The Healthcare Reform We Need


I agree with President Obama that our healthcare system is in need of urgent, immediate reform. I disagree with his claims in an op-ed in the New York Times that the healthcare reform bills that are making their way through the Congress implement the healthcare reform we need.

To understand the reasons that we need urgent, immediate reform, it’s crucial to understand at least in broad strokes our healthcare system itself. Under our healthcare system no one is refused urgent medical care regardless of ability to pay, citizenship, whether they have insurance, or have a pre-existing medical condition. Nonetheless, every day some people are refused care. That’s either a breach of the law or of medical ethics. So, for example, there is the case of the University of Chicago Medical Center which has, apparently for strategic reasons, refused to treat low-income patients. There is nothing in the bills making their way through the Congress to enforce existing laws or codes of ethics.

Under our healthcare system the healthcare of roughly 85% of the people is paid by insurance. The healthcare insurance of the elderly and the poor are paid for largely by the federal and state governments, respectively, under the Medicare and Medicaid programs. The healthcare insurance of the rest of the insured is paid for by their employers and is part of their total compensation or is paid for by the individuals themselves.

The premiums of healthcare insurance borne by employers is never taxed. The employer is not taxed because these premiums are a legitimate cost of doing business and the employees are not taxed because they are not wages. This bizarre system of employer-based insurance was given impetus as a method of getting around the wage and price controls imposed during World War II more than 70 years ago.

The healthcare premiums of individuals carrying their own insurance are mostly taxed as income. This is manifestly unjust and is a subsidy to large companies, able to subsidize the cost of their employees’ insurance, at the expense of smaller companies or individuals. There is nothing in the bills making their way through the Congress that will change this.

The greater part of those who have employer-paid insurance work for companies large enough to self-insure, with greater than about 200 employees. Insurance companies bear no risk for these insureds and, consequently, have no incentives to engage in adverse select to reduce their costs. Most of these self-insurance plans are administered by insurance companies who are paid a fee based on the number of insureds or, possibly, the number of claims. In the case of the latter the insurance companies actually have incentives that are the opposite of those that would cause adverse selection.

The 46 million who are without insurance fall into several categories: those who actually have insurance (the “miscounted”), those who are eligible for Medicare or Medicaid but not enrolled who are routinely enrolled by healthcare providers when they need care (self-interest of the providers incentivizes that), ineligible non-citizens, some number of people who have enough income to pay for healthcare insurance but elect not to (the Census Bureau—from which that 46 million figure emanates—estimates that 8% of families making $70,000 per year or more do not have healthcare insurance), and the uninsurable, something between 12 million and 16 million people. These are the people President Obama writes of here:

A 2007 national survey actually shows that insurance companies discriminated against more than 12 million Americans in the previous three years because they had a pre-existing illness or condition. The companies either refused to cover the person, refused to cover a specific illness or condition or charged a higher premium.

I agree with President Obama that something needs to be done about this relatively small group. This is the group that will be helped most by the reform bills making their way through the Congress. In my view this reform is necessary but not sufficient.

It is not sufficient because it does little either to reduce the costs of healthcare or the rate of increase in the costs of healthcare. Consider the graph at the top of this post. Unless we change the trends Medicare and Medicaid costs will rise to unacceptable levels. If Medicare and Medicaid spending rise to this level it will be disastrous to the rest of the economy and it will lose political support for all but Medicare and Medicaid recipients.

I think that means we’re going to see sharp cuts in Medicare and Medicaid benefits and, consequently, precisely the outcome that Medicare was intended to prevent will come to pass: the elderly will be pauperized by their healthcare expenses. Either that or the poor and elderly will find it increasingly difficult to find anyone who will treat them at all. Or some combination.

Subsidizing more people’s healthcare, as the plans making their way through the Congress do, does little or nothing to slow the increasing costs. In a system like ours in which the supply of healthcare does not increase as the rate of the demand increases that also means that there simply aren’t enough providers to provide the increased level of quality healthcare that the larger number of people demanding healthcare will require. The bills making their way through The Congress do nothing to solve this problem.

Those are the healthcare reforms we need, we need them now, and nothing less is acceptable.

19 comments… add one
  • steve

    We are starting a new medical school next year so we will contribute to increasing more workers. One problem is the studies showing that in cities, where docs tend to congregate, total medical expenses tend to rise as the docs with fewer patients do more studies. I suspect that at some point we would see a drop, but I have no idea where that is.

    Steve

  • Brett

    A good post, Dave. Supply-increasing measures are particularly important because, to be blunt, you’re going to have a very hard time doing anything beyond “edge cuts” on pay-outs from Medicare (Medicaid is another story). The elderly, after all, are only increasing in both absolute numbers and as a percentage of American society, and for structural reasons having to do with how voting is usually done in America, they tend to vote in very high numbers (hence why the AARP is so powerful).

  • Kelly

    1. It would help if you’d provide a source for your graph at the top of the page.

    2. I read a lot of what you didn’t like but not a lot of suggestions for what real health care reform would look like. As best as I can gather you’d like to make insurance premiums tax deductible for individuals (fine), reduce the costs of health care (how?), increase the supply of health care (how?)

    3. Nice concept that 12 million people (those that cannot get insurance because of preexisting condition) is a ‘relatively small number’

    4. Do you think we should prevent the current reform package from being passed while we wait for someone to implement something more to your liking?

  • Brett

    2. I read a lot of what you didn’t like but not a lot of suggestions for what real health care reform would look like. As best as I can gather you’d like to make insurance premiums tax deductible for individuals (fine), reduce the costs of health care (how?), increase the supply of health care (how?)

    Dave’s outlined a number of ideas for what he wants to do in earlier posts, so it’s not entirely fair to criticize him for a lack of solutions in one particular post.

    3. Nice concept that 12 million people (those that cannot get insurance because of preexisting condition) is a ‘relatively small number’

    I’d argue that the “uninsured”, while important, are actually a red herring in the current debate. Of far more criticality (and the Democrats really should be going after this) is the way the medical system has of bankrupting you with medical costs even when you have medical insurance – witness the 62% of all bankruptcies that result from primarily medical costs, of which over 75% were from people had had medical insurance. Or the various practices designed to get rid of high-cost people, like rescission, life-time caps, and “patchy policies” (namely those that say they cover something while not actually covering it when you get into the technicalities).

    At least, that’s the core of the health coverage side of the debate as I see it. The health supply debate is another story.

  • Kelly:

    You’re right I should have cited the source of the data, the Congressional Budget Office, in the body of the post.

    I’ve been posting on healthcare reform, some would say obsessively so, over the period of the last five years. There’s a category for it in my right sidebar and dozens of my suggestions are in my many posts. Among the reforms that I think we need are mandatory health insurance, state pools to cover the uninsurable, making employer-provided healthcare benefits (at least over a specified amount) taxable income, major reform in medical education to increase the number of primary care physicians, nurses, and technicians, reforms to the way that the FDA approves drugs to make the process more uniform and eliminate conflicts of interest, removal of barriers to construction of hospitals and clinics, setting standards for medical claims reporting, removal of barriers to telemedicine, enhanced use of technology in medicine, enforcing laws on the books, holding practitioners to the codes of ethics they profess, a nationwide registry of physicians, mandatory advertising of prices, and many others.

    Some things should be experimented with, possibly on a by-state basis. For example, we might consider a pilot program of direct government employment of primary care physicians for underserved communities.

    Nice concept that 12 million people (those that cannot get insurance because of preexisting condition) is a ‘relatively small number’

    It’s 4% of the people. What would you call it?

    Do you think we should prevent the current reform package from being passed while we wait for someone to implement something more to your liking?

    I think we should pass Wyden-Bennett. I don’t think it’s perfect by any means but it’s significantly better than the bill the Congressional leadership is pushing and it’s ready to be passed.

  • I haven’t heard or read anyone talk about increasing the supply of health care workers, including doctors, to help lower health care costs and increase health care availability. We are never going to curb health care demand–we can increase the supply with more medical schools, clinics, etc.
    Which leads me to this question: If one of the main goals of this effort is to insure the 45 million uninsured, and to move people away from emergency room care to preventative and primary care physicians– do we have enough doctors?

    Here on Long Island we have probably the lowest doctor-to-patient ratio in the country. Yet most times we have to wait for appointments and sit in the waiting room, sometimes for hours. I know doctors who are turning patients away. Doctors all claim to be overworked.

    I assume the situation is the same, or worse, around the country.

    If 45 million people show up next year for an annual physical, who is going to treat them?

    Why aren’t we addressing the supply portion of this equation?

    2) The key problems I keep hearing are people being denied coverage for preexisting conditions; being booted from their plans for being sick; and lack of portability.

    Can’t those problems be addressed without a massive federal program? Haven’t many states done so?

    If the goal is to make health care better, and not let more power settle in Washington, aren’t there better ways to go than the bill(s) presently in the House & Senate?

  • You’re playing my song, Tony.

    I think that one major step we could take towards healthcare reform is to change how we fund physician education. Right now the Medicare system provides roughly $80,000 per year for each and every medical resident. We need to transition away from funding specialists in favor of funding primary care physicians. That alone would lower costs.

  • You’re absolutely right. I’ve been blogging all along that we have a Medicare/Medicaid crisis, which are shifting costs onto providers and thus the private insurers, ratcheting up costs for everyone. Fix M&M, and you’ve fixed most of our so-called health care crisis. The problem is how to fix senior and impoverished care without rationing and denying. The logical solution, to me, would be public clinics and hospitals (VA-style), where everyone is on a salary and things are run locally with block grants and no federal government interference.

  • Drew

    “We are never going to curb health care demand–we can increase the supply with more medical schools, clinics, etc.”

    Hmmm. So there currently is unbridled demand for health care services. No throttle. “Not to be curbed.”

    And so we increase the supply…………….lowering the price of health care services……….and demand will not increase.

    Got it.

  • Brett

    For example, we might consider a pilot program of direct government employment of primary care physicians for underserved communities.

    Bush actually did something like that – he set up a network of clinics. You could probably do something like what Brad DeLong suggested when he proposed his idea (basically government-provided catastrophic insurance, plus a mandatory contribution to an HSA), and have a “health van” or bus of primary physicians who would be paid to travel around under-served areas (such as rural areas and the like), knock on doors, and provide primary care.

  • steve

    You are a little overly optimistic about primary care expansion IMHO. You will need for several other things to happen.

    1) You will need to do something about malpractice. Primary care docs will be expected to function at the same level as specialists if they take over that care. They will be open to suit if they do not.

    2) You need to figure out how to distribute them better. Very few 30 y/o’s want to go into solo practice and be on call all the time. Call coverage is an issue non-physicians tend to not understand.

    3) You will really need good cost effectiveness data. The long term shift to more tech in medicine always pushes us towards procedures. You will need data to push people away from tech.

    Steve

  • David Marshall

    The Court of Veterans Appeals, Chief Judge’s “Constitution, Statutes and Regulations” “policy freely ignored” by Congress and the VA Secretary are below,i.e., PARAGRAPH 9 with 1 & 8 as background. It is now 15 years later without his advised Congressional oversight and accountability. Your loved ones health care is lost!

    Please hold your Congressional Representatives responsible.

    The complete 16 paragraph “STATE OF COURT” transcript is available on request. Previously at, and now missing from, hyperlinks: http://www.goodnet.com/~heads/nebeker and http://www.firebase.net/state_of_court_brief.htm

    STATE OF COURT

    CHIEF JUDGE FRANK Q. NEBEKER

    STATE OF THE COURT

    FOR PRESENTATION TO THE

    UNITED STATES COURT OF VETERANS APPEALS

    THIRD JUDICIAL CONFERENCE

    OCTOBER 17-18, 1994

    {as it appears in Veterans Appeals Reporter}

    PARAGRAPH NO. 1:
    I will speak to you today about my view of the state of the Court and the scope and chain of authority within the veterans’ benefits system. Let us remember that Board mistakes and inconsistent results were deemed to warrant review and oversight on a case-by-case basis where the results were adverse to the claimant. Hence, the Court was created and began its operation five years ago today. Before the advent of judicial review, that system, as now, functioned in a two-tiered operation-agencies of original jurisdiction and the Board of Veterans’ Appeals. Whether the former were within the direct chain of authority under the Board, or acted as a separate surrogate of the Secretary seemed of no concern for many years.

    ——————–PARAGRAPHS 2 through 7 in TRANSCRIPT.——————————————

    PARAGRAPH NO. 8:
    Imagine, if you will, the creation of a government of a new state in our union, or one in the world of emerging nations. In that state, there is an Executive and a Supreme court and a Court of Appeals. At the local level, however, there are adjudicative bodies which initially resolve disputes. But, the Constitution leaves the Supreme Court and the Court of Appeals with direct authority over the local adjudicators. It is only when the Executive can be persuaded to issue the proper order that these local adjudicators must obey. Thus, the locals determine, quite independently of the courts, when, and how they will decide matters before them. I dare say, you know of no viable republican form of government with such a system, and it is not hard to see that it would not work well.

    PARAGRAPH NO. 9:
    I believe my message is clear. There is, I suggest, no system with judicial review which has within it a component part free to function in its own way, in its own time and with one message to those it disappoints — take an appeal. That is, I am afraid, what we have today in many of the Department’s Agencies of Original Jurisdiction — that is AOJs — around the country. Neither the Court, through the Board, the Board, nor the General Counsel has direct and meaningful control over the Agencies of Original Jurisdiction. Indeed, it is also clear that the VHA — the Veterans Health Administration — ignores specific directives to provide medical opinions as directed. And this is resulting in unconscionable delays. Let us examine judicial review. Remember, the Court and the Board do not make policy, the Secretary and Congress do. The Court simply identifies error made below by a failure to adhere, in individual cases, to the Constitution, statutes, and regulations which themselves reflect policy — policy freely ignored by many initial adjudicators whose attitude is, “I haven’t been told by my boss to change. If you don’t like it — appeal it.” (Emphasis added)

    ——————–PARAGRAPHS 10 through 16 in TRANSCRIPT.——————————————

    – – – End – – –

  • David Marshall

    The Court of Veterans Appeals, Chief Judge’s “Constitution, Statutes and Regulations” “policy freely ignored” by “The Veterans Health Administration” and the VA Secretary are below,i.e., PARAGRAPH 9 with 1 & 8 as background. It is now 15 years later without his advised Congressional oversight and accountability. Your loved ones health care is lost!

    Please hold your Congressional Representatives responsible.

    The complete 16 paragraph “STATE OF COURT” transcript is available on request. Previously at, and now missing from, hyperlinks: http://www.goodnet.com/~heads/nebeker and http://www.firebase.net/state_of_court_brief.htm

    STATE OF COURT

    CHIEF JUDGE FRANK Q. NEBEKER

    STATE OF THE COURT

    FOR PRESENTATION TO THE

    UNITED STATES COURT OF VETERANS APPEALS

    THIRD JUDICIAL CONFERENCE

    OCTOBER 17-18, 1994

    {as it appears in Veterans Appeals Reporter}

    PARAGRAPH NO. 1:
    I will speak to you today about my view of the state of the Court and the scope and chain of authority within the veterans’ benefits system. Let us remember that Board mistakes and inconsistent results were deemed to warrant review and oversight on a case-by-case basis where the results were adverse to the claimant. Hence, the Court was created and began its operation five years ago today. Before the advent of judicial review, that system, as now, functioned in a two-tiered operation-agencies of original jurisdiction and the Board of Veterans’ Appeals. Whether the former were within the direct chain of authority under the Board, or acted as a separate surrogate of the Secretary seemed of no concern for many years.

    ——————–PARAGRAPHS 2 through 7 in TRANSCRIPT.——————————————

    PARAGRAPH NO. 8:
    Imagine, if you will, the creation of a government of a new state in our union, or one in the world of emerging nations. In that state, there is an Executive and a Supreme court and a Court of Appeals. At the local level, however, there are adjudicative bodies which initially resolve disputes. But, the Constitution leaves the Supreme Court and the Court of Appeals with direct authority over the local adjudicators. It is only when the Executive can be persuaded to issue the proper order that these local adjudicators must obey. Thus, the locals determine, quite independently of the courts, when, and how they will decide matters before them.. I dare say, you know of no viable republican form of government with such a system, and it is not hard to see that it would not work well.

    PARAGRAPH NO. 9:
    I believe my message is clear. There is, I suggest, no system with judicial review which has within it a component part free to function in its own way, in its own time and with one message to those it disappoints — take an appeal. That is, I am afraid, what we have today in many of the Department’s Agencies of Original Jurisdiction — that is AOJs — around the country. Neither the Court, through the Board, the Board, nor the General Counsel has direct and meaningful control over the Agencies of Original Jurisdiction. Indeed, it is also clear that the VHA — the Veterans Health Administration — ignores specific directives to provide medical opinions as directed. And this is resulting in unconscionable delays. Let us examine judicial review. Remember, the Court and the Board do not make policy, the Secretary and Congress do. The Court simply identifies error made below by a failure to adhere, in individual cases, to the Constitution, statutes, and regulations which themselves reflect policy — policy freely ignored by many initial adjudicators whose attitude is, “I haven’t been told by my boss to change. If you don’t like it — appeal it.” (Emphasis added)

    ——————–PARAGRAPHS 10 through 16 in TRANSCRIPT.——————————————

    – – – End – – –

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