Ten Things Everyone Should Read About Health Care

Published September 10, 2012

Consumer Power Report #342

There is so much to read these days about health care policy and entitlement reform. But we oftentimes lose sight of the longer-term debate about these matters, instead focusing on the arguments dictated by the framework of an election cycle and partisan political lines. Suddenly Republican-leaning writers all have very strong opinions about the workability of competitive bidding despite having no interest in it a month ago, while otherwise-intelligent Democratic-leaning writers compose complex apologetics structures for IPAB and the individual mandate.

Politics often warps policy debates, but this is a particularly egregious case. So let’s step back for a moment and assess things in terms of the past 30 years or so instead of the past two with a list of essays, books, and other items that make up the Ten Things Everyone Should Read About Health Care. I’ve tried to keep things from getting too dry with this list, but you can tell me if I’ve failed.

1. Milton Friedman: “How to Cure Health Care,” The Public Interest, Winter 2001. “The tax exemption of employer-provided medical care has two different effects, both of which raise health costs. First, it leads employees to rely on their employer, rather than themselves, to make arrangements for medical care. Yet employees are likely to do a better job of monitoring medical care providers–because it is in their own interest–than is the employer or the insurance company or companies designated by the employer. Second, it leads employees to take a larger fraction of their total remuneration in the form of medical care than they would if spending on medical care had the same tax status as other expenditures.”

2. Max Gammon: “Health and security: report on the public provision for medical care in Great Britain,” St. Michael’s, 1976. Origin of “the theory of bureaucratic displacement.” “In a bureaucratic system, an increase in expenditure will be matched by a fall in production. Such systems act rather like ‘black holes’ in the economic universe, simultaneously sucking in resources and shrinking in terms of ’emitted production’.” There is more on Gammon and the current debate in this report.

3. H.E. Frech, ed.: “Health Care in America: The Political Economy of Hospitals and Health Insurance,” Pacific Research Institute, 1988. Just about everything you could ever need to know concerning the monopsony power of hospital systems and insurers. Additional literature on this topic is here.

4. Joseph Bast, Richard Rue, and Stuart Wesbury, Jr.: Why We Spend Too Much on Health Care, Heartland Institute, 1992. “By first bidding up the price of health care with a payment system that encouraged excessive utilization and spending, and then imposing cost-containment measures that led to cost-shifting, government inadvertently increased the cost of health care to other buyers and changed the way care is delivered. In so doing, government has contributed to a process that has priced health care and insurance out of the reach of millions of Americans. Medicare and Medicaid have given the elderly and poor greater access to health care. However, this benefit must be weighed against the costs borne by taxpayers and other health care consumers.”

5. Richard Epstein, Mortal Peril, Basic Books, 2000. Epstein concentrates on the moral and philosophical case against the false promise of universal coverage and in favor of a more modest and more private safety net–but his main thrust is against the idea of health care as a natural human right.

6. John C. Goodman, Gerald L. Musgrave, Devon M. Herrick: Lives at Risk: Single-Payer National Health Insurance Around the World, Rowman & Littlefield, 2004. Not just an ideological tract, but an examination of single payer’s failures in a tangible sense, offering an alternative view of how to achieve better quality patient-centered care.

7. Regina Herzlinger, Who Killed Health Care?: America’s $2 Trillion Medical Problem – and the Consumer-Driven Cure, McGraw-Hill, 2007. In this interview about the book, Herzlinger describes “an iron triangle” of “hospitals, the insurers, and the government” protecting a broken system: “The insurers would love for a private health insurance system to remain. I, too, think that’s very important, but the easy way for it to remain is to offer just one product. If you offer a lot of products, suddenly you’re in actuary land. You’re in a real risky business. So they’ve done a lot to maintain just one product. Hospitals want to control the health care delivery system, and they’ve become oligopolists or monopolists in many markets, thus obviating price and quality competition, and they’ve become vertically integrated by hiring physicians and using them. Initially the hospital was a place almost like a hotel or an office, a kind of ancillary place for the doctor. The doctor was the star. But increasingly, the hospitals have won the power struggle, and the physicians are more or less the blue-collar workers. And then the government. Whether Democrat or Republican, power is seductive, and they are actually practicing medicine … by micromanaging the payment system.”

8. David Goldhill, “How American Health Care Killed My Father,” The Atlantic, 2009. Despite his political views, Goldhill maintains that “To achieve maximum coverage at acceptable cost with acceptable quality, health care will need to become subject to the same forces that have boosted efficiency and value throughout the economy. We will need to reduce, rather than expand, the role of insurance; focus the government’s role exclusively on things that only government can do (protect the poor, cover us against true catastrophe, enforce safety standards, and ensure provider competition); overcome our addiction to Ponzi-scheme financing, hidden subsidies, manipulated prices, and undisclosed results; and rely more on ourselves, the consumers, as the ultimate guarantors of good service, reasonable prices, and sensible trade-offs between health-care spending and spending on all the other good things money can buy.”

9. Avik S.A. Roy, “Health Care and the Profit Motive,” National Affairs, 2010. “To those on the left, America’s health-care system is a heartless capitalist jungle: a place where the bottom line is king, and the working poor are exploited. President Obama, for example, has accused insurance companies of holding Americans hostage in exchange for profits, and doctors of cashing in on children’s sore throats by needlessly removing their tonsils. The right, meanwhile, sees American health care as an outpost of socialism: The government distorts prices and suppresses innovation, impairing the quality and affordability of care and constraining individual autonomy. Hence Republicans’ call for less government involvement in insurance, and their complaints that heavy-handed Medicare rules are the source of our woes. Simply put, liberals believe that health care is treated as a market commodity today but should not be, and conservatives think that health care is not treated as a market commodity but should be.”

10. John C. Goodman, Patient Power, 1993 and Priceless, 2012. A slight cheat here, as these are two books, but they really work as a pair across two decades of work in favor of consumer-driven health care reform. The first chapter of Goodman’s latest is available to read here.

Reading these books and essays should leave you with a fuller understanding of the long-term challenges of health care reform–not just as a budget issue, but in repairing a broken marketplace and restoring competitive pressure to achieve better outcomes for consumers.

Benjamin Domenech



Breaking news this morning from National Journal – it turns out President Barack Obama’s own advisors considered Paul Ryan’s plans for Medicare not just not extreme, but with a few tweaks, something they found quite palatable:

Staff from the National Commission on Fiscal Responsibility and Reform – which was led by former White House chief of staff Erskine Bowles and former Sen. Alan Simpson – asked Cutler and Gruber in November 2010 for their thoughts on the Ryan-Rivlin plan, which did not keep traditional Medicare as an option for seniors. Both experts offered suggestions to make it more palatable to commission Democrats. Neither balked at the plan, which is arguably more conservative than the Medicare plan offered by GOP presidential nominee Mitt Romney.

“How about this … removing the special status of [traditional] Medicare,” Cutler wrote. He then suggested giving an executive board created by the Democrats’ health care law the option of “moving the Medicare population into the exchanges.”

“That would be the same as the voucher,” Cutler concluded.

In other words, Cutler wasn’t just recommending that the Democrats incorporate vouchers into Medicare, something the Obama campaign is squarely against now. He was also proposing that the federal government move seniors into insurance exchanges through a much-criticized executive-branch Medicare board. That is a proposition you won’t hear in talking points from either Cutler or the Obama campaign.

Cutler now says he was only proposing an idea for Medicare if insurance exchanges are “shown to work well for the non-elderly population,” by getting people into good plans and lowering costs.

“If you show me evidence that something works, I am in favor of doing more of it,” Cutler said in an e-mail to National Journal. But that caveat was not included in his 2010 e-mails with fiscal-commission staff.

Gruber also said he approved of the Ryan-Rivlin plan in 2010 e-mails to fiscal-commission staff, as long as the insurance market reforms of the Democrats’ health care law are kept in place.

“So overall I like this proposal for Medicare – SO LONG as it is built on top of health reform,” Gruber wrote in 2010. “Without broader health reform, I don’t think it works.”

Gruber now says that economists don’t know enough yet to move the majority of Medicare enrollees into private-insurance plans. As part of the effort to expand coverage to the uninsured, President Obama’s health care law would establish insurance exchanges for people younger than 65 to buy private health care. Gruber said that this is a better way of testing out new approaches, adding that it would be “stupid” to experiment first on the older and sicker Medicare population.

“We are getting better, but we are not quite there yet,” Gruber said in an interview. “But premium support is ultimately where we need to be.”

SOURCE: National Journal


State employee health plan had assumed $3 million in annual savings.

Attorney General William Schneider’s determination that CanaRx, a Canadian firm that distributes prescription medications by mail, cannot be licensed in Maine imperils more than $3 million in annual savings budgeted for the state employees’ health plan.

The decision affects approximately 1,200 Maine households, according to CanaRx senior program adviser Chris Collins. It also poses financial repercussions for the city of Portland and Guilford-based Hardwood Products Co., both of which have contracted with CanaRx for years.

Through a program called MaineMeds, the Maine Division of Employee Health and Benefits contracted with CanaRx earlier this year to deliver brand-name prescription medications for conditions such as chronic asthma and cholesterol maintenance to state employees, their dependents and retirees who don’t qualify for Medicare. CanaRx offers reduced prices to plan providers and does not charge co-payments to participants, creating significant savings for both.

The MaineMeds deal saved approximately $500,000 between mid-May and mid-August and “was on track to save more than $3 million” during the fiscal year that ends June 30, 2013, according to Mary Anne Turowski, director of politics and legislation for the Maine State Employees Association, the union that represents state workers.

Those savings will have to be found elsewhere, after CanaRx shut down the MaineMeds program on Aug. 15, in response to an Aug. 14 letter from Schneider that reaffirmed his June 21 opinion that CanaRx was violating Maine law by distributing medications without a license.

SOURCE: Bangor Daily News


Yet another failing of the 2006 law:

Of more than 3,000 Massachusetts adults surveyed in fall 2010 – the most recent survey data available – 17.5 percent reported having problems paying medical bills in the previous year. Twenty percent said they were carrying medical debt and paying it over time. Those figures changed slightly from 2006, but researchers said the difference was not statistically significant. The figures are from a report released earlier this year by the Blue Cross Blue Shield of Massachusetts Foundation.

Consumer advocates say the state’s experience points to the need for even stronger patient protections if the national law, the Affordable Care Act, is going to reduce burdensome health debt, as intended.

“The 2006 law didn’t eliminate medical debt by a long shot,” said Matt Selig, executive director of Health Law Advocates in Boston, whose office has worked in recent years with hundreds of Massachusetts residents with medical debt. “It’s an underappreciated problem.”

Among his office’s clients is Amy Torro, a 39-year-old mother of two. After a double mastectomy, surgical complications, and rounds of radiation, doctors have told Torro that her body is clear of the cancer she discovered in December 2008 as a lump in her breast.

Torro has had insurance coverage throughout her treatment. Local foundations and a fund-raiser covered some bills. But deductibles and copayments for visits to specialists and prescription drugs have outpaced her ability to pay, leaving Torro with at least $1,800 in outstanding hospital bills and daily calls from collection agencies.

“It got to the point where it was bread or milk for my family or my cancer meds,” she said. An attorney in Selig’s office is working to negotiate a payment plan with Winchester Hospital, where she was treated.

The 2010 survey did find some change in how much debt people reported, according to additional analysis provided for the Globe by Sharon Long, a senior fellow at the Urban Institute’s Health Policy Center and an author of the Blue Cross report. The portion of people who had unpaid medical bills of between $500 and $1,000 dropped about 40 percent between 2006 and 2010. But there was no statistically significant change in people reporting smaller or larger amounts.

SOURCE: Boston.com


A primer on biosimilars:

Biosimilar drugs (sometimes called follow-on biologics) are structurally similar versions of marketed biological medicines that are supported by appropriate analytical testing and clinical trials to demonstrate that they are sufficiently similar (both architecturally and clinically) to their reference innovator biologic drug. An innovator biologic drug is the original marketed medicine.

Biosimilar drugs are gaining attention because they supposedly reduce health care costs. However, even minor differences in manufacturing processes, such as different host cells, cell culture and purification methods, can have a clinically significant impact on both the safety and effectiveness of biologic drugs. Many people fear the Food and Drug Administration’s (FDA) truncated regulatory requirements for approving biologic drugs trade off faster review for less real-world data on safety and efficacy.

Any discussion of biosimilar drugs and their safety must first recognize that there is no such thing as a “generic” biologic drug. Biologic drugs are created from living organisms and are not as easy to replicate as traditional drugs like aspirin and antihistamines.

To establish that two biologic medicines are similar and can be safely substituted for one another, the sponsor of a follow-on product would need to demonstrate through clinical trials that repeated switching from the original biologic drug to the substitute biosimilar drug (and vice versa) provides effective treatment of disease and does no harm to patients.

Biosimilars are usually authorized on the basis of abbreviated FDA applications, demonstrating they are the same in structure as, and bioequivalent to, a previously authorized product. Non-clinical and clinical data are not usually required. Although the generic drug approval process has been in place in much of the world for several decades, it has been generally recognized for some time that the same approval process will not work for biologically derived drugs.

SOURCE: Washington Policy Center


Following up on “you lie”:

The law doesn’t change current restrictions barring undocumented immigrants from signing up for Medicaid, the federal insurance program for the poor, and the Children’s Health Insurance Program (CHIP). And immigrant adults lawfully in the U.S. must still wait five years before signing up for Medicaid.

And under the newest guidelines, those who may temporarily remain in the U.S. under the administration’s new deportation policy won’t be allowed to enroll in health exchange plans, access coverage subsidies or sign up for the pre-existing condition insurance pool.

But some critics still say the law failed to lay out clear guidelines for how to verify that someone may legally enroll in the insurance exchanges, potentially opening the door to fraud. Iowa Rep. Steve King, a Republican, has claimed that 5.6 million illegal immigrants will gain coverage under the law.

Medicaid already uses a highly-regarded verification program known as the SAVE system. But the law doesn’t mandate SAVE for enrollment in the exchanges, instead allowing the Department of Health and Human Services (HHS) to spell out verification rules. So far, the agency has remained vague on the matter.

“HHS is given flexibility … to modify the verification process, so it kind of tilts the system to say you don’t have to use the more rigorous proven system and whatever you come up with you can still go back and revisit that and make it more tilted in favor of less rigorous verification,” said Jim Edwards, a fellow with the Center for Immigration Studies.

SOURCE: Washington Times


Michael Cannon will be briefing Capitol Hill on the IRS ruling and exchange implementation:

A little past 6 p.m. on Friday, May 18, the Internal Revenue Service finalized its rule implementing the tax-credit provisions of the Patient Protection and Affordable Care Act, better known as Obamacare. Though the statute expressly and repeatedly restricts “premium assistance tax credits” to states that create their own health insurance Exchanges, the IRS rule offers those tax credits through federal Exchanges. Those illegal tax credits will trigger so many other provisions of the law that the IRS rule is actually a massive and illegal tax increase. In states that do not create Exchanges, the rule will impose an illegal tax on employers of up to $2,000 per employee, and impose an illegal tax on individuals, with families of four paying $2,085 in 2016. This briefing will discuss why the IRS rule is inconsistent with the PPACA, how Congress can block it through the Congressional Review Act, how employers and individual citizens may block it through the courts, and how states can block it legislatively.

A paper By Cannon and Jonathan Adler of Case Western Reserve University School of Law, on the topic is here.

SOURCE: Cato Institute