Day 3 Peking University

www.asiahealthcareblog.com is covering the class I am teaching at Peking University on comparative health systems and financing of health care. I will write comprehensively about doing this later. It has been very interesting.

July 31 News and Observer column

is now up. http://www.newsobserver.com/opinion/columns/story/1628028.html
Again, sorry for not being able to link it here or on the side bar...the proxy server I am having to use to access the blog while in China greatly reduces the functionality of blogspot and I am not such a whiz without the point and click options.

Point of today's column is to put a bit more clarity on the cost issue that everyone says is so important. Two questions are key: can we afford our system? Answer here is a value judgement (I say no). Question 2: do we get our money's worth for what we spend? Decidedly not is my answer.

It seems as though we had a pause which was related to trying to refocus on cost control in reform bills. Some progress has been made in terms of getting closer to a consensus bill in the House and Senate, but all coalitions are a bit wobbly I think. The House Republicans have offered a bill, but a quick glance does not lead me to think that it is a serious proposal. It does contain a more robust malpractice aspect than did the patients' choice act (Senate Republican alernative) with some caps; this is closer to what most Republicans want, I suspect. Malpractice hasn't been talked about so much so far, but I suspect it turns out to be quite important if any deal on a comprhensive bill is to be reached.

Often the August Congressional recess is a sleepy time politically, but not this year.

The next few weeks I am planning to write in more detail about policy options to address different cost areas outlined in today's column. Next week is patient safety and malpractice.

Other Countries

One of the things I emphasize to my students is that we couldn't 'copy' another countries health care system, even if we wanted to do so. That is because the health system of each nation is birthed and exists in a given cultural and political circumstance. For example, the neighborhood I lived in while in Manchester, England had been heavily bombed during World War II because it was near a factory of some sort. So, all the houses in the neighborhood were *exactly* the same. They had to be because after the war people needed a place to live, and fast. So, when they developed the National Health Service, it is not that surprising that a Government run health system emerged (the most centralized, budgeted as opposed to insurance-based system in the world). Margaret Thatcher, hero to American conservatives ran for re-election saying the NHS was *safer* with the Tory party than with Labour. Margaret Thatcher would have been decried as a Socialist had she run for Congress in the U.S.!

Our nation has a different political and cultural context, especially with respect to health. So, we can learn from other nations, you can see what worked, what doesn't. And it is interesting that all the developed nations face similar lifestyle related diseases, yet have fairly different approaches.

But, I don't think we should (or could) copy another nation's health system, we have to maintain and create our own.

Day 2 @ Peking University

Damjan Denoble, a former Duke student who lives in Beijing and who writes a blog www.asiahealthcareblog.com (I can't seem to make links work while accessing the blog in the manner I am doing so to gain access while in China) has been attending the lectures I am giving at Peking University this week, for 90 students from 44 Universities around China. This is his write up of the goings-on.


Day 2 – Health Insurance and Moral Hazard
by Damjan Denoble

Today’s lecture focused on moral hazard and health financing. Moral hazard in the context of financed healthcare beneficiaries, loosely defined, means that if people who receive a service for free or at a considerable discount will often over-utilize that service. In the context of financed healthcare providers moral hazard refers to situations where doctors and other medical personnel can be improperly incentivized to oversubscribe medicines and/or over-treat patients.

Moral hazards are a particularly difficult problem in China because the last thirty years of economic expansion have transformed the health system into a knotted web of negative incentives for both providers and beneficiaries. As the economy has grown, many Chinese have gotten materially richer and have become more demanding health consumers. Concurrently, doctors and medical personnel have not been so lucky, and their salaries have remained relatively stagnant while people employed in other professions have seen their salaries rocket skywards. Moreover, the hospital system in China is still, almost exclusively, a public funded enterprise and its infrastructure has not kept up with population growth or social demand for better health services.

The resulting situation is one where health consumers are incentivized to bypass the worst of the health system – underfunded community and provincial level hospitals and clinics – thereby bottlenecking the much smaller central level hospital and clinic system built of city based, military and university hospitals. Within the hospitals, doctors and medical personnel further bottleneck this system by 1) shunning work at low pay, low prestige jobs in rural areas for the better work environments of bigger hospitals, and 2) by engaging in a number of practices that maximize their income through a complex system of under the table payments, while simultaneously making it harder for patients to access care if they are not lucky enough to be able to afford the secondary, under the table costs of medical provision. Admittedly, the former behavior is a characteristic of doctors anywhere.

So, creating a proper incentive scheme is one of the biggest puzzles that Chinese healthcare system architects are going to have to solve if they expect to construct both a health dispensing and a health financing infrastructure which can accommodate all of China’s 1.2 billion people.

I came to class today interested to find out if (and if yes then how) this question would be addressed. What I found is that very little attention was paid to the moral hazards associated with improper incentivizing of medical doctors. Rather, the bulk of discussion surrounding moral hazard focused on disincentivizing health beneficiaries from overusing health services through various systems of co-pay.

There was a telling exchange after one of the students, a medical doctor with prior work experience in a rural Chinese hospital, suggested that the current way doctors are paid is flawed. She proceeded to explain how the payment structure could be altered for the benefit of the entire healthcare system. Currently, doctors in China get a combination of salary, allowance, and kickbacks from drug companies. Salary is provided for by the hospital. Allowance is a percentage pay out from a department pool which collects a percentage of the proceeds of each patient payment received. Kickbacks from drug companies are self explanatory, and though technically illegal under Chinese law, they are tolerated by officials.

The plan she proposed called for the elimination of ‘allowance’ and the legalization of drug kickbacks so that these transactions could be better regulated. The proposal, unusual for its frank acknowledgement of under the table payments, drew quite a bit of mirth from he colleagues. Few took offense to the abolition of allowances, but almost all those present thought it much too radical of an idea to legalize drug kickbacks.

The bulk of the pushback seemed to be directed at the idea of legitimizing the role of a private market enterprise directly built into a government administered health system. The passionate objection presented by some of the students indicated that this is likely more than a mere policy dispute, but a matter of differing ideological principle. Without foreshadowing the next article too much, there would be a similar clash of ideas on day three when the class was asked to consider the idea of institutionalizing private health insurance. One way to think about this is that, ideologically and politically, China’s healthcare system architects face the opposite problem of their counterparts in the United States – in China, capitalism is a dirty word when talking about the healthcare system.

Under the circumstances, however, the plan proposed by the young doctor is very close to what actually needs to happen in order to unclog and strengthen China’s hospitals.

For a summary of their responses please go to Asia Health Care Blog where a summary of the day’s events has been posted.
www.asiahealthcareblog.com
http://www.asiahealthcareblog.com/

France Anecdote

Anecdote's aren't necessarily good health policy...in fact, I saw an ad on TV and a lady said if I wanted Canadian style single payer, I wanted her dead! [By the way, the largest single payer health insurer in North America is U.S. Medicare; there are more Medicare beneficiaries than Canadians, but I digress].

But, I thought this essay that a reader emailed me was interesting. Most interesting, I thought, is the use of old style claim filing in France whereby you pay for care and then submit a claim. One thing about doing that is that it actually makes you more aware of how much money is changing hands....but the paperwork sounds like a pain. One approximation of a French-ish system would be a single payer offering high deductible care with a private insurance market in place to fit 'on top'. Here is a summary of the report I think she is referring to. Here are the gory details. Here is another in a similar vein, that is actually more useful, I think.

Primary Health Care in Two Countries
By Iris Kapil

Primary health care is basic medicine and should not differ much from one locale to another but, in my experience, it does differ. Within a five-day period I was treated for an infected wound both in France and in the U.S. In both places the care was thorough and fully competent. Of that there is no doubt. It was the contrast between its organization and its cost that I couldn’t help but notice.

On April 28, at JFK airport in New York, on my way to Paris, I fell backwards on an escalator, landing on my back, hitting my head, making a bloody mess on the floor. In the Emergency Room the doctor found no need to stitch any of the cuts on the back of my head but he did give me a prescription for an antibiotic. He ordered CT scans and X-rays. No bones were broken. I had been conscious the entire time. After several hours in the ER and having returned to the airport, I discovered that I had lost the prescription – and my passport. There was nothing to do but return home by the next flight to Raleigh. Since I couldn’t see the cuts on my head and they didn’t hurt, I forgot about them. I applied for a new passport and in mid-May again took a flight to visit my son and his family in a suburb of Paris.

The cuts on my head healed, except for a bothersome one that developed a scab. It worried me enough that I asked my daughter-in-law to get an appointment for me with their family doctor. He told her that his schedule was full but he managed to fit me in on Thursday, two days before my flight home.

The doctor’s clinic is located, along with other medical and health related professionals, in a two story building on a square in a residential neighborhood. The waiting room is modestly furnished to seat no more than eight people and, from what I observed, it serves both offices on the first floor. One other person was sitting in the room with my son and me. We had barely arrived when the doctor opened the door and directed us to his office.

The doctor’s office is not much larger than the waiting room. He has a large desk, cabinets and other sorts of medical equipment. Intake was his sitting at his desk, me on a chair across from him, discussing my problem. He had me sit on his exam table. He looked at the cut, pronounced it badly infected, cleaned the wound and was applying a medication when his telephone rang. He went to his desk, made an appointment for the patient who was calling and recorded it in a book. He returned to me, put a 10 cm (4 in.) square gauze compress over the wound and taped it down. I had acquired an odd-looking skullcap. He said a nurse must change the dressing daily for three weeks and he wrote two prescriptions. As my son and I left the office, the doctor walked the few steps to the waiting room and signaled in the next patient.

The doctor has forms from the national health insurance, Sécurité Sociale (Sécu for short), that he fills in and, at the end of a visit, gives to the patient. On the form he marks the procedures performed and the amount paid. For my visit his charge was 30 euros (about $40). This is the rate set by the Sécu. The patient pays the doctor and mails the form to the local Sécu office for reimbursement. The patient also mails a form to his/her mutuelle (supplementary, employer-based health insurance that most Frenchmen carry) or the Sécu does this directly. It is possible under the system to carry private insurance and pay some specialists, who are independent of the Sécu, far more than the Sécu rate.

At the pharmacy I bought, as prescribed, sixty packets of 10 cm by 10 cm sterile, vaseline saturated gauze compresses; a role of 5 cm wide dressing tape and a bottle of a type of iodine. All this cost nearly 30 euros and is covered by the Sécu.

My son checked a list of licensed nurses registered with the Sécu. We phoned a nurse located nearby and made an appointment. The next morning she met us at her one-room office. I gave her the pharmacy material and the doctor’s prescription for her services. She removed the doctor’s bandaging, along with some of my hair, and carefully opened a compress packet and the bottle of iodine. She put iodine on the wound and applied a fresh skullcap of gauze and tape to my head. I told her that I had a flight to the States the next afternoon and needed to have the bandage changed anew for the weekend. She ordinarily does not see patients on Saturday but made an exception for me. The next morning she redid the dressing, pulling out somewhat less hair this time. She said the wound was healing nicely. Both she and the doctor told me that I should not shampoo my hair for three weeks. Her charges were 21 euros (about $28) per visit.

On Thursday I had phoned my daughter in Raleigh and asked her to call our doctor’s office for me, for an appointment with my nurse practitioner. She talked, of course, with a clerk. (When I phone in about health related matters I get to talk with a nurse.)

The appointment was on Monday. Begin with a clerk at the waiting room counter. She confirms your appointment, asks for your insurance information, handles all the forms and takes your payment. Behind the scene, other personnel deal with the multiple insurance companies. An assistant ushers you from the waiting room into a small room where she measures your weight, temperature, blood pressure, ask about any pain you have. Then she leads you to an examination room. A lab facility and equipment and paramedical personnel are on-site for blood and urine testing.

The nurse practitioner met me in the examination room and pulled up my medical record on a computer. She removed the bandage, with a few strands of hair, and examined the wound. She said it was healing well and prescribed an antibiotic cream to be applied three times a day. No bandage would be necessary. I could shampoo my hair. The medical encounter finished, I walked back to the counter and the clerk.

The bill submitted to the insurance company was over $200. At the pharmacy, the antibiotic cost $50. These in addition to what the patient pays for medical insurance and in co-payments.

A further comment on this comparison of medical visits: Besides different system organization and cost, there is also a matter of differing health cultures, of differing perceptions about health, medicine and medications that are rooted in the larger culture and seep into the way medicine is practiced. For example, in the United States, Medicare reimburses in a limited way for chiropractic service, for the core procedure only, and in France, where homeopathy is widely accepted, Sécu reimburses at a low rate for certain homeopathic remedies when prescribed by an M.D. In my personal cross-cultural experience, I was surprised by the doctor’s prescriptions: the iodine, the elaborately packaged bandaging materials and, especially, having to see a nurse every day for three weeks. I felt more comfortable with the American nurse practitioner prescribing an antibiotic; it fit my expectations. I wonder how the doctor and the nurse practitioner arrived at his and her course of treatment for the infection I presented with. Was the influence of different health cultures partly in play? Perhaps.

As is well recognized by now, the French health care system outperforms the American. The W.H.O. ranks the French system, despite certain cost issues, as the world’s best. Statistics show the French to be healthier than Americans. In public opinion surveys the French express a high level of satisfaction with their medical care. There is universal coverage. The cost per person of medical care in France is about half the American cost per person. Medical expenditure as a share of GDP in France is far lower than in the U.S. The improved health care system we will eventually adopt need not duplicate the French but we can at least observe, analyze and learn from their example.

Health Reform Decisions

As the small group of Senate negotiators move ahead on a compromise health reform bill, the time is drawing closer that President Obama will have to show his hand and be clearer about what the deal breakers are for him. The Public Option seems to be going, going, if not gone.

It has been interesting to try and explain the health reform process to the students here in China that I am teaching (this is what they have wanted to talk about during free time; in fact, I have been asked to change the syllabus and talk through the various reform options on Friday). In trying to explain where it seems that the nation is at with health reform I have been saying.
(1) Reform is no longer only about covering the uninsured; there is an increasing understandng the default option of doing nothing is not sustainable economically for our nation.
(2) We are stuck in a 'no mans land' whereby many American are wary of more government insurance, and they would prefer a private insurance approach. However, most of the bills are filled with provisions to overcome what 'private market forces' do. For example, everyone wants to ban pre-existing conditions. But, private insurance underwrites....certainly we don't want to ban such practices in car insurance (if you are a good driver). So, we are looking for an answer that is 'private' but that has so many regulations and 'helps' that it is not really private or free market at all.
(3) This is the last chance for 'private market' approaches to work....if we get some sort of indiviudal mandate with state based purchasing mechanisms if it doesn't work out, then single payer will be the only thing we can practically do.
(4)The real question is what will be done to do something about costs. I would certainly favor limiting the tax exclusion of employer provided insurance, and we need a commission to take a hard look at Medicare--not only payment rates--but coverage decisions. This body has to be insulated from Congress....the last thing we need is Congress micro-writing payment rates or coverage decisions.

Interesting times!

Teaching at Peking University

One of my former students, DAmjan Denoble has been attending the course I am teaching at Peking University this week, focused on comparing how nations organize and finance health care systems. Damjan writes a blog www.asiahealthcareblog.com. Here is a cut and paste from his blog from the first day....I am doing it this way because I am struggling with the blogspot software in the way I am having to log in to update my blog.

It has been very interesting to teach this course. There are 90 students from 44 Chinese Universities taking this joint Duke/PKU diploma program....basically some of the top students in China. I will write more of my thoughts on this later.

***************************
health (Part 1)
Damjan 1:57 am on July 28, 2009 | 2 Permalink | Reply

Duke University’s Global Health School is in Peking this week teaching a condensed, five day Global Health certificate program to some of China’s best students. The focus of the first week is health inequalities and health insurance financing.

All indicators point to this being a high prestige event. Forty-four Chinese universities have sent up to three of their best students to the Beijing University Health Science Center. The building hosting the event is nary five years old. Built of gorgeous red, Victorian brick (a rare sight in Beijing), internally conditioned, and boasting classrooms fully equipped with the latest audio and projector technologies, it is literally the best that Beijing University has to offer.

The rest of Beijing University Health Science campus – yixue bu – is a bit older, and the majority of the other buildings, as far as I can tell, are done up in a white tile façade so familiar to anyone who has lived in China an appreciable amount of time. The West Gate of the campus is a five minute cab ride from Wudaokou subway station on line 13, and an even shorter hop and skip from Xitucheng station on line 10. I did not know how close it was to the latter, and I did not know that the campus was separate from the main campus of its patron Beijing University institution. Therefore, it took me nearly two hours to find the place, relying solely (and I am not exaggerating) on a single phone call with Donald Taylor, Associate Professor at Duke University, where he basically said the following;

“I don’t know how well you know the Beijing University campus. But we’re in a red brick building. On the fifth floor. Big auditorium place.”

Since it was his first time in Beijing we left it at that, and I was left with three pieces of information. The building I had to find was five floors or bigger. It was constructed of red bricks. And, it was on the main campus. Unbeknownst to me, I was really playing a modified version of the childhood game “Two Truths and a Lie”. The third fact I listed, as you already know after reading this piece, was the unwilling lie.

It took 45 minutes of searching for a five floor, red brick building on main campus, about two dozen stares from puzzled Beida students I had enlisted in helping me find a huangsi zhuantou de jianzhu (or building made of red brick), and a successful Google search for “Beijing University, health, red brick building” to eventually get to the adjoining Health Science campus. Once there I had to choose between two red buildings; trust that the fifth floor location had not changed; and then, once on the fifth floor, follow a North Carolina accented voice to a room full of Chinese students. Trust me, the actual ordeal was even more impressive than I make it seem.

In any case, I know how to get here now. During the next few days I will be putting up the response of the Chinese students to the discussion questions they are asked to examine at the tail end of every lecture period.

I have chosen this as the focus of the piece because, in the near future, many of the students in this room are going to be on the front lines of China’s health reform efforts. Trained in China’s top graduate programs for health management, their voices and opinions are already likely to be an accurate representation of the thinking process and level of knowledge of China’s current health reform leaders.

The way to read through my transcription is simple. For every question posed I have given a series of answers. The group responses are divided by letter. Group A, B, C and so on. Group A’s response has no letter after it.

I. What is the purpose of the Chinese Health System?


1.) Improve health outcomes – to achieve this purpose China has 4 health systems; hospital system, public health system, pharmacy,

2.) Indirect purpose – if we improve out health status we can achieve development of economy and fulfill stability of society and we can achieve sustainable development.

1b.) Figure out a way to balance cost and efficiency

2b.) Promote health education

3b.) Important in building up the community. A sense of the community. Harmony of the community. To make the society more peaceful and more stable.

4b.) Employs a lot of people and so is important to their livelihood

1c.) The ultimate purpose of the Chinese health system is to raise the peoples standard of living.

II. Two things you like about the system? Why?


1.) In 1949 we had very little structure in China and so Mao started the barefoot doctor program.

2.) Dots program – China has been very successful in tackling the dots progr

1b.) Ensures that everyone has an equal chance to share health insurance. For example more and more peasant workers now have health insurance which is taken as 2% of their salary.

1c.) Two main things – The reparation systems for retired workers. There has been great improvement in this area.

2c.) Public health emergency system is much more responsive. Our H1N1 response was much stronger than our response to SARS. Our government controlled this very effectively. It is all due to the surveillance system being employed now. Under this system the government will quickly know if the situation changes.

III. Name two things you want to change/improve? Why?


1.) Primary car service. The general practitioner is very important – they are the bridge between patients and medical institutions. They are the gatekeepers of the system. So, medical resources should be distributed in a more equal way.

2.) We need to get them out to the rural areas.

Don Taylor Response that garnered laughter: “This is a universal problem. If you figure out how to fix that then let the rest of the world know.”

1b.) As everybody knows, it is very difficult to go to see the doctors now. The reason is money –

From the aspect of the providers and the receivers of the health resources.

2b.) Medical students want to go to the best hospitals

3b.) People who are accessing care want to go to the best hospitals. This is a problem because

people with the most serious cases cannot get proper care since the hospitals are overcrowded

with people who are getting sub-standard care

1c.) There are still people in rural china that do not have clean water and clean toilets. Some of them give birth at home. The second thing is that China ha an internal migration problem. China has a population of 140 million rural migrants that have come into urban areas. This population is excluded from urban health services. If one of these individuals gets sick in the city he usually does not have insurance. Even if they do have insurance in their home town it cannot be used in the city.

IV. Name two barriers to achieving changes?


1.) Economic development of China is still in the initial changes while China has the largest population in the world. There is a conflict there that needs to be resolved.

2.) Regions are not equally developed.

3.) Peoples preference – patients prefer clinical practitioners to GPs and medical students want to study how to be private practitioners and not public health experts.

1b.) The cost always contains the cost of the disease cure but also the accompaniments. Doctors often prescribed costly medicines to patients.

2b.) Something about chronic diseases and old people that needs to be better addresses

1c.) Government financing is insufficient. There are many reasons. One is too much bureaucracy. The health ministry does not have control over finances – - – - – - > they have to depend on the finance ministry for money.

2c.) There is no information system which links the rural and the urban areas of the country. Developing information systems between urban and rural counties then cities and towns could share insurance information.

V. Name one strategy to overcoming barriers?

1.) The government should establish their in-state mechanism. For example two doctors who graduate from top colleges but choose to go to public hospitals would be eligible for government awards (probably some sort of financial award).

2.) Education – teachers should emphasize the difference between preventive and clinical treatment. Students should be exposed to the primary hospital early

1b.) If you want the best treatment you have to the best hospitals and get the best treatment. Second it is very expensive to pay for doctors and medicines, especially for patients from rural areas. What has caused this? There are two reasons. First, medical distribution is unfair. China is a big city. Ah. China is a big country. (laughter). We have a big population and most people live in rural areas but they do not get most of the resources.

My strategy is very simple. I think our country should invest more money in rural areas to help build the system. [With more money] they can attract more doctors and build more doctors. This will make it more convenient for rural patients access care outside of the city. My second strategy is to further educate patients about health problems so that they can learn how to take care of themselves better.

Donald Taylor comment that garnered laughter: What’s interesting about this group [Group B] is that you put almost everything within the responsibility of the health system.

H1N1 and China

There is an interesting/scary story in the New York Times http://www.nytimes.com/2009/07/28/health/28flu.html?_r=1&hpw about a kid on a study trip to China ending up with H1N1 flu and being quarantined. The description of what happened at the airport was not my experience last friday. Our plane was late and it was about midnight, so that may explain it but a felow came on, took one person's temperature and then let everyone in my part of the plane get off. I walked through the temperature reader but everyone looked vaguely asleep. Again, maybe due to the hour. Basically, quarantine like this won't really work for H1N1 as it did with SARS because the incubation of the flu is too short....whereas with SARS it was 7-10 days, so you could stop the spread by quarantining contacts. I hope the link I put in works...logging into my blog as I am having to do takes a lot of the functionality out of blogspot.

Patients' Choice Act

In last Friday's News and Observer, I write about the Patients' Choice Act, co-sponsored by Senator Richard Burr (R-NC). I have some questions about the bill, but I also found some places for compromise. I was delayed in posting because I am in China, and had trouble getting to blogspot from internet connections I had. I now have a soluation. Here is the column. close.

Here is a link to the short summary, long summary, and text of bill. Also, I believe this is going to be scored by CBO in the near future which is important.


It has been scored privately and now updated. One thing about HSI's private scoring. I was hesitant to talk a lot about their scoring of Patients' Choice Act because of how different HSI's scoring of the Kennedy-Dodd bill was compared to CBOs scoring. If you recall in June when Kennedy-Dodd was scored by CBO, chaos broke out because they said it would only expand insurance by 16 Million or so...while the HSI model said they would expand it by 40 Million or so (with linked increases in costs). A big difference. Essentially, HSI model is showing more behavioral uptake on just about all of the bills than is CBO. But, CBO is the official umpire. So, we need to see CBO score of PCA to get a sense of the RELATIVE effect of PCA v. Kennedy-Dodd on insurance uptake and cost.


I am not saying HSI model is not good. Macro simulations are not my thing....but one of these scoring models is off. Note that there is no evidence that HSI would be cherry picking for the Dems, as the folks behind it write a lot about Health Savings Accounts and like them, a favored strategy of the Republicans. Here is HSI. Here is a link of peer reviewed papers by Steven Parente and others who are HSI.

No Posts While in China

This is Marc Bellemare writing on behalf of Don, who asked me to post the following:

"I don't think I will be able to update my blog while in China, because the domain blogspot is unavailable through all the internet connections I have tried. There are a few posts that I submitted ahead of time that will run, but I had hoped to update about what I am learning here. I have email if you need to reach me."

Going to China

I am going to China today, to teach a short course at Peking University with my colleagues from Duke Global Health Institute. You know, because if you were going to construct a health system, you would ask an American. Right?


I may be a little harder to reach over the next few days. Columns in the News and Observer will still appear. Back on August 3.


One cool thing is that I am going to catch up with a former student, Damjan Denoble who lives in Beijing. His health care blog called Asia Health Care Blog is here.

Reforming care too

Many have been writing and saying that the reform efforts thus far have not focused enough on changing how care is provided and have only focused on expanding insurance coverage. This is a good source to get a sense of what some of the details might look like if we get to a conference bill stage (after House and Senate pass something). This is from the Center for American Progress, which is closely linked with the Obama administration.

One issue that will bedevil Democrats and Republicans is that the CBO is being quite conservative about 'scoring' savings from things like Health Info Technology, and the like. They make the case in this report that such approaches will save money.

Also, Melinda Beeuwkes Buntin, who authored the linked report, and who is an Economist at RAND is doing some very interesting work with her colleagues at RAND looking the relative impact of lifestyle factors versus increasing intensity of medical treatments. This is not ready for dissemination yet, but I saw them present at a recent meeting and it was very enlightening. I will writing about this topic in the News and Observer in the next few weeks.

A good question re Medicare

UPDATE: I got a cost concentration fact wrong below.

(1)In overall health system:
*1 in 100 people in US consume a bit more than 1 in 5 dollars. 50 in 100 in the US who use the smallest amount of care, use only 3%

(2)In the Medicare program:
*1 in 10 Medicare beneficiaries consume a bit more than 6 in 10 Medicare dollars.

If you go to www.kff.org there are numerous slides, etc. demonstrating these relationships in horrible detail.

*One thing to note, these are annual figures. If you are in the low spending group one year, you don't know you will always be there...this is why you need insurance (uncertainty).
*you can go through your entire life as a low user, but you will almost certainly be a high user just before you die. Because Medicare covers people 65+, they pay for lots of this care.


A reader asks a good question.

Hi Don,
> I have a question. If approximatly 90% of health care cost for
> individuals are for the last year of a persons life, most of our current
> cost are through medicare and mediciad. If the government can't control
> cost within that part,, 90% of cost, how can the government make it less
> expensive for the rest of us? Maybe I'm missing something. It just
> simply scares me what is happening in Washington.
>
Hey. Your question is a good one.

It is 25% of all Medicare spending in a given year comes in the last year of someone's life. Not 90%....unless you are asking a different question. But, 25% of total Medicare budget spent in last year of someone's life is still lots. A couple of things about this fact (25% of Medicare spending in last year of someone's life).


*you don't know when it (last year of life) starts until you die...so it makes it hard to figure out when to start 'saving' money. Not trying to be funny, but the medical system is set up to do everything, and I think Americans value this try everything approach.
*Medicare covers folks 65 yrs + (and permanently disabled and end stage renal disease) so it is responsible for covering the most expensive folks. The most important descriptor of Medicare is not that it is a gov't insurer, it is that it covers folks in their older years when they are more likely to get sick. There is no private insurance company in their right mind that would take over the entire Medicare program....because the sickest folks require tons of money.
*Even within Medicare, there are huge differences in spending with a very few consumming a very lot. 1 in 100 Medicare beneficiaries consumes about 1 in 5 Medicare dollars. Whoever is responsible for covering them is going to have massive costs....again, no private insurance company would ever cover these folks. I understand Medicare to essentially be a fulfillment of 'honor thy father and mother'....but I think we should do it more sensibly.
*The biggest problem with Medicare in my opinion regarding costs is that it has very stringent payment rate setting (meaning how much doc paid for a visit, or how much paid to a hospital for a cataract surgery, etc.) but does virtually nothing to determine what is actually done in terms of care. That is left totally up to the doctor and the patient. Docs and hospitals can't negotiate with Medicare for payment rates, Medicare sets them....but Medicare does almost no policing about what docs and patients decide to do.
*Most policy attempts to address what is noted just above has focused on cutting payment rates (like all the bills now have Medicare payment cuts) but there has never been an attempt to begin to judge whether some care is legit or not. This is because (1) the docs will go bananas, and (2) patients will get upset about cutting off services (rationing). We have to start setting some standards (my opinion) and identifying care that is either of no value, or that is of very diminishing value.
*Congress has no hope of doing this, to big, too political....only chance is something like a base closing commission of experts that adopts a series of recommendations related to quality improvements and cost effectiveness research...then Congress has to vote it up or down (like base closing).

So, biggest problem for Medicare from a cost standpoint is that it is responsible for covering every person who is age 65+, and pays for the care just before most deaths in this nation, and most people are very ill just before they die (about 30% suffer sudden death; rest are typically ill for some period of time).

******
Upon re-reading question, I think you were saying 90% of lifetime costs for a given indivdiual is spent in their last year of life...I am not sure it is that concentrated, but it is very concentrated. The answers above really hold either way, Medicare pays for the sickest folks, and it happens to be a gov't insurer. No private insurer would cover all Medicare beneficiaries....the Medicare Advantage plans are well known for enrolling the healthiest Medicare beneficiaries.

******************

A Good Book--US/UK

A book that I have used several times in my comparative health care systems class at Duke is Can We Say No: The Challenge of Rationing Health Care. Washington, DC: Brookings, 2005. by Henry J. Aaron and William B. Schwartz with Melissa Cox. It is a book length comparison of the US and UK Health Care Systems that does a good job of looking not only at health policies, but placing them in the cultural context of each nation.

I quarrel a bit with their definition of rationing (denial of care that has benefits to someone willing to pay for it) and would say that rationing is anything other than everyone getting whatever they want. But, this is a very good book.

Also, there recommendation for the U.S. health system (and any system).
1. cover all persons
2. encourage care where benefits > costs
3. discourage care where benefits < costs

Update: My good friend, and economist Marc Bellemare, writes thusly:

Don,
Greetings from the ATL. Their definition of rationing is right -- it's when price is set at lower than market-clearing price, so Q_d exceeds Q_s. That is the economic definition of rationing (as in the credit rationing literature, Stiglitz and Weiss, AER 1981.) Your definition allows for people not getting their needs/wants met, but that is everyone in a world of limited resources/unlimited needs/wants (I think that was the definition of economics Lord Robbins' had come up with...)
Marc

Just to be clear, I wasn't saying Henry Aaron doesn't know economics, just that I think in the way rationing is used culturally (as the ultimate health care boogey-man) that it is imoprtant to note that all things of value are scarce, and we decide all the time that some people get more of something than others, in a vareity of ways, typically markets. To reiterate, this is a great book.

4 Question Interview with Frank Hill

Frank Hill served as chief of staff to former Congressman Alex McMillan of Charlotte (1985-95) and former Senator Elizabeth Dole (2002-04), and worked with the Commission on Entitlement and Tax Reform in 1994. He now lives in Charlotte, and his blog is here. Like all 4 Question interviews, his response is published in full.

Question 1. What is the biggest problem facing the U.S. health care system? Escalating, ever-expanding and uncontrolled health care costs, especially in the public sector, that are consuming a larger percentage of our federal resources each year.

Question 2. What do you most want to see preserved about the U.S. health care system? Best quality of 1) care 2) research 3) pharmaceutical advances 4) hospital service such as Duke Hospital

Question 3. What is the most important health policy priority for North Carolina (or the USA)? [answer which ever you want to answer] The most important policy is to re-arrange the existing federal health care resources so that everyone can be covered by true health insurance plans and take away the uncertain tail-end costs that are being passed along through the emergency care centers or passed along to private health plans.

Question 4. If you could design a health system from scratch, what would it look like? see my principles here.

Health Insurance and Labor Markets

This is a useful paper from the Congressional Budget Office that outlines some of the issues related to altering the current employer/health insurance link.

Benefits of Employer Based Coverage

James Klein and John Sweeney op-ed in the Washington Post about the dangers of limiting the employer-provided insurance subsidy for health insurance.


And a couple of my students have emailed and said something like 'but Professor Taylor, in class you described some benefits of employer-provided insurance.' Two things. First, apparently they do something besides look at facebook during class, which is gratifying. Second, here is a quick list of things that employer provided insurance has done well over the past half century:


*increased the use of health care services, especially during an era of innovation in treating heart disease risk factors and with revascularization. Heart disease mortality has dropped substantially over this time (Medicare has also covered such). The point is that some of the increased spending has been worth it due to increased benefits.

*spread risk across groups of people. An employer insuring 300 workers can get a better deal than could each of the 300 attempting to purchase insurance on their own. The reason is that you spread the risk of a high cost event across more people...this is generally what I meant here by healthy subsidize the sick.


*Helped people uninsurable in a private market get coverage. In an employer plan like Duke, there is no underwriting on anything (not health, not age, nothing) there is one premium for all employees within a given family situation (employee only coverage, family, employee plus spouse,etc.). So, someone who is HIV positive, or who has a history of breast cancer, or who has high blood pressure, etc. etc. can get coverage through an employer who would likely be uninsurable via a private insurance market.


The down sides have been enumerated including that if you lose your job you lose your insurance, some employers not providing coverage, the moral hazard associated with insurance paid for largely by someone else shielding people from the cost of their care, companies sometimes providing limited options, the costs/headaches to employers of being involved, etc. But, there are some benefits.


On balance, I don't think the current system is sustainable and warrants a big change. Employment as the way that the non-elderly get health insurance increasingly has more downsides that upsides in my judgment.

4 Question Interview with Jonathan Kotch

This is the second in my series of '4 question interviews', today with Dr. Jonathan Kotch,MD Professor in the UNC School of Public Health and an active member of Physicians for a National Health Plan, which advocates for a single payer health system in the United States. Like all 4 question interviews, it is published in full.

Question 1. What is the biggest problem facing the U.S. health care system?

The biggest problem facing the U.S. health care system is that it is immoral. It violates a national and international consensus that health care should be a human right. International agreements such as the U.N. Declaration of Human Rights (1948) and the Alma Ata Declaration of the W.H.O. (1978) clearly articulate that health care is a right, and recent polls in both the U.S. and N.C. have documented that a majority of those polled agree.

One can argue whether We the People intended to include health promotion when the U.S. Constitution was established in order to “Promote the general welfare”, but there is no doubt that, in 1789 or 2009, society cannot enjoy a sense of general welfare if its members are not healthy. The fact of the matter is, compared to other western developed nations and some middle income nations as well, the general health of the people of the U.S. is poor. Part of the reason for this problem is that the indigent, the sick, and minorities are systematically excluded from early access to the health care that more privileged members of our society enjoy. Instead of need for care being the principle criterion for allocation of health care resources, ability to pay is the criterion. This is immoral.

As a consequence, poor people are trapped in poverty by illness, minorities are discriminated against in health care institutions, and many children cannot benefit from the right to a free and appropriate public education because of illness, pain, disability, or sensory problems. The majority of such problems, dental caries, speech and language difficulties, or hearing or vision impairment for example, are fully preventable or if not, treatable, if one is lucky enough to be born into a family with money and access to health care. Increasingly, poor and minority children are not, and as a direct result of social inequalities exacerbated by our unjust health care system, health disparities persist.

An unjust and inequitable health care system harms us all. For too long Americans have been seduced by commercial health care institutions, private insurance companies and politicians into believing that U.S. health care is the best in the world. It isn’t. The W.H.O. ranks the U.S. health care system 37^th in the world in overall quality. It is mainly the cost and access issues that bring our ratings down, but it is also the case that life expectancy and infant mortality are worse in the U.S. than in every other developed country and some not so developed countries.

Yet, the U.S. spends more money on health care, both total and per capita, than any other country in the world. Where is it all going? In the first place, up to 30 cents of every health care premium dollar goes to pay the administrative costs of running a private, for-profit health insurance system. It has been estimated that, if the administrative cost of providing health care for all were the same as that of providing health care for Medicare beneficiaries (about 3%), there would be enough money saved to provide health care services to every one of the 46 million uninsured persons in our country. In my mind, this mis-appropriation of health care resources is immoral.

Other evidence that the U.S. health care system is immoral is over-spending on unnecessary health care when people are dying (18,000 per year) because they do not have health insurance. In the U.S., one only has to have money to have any amount of health care one desires. There is no limit on how many Botox treatments or tummy tucks one can have if one can pay for them. More serious is the overuse of medical technology. Appropriately utilized, advanced medical interventions can save lives. But in fact, too many patients demand services that they don’t need (whole body scans being a recent example), and too many doctors order too many tests and prescribe too many medications. And those medications, by the way, are more expensive than the identical medications in those developed countries around the world (and immediately to our north) where governments purchase them in bulk and at a great discount, which savings is passed on to consumers.

In a just world, resources for human services would be directed to where they are most needed. In the U.S., the opposite is true. Health insurance companies systematically exclude those most in need, reward their employees for denying claims, drop those with catastrophic expenses, and continue to return enormous profits to investors. If that isn’t immoral, then I have a kidney for sale.

Question 2. What do you most want to see preserved about the U.S. health care system?

What is best about the U.S. health care system is the patient-provider relationship. I deliberately use the term provider rather than doctor because of the importance of a patient’s relationship with many different kinds of health professionals. In fact this privileged relationship has been undermined by the demands of private, for-profit insurers and health care institutions. Doctors and other providers are increasingly practicing medicine in a toxic economic environment, forcing them to make decisions based on what generates reimbursement rather than what generates good health.

There is no way to restore trust to the system as long as Wall Street (and Congress) consider health care to be a commodity. Americans like their doctors, and the principle that patients should be able to pick their primary care provider (doctor or mid-level provider such as a nurse practitioner or physician assistant) is a necessary feature of any health care reform proposal. The imposition of arbitrary distinctions between “in-network” and “out-of-network” providers by profit-driven insurers increasingly violates this principle.

Question 3. What is the most important health policy priority for North Carolina (or the USA)? [answer which ever you want to answer]

For me, the answer is the same for both the U.S. and N.C., elimination of health disparities. The unfairness of continuing barriers to health care, and continuing differences in health status, based on race, income and ethnicity is appalling. The fact that these disadvantaged populations suffer disproportionately from illness, injury and disability is not new. What is increasingly clear is the discrimination experienced by such patients whose access to care compared to white patients is compromised, even controlling for the type and severity of their health problems. Eliminating disparities should be a first principle of any health care reform proposal.

Question 4. If you could design a health system from scratch, what

would it look like?

In this regard I would refer to Health Care for All NC’s “Guidelines for Real Health Care Reform” at http://www.healthcareforallnc.org/. Although crafted as a single payer solution for North Carolina’s health care crisis, in fact it borrows some ideas from the U.S. National Health Care Act (HR 676) that is under consideration in the U.S. House of Representatives.

Among the principles articulated in “Guidelines” (see http://www.healthcareforallnc.org/resources/Brochures/OurPlanmar09.pdf for the entire thing) are:

· Access to appropriate health care is a right. It isn’t something you have to sign up for, and no one would need to be forced to join or penalized for refusing to join.

· Benefits would include all outpatient and inpatient services deemed necessary and appropriate by a Public Commission, answerable to voters, in consideration of available evidence and professional standards of practice.

· The system would be financed by a progressive system of income and payroll taxes, with the result that small businesses would pay proportionately less that large businesses, and low income individuals would pay proportionately less than the wealthy.

· All current providers, solo and group, private and public, would be eligible to participate, provided that they are not-for-profit. Patients would have free choice of their primary health care provider.

· Providers would be compensated based on a fee schedule negotiated between the Commission and their professional associations.

· The system would reward primary and preventive care and eliminate incentives for specialty and tertiary care. Access to specialty care would be by referral only.

· Similarly, outpatient care would be encouraged, and inpatient care discouraged. Hospitals and other institutional providers would be given an annual budget within which they would be required to operate.

· Quality would be assured by the appointment of a Quality Board to monitor the delivery of health care services. The Board would assure that care is available to all regardless of age, race, ethnicity, income or geographical location.

Where we stand

Just to recap an eventful week, President Obama doubled down on health reform as an issue, and has put his credibility on the line insisting that a meaningful reform will be passed. Bills in both Houses of Congress moved forward, and the outlines of the big choice regarding how to offset the costs of any bill got clearer: the House version raises income taxes of high incomes and a payroll tax on employers not providing coverage v. a cap of the current tax subsidy provided to employer provided insurance which had fallen out of favor with key Senate Democrats. The House proposal may make them fall back in favor, if not love. Everyone includes Medicare payment cuts.

The most important thing that happened was the Director of the Congressional Budget Office (CBO) said that none of the plans had mechanisms that would reduce cost increases. In short, he was saying all the bills are focused on expanding insurance rates, but not addressing cost inflation in the system. Peter Orszag, the President's Budget Director (and former Director of CBO) signalled that Congress had to put in place mechanisms to control costs, and not simply expand coverage. I think it seems as though the President's Budget Director is more of his go-to in all this than is his Secretary of HHS (Gov. Sebelius). This likely wouldn't have been the case had Tom Daschle been HHS Secretary, but he is not. I think when (and if) it gets to a conference bill and the President really weighs in, the budget types in the administration will be front and center.

Things that might make the CBO look more favorably would include a cap on the employer provided insurance tax subsidy, which in the end would result in non-elderly folks having less insurance, likely reducing use. Or implementing a board such as the base closing commission to apply cost effectiveness research to the Medicare program and begin to identify care that is not done that either had no benefits, or for which the costs are too high to justify the benefits (no way Congress per se can/will/should be involved in those decisions). Or a huge change in payment approach (away from fee for service for docs) and toward something based at least in part on capitation (which shifts some of the risk of high use away from Medicare and to the providers; in return, the do better if patients and healthier and/or use less care). The middle idea noted above (broad use of CEA) I think should be done; the last one would likely reduce costs and likely improve quality of care, but to say there would be lots of details is the understatment of the year. More likely to start with demonstrations.

Interestingly, the American Medical Associaton (AMA) came out in support of the House bill with some qualifiers. Now, the AMA is famous for being opposed to everything, and then being for commissions to save what they were just opposed to and was going to destroy medicine and the American way of life just a few years earlier (see Medicare)...so maybe they are just holding their fire until they have to be opposed. But, maybe not.

I have a hunch. The President is going to surprise people and when all hope seems lost for reform, he will propose a substantial malpractice reform. And the AMAs qualified support may mean they know/suspect this as well. I suspect that (malpractice reform) is ultimately what it will take for their support, and that is probably the only hope of any Republican eventually voting for a final conference bill. And I can't think of single large reform in any nation that has not had the doctors at least neutral if not in favor. Time will tell.....just one person's thoughts.

NY Times story. CBO analysis of House bill. CBO testimony on long term future of federal budget.

Column on Public Option

I have a column in today's News and Observer arguing that government insurance (Medicare) is an innovator that private insurance often follows. This is in contradiction to what many assume is true. The study referred to in the column that shows that hospice saves Medicare money is here.

A big deal

The Massachusetts Health Care Commission on the Payment System has proposed ending the fee for service payment approach for paying doctors and hospitals and to move toward paying 'accountable organizations' on the basis of patients for whom they are responsible. This would be networks of docs and hospitals. You could think of it like a PPO getting capitated payment (fixed amount per month to care for you). The providers are then at risk for very high utilization...whereas typically, private insurance or Medicare is at risk now. Massachusetts enacted reforms that have covered about 97% of residents, but the plan did not really address cost increases. This is a second step, to address cost increases.

The point/goal is to incentivize groups of providers to keep patients healthy, and to change incentives. Networks that do a good job at keeping folks well and/or limiting outlays below revenue get to keep profits realized.

This would be a big change on such a large scale in the U.S. In England, the National Health Service did similar in the 1990s with what was called General Practitioner fundholding, the major reform effort of John Major's Tory Party. In GP fundholding, the primary care doctors (who were already paid based on captitation--a set amount per person per month) were given a hospital services budget for the patients they were responsible for and if they saved money, they got to keep it. However, there was a 'net' so to speak and very large overruns experienced in a given doctors patient pool were absorbed by central government. It didn't save much money in part because (1) the gov't was so eager to get GPs to sign up they oversweetened the deal. Also, teh GPs were already being paid largely based on capitation. However, the reform did lead to restructuring of some medical services in ways that many thought were worthwhile. It also paved the way for the development of more community organizations of providers that are similar to 'accountable organizations' imagined here. My main point is that this idea is new here, but not so new in other places. And the idea is mostly about shifting the incentives away from it always being good for providers to do more.

The Labour Gov't abolished fundholding in 1998/99, but there were many changes in local health care markets that remained and were essentially just called something else. The fundholding experiment, for example, paved the way for the ending of the GP cotract only being 'held' by individual GPs or groups, and lead to organizations being able to be contracted to provide care for larger groups of patients. A GP I knew when I lived in England (1995-96) summed up the effect of fundholding as follows. 'I used to struggle to get the surgeons to send me a follow up letter about how my patients were upon discharge. But, after fundholding (and ability to steer patients to different hospitals) the same surgeons who wouldn't send me letters before starting sending me Christmas cards.' Subtle perhaps, but it did increase communication.

CBO Preliminary Score of House Bill

The Congressional Budget Office (CBO) has released its preliminary 'score' of the House tri-committee bill announced on Monday. CBO is non-partisan research arm of the Congress that assesses the impact of legislation on the federal budget. All administrations, Democratic and Republican, eventually get irritated with the CBO for not forecasting changes in the way they see the world.

Bottom line is ~$1.04 Trillion in new spending from 2010-19 and that it would get to 97% insurance coverage by 2019. Note that they (CBO) is still assessing the offsets (Medicare cuts, income tax surtax, etc.) and will eventually judge whether the provisions of the bill pay for this increase. The President and Congressional Democrats have stated that they will identify budget reductions to offset increase, holding to a concept known as 'paygo.' $1 Trillion is a lot of money, but keep in mind this YEAR the U.S. will spend ~$2.2 Trillion on health care. So, the annual cost of this bill is less than 5% of total annual health spending.



The CBO's blog is a good place to look for the latest.

Rationing

This is a discussion of how we value human life every day in a variety of ways, and makes the case for a more straightforward discussion of limits in health spending. In short, he says we now ration all sorts of life saving technologies both within and outside the health system. He provides a very practical discussion of the ways in which we now explicitly value human life in public policy and decide sometimes that the cost of protecting life is too high (not worth it). If you have made the case that the cost of health/safety regulation is too high, you are essentially making this argument: the cost of saving a life is exorbitant. Here is an interesting paper (though a bit dated), comparing the cost-effectiveness of 500 life saving interventions.

The R word makes reasonable people lose their mind and not be able to think clearly. Rationing is really anything other than everyone getting whatever they want. Markets, for example, are a means to ration scarce resources. Our society needs a reasoned, honest and open discussion about what should be done and when in terms of medical care, and we need better ways to compare the benefits and the costs of medical treatments.

Senate HELP committee

Passed health reform bill 13-10 this morning. Fairly similar to the House bill that passed yesterday. The Senate Finance Committee is still working, and is the likely source of the bill that has the best chance of passing the full Senate.

In the papers

Washington Post editorializing against House Dem plan to pay for large chunk of reform bill via income tax increase on high earners. NY Times has story with nice graphic with details of the surtax.

I suspect the House proposal to have income tax surcharge may be designed to help bring caping the employer paid insurance subsidy back into play in the Senate.

Wall Street Journal has op-ed on malpractice reform, suggesting move to health courts. I will write about malpractice and health care costs in a few weeks in my News and Observer series on health reform that is set to run Fridays. The WSJ health blog has story on how middle class folks may fare under individual mandate with a lessened tax subsidy of employer provided insurance.

And the News and Observer has an odd story about a person from Cary going to Russia to get health care.

House Reform Bill

The House of Representatives has released its full health reform bill this afternoon...joint effort of three committess in the House (Ways and Means, Education and Labor, and Energy and Commerce) along with Speaker Pelosi. It contains income tax surtax on income of $350,000+ ($280,000+ single), a public option to compete with private insurance, and an indivdiual mandate for persons to purchase health insurance, and pay or play provisions for employers, graduated based on size of payroll.

At this point biggest House v. Senate sticking points likely to be public option, and how to pay for it (income tax hike v. cap of exclusion of employer provided premiums v. other option). Both Houses have cuts to Medicare to pay for plans.

Interesting tool to compare competing plans (though not updated with today's bill yet).

Reader Question

An emailed question

.... I've been unable to find information on whether employers themselves receive any type of tax benefit for this (health insurance premium of employees) expenditure. I find it hard to believe that they don't receive some kind of tax advantage. Realizing the complexity of the tax code, can you, with as much brevity as possible, explain any tax benefits employers are entitled to take with their health plan expenses?

************
The benefit of the tax expenditures we have been discussing flow to the employee, not the employer. When employers pay health insurance premiums, that is an expense of doing business. Revenue - expenses = profit (or loss), so higher insurance premiums costs reduce the profitability of a for profit company and reduce the surplus that a not for profit, like Duke, would have to spend on things like building expansions, new programs, etc. So, deducting business expenses reduces taxable income for a for profit business, but in that sense it is no different than wages paid to employees, social security taxes paid on employee wages, electricity, cost of materials, etc.

Tax free income

On friday I wrote that I receive $6,600 in tax free income from Duke each year. This is the amount Duke pays in premiums for my insurance. The fact that Duke pays premiums and I pay no taxes means I am shielded from the cost of my insurance. This has been going on with little fanfare since WWII in the U.S. system, and has lead to employees getting used to someone else paying for a large portion of their insurance. Like I tell my students, many workers think the benefit fairy brings insurance.

The monthly premium I pay ($335/month) is paid for in pre-tax dollars. My salary is reduced by paying this premium, but I get a subsidy from the U.S. treasury (e.g. all taxpayers) equal to the amount of tax that I don't pay on whatever I spend on premiums. I benefit by paying premiums on a pre-tax basis. An indivdiual calling up a private insurance company and getting a policy would pay premiums using after tax dollars.

I benefit from both of these (Duke paying premiums and me not paying taxes on that amount) and me paying premiums and not paying taxes on that amount. I think the second is less distorting than the first because: (1) I at least know that I am paying premiums, and how much I pay; and (2) there are cheaper options available from Duke, meaning I have exercise some choice in which plan I select. But, some readers felt I was trying to under-represent the amount of subsidy that I get from how insurance is now set up.

The way I see it, self employed people do not get tax free income, because there is no employer paying premiums on their behalf that they do not have to pay taxes on. They do get a subsidy similar to what I get when they purchase insurance in pre-tax dollars, thus saving payroll and income taxes. But, the premium cost is deducted from their income.

The total figure quoted in the column I wrote ($250 Billion) includes these costs, but also several other types of tax expenditures, such as money put into flexibile spending accounts (used to pay out of pocket expenses such as eye glasses and prescriptions--you guessed it, I've got one of them too), and the fact that out of pocket health care expenditures greater than 7.5% of gross income are deductible from anyones taxable income when you file an income tax return.

Here is a paper focused on tax year 2004 (total cost to treasury that year, $188 Billion) that walks through the details of various ways in which the tax code subsidizes health insurance premiums and health care expenditures.

Four Question Interview with Mike Munger

I want freeforall to be a discussion. So, I thought I would have a series of four question interviews with a variety of persons from different perspectives. The rules of the interview are that I will pose the same four questions to different folks and publish their responses in full. You can get mad at me for stuff I write, but not for stuff others write.

First up is Mike Munger, chair of the political science department at Duke University, and the Libertarian Party candidate for Governor of North Carolina in 2008. Mike and I go way back...he taught me in graduate school at UNC his first semester as an assistant professor and we both survived. Mike is in Germany this summer.

Question 1. What is the biggest problem facing the U.S. health care system?

Sharply rising costs. Two ways to "solve" the costs problem: (a) give everyone insurance, so that they are insulated from cost increases. (b) reduce cost increases, and find ways to make basic health care cheaper.

(a) is the most talked about option, but it is a bad idea. Someone (the taxpayer) still pays for insurance, so we are not really protected from cost increases. The French economist, Frederic Bastiat, said that the state is the fiction that each of us should be supported by all of us. It may be that universal coverage for serious illness would protect people, but "free" health care is too expensive, unless we get a handle on costs.

Option (b) is much better, but harder, because medical lobbies and interest groups will fight it. The problem is that we do not teach, or reward, preventive action by citizens or basic primary care by physicians. NC has a big shortage in primary care, at every level.

Put it this way: I have auto insurance. But it does NOT pay for oil changes. If I don't do the oil changes, then the car will decline in value and break down. Nobody else has to pay for my bad decisions, and insurance won't cover the new engine if I ruined the old one by running without oil or maintenance.

Why should other people have to pay for the fact that I don't exercise, that I smoke, and that I eat a bad diet? "Free" insurance protects me against my own choices.

The answer is to lift restrictions on primary practice by Physicians Assistants and Nurse Practitioners. I'm not saying they should do annual check ups; we need docters, with broad training and experience, for that. But for many complaints, and for advice on diet and exercise, and smoking, even a simple computer based expert system can do a fine job. If I have a minor infection in my finger, or need my blood pressure checked, or want to know about the tingling in my diabetic toes, then I should be able to show up an office, without an appointment, and pay no more than $30 for the visit.

We can do this with oil changes, and it works fine! Why not with basic office visits? Right now, people delay going to primary care, or can't get an appointment. Then they have a REAL infection, or a stroke, or they have to have gangrenous toes removed at the emergency room.

Legalize health care. Allow PAs to practice basic primary care. And reduce the costs and hassle of going to the doctor. There is no reason it should be harder, or more expensive, than an oil change.

Question 2. What do you most want to see preserved about the U.S. health care system?

The US is the best in the world at designing new procedures for operations, and new protocols for physical therapy and prosthetics. That drive for innovation has to be preserved, whatever else we do.

Question 3. What is the most important health policy priority for North Carolina (or the USA)? [answer which ever you want to answer]

Reduce costs, and legalize basic primary care offered by Physicians' Assistants.

Question 4. If you could design a health system from scratch, what would it look like?


Universal private insurance, with large deductible. Very large amounts for total coverage, so that most major procedures are covered. People minimize basic health care costs by taking care of themselves, but the truly sick get taken care of by the system. Lots more competition, and many more providers, in primary care.

Our current system has it backwards: people want LOW deductibles (which is expensive), but then they often run out of benefits, or get cancelled, if they have a serious medical problem.


Mike Munger, in Germany

Two Sides, Three Issues

Brief arguments taking different sides on three reform issues in today's New York Times, including the tax subsidy for employer provided insurance.

Fire, meet gas

is what David Brooks sees in the Congressional health reform bills winding their way through the various committees. His main point is that the bills are focused only on covering the uninsured, and then in trying to pay for these expansions either through reducing federal spending or raising taxes (they seem to be serious about doing this). But they aren't focused on trying to slow down health spending.

I can follow the logic of saying we have to cover everyone first, get rid of the cross subsidies in the system and then move to slowing down costs. But, that logic seems to apply most strongly to a single payer approach which would have the ability to use cost effectiveness research on a comprehensive basis. And that option is not seriously in play.

The broad cuts to Medicare which are a part of (paying for) all the Congressional plans are very blunt tools, and not an attempt to seriously address situations like this. Cutting Medicare payment rates could actually incentivize providers to undertake the 'higher cost, but maybe not worth it', treatment options.

Delay in release of bill

Delay in the release of House Dem version of reform to address 'Blue Dog' concerns. When you hear someone say the Democrats health plan will......you should ask 'which Democrats?' Not exactly a solid voting bloc on health reform.

Update: House Dem committee plan proposes income tax increase on individuals making $280,00+ and couples making $350,000 which they project will raise $550 Billion over 10 years, around half of the $1 Trillion total cost of the bill over that time...Medicare cuts would make up a good deal of the rest.

There are only so many ways to come up with $50 Billion/year:
*income tax increase as noted seems in play in this house committee bill
*cap tax subsidy on employer provided health insurance seemed to be in play in the Senate, but many cooling to the idea

Health Reform, Column 1

I have a column in today's Raleigh, News and Observer discussing the possibility of repealing or limiting the tax subsidy for employer provided health insurance as a way to pay for health reform. On the side bar to the right is a new paper in the New England Journal of Medicine by Jonathan Gruber discussing this idea more completely.

I wrote an op-ed laying out what I say as the basics of any health system in early June.

I will be writing a weekly column in the N and O on various aspects of health reform. If there is a topic you would like to see addressed, let me know.

The prostate cancer test

An interesting article in today's New York Times that clearly identifies an issue that would not be addressed by simply increasing insurance rates. The article says that treatment options for prostate cancer vary by a factor of 20 or more, and it is not clear which is better. Assessing both the costs and benefits of competing treatment options is cost effectiveness analysis. There are tricky issues in doing CEA analysis correctly. However, if you say you are opposed to using cost effectiveness analysis in making health care decisions, you are saying you don't want to know which treatment is best, and whether the more expensive options 'are worth it'.