Consumer Power Report #135

Published July 11, 2008

Driving into DC the other day, I was struck by how many tiny little cars there are on the road these days. The big SUVs are gone. There seems to be a new status symbol — the cutest, tiniest little care wins the lottery. And I thought, “Man, that didn’t take long.”

And there once again is the wonder of the market. It is astonishing how quickly people change to new conditions. Imagine how long it would have taken for a government mandate to have had the same effect.

We spent Independence Day in the Baltimore Harbor. It was fabulous. We shared the same water where Francis Scott Key wrote the National Anthem just off Fort McHenry as “the rockets’ red glare” was literally “bursting in the air” above our heads. My friend has a big boat and a big trailer and it takes a big truck to move it. It cost us a lot in gasoline to get the boat in the water that day, and there were only about half the boats there normally would have been. But my friend grew up in Baltimore, yet had never seen the fireworks in the harbor. It is something he wanted to do all his life,

And again a mandate would have made impossible a life-long dream. We paid a steep price, but the market allowed us the possibility of fulfilling a dream.

Americans don’t need to be mandated to do the right thing — on the roads, or in health care. All we need is to be exposed to the true costs of our actions. And then we can make our own decisions.



As you know, I resisted reviewing the health care proposals made by presidential candidates during the primaries. Most of them were obviously not going very far and were not very well thought through. I decided to wait until the nominees were settled, expecting that now we would have some serious ideas on the table to look at.

Alas, both Senators McCain and Obama offer not much more than a grab bag of platitudes and empty promises. Let’s start with the surprising number of things the two have in common.

They both highlight autism as a special concern and call for increased funding of research into the causes and treatments.

Both candidates support “reimportation” of American drugs and greater use of generic drugs.

Obama and McCain both want to increase “coordinated care” and do more for people with chronic conditions.

McCain and Obama both support “transparency” on costs and quality.

Both want to do something about medical liability. McCain wants to exempt physicians “who follow clinical guidelines” from malpractice actions, and Obama wants to “strengthen antitrust laws to prevent insurers from overcharging physicians for their malpractice insurance.” Both seem to be open to other means of addressing the harm done by medical errors.

Both believe we could save a lot of money by using health information technology.

Both want health insurance coverage to be portable, so people can take it with them when they change jobs.

Both have pet causes. McCain wants to do more on smoking cessation and Obama emphasizes “fighting AIDS worldwide.”

Obama wants to enroll more people in Medicaid and SCHIP while McCain wants to fix the payment system of Medicare and Medicaid.

Both candidates want to allow some level of state flexibility.

Neither is very specific about how to do any of this.

Okay, that is what they have in common. Let’s look at where they depart.

Obama wants to set up a new national public insurance program for all Americans who wish to get their coverage that way. It will provide “comprehensive” benefits with “affordable premiums, copays and deductibles.” It will feature “easy enrollments” and “simplified paperwork.” Coverage will be subsidized based on income and paid for largely with a new payroll tax on employers who do not provide coverage directly.

He will also create a separate “National Health Insurance Exchange” that will act like the Massachusetts Connector. It will not be just a shopping mall, but will regulate the carriers that participate, including guaranteed issue and modified community rating. He will apply some loss-ratio standard to prevent “exorbitant profits and administration.”

Coverage for children will be mandatory and he would allow children to stay on their parents’ policy until age 25. He will create a reinsurance program for employers who continue to provide coverage.

There is no information on how any of this will be administered, enforced, or paid for.

McCain’s approach is less regimented. He would provide refundable tax credits (vouchers, really) of $2,500 for individuals and $5,000 for families to all Americans to “offset the cost of insurance.” This would presumably be paid for by eliminating the employer exclusion, though he is not explicit about this. He would allow people to buy coverage across state lines and put any savings into an expanded HSA.

He would work with the states to develop some sort of guaranteed access for the uninsurable and would provide additional premium assistance for lower-income people.

Interestingly, McCain is very concerned about long-term care and likes the “Cash and Counseling” programs a lot. Obama is silent on LTC.

Again, he is not very specific about any of this..

What to make of all this? Neither candidate has much of a track record in health, and they don’t appear to be particularly interested in it beyond the need to respond to public concerns. It suggests that nothing is carved in stone and whichever is elected will be open to other ideas.

Granted that Obama has an instinct for expanding government programs, while McCain’s inclination is more free-marketish. But neither one has locked down much in the way of specifics.

In fact, it is not hard to imagine a merger of these plans. Obama’s “national insurance exchange” could fit in nicely with McCain’s support for buying coverage across state lines. And McCain’s tax credit and additional low-income assistance would be one way for Obama to deliver the subsidies he desires.

Even McCain’s support of health savings accounts could easily be absorbed into Obama’s desire for comprehensive benefits. A rarely mentioned advantage of HSAs is that they offer a way to fund comprehensive benefits while still offering flexibility and choice. One family might want coverage of alternative medicine while another wants dental and vision to be covered. HSAs enable both to get what they want without having Congress picking one over the other.

Would a merger of the two plans result in a workable solution? Tell me what you think.

SOURCE: McCain’s Web Site; Obama’s Web Site


The American Medical Association is celebrating the passage of HR 6331, that will roll-back the 10.6 percent cut in physician payment under Medicare that went into effect on July 1. It will be paid for by reducing the money that goes to Medicare Advantage by $14 billion over five years. Many physicians were rejoicing, not only because they prevented the cut in payments but because it came out of the hides of the insurance that provide Medicare Advantage coverage.

It is likely to be a short-lived celebration, however. The insurance companies will not pull out completely from Medicare Advantage. They are more likely to emphasize those approaches that give them very strict controls over costs and utilization, i.e., tightly managed care. Other plans — fee-for-service, medical savings accounts, special needs plans — that allow some patient flexibility will be gone. More managed care is probably not the outcome physicians were hoping for.

Plus, this is only an 18-month reprieve for physician payments. Congress will be back in 2010, but this time with a 21 percent cut. It has become an annual ritual — threaten the Docs with a big pay cut and they will roll over and agree to further erosions in their ability to practice medicine. In this case they agreed to move toward “pay-for-performance” in which physicians will get paid based on their obedience to clinical protocols developed by panels of experts, and a mandate on “e-prescribing,” which is a swell idea in theory but hasn’t worked that well in practice.

Meanwhile, a physician friend in New Orleans sent me some information on Medicare payments from 2005 to 2008. In most cases the payment has already dropped by 10 percent or so in the past three years. This is a drop in actual dollars paid, without considering inflation factors. Here are some of the numbers he shared —


  • Office Visit, New Patient (Code 99201) — (2005) $35.96; (2008) $32.15 — 11 percent cut



  • Office Visit, Established Patient (Code 99212 — (2005) $37.75; (2008) $33.17 — 12 percent cut



  • Consult, Office (Code 99241) — (2005) $49.44; (2008) $42.56 — 14 percent cut



  • Consult, Hospital (Code 99252) — (2005) $72.01; (2008) $64.56 — 10 percent cut



  • Consult, E.R. (Code 99281) — (2005) $16.64; (2008) $17.21 — 3 percent increase



  • E.R. Visit (Code 99283) — (2005) $62.181; (2008) $52.40 — 16 percent cut


SOURCE: Washington Post; American Medical Association


The latest study blasting consumer driven health care is making the media rounds. It is remarkable how every teensy study that is critical of these approaches gets massive media attention, while all of the positive results are ignored.

In fact, CDHP has been subjected to a level of scrutiny that is unprecedented for any benefits innovation I can remember. Wellness programs provide an interesting contrast. Like CDHPs, they are being rapidly adopted in employer benefit programs. But I have yet to see any suggestion that they may appeal more to the “healthy and wealthy,” or that people with chronic conditions may not benefit much, or that poor people are less likely to participate. Indeed, about the only question asked of wellness programs is whether employers get a return on their investment in the program.

So, what does this latest study say?

It suggests that people in consumer directed health plans tend to stop taking prescribed medications for chronic conditions somewhat more than other people. You might respond by saying, “Hmmm. That’s interesting.” And you would be right. It would be worth looking into to find out more if you were a policy wonk or a benefits manager. But the headline in the Portland Business Journal (of all places) was “Problems Found With Consumer-Directed Health Plans.”

You can read the article yourself, so I won’t recap it here. In fact, the study itself is next to useless. It looks at ONE employer’s experience in 2004. It finds a mixed picture with CDHP compliance worse in some categories but better in others. And the differences are small in all cases. It fails to explain a number of things. For instance the CDHP enrollees actually had 100 percent coverage for the first $1,500 in expenses, while the PPO enrollees were subject to copays from dollar one. If cost sharing was the determining factor, the PPO people should have fared worse. (By the way, average Rx spending for the CDHP group was $687, so it was well within the HRA contribution). Importantly, this was an HRA program — not an HSA — so it was all employer money in play.

Further, as the authors themselves admit, it is possible that the CDHP enrollees decided to save money on hypertension medications by changing their diets and exercising more — certainly better strategies for controlling blood pressure.

Experience over the past four years has shown us the importance of employee education, information support, and accompanying wellness programs, along with the change in financing of a consumer driven plan. This was all part of the original concept — first, put the money in the hands of the patient, then provide them with the information and patient support they will need and demand. Who knows how this one employer did on these scores? The study fails to mention it.

SOURCE: Portland Business Journal; Health Affairs


John Goodman’s health care blog gets better all the time. In a recent entry he deconstructs yet another study, this one by the Center for Studying Heath Systems Change. He quotes some of the media headlines coming out of this study — “More Americans Delay Health Care,” blared a headline over a Wall Street Journal story. “Cost Concerns Drive Even the Insured to Forgo Treatment,” said the subhead. Large deductibles and cost shifting to patients are the cause of the problem, said the lead author. “Alarming,” said The New York Times.

But in actually reading the study (instead of the press release put out by the authors) he finds, “It inconveniently shows that between 2003 and 2007 concerns about costs among the uninsured actually went down as a reason for delaying or forgoing needed care…. Went down?…. Yes, went down…. By 2.3 percentage points! By contrast, “health system related” problems (gobbledygook for rationing by waiting) climbed a whopping 14 percentage points!”

I know you’re busy and don’t have the time or patience to red these studies yourself. But that’s why its handy to have people like me and John Goodman around.

SOURCE: Goodman Blog