Consumer Power Report #149

Published October 29, 2008

This endless campaign is finally coming to a close. I’ve never been good at predicting elections, so I won’t embarrass myself here. I’ll just be glad to see the end of all the mindless political operatives saying, “My guy can do no wrong. The other guy can do no right.”

I am, however, pretty good at predicting the consequences of public policy and legislation. And so is the line-up of speakers we have assembled for our workshop on November 12–one week after the election. These include some of the brightest and most plugged-in people in free market health care, including:

Jeff Emanuel of The Heartland Institute, managing editor of Health Care News.

Merrill Matthews of the Council for Affordable Health Insurance, cosponsor of the workshop

Dan Perrin of the HSA Coalition
Jim Pyles of the Patient Privacy Coalition
Kevin McKechnie of the American Bankers Association HSA Council
Joel White of the Coalition for Affordable Health Coverage
Brian McManus of the Health Care Freedom Coalition
David McKalip, MD of Doctors for Patient Freedom
Michael Ostrolenk of the American Association of Physicians and Surgeons and the Liberty Coalition

You can hear them all analyze the election results and discuss how their groups will weather the new environment.

Registration is free, but please notify Robin Knox at 312-377-4000 or [email protected] if you would like to attend.

Location: J.W. Marriott, 1331 Pennsylvania Avenue NW, Washington DC
Date and Time: November 12, 2008, 2:00 – 6:00 pm

The workshop will be followed by CHCC’s Awards Banquet honoring some of the pioneers in consumer empowerment. To register or find out more about the Banquet, go to The Heartland Institute Web site.



As we mentioned recently, consumer-driven health care (CDHC) has reached the “tipping point” of 20 percent of the under-65 population. This was reported by the CDC’s National Health Information Survey (NHIS) and is confirmed by the latest Kaiser Family Foundation (KFF/HRET) survey of employer plans, which found 18 percent of all workers are now in high-deductible health plans. The difference can be explained by the fact that KFF/HRET looks only at employer plans while the NHIS survey looks at the whole population, including those in individual plans. Virtually the entire individual market is in high-deductible plans these days.

Not everyone will agree, but I argue that a HDHP is a consumer-driven plan even if it does not include an HSA or HRA. The goal of consumer empowerment is to take money away from third-party payers and put it in the hands of consumers to spend as they wish. You don’t need a tax-favored savings account to make that happen. If someone doesn’t pay income taxes (which is the case for 40 percent of the population), there is no particular reason to have a tax-favored account. These folks will still be paying cash for services but they may keep their cash anywhere–in a regular savings account, a checking account, or in their mattress. This latter option is looking pretty attractive after the past year of a bear market.

Some critics call an employer-sponsored HDHP cost-shifting–mean and nasty employers make employees pay for services that used to be covered by the health plan. But as Mark Pauley insists below, employees pay for the health plan in the form of reduced wages. It doesn’t much matter if the payment for the health service comes from the health plan or directly from the employee, employees are paying for it either way.

Except it is, first, far more efficient to pay small claims directly rather than going through an insurance mechanism, and second, the opportunity to save money changes behavior on the part of patients. They become better-educated and more reluctant to waste money than they are when somebody else is paying the bill, or seems to be.

Now that we have 20 percent of the population paying some of their own bills, we should begin seeing a profound effect on the service side of the ledger. Every physician, every hospital, every pharmacy will have a fair number of cash-paying patients and will have to adjust their billing procedures and customer service departments accordingly. They will become literally invested in serving a cash-paying retail market. They will want to defend their investment. And that changes the political dynamic substantially.

This is a whole new reality and one that Washington will not be able to tamper with lightly. Congratulations!

SOURCES: Kaiser Family Foundation; CDC’s NHIS Report


Writing in Health Affairs, Mark Pauley of the Wharton School of Business at the University of Pennsylvania makes a case for a hybrid plan between what Obama and McCain have proposed in their campaigns. Whether his hybrid would go anywhere depends on the extent ideology would take a back seat to economics. I rather doubt it could. Politically driven people use economics as a cover for ideology. The priority seems to be who ends up with power rather than whether an idea would actually work.

But Mr. Pauley reminds us of a number of important economic principles that cannot be spun away. He relies on research for his analysis–something that is inconvenient for any politician. He says of the “cost-shifting” argument, for instance, “The economic analysis of employment-based benefits is as clear in economic theory and empirical work as it is muddled in the public debate: Theory and econometric studies both say that workers pay for the majority of health insurance costs, through lower money wages as well as through explicit premiums.”

He compares the two campaigns on this issue–“The McCain approach is thus based on the view that workers pay for and get the tax breaks from their health insurance but that those tax breaks need to be reformed and rearranged. The Obama plan, in contrast, generally seems to view employer payments as the employer’s money, which would otherwise become part of profits if it were not paid out for health insurance. It proposes a play-or-pay employer mandate.”

Mr. Pauley seems to like McCain’s tax credit–“(A uniform tax credit) would not inappropriately push people into or away from group insurance, or bias choices for or against high-deductible insurance. Rather, it would push choices toward insurance that the consumer judges to be worth its true (unsubsidized) cost. This neutrality is important because group insurance is usually less administratively costly than individual purchase, and sometimes managed care is better than high cost-sharing to limit overuse. However, individual insurance can give different individuals the coverage they want, and managed care makes some people angrier than high deductibles. Neutrality allows these trade-offs to be made properly.”

He weighs in on another issue–how to insure people with high risks. He says, “What are the pros and cons of a high-risk pool/guaranteed renewability combination (McCain) versus a community rating/reinsurance subsidy combination (Obama)? Community rating is equivalent to financing a subsidy to all high risks with an excise tax on insurance purchased by low risks, regardless of income. Like other excise taxes, this regulation-produced tax scores poorly on both efficiency and equity. It inefficiently induces below-average risks to drop insurance or cut the coverage they buy.”

He is also skeptical of the cost savings promised by both candidates by better use of heath information technology, prevention, and pay-for-performance. “There is little evidence that there are known methods to cause the (changes in) behavior to occur, and to occur quickly on a large enough scale to matter. Few of the innovations relate directly to controlling the new technology that is driving spending growth, so they cannot promise the kind of large and permanent reduction in spending growth that is needed for true cost containment.”

SOURCE: Health Affairs


Health Affairs is not the only publication comparing the Obama and McCain health reform ideas. CHCC member John R. Graham of the Pacific Research Institute has published a 58-page booklet comparing the two plans. He summarizes his findings in a press release, which says of the two plans:

Senator John McCain:

  • His tax reform will result in a raise of about $9,000 for every working American family.
  • While this raise will be taxable, it will be supplemented by a universal, refundable tax credit of $5,000 per family or $2,500 per single person that will eliminate the “job lock” caused by employer-based health benefits, and significantly reduce the Medicaid poverty trap that holds back many Americans.
  • Combined with his plan to allow a national market in health insurance, these reforms will result in about six million currently uninsured Americans buying health insurance voluntarily, within an estimated range of two to 12 million.
  • If people choose not to buy health insurance, their unused tax credits can go into a fund that states use to finance their uncompensated care and “safety nets.”
  • Senator McCain has made a commitment to protect people with pre-existing conditions during the transition, so they retain coverage as Americans find new ways to organize themselves to share the financial risks of health care.

Senator Barack Obama:

  • His health insurance “reforms,” namely guaranteed issue and community rating, will cause about one million people to lose their individually purchased health insurance over the short term.
  • His new, job-killing taxes on businesses will hurt lower-income workers especially.
  • He will spend an extra $100 billion a year of our health dollars on health goods and services that serve the government’s priorities, not a family’s needs.
  • Combined, these three reforms are likely to lead to a “death spiral” for privately chosen health insurance.
  • His medical-malpractice insurance “reform” threatens to make it impossible for physicians to pay for liability insurance, threatening patients’ access to care and legal rights.

Mr. Graham concludes, “When many Americans have lost faith in both Washington and Wall Street, it is encouraging that Senator McCain intends to take health care dollars away from Big Business and Big Government and give them to the families who need them. Senator Obama’s plan will deepen the problems of the current system–leaving you one paycheck away from losing both your job and your health care, and more likely to become dependent on the state when that happens.”

SOURCE: Pacific Research Institute


Newsweek says both candidates “make false claims about the other’s health care plan,” and they intend to sort it all out. It’s not a bad analysis, though it relies heavily on the Lewin Group and the Tax Policy Center run by former Clinton official Len Burman. It certainly makes the case that both sides distort the positions of the other, but it concludes, “Studies agree generally, however, that Obama’s plan would cover more of the uninsured than McCain’s would.” That may be true, but it ignores McCain’s bigger priority, which is lowering health care costs.

The premise that the sole purpose of health reform is to cover more of the uninsured has been pushed by the AMA, Families USA, Divided We Fail, the Robert Wood Johnson Foundation, and every liberal organization in America. But there is a whole lot more wrong with American health care than just the uninsured.

SOURCE: Newsweek


Associated Press

The AP ran an interesting piece by Kevin Freking that is pretty skeptical of the grand plans of both candidates. It says, “A long history of failed health-reform plans shows how difficult it is to achieve that goal. And the job only got tougher for any future president with the financial meltdown.”

It points out that the chairman of Senate Finance, Max Baucus (D-MT), wants to “move forward on comprehensive health reform early next year.” But the ranking member, Charles Grassley (R-IA), isn’t so sure–“he’s primarily focused on taking steps that would lower health-care costs, such as speeding the use of electronic record-keeping for patient medical records, directing more resources to illness prevention, and lowering the cost of malpractice insurance.”

It also quotes other skeptical observers, including Princeton’s Uwe Reinhardt, who says, “Do we have the money to be our brothers’ and sisters’ keeper? The answer is no. We have to worry about Goldman Sachs. That’s where we are.”

Robert Laszewski says the chances of getting big reforms are zero and adds that the consensus ideas like those proposed by Grassley are “not controversial with the stakeholders. That should tell you something about how impactful they will be. If you want to get at health care costs, you’ve got to … step on some toes. Neither McCain nor Obama are stepping on any stakeholder toes in terms of slowing costs down.”

And Drew Altman, CEO of the Kaiser Family Foundation, argues that, “the next president will have to phase in any changes he seeks, rather than implement sweeping reforms. Coming up with the money to pay for health reform and expanding coverage was always a huge mountain to climb. It just got much higher.”

SOURCE: Associated Press


Investors Business Daily thinks the future of HSAs rests with the coming elections. It argues, “the two campaigns amount to a referendum on the question of where the economic power in health care will reside. In the GOP model, the power should lie with price-conscious individual consumers choosing among health care providers and insurers. The Democrat way is to shift that power toward government through mandates and the expansion of public insurance.”

It doesn’t expect a Democratic Congress will repeal HSAs because of the market penetration they have gained, “But their growth is likely to be crimped by new limits on who can open them and how easily they can be used.” It might restrict the tax advantage of the plans or bring back the “substantiation” provision that passed the House this year but died in the Senate.

More likely, IBD argues, Obama’s publicly financed plan would include first-dollar coverage and be subsidized so much that an HSA could not compete against it.

The article concludes, “We doubt that most Americans (and certainly the 6 million-plus HSA beneficiaries) want so little freedom in their future. But right now they are on the verge of voting such a future into being.”

SOURCE: Investors Business Daily

Business Week

Business Week has never been very friendly to consumer-driven health, but a recent article by Lauren Young is a step in the right direction. She starts out with an anecdote about a Tom Billet who needed an X-ray for a torn Achilles tendon, so shopped around and saved $360. All because he has an HSA. It goes on to describe “the good, the bad, and the ugly” of HSAs.

It concedes the coverage is very good and the price is low. It has a couple more anecdotes: One fellow was paying $450/month for COBRA coverage for himself only, but he switched to an HSA costing $200/month for himself and his wife, saving $3,000 a year that easily covers his $3,000 deductible. A woman switched to a $7,000 deductible for herself and her husband and went from a $900/month premium to a $360/month. When she found out she was pregnant she went around offering to pay cash for the services she needed and her providers cut their fees by 40 percent.

The bad and the ugly parts of the story both amount to the same thing–it takes a lot of work to get the best price from a provider and thee is still very little price transparency out there. All true, but changing rapidly. If that is the biggest slam they can come up with, wait a couple more years and it will be solved.

Still, Business Week just has it get its digs in and early in the article it says, “Yet while HSAs have been available since 1994, the trend of ‘consumer-driven health care’ has not gained much traction with the American public.” And later it raises the boogey man of stock market losses depleting the value of the accounts, even though it concedes that 95 percent of HSA assets are held in “money market or stable-value funds.”

SOURCE: Business Week

Families USA


Finally, just a word about one of the most offensive pieces I have ever seen in health care. Families USA issued a report arguing that consumer-driven health is not suitable for “people of color.” ‘Nuff said. Excuse we while I go take a shower.

SOURCE: “Unequal Burden: The True Cost of High-Deductible Health Plans for Communities of Color”