Healthcare 'Debate' Dominated by Shouting and Lobbies

Much of the news about health care recently has come from town hall meetings. What are the big issues in these often raucous affairs? I hear:

1. Stop big government.
2. Stop government death panels.
3. "Keep government out of my Medicare."
4. Don't come between me and my doctor.
5. Don't ration health care.
6. Restore the country the framers of the constitution envisioned.
7. Show me a birth certificate.

This list could go on and on. Most of these talking points are superfluous, tangential and distracting from the central issue of health care reform. Some are nonsensical and some have more depth. None are central.

I know someone is going to jump up and shout: "These legislative proposals will lead to rationing health care!" That is disingenuous. Health care is already rationed. It could be logically argued that good legislation could reduce rationing. It is just not intellectually honest to headline a topic with a sound bite and leave it there. Many people shouting at town hall meetings (and elsewhere) have the sound bite down pat. They just don't have much else and they are too angry to consider any additional information.

Entitlement and Real Cost Control are Incompatible

In many cases, people who want to stop big government also want their Medicare. The logical inconsistency is lost on them. Some people don't want the government to interfere with their lives and others want to be taken care of. Some people want both. In my opinion, the health care problem will not be solved until people shake off the feeling of entitlement, while, at the same time, avoiding the prospect of financial ruin due catastrophic illness or accident.

About three weeks ago I published an op ed at TheStreet.com (here) addressing the most under discussed aspect of the health care debate, controlling costs. The essence of the proposal is that the best way to control health care costs would be to give the patient a financial stake in his own health care. The idea proposed had similarities to HSAs (Health Savings Accounts), but would not require that formality. Like HSAs, this option would involve low premium coverage for catastrophic medical events. All medical expenses below this catastrophic expense limit would be paid out-of-pocket, with taxable income deductiblity, even for short form filers.

But this, and other cost savings ideas, are still not on the debate program.

What are the Largest Cost Control Issues?

Here are some cost factors that I have gleaned from various sources. I have not researched these numbers, but, even if they are off by 50%, my logical process would not be changed.

Factors I have seen for contributors to total health care costs include:

1. Insurance company administration costs - 30%
2. Medicare payments for redundant/unnecessary services - 30%
3. Medicare payments for fraud - 15%
4. Medicare administration costs - 3%
5. Tort and malpractice insurance costs - 10%

The first three are the biggies. Presumably, Medicare could increase administrative expense to cut fraud and unnecessary expenses. Insurance companies could reduce administrative costs, resulting in increased payments for fraud and unnecessary treatments.

There is no logical path to reduce health care costs significantly by shifting these expenses around. There is a pool of expense, between 30% and 45% of the total health care bill, not related to health care, from just these three factors related to administrative expense.

The Best Auditor of Health Care Costs and Benefits is the Patient

My contention is that fraud and unnecessary treatments are best controlled by the patient/doctor interface. Today the patient does not recognize any benefit from putting in effort to make a cost/benefit judgment, because the insurance company (or Medicare, or Medicaid) is paying. We will not get real cost control until the patient has a financial stake.

In effect, the patient is paying (through insurance premiums and taxes) at least 30% to 45% of his health care expense for administration of his health care. That leaves 55% to 70% (or less) for actual health care. I say 'or less' because I'm leaving out the smaller items (numbers 4 and 5 above), as well as other factors for which I don't have estimates (listed below).

All these things may bring the cost of health care to less than 50%, with administration and waste constituting more than 50%.

Factors that I don't have estimates for include:

1. Doctor office added administrative costs for Medicare and insurance claim processing;
2. Added costs for physician self-referral (may be included in Medicare unnecessary services and controlled by insurance company administration);
3. Amplified costs of treatment of the uninsured in an inefficient manner;
4. Costs of curative medicine that could be reduced with preventive medicine;
5. Cost of inefficiency in medical records systems.
6. Insurance company costs for fraud and unnecessary treatments.

We can cut health care costs in half and give the patient that money. This would, in effect, pay the patient for administration of his own health care. If the patient is negotiating for service with his own money, we will have the most effective and affordable control of fraud and unnecessary treatment possible.

Bob Herbert Blames Lobbies

Bob Herbert's column in the New York Times (here) addresses lobbies. Herbert's view is that corporate interests and their lobbies have not only gotten control of the usual suspects (congressmen and senators), but also are controlling the public debate. He points out that a central issue, uncontrolled rising costs, is not getting any attention. He wrote:

While it is undoubtedly important to bring as many people as possible under the umbrella of health coverage, the way it is being done now does not address what President Obama and so many other advocates have said is a crucial component of reform — bringing the ever-spiraling costs of health care under control. Those costs, we’re told, are hamstringing the U.S. economy, making us less competitive globally and driving up the budget deficit.

Giving consumers the choice of an efficient, nonprofit, government-run insurance plan would have moved us toward real cost control, but that option has gone a-glimmering. The public deserves better. The drug companies, the insurance industry and the rest of the corporate high-rollers have their tentacles all over this so-called reform effort, squeezing it for all it’s worth.

Eugene Robinson Blames Obama

Eugene Robinson of the Washington Post puts the blame on President Obama (here) for the lack of focus in this "debate". In his editorial, Robinson takes the president to task for not taking a firmer position. He feels a line should be drawn in the sand regarding Obama's position on the public option. The public option may be an important issue. Supporters argue that competition will bring down costs. Opponents cite the inefficiencies in Medicare (outlined above). But the public option is not my central issue.

I agree with Robinson that Obama has not provided the leadership many had hoped for, pursuing consensus instead. I would criticize the president for not focusing on cost. He has simply talked in generalities about eliminating inefficiencies. He has focused on the uninsured, which he should. But he has missed the other major factor: cost.

Citizens Share the Blame

I agree with Herbert and Robinson, but my blame has three legs. The third leg is the citizenry. Most citizens are simply not informed on the central issues. They are swayed by "issues" presented by lobbyists and political ideologues. The ideologues emphasize peripheral points to focus on philosophical positions of the left or the right. Lobbyists propagate phantoms to disrupt changes that could cause their sponsors to have to change the way they do business.

The biggest problem is the reluctance of many citizens to accept the idea that as much as half of health care costs can be eliminated by individual responsibility for their own health care financing. The entitlement attitude I mentioned earlier is a big obstacle to overcome. Once a majority recognize how much it costs them to "be taken care of", the debate can move into a determinative stage. At this point in time, however, too many citizens are too confused and, yes, too lazy to step up to the challenge of meaningful involvement.

Effects on Insurance Companies

Implementing a proposal such as this one would affect companies like Cigna (CI), United Health Care (UNH), and Aetna (AET), which have a business model based on the current low deductible insurance plans. They would have to convert to a business plan more like life insurance, disability and property and casualty companies, such as Aflac (AFL), Travelers (TRV) and Hartford (HIG).

With my proposal, insurance companies will process very few claims compared to what is done under the current system where every event triggers a claim. They will have much smaller premiums per person, but many more persons insured. Catastrophic health insurance should be mandatory, just like auto insurance. For those near or below the poverty level, premiums should receive government subsidy. Thus insurance companies will net lower revenues, but the low administrative costs should improve margins.

Disclosure: No positions in any company mentioned.

Comments

[jay brebner:]

john -

How does catastrophic care address the need for prevention?

I am assuming that you see individuals taking care of themselves because they will be disciplined by out of pocket expenses. I'm not sure that would be the case and that it might actually become a barrier to good care.

While the debate going on now is centered on the economics of HC, it should not be forgotten that HC reform is also a public health issue. Getting people into and keeping them in contact with a system of care is the best way to do prevention, from flu shots to cancer screenings, etc.

I have not been swayed from my single-payer/HMO plan, as I see it as the best way to align interests, but the meaningful dialogue is again appreciated.

Aug 19 04:24 PM

[TinyTim:]

Thanks for another good article.
I too see no real discussion or actions to reduce healthcare costs in all the yelling currently going on.
It's appalling that an issue this important is being dominated by partisan politics where it appears the actual issue is less important than who wins or loses the debate. As you say, this is typical politics. The town hall issues are just to blow smoke over the central proposals and create a "fog of war." In terms of monied lobbyists, this will be a very high stakes game.

While I agree that giving patients some skin in the game is a way to control costs, I'm not sure this would really work in an exam room. Doctors give tests to screen for problems. I my doc wants to give me a preventive test based on my age and health and family factors, I don't usually disagree. After all, much of the stuff he's testing for, I've never heard of, but he explains if I ask.

I don't understand the 88% cost items. Only 12% of medical payments go to actual care? If you haven't seen it yet, here's a layman's article that sheds some light on costs:
www.newyorker.com/repo...

I like your healthcare proposal probably because it sounds somewhat like mine. I compare mine to auto maintenance. I have insurance to cover my car if something major happens- a wreck or a tree falling on it. For oil changes or wash/wax or tuneups, I pay out-of-pocket.

The problem with paying out-of-pocket for routine medicine is the non-negotiated rates are usually hundreds of dollars. This needs to be addressed in the form of subsidized clinics to replace routine care in ER's by the uninsured. Urgent care clinics are all over, but they're priced for the insured.

I think we're in agreement that one of the cost problems is the need to differentiate between routine medical care and procedures requiring specialists.

Aug 19 05:25 PM

[John Lounsbury:]

Jay - - -

I tried to keep the article tightly focussed. There were some new points developed here that were not well covered in the article on TheStreet.com and some things that were discussed in that earlier article were not included here.

Among the things not included here was the idea of premium discounts (for catastrophic coverage) for those who (1) have a healthy lifestyle or (2) make progress toward lifestyle improvement under a doctor's supervision. For those in the lower 50% of the income distribution, the government could provide partial payment for the preventive program, with those near or below the poverty line getting full payment.

I have outlined what I think would be a full discussion of all the ideas I have been mulling over. I think it would be between 6,000 and 8,000 words, too long for Seeking Alpha or TheStreet.com formats. Maybe I can do it for a print magazine or a dedicated website.


On Aug 19 04:24 PM jay brebner wrote:

> john -
>
> How does catastrophic care address the need for prevention?
>
> I am assuming that you see individuals taking care of themselves
> because they will be disciplined by out of pocket expenses. I'm not
> sure that would be the case and that it might actually become a barrier
> to good care.
>
> While the debate going on now is centered on the economics of HC,
> it should not be forgotten that HC reform is also a public health
> issue. Getting people into and keeping them in contact with a system
> of care is the best way to do prevention, from flu shots to cancer
> screenings, etc.
>
> I have not been swayed from my single-payer/HMO plan, as I see it
> as the best way to align interests, but the meaningful dialogue is
> again appreciated.

Aug 19 11:20 PM

[John Lounsbury:]

Tiny Tim - - -

I read the New Yorker article. The primary cost driver described in McAllen is called physician self-referral. I mentioned it in my article, but didn't explain it. The author of the New Yorker article dismisses the value of patient "audit" in controlling costs. He gives an example of a multiple bypass surgery. Is such a patient in a position to bargain for the best deal? I agree. But for the small things that can add up to several thousand dollars some years, I think the patient is in a good position to "get a good deal" and avoid fraud and unnecessary drugs, tests and treatments. The multiple by-pass would be covered by the catastrophic insurance, and the insurance company (or Medicare, or Medicaid) would have a cost control responsibility there.

Aug 19 11:47 PM

[mikebrah:]

John,

You suggest that people will take a more proactive interest in health care if they are financially motivated. But people are physically motivated to take a proactive interest in their health and have utterly and completely failed.

If people were as capable as you seem to think they are, then we wouldn't have this current housing/debt crisis. After all, our present situation essentially comes down to the average American not being able to manage a checkbook. People who make $50k/year and try to buy a $300k house are going to suddenly start making fiscally responsible choices about what's best for their health care? Really?

If the average American had even a modicum of the intelligence and discipline you suggest, then 30% of the nation wouldn't be obese and 70% overweight. The easiest, most effective reduction to health care would be for our nation TO BE IN GOOD HEALTH.

A simple 30 minute walk after dinner and consuming less than 3k calories per day would be an enormous reduction to our country's overall health care costs. I just find it hard to believe that these amorphous blobs who go to town hall meetings and yell, or sit at the tv and yell, or sit at the computer and yell are capable of the task at hand.

To me, the actual HEALTH of our nation is the most disturbing issue.

MM

Aug 20 12:32 AM

[Steven Hansen:]

John, as usual i am too late in the day. Again, you have created a masterful think piece. I love it.

This is a very logical look at an ill defined subject. refer to the following link:
www.kff.org/healthrefo...

now if somebody could define exactly what the health care proposal looks like, then the yelling would make sense.

but maybe that in itself is the problem. maybe the issue is not logical but emotional. maybe this reaction was programmed into us when we were children and learned how much better America was than that commie crap.

Obama may be blind to this reaction, and thinks it is republican orchestrated (yes, it is that too). He did not go to elementary school in America. This reaction was never programmed into him.

i suspect many are believing the things that made America great are being destroyed, and making the country weaker.

to see how strong this American programming is, view this link:
d.yimg.com/kq/groups/1...

i think health care is an emotional rather than logical argument.

Aug 20 02:16 AM

[PainfullyAware:]

"If people were as capable as you seem to think they are, then we wouldn't have this current housing/debt crisis." - mikebrah


The "Cause" of this "Debt Crisis" Is The 600 Trillion Unregulated Derivatives Market.

The Housing Issue Was Only The "Fuse" set in place by the Community Reinvestment Act.

Many Americans Are "Victims Of Circumstance" At This Point.

Anger And Ire Should Be Shown To Those Involved In This Fraudulent Scheme - Government Enablers Included.


On Aug 20 12:32 AM mikebrah wrote:

> John,
>
> You suggest that people will take a more proactive interest in health
> care if they are financially motivated. But people are physically
> motivated to take a proactive interest in their health and have utterly
> and completely failed.
>
> If people were as capable as you seem to think they are, then we
> wouldn't have this current housing/debt crisis. After all, our present
> situation essentially comes down to the average American not being
> able to manage a checkbook. People who make $50k/year and try to
> buy a $300k house are going to suddenly start making fiscally responsible
> choices about what's best for their health care? Really?
>
> If the average American had even a modicum of the intelligence and
> discipline you suggest, then 30% of the nation wouldn't be obese
> and 70% overweight. The easiest, most effective reduction to health
> care would be for our nation TO BE IN GOOD HEALTH.
>
> A simple 30 minute walk after dinner and consuming less than 3k calories
> per day would be an enormous reduction to our country's overall health
> care costs. I just find it hard to believe that these amorphous
> blobs who go to town hall meetings and yell, or sit at the tv and
> yell, or sit at the computer and yell are capable of the task at
> hand.
>
> To me, the actual HEALTH of our nation is the most disturbing issue.
>
>
> MM

Aug 20 05:34 AM

[jay brebner:]

I agree with others here regarding the mindset of most Americans when it comes to their health - denial. If I know I will have to pay out of pocket for staying healthy but my insurance will kick in when I get really sick then I'll just take my chances. Not sure how many people really know how much being sick sucks. Case in point: right now I have the beginnings of a toothache that will eventually need work done. But I hate dentists and can rationalize the marginal daily increase in pain for quite some time. I know this because I have a historical perspective.

Your plan makes absolute economic sense. But health care reform will require behavioral sense as well. I think that is part of the backlash that is out there - nobody wants to be told what to do - we want to be free to kill ourselves as we see fit.

Aug 20 08:04 AM

[John Lounsbury:]

mikebrah - - -

Unfortunately you are right. I have suggested that the catastrophic health insurance premiums could be discounted for those who met specific healthy lifestyle parameters OR were making documented progress in changing. Ultimately, I believe the best health care system for cost efficiency and health outcomes will be one that has the patient invested both from the perspective of personal health and personal finances.

I know someone will protest discrimination because they can't get a discount if they are obese, or if they smoke, abuse drugs or alcohol. My answer is that not to make them recognize the extra cost risk they present for their health care will make me pay for it and that is discrimination against me.

Discrimination against someone because of their behavior is called underwriting. Discrimination against someone because of someone else's behavior is called turpitude.

Aug 20 03:21 PM

[John Lounsbury:]

jay brebner - - -

You suggested that there are some who do not want to be interfered with. You wrote: "I think that is part of the backlash that is out there - nobody wants to be told what to do - we want to be free to kill ourselves as we see fit."

See my previous comment. My answer is that anyone who wants the freedom to abuse themselves is welcome to do just that - but not on my dime.

Aug 20 03:26 PM

[jay brebner:]

The one thing that congress could do to greatly reduce HC costs is to end the subsidies for corn production in this country. It is really absurd that Sen Grassely can talk about "death panels" when the biggest killer is in his own back yard.

Aug 20 03:43 PM

[John Lounsbury:]

I just listened to President Obama's on line healthcare "forum". I heard a couple of interesting things.

1. Questions and discussion on the role of diet in health care costs. Several commenters here have mentioned the importance of this in trying to control health care costs.

2. I heard Obama say that everyone should be required to have a basic catastrophic health care policy. He said that should be the minimum coverage (mandatory, like auto liabilty insurance) and more comprehensive coverage would be optional. I do not recall hearing this before (except in my articles).

I think the comment stream has addressed some of the objections we will hear to these two items. I think these are credible ideas and, to those who object to them based on their freedom being curtailed, I say: I will give you no freedom that takes money out of my pocket to benefit your bad behavior.

Aug 20 04:19 PM

[John Lounsbury:]

Jay - - -

Very clever connecting Grassely, corn and death panels.

Aug 20 04:21 PM

[Mr. Ed, Jr.:]

"The biggest problem is the reluctance of many citizens to accept the idea that as much as half of health care costs can be eliminated by individual responsibility for their own health care financing. The entitlement attitude I mentioned earlier is a big obstacle to overcome. Once a majority recognize how much it costs them to "be taken care of", the debate can move into a determinative stage. At this point in time, however, too many citizens are too confused and, yes, too lazy to step up to the challenge of meaningful involvement."


This is true, but I am sorry to report that the "Personal Responsibility " train has left the station, and it was less than half full.

In the new era of "too-big-to-fail", bailouts, "walking away" from home mortgages, cash-for-clunkers and "free" health care, there will not be many new signups for personal responsibility.

Personal responsibility is either part of one's character already, or it is not likely ever going to be

Aug 20 05:44 PM

[PainfullyAware:]

"I think these are credible ideas and, to those who object to them based on their freedom being curtailed, I say: I will give you no freedom that takes money out of my pocket to benefit your bad behavior." John Lounsbury

I Concur Wholeheartedly !!!

I fear that these points are just "The Teasers" - I am worried about what gets added in the "Details And Earmarks".

I have seen enough reprehensible legislature passed - I would prefer a hiatus and a sussing out of a plan along with some "Failure Modes Analysis".

We Have The Internet Now - Government Should Put The "Letter" Of The Bill Up And Let The Debate Begin. Revise And Continue.


On Aug 20 04:19 PM John Lounsbury wrote:

> I just listened to President Obama's on line healthcare "forum".
> I heard a couple of interesting things.
>
> 1. Questions and discussion on the role of diet in health care costs.
> Several commenters here have mentioned the importance of this in
> trying to control health care costs.
>
> 2. I heard Obama say that everyone should be required to have a
> basic catastrophic health care policy. He said that should be the
> minimum coverage (mandatory, like auto liabilty insurance) and more
> comprehensive coverage would be optional. I do not recall hearing
> this before (except in my articles).
>
> I think the comment stream has addressed some of the objections we
> will hear to these two items. I think these are credible ideas and,
> to those who object to them based on their freedom being curtailed,
> I say: I will give you no freedom that takes money out of my pocket
> to benefit your bad behavior.
>

Aug 20 07:34 PM

[PainfullyAware:]

"I will give you no freedom that takes money out of my pocket to benefit your bad behavior." John Lounsbury

Would Have Been Nice If This Had Been Followed In Relation To Banking And Finance.

Aug 20 07:36 PM

[ebworthen:]

The problem with healthcare is cost, It is too expensive.

There are too many sharks in the water.

People are pissed off because the biggest great white shark called "government" smells blood and is coming hither.

As if the lawyer and corporate sharks weren't bad enough.

The focal issues at the town halls is healthcare, but the anger and frustration and disgust is with the cost of everything.

Aug 21 04:34 AM

[jay brebner:]

John - excellent editorial in the WaPo today by Steven Pearlstein. he mentions coops as being a cost saving option based on fixed yearly premiums per enrollee.

www.washingtonpost.com...

Aug 21 02:22 PM

[Crocodilian:]

Thank you, author, for the brave and yet rare: "citizens share the blame".

Observing the eruptions of dyspeptic ignorance that pass for "protest" (people simultaneously incensed at the prospect of "Government controlled healthcare" and cuts to their Medicare are apparently unaware of what Medicare is) can lead to despair.

People ought not to have strong opinions about subjects on which they are ignorant. Though the critics have taken up the chant "read the bill", there's no evidence that they've read it, or taken the time and trouble to understand what healthcare finance is about, and why getting more for our healthcare dollar is both possible and necessary.

An intellectually shallow citizenry makes it very difficult, indeed nearly impossible to make good policy on important issues.

Healthcare has seen this before: if one thinks back some years to longterm care, and the popular revolt which lead to senior advocates like Representative Claude Pepper being chased by angry seniors for having had the temerity to give them the guaranty of long term care that they said they wanted . . . very sad.

Aug 22 07:33 PM

[jay brebner:]

Well said Crocodilian.

John - here is a blog post at HealthAffairs.org by Mark McClellan regarding incentives for cost reduction and quality improvement. Health Affairs is a great site to read up on all the top HC economists' views on reform. It may be a good forum to post your article.

healthaffairs.org/blog...

Aug 23 09:53 AM