Consumer Power Report #167

Published March 2, 2009

If you haven’t visited the Heartland Institute Web site recently, you should really check it out. The organization has a lot going on, and those of us working on health care are just a small part of the mission. It really is an incredible resource on a whole range of issues.

While you are there, you might want to check out the Consumers for Health Care Choices page. I wouldn’t mind if you dropped a few bucks in the tip jar on your way by, too. Within Heartland, we have to compete for resources with a lot of other activities. A vote of confidence from you would go a long way to keeping us growing.



During President Barack Obama’s “not-quite-a-state-of-the-union” speech last week, he called for a new era of honesty and accountability in government: “Finally, because we’re also suffering from a deficit of trust, I am committed to restoring a sense of honesty and accountability to our budget.” (1)

Unfortunately, he broke that promise even before he left the podium. In discussing the need for health care reform, he said, “This is a cost that now causes a bankruptcy in America every 30 seconds. By the end of the year, it could cause 1.5 million Americans to lose their homes. In the last eight years, premiums have grown four times faster than wages. And in each of these years, one million more Americans have lost their health insurance. It is one of the major reasons why small businesses close their doors and corporations ship jobs overseas.”

But none of that is true. Let’s look at the claims one at a time.

Health care “is a cost that now causes a bankruptcy in America every 30 seconds.”

There are 525,600 minutes in a year, so that rate of medically induced bankruptcy would be 1,051,200 per year.

But the total number of bankruptcies in 2007 was just 822,590 (2), and only a fraction of those, possibly as low as 5 percent according to a University of California study (3), were due to medical costs.

Interestingly, the population with the greatest growth in bankruptcy rates are those covered by Medicare. Since 1991, bankruptcies have actually decreased for people below age 65, but increased 125 percent for those between 65 and 75 and increased 433 percent for those over age 75. (4)

“By the end of the year, it could cause 1.5 million Americans to lose their homes.”

This one is a mystery. Sure, plenty of people are “losing their homes,” about 3 million this year, but to think that half of those are due to medical bills rather than adjustable rate mortgages or lay-offs seems like a reach.

“In the last eight years, premiums have grown four times faster than wages.”

Actually, premiums have stabilized for the past five years at about 6 percent annual increase, while wages have been increasing about 4 percent, according to Mercer (5). Mr. Obama may have been thinking about the spike in 2002 when premiums rose 14 percent and wages rose about 3 percent, but that was a one-year exception and not representative.

It’s worth remembering, also, that some companies–notably those that have adopted consumer-directed plans–are seeing premium increases well below either inflation or the increase in wages. Watson Wyatt found the “best performing” companies had a two-year cost increase of just 1 percent while other companies increased 10 percent over the same time period (6).

“And in each of these years, one million more Americans have lost their health insurance.”

That’s not true, either. According to the most recent report by EBRI in September 2008 (7), the raw numbers of uninsured rose from 39.5 million in 2001 to 45 million in 2007. Raw numbers aren’t the right way to count due to population growth. The percentage of the U.S. population that is uninsured went from 14.8 percent in 2001 to 15.3 percent in 2007 according to the Census Bureau, which is lower than the percentage in 1995 (15.4 percent), 1996 (15.6 percent), 1997 (16.1 percent), or 1998 (16.3 percent). (8) (9)

“It is one of the major reasons why small businesses close their doors and corporations ship jobs overseas.”

Actually, it’s not. At least not until someone mandates that employers provide coverage. Small employers may drop coverage but they don’t go out of business because of health care costs. And the whole “ship jobs overseas” claim is a myth. (10)

When American companies set up foreign affiliates it is generally to serve foreign markets, like Toyota and others have done in setting up American affiliates to serve the American market. To the extent there is an advantage in locating abroad, it has far more to do with local regulations, taxes, and wages than health care costs.

So, let’s hope Mr. Obama starts taking his own advice and applies some “honesty and accountability” to his own speeches as well as to the national budget.

SOURCES: (1) Washington Post, text of Obama’s speech;
(2) Actual bankruptcy numbers for 2007;
(3) Article about UC Davis study;
(4) Elizabeth Warren’s study on bankruptcies;
(5) Mercer;
(6) Watson Wyatt;
(7) EBRI;
(8) U.S. Census Bureau;
(9) U.S. Census Bureau;
(10) Free Trade Bulletin


The Kaiser Family Foundation has released a new survey. It finds people are having a difficult time paying their medical bills. It doesn’t mention they are also having a difficult time paying their bills for food, housing, transportation, education, or any of the other necessities of life. Once you get past the headlines, some interesting things crop up. For instance:

  • The number of people reporting problems in paying health care bills has actually dropped from last October (22 percent today, 32 percent in October 2008).
  • The care they are skipping is mostly non-essential. 35 percent are using home remedies or over-the-counter drugs, 34 percent are skipping dental care or “regular checkups,” 27 percent postponed getting a health care service they needed, and so on. In fact, people are less likely to do things they shouldn’t do anyway, like going to a doctor when they have a cold or the stomach flu or having a yearly physical exam. Six percent said they postponed an outpatient surgical procedure and 5 percent postponed an inpatient stay, but the survey doesn’t mention if these were elective procedures.
  • The survey finds “health care reform” is the public’s fourth most important priority, after fixing the economy, reforming entitlements, and fighting terrorism. But people are divided on what they mean by “health care reform,” with equal numbers saying either it means lowering costs or it means helping the uninsured.
  • Substantial majorities think “health care reform” should be accomplished without spending any new money or changing their own arrangements.
  • 72 percent of the public expressed confidence in President Obama to do the right thing in health care. 60 percent had confidence in doctor’s organizations, 57 percent in Congressional Democrats, 57 percent in AARP, and 48 percent in small business groups. Only 40 percent have confidence in labor unions; 38 percent in Congressional Republicans; 27 percent in the health care industry; and 25 percent in “major corporations.”

SOURCE: Kaiser Family Foundation


We released a Research & Commentary on health information technology last week. The piece presents evidence that the massive roll-out of federal intervention in health IT is every bit as likely (more likely, actually) to make conditions worse rather than better. That is not to say health IT is a bad idea, but that the feds will make a hash of it.

Now comes an in-depth analysis by the law firm McDermott, Will & Emery (MWE) of exactly what is in the bill. The lesson: If you would like to participate in the Brave New World of federally prescribed health IT, the first thing to do is hire a lawyer.

The provisions of the bill are nearly incomprehensible. And the time frames are completely unrealistic. Standards are supposed to be set by December 31, 2009–that’s 10 months from now, folks. And “each person in the United States” is supposed to be using an electronic health record (EHR) by 2014. There are committees galore and grants to the states and “qualified not-for-profit entities.” There is money available to providers to “purchase certified EHR technology” and “incentives” under Medicare and Medicaid to become a “meaningful EHR user.” For physicians, the incentive is a bonus of up to $18,000 for 2011 and 2012, decreasing after that.

Hospitals also get an “incentive” based on a formula. Here is the formula as written up by MWE (I hope you are sitting down):

Formula for Calculating Hospital Incentives

The formula is equal to the product of the following: (a) Initial Amount; (b) Medicare Share; (c) Transition Factor. Each is defined as follows:

The “Initial Amount” means the sum of $2,000,000 plus the Discharge-Related Amount for the 12 month period selected by HHS with respect to such payment year. The “Discharge-Related Amount” means the sum of the amount for each discharge during a 12 month period up to the 23,000th discharge as follows: (i) first through 1,149th discharge, $0; (ii) 1,150th through 23,000th discharge, $200; and (iii) for any discharge greater than the 23,000th, $0.

The “Medicare Share” means the following fraction, where —

the numerator is the sum of (A) estimated inpatient-bed days which are attributable to individuals with respect to whom payment may be made under Part A; and (B) the estimated number of inpatient-bed-days which are attributable to individuals who are enrolled with a Medicare Advantage organization under Part C

the denominator is the product of (A) the estimated total number of inpatient bed days; and (B)(I) the
estimated total amount of charges minus charges that are attributable to charity care, divided by (II) the
estimated total amount of the hospital’s charges.

The “Transition Factor” means for the first payment year, 1.0; for the second payment year, 3/4; for the third payment year, 1/2; for the fourth payment year, 1/4 ; and for any succeeding payment year, 0.

Hmmm, I guess you will have to hire not only an attorney, but an accountant as well. Those costs may cut into your incentive payment, but it will be worth it to “stimulate” the economy.

SOURCES: Research & Commentary on Health Information Technology; McDermott Will Emery

Dr. Deborah Peel passed along an important study of the misuse of patient information conducted by Eric Johnson of Dartmouth College.

Johnson has done previous work on the security of personal information and identity theft in the financial sector. Now he is turning to health care, and finding far worse problems. If someone steals your credit card, he or she might get a few thousand dollars in merchandise. But if someone steals your health insurance card, the thief can rack up hundreds of thousands of dollars of medical services under your name, and you may not know about it for months or even years to come. Then, it is an ordeal to correct the records and sort out what is legitimate from what is not. The incentives for such medical identity theft are considerable: Drug abusers can get prescriptions under your name, illegal immigrants and the uninsured can get elective surgery under your name. In some cases, one person’s medical identity can be stolen and sold to dozens of other people before it is noticed.

This has been a problem for some time. Coworkers have stolen insurance cards, hospital workers have stolen patient records. But with the advent of electronic health records, the problem is exploding. People can sit at a computer and access tens of thousands of patient records, often including social security numbers, medical histories, physician IDs, and anything else you can think of. Earlier efforts at patient privacy, such as HIPAA, can compound the problem by extending privacy protections to the very people who stole and misused the information.

SOURCE: “Data Hemorrhages in the Health-Care Sector”


The New York Times ran a strange article by Janet Rae-Dupree about the need for “disruptive innovation” in health care. She writes, “the country needs to innovate its way toward a new health care business model–one that reduces costs yet improves both quality and accessibility,” and adds, “advances in technology and medical research are making it possible to envision an entirely new health care system that provides more individualized care without necessarily increasing costs.”

The article quotes Harvard University’s Clayton Christensen as saying, “Health care hasn’t become affordable because it hasn’t yet gone through disruptive decentralization.”

Hard to argue with any of that, but the article then goes on to praise the Kaiser Permanente staff model HMO and Stanford’s Alain Enthoven’s “managed competition” as examples. Huh? These are both worn out, tired old ideas that hardly have anything to do with “decentralization.” Quite the opposite. They are both the ultimate in bureaucratic centralism.

SOURCE: New York Times

Inside Consumer Directed Healthcare writes about a new Forrester Research study that says HSA deposits now exceed $8 billion, an attractive opportunity for banks that know how to capture it. Carlton Doty of Forrester says account holders are realizing they can take their money elsewhere if they aren’t getting good service and they are shopping around. The banks that “work hard to build customer loyalty” are the ones that will benefit. He urges them to “make obsessive customer advocacy the cornerstone of their retention strategies.”

SOURCE: Inside Consumer Directed Healthcare

The CEO of the Blue Cross Blue Shield Association, Scott Serota, had a pretty self-serving letter to the editor in The New York Times. Responding to a recent article on “the young and the uninsured,” Serota says the answer is to require them to buy what he sells. He says guaranteed issue must be accompanied with an individual mandate. He says not a word about how New York’s community rating law requires people in their twenties to pay the same premium as an obese, wealthy 55-year-old insurance executive.

SOURCE: New York Times

Writing in the Hartford Courant, Diane Levick reports the state’s insurance companies agree with Serota. They would be happy to “take all comers” if everyone is required by law to buy what they sell, especially if the state would subsidize the coverage. The article says, “Proponents say requiring every resident to have insurance would allow the pool to attract younger and healthier people to help offset the higher claims costs of older and sicker consumers.”

In other words, they will overcharge the kids who are just starting out in life to subsidize everyone else–a Baby Boomer’s dream come true. Add that to the permanent budget deficits and unfunded liabilities for Medicare and Social Security, and we can party like it’s 1999!

SOURCE: Hartford Courant