Consumer Power Report #154

Finance Committee Chairman Max Baucus (D-MT) released a 90-page white paper that will be the basis for his reform proposal about to be introduced as legislation. Word has it that there is tension between Baucus and Senator Kennedy, who chairs the Senate HELP committee, about who will get credit for massive health reforms in the coming Congress. Baucus was quoted as saying this will take three years to enact, and Kennedy’s time horizon is not that long.

In any event, I reviewed his executive summary and fear he is misdiagnosing the problems. To wit:

• He talks about “the underinsured.” That is a euphemism for CD health, but CD health is the ONE success story out there. It is actually reducing health care spending, increasing knowledge, and improving patient behavior. This notion that no one should ever have to pay for a health service is a fantasy.

• He talks about uncompensated care and blames it on the uninsured. But the greatest source of uncompensated care is underpayment by Medicare and Medicaid. The uninsured is a trivial contributor.

• He talks about expanding Medicaid and SCHIP. But one-third of the uninsured are already eligible for those programs; they just don’t bother to enroll. He does not say how he will change that.

• He hopes that wellness and prevention will lower costs. But there is no evidence to support any of that. In fact wellness and prevention tend to RAISE, not lower, costs.

• He wants to focus on wellness and prevention “RATHER THAN on illness and treatment” (emphasis added.) YIKES!!! So he will deny treatment of heart disease for a 50-year-old so that a 30-year-old can get an annual physical? Good luck with that idea.

• He bemoans the fact that people wait until they need coverage to enroll, but he will add costs to the young and healthy by eliminating “discrimination” against people with pre-existing conditions and requiring guaranteed issue–policy that will make it MORE likely that people will wait until the last minute to get coverage.

• He wants a Medicare buy-in for people of age 55. But he ignores the facts that 1. Medicare already has $34 trillion in unfunded liabilities. 2. That people on Medicare already pay 20 percent + of their incomes in out-of-pocket spending (speak of “underinsured”). 3. That it pays only half of the elderly’s health care spending. And 4. That it is a massively clumsy and inefficient program that could never be sold on the private market.

• He wants employers who don’t provide coverage to pay for the uninsured. But he ignores the effect on job creation and wages, which is especially curious in a time of recession and growing unemployment.

• He thinks health IT will solve a lot of problems despite all the evidence that it doesn’t.

Baucus’s plan is just a laundry list of wishful thinking. All those folks who insist that medicine be “evidence-based” should apply the same standard to public policy.

Our friend, Merrill Matthews, over at the Council for Affordable Health Insurance, wrote an op-ed for the Washington Times debunking some of the hopes of the Obama campaign (and Baucus) for cost-free health reform.

He says Obama made three big promises:

• Computerizing medical records would save $77 billion a year.

• Reducing administrative costs would save $46 billion a year.

• Improving prevention and chronic disease programs would save $81 billion a year.

As a result, according to the Obama campaign, each family’s health care costs would drop by $2,500 per year.

Matthews goes on to debunk each of these claims. But he does so very conservatively and doesn’t go as far as I would. For instance, the health information technology estimate is based on a RAND analysis, which Matthews accepts as basically valid while cautioning that the savings would take 15 years to realize. In fact, the RAND study was not valid. It looked solely at the positive literature on the subject and ignored all of the documentation that disputed its conclusions. Any fair reading of the available research would have to conclude that widespread adoption of this technology would be as likely to raise costs as lower them, and result in more medical errors rather than fewer. That does not mean that savings are not possible, just that we won’t know until it is actually adopted.

Matthews concludes, “What Mr. Obama’s plan really lacks–and why it will certainly fail–is a way to get the economic incentives aligned correctly so that consumers have a reason to be value-conscious shoppers in the health care marketplace. Instead, he distorts incentives even more than they are by imposing more mandates, regulations, and price controls.”

Some of the key components of the Baucus approach include an “insurance exchange” and mandatory coverage, modeled roughly after Massachusetts. But Massachusetts is hardly clear sailing.

Harvard’s Robert Blendon continues his superlative work in measuring public opinion around health care issues in a new study of the attitudes of Massachusetts residents about that state’s health reforms. The study, published in Health Affairs, not only looks at current opinions, but tracks attitudes through the debate and consideration of the plan.

One of the findings is how opinion changes once people are made aware of the costs and consequences of a reform proposal. Blendon tested attitudes towards various reform ideas in 2003. He found that 82 percent of respondents favored “expanding existing state programs,” but when told that “these programs would require raising taxes to pay for the cost” support dropped to 55 percent. Similarly with other ideas:

• 76 percent supported an employer mandate, but that dropped to 35 percent when told that employers might have to lay off workers

• 70 percent supported tax credits and deductions for the uninsured, but that dropped to 36 percent when people were told it might not cover the full cost of the coverage.

• 56 percent supported an individual mandate, but that dropped to 22 percent when told it will cause financial hardship for the people affected.

• 50 percent supported single payer, but that dropped to 30 percent when people were told they might have to wait longer for hospital and specialist care.

This is part of the reason Massachusetts developed its approach that included a little bit of everything–there was no consensus on a single best approach. Of these various approaches, the one with the least support once the trade-offs are made clear was the mandate on individuals. Blendon’s article notes the mandate was the “most politically controversial” part of the legislation, gaining only 52 percent support.

That level of support has increased since the law was enacted and implemented, to 57 percent in 2007 and 58 percent in 2008. But that population-wide number hides some alarming trends. Blendon writes of his 2007 survey, “Upon hearing descriptions and costs of subsidized and unsubsidized plans for an average uninsured person, 62 percent thought that it was unfair to require an uninsured person to sign up and pay for an unsubsidized plan like this. Forty-four percent thought that it was unfair to require an uninsured person to sign up and pay for a subsidized plan.”

Today, the people most supportive of the individual mandate are the people least affected by it–69 percent of people making $75,000 or more per year support it while only 49 percent of those making between $25,000 and $50,000 do. Sixty-nine percent of people with college degrees support it, but only 45 percent of those with high school or less do.

There is a growing concern among all residents that the law is hurting, rather than helping, the uninsured, with the percentage saying it is hurting growing from 15 percent in 2006 to 33 percent in 2008. The percentage saying it is helping the uninsured has dropped from 67 percent in 2006 to 45 percent in 2008.

The survey digs deeper into this trend. It breaks out the population that is directly affected by the law from those who are not. Of those directly affected by the law, 60 percent say it is hurting them personally and only 22 percent say it is helping. Fifty-one percent say that health care costs have gone up and only 14 percent say they have gone down. As a result, only 37 percent of those directly affected now support the mandate, as opposed to 62 percent of those not affected.

Blendon cautions that these developments could presage a backlash against the law, especially if “more people report increasing costs.”

There has been a slew of articles recently about the growing impact of consumer-driven health care on health care services. We have predicted for years that once market penetration reached a certain level, there would be a profound impact on the actual delivery of services … and now, for the first time in memory, the utilization of services is actually dropping. This is particularly striking during a time of recession. Always in the past the use of services has increased during recessions as people rush to get services before they get laid off and lose their coverage. But this time there is no such rush because people would have to use some of their own money to get those services, and they are more concerned about preserving their funds as they face unemployment.

The best of the batch is by Joanne Wojcik in Business Insurance. She reports that experts are worried that employees may be “skimping on essential health care” because people have cut the number of prescriptions filled by 2 percent in the past year and have reduced physician office visits by 1.2 percent. It also cites a survey by the National Association of Insurance Commissioners (NAIC) that found 22 percent of consumers have reduced their physician visits and 11 percent have reduced their use of prescriptions.

Now, one might think that after all these decades of hysteria about rising health care costs and the unnecessary use of health care services, people would see this as a positive development. But, no. The experts now have a whole new set of reasons to be hysterical. One such advocate is quoted as saying, “we can’t afford to extend cost-cutting to medical care.” Huh?