Acquiescence in the language of rights could lead to judicial usurpation of these necessarily political questions. This danger is elevated by the ease with which the phrase is expressed in numerous international instruments, with varying formulations, to some of which the U.S. is party. Created in the context of legal systems that do not create justiciable rights as easily as we do, this phrase is more aspirational than legally effective for most of the world, as Jost says. But there is a danger that U.S. courts will feel comfortable in finding support from international sources and "soft international law" in applying and interpreting the scope of U.S. law that does provide taxpayer funding. The language of rights can disguise the fact that taxpayer support for health care is a political question, not one of "rights." 
 
One other point that should be noted: Invocation of the concept of health care as a right may be counterproductive. If there is a pre-existing right, then any taxpayer-funded benefits provided could be taken as partial satisfaction of that asserted obligation of unspecified scope. The claim that any particular provision for taxpayer-supported health care is a "right" turns it into a step onto a slippery slope of unknown height and steepness and makes it more difficult to agree on subsidies for which there would otherwise be consensus.

William M. Sage: "Is there a right to health care in the United States?" My initial reaction to the first question posed by the hosts of this health care reform debate -- ostensibly to provoke a vigorous intellectual exchange across the political spectrum -- was skeptical. As we have read in previous postings, legal scholars agree that no such right exists. Proponents of a right to health care are portrayed as idealistic do-gooders blind to the hard economic facts of life. Or as limousine liberals. Or as socialists. Compassion, we're told, doesn't win in politics. Instead, show us scoreable savings or at least job creation. So why begin an important discussion of reform with a straw man like a right to health care?

On further reflection, though, I think it is the perfect place to start. Here's why. 
 
Most Americans think they already have a right to health care. Workers in large companies, or in well-paid smaller firms, expect health coverage to accompany employment. Seniors have Medicare, and most own a Medi-gap policy too (often as a retirement benefit). Veterans have the VA. Poorer folks fortunate enough to be within a covered demographic for Medicaid or SCHIP have those programs, but often more meaningful to them is the emegency department in their local hospital, where they know they won't be turned away. If any of these people faces serious illness, they will most likely encounter unpleasant bureaucracy, and experience assorted stresses and indignities. They may even suffer financial disaster. But they will receive medical care, and they will generally believe that their care is good.
 
But this "right" has deep problems. First, nobody knows who is paying for it, or how much. Workers think employers pay for their coverage, and seldom connect rising health care costs to stagnant cash wages that no longer keep pace with the cost of other necessities such as housing and education. Seniors think they have earned their coverage, and do not realize that their past contributions and Part B premium payments are mere tokens compared to the massive payroll and income tax revenues with which working Americans fund Medicare. Second, the right is usually exercised by physicians, not patients. American physicians rarely feel constrained by cost, hard science, or social responsibility, but rather flaunt their freedom to recommend tests, procedures, and treatments in what they imagine to be their patient's interest. Because few true systems of care have been created in the United States, patients understandably regard these uncoordinated, sometimes arbitrary professional judgments as definitive. Third, it is only a right to be treated. Other rights cohere in a vision of the society which we wish to build: free, informed, industrious, safe. But we are not healthy. We each forgive ourselves the huge portions, the lack of exercise, the cigarettes, the pills.  Our personal explanations and excuses strike each of us as reasonable. As a society, however, we get sick, stay home, die young. We do not feel a responsibility to do otherwise.
 
To enjoy a real right to health care, we do not need to reinterpret the Constitution. We do need Congress to pass a law, but as much for its symbolic achievement as for its statutory text. Mainly, we need to work together after that law is passed. 
 
For those who say it will be unaffordable, consider this. Only by standing together with collective purpose can we counter the financial self-interest of a $2.5 trillion industry, and demand solid performance for fair payment. In 1993, I worked in the Clinton White House, and talked to dozens of health care provider organizations about their platforms. Only one group that visited us sought universal access to high quality care as their only goal, and were willing to sacrifice to achieve it. Who were they? The American Medical Students Association. All the rest wanted special subsidies and protections for their narrow areas of practice. Only the medical students actually understood the importance of a right to health care.

Paula M. Stannard: On the issue of whether there is – or ought to be – a right to health care, I side with Peter Urbanowicz and John Hoff. As Peter noted, ensuring that everyone has access to affordable health care is good, charitable, and morally right. But establishing a right to health care in statute means that there is a corresponding obligation on the part of someone – usually the government – to provide it. Once it is accepted that it is the obligation of government to provide health care, we would likely cease to view it as a moral and charitable obligation on ourselves. In my view, this would have a serious impact on the nature of our society.

Statutory law is created and exists to impose requirements (mandates) and prohibitions. In this regard, I respectfully disagree with Dr. Sage's statement that we "need Congress to pass a law, but as much for its symbolic achievement as for its statutory text." The purpose of statutory law is to regulate conduct, not to serve as a symbol. Because of this, Congress's primary focus needs to be on clearly defining the requirements and prohibitions to be established in the statutory text.

For much the same reason, I also respectfully take issue with Professor Jost's suggestion that "Congress at some point in the very near future recognizes a de facto universal right to health care" and that we would then "figure out what it means in terms of actual Americans in concrete situations." This seems to put the process backwards. If a universal right to health care is to be established in statute, Congress owes it to the American people to clearly spell out the parameters of that proposed right and the corresponding obligation(s), so that Americans – in and out of Congress – can engage in an informed and meaningful debate on the issues associated with such a right and the corresponding obligations. American consumers would not buy a pig in a poke, and Congress should not adopt the legislative equivalent. This is especially important because the adoption of a statute establishing a universal right to health care would not be the end of the process, but only the beginning: the statutory right would be administered and enforced by the executive branch – and potentially by individuals pursuing private rights of action in lawsuits. The courts would inevitably be called upon to interpret the scope of the right to health care and the corresponding obligation(s) of the government to provide, or pay for, that health care. If the statute does not clearly define such a right to health care and the associated obligations, the statute becomes an empty vessel into which almost anything can be placed. As with many tort lawsuits and as with some school desegregation cases (where federal judges ended up mandating school budgets and tax increases), this would result in courts legislating the appropriation and/or allocation of resources for health care on the basis of a case with a sympathetic plaintiff before it.

William M. Sage:  Without intending to be disrespectful to anyone, this train is not heading to the destination I want to reach. My post engaged the "rights" discussion as a route into a meaningful discussion of health policy. I never claimed that a "right" needed to be discovered or enacted. If all we can offer Federalist Society readers about health care reform is generalities about government and rights, there is little point to continuing.

I feel the same way about discussions of private lawsuits, which I am surprised to see raised in this context but perhaps shouldn't be. In my extensive work on medical malpractice, I am constantly reminded that some people engage that issue as a matter of health law and policy, while others are interested only in whether individual recourse to courts is good or bad for America's economy and social fabric. The former is my area of expertise and principal concern. Ditto for national health reform legislation.

I would have thought that even strict constructionists and Libertarians might want to know why $1.5 trillion of public spending is committed each year in the US for health care with shockingly little to show for it in terms of either health or security. Without health reform, this amount will only increase. But why worry? We can always fire the night watchman.

Timothy S. Jost: Just a quick response to Paula's comments on my comment. I did not mean to imply by my comment that Congress is about to establish a general right to health care without substantive definition or boundaries. As all of us know who have been following this debate closely, the legislation spells out pretty clearly who would get what under the legislation (who is eligible for Medicaid, affordability subsidies, the exchanges, etc.) and who would be bound by what requirements (individual mandate, employer mandate, etc.). Of course, someone will have to implement, administer, and enforce the legislation, but that is why we have the executive branch of government. I hope that the judicial branch will also be there if the executive gets it wrong.

I am concerned, however, that the legislation does not clearly spell out procedural rights. There is far too little in the legislation about when, to whom, and under what circumstances determinations can be appealed or reviewed judicially. See Mark Hall and my posts on Georgetown's O'Neill Center's blog discussing this issue. To that extent, I agree entirely with Paula. I expect that if this is not straightened out, there will be a great deal of unnecessary litigation that will not help us solve the problems this legislation is intended to address.

William M. Sage: I certainly agree with Tim. However, let me point out two tensions in any federal health reform legislation with respect to coverage mechanisms and associated procedures.

First, the more of a pluralistic character we retain in American health insurance post-reform (i.e., keeping Medicare, Medicaid, employment/ERISA-based coverage, individual insurance, etc.), the more duplication, ambiguity, and uncertainty we can expect in the procedures available to define and enforce the reform.

Second, a frighteningly large number of drafting decisions in health reform legislation on this scale are primarily motivated by budgetary accounting rules and associated fiscal politics. Most obviously, direct payment to a government entity in response to a coverage mandate constitutes a tax increase under those rules, which is matched by a government spending increase when a health insurance policy is conferred. By contrast, less direct pass-through of private health insurance funds involving "cooperatives," "exchanges," and similar, often legally ambiguous entities, potentially escape characterization as taxation and improve the political chances of enactment. But it is always the latter that present the more complicated procedural challenges.

Peter Urbanowicz: Public Option: "Friend" or Foe? (Part 1 of 2)

Barrels of ink (and billions of bytes) have been spilled opining on the so-called "public option" or government-sponsored health insurance plan proposals. Perhaps nothing new can be added to the debate on this most contentious aspect of health care reform, but that won't stop me from trying. I'll try to put forth some new observations as I hope the other contributors will as well.
 
Although this week saw the Senate Finance Committee vote down the public option idea, the news of the death [paneling] of the public option may be greatly exaggerated. The House reform bills include a public option and Senate Majority Leader Harry Reid insists that the Senate floor bill will include a public option.
 
So why do we need a new, government-sponsored health insuring entity or "public option?" The arguments in favor have by now become familiar: 1) to provide additional "choice" in the insurance marketplace; 2) to provide a "lower cost" health insurance option from an entity that will have lower administrative costs, doesn't have to "make money" or pay dividends to shareholders; and 3) to "keep insurance companies honest." The familiar counter-arguments follow that the public option is just the first step towards a single payer system -- "camel's nose in the tent," "stalking horse," "Trojan Horse"-- take your pick of cloven-hoofed metaphors. But calm down, as President Obama told the American Medical Association: "The public option is not your enemy; it is your friend." But do we need this sort of friend? And what does this friendship offer?
 
Let's speed debate through the points: "Additional choice." There are over 1300 companies in the United States that write health insurance policies. And there is still the opportunity to create your own coverage through a Health Savings Account, coupled with a high-deductible or catastrophic care policy. So it seems there is ample choice out there. If the Congress wanted to further expand existing private choices it could permit the interstate sale of insurance products, which is currently prohibited by most state insurance commissioners. That would give consumers exponentially more choice. Is more choice really needed? Or is really just adding the choice of a new highly tax subsidized insurance company?
 
"Lower cost" is also not likely attainable with a public option unless the public option is heavily subsidized by the federal treasury and / or the public option is empowered to require doctors and hospitals to accept Medicare rates (Senator Jay Rockefeller's proposal). Both a federal subsidy and ability to mandate low provider payment rates might make the public option less expensive, but it would do so at the expense of the federal tax dollars and creating an unlevel playing field that disadvantages private companies. The playing field would be further tilted if the public option insurance company were not required to meet capital reserve requirements mandated by state insurance commissioners.
 
If the public option is not given a tax subsidy, or is not permitted to mandate Medicare rates and is required to meet capital reserve requirements, then it will not be a cheaper option. How do we know this? We have only to look to the operation of the dozens of non-profit Blue Cross and Blue Shield insurance plans in this country. You could also look to the operations some other large non-profit health insurance companies like Kaiser-Permanente.
 
Roughly 60 million Americans are covered by a non-profit Blue Cross / Blue Shield company plan. While a few Blue Cross / Blue Shield plans have converted to "for profit / investor owned" status in the past few years – e.g., Anthem, WellPoint – most Blue Cross / Blue Shield insurance plans are chartered as state, non-profit corporations. Many have been in existence since the 1930s and are the original health care co-operative, so to speak. They do not have shareholders to pay dividends to so all of their positive operating income can be plowed back into the business in the form of keeping premiums down and being the "insurer of last resort" in each state. Most of these non-profit Blue Cross plans are governed by independent community members and trustees, many of whom are local physicians or local businessmen whose companies buy a Blue Cross plan (really sounds like a "co-op" to me.)

Peter Urbanowicz: Public Option: "Friend" or Foe? (Part 2 of 2)

The insurer singled out for opprobrium by President Obama in his Congressional speech – "in Alabama, almost 90 percent is controlled by just one company" – is Blue Cross and Blue Shield of Alabama, a state non-profit association. According to filings with the Alabama Commissioner of Insurance, Blue Cross of Alabama collected $3.5 billion in premium revenue in 2007. (The company insures over 3.5 million people including 2 million Alabama residents.) That same year the company reported "general administrative expenses" of $191 million. That equates to about a 5.5 % premium revenue going towards administrative expenses, leaving the company with about $20 million in net operating income. At the same time, because the plan has to meet Alabama capital reserve requirements, a significant amount of money has to be set aside each year to maintain a capital surplus, which at the end of 2007 stood at about $700 million. And, although most of the Blue Cross plans are state "non-profit" associations, they still pay federal income taxes. So the question is: Without a significant on-going federal tax subsidy, or not having to maintain adequate capital reserves, or the ability to "mandate" Medicare / Medicaid style provider reimbursement, how will a public option insurance company be cheaper or less costly than the large number of non-profit health plans already out there?
 
Finally, with respect to the argument that we need a public option to "keep insurance companies honest," isn't that the job currently filled by 50 state insurance commissioners, not to mention the Securities and Exchange Commission, Department of Justice Division on Antitrust and the Federal Trade Commission?
 
If the compelling rationale for the public option is rooted in it being "cheaper" or creating more competition then our "friend" the public option is not being straight about who he is and what he can realistically achieve.

Timothy S. Jost: (Part 1 of 2)

I agree with Peter that barrels of ink have been spilled over the public option. I seriously doubt that we can add much to what has already been said. Because I am tied up almost the entire weekend, I would refer everyone to Jacob Hacker's posts on the Campaign for America's Future website and elsewhere to carry the weight of my side of the argument. I cannot, however, resist responding briefly to Peter's points. 
 
First, I really don't believe that there are 1300 companies in the United States that write health insurance policies. Show me the list. Moreover, if there are 1000 small HMOS that have local networks somewhere in the US, the point is irrelevant to competition where I live. Health insurance is intensely local. There may be 10,000 fruit stands in the United States, but I am not driving to California to buy a cantaloupe. This is why antitrust law concerns itself with geographic markets. I can tell you how many insurers there are who write policies in the market for medium size employers in the Shenandoah Valley–one, in a good year two. This is not primarily because of the lack of interstate licensure either. It is not that big a deal to get a license to write health insurance. In many states, solvency standards require a few hundred thousand dollars, maybe a million. The problem is getting a network of providers who will sell you prices for close to what they sell them to the dominant insurer or insurers in the market. Good luck in getting that. 
 
Interstate sales would open a huge can of worms, without solving that problem. The fraudulent sale of insurance is already a significant problem. If any insurer could claim to be licensed in Idaho, answerable only to the Idaho insurance commissioner, but sell policies anywhere, what would an insured do in New York when the insurer turned down a claim? Call the Idaho insurance commissioner for help long distance from New York? Drive to Idaho? The Bacus bill permits insurers to sell policies on a national basis, regulated under federal standards but licensed and answerable to every state in which they did business. It would also allow interstate compacts to allow insurers licensed in one state to sell policies in another that was part of a compact. The state in which the policy was sold would address market conduct, network adequacy, unfair trade practices, and consumer protection. These steps might increase competitiveness while protecting consumers, but I really doubt they would make markets much more competitive. The real problem is market structure, not regulation. Dominant providers charge high prices to dominant insurers, but even higher prices to new entrants and small insurers. What is needed is a new entrant that has the power to pay providers lower prices–the public plan.

Timothy S. Jost: (Part 2 of 2)

CRS published a new report this week on insurance markets. I am not sure where your figures are from with respect to Blue Cross of Alabama, but one of the points in the report is that insurers keep three sets of books, one for the IRS, one for insurance regulators, and one for reports to the SEC and other regulators. It is very difficult to definitively say what insurers’ profits and administrative costs are. CRS determined that most of the companies they looked at had medical loss ratios in the 80 - 85% range. I think a public plan could do much better than this. The key to the public plan, however, is using the Medicare network (with a right to opt out) and something close to Medicare rates. The CBO has estimated that a strong public plan would save the federal government $110 billion in premium subsidies alone. If one believes that deficits and taxes are a bad thing, this should be attractive. "Further, my impression is that non-profit blue plans behave just like any other insurer in the market–they impose preexisting conditions clauses, they experience rate, they charge just as high premiums as commercial insurers. It has been decades since nonprofit blue plans operated like charities, a fact that Congress acknowledged when it pulled their exempt status in the 80s, I believe.

My assumption is that if we had a public plan paying Medicare rates, providers would become more efficient MedPAC says that providers deliver care much more efficiently in competitive markets where they get paid something close to Medicare rates by private insurers. Private insurers would force down provider prices and hold down their administrative costs. Markets would stabilize at some point, perhaps where they are in Germany where public plans has half the market and the private plans half the market where they are in competition, or perhaps where they are in Australia, 1/3 public, 2/3 private.

The thing I don't understand is why free market types who have always thought choice was such a great thing suddenly think it will destroy our health care system. Keep your private insurance if you love it so much. Just let those who want it (which seems to be 55% to 65% of Americans according to recent polls) have a choice. Why is choice such a bad thing?

I use the post office to send first class mail, UPS for packages, Fed Ex when I am really in a hurry. All of them serve me very well. If Congress abolished the post office and gave me a subsidy to pay for every letter I sent Fed Ex, I don't think it would be a good expenditure of taxpayer money. I know not everyone loves the post office, but my experience is that I get at least as good service from them as from Fed ex and UPS. Another example is Medicare Advantage, where we now pay $1.14 to deliver services to beneficiaries that traditional Medicare can cover for a $1.00. Unless our policy is based on a religious belief that "markets" can do no wrong and that economists theories always trump reality (which it seems to be), I don't see the point of this. I am afraid we are about to set up yet another system that just pours unlimited federal dollars into dominant insurers that will in turn pour them into dominant providers. I frankly, want to cover the uninsured, but would rather spend my money on other things than giving it to insurers and providers.

William M. Sage: This is an issue with respect to which a comparison with the 1993 reform effort is instructive. In both reform proposals, a Medicare-like option was included. Then as now, there were indeed many on the "single-payer left" who thought that such an option would prove naturally superior, while others who favored competition believed that a substantial subsidy for the Medicare-like option would be required for its survival and would be politically irresistible. For the record, I favored unassisted competition in 1993 but I would prefer a "public option" now. My reason is that the experience over the past 15 years with insurer competition has been extremely disappointing in terms of investment in health or improvement of the health care delivery system

It is also instructive to consider the reasons for the Medicare-like option in 1993 and today. Both proposals respond to public apprehension about competition among private insurers, but the source of that concern was very different in 1993 than it is today. In 1993, the public worried that competing private insurers would manage care too tightly in prepaid, capitated systems. Consequently, the Medicare-like choice was a "fee-for-service" option that allayed this concern. Today, the public worries that competing private insurers will deny coverage to sick people, while the Medicare-like choice is seen as offering a reliable high-risk pool for these individuals. (Ironically, it is the death-panelled government option that is seen as overly managing care).
 
Seen from this perspective, single-payer conspiracy theories aside, it should not be surprising that both the 1993 option and the proposal today are actually quite popular with ordinary Americans.
 
Finally, although undoubtedly some of you will take issue with the foregoing analysis, my next point admits no dissent. NEITHER HORSES NOR CAMELS ARE CLOVEN-HOOF ANIMALS. If you don't believe me, check Wikipedia.

Peter Urbanowicz: (Part 1 of 3)

First, let me address Dr. Sage's well taken animal husbandry point before we get back to healthcare.  I will stipulate for the record that neither horses nor camels are cloven hoofed creatures.  Clearly I was so taken with Paula Stannard's instruction that we not buy a "pig in a poke" when it comes to health care reform, that I became entranced with cloven-hoofed metaphors to the detriment of proper zoological nomenclature.
 
But back to health care reform and moreover the public option. Tim Jost makes a critical and instructive concession on the public option: It can’t succeed in being "cheaper" – and therefore effective – without paying Medicare rates. Like Senator Rockefeller (and the House reform bills) he believes that the public option must be empowered to pay doctors and hospitals the same rates that Medicare pays doctors and hospitals. Putting to the side for a moment the issue of government dictating prices, a public option paying Medicare rates will only increase the cost of insurance for those of us who wish to keep private coverage. How so? Countless reports have documented over the years how Medicare (and Medicaid) typically pays less than the actual cost of care. A very authoritative study on Medicare / Medicaid underpayment and cost-shifting was published by the very noted actuarial firm Milliman in December of 2008.

The Milliman report said that in 2006 Medicare paid $48 billion dollars less to hospitals and doctors than it would have paid if it had to pay the same market rates that private insurance plans paid. In that same year state Medicaid programs paid almost $40 billion less to hospitals and doctors than they would have paid had they had to pay prevailing, private market rates. In contrast private insurance companies wound up subsidizing hospitals over $88 billion dollars for the under-payments made by the Medicare and Medicaid programs. So, if the public option paid out Medicare or Medicaid rates to doctors and hospitals we’d see costs go up even more for the remaining private insurance companies. On this one you don’t have to buy the opinion of an ungulate metaphor lover. It comes from a September 15, 2009 study from Dr. Allen Dobson and Dr. Joan DaVanzo, two eminent health care policy experts. Dobson and DaVanzo concluded that: "Introducing a government-run health insurance plan could cause hospitals to shift a new financial burden onto patients with private insurance, raising premiums for those who already have coverage."
 
But, if I’m reading Tim’s comments correctly he’d say fine, we should pay hospitals and doctors less because they are getting paid too much now and are inefficient. As I understand his line of thought, paying doctors and hospitals less will be the only way to bring down health care costs. But paying less doesn’t bring down the cost. Indeed, the Medicare and Medicaid programs try to reduce the price of services each year. But it doesn’t bring down the overall cost because Medicare / Medicaid utilization of health care services has skyrocketed over the last 20 years. The Medicare program may be paying less for a doctor visit or a test or an outpatient stay today on a real and relative basis than to 20 years ago, but beneficiaries are utilizing more and more services and doctors are prescribing more and more treatments.

Peter Urbanowicz: (Part 2 of 3)

In addition to stipulating on the issue of cloven hoofs, I’m perfectly willing to stipulate that the current health care system does not come close to approximating an efficient market. The presence of government payors and employer payors has seriously distorted the pricing of health care goods and services. As long as someone else – Medicare, Medicaid or a private employer’s health plan – is paying the bill in large part, a consumer or patient is not really engaging in a market based transaction. A public option would only continue to eliminate any trace of the free market in health care delivery.
 
Ironically, the only people engaged in market-based health care transactions today are the uninsured. The uninsured patient asks what a doctor visit costs before he makes and appointment or asks the pharmacist the difference in the cost between a branded drug and generic drug. And it has been the uninsured that have precipitated much of the growth of more market / consumer friendly care settings such as the "urgent clinics" or "minute clinics" that you see popping up in drug stores and Wal-Marts.

Peter Urbanowicz:  (Part 3 of 3)

When I was in the government I was both a proponent and consumer of "consumer based health." I signed up for a high deductible health plan that at the beginning of the plan year issued a credit of $2,000 to each family. We could use that $2,000 to go to the doctor or the dentist or get a prescription. Then we had a largely uninsured piece of between $2,000 and $5,000 where we were largely on our own, self-insured except for major hospitalizations. So we wound up being good consumers and shopping for our care, careful to stay within our $2,000 allowance. A convenient dentist downtown in D.C. by my office was charging $300 for teeth cleaning. My wife found another very capable dentist in who was very happy to do a cleaning for $50. So guess where we drove to get our teeth cleaned?
 
Having the public option pay Medicare rates will only further distort the little that is left of a free healthcare market. I have enormous respect for the people who work for the Medicare program; I worked with them for almost three years. Each year we labored in good faith to write payment rules for doctors, hospitals and all other health care providers. We – the government – determined how much should be paid for a doctor visit; how much for a hip replacement; how much for an arterial stent. Long regulations, thousands and thousands of pages long are published each year setting rates. But in the end, one must conceded that despite the good intentions and mathematical and actuarial models of doctor "efficiency" and "average hospital stays," Medicare is a "big dumb price-fixer." That was the candid assessment of my colleague and friend Tom Scully, the former Medicare administrator, who said after he left office in an interview with health care economist Uwe Reinhardt:

"The one sorry lesson I have learned as an administrator of Medicare is that we cannot ever seem to get the payment for health care right, because someone always screams and yells that Medicare pays either too much or too little for particular services. Therefore, I called Medicare a 'big dumb price fixer,' which, you must admit, is true. And I went on to say that this is not a good a model for a twenty-first-century Medicare, having the government fix prices for so much health care in so highly political an environment"

I fear that a public option operating in such a manner would only further exacerbate the way in which our current public programs – Medicare and Medicaid – are currently constructed and that the entirety of the health care system would be run by a "big dumb price fixer."

Timothy S. Jost: Cost shifting has never made sense to me as a matter of simple economics. If hospitals are able to raise their prices for private insurers, why would they wait to do so until Medicare underpaid them? Why not simply charge insurers the highest price they can get away with to begin with? And why would insurers pay the higher prices that are shifted to them? Why not push the providers to give them the same rate Medicare does? It seems to me that what is going on is that hospitals are simply getting the highest price they can from insurers in markets they dominate, and would do so in any event. If Medicare prices went up next year, would the hospitals immediately cut the prices they charge other insurers? The empirical evidence of cost-shifting is also not universally accepted. MedPAC argues that cost shifting is not a real problem–in competitive markets insurers pay prices close to the Medicare rate and efficient hospitals do fine. In concentrated markets, the hospitals charge high prices and insurers pay them. The CBO is also quite skeptical of the cost-shift argument, as is, I believe, the GAO. Insurers just find it easier to pass on high prices to employers and individuals than to bargain hard with providers. I do agree, however, that we have to get a handle on utilization as well as price, and that Medicare could learn from private insurers on that account. As to consumer-driven health care, I wrote a book on that, Health Care at Risk: A Critique of the Consumer-Driven Movement (Duke U. Press 2007), and the 500 word limit precludes me from repeating it here.

Peter Urbanowicz: (Part 1 of 2) 

I'm no economist, but over the last 20 years I've negotiated personally with scores of insurance companies on behalf of hospitals and doctors, and can assure you that hospitals and doctors try to get every penny they are entitled to from insurance companies. I've also been on the insurance company side and can vouch for the tenaciousness of their negotiators; they don't roll over and pay any price a doctor or hospital asks for just because they can pass it along to employers. There is actually a competitive market out there for health insurance and employers look for the insurer with the lowest rates and the best network of hospitals and doctors. Both hospitals and insurance companies negotiate vigorously with each other as you would expect parties to in a free market transaction. I can't think of a single instance in which the insurance companies paid anything close to the prevailing Medicare reimbursement rate.
 
Cost shifting in health care is a matter of simple economics. There are over 200 million Americans with private insurance (176 million with employer sponsored insurance, the balance with individual policies) and about 85 million Americans with Medicare or Medicaid (43 and 42 million respectively.) Medicare decides it is going to pay $5,000 for a service that actually costs $10,000 all in. Hospitals have to make that up somewhere. So they have to make it up from their private pay patients. It's no different than the airlines making their money from business travelers, letting advance purchase / discount fare travelers often fly for less than the cost of travel. Just stop seeing Medicare and Medicare patients you might say. Not practical given that Medicare beneficiaries – given their age – are the biggest utilizers of health care services.
 
In the original days of Medicare – up until the early 1980s – Medicare and private insurers actually paid comparable charges at hospitals and doctors because Medicare reimbursed on an actual cost basis until 1983. Indeed, the way that Medicare got passed in 1965 over the objections of many doctors and hospitals – they feared "socialized medicine" – was to have the Medicare program run like private Blue Cross and Blue Shield plans. Medicare delegated claims payment to private Blue Cross companies, who generally paid hospitals and doctors about the same as what they paid for the private Blue Cross customers. In fact if you look at the original Social Security Act language outlining the original Medicare benefits and if you look at the original "provider agreements" for Medicare, they look suspiciously like the then prevailing Blue Cross contracts.
 
Then in 1983 the "diagnosis related group" or "DRG" system was introduced and the Medicare program began determining on a prospective basis how much it would pay for each hospital stay, i.e., price-fixing. Medicare made the same change to doctor payments in 1992 and stopped paying doctors their actual charges and started paying them a pre-determined amount under the "Resource Based Relative Value Scale" or "RBRVS." More price fixing and a determination that a government agency had a better idea of what it costs to see the doctor than the doctor himself. So in fact the Medicare system was more market based until Medicare price fixing began in earnest in 1983.

Peter Urbanowicz: (Part 2 of 2) 

All of this is to say that the greatest fear – and I think the most justified one – of a public option, is that it will result in the government setting prices for all health care goods and services. The Medicare program passed because assurances were made that the government would not be setting prices or interfering in medical decisions. So important was this non-interference assurance that the very first section of the Medicare Act, Section 1801 of the Social Security Act, guaranteed non-interference:

"Nothing in this title shall be construed to authorize any Federal officer or employee to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided, or over the selection, tenure, or compensation of any officer or employee of any institution, agency, or person providing health services; or to exercise any supervision or control over the administration or operation of any such institution, agency, or person."

Is there any concern at all on your side, Tim and Bill, about the federal government becoming the permanent price-fixer for all health care goods and services or would you be okay with someone in Washington deciding how much to pay every doctor in Austin and Lexington for every service they provide?

William M. Sage:  Peter, let me begin by saying that I agree with you about hospital-physician-insurer negotiations generally occurring in competitive markets. Bargaining power has swung from one "side" to the other over the years and back again – favoring insurers in the 1980s and early 1990s after DRGs and selective contracting revealed substantial excess capacity, then favoring providers in the late 1990s after hospitals consolidated and managed care lost public acceptance. But markets have been competitive.

And thank you, Peter, for the kind words about my views on mammalian biology. Though "animal husbandry" wouldn't be my phrase of choice (cf. Tom Lehrer). But I am agreeing with you on substance when I say that most markets are competitive, not just repaying the favor.
 
However, when you start asking me how I feel about someone in Washington DC "setting fees" for every town in America, the only proper response is "Pul-eeze!" Give us a break! You sound exactly like Clinton's health reform czar Ira Magaziner did back in 1993. Magaziner constantly fretted about some bean-counter in Hartford, CT pushing a button on his computer and denying lifesaving medical care to folks in the same towns you invoke. Both fears were unreasonable, but at least Ira's matched the public's. As I said in my earlier post, what resonates with ordinary Americans about the Obama's "public option" is that it will provide a reliable source of coverage to people that private insurers have never welcomed, and that they may not welcome in the future regardless of new government rules. Maybe you can pull a Harry-and-Louise act and convince the public that they need private insurers to set doctors' fees (as opposed to having affordable medical care), much as those two actors convinced the public that "choice of insurer" (not choice of doctor) was important to them. We'll just have to see.
 
Would you mind terribly if I praise a Republican administration and criticize a Democratic one? Johnson made a terrible miscalculation when he agreed to the non-interference provision in the Medicare Act and other eleventh-hour demands of the AMA. According to Califano, he thought the pricetag would be about $500 million over ten years. It turned out to be more like $1 trillion over 40 years.
 
Reagan, on the other hand, got it right when he implemented inpatient hospital PPS (DRGs) in 1982. Quietly, with a reasonable basis in both fact and theory but without high rhetoric or fear-mongering, DRGs changed the nature of hospitals and the relationship between hospitals and physicians. DRGs didn't solve the medical cost problem, but they certainly showed the power of Medicare payment to induce delivery system change.
 
Competitive insurance markets are unlikely to accomplish as much. What is wrong with competition among insurers? Fundamentally, it is that insurers compete on selecting insurable risks and pricing them appropriately. As health care costs rise, these practices become more and more aggressive (and benefits become slimmer, and cost-sharing increases). Which is why people worry about being excluded in markets with only private insurers.
 
Particularly in competitive markets, individual insurers have few rational incentives to invest in health because the costs fall on one insurer, but the likely savings later on belong to another. And competing on the quality and cost-effectiveness of care turned out to be much, much harder than competing on risk – in part because it was unfamiliar to most insurers, in part because physicians are hard to manage, and in part because the public (and the laws and regulations the public supported) was never sure it wanted insurers to succeed. At least not while the economy was booming and insurance premiums were plausibly affordable.
 
In my view, insurers will not be able to compete effectively on health or medical care for several years. Therefore, Medicare will have to take the lead once again in using payment policy to effect delivery system reform. Just as many fiscal conservatives have always wanted it to. This is true whether or not there is a "public option" in Obama health reform.
 
Because without delivery system reform, the long-term prospects for our health and our economy are grim.

Timothy S. Jost: I'm not an economist either, but I cannot for the life of me understand why a seller would keep selling a product to a buyer if it was losing $5,000 on every $5,000 sale, even if the buyer was its biggest customer. No one is legally compelled to participate in Medicare. Exempt hospitals that dropped out would possibly lose their tax exemptions, but exempt status is not worth that much. And physicians do not even have that to worry about, yet the latest MedPAC study found that Medicare beneficiaries had an easier time finding a doctor than privately insured patients. What is going on here is simple price discrimination, which happens in lots of industries without government participation. Providers are rational profit maximizers, and they are getting the best price they can out of every buyer in the market—Medicare pays the least; the Blues, United, and Cigna pay a little more; small insurers pay even more (which is why they cannot compete with the market-dominant insurers), and the uninsured and those with "consumer-driven" accounts get creamed. But this is not cost shifting. Again, MedPAC, the CBO, and the GAO have studied this and have not confirmed the cost-shifting hypothesis. It is just one of those health care policy zombies like defensive medicine causing our health care cost crisis that gets disproved over and over again yet that everyone still believes.

Just a couple of other comments to stay within my 500 word limit. First, this is the first time I have heard of anyone referring to the days of charge and cost based reimbursement as the halcyon days of market-driven competition. Most commentators think that Medicare got taken to the cleaners and would have ended years ago had not that socialist Ronald Reagan finally moved to administered prices (see Bill's post). Second, the courts have long held Section 1801 to be merely hortatory and to not have a substantive effect, but it clearly does not affect the amount Medicare pays for services. It could arguably affect strategies like pay for performance or accountable care systems, and I have advocated that it be amended to state that the task of the Medicare program is to secure high quality care for its beneficiaries at affordable costs. Finally, price regulation in health care does not bother me, given the pervasive market failures in the area. It works quite well in Maryland and in other countries. Granted, there are always problems with pegging some prices too high and others too low, and with political interference. But things could hardly get worse than they are today, with the highest cost health care system in the world, average or worse quality of care, and 50 million uninsured.

Timothy S. Jost: On another topic we have touched on a couple of times, I would refer all to a report on a Georgetown symposium yesterday on medical malpractice in which our (to date unusually quiet) colleague David Hyman participated, which once again noted that medical malpractice is not the cause of our health care cost crisis (http://www.mcclatchydc.com/economy/story/76639.html).

David A. Hyman:  I've not posted to date, because I don't have any comparative advantage in discussions about justice and rights, and such topics generally give me a headache. I'm glad to see we are moving to more concrete topics. Let me flag a couple more.

  1. CMS ordered Humana to stop communicating with the beneficiaries in its Medicare managed care plan, after it sent a mailing accurately noting that "if the proposed funding cut levels become law, millions of seniors and disabled individuals could lose many of the important benefits and services that make Medicare Advantage health plans so valuable." The letter is here:http://big.assets.huffingtonpost.com/humanamailer.pdf. Is this a flatly unconstitutional prior restraint/unconstitutional condition, or a good faith attempt to protect beneficiaries from confusing and misleading communications? Does anyone believe that CMS would have taken the same actions if Humana had written a letter lauding the health reform efforts? Is this any different than the attempts of the Bush Administration to keep Chief Actuary Richard Foster from communicating his scoring of the Medicare Part D benefit to Congress, for which the Administration was harshly criticized — including reports by the GAO, OIG, and the Congressional Research Service. (For Secretary Sebelius' defense of CMS' actions, seehttp://www.politico.com/static/PPM110_091006_sebelius_reply.html). To be clear, this is a separate issue than the merits of the proposed funding cuts.
  2. The Administration has promised to fund health reform in part by cracking down on waste, fraud, and abuse. How much money do people think they can reasonably secure in that fashion? If that money is there for the taking, why haven't previous Administrations cracked down on it? Do the fraudsters have a better lobby than the good government types?
  3. Bill's earlier observation that only the medical students were public spirited during the debates over the Clinton health reform bill reminds me of an oft-noted observation about legal education: the students all come in wanting to do public interest law, and leave wanting to work for a big firm. So, do we blame professional education for the problem? Have we met the enemy and he is us?

Timothy S. Jost: Good to hear from you David.

On your first issue, I think that a better comparison is Newt Gingrich's Republican Congress threatening to revoke the tax exempt status of AARP when it criticized the Republican's attempt to privatize Medicare in 1995. I am not a first Amendment expert, but my recollection is that the Supreme Court upheld federal regulation prohibiting doctors who received federal funds from discussing abortion with their patients (Rust v. Sullivan). Humana is a Medicare contractor and its communications with its members using Medicare's membership lists are subject to control by Medicare. If it doesn't like these restrictions, it doesn't have to take federal funds. Second, Medicare in fact saved a boatload of money in the late 1990s when it cracked down on health care fraud and abusive billing—in one year Medicare's costs did not grow at all. Provider push back stemmed the enforcement efforts, but enforcement is worth trying again. I agree with David, however, that this is not a magic bullet.

Timothy S. Jost: On the question of cost shift versus price differentials, see Austin Frakt's post of October 5 (http://theincidentaleconomist.com/price-differentials-are-not-evidence-of-cost-shifting/). His argument is persuasive to me, at least, that the case of cost shifting has not been made, and in particular that the Milliman report, which was funded by the health insurance industry, does not make the case. But then I am pretty easy to persuade on this point.

William M. Sage: Tim is correct regarding Rust v. Sullivan, which (at least as it has been interpreted in subsequent Supreme Court decisions) held that the government can subsidize whatever speech it wants, and can prevent those parties it subsidizes from conveying messages it disfavors. So the government clearly can instruct Medicare contractors regarding the content of speech within the scope of their contracts, which I would think includes using the government's mailing lists. I am taking time off from discussing much more pressing health reform issues to contribute this for two reasons. First, in the class on professions and professionals I teach every year to a combined group of law students and medical students, I have them compare Rust to Legal Service Corp. v. Velazquez, in which the Court held that lawyers and doctors were different (specifically, that the government could not limit speech by publicly funded legal services lawyers). Second, this is one of the rare instances in which I am qualified to express an opinion on constitutional law, so why not show off a bit?

John Hoff: I would like to pick up the thread of the earlier postings of Dr. Sage and Prof. Jost. They decry a lack of competition among private health insurers, are dissatisfied with the way insurers have operated, and do not believe, because of obstacles to entry and insurers' incentives to avoid the sick, that effective competition among private insurers is foreseeably possible. They seem to throw in the towel with respect to enhancing competition among private plans and instead support giving the public the additional choice of the public option (meaning a federally operated insurance plan).

This, Prof. Jost says, would be like the current competition among the U.S. Postal Service, UPS, and FedEx. This analogy has been used frequently in the debate, but repetition has not explained how going postal relates to the role envisioned for the federal insurance plan. The Post Office (unlike federally operated insurance, is explicitly authorized by the Constitution) has a statutory monopoly for non-urgent mail; one cannot choose between it and FedEx for a letter that is non-urgent. Even if there were choice among these three services, this would not fit the health care world; a patient would not be permitted to choose different insurance plans for different illnesses. It also bears remembering that the Post Office was converted to semi-private status when its government structure proved unacceptably inefficient. Even under its more private status, there is still significant government subsidization and not infrequent calls for more. The most important lesson is that the Post Office did not develop a service like FedEx; it took a private, profit-driven entity to innovate, using the small loophole in the statutory monopoly enjoyed by USPS.

Prof. Jost asks why "free market types" are suspicious of giving people a choice that includes a government insurance plan. But as I discussed in a Heritage Foundation Backgrounder (seehttp://www.heritage.org/Research/HealthCare/bg2311.cfm), the competition would not be held on a level playing field (as the rhetoric used to defend the public option would have it). The government plan would not be subject to the same regulatory requirements, would not pay taxes, and uniquely would have the size and the legislative authority to impose fees for providers that could be lower than market rates. (Prof. Jost says this would be a good thing.) With these advantages, the government plan is likely to capture much of the insurance business from private insurers, resulting in a de facto single payer.

Advocates of the pending bills (and, it seems our correspondents as well) do not consider how the current private insurance system can be made more competitive and more responsive to consumer needs—for instance, by consumer choice of plans (not homogenized by the regulation envisioned in the reform bill), individual ownership of insurance, longer term relationships between insurer and member, competition across state lines, high risk pools, rules on guaranteed renewability, etc. Instead of trying to improve competition, the advocates of the bills would turn health care over to a government insurance plan which would be (a) a monopoly with greater power than any private plan could have and (b) a government agency. While it might well be able to impose lower fees, this would adversely affect access to care. Already, it is often difficult for Medicaid patients to find a doctor, and providers increasingly are turning away Medicare beneficiaries. The Mayo Clinic has just announced such limitations. Reimbursement cuts in the bill would make this worse, and people who choose the public option would face the same obstacles.

Health care would be politicized and bureaucratized. People would have little choice. There would be less innovation, flexibility, and responsiveness to consumer interests (any change would have to go through a rule-making or legislative process).

It is doubly ironic that bemoaning the lack of competition in the insurance market, the proponents of the pending bills would create a new monopoly that, being a government agency, is likely to be like the Post Office in the old days before semi-privatization, and without the escape hatch than enables FedEx.

John Hoff: I would like to return to Paula Stannard's point that action on the pending reform bills is like buying a pig in a poke. First, I must note that the pig at least does correctly fit within Peter Urbanowicz's cloven-hoofed metaphors (although the point of the expression is that the poke contains a cat rather than the promised pig). Also, it should be emphasized that the notion, as has been suggested in this discussion by Dr. Sage, that we enact legislation for its symbolic value is truly troublesome. Courts would be asked to interpret legislation that has been passed as a symbol? One can only begin to imagine the undemocratic consequences.

But back to Paula Stannard's observation. The bills are indeed pigs in a poke. At each step, the Members—and the public—have not had a meaningful opportunity to read and study the bill before it is considered by committee. (This process is even worse with respect to the Finance Committee bill, since the committee is forging ahead even in the absence of legislative language!) It seems this process will continue, and it is likely that the bill to be considered by the Senate will not be available until shortly before the debate begins. It is going to be something of a shell game—while various bills are discussed, one can reasonably predict that the one to be debated and voted on will remain hidden until the last minute. (What have we come to that even allowing for a mere 72 hours to read the bill is considered controversial?) If a bill is enacted, the cat will be let out of the poke and the citizenry (and the Members themselves) will begin to understand the result; at that point, Congress may well come to regret passage of a bill without a full public airing.

The pig in a poke characterization goes beyond the fact that the public will not have understood what is in the bill before it is passed. As a matter of substance, the bill would leave many major issues unresolved. It would create an infrastructure that gives the executive branch, and ultimately the courts, undefined, but clearly very broad, authority over the health care system. It is true, as Prof. Jost points out, that the bill will specify who will be covered by Medicaid, etc. It is specific on the coverage and subsidy issues that can be quantified. But the bill goes much farther into the nuts and bolts of insurance and health care delivery, and leaves many of the real-world questions unresolved.

Just a small sampling drawn from the several bills now available: the Secretary is to determine what treatments must be covered by qualified plans; there is to be an independent Medicare Commission to recommend reductions in expenditures to meet targets that could go into effect automatically; the risk-adjustment mechanism is not defined; the Health Choices Commissioner is given blanket authority to set uniform marketing standards; the Commissioner is obligated to enter into contracts with plans but there are no limits on what he can require of them; the preventive services for which no deductible is permitted would be determined by the administration (will follow-on diagnostics resulting from preventive care also be subject to the same limitation?); the reimbursement mechanism under the government plan can be determined by the administration (there is authority for it to undertake "innovative" payment mechanisms); what will be the role of state insurance commissioners vis-a-vis the federal government? These are just a few of the open-ended questions left to the administration; many more would come to the fore if it passes when efforts are made actually too implement the legislation.

The bill sets in place a matrix for unprecedented (and currently not understood) regulation of the health care system; it would be filled in administratively. The bills proffer a pig in a poke that is actually a cat on steroids.

Timothy S. Jost: I will respond to John's first post later when I have time, but would like to respond to this one quickly. I share this concern to some extent, particularly with the Senate Finance Committee bill. Indeed I complained in a Politico blog this morning that it is very difficult to figure out what the Finance Committee bill in fact says because it has not yet been reduced to legislative language. Apparently, however, it is a tradition of the Finance Committee to deal with "plain English" descriptions of legislation rather than the legislation itself, so this is not a problem unique to this bill. 

A larger problem is whether the legislation should be more specific, and whether more time to allow it to ripen would improve it. I grant that it will work major changes in our health care system, many of which I hope will be improvements. I also grant that parts of it are not very well fleshed out yet. Isn't this, however, true of much modern legislation (or even of older legislation, think of the Sherman Antitrust Act)? Either to leave flexibility or to avoid responsibility, Congress often describes in very general terms what it wishes to accomplish and then leaves it to the executive to implement the legislation. Was President Bush's bank bailout bill any more specific? Although I am not an expert on constitutional law, my recollection is that attempts to use the nondelegation doctrine to force Congress to be more prescriptive have usually failed. Moreover, when Congress does get more specific, it is usually at the behest of a special interest. Title XVIII of the Social Security Act, for example, is larded with provisions through which Congress has tried to micromanage the Medicare program for the benefit of specific provider groups.
 
As to allowing more time to reflect on the legislation, the bills have been pending all summer and most of them have been available on the web for weeks. I have gone through them over and over again. So has every special interest group, which explains many of the amendments that are surfacing as the process goes on. I looked back the other day at the history of the 1995 Medicare Preservation Act, Newt Gingrich's attempt to privatize Medicare. Five hours were allowed for floor debate, of which one hour was turned over to the Democrats. The bills were pushed through committee without debate, and no substantive Democratic amendments were accepted. By comparison, the debate this summer and fall has been an exemplar of leisurely contemplation and generous bipartisanship. I assume that Federalists take no responsibility for the actions of the Republican party, but I offer this as an example of the way legislation has been typically moved through Congress in recent years.
 
In any event, even if we pass reform, nothing happens until 2013. There will be lots of time to correct and improve the legislation.

William M. Sage: Perhaps I should try bullet points:

  • Universally accessible health care should be an aspiration of all civilized societies
  • The value provided by our current health care system is poor
  • We are on an unsustainable health care cost trajectory
  • An unhealthy population will be economically unproductive
  • Delivery system reform is one key component of meaningful change
  • Improved population health is the other key component of meaningful change
  • Partisan politics will not allow either issue to be intelligibly debated
  • Partisan politics remains dominated by tax-and-spend and budget issues
  • Both sides play fiscal politics well, but it is only a game
  • The fiscal reality is truly awful
  • Lawmaking is worse than sausage making (thanks to the FDA)
  • As we debate legislation, remember that the perfect is the enemy of the good
  • Also remember that, given our current mess, the present is the enemy of the future
  • So think carefully about what you conservatives want to conserve

Peter Urbanowicz: (Part 1 of 2)

This is the last post I'll make about the public option for now. I want to address just two points that continue to get glossed over. First is the unlevel playing field that will result from the entrance of a government subsidized "insurer." The public option will begin with two distinct advantages over private insurers: First, all of the capital necessary to organize and fund the enterprise will come from the government. It will be the cheapest capital you can ever get, even better than capital infusion deal that Citibank and AIG received because presumably it will never have to be repaid to the government. Second, it will be able to dictate prices by imposing the Medicare fee schedule. Fine, you say. Don't contract with the public option if you are a hospital or doctor and don't like the rates. Easy to say now. Not so easy when the public option covers 10, 20, or 50 million Americans.
 
But here's a more fundamental point and question for those of you who favor the public option: Why are you just picking on the insurance companies? Surely they alone are not responsible for increasing health care costs. Insurance companies simply respond to health care costs – hospitals, doctors, pharmaceuticals – by having to pay them more each year, no less than workers compensation insurers or auto insurers respond to higher health care costs and higher auto repair costs in setting their rates. An aside here: workers compensation insurance costs have been a continual drag on U.S. employers because in most states an injured worker is free to utilize whatever health care he wants, however expensive, so long as it is medically necessary and related to the injury. What in any of the health reform proposals is going to reduce the cost of workers' compensation health expenses? Where is the public option workers' comp company or the public option auto insurance company for that matter?

Peter Urbanowicz: (Part 2 of 2)

If you are trying to reduce costs and create more "choices" in health care why stop with a public option for health insurance? What about public option hospitals? Public option pharmaceutical and device manufacturers? Public option doctors? Why should we be beholden to Merck for buying our Liptor? Why not a public option pharmaceutical company that is given the legal authority to circumvent patents and start manufacturing generic Lipitor today? Why not appropriate funds to buy up all of the for-profit and not-for-profit hospitals out there – or at least some of them – and operate them like the public insurance option? And why not offer federal employment to all physicians who are interested in joining the Public Option Clinic?

The public option insurance company is a slippery slope (sorry to use that shop-worn legal cliché, but it’s the best available.) Once you have decided that the federal government should enter the health insurance market to provide additional "choice" and "competition" why stop there? If a public insurance company is good, public hospitals, public doctors and public pharmaceutical and device companies can only be better.

One last thought: there was a story in the New York Times on Sunday about a 51 year old AIDS patient in New York, who founded POZ magazine for HIV positive people and AIDS patients. The gist of his story was that he couldn’t believe he was alive today. He was diagnosed as HIV positive in 1985. Over the years, he lost countless friends to AIDS. By all accounts he believes he should have been dead 20 years ago. But he counted himself lucky enough to survive to 1996, when many of the new protease inhibitor drugs were coming on the market. Yes they were expensive, but they worked. Yes there have been billions of federal dollars appropriated in the last 25 years for AIDS research, but there have been billions of dollars more spent by pharmaceutical companies in search of a cure for AIDS. I know, I know, the next rejoinder is going to be: "What about all of the people who died of AIDS in the last 25 years because they didn’t have health insurance?" But what of the thousands and millions who lived because of the drug companies who invented the drugs and the insurance companies that paid for the drugs? One wonders if we would have made such strides in combating AIDS in a more public / federally-run system? Would a drug company have expended billions of dollars on research and development on the cost of a drug that they might never have been able to profit from? Say what you will about the pursuit of profits by drug or insurance companies, but would we have made such advances in AIDS treatments – or would we have invented Liptor – under a more heavy-handed, price-fixing government-directed health care system? I’m betting not.

Timothy S. Jost: On a morning when the prospects for a public plan look better than they have for some time, let me defend it (although I do not expect to change minds). First, it will not get free capital from the government. The legislation provides for a loan to the public plan to be amortized over ten years. At a time when many private businesses in the United States are living off of government loans, it does not seem unfair to loan money to a "public" plan. Second, I don't see why the number of people participating in a public plan should determine whether providers participate in it or not. If they can make money from it they will. If they lose money by participating, they should not. There is no reason why the chance to lose money on more patients should make participation more likely.

As to Peter's second point, the genius of the public plan is that if you have public financing of health care there is no need to have a public delivery system to control health care costs. In fact, in most developed nations with pubic health care financing, the delivery system is largely private. Some systems even have for-profit hospitals, many have nonprofit and religious hospitals, and in most countries doctors and dentists are independent practitioners. The public financing system establishes budgets or prices, private providers provide services. According to emerging comparative statistics, other developed countries provide health care as good, sometimes better, than that we enjoy in the United States at much lower cost. Every country is struggling with increasing health care costs, some have wait lists (as we do in the United States for some people for some services), most have less high-tech equipment than we do (although there is little evidence that this results in worse health), most have health care providers that are not as well paid as ours. 
 
Although medical innovation everywhere takes place primarily in the private sector, it is often publicly funded, as has been true in the United States. In fact, the United States provides a higher level of public funding for medical research than any other country, and although private firms bring new products to market, the basic research behind them is often funded by the government (although we rarely get to profit from our investment). Pharmaceutical research is not, moreover, solely the domain of the United States. A study published in Health Affairs this summer found that Europe still leads the United States in drug innovation and has been pulling away in recent years.
 
The private sector does many things well. But it does other things poorly–in particular serving those who cannot afford to participate in the private sector. In health care, this is a large and ever-growing sector of the American public. The approach Congress is taking to health care reform is not the approach I would have chosen. But it is on the whole coherent and has a reasonable chance of success. It is very likely to improve significantly our current situation.
 
My hope is that Congress will do something to reform health care over the next few months, that the hopes of some of us participating in this discussion will be met, that the fears of the rest of us will not be realized.

Comments:

[Kale Andrew Barton] 

THE HIPPOCRATIC OATH: MODERN VERSION
I swear to fulfill, to the best of my ability and judgment, this covenant:

I will respect the hard-won scientific gains of those physicians in whose steps I walk, and gladly share such knowledge as is mine with those who are to follow.

I will apply, for the benefit of the sick, all measures [that] are required, avoiding those twin traps of overtreatment and therapeutic nihilism.

I will remember that there is art to medicine as well as science, and that warmth, sympathy, and understanding may outweigh the surgeon's knife or the chemist's drug.

I will not be ashamed to say "I know not," nor will I fail to call in my colleagues when the skills of another are needed for a patient's recovery.

I will respect the privacy of my patients, for their problems are not disclosed to me that the world may know. Most especially must I tread with care in matters of life and death. If it is given me to save a life, all thanks. But it may also be within my power to take a life; this awesome responsibility must be faced with great humbleness and awareness of my own frailty. Above all, I must not play at God.

I will remember that I do not treat a fever chart, a cancerous growth, but a sick human being, whose illness may affect the person's family and economic stability. My responsibility includes these related problems, if I am to care adequately for the sick.

I will prevent disease whenever I can, for prevention is preferable to cure.

I will remember that I remain a member of society, with special obligations to all my fellow human beings, those sound of mind and body as well as the infirm.

If I do not violate this oath, may I enjoy life and art, respected while I live and remembered with affection thereafter. May I always act so as to preserve the finest traditions of my calling and may I long experience the joy of healing those who seek my help.

Oath traditionally taken by doctors swearing to ethically practice medicine. It is widely believed to have been written by Hippocrates, the father of western medicine, in the 4th century BC, or by one of his students[1], and is usually included in the Hippocratic Corpus.