Consumer Power Report #187

Published July 24, 2009

While things are moving in the right direction on health care, it would be foolish to get complacent. As the stories below show, public opinion is slipping and Congressional Democrats are getting nervous — to the point that the Democratic National Committee is running commercials against Democratic Members of Congress. Now, that’s a first.

But the sticking points are largely around the “public option,” tax increases, and the lack of cost containment. It would be easy enough for the administration to fix these problems and still have an onerous bill.

They could easily put the public option on the back burner to be triggered only if the Insurance Exchange fails to attract, say, five private plans.

They could minimize the need for new revenue through greater use of mandates and regulations.

And they could at least claim to address costs without “government rationing” by requiring private plans to do the rationing for them.

A colleague asked how this would happen, and I sent him the following explanation:

They will require “accountable care organizations,” where “teams” work together to provide care. They will require “bundled” payments that cover “packages of care,” including pre- and post-care, home health, etc. The ACO will receive one payment and then allocate the money to the team members, who will likely be on salary. All of this is held together by health IT plugged in to the comparative effectiveness mechanism. That will help the ACO alert team members when they try to do something that is not “evidence-based.” For example, if the salaried doctor (or more likely, nurse practitioner) tries to order an unauthorized medication on his computerized order form, a warning will pop up explaining it is unauthorized, either forbidding the prescription or providing a “waiver of exception” form where he can document the extraordinary need.

There may be a transition period allowed, but after a few years (say, five), only these ACOs will be allowed to participate in the Insurance Exchange. But, since these are “private” companies, there will be no government rationing.

If everyone is mandated to participate in such a system, is that an outcome conservatives would celebrate? Actually, some would, as we explore below.

Greg Scandlen



But, first, let’s look at the president’s press conference (or “presser,” as inside-the-beltway types like to call them). I am a health care policy wonk, but even I found it tedious and boring. His long-winded replies to softball questions revealed little except the results of some new polling the administration has done. For instance, they have changed their rhetoric from “health care reform” to “health insurance reform.” Obviously they have done surveys that found people like the health care they get, even if they despise health insurance companies.

It also was interesting how boot-licking scores few points with this president. The health insurance industry has rolled over on every issue except the “public option,” but still Obama accuses them of being the source of all evil. The AMA has endorsed the worst bill in Congress, but the president accuses doctors of performing needless tonsillectomies to enrich themselves. The only group not seen as craven, at least during this press conference, was the pharmaceutical industry, but that is only because they ponied up $88 billion in Part D savings — and who knows how much in PAC contributions?

But the mainstream media is beginning to get a tad weary of Mr. Obama, to the point they are actually beginning to fact-check some of his claims. The Associated Press started it off by saying, “President Barack Obama’s assertion Wednesday that government will stay out of health care decisions in an overhauled system is hard to square with the proposals coming out of Congress and with his own rhetoric.” It quotes him as saying his plan “will keep government out of health care decisions,” but then notes, “Obama went on to lay out other principles of reform that plainly show the government making key decisions in health care.” It quotes Obama as saying, “You haven’t seen me out there blaming the Republicans,” but notes, “Obama did so in his opening statement.”

SOURCE: Associated Press

Amazingly, The New York Times also took exception to some of his claims. It reports, “Mr. Obama said doctors, nurses, hospitals, drug companies and AARP had supported efforts to overhaul health care.” The newspaper then adds, “Far from supporting this proposal, the American Hospital Association is urging hospital executives to lobby against it.” It notes Obama’s claim that he has saved $2.2 trillion in the federal debt, but “in fact, $1.5 trillion of those ‘savings’ are mainly based on an assumption that the United States would have had as many troops in Iraq in 10 years as it did when Mr. Obama took office.” It says since it was Bush who agreed with Iraq to withdraw the troops, he and not Obama should get credit for that saving.

SOURCE: New York Times

In the New York Post, Betsy McCaughey also has been challenging Obama’s “broken promises.” “President Obama promises that if you like your health plan, you can keep it,” but only if you are in a “qualified plan.” Otherwise, “When you file your taxes, if you can’t prove to the IRS that you are in a qualified plan, you’ll be fined thousands of dollars — as much as the average cost of a health plan for your family size — and then automatically enrolled in a randomly selected plan (House bill, p. 167-168).”

SOURCE: New York Post


Meanwhile, back home people are getting increasingly upset about the lies and intrusions coming out of Washington. Some Virginia Congressmen are getting phone calls 15 to one against passing the House bill. Here in DC, the CBS affiliate did a story about a town hall meeting Sen. Ben Cardin (D-MD) held in Clinton, MD. One constituent was not happy that he would be fined $2,500 a year because he had to take a lower-paying job and dropped his coverage. Instead of sympathizing with the fellow, Mr. Cardin accused him of being a deadbeat. Not the best way to win friends, Ben.


Even on the country’s most left-wing blog, the Daily Kos, people are beginning to get worried about what this legislation will mean for them personally. One poster wrote, “I work for the largest third party administrator of Flexible Spending accounts, health savings accounts and pretax commuter and dependent care accounts for 100s of companies. Apparently the government is tossing around the idea of getting rid of these pretax accounts (the Flexible Spending Acct and the Health Savings Account) as a way to raise money to pay for the health care bill. There are millions of Americans that use these plans and since no one is quite sure how all this coverage is going to happen to take away these plans from people seems a little ridiculous.”

This is followed by 110 comments, most of which are from people who use FSAs and HSAs to pay for things like prescription drugs and don’t want to lose them.

SOURCE: Daily Kos on FSAs. HSAs

Writing in Investor’s Business Daily, David Hogberg reports that small businesses believe mandatory coverage will result in a massive loss of jobs. This article is important because it reveals yet another hidden provision of the House bill. The bill would mandate coverage on every firm with a PAYROLL of $250,000 or more. That ain’t much. The penalty for non-compliance is a payroll tax that goes up to 8 percent on firms with payrolls of more than $400,000. This is an enormous incentive to keep payroll down by either not hiring or by not raising wages. The company would have to pay the tax even on workers who decline coverage because they are covered by their spouse or parents. And the company would have to pay 72.5 percent of a worker’s premium and 65 percent for a family.

NFIB estimates one million jobs would be lost.

The article says there would be a teensy bit of credit available, “Tiny companies could be eligible for a tax credit for up to 50% of the cost of insurance. Businesses with up to 10 employees and average annual salaries of $20,000 or less could get the full credit. The credit phases out when staff hits 25 or the average salary approaches $40,000.” But, “The bill wouldn’t count health care spending as satisfying the mandate when it’s offset by lower pay.”

Huh? Benefits are always “offset by lower pay.” Do these Congressional yahoos have any idea what they are doing?

SOURCE: Investor’s Business Daily

Even the governors are wary of what the Democrats are doing. The New York Times reports, “The nation’s governors, Democrats as well as Republicans, voiced deep concern Sunday about the shape of the health care plan emerging from Congress, fearing that Washington was about to hand them expensive new Medicaid obligations without money to pay for them.”

The article adds, “The governors’ backlash creates yet another health care headache for the Obama administration, which has tried to recruit state leaders to pressure members of Congress to wrap up their fitful negotiations.” It goes on, “Gov. Phil Bredesen of Tennessee, a Democrat, said he feared Congress was about to bestow “the mother of all unfunded mandates. Medicaid is a poor vehicle for expanding coverage,” added Mr. Bredesen, a former health care executive. “It’s a 45-year-old system originally designed for poor women and their children. It’s not health care reform to dump more money into Medicaid.”

SOURCE: New York Times

All of this takes a toll. Rasmussen finds that a majority of likely voters now oppose the Congressional efforts on health reform, with 53 percent against and 44 percent in favor. Of people with strong opinions, 37 percent strongly oppose and 24 percent strongly favor.

The write-up notes, “The survey question did not in any way describe the plan as it stands to date. It was simply presented as ‘the health care reform plan proposed by President Obama and congressional Democrats.’ But public opinion could shift in either direction as details of the plan become clearer and if agreement is reached.” That is telling, because we have seen that the more people know about the details the less they like it.

SOURCE: Rasmussen Surveys


One of the gaps in logic of this administration is its embrace of facilities like the Mayo Clinic, Kaiser, and the Cleveland Clinic, which Obama visited this week. There are many reasons to believe this celebration is misguided. These facilities do not attract a cross-section of patients, but tend to aim at better-educated people with fewer health issues, and they vary considerably from each other in their own course of treatments.

And when they screw up they do so massively. Kaiser wasted billions of dollars trying to upgrade its information technology and Regina Herzlinger’s “Who Killed Health Care” documents the horrendous track record of Kaiser’s kidney transplant program, which killed more than 100 patients.

But the logical fallacy is deeper. Even if we accept that these facilities are wonderful and should be emulated, that is not a rationale for changing the financing system we currently have. These facilities exist in the current financing system. They are subject to the exact same incentives and rewards as every other facility. If it is the financing system that blocks the creation of excellent facilities, these “excellent facilities” should not exist. But they do.

In fact, in any endeavor there will be examples of excellence and examples of incompetence, with most of the efforts falling in between. It is known as a bell curve and no management system or financing program will ever change that. Except, perhaps, in Ivy League colleges where grade inflation guarantees every student an A just for showing up.

Even the president of the Mayo Clinic cautions against reading too much into its success. In an op-ed in the Chicago Tribune, Denis Cortese and Jeffrey Korsmo write, “While we appreciate this recognition, we question whether our political leaders realize that many doctors and hospitals that offer this high-value care are reaching the point where we cannot afford to provide it to patients with government-sponsored insurance such as Medicare and Medicaid. We worry that the same could hold true for patients in a new government-run public insurance plan.”

They recommend fixing the existing public programs before forcing the rest of America into a similar dysfunctional system

SOURCE: Chicago Tribune


As much as I admire Louisiana Governor Bobby Jindal, he falls into many of the same traps. Jindal knows a whole lot about health policy. He headed Louisiana’s Medicaid program early in his career, was staff director to the Breaux-Thomas Commission that recommended serious reform of Medicare only to be squashed by President Bill Clinton, and he served in HHS under President George W. Bush for a while.

I was looking forward to his critique of the Democrats’ plans, and on that score he does not disappoint. See his interview with Sean Hannity. But like many Republicans he gets into trouble when he lays out his own One Big Solution.

Writing in The Wall Street Journal he lays out a seven-point plan to “Make Health-Care Reform Bipartisan.” I agree with four of the ideas:

  • Consumers should be financially invested in better health decisions through health savings accounts.
  • No health reform is serious about reducing costs unless it reduces the costs of frivolous lawsuits.
  • Congress should establish simple guidelines to make policies more portable, with more coverage for pre-existing conditions.
  • Low-income working Americans without health insurance should get help in buying private coverage through a refundable tax credit.

But I have to disagree with three:

  • We need a system where individuals choose an integrated plan that adopts the best disease-management practices.
  • Pooling for small businesses.
  • Pay for performance, not activity.

We don’t “need a system” where Bobby Jindal (or President Obama) tells consumers what to buy. Insurance companies are already “pools” for small businesses. That is their whole purpose. And “pay-for-performance” means that a third-party payer gets to decide what is and is not worth paying for.

More importantly for people who believe in markets, we don’t need any politician coming up with a plan to “fix the system.” What we need to do is trust the American people to make their own decisions about their own health with their own money. We need a two-point plan:

  • Give the money back to the people.
  • Get the hell out of the way.

SOURCE: Wall Street Journal; Jindal on Hannity