Consumer Power Report #159

Published January 5, 2009

Looking back on 2008, Time magazine made a mistake in naming Barack Obama its Man of the Year. Oh, certainly Mr. Obama was consequential, but the iconic figure of the year, in fact of our time, was not the President-elect, but Bernie Madoff.

When Mr. Madoff discovered his original investment strategy wasn’t working he didn’t want to disappoint the people who invested money with him. So he gave them nice returns based on the new money he was attracting by giving the original investors nice returns. Apparently many of his investors figured something was fishy, but they assumed he (and they) were benefiting from insider trading (ripping off other people), not from a Ponzi scheme. They were willing to give him a wink and a nod when they thought it was to their benefit. Surprise!

But Mr. Madoff is not alone. In fact, we have all been doing the same thing for many years–spending money we don’t have in the expectation that future growth will cover the shortfall. That works as long as there is growth, but when growth stops the house of cards comes crashing down.

Hence the “housing bubble.” People bought houses they couldn’t afford in the belief that the value of the house would keep going up and they could sell for more money than they paid. So it didn’t matter if they couldn’t afford it when it was bought because they would make a pile when it was sold. Everyone knew it couldn’t last forever, but most of us hoped to get in and out again before it crashed.

Hence the popularity of Medicare. It is popular because no one today pays the costs of the program. We have incurred $34 trillion in unfunded liability in the belief that someone in the future will pay for it. We shrug our shoulders if we are asked who that someone will be, and add Part D to compound the problem.

Hence the federal budget deficit. Vice President Dick Cheney reportedly told then-Treasury Secretary Paul O’Neill that “deficits don’t matter.” Deficits don’t matter because future growth will make today’s $500 billion deficit look like chicken feed. But when the growth stopped, all of the sudden we had a major problem.

And on and on and on. It’s not that we’ve been spending like there is no tomorrow. We’ve been spending like tomorrow will be much better than today and tomorrow’s people will be able to pay for today’s spending.

That taps into the American tradition of boundless optimism and hope for the future. And that is fine–except we’ve neglected the other American tradition of self-reliance. We have been taught we can take risks without consequence. We will always be bailed out–by somebody.

But in fact there is no “somebody.” There is only us. We are responsible for our own fates.

Will 2009 show we have learned the lesson? Not if Mr. Obama’s stimulus package and ambitions for health reform are any guide.



Speaking of Mr. Obama’s stimulus package, he thinks health information technology should be a part of it, so it is very high on Congress’s agenda now.

I guess wasting billions of federal dollars on an unproven and unworkable national HIT system will stimulate the economy by providing thousands of jobs to all the IT consultants who have been idle since the last boondoggle–the Y2K fraud.

But Congress now has the green light to move ahead. And all the lobbyists in Washington will try to make sure it benefits their clients. The “Confidentiality Coalition,” headed by Mary Grealy of the Healthcare Leadership Council, sent a letter to Leader Harry Reid and Speaker Nancy Pelosi objecting to patient privacy in the HIT bill. In particular, it objects to:

  • Any requirement that firms holding data keep track of “non-oral disclosures.”
  • Any requirement that consumers must consent to the disclosure of their personal information.
  • Any requirement that consumer be notified when there is a breach of privacy.
  • Any restriction on the use of personal health data for marketing.
  • Any right of action by individual consumers or a state attorney general when there is a violation.

In other words, they want no restrictions whatsoever in their commercial use of individual health care data.

The Patient Privacy Rights Coalition responded with its own letter addressed to the same Congressional leaders. This letter says, “Patients’ trust is essential to health IT adoption and participation, and only attainable if the legislation builds privacy into the health IT system.” It warns against repeating the mistakes made with the financial services industry over the past few years with inadequate oversight. And calls for:

  • Holding every entity with access to health information accountable for ensuring that stored data is accurate, reliable, and secure.
  • Ensuring that individuals have and maintain control over how their personal health information is used.
  • Protecting consumers from inappropriate use of their personal medical information.

One might think that in these days of hackers stealing identities and federal bureaucrats leaving laptops full of confidential information on park benches, one might want to be cautious in how these data are used. We will see.

SOURCE: Letter from the Confidentiality Coalition; Letter from the Patient Privacy Rights Coalition; Patient Privacy Rights Web site


Business Week ran an interesting article about our friend Regina Herzlinger. The article calls her an iconoclast and a heretic.

Why? Because “she focuses on the needs of the consumer, the neglected party in many health reform debates.” And “‘Why can’t health care be run like the retail sector?’ she asks. If hospitals, insurers, and doctors all had to compete in the open market for patient-customers, she believes innovation would flourish, prices would come down, and quality would improve.”

Only in health care would this simple observation be considered anything but routine. But the article goes on to quote Dr. Robert Galvin, health director for GE, as saying, “No way is consumer-driven health care the answer.” The article adds, “He lauds Herzlinger as an original thinker but says Americans don’t want to give up employer-provided insurance. He argues for ‘managed consumerism’–with employers doing the managing.” Employers?!?! You’ve got to be kidding. Why in the world should my employer (or yours) be managing my health care?

SOURCE: Business Week

In fact, health care as a retail good is not all that exotic, notwithstanding Dr. Galvin’s opinion. An article by Todd Nelson in the Minneapolis Star Tribune notes, “retail spending on cash-and-carry retail products (nonprescription items that insurance companies don’t cover) is a $500 billion a year business.” Hmmmm. $500 billion ain’t exactly chicken feed. I guess consumers are able to manage without the help of the employer, after all.

The article is about a company that is trying to teach health care companies how to “boost revenue through more and better retail offerings.” Like Dr. Galvin, most of the players in health care have been so focused on third-party payment that they have neglected this $500 billion business right under their noses. But for now, most health care organizations are clueless about retail–and a lot of other things, too.

SOURCE: Star Tribune

Insurers, however, are waking up to the business opportunities in financing retail health care. An article in AMedNews focuses on how health plans are converting to full-service health care financing operations by starting their own banks. This is prompted largely by the growth in HSAs and increasing cash payment by consumers.

The article by Emily Berry begins with the requisite slap–“Though consumer-directed care has taken off more slowly than projected” (Where do they get this stuff? Who made the prediction? I’ve never seen it.)–but it goes on to say, “the growth of high-deductible health plans paired with HSAs has quickened since 2005.” She says “There were about $9.4 billion in HSAs at the end of 2007, according to industry estimates.”

With that kind of money in play and out of the pockets of the health plans, WellPoint, UnitedHealthcare, and the Blue Cross Blue Shield Association have all opened FDIC-approved banks, and “the banking-in-health-care movement is unlikely to end there.”

The article projects that the banking side of health care will reach $40 billion in the next five years. But not everyone thinks having insurance companies start their own banks is such a great idea. John Casillas of the Medical Banking Project says that rather than reinventing the wheel, insurers should partner with existing banks. The article says, “Casillas said plans have spent–and wasted–millions of dollars trying to set up proprietary networks that include real-time claims adjudication and payment. Using the banking system would allow health plans instantly to improve accuracy, privacy, speed, and convenience.”

The article also cites Joe Paduda as pointing out that health plans are moving away from medical management to focus on transactions and investment strategy.

SOURCE: American Medical News


The Washington Post‘s Amy Goldstein writes about the crunch in state Medicaid programs. Just as more people qualify for coverage due to rising unemployment, the states have run out of cash to pay for the program. She writes that 19 states have already cut back on how much they pay hospitals and nursing homes and others are cutting eligibility and benefits.

Even though the federal government pays 57 percent of the Medicaid tab, the state share alone is the first or second most-expensive part of every state’s budget. The article says the incoming Obama administration is looking to provide federal help as part of its stimulus package–though it is hard to see what this will do to stimulate the economy.

It’s probably true that the states need help with their Medicaid expenses, but selling such help as “stimulus” seems a tad disingenuous. Also, the states wouldn’t need to cut Medicaid so much today if they hadn’t expanded it so much in the past. Many states grew Medicaid far beyond its original intention because for every dollar they spent they would get another dollar or two from the Feds. Yahoo! Free money!

I wrote a short article suggesting the Feds should target any additional aid at helping the newly unemployed pay their COBRA premiums or buy individual coverage, rather than enrolling them into a state-run insurance program. The newly unemployed will be working again eventually and they would have to quit Medicaid once their incomes improve. This creates two problems. 1. They will be uninsured while waiting to become eligible for the new employer’s coverage, and 2. Having to quit Medicaid would be a major disincentive to taking a new job.

SOURCE: Washington Post; My article on NewsBlaze

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