The Covert Rationing Blog

Why Big Health Insurance Supports the Democrats

May 30th, 2008 by DrRich

As difficult as it undoubtedly will be for most readers to believe, DrRich still hears from skeptics who ridicule his theory that a Democratic victory this fall will be the best thing that could happen to the health insurance industry. For example, consider this from Anonymous in Montana:

Democrats hate ALL corporations and want to eliminate profit as a concept. Democrats believe that the most evil companies in all the evil corporate world are the murderous health insurance outfits, because they make their filthy profits withholding healthcare from the sick. If the Democrats win this fall the health insurance industry is toast. For you to suggest that the health insurance industry will be better off with a Democratic victory is nonsense. And suggesting that the insurance industry will support the Democratic candidate is dumber than suggesting that Smith & Wesson will be a big Obama booster. You twit.

DrRich has not given much thought to which candidate the armaments industry will be supporting this year. He expects it will be Mr. McCain, who once operated some pretty impressive firepower himself. On the other hand, one could easily predict a huge boost in gun sales if Mr. Obama wins, triggered by concern (among those Bible-thumping, gun-toting non-supporters) over the possible repeal of the 2nd amendment. So, Smith & Wesson’s support could go either way. DrRich will have to consider the matter further.

But, my dear Anonymous, in regard to which candidates the health insurance industry will be supporting this year, the verdict is already in.

The Wall Street Journal Health Blog reported this week that the health industry has suddenly shifted from a preference for Republicans to a preference for Democrats. Specifically, political contributions from the health sector are showing a 55% to 45% split in favor of Democrats. This is a reversal of the traditional split that for at least 20 years has strongly favored Republicans.

Furthermore, a visit to the website of the Center for Responsive Politics, which tracks these sorts of data, will show that political contributions from HMOs (i.e., the big insurers) has trended even more strongly in favor of Democrats: 69% for Democratic candidates, and only 31% for Republicans. This is a Hillary-in-West-Virginia-magnitude rout.

Non-readers of this blog (and, of course, Anonymous) will be surprised by these statistics. After all, both Mr. Obama and Ms. Clinton propose to phase-out private health insurers (though they won’t come right out and say so) by attrition, by forcing them to compete for subscribers with a new government-sponsored, taxpayer-subsidized “Medicare for Everyone” health plan. Mr. McCain, on the other hand, proposes to maintain private health insurance as the backbone of the American healthcare system, relying nearly entirely on this industry as the engine for healthcare reform. So why would HMOs be giving financial aid to Obama/Clinton and not to McCain?

DrRich’s theory, first formulated six months ago, provides the answer. In the evolution of their managed care products, health insurers finally have reached the point where they need to demonstrate their ability to grow their profits by actually managing the medical care of sick people. The notion that they can do so is, of course, absurd. Furthermore, the notion that the Republicans would be relying on the insurers not only to make a profit, but also to reduce the cost of American healthcare at the same time, literally scares the bejeebers out of insurance executives. The very last thing Wellpoint and UnitedHealth Group want is for McCain to win the presidency, then turn to them and say, “OK boys, do your cost-reducing stuff!” A Republican victory would suddenly reveal the insurers to be entirely bankrupt of useful ideas, and would expose them to a sudden, ugly, stock-tanking demise.

Democrats, of course, will also bring about the demise of the private health insurance industry, just as Anonymous asserts. But at least they will have the grace to do it gradually and predictably - and with one last profit-inducing, stock-soaring windfall thrown in as a sweetener.

It was for these reasons that DrRich predicted last fall that the big insurers would have no choice but to root for and support the Democrats in 2008. (DrRich actually specified at that time that the insurers would support Ms. Clinton. He did not realize that she was then in the process of blowing the nomination by - among other things - forgetting to organize in the caucus states.)

Since DrRich initially posed his theory we have seen Warren Buffet (a major booster of Democratic candidates) placing a huge bet on the big health insurers - which undoubtedly means a) he strongly believes a Democrat will win the White House this fall, b) he understands what this victory will mean to the industry, and c) he reads this blog, which is the only place you can get political and economic theory like this.

We have also seen the major health insurers completely capitulate on their chief mission of providing affordable health insurance to the masses, thus announcing to the world that they no longer have the means, the will, or the intention of seriously trying to reduce the cost of healthcare. A clearer plea by the insurers to “Vote Democrat - Please!” could hardly be imagined (except, of course, for the fact that they are giving their financial support overwhelmingly, and for the very first time, to the Democrats).

DrRich admits that his theory originally was laced with a certain amount of sarcasm and irony, and was based at least partially on speculation, intuition, and confabulation. Nonetheless, developments since that time have provided us with hard facts that, while seemingly impossible to explain with more conventional thinking, are readily explained and even predicted by his theory.

Indeed, DrRich’s theory (and Warren Buffet’s investment strategy that is so obviously based upon it), look more infallible each and every day.

Posted in Healthcare economics, Investment "advice" | 2 Comments »

Proof That Warren Buffet Reads This Blog

May 17th, 2008 by DrRich

Yesterday, Jacob Goldstein of the Wall Street Journal Health Blog reported that Warren Buffet greatly increased his stake in big health insurers during the first quarter of 2008. Specifically, he added 300,000 shares of WellPoint and 400,000 shares of UnitedHealth to the holdings of Berkshire Hathaway. Notably, the stock prices of both of these insurers have been tanking for months. So why would Mr. Buffet be buying them?

Mr. Buffet has a simple answer: “If we’re going to be buying things, we want to buy them on sale.”

To which the WSJ replies: “Of course, if it was simply a matter of increasing holdings that are falling, we’d all be billionaires. There must be more to it than that.”

Indeed, there is more to it than that, and careful readers of this blog (as Mr. Buffet must surely be) realize what that is.

The case against buying health insurance stock, it goes without saying, is plain for anyone to see. As DrRich has pointed out more than once, the mega-insurance companies have traditionally had three major pathways for increasing shareholder value:

1) Acquiring and privatizing community assets - generally non-profit hospitals and non-profit insurers - for a tiny fraction of their true value (through the collusion and/or ignorance of boards of trustees, state attorneys general, and state insurance commissioners), then letting the market assign the actual value of those formerly public assets to the company’s stock price.

2) Mergers and acquisitions of smaller insurers, i.e., through the consolidation of the industry.

3) Taking advantage of certain opportunities for “efficiency” that big insurance companies’ quasi-monopolies have bought them, such as cherrypicking patients, handcuffing doctors, retrospectively denying coverage to insured individuals, and the manifold other activities we can safely bundle under the rubric, “covert rationing.”

Obviously, all three of these pathways are closing off. There are few community-owned assets left to acquire, and consolidation has already left the U.S. with just a handful of important health insurance carriers. As for the “efficiencies,” opportunities here are drying up as well. For instance, this past December, shareholders of UnitedHealth Group (concerned because subscribers to the company’s insurance products had decreased by 315,000 in 2007) demanded a promise from company executives that the insurer would become “nicer” to its subscribers. Their own shareholders are wrecking their business model!

Insurance companies are left with the impossible task of trying to make a profit (and worse, to demonstrate continued growth) by actually managing the healthcare of sick people. This has never been accomplished in the modern era, and in all likelihood is not within the realm of possibility.

This explains why the stock prices of the big health insurers have been heading south for some time now. But what explains Warren Buffet’s enthusiasm for these failing businesses?

Two things. First, he recognizes the growing prospect of a Democratic victory this fall, in both houses of Congress and the Presidency. Second, he has clearly read and digested DrRich’s posting of six months ago that describes what will happen to the insurance industry with a Democratic victory.

Republican-style healthcare reform, even with a Republican such as John McCain, would bring the rapid and painful death of the health insurance industry. This, simply, is because the Republican strategy for healthcare reform relies on “competition and efficiency” in the private insurance market to save the healthcare system. Republicans, apparently, have not noticed that the insurance companies have been desperately trying their brand of “efficiency” for more than a decade now, and it’s been a disaster. The insurers have shot their efficiency wad; they’re entirely bereft of ideas; they haven’t a clue. Indeed, one can only imagine how the notion of a Republican victory, and the unbearable expectations such a victory will place upon them, must shake insurance executives to their core.

On the surface, Democrats will also put the insurance industry in an untenable position, as it is clearly their aim to drive insurers out of business (though they won’t actually tell us so). But Democrats actually have no performance expectations whatsoever for the insurance industry. Their only expectation is that the insurance companies should fail in due time. This prospect - as long as it’s preceded by one last, massive windfall - is quite acceptable to an insurance industry itself, which, realistically, can only be looking for a graceful exit strategy at this point.

As it happens, that one last windfall for the insurance industry is an integral part of the Democrat’s promise. For, before they drive private insurers into oblivion, the Democrats will present them with the gift of government-paid insurance premiums for many (Obama) or all (Clinton) of the 47 million uninsured Americans. These new premiums will amount to as much as $150 billion per annum. So, for at least a while, the Democrats will guarantee that health insurance profits will rise, executives bonuses will increase, and - more to the point - their stock prices will soar.

Which brings us back to what Warren Buffet is up to. DrRich is a great admirer of Mr. Buffet, and is sincerely happy to have been of assistance in furthering his understanding of the complex interplay between politics and the fiscal status of the big health insurers. So far, Mr. Buffet is playing the game perfectly.

DrRich does respectfully remind him, however, to carefully monitor this blog for the “sell” signal.

__________

Addendum. DrRich has just noticed that his deeply admired fellow blogger, DB, has challenged him this morning to a discussion of honor over the topic of malpractice reform, where DrRich has taken a very contrarian and highly unpopular position. Indeed, even DrRich hates himself for making such an argument. Nonetheless, DrRich is compelled, reluctantly, to answer in the affirmative (this being a matter of honor), and will post a reply within a day or two.

Posted in General Rationing Issues | 6 Comments »

Can a Voucher System Fix American Healthcare?

March 21st, 2008 by DrRich

A previous post considered the main problem with current healthcare financing as described by Drs. Fuchs and Emanuel, namely, that individuals are actually paying for their own healthcare today, but are led to believe that the cost is actually “shared” by businesses and government. Since they believe they are getting something for nothing, there is no incentive for Americans to limit their demands for healthcare.

It should be no surprise, therefore, that the solution proposed by Fuchs and Emanuel offers to make individual Americans aware of how much of their own money is being spent.

Under their plan, every American will be given vouchers by the government to purchase health insurance from private companies. The vouchers will be paid for from a Value Added Tax (VAT) on purchased goods. Insurance companies would be required to sell a basic insurance plan (fully covered by the vouchers) to any individual American, regardless of any underlying medical conditions.

Furthermore, individuals would not be limited to the insurance they receive under the voucher plan. Instead they would be free to purchase whatever additional healthcare coverage they choose.

The Fuchs/Emanuel plan is therefore universal, but also intends to preserve Americans’ freedom of choice. In DrRich’s estimation, it is the explicit nod to freedom of choice that makes this proposal interesting.

The “basic health services” that would be required under this plan (i.e., the services that insurance companies would have to provide to anybody with a voucher) would be determined by a federal health board, specifically modeled after the Federal Reserve Board.

Notably, Senator Tom Daschle has recently published a book that also recommends a federal health board modeled after the Federal Reserve Board. How much of this idea he may have received from Fuchs/Emanuel (who have been writing about this for a number of years) is not known to DrRich. But Daschle’s call for a federal health board has been endorsed - at least to the extent of supplying “blurbs” to spur book sales - by several disparate political figures including Senator Bob Dole and Senator Barack Obama. So, apparently, the “federal health board” may be an idea that is gaining in popularity. (It is perhaps unfortunate that both the Fuchs/Emanuel proposal and the Daschle proposal were advanced well before the current credit crisis made the Federal Reserve Board seem far less omniscient and sure-footed than in happier days, and perhaps less welcome as a role model than it might have been a few short months ago.)

In any case, the fact that a federal health board has been championed by a noted American progressive makes DrRich suspicious that the idea of such a board is not inextricably tied to the notion of individual autonomy, as it is under the Fuchs/Emanuel plan. In the Daschle plan, the federal health board is the centerpiece; it is the whole idea, and is the means by which a centralized authority will control American healthcare. In the Fuchs/Emanuel plan, the voucher-supported basic coverage supplemented by individually purchased insurance is the centerpiece; the federal health board is “merely” the mechanism that will define what we mean by “basic coverage.” At least, that’s how DrRich understands it. And understanding it this way, DrRich will formally reject the Dasche plan as simply another way of turning the American healthcare system over to the feds, (so there, Tom!) and will consider the Fuchs/Emanuel plan more closely.

Will a scheme based on the Fuchs/Emanuel universal voucher plan work?

Now, DrRich has advanced his own plan for fixing American healthcare, thus joining the not-so-exclusive ranks of Fuchs, Emanuel, Daschle, Clinton, Obama, (maybe McCain - DrRich is not really sure), and thousands of others. And it would be all too easy and all too unproductive to dive into a long tract comparing the particulars of these many plans (possibly designed to show why none of them would work as well as DrRich’s).

But in truth, DrRich does not pretend to really know what the “best” plan for solving our healthcare problems might look like, and does not wish to try to drag his readers through the mud in a vain attempt to find out.

There are, however, some basic principles that will need to be decided upon - whether implicitly or explicitly - in any plan that offers to fix American healthcare. These principles will determine not only what kind of healthcare system we are to have, but also what sort of society we will become.

So in evaluating the Fuchs/Emanuel voucher plan (which was DrRich’s original assignment), he will do so within the framework of three basic ideas that must be addressed in any system that proposes to fix American healthcare. These ideas are:

1) Should the healthcare system be universal?

2) Should the healthcare system be designed to enforce equality, or should it instead permit Americans to exercise their autonomy as individuals?

3) Where’s the rationing?

We will explore each of these three questions in subsequent posts.

Note: This is the second in a series of posts that discuss healthcare economics, and the three basic questions we will have to answer before we can devise a way to fix American healthcare. The third post in this series, “Should the Healthcare System Be Universal?” can be found here. The first post in this series can be found here.

Posted in Fixing American Healthcare, Healthcare economics, New business models for healthcare | 3 Comments »

Why the Colette Mills Dilemma Won’t Happen Here

February 20th, 2008 by DrRich

The January 27 issue of the Sunday Times of London tells the tragic story of Colette Mills, a 58 year-old British woman who lost her battle with the National Health Service (NHS), and as a consequence appears doomed to lose her battle with breast cancer.

After her initial treatment for breast cancer, Ms. Mills was placed on the drug Taxol to reduce the odds of cancer recurrence. The NHS paid for both the surgery and the Taxol. However, Ms. Mills also wanted to take the drug Avastin, which, clinical trials have shown, can reduce the chance of recurrent cancer by about 50% when it is taken in addition to Taxol. Ms. Mills, aware that the NHS will not pay for Avastin, wanted to pay for the drug herself, and asked the NHS for permission to do so. The NHS said no. Ms. Mills appealed. Unfortunately, four months into the appeal process her cancer returned and has spread to other parts of her body, making her appeal for permission to pay for Avastin moot. Her prognosis now appears grim.

According to Sarah-Kate Templeton, Health Editor of the Times, Ms. Mills is “the victim of a ruling which states that any patient who wants to pay for additional drugs not prescribed by the NHS should lose their entitlement to their basic NHS cancer care and pay for all their treatment.”

The British Department of Health holds firm to the idea that individuals paying for supplemental treatment “would ‘undermine’ the ‘fundamental principle of the NHS, now supported by all the main political parties, that treatment should be free at the point of need.” That is, you get the healthcare the government says you get, and no more, even if you’re willing to pay for it yourself.

Since the British system is often held up as an example of one we in the U.S. should emulate, we ought to ask, “Will a universal American healthcare system also prohibit individuals from purchasing their own supplemental healthcare?”

This is a question that proponents of universal healthcare, at least those proponents running for political office, assiduously avoid. But the answer to this question is almost certainly, yes. Judging from the original Clinton healthcare plan in the early 1990s, from the actions of the federal government since that time to restrict the ability of individual Medicare patients to pay for “extra” care themselves, and from more recent actions aimed at outlawing retainer practices, it is pretty clearly the (unstated) aim of the Wonkonians to ultimately prevent individuals from supplementing their government-provided universal healthcare with their own resources. One size will have to fit all.

Indeed, this very issue (whether people are to be permitted to spend their own money protecting their own health) is likely to shape up as the central battle in American healthcare reform. By DrRich’s estimate, the very reason none of today’s prominent Wonkonians are talking about a straightforward government takeover of healthcare (favoring instead a more meandering course to that end), is that they don’t think they can win the “individual autonomy” battle right now. Americans, they judge, still need 5 or 10 years of softening up. But we’re getting there. After a few more enervating years dealing with our current healthcare mess, both the Gekkonian health insurance industry and the average American will be ready to throw in the towel, and accept whatever terms the Wonkonians care to offer.

Even then, lingering notions of individual autonomy might still threaten to make things occasionally uncomfortable for government officials. But not to worry. DrRich is here to reassure nervous Wonkonian bureaucrats. After their constituents have finally drunk the government-healthcare KoolAid, American Wonkonians won’t face kind of nasty dilemma now confronting honest British bureaucrats because of disruptive patients like Ms. Mills.

The reason is straightforward.

Fundamentally, the problem imposed on the NHS by Ms. Mills was one of medical progress. As reported in the London Daily Mail, medical “specialists fear that the NHS will be ‘crippled’ by the increasing range of breakthrough treatments.” (When the chief concern of the healthcare system is controlling costs rather than optimizing healthcare, breakthrough treatments are revealed as the true threats they are.)

The good news is that once American healthcare goes to a British (or Canadian) model, the world’s great engine of medical progress (i.e., the profit-driven American healthcare system) will grind to a screeching halt. With the American profit motive out of the way there won’t be any more new therapies which the Ms. Mills of the world can selfishly demand the right to purchase. Happily, American officials will be spared the kind of regrettable discomfitures now plaguing their British counterparts. The entire problem (whose extent is sadly illustrated by some of the headlines - e.g., “Sentenced to Death By Idiocy” - to which well-meaning British bureaucrats are now being subjected), will simply disappear.

So, not to worry. It won’t happen here.

Posted in Wonkonian Rationing | No Comments »

Capitation and Ratting on Patients

February 13th, 2008 by DrRich

Recently the Wall Street Journal Health Blog reported that California Blue Cross, in reaction to “getting slammed by everybody from Arnold Schwarzenegger to Hillary Clinton,” has agreed to stop sending letters asking doctors to help them find patients who failed to disclose medical conditions on their health insurance applications, so the Blues could cancel their policies.

When DrRich first read this story in the WSJ blog he thought that, surely, the Blues wouldn’t be so bald-faced as to explicitly ask doctors to “rat out patients,” (to quote Governor Schwarzenegger) so their insurance could be canceled. Surely, the Blues’ wouldn’t be so stupid as to expect doctors to comply with something like that. Surely, if the Blues really were trolling for cancelable policies, they would couch their request to doctors in such a way as to disguise their true aims. They’d be asking doctors, perhaps, to confirm their patients’ medical histories for the sake of completeness, similar to the kinds of requests doctors routinely get from insurance companies when their patients need special referrals or services.

But, no. The Blues really were explicitly asking doctors to identify patients who might be eligible for cancellation. Here, read the letter Blue Cross sent to doctors for yourself.

We can only be stunned by the utter brazenness of California Blue Cross. We can only be thankful that the very first time this execrable letter landed on the desk of a physician, that physician called them out, demanding a halt to this detestable practice, and going public with the travesty.

Indeed, once this became public the resultant outcry was immediate. As the LA Times reports:

Governor Schwarzenegger called the behavior “outrageous,” and “one more reason why it is so important to have comprehensive healthcare reform.”

Hillary Clinton complained that this is an “example of how insurance companies spend tens of billions of dollars a year figuring out how to avoid covering people with health insurance.”

Representing California physicians, who were also outraged, the president of the California Medical Association said, “This letter was part of Blue Cross’ pattern of unfairly canceling policies when people need coverage most. We’re relieved that Blue Cross is ending this particular tactic but continue to have serious concerns about this company’s practices looking forward.”

And as a result of this massive outcry, California Blue Cross quickly announced they were stopping the practice.

So thank goodness California physicians refused to go along with this reprehensible request.

Oh, wait.

According to Shannon Troughton, a spokeswoman for Blue Cross parent WellPoint Inc. (obviously taken aback at the public reaction), “the company had been sending as many as 1,000 letters a month for years and had received no complaints.”

What?

You mean to say that California doctors have received at least 24,000 copies of this letter (assuming that “years,” being plural, indicates only two - it’s simply too painful to imagine this could have been going on longer than that) without squalking? And apparently during all that time they’ve actually been complying with the request made by this letter? How is this even remotely possible?

The February 12 report from the LA Times provides the answer. These letters were sent out only to physicians who were participating in a capitated reimbursement model. That is, these doctors were receiving a fixed amount of money per patient per month, and the less money they spent taking care of those patients, the more money they got to keep. In other words, the Blues sent these letters only to doctors who might be as interested as Blue Cross, from a financial standpoint, in ridding the system of expensive patients. As in every good business model, the incentives of the parties (i.e., Blue Cross and the physicians) lined up perfectly. We don’t know for sure from publicly available information whether doctors actually complied with the requests made in these letters, but from Ms. Troughton’s comments it certainly sounds as if this happened.

One can almost hear Ms. Troughton’s plaintive tone. Everyone’s been happy with this. So what’s the problem? And we can even begin to sympathize with her - why is ALL the opprobrium being directed toward Blue Cross, when doctors also appear to have been active partners in this long-standing practice?

When you are part of what is widely considered an Evil Cabal (the insurance industry), then simply partnering in your evil schemes with what is widely considered the Mostly Innocent (doctors), does not assure you a smooth path should it all hit the fan. Indeed, when the jig is finally up, often the Mostly Innocent can feign being shocked, shocked, along with everyone else, and actually get away with it.

Doesn’t seem fair, one must acknowledge, but that’s the way it is.

It’s sort of like the healthcare system in general, which is explicitly designed not to be fair. Indeed, society (i.e., us) deputized insurance companies and the Feds to cut costs by whatever means they can get away with (i.e., to covertly ration healthcare), rather than according to some standard of equity. And the insurance companies and the Feds have vigorously responded by taking whatever measures they must to control the behavior of physicians. As a result, systems have been set up, and relationships established, to conduct these societal imperatives. In the process, the professionalism of doctors has been largely compromised, and physicians have been fully conditioned to respond to the needs of those who determine their professional viability. The doctor-patient relationship has been destroyed, and patients are left out in the cold, their supposed advocates’ interests lying elsewhere. This, simply speaking, intrinsically unfair as it is, is the paradigm we’ve all signed up for.

Every now and then, however, some aspect of this system we’ve invented suddenly becomes visible, like a bathroom light suddenly revealing cockroaches - and we are stunned by what we see. Our political leaders and our doctors always respond with suitable outrage (ignoring their own complicity in promoting and maintaining this system). A few changes are made, a few heads roll, a cockroach or two are crushed by a slipper, the light goes back off, and everything goes back to normal.

This particular problem - the Blue Cross letter to California doctors - is indeed being taken care of. And the California Blues and its capitated physicians will simply have to find other methods of getting rid of - or in some other way minimizing the expenditures on - people with expensive medical problems. Because that’s what our system compels them to do.

Posted in Gekkonian Rationing, Primary Care in America | 4 Comments »

How to Think About the Obesity Dividend

February 10th, 2008 by DrRich

An article published last week in the Public Library of Science Medicine Journal has created tremendous buzz in the media and the blogosphere. This article compared the lifetime cost of healthcare (beginning at age 20) for obese individuals and for smokers to the lifetime cost for non-smokers who maintained a healthy weight. Naturally, the study concludes that the healthy individuals can expect to live longer than the obese and the smokers (84 years vs. 80 and 77 years, respectively). However, the healthy young people will consume $400,000 in lifetime healthcare costs, vs. only $365,000 for fat people and $321,000 for smokers. Therefore, healthy people, over their lifetime, are a bigger drain on the healthcare system than the obese and the smokers.

The reason this study has attracted so much attention is that it appears to fly in the face of conventional wisdom, which considers it axiomatic that our obesity epidemic is one of the major threats to the stability of our healthcare system. (Interestingly, relatively little of the commentary has had to do with the cost savings the study attributes to smokers. Not only are smokers less expensive to the healthcare system than even the obese, they also die substantially younger - and thus burn through fewer Social Security dollars. When you add to that the stiff tobacco tax smokers pay throughout their entire lives, one might argue that not only are smokers cheaper than healthy people, they may actually constitute a societal profit center. Apparently we have already internalized the inherent benefits to society provided by smokers, however, judging from the relative silence toward this aspect of the study.)

The evil of obesity has become a touchstone. Consider the evidence: All three remaining viable presidential candidates have asserted that it’s the obesity epidemic which is largely responsible for draining our healthcare coffers. (One assumes that the formerly-obese Gov. Huckabee, though less viable as a candidate, agrees with this assertion. DrRich cannot begin to speculate on what Dr. Paul’s obesity platform might look like.) Ms. Clinton, as usual, is perhaps the most straightforward in setting out her feelings on this point of healthcare: According to her website, “About 30% of the rise in health care spending is linked to the doubling of obesity among adults over the past 20 years. Had the prevalence of obesity remained the same today as it was in 1987, we would spend 10 percent less per person - approximately $200 billion - on health care today.”

Even more tellingly, it has become acceptable even in polite circles to openly discriminate against, if not overtly disdain and humiliate, the obese. Fat people are now expected to pay for two seats on airplanes. Mississippi is considering legislation to prevent the obese from eating in restaurants. And in Britain, whose healthcare system has been held up as a model for Americans, doctors themselves are saying that obese patients should be barred from receiving medical services. (Though, in defense of his colleagues, DrRich wishes to point out that these same physician-humanitarians are also calling for the withholding of medical care from the elderly and smokers - so in truth they are not being unusually unfair to the fat.)

So in light of this carefully cultivated scorn for the obese - who are clearly being groomed as a prototype, as a group whose characteristics (ostensibly, their lack of self-discipline, or their sloth, or their selfishness, or whatever other characteristics we can attribute to them that makes them seem different from “us”), justify special treatment in order to serve the overriding good of the whole - in light of this, what are we to do with this new study which says that obesity saves money for the healthcare system? Do we reverse course, and embrace the obesity dividend? Do we encourage supersizing, and, far from refusing to serve them, offer the overweight free second portions? Do we give them deeply discounted heavy-duty suspensions? Better yet, do we give away free Marlboro starter packs to the fat? (Just think how much money we’d save with obese smokers.)

Thankfully, no.

DrRich has pointed out innumerable times the absurdities we find ourselves promoting when the chief purpose of the healthcare system becomes avoiding costs rather than maximizing health, that is, when its chief job is covert rationing. (The Happy Hospitalist has provided us with an enlightening riff on this topic as well.) It is therefore gratifying to say that this is one of those cases where we don’t have to engage in such absurdities. Let’s be plain about it: We don’t need to reevaluate our current vilification of obesity (and smoking) just because people who have these conditions may save us money in the long term.

The reason? We don’t care about the long term.

Who cares that in 60 years, today’s healthy 20-year-olds are going to cost us a lot of money? They’re largely free to the healthcare system for at least several decades. In contrast, the obese and the smokers, what with their chronic diabetes, heart disease, kidney disease, joint replacements, strokes, lung disease, etc., etc., are going to cost us money each year, starting today.

If we actually cared about the long term, we’d be doing something about the Social Security and Medicare entitlements we’ve already signed up for, which in a little more than 20 years will require confiscating more than 50% of each American paycheck, just in payroll deductions. (Never mind income tax.) Heck, just looking at their pay stubs will probably cause most of today’s healthy 20-year-olds to die of apoplexy by the time they’re 40. In any case, the entitlements we’re obligated to provide will threaten societal disintegration long before today’s healthy young adults ever need elder care. Consoling ourselves with the idea of projected long-term savings is like consoling ourselves with the idea of beautiful spring alpine flowers when we’re directly in the path of an onrushing avalanche. Projected long-term savings are completely irrelevant.

The obesity dividend is just smoke, and can be safely ignored. For the greater good of our social welfare, we’re far better off doing what we’re doing today - castigating and humiliating the obese into right actions, and if that fails, then simply following the example provided by one of the civilized healthcare systems we’re encouraged to use as a model, and discriminating against them when they need healthcare. Once we’ve established this useful prototype, we can apply it to whatever additional groups we can identify as targets of our collective indignation.

Whatever it takes to avoid confronting the rationing issue head on.

Posted in General Rationing Issues | 8 Comments »

Why Health Insurers Will Support Hillary Clinton

February 4th, 2008 by DrRich

As Hillary Clinton’s plans for American healthcare resolve into sharper relief, it is becoming clear that her plans dovetail quite nicely with the increasingly desperate needs of the health insurance industry. And, in contrast to 1993 (when the insurance industry initially supported her reforms, until getting a look at the monstrous volume of regulations she and her secretive committee finally produced, at which time they turned against her with extreme prejudice and a massive advertising campaign), this time Ms. Clinton can rely on the insurers’ steadfast - well, at least silence, if not outright support.

The difference? In 1993-94 the insurance industry had options. As insurers looked out across the healthcare landscape in that golden era, they perceived only opportunity as far as the eye could see. But then they spent the next 15 years clear-cutting that rich landscape. Today when it lifts its eyes from devouring its latest kill (prizes that now require the greatest of exertions), the insurance industry can see only growing desolation. Ahead lie lean times, if not oblivion.

It takes merely a quick look at how the health insurance industry has made all its money since 1994 to reveal just how barren its current prospects have become. This topic is treated in detail here, but to summarize, the insurance industry has made its billions in three ways:

1) Acquiring and privatizing community assets - generally non-profit hospitals and non-profit insurers - for a tiny fraction of their true value (through the collusion and/or ignorance of boards of trustees, state attorneys general, and state insurance commissioners), then letting the market assign the actual value of those assets to the company’s stock price.
2) Mergers and acquisitions of smaller insurers, i.e., through the consolidation of the industry.
3) Taking advantage of certain opportunities for “efficiency” that its quasi-monopoly has brought it, such as cherrypicking patients, handcuffing doctors, retrospectively denying coverage to insured individuals, and the manifold other activities we can safely bundle under the rubric, “covert rationing.”

All three pathways to profit are nearly gone. There are few community-owned assets left to acquire, and consolidation has already left the U.S. with just a handful of important health insurance carriers. As for the “efficiencies,” opportunities here are drying up as well. For instance, in December, shareholders of UnitedHealth Group (concerned because subscribers to the company’s insurance products had decreased by 315,000 in 2007) demanded and received a promise from company executives that the insurer would become “nicer” to its subscribers. (This, obviously, is a sign that insurers’ efforts at covert rationing - which simply means rationing by whatever means you can get away with - is reaching its effective limits. When your own shareholders force you to back off, you’ve gone too far.)

Now that its three pathways to profit are rapidly closing, the insurance industry is at last faced with a truly frightening prospect - having to figure out how to make a profit (much less continue to grow, as shareholders commonly expect and demand) by actually managing the healthcare of sick people. Since they have absolutely no clue as to how to accomplish this feat, the insurers find themselves staring into the void.

And this is where Hillary Clinton comes in.

Each year more individuals and employers are being priced out of the health insurance market, so health insurers are already severely growth-challenged when it comes to their classic source of premiums-based income. Already, tapping into federal health insurance funds has become the chief and most reliable source of growth for health insurance companies. To say it another way, private health insurance companies are now relying on federal programs as their only viable source of future growth.

So right off the bat, Republicans are a non-starter for insurance company executives who are looking for a presidential candidate to support. Republican candidates would have us rely on the efficiencies of the marketplace and the ingenuity of American companies to solve the healthcare mess. Perhaps this is true for some species of entrepreneurs, but not so with health insurance executives. While the insurance industry was able to support such free-market solutions as recently as 1994, today they have completely shot their wad, and are now entirely bereft of serviceable ideas. Indeed, their only serviceable idea is to do what they’re already doing to the fullest extent they can - to go on the public dole.

Either of the remaining Democratic presidential candidates would suffice, but of the two, Ms. Clinton clearly offers the better deal. She, like Mr. Obama, wishes to insure the 47 million currently uninsured Americans, and is willing to subsidize premiums for private insurance for at least a proportion of those individuals. That, obviously, is good for insurance companies. But unlike Mr. Obama, Ms. Clinton would go further in making the purchase of such insurance mandatory. And better yet, it appears she’s willing to at least consider forcibly deducting your health insurance premiums from your wages (which, really, is no different from forcibly deducting income tax, Social Security or Medicare payments from your wages - so no big deal).

So with a Clinton victory, the health insurance industry stands to reap one last windfall for their efforts, after which they will go quietly into the long night. It will be a graceful exit, and a delayed one - far, far better than what the Republicans offer (a frenetic spinning of wheels followed by catastrophic collapse.)

To an American health insurance executive, Ms. Clinton’s offer is as good as it can possibly get, given that it’s 2008 and things are as they are. If she is the least bit worried about encountering Harry and Louise again as she advances her plan for healthcare reform (or rather, Jason and Tiffany, as they’d have to be named today), Ms. Clinton can relax.

Posted in General Rationing Issues | 2 Comments »

Why Canadians and Other More Advanced Civilizations Should Root Against U.S. Healthcare Reform

January 22nd, 2008 by DrRich

Michael Moore, Hillary Clinton, and other Wonkonians find it relatively easy to find both Canadian officials and regular Canadian folks (invariably healthy-looking ones, likely innocent of ever having needed serious medical care) who are willing to publicly extol to us Americans the innate superiority of their government-controlled, universal healthcare system, and to urge us to adopt a similar plan.

DrRich would be inclined to take the opinions of these helpful Canadians more seriously save for two things: a) their sense of smug superiority, by which they clearly hold for us loutish Americans the same level of disdain that your average aristocratic British colonel held for Bedouin chieftains during World War I; and b) the utterly self-destructive nature of their advice. For, by their urging us to go and do likewise with our healthcare system, these Canadians are not behaving logically. And so, quite simply, they cannot be trusted. And if they cannot be trusted, DrRich reluctantly concludes that those who trot them out to lecture us on healthcare reform should also be regarded with great caution.

Let us state the problem simply and precisely. Whatever success may be enjoyed by the rational and humanitarian Canadian healthcare system - as tenuous as that success may be - is largely dependent on the continued existence of the irrational, unfair, wasteful American healthcare system.

The fact that the irrational American healthcare system exists just across the border serves to decompress rising public discontent among our northern neighbors. It provides rich Canadians a place to come for “elective” hip replacements and coronary artery bypass surgeries they cannot easily or conveniently or timely get at home, and so keeps these potential troublemakers mollified.

It allows a strapped Canadian healthcare system to avoid making capital investments it finds inconvenient. For instance, Catron points us to an article in the Globe and Mail (Toronto) entitled “Critically Ill Patients Rushed to U.S. For Care,” which relates that more than 150 Canadians recently have had to come to the U.S. for intensive medical and surgical care. The reason for these transfers, it seems, is a multi-faceted Canadian system failure which includes a lack of sufficient technology, limited operating room time, too few intensive-care beds, and a short supply of adequately trained intensive-care nurses and physicians. Stories like this, which are being told more frequently these days, demonstrate not only that the American healthcare system is increasingly vital to the health of Canadians, but also that this American escape valve is increasingly vital in keeping what might otherwise become troublesome dissatisfaction among the Canadian public in check.

To the brutish enemies of Canadian-style healthcare, who argue that advances in modern medicine arise almost exclusively in America and that radical healthcare reform in the U.S. will kill innovation, proponents of radical reform reply that in Western countries like Canada which have adopted universal healthcare, plenty of medical progress continues. Canadian technology might not always be completely at the levels seen in the U.S., but Canadian medical care is clearly progressing quite nicely despite single-payer healthcare. Furthermore, this continued progress is more considered and less haphazard (i.e., more civilized) than in the U.S. Finally, proponents say, very successful and very innovative biomedical companies indeed do exist in countries that have adopted something like universal healthcare. The kind of innovation that continues in such countries therefore would most certainly also continue in the progress-obsessed U.S. under a Canadian-style system.

But a closer look shows that most of the continued medical progress seen in these other countries in fact arises and percolates there from the U.S. - often (most famously with drugs) at discounted prices to boot. So indeed, medical progress continues in the rest of the world, but it’s progress that’s paid for by the dollars and sweat of American citizens. Similarly, non-American companies that continue to innovate in healthcare can do so almost exclusively because they know a ready market exists for their new products - it exists in here.

In large part, it is the existence of the irrational American healthcare system that makes the more “civilized” healthcare systems around the world acceptable to their populations. If radical healthcare reform of anything like the Canadian variety were to occur here, thus stifling both the innovation and the consumption generated by the great roaring engine of American healthcare, then healthcare will change radically not only here, but all around the world.

This is why we shouldn’t pay attention to the smug Canadians (or French, or Cubans) who, at the behest of Wonkonians, urge us to follow them. These people don’t even understand what’s in their own best interests. How could they possibly understand what’s in ours?

Posted in Wonkonian Rationing | 2 Comments »

One Hell of an Exit Strategy

November 13th, 2007 by DrRich

How else to explain the strange behavior of insurance companies?

Item 1: Bob Laszewski at Health Care Policy and Marketplace Renewal points us to a Los Angeles Times article describing how one health insurance company (Health Net Inc.) has systematized its practice of rescinding health insurance policies of patients who become sick. The article describes 51-year-old Patsy Bates, whose coverage was rescinded in the midst of her therapy for breast cancer, allegedly for failing to disclose her accurate weight and the possibility of a prior heart problem at the time she had applied for insurance. See the article for details, but the point is that the alleged (and disputed) failures to disclose have nothing whatever to do with her breast cancer. They amount to mere excuses to cancel her insurance (but not until she needed it - they were delighted to collect the premiums up to that point).

This story is entirely consistent with the tale told by Lee Einer, the notorious insurance company “hitman” featured in Michael Moore’s film, Sicko. Einer has subsequently expanded on his former activities in gaining rescission for insurance companies on the Honest Medicine blog:

(When you get sick). . .the insurer will go after you “like it’s a murder case.” They will contact every medical provider they believe treated you, and will request medical records. They will contact every pharmacy which you are believed to have used, and request their records. They will go into your health history as far back as five years before you applied for coverage. If they find anything — ANYTHING — which they determine that you did not fully disclose, and which could conceivably have been captured by the questions on your application, they have you.

Laszewski expresses the puzzlement that any thinking American would express in regard to this kind of activity:

It’s hard to imagine a worse headline for the health insurance industry just as we are heading into what will be a fundamental debate over who should run our health care system. It is even harder to imagine a dumber thing for the insurance industry to do than continue to argue and litigate the notion that an insurer can cancel–or rescind–an insurance policy for a misstatement of fact on an application for coverage no matter whether that statement was intentional or material.

Indeed, for the relatively small amounts of money it can save (relative to the massively expensive PR campaigns these companies run to convince us of how innately caring they are, and which they completely negate with such antics), it is hard to imagine why they take this kind of chance.

Item 2: Health insurance companies are big contributors to Hillary Clinton’s campaign. This might seem counterproductive considering the widespread notion that, if her reform plans are fully implemented, ultimately the role of private insurers in the healthcare industry will shrink or even disappear.

Why would insurance companies engage in high-profile, counterproductive activities, and contribute to political candidates who may want to put them out of business?

DrRich has a theory.

Insurance companies have recognized that the end-times are nigh.

In the early days, their chief mode of growth was in acquiring public assets (such as non-profit hospitals and HMOs) for a tiny fraction of their actual value, then after absorbing them, realizing the true value of these assets in their stock prices. The insurance industry has also nearly finished the exhilarating, immensely profitable consolidation phase of its business cycle, such that a very few large outfits now tower over the health insurance industry. So now, for the first time in their history, health insurance companies are going to have to try to make a profit - or even more difficult, to demonstrate continued growth - by actually managing the healthcare of their subscribers.

Faced with this impossible, panic-inducing task, the risk of running illegal, high-profile rescission operations begins to seem worth it. The risk of getting caught is now measured quarter to quarter - not long term. “Our risk of getting caught in the next 3 months seems relatively small,” they must be telling themselves. “As for the long-term risk of getting caught, who cares?”

Ditto with the contributions they are making to Democrats, especially the Democrats who seem most likely to win, and to push their healthcare reform plans. Republicans, who invariably promote the notion of private-insurance-based solutions, must seem really scary to the insurers. If Republicans win, there will follow completely untenable expectations on the part of insurance companies. They’re the ones who will have to figure out how to control costs!

Democrats will also put the industry in an untenable position, of course, and will at least arguably aim to drive them out of business (though without actually telling us so). But Democrats actually have no expectations for the insurance industry, other than that they fail in due time. This, DrRich submits, is the insurance industy’s plan, too.

But before they drive them into oblivion, the Democrats promise to create for them one last, massive windfall - namely, the government-paid insurance premiums for many of the 47 million uninsured Americans. (Joseph Paduda at Managed Care Matters thoughtfully estimates for us that windfall as $150 billion per annum - not exactly chicken feed.)

So, for at least a while, under Hillary’s plan the insurance industry profits will rise, stock prices will rise, and executive bonuses will rise. This is as good as it’s going to get.

In 1994 the insurance industry (then early supporters as well) took a look at Hillary’s massive plan for healthcare reform, and said, “My God! We’ll be out of business in 5 years!” And they became intractable enemies of her reform plan.

Today, they look at their situation and say, “My God! We’ll be out of business in 5 years!” And they see in Hillary a means to engineer those 5 years into one hell of an exit strategy.

Posted in General Rationing Issues | No Comments »

The New Dutch Healthcare System

September 7th, 2007 by DrRich

Jason Shafrin at the Healthcare Economist has posted an excellent analysis this morning of the new Dutch healthcare system, also described yesterday in the Wall Street Journal.

The three operating principles of the Dutch system are these:

1) All individuals must purchase health insurance on the private market.
2) Health insurance companies must insure anyone who applies.
3) The insurers, while charging whatever they want for insurance premiums, are in active competition for subscribers.

There are, of course, details. But thanks to the Healthcare Economist (who presents a thorough summary of the innovative Dutch system, along with the usual insightful analysis of its advantages and potential pitfalls), DrRich has the luxury of limiting his comments to the Real Question, the Real Question being: How does the Dutch system account for healthcare rationing?

Healthcare rationing occurs when some centralized agency makes decisions regarding the distribution of available healthcare resources, such that, given a group of individuals who would probably benefit from certain healthcare services, at least some will not be permitted to receive those services.

Any time we create a centralized pool of money from which all healthcare services must be paid, some degree of rationing must occur. This is because the centralized pool of money, even if it is very large, is nonetheless limited, whereas the amount of money we could spend buying every bit of potentially worthwhile healthcare for every person who might benefit is fundamentally unlimited.

The only way to avoid any rationing whatsoever would be for individuals to pay for all of their own healthcare out of pocket. This way, any limitations in healthcare services would be determined by the individual, and not arbitrarily by some outside agency. (DrRich stipulates that such a system - where everybody simply pays for their own healthcare like they pay for their own housing or food - is not feasible. This is why he perseverates on the question of HOW we do the subsequently necessary rationing - that is, openly or covertly.)

The Dutch system does not avoid centralized pools of money from which healthcare services are paid, and so cannot avoid rationing.

But it does introduce an intriguing feature that might render the necessary rationing less destructive to individuals and to society than the kind of covert rationing we have in the US, or the kind of somewhat-less-covert rationing common in countries that have single-payer systems.

Under the new Dutch system, individuals are making the health insurance purchasing decisions themselves, and they have a choice among insurance companies. Individual Dutch citizens a) have suddenly become the customers of the insurance companies, and b) have the power to take their insurance premiums elsewhere if they don’t like the offerings of their present insurer.

This arrangement is radically different from what we have in the rest of the world, the US included - under the Dutch system, insurance companies are forced to compete with one another for the business of individual citizens.

Furthermore, the competition will be based not just on cost, but on value. That is, what do you get for your money? As always, there will be limits on which healthcare services are covered (in other words, there will indeed be rationing of available services). But the need to compete on the basis of value, ideally, will eventually force insurance companies to be more forthright on what those limits are. Individuals could then choose their health insurance based not only on the cost of premiums, but also on the various rationing features of available insurance products. Call it “competitive rationing.”

Competitive rationing will require insurance companies to attempt to discover the “perfect” balance between cost and services. Since not all individual purchasers will have the same set of values in this regard, a range of insurance products will have to evolve to meet the needs and desires of different customers.

So in theory, at least, the Dutch system has much promise. It doesn’t eliminate rationing, but it has the potential of bringing it out into the light, limiting it as much as possible, and rendering it far more equitable than either the covert rationing we have in the US, or the arbitrary, heavy-handed, centralized rationing we see in single-payer systems around the world.

Unfortunately, we can already see how the Dutch system is likely to fall apart. The problem stems from the system’s first two operating principles:

1) All individuals must purchase health insurance on the private market.
2) Health insurance companies must insure anyone who applies.

Competitive rationing, as DrRich conceives it, depends wholly on the competition that occurs in free markets. But in a system where every buyer must buy insurance, and every insurer must sell to anybody who applies, free markets cannot exist.

The only way to make these two operating principles feasible is to provide subsidies to the insurance companies in order to underwrite the cost of mandated coverage for those who are too old, or sick, or poor to pay for it themselves. Accordingly, the Dutch government has done just that. DrRich isn’t saying the government doesn’t need to do this; there’s no other way he can think of to provide mandated insurance to those who can’t pay for it. But the bottom line is that the Dutch system simply does not create free markets. It can’t.

We can already see where this will lead. The government will pay for a larger and larger chunk of Dutch healthcare, and if it hasn’t already, will begin dictating behaviors within the healthcare system. It will have to (to protect the investment of the taxpayer). As a direct result, the rationing decisions in the Dutch healthcare system will necessarily become centralized once again. To avoid having to admit that it is making rationing decisions, the government will attempt to keep those decisions and their execution as covert as possible.

The guru of the Dutch system is Professor Alain Enthoven of Stanford University. Professor E is best known as the father of “managed competition,” which was the driving idea behind the Clinton’s attempt to reform American healthcare in the early 1990’s. The Dutch system is, in fact, the first actual implementation of managed competition.

The major difference between what the Clintons proposed and what the Dutch have actually implemented, as far as DrRich is concerned, is that the Clintons were more forward looking than the Dutch. They saw exactly what sort of end-game was destined for “managed competition,” and went right to the bottom line. Accordingly they presented to the American people an appallingly massive book of rules and regulations for the centralized control of our healthcare system (read: for covertly rationing healthcare). It scared the hell out of us, and we said no. (We opted instead for a more gradual pathway to an appalling system of covert rationing, one administered by both the government and private insurers.)

While what the Dutch have is in many ways a good idea, they will almost certainly also end up with a healthcare system that is largely centrally controlled. And unless the question of rationing is addressed openly and forthrightly, they, like us, will eventually fall under a system where the necessary rationing is done covertly.

God bless them for their attempt, though. It is a brave one.

Posted in General Rationing Issues | No Comments »