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Sunday, August 16, 2009

Recess Bullies and Town Hall Tantrums

Without exaggeration, the three most important issues facing the United States involve its fossil fuel addictions, a systemically corrupt and incompetent banking and financial system and a healthcare system that is bankrupting our real economy. Each has been neglected for so long that the danger posed by each has reached existential proportions for the country and have become intertwined in their impacts and the barriers each poses to solving any of the three.

After seven months of meandering, the new Congress not only failed to produce concrete proposals for debate in the area of healthcare, it failed to even define a framework of three or four key areas in which changes must be made and explained / sold to the public. Where there's a void, there's uncertainty and where there's uncertainty, there is fear to be sowed and exploited -- by all sides.

And so it has. As 535 elected representatives returned to their districts for summer recess, attempts at explaining current proposals or "listening" to voters became opportunities for free media exposure of pre-planned verbal bullying and the adult equivalent of temper tantrums that probably embarrassed many children. The hype around these recess bullies and town hall tantrums merits a bit of analysis in one key area but a return to focusing on the fundamentals is urgently required.

Politics -- Obama's Colossal Mistake

Define the terms and you define the debate -- and often the results. Healthcare constitutes seventeen percent of GDP in the United States (see #1). Nothing that massive and complicated can be changed in the slightest regard without massive resistance from those currently benefiting from that status quo. Despite campaign rhetoric that tagged healthcare reforms as a do-or-die issue for America, despite abundant examples in recent political history of issues being distorted or shut down entirely by poll-tested catch-phrases like "death tax" or "defense of marriage" and despite recent history in the very specific area of healthcare of any attempts at reform being labeled socialist, President Obama kicked off the healthcare reform initiative by doing…

...virtually nothing.

No strawman proposal. No prescribed limit on total cost. No prescribed limit on offsets in other spending to help cover the cost. No concrete timeline for the overall process that might help triage the problem and allow a more focused, informed debate.

Outsiders have no way of knowing what the thinking was among Obama's advisors that led to this approach. The only plausible explanation is that Team Obama felt financial stability in the banking and auto industries was still not assured as of January 20, 2009 and a collapse in either area could magnify an economic meltdown. Those issues required the new Team Obama to continue a very heavy-handed, top-down approach to intervention begun by Team Bush that was wildly unpopular with the public. As such, healthcare reform could be tossed to a Democratic Congress for the initial grunt work and a wildly popular Obama with a perceived electoral mandate to fix healthcare could step in at the last minute to iron out any wrinkles or remove a few sticking points while avoiding the appearance of even more micromanagement of the economy by the Executive Branch.

That might have been the thinking but it has turned out to have disastrous consequences. The most damaging outcome of the initial hands-off strategy by the Obama Administration is that Obama failed to establish a vocabulary for the debate. In the absence of a common vocabulary, any parties with an interest in preserving or expanding the status quo have been able to fill the void with their own spin with millions in paid advertising. Better yet, opponents have scored millions of dollars worth of free coverage created by equally uninformed reporters covering ginned up "conflict" with someone screaming at their Senator or Representative in front of hundreds. That makes much better television than video of hundreds of the uninsured lined silently lined up in the dark in the middle of the night waiting for a free clinic to open so they can try to get dental care or an eye exam.

Many say a Presidency comes down to the first eighteen months in office. Beyond that, Congress has to focus on fundraising and mid-term elections. Beyond twenty four months, the incumbent President has to worry about re-election and nothing controversial or important has a chance of being enacted. At this point, President Obama could be viewed as nearly halfway through his "real term" and the healthcare issue is nearly dead in the water. Miracles might happen and some improvements might come out of nowhere but Congress has never done its best work on short order. The failure to define the terms of an honest debate on healthcare lies predominately with President Obama and time and support are rapidly dwindling to salvage ANYTHING out of a reform effort, much less the changes that are really required.

So what vocabulary needs to be established for a legitimate debate of healthcare reforms? All of the following terms are being used and abused in the current debate:

* competition
* tort reform
* death panels versus death taxes
* status quo

Reality -- Competition in Health Care and Health Insurance

Any discussion of government involvement in expanding coverage quickly highlights significant confusion about the difference between health CARE and health INSURANCE as well as the competition in each segment. That confusion, whether incidental or intentional, helps mask many of the problems in both segments and the flaws with proposed changes. Health CARE involves analysis of symptoms by medically trained doctors and nurses, diagnosis of potential causes and the delivery of treatments to correct or at least mitigate diagnosed illnesses. Heath INSURANCE is a financial product that exchanges uncertain costs with uncertain timings and individually uncertain probabilities of occurrence for a fixed cost. Our system has linked care and insurance in amazingly inefficient ways but they have to be analyzed separately.

Increased government involvement in providing insurance is opposed by many for fear a cheaper government solution will somehow steal customers away from large publicly traded insurance companies by offering cheaper, subsidized coverage -- as if the government was going to complete in the computer market by offering a cheaper, more desirable computer than either Apple or numerous Wintel style manufacturers. This argument conveniently omits mentioning that the business model of most insurance companies is NOT to sell MORE policies to produce more profits. The model for the past ten to fifteen years has morphed into one involving statistically discriminating against entire classes of customers to sell to a smaller and smaller base of wealthier customers able to pay higher and higher premiums who never get sick and never generate charges for treatments and drugs.

Open your Econ 101 textbooks and review the chapter on supply and demand when prices are higher and supply smaller than aggregate demand would normally dictate. Theoretically, the only time that’s possible is when supply is met by so few competitors such that each competitor in the market place is large enough that their "supply curve" begins approximating the overall "supply curve" of the industry -- the classic definition of a monopoly. At first, it's hard to argue the insurance industry acts as a monopoly given the hundreds of firms in the business. However underlying economic theory says that's exactly what's happening. Your experience should bear this out as well. Every November when your employer requires re-enrollment for the next year's healthcare coverage, do YOU get to pick among any insurance plans in your state or only those pre-selected by your employer? Do you have more or fewer choices this year than last year? Even if you get a choice between three or four different plans, is that REALLY a choice? Is your favorite doctor or dentist available under all the plans?

The truth is that insurance companies don't want to serve huge swaths of the population because their business model isn't based upon efficient claim service, it's based upon collection of premiums and denial of payouts. While they can't efficiently serve large segments of the population, they sure don't want anyone else serving them either. This is perfectly logical from their selfish perspective but completely illogical from society's perspective. It's as though Lamborghini, Ferrari, Porsche, Mercedes and Lexus only wanted to sell $100,000 autos but didn't want anyone else trying to sell $20,000 autos. Also note that one proposal put forth by the insurance industry involves eliminating state-by-state licensing so firms don't have to manage fifty unique sets of rules to offer coverage. That sounds like they want to compete for more business but more than likely, only under their existing business model of selective coverage and denial of payouts.

Problems with the lack of competition for healthcare insurance are getting worse with time. In 2002, the Government Accounting Office produced a report for Missouri Senator Christopher Bond (see #2) summarizing key statistics for insurance carriers selling "small group" coverage in the 50 states. In 2002, the median number of firms offering "small group" insurance was 28 per state and the five largest firms represented 75% of the market in 19 the 34 states that responded but more than 90% in seven states.

In 2009, the GAO provided a similar report to the same Congressional committee (see #3). How have things changed? Quoting from the report:

* The median market share of the largest small group carrier has increased to about 47 percent in 2008 from the 43 percent reported in 2005 and the 33 percent reported in 2002. Twenty-four of the 29 states providing information in both 2002 and 2008 saw increases in the market share of the top carrier that ranged from about 2 to 39 percentage points. In contrast, the top carriers in 5 states lost market share with decreases ranging from about 1 to 16 percentage points.
• The number of states with a combined market share of the five largest carriers of 75 percent or more has also increased since our 2002 survey. The combined market share of the five largest small group carriers represented three-quarters or more of the market in 34 of 39 states, compared to 26 of 34 states reported in 2005 and 19 of 34 states reported in 2002.


Reality -- Tort Reform and Insurance Costs

Understanding the lack of competition within the healthcare and health insurance industries is also crucial to understanding motivations of those proposing so-called tort reform measures. The term "tort reform" is usually used as a label for proposals which would impose caps on "giant malpractice damages" that increase malpractice insurance premiums for individual doctors and institutions which in tern drive up care costs which drive up consumer insurance costs. Proponents of this type of tort reform also claim -- with some validity -- that the risk of sky-high malpractice judgments against doctors and hospitals drives additional unnecessary medical tests as "defensive medicine." Perhaps worst of all, high malpractice insurance costs drive many doctors out of particular specialties (obstetrics for one) or out of practice entirely -- "who needs the aggravation?"

This argument for tort reform sounds very logical and reasonable but ignores two problems with the current system. First, most "tort reform" proposals also aim at strengthening restrictions protecting HMOs and insurance staffs from lawsuits for malpractice when, in fact, many patients' care is DIRECTLY affected by employees who are NOT licensed to practice medicine, prescribe drugs or second-guess the decisions of those who ARE so licensed. It also ignores the fact that many of the unneeded tests and procedures being performed and referrals being ordered aren't "defensive medicine" at all. A better term might be "offensive medicine" because many are ordered because the doctors participate in the profits of the labs or hospitals doing the work -- a direct conflict of interest. When patients think the doctor is the expert and some third party is paying the bill, offensive medicine can be highly profitable.

An imaginary problem? Tell that to the 25 percent of heart patients at a hospital in Redding, California operated by Tenet Healthcare who were treated with bypass surgery despite having no serious health problems (see #4). Redding is a small town with a population of about 80,000 yet it led the country in the number of bypasses performed on Medicare patients at the time the FBI shut down the cardiac practice in 2002. Despite the obvious fraud and criminal malpractice, neither Tenet Healthcare nor its two cardiologists who performed the procedures were criminally prosecuted (#5). They paid a fine of $54 million to the government and Tenet paid $395 million to about 796 patients involved. SEVEN HUNDRED AND NINETY SIX patients. Average costs for CABG procedures vary widely (see earlier notes on that) but charges at this facility averaged $300,000 PER PROCEDURE during that time.

There are clearly thousands of lawsuit-happy patients and lawyers exploiting insurance companies and driving up costs for healthcare. However, tort reform that simply caps damages to individuals will simply reduce the uncertainty of legal fees for insurance companies and bad doctors, making lawsuit damages a predictable cost of doing business which can be budgeted like the cost of tongue depressors and magazine subscriptions for the waiting room. To balance out the risk between providers and patients, tort reform proposals MUST require doctors and hospitals to collect and report auditable statistics on patient acuities, treatments and outcomes. If doctors are operating within statistically normal ranges of patient acuity and procedures performed for those conditions and a bad outcome happens, the tort reform caps apply. If a doctor's choice of treatment for a given condition lies outside some boundary of "normalcy" and a bad outcome occurs, patients have a right to sue without caps on damages.

Improved use of statistics to trend treatments and outcomes is possibly the SINGLE most important strategy for improving virtually every aspect of the healthcare and health insurance problem. Suppose a patient presents with symptoms W, X, Y and Z and a doctor proscribes a few tests but decides tests A, B and C are not required. Under the current system, if a bad outcome occurs and later a lawyer decides the doctor should have ordered test A, the doctor faces an expensive and time consuming battle that takes even more resources away from patient care. If the doctor had the backing of a national database of independently certified results saying that 99 percent of the time, patients with symptoms W, X, Y and Z never benefited from having those tests performed, the inclination to order those tests defensively might be reduced. If the database statistics came with clear-cut limits on malpractice judgments, such defensive tests could easily be reduced 20 to 30 percent.

Some doctors and hospitals have seen the light on improving access to statistics. However, only a minority offer access to statistics regarding cases and outcomes like this summary (see #6) for Dartmouth-Hitchcock hospital. Virtually NONE publish actual costs of procedures performed. As another interesting exercise, try to find statistics for average costs of a heart bypass operation (a coronary artery bypass graft or CABG). You'll find numbers ranging from $20,000 (see #7) to $68,367 (see #8) to even $135,000 (see #9). How would a prospective patient reconcile cost variances like that?

Reality -- Death Panels and the Real Death Tax

Ask most people what comes to mind after hearing the term "death tax" and the vast majority will respond with "inheritance" or "estate tax" -- and somewhere Republican pollster Frank Luntz smiles. In a masterstroke of linguistic and political manipulation / fraud, he helped link the two concepts to help efforts aimed at reducing or eliminating the federal estate tax. The majority of Americans think estate taxes harm them when the vast majority of Americans (certainly NOW after the financial meltdown) will not die with an estate worth over $1,00,000.which is the ACTUAL final trigger point at which the tax applies after the un-sunset of the sunset that expires after 2009 (see #10).

Republicans tried the same tactic with healthcare reform by inventing the term "death panel" which was immediately shot down after finding similar proposals in Republican legistlation in the last decade. Instead of being clever with language, it might be useful for once to be PRECISE with language when debating public policy and end-of-life healthcare costs and taxes provides a great opportunity. The real "death tax" in America is imposed when families of elderly patients headed for long-term assisted living or skilled nursing facilities for hospice care coordinate "planned giving" of assets of the patient to family members in the years / months leading up to hospitalization so by the time the real bills arrive, the "patient" is technically impoverished and eligible for Medicare so US taxpayers pick up the tab for the final months. Many state Medicaid websites and law firm web sites provide advice on exactly how to do this (see #11).

Here's a common scenario. In the final years of life, an elderly person with some financial means begins transferring up to $12,000 per year to family or friends on a tax-free basis. As long as they stay below the $12,000 limit for a five year "look-back" period from the time the nursing home stay begins, those gifts don't hurt the patient's eligibility for Medicaid payment of their nursing home bills. Neither does up to $500,000 in home equity. The net result is a "half-millionaire" can manage to protect up to $60,000 in cash funds (in addition to the equity on a principle residence) from being used to pay a bill other taxpayers wind up covering. That $60,000 would cover roughly fifteen months in a typical nursing facility.

This sounds harsh, it sounds like class envy, it sounds crass, even cruel somehow. Is it though? If you are elderly and you have FIVE HUNDRED THOUSAND dollars or, more precisely, you have FIVE HUNDRED AND SIXTY THOUSAND dollars, why ON EARTH should I or any other tax payer be picking up ANY of the cost of an expense that is now a very predictable part of life? This is the true "death tax" -- a tax liability you impose on OTHER PEOPLE when you die. By transferring the cost of a predictable cost of later years to "other people's money", it removes any incentive for patients and their families from making more appropriate financial decisions for covering those costs. Perhaps more importantly, it removes any incentive for many families to make more appropriate ethical decisions concerning end-of-life treatments, many of which are not improving quality of life under any objective standard.

Reality - Is There Any Such Thing as a Status Quo?

Let's give opponents of particular health care reform proposals or ANY reform whatsoever the benefit of the doubt for a moment. Let's assume they have principled objections to some perceived flaw in reform proposals and prefer our leaders simply stop, take an electoral breather and regroup for a more thoughtful attempt in another year or two. The assumption is that if left unchanged, things will remain about as bad as they are right now, within some range of tolerable certainty. Opponents might even argue that this in fact happened in the 1990s with the Clinton plan and nothing melted down after doing nothing then. We can choose "nothing" again and get the status quo.

BZZZZZZZZZZZZZTTTTT. Nope. Uncontrolled healthcare costs are one of the three existential problems facing the United States economy and perhaps our society. We face nearly 16 percent unemployment (9.5 percent "looking" plus 6.5 percent "given up") and continued declines in factory orders are driving continued declines in manufacturing which will continue to generate job losses which will continue to drive bankruptcies from mortgage foreclosures and medical bills, feeding a horrific downward financial spiral in the entire economy. Reducing healthcare spending through improved efficiency on procedures provided and elimination of needless procedures is REQUIRED to stabilize the economy. Not three or five years down the road but AS SOON AS POSSIBLE. Failure to do so will make American labor and products less competitive on the world market, accelerate further job losses, increase the rolls of the uninsured, and further expose families to bankruptcy and an utter collapse in their standard of living. For the long term, failure of American business to reduce health care costs will cost America the jobs of the future, be they in electric cars, solar or wind energy technology or the next big thing. If you think this is hyperbole, note that the China's exponential growth coincided not only with new trade policies but with the collapse of healthcare reform efforts in the Clinton era.

Doing nothing now might be an option but keeping the status quo is not. The current situation will get markedly worse -- not only for those without coverage but even for those currently employed and covered.


#1) http://www.nchc.org/facts/cost.shtml

#2) http://www.gao.gov/new.items/d02536r.pdf

#3) http://www.gao.gov/new.items/d09363r.pdf (2009)

#4) http://www.usatoday.com/money/industries/health/2003-08-06

#5) http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/02/18/INGN1O5DUM1.DTL

#6) http://www.dhmc.org/qualityreports/list.cfm?metrics=CT

#7) http://www.consumeraffairs.com/news04/2005/bypass.html

#8) http://www.dane101.com/current/2006/05/10

#9) http://www.crd.york.ac.uk/CRDWeb/ShowRecord.asp?View=Full

#10) http://en.wikipedia.org/wiki/Estate_tax_in_the_United_States

#11) http://www.markfreemanelderlaw.com/myths.asp