Too Big to Succeed

By Greg Scandlen

After TARP, we’ve all become familiar with the idea of “too big to fail,” that is, some companies are so large and so critical to the economy that they cannot be allowed to fail. But ObamaCare showed us what “too big to succeed” looks like.

The Great Debate on ObamaCare has become a model for how not to pass legislation or develop social policy. There were so many versions and iterations of all the different bills and amendments that it became nearly impossible to discuss any of it. CBO kept scoring this, that and the other, and it was hard to match up the particular CBO score with the right bill or amendment, let alone compare specifics.

Yet every provision was critically important, and not just by itself, but how it interacted with the other provisions.

It felt like a shell game, and it is small wonder people got edgy about the whole enterprise. Too many moving parts, too little clarity, too much rhetoric and jargon, and all tainted with political ambitions.

We got way beyond what the legislative process is capable of doing. There was literally no one in Washington who knew what it is they were voting on, so they all voted for the narrowest of political reasons or personal ambitions, not any real understanding of the consequences. To the point that even Newsweek’s Evan Thomas is saying, one year after the bill passed, that “it is a disaster, it’s not working out at all as people anticipated.”

It would have been far better to take all the topics one bite at a time, by which I mean separate bills for:

  • Medicare payment reform
  • Insurance regulation
  • Assistance to the needy
  • Management technology upgrades
  • Workforce initiatives
  • Quality improvement initiatives
  • Professional liability reform

Each of these is complex by itself. Blending them all together into a single bill was simply impossible.

For example, I concede that we need to fundamentally overhaul the regulatory regime currently in place for insurance. Each state has completely different statutes for the individual, small group, and large group markets. Some states have separate regulations for Blue plans, commercial companies, and HMOs. Then ERISA exempts self-funded employers from any state regulation at all. Regulatory reform is an enormous challenge all by itself and the current law is way too vague on how, or even whether, that is supposed to happen. As a result, Kathleen Sebelius is free-lancing on all of it, with no boundaries or clarity. If she thinks a rate increase is “unreasonable” she will punish the insurance company. But how does she define unreasonable? No one really knows except she seems to have picked 10% out of the air for the moment. Is she even concerned about company solvency, reserves, accounting, investment practices?

She gives companies and unions waivers so they don’t have to comply with the loss-ratio standards in 2011. But what is the basis for the waivers? How does one company qualify while another one doesn’t? Nobody can say, so it appears it is based on political favoritism.

Or take the workforce issue. We are facing substantial shortages of primary care physicians and nurses as the Baby Boom generation retires. Expanding insurance coverage will aggravate the problem. Plus there are new technologies coming on-line all the time. How do we get enough technicians to run the machines?

It is not just a matter of giving scholarships to med students or opening more slots in dental schools. The whole licensure and oversight regime currently in place needs to be re-examined. Everyone who looks at it concludes it is a mess. Why at least could there not be interstate reciprocity for licensing and disciplinary actions? Why can’t a physician who is licensed in Arizona prescribe drugs for patients in New Mexico? Or how is it that a doctor who is disciplined in one state can set up shop in the adjoining state?

And on, and on, and on. Because this thing is so big, we are not paying enough attention to the critically important REAL issues.

Let us hope that the new Republicans will get serious and develop legislation to address each of these issues – one at a time.

Economists Weigh In

By Greg Scandlen

I’m not going to do this very often, but here is an excellent collection of essays by some of the top health economists in the country, published by Berkley Electronic Press and edited by Aaron Edlin and Joseph Stiglitz (Nobel recipient in 2001). The publication is The Economists’ Voice and it doesn’t usually deal with health care.

I haven’t had a chance yet to read these articles, but they seem to make for some pretty solid analysis. Except, perhaps, for the description of the Goldman-Lakdawalla piece that starts –“Now that we have covered the uninsured, it is time for us to put the priority on health, not health insurance.”

Sorry, guys, but we haven’t covered squat as of yet and the chances are very high that ObamaCare won’t cover very many even if it stays in effect. There’s a big difference between writing it on a piece of paper and actually doing it.

Anyway, here are the articles. Go to The Economists’ Voice to access.


Health Care Reform

The Health Care Reform Legislation: An Overview

Chapin White

The Affordable Care Act (ACA) fundamentally shifts the social contract in the U.S., according to Chapin White of the Center for Studying Health System Change.


The Simple Economics of Health Reform

David M. Cutler

According to David Cutler of Harvard, a key player in crafting health care reform, the Affordable Care Act (ACA) could turn out to be the most successful piece of health care legislation ever.


The Economics, Opportunities, and Challenges of Health Insurance Exchanges

Mark G. Duggan and Robert Kocher

Can the health insurance exchanges in the Affordable Care Act substantially improve the functioning and reach of the private health insurance market? They can if executed correctly, according to Mark Duggan of the University of Maryland and Robert Kocher of McKinsey Center for U.S. Health System Reform, who point to new incentives for individuals, employers, and insurers.


Can the ACA Improve Population Health?

Dana P. Goldman and Darius N. Lakdawalla

Now that we have covered the uninsured, it is time for us to put the priority on health, not health insurance, according to Darius Lakdawalla and Dana Goldman, both of the University of Southern California. The authors argue that benefits to population health are likely to be limited under the Affordable Care Act (ACA).


Systemic Reform of Health Care Delivery and Payment

Henry J. Aaron

We need to be better informed about the four formidable obstacles facing The Health Care Act (ACA), according to Henry Aaron of the Brookings Institution. Aaron delves into the tough fights that lie ahead for certain sections of the ACA, given the precarious balance of political forces leading up to the 2012 election.


How Stable Are Insurance Subsidies in Health Reform?

Mark V. Pauly

The case that insurance subsidies will improve health is far from compelling, according to Mark Pauly of The Wharton School at The University of Pennsylvania, and needs to be strengthened if the program is to be politically stable. The time for this conversation is now, argues Pauly.

Ross Schriftman on the CLASS Act

Ross Schriftman is a long term care insurance specialist who is warning against the new government long term care insurance program that he calls inadequate, unworkable and underfunded.  Schriftman cited the “ObamaCare” law as “another government program with serious flaws.”  This section is referred to as the Class Act.

Workers would pay $65 per month out of their paychecks to participate, beginning this year (2011).  The money would be deducted unless an individual requested to opt out once a year.  The government would take the money and create the “Independence Fund” and pay out benefits that will be structured by October 1, 2012.

Schriftman who volunteered his time for 20 years to help get the Long Term Care Partnership program up and running says that the proposal’s benefit of as little as $50 is inadequate. “I can tell you I know from being a care giver for my Mom who has Alzheimer’s the costs are far higher than the benefits being proposed in Congress,” said Schriftman. “This plan would provide so little benefit that if someone needed significant care at home families would end up bankrupt and face foreclosures.”  Schriftman said that his mother’s live in companion service through a home health agency costs $185 per day or $67,525, plus care management services and extra living expenses.  “The cost of 24/7 care is easily $100,000 per year.  What will $50 per day or $18,250 do?” he said.  “I am fortunate.  I planned ahead and bought private long term care insurance for my Mother 18 years ago and it pays a big chunk of the cost for her care.”

Schriftman also listed the following problems with the bill which he has analyzed.  “No one gets any benefits until they have paid into the program for five years,” he said. “The government determines the benefits you get based on your functional loss and not your needs and the government can raid the funds and use it for any other purpose merely by having 60 of 100 Senators vote to do so.  We already have a funding problem with Medicare and Social Security.

Instead of creating a new government fund that could run out of money why not give people tax breaks to buy their own insurance which they own and control.  We should be promoting the Partnership program and a massive public educational program about the financial risks of providing long term care and the need to plan. (See attached testimony) The government should focus on saving the Medicare and Social Security and fulfilling the promises they have already made and are about to break rather than creating another program.

Schriftman added:

Just imagine if a bunch of executives met behind closed doors and created an insurance scheme that will have American workers paying billions of dollars to a fund and not be entitled to any benefits for 5 years.  The scheme promises to pay for nursing and home care for the disabled sometime in the future but the rules for how much sick Americans will actually get in benefits will be determined at the time they get sick by a review board appointed by these executives.  The funds deposited through workers pay checks can also be diverted for other pet projects of these executives if 60% of them agree to do so

Is this something that Wall Street or Insurance Executives have cooked up?  No.  It is the newest and most wonderful proposal that the U.S. Congress has ever developed according to those who support it.  It is called the CLASS Act and it is in the new health care reform bill.  The executives who are promoting it are various leaders of Congress and so called advocacy groups that think the government, by collecting more money from American workers, should pay for long term care services rather than private long term care insurance.  Every concerned American should read the legislation and decide whether they would be better off paying more money into a government fund or owning their own insurance policy to protect against the risk of long term care expenses.

The New End-of-Life Counseling Benefit

By Greg Scandlen

The New York Times article by Robert Pear (who, by the way, is the best health care writer in the nation, notwithstanding his employer) that alerted the world to the latest sneaky Obama deal, said the following —

“Advance care planning improves end-of-life care and patient and family satisfaction and reduces stress, anxiety and depression in surviving relatives,” the administration said in the preamble to the Medicare regulation, quoting research published this year in the British Medical Journal.

Well, let’s take a look at that research. As the Times reports, it was published in the British Medical Journal. It is all of one – ONE – study conducted in Australia at one – ONE – location and involved patients that were aged 80 or older. Twenty-nine patients (that is – 29) got the intervention and another 27 were a control group (no intervention), and all 56 patients died within six months. The people who got the intervention and their families were more satisfied with the care and had their wishes followed better than the control group.

But that isn’t saying much. These folks got more attention in the last six months of life, so of course they were more satisfied. And they were asked what their wishes were, so of course those preferences were more likely to be followed. Decent research would have tested the particular intervention against a “placebo,” not against no intervention at all.

That is how drug trials are conducted. One group gets the drug being tested and the other group gets a placebo. The placebo group usually does better, too, but not as well as the test group. Honest research would have given each group the same amount of attention, but provided a particular set of interventions to one but not the other.

This research in no way supports providing everyone on Medicare with annual “advance planning counseling.” Most people on Medicare are relatively healthy and their wishes at age 65 may be far different than at six months before their death.

The Australian research was also notable for all of the things it left out. No one asked the patients if they had a will, for instance. There was no mention of assigning a durable power of attorney to anyone. In fact, there were no legal or estate issues involved whatsoever.

Even more shocking is that there was no mention of clergy involvement and the patients were not even asked about their religious affiliation. There were no hospital chaplains involved, no prayers, no last rites for Catholics, no discussion of funeral arrangements.

How can you have end-of-life counseling without dealing with these critical issues?

More importantly, how can Obama’s little Czars and Czarinas use the experience of 56 patients at a single hospital in Australia as a justification for a new benefit for 45 million Americans? And a benefit that has already been considered and rejected by the Congress of the United States?

If this is what is considered “evidence-based decision making” by this administration, we are in deeper trouble than I realized.

Death Panels – American Style

By Greg Scandlen

The new Medicare benefit for end-of-life counseling that was snuck in by the Obama Administration over the objections of Congress and the American people, is the fourth and final step of a process that will indeed lead to “death panels.”

Now, don’t misunderstand. You will not go before a panel of bureaucrats to plead for your life. That was Franz Kafka’s early twentieth century Bohemia. We are much more sophisticated today. In twenty-first century America, your sentence will be delivered by your friendly family doctor.

STEP ONE — We started two years ago with the appropriation of $20 billion to set up a mandatory Health Information Technology (HIT) system. This was part of the wonderful “stimulus” bill that was enacted well before ObamaCare. This law requires every physician’s office and every hospital to be wired up to a centralized database, so the government may know exactly what each doctor is doing with every single patient.

All of the research available says that HIT does not improve care or lower costs. Quite the opposite — it worsens care and raises costs. What it does do is enable the government to know with precision what a doctor is doing.

STEP TWO — The next step was also funded in the stimulus bill – the “Comparative Effectiveness Research” (CER) initiative. This will allow a panel of experts to determine what works and what doesn’t work in medical treatment. By “work,” they mean what is the best use of the available dollars. If something is quite expensive and doesn’t prolong life by many months, it will be deemed to “not work.”

That might be useful knowledge to have for a physician who is looking at treatment options. It could be one more piece of information in his understanding of what to do for a patient. But it becomes a problem only once the next step is implemented.

STEP THREE – Now we get to ObamaCare, and the presumption that the best (only?) way to finance health care is through “Accountable Care Organizations” (ACOs), that pay physicians on a “Pay-For-Performance” (P4P) basis. P4P says that doctors will get paid more when they do the “right thing,” and less when they do the “wrong thing.”

Now we’ve got something. Now we have HIT telling the government what every doctor is doing, and we’ve got CER determining what is the right and what is the wrong thing to do, AND now we have a payment system that will “incentivize” doctors to do what the government says. There is only one thing missing – how to tell the patient.

STEP FOUR – “End-of-Life Counseling.” There is no acronym for this as yet. End-of-Life  Counseling will pay physicians to deliver the bad news to the patient — “I’m afraid your breast cancer is quite advanced and there isn’t anything further we can do. How can I help you get your affairs in order?” Now, notice the physician is not explaining there IS something that can be done, but the government decided to not pay for Avastin because it costs too much. Or any of the other life-enhancing treatments that would be available if not for federal intervention. No, Medicare would not pay the doctor to deliver this information because it might upset the patient.

So, there you have it. In twenty-first century America, our Death Panel is good old kindly Dr. Marcus Welby. Don’t you feel better already?

Why So Sneaky?

By Greg Scandlen

Two recent articles, one in the Washington Post about the new high-risk pools, and the other in the New York Times about the new end-of-life counseling, give plenty of material for discussion. They are on very different topics, but they both reveal something that should disturb all Americans. That is how very sneaky our political leaders have become.

The Post article notes that enrollment in risk pools is well below what was projected by the Administration just a few months ago. It was predicted by HHS that 375,000 people would have enrolled by the end of this year, but in fact, only 8,000 had actually enrolled by early November. The reporter asked HHS for updated figures, but, “HHS officials declined to provide an update, although they collect such figures monthly, because they have decided to report them on a quarterly basis.”  So, HHS has the numbers but won’t release them because they are embarrassing.

The Times article is even worse. To refresh your memory, a new end-of-life counseling benefit in Medicare was considered and rejected by Congress because of concern about “death panels.” It would have paid for such a session with your doctor once every five years.

Now, it turns out that HHS has, by regulation, decided to include it as part of a beneficiary’s annual “wellness” exam. So, rather than every five years it will now be yearly. Actually, it is not these counseling sessions that raise the concern about death panels, but the combination of the new “comparative effectiveness” standards of physician practice along with “pay-for-performance” incentives.

But, leaving that aside, what is shocking about the Times article is the revelation that the Administration and senior members of Congress purposely tried to hide the new regulation from the public. Robert Pear writes:

After learning of the administration’s decision, Mr. Blumenauer’s (The Democratic Representative from Oregon who sponsored the original proposal last year) office celebrated “a quiet victory,” but urged supporters not to crow about it.

“While we are very happy with the result, we won’t be shouting it from the rooftops because we aren’t out of the woods yet,” Mr. Blumenauer’s office said in an e-mail in early November to people working with him on the issue. “This regulation could be modified or reversed, especially if Republican leaders try to use this small provision to perpetuate the ‘death panel’ myth.”

Moreover, the e-mail said: “We would ask that you not broadcast this accomplishment out to any of your lists, even if they are ‘supporters’ — e-mails can too easily be forwarded.”

The e-mail continued: “Thus far, it seems that no press or blogs have discovered it, but we will be keeping a close watch and may be calling on you if we need a rapid, targeted response. The longer this goes unnoticed, the better our chances of keeping it.”

So here is a new benefit for Medicare that the elected representatives of the people don’t want the press to “discover” for fear that the people may object to it.

On top of the secret recess appointment of Dr. Don Berwick to head CMS, this government is looking more like the Hugo Chavez regime every day.

MLRs: The Seductive Myth of ObamaCare

By Ross Schriftman

Would you invest your money in a company whose managers spend most of their time focused on how to reduce 15% of their spending?  Wouldn’t you find it weird if they conducted lots of meetings about how to cut back on the number of desk staplers they purchased rather than figuring out how to keep their overall prices competitive and improving their customer service so they could sell more of their products or services?

Unfortunately the new health care “reform” law in Washington is forcing health insurance companies to do just that.  Within the massive act referred to as ObamaCare there is a whole section dealing with Medical Loss Ratios. (Also referred to as Minimum Loss Ratios).  Insurance companies are going to be required to spend no more than an arbitrary 15% of your premium dollars on “administrative” costs in the large group market and no more than 20% in the small group and individual markets.  If they do spend more they will be required to refund customers.

For years I have heard advocates supporting more government regulation of health insurance promote this concept.  They honestly believe that if the government could simply get insurance companies to spend less on running their companies the savings would pay for all kinds of new benefits and give everyone lower premiums.  This is a simplistic answer to a complex problem but the idea is very seductive. They really believe that the government can make a private industry more efficient by piling on even more regulations. In reality they will be lucky to reduce costs by more than one or two percent.  In reality this absurd provision will have many unintended consequences which will drive up dissatisfaction among the public for Obamacare.

By the way, last year most health insurance companies were already in the minimum loss range talked about.  The industry made a whopping $3 billion in profit last quarter which actually breaks down to less than 3% of premiums collected.  The drug companies enjoyed a 7% profit last year.
So where will they find the savings for our health insurance premium dollars?

What is included in the administrative side of the equation?  The new regulations list includes paying claims, collecting premiums, fraud management, some taxes and paying employees as administrative costs.  They also include paying out commissions to insurance agents including independent agents, who must pay all of their own expenses themselves.  It also includes compliance costs such as making sure every word in plan materials are in compliance and the printing and distribution of dozens of required documents to consumers.  Finally, the insurance companies are required to set up an administrative process to send out refunds if they spend too much on administration which this provision in itself adds to their costs.

With these added costs how will insurance companies comply?  Where do they have wiggle-room?  The answer is customer service.  Already health insurance companies are laying off employees leaving those who still have a job with even more work to do.  Call center wait times for customers will increase dramatically.  Insurance companies are now sending letters to the insurance agents they partner with telling them that their compensation for selling and servicing their health insurance will be cut by as much as 40%.  Many agents are considering selling other lines of insurance that will allow them to remain in business.  Many small businesses and individuals rely on their personal insurance agent to help them navigate all the new rules of ObamaCare.  Health insurance agents help keep insurance companies rates competitive by shopping coverage for their clients every year.  With fewer agents to help them many small business will now be forced to hire benefit managers at the very time when they are struggling to meet payroll and keep their own workers.  The “reform” law has forced these business owners to spend countless hours trying to figure out if they are in compliance with the new law.  Medical Loss Ratios will cut off many of them from the help they need by no longer having their own agent to help them.

The whole idea of medical loss ratios was to keep premiums down.  Instead, in order to comply some insurance companies are raising their premiums so that they can match their 15% or 20% share with the added reporting and other requirements demanded by our government officials.  In addition, health plans that do a poor job of wellness and end up with a sicker group of customers will be rewarded by not having to give refunds while those who help their customers stay healthy will be penalized with more administrative costs.

The Medical Loss Ratio provision is just another example of our government gone wild.  Rather than having this bizarre rule and requiring refunds the next Congress should throw out Obamacare and instead focus on wellness, health education and streamlining the regulations on the health insurance industry.  The elimination of medical loss ratios will actually lower administrative costs, improve innovation and may result in lower rate increases going forward.  I believe my clients would rather see better rates at renewal time than getting some kind of refund after it has gone through a nightmarish administrative process overseen by government bureaucrats that ends up costing them money.

“It’s a Slam Dunk”

Look, it is time to get serious.  Yes, America needs real health reform. And, no, ObamaCare ain’t it.

The “reform” law that was passed last year reforms nothing. It simply adds more bureaucracy, more regulation, more inconvenience, and more cost to a system that is already too bureaucratic, too regulated, too inconvenient, and waaaaaay too costly.

In every way that matters, ObamaCare makes a bad situation worse. We will get into the details of how it makes things worse as this blog rolls on, and we will offer suggestions on how to really reform health care.

But first let’s take a moment to consider why Congress enacted a law that was so misguided. You have followed the back-room shenanigans and deal making and outright corruption that secured the votes. But those were just the expediencies of the moment – the sausage making of Congress. It’s how Congress, indeed any political body, works. The Republicans do it, too. In fact, your state legislature, town council and school board all do it. They trade favors, make deals, hire friends and family members, form alliances of convenience. It is why we should minimize the influence of any and all political bodies.

What really caused this disaster is the intellectual bankruptcy and laziness of the “health policy community.”  These are the people who are supposed to be the experts. As corrupt and ignorant as Congress may be, it won’t sign-off on something unless it is endorsed by the people who are supposed to know what they are talking about. These include health economists and other academics, think tanks, journalists, and specialists working for trade associations of interested businesses.

The problem is that all these people know each other. They attend conferences together, go to parties together, talk to each other on blogs and list-serves, and sometimes even mate with one another. They become dear friends. And, like dear friends everywhere, they are reluctant to be critical of each other. They are subject to the worst kind of Group Think and begin to parrot the party line. People who disagree with the conventional thinking are soon labeled as being disagreeable and ostracized from the community, even mocked and ridiculed.

It isn’t only in health policy that this occurs. Any close-knit community will experience the same phenomenon. A recent deadly example was the “intelligence community” and its universal agreement that Saddam Hussein had weapons of mass destruction. Congress and the Bush Administration took their word for it – “It’s a slam dunk” said CIA Director George Tenet.  Who can argue with that?

Interestingly, business does not usually work this way. In business, the views of contrarians are welcomed. Investors have a lot of money at stake and they want to make sure that they are not missing some fatal flaw before they move ahead with a new product or marketing strategy.

Political decision makers, including whatever “policy community” is involved, do not share that concern. They don’t have anything personal at stake. Whatever happens, it is not their money on the line and very often they are not even subject to the same programs they are inflicting on the rest of us. Examples would include “urban renewal,” public housing, welfare, and now ObamaCare.

We will be exploring in some depth how this misguided conventional-wisdom and group-think has warped decision-making in health care. Stay tuned.