Author Archives: James Henderson

What Can We Learn from Civil War Veterans about Chronic Conditions?

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Earlier this month economic historian Robert Fogel died after a short illness at the age of 86.  He was awarded the Nobel Prize in economics in 1993 “for having renewed research in economic history by applying economic theory and quantitative methods in order to explain economic and institutional change.”  Much of his recent work focused on the theory of technophysio evolution.  Well, I had never heard of it either, until reading about it recently while working on the 6th edition edits of my health economics book.  Fogel argues that the advances in human physiology experienced in the past 300 years are not the result of a genetic shift, but the result of environmentally induced changes.  In other words, advances in life expectancy and morbidity are due to improvements in nutrition, public health, medical care, labor-saving technologies, and higher incomes.  His research using data from developed and less developed countries creates an image of the changing nature of human biology.  Having largely defeated the scourge of malnutrition, the western world has seen a doubling of life expectancies and a 50 percent increase in average body size.  Today, even developing countries are beginning to experience similar gains. 

The empirical evidence for Fogel’s theory came from the examination of detailed health and demographic records from 45,000 Civil War veterans who fought in the Union Army.  The most dramatic discovery was the sheer number of chronic health conditions that the typical veteran suffered.  One in four was sent home because of a physical disability, either a hernia, arthritis, TB, or heart problems.  By 1910, two-thirds suffered from arthritis and three-fourths had heart disease.  The comparable numbers for World War II veterans at age 65 was 48 and 39 percent. 

The commonly-held belief had always been that survivors who reached old age in the early 19th century were likely to be relatively healthy.  Fogel shattered that misconception with the fact that the Civil War veterans had an average of 6.2 chronic conditions.  Today, white males who reach age 65 have an average of two chronic conditions. 

The reasons for the significant improvements in health begin early in life.  Infant and adolescent health and along with it survivability have improved substantially.  Undernourishment and infectious diseases, particularly early in life, have been virtually eradicated.  What does this tell us about the future in terms of life expectancy and morbidity?  How will further improvements affect medical care, public health, and retirement?  According to Fogel’s forecasts, an individual born in the 1990s has a 50 percent chance of living to celebrate his or her 100th birthday.  And those advances responsible for the longevity were already in place before ObamaCare.

The economics profession has lost one of the greatest minds we have had the priviledge of knowing.  May he rest in peace. 

 

The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University.   Baylor is not responsible for the accuracy of any of the information provided in this post.

John Snow and the Beginning of Epidemiology

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Those of us, who toil in obscurity, should take heart.  Good ideas are eventually acknowledged.  I’m working on the changes for the sixth edition of my book Health Economics and Policy and am discovering interesting facts almost daily. 

Public health as a modern-day science can trace its roots back to 19th century England and the pioneering work of young British surgeon, John Snow.  Responsible for advances in anesthetic surgery, Snow is best known for his work in epidemiology during London’s worst outbreaks of cholera between 1848 and 1854. 

The first cholera outbreak in Britain in the modern era occurred in 1831, killing over 23,000 inhabitants.  The government response was minimal, but the aftermath did see an increase public awareness on improving sanitary conditions of the poor and working class.  A white paper was ultimately published in 1842 providing momentum for the passage of the first public health bill in 1848, known unofficially as the Cholera Bill. 

A second cholera outbreak occurred in 1848, followed by another one year later, resulted in 250,000 cases and 53,000 deaths.  During these two outbreaks Snow observed particularly high death rates in the Soho area of London.  The commonly-held scientific belief of the day assumed that cholera was an airborne disease.  But Snow did not accept any of the many miasma, or bad air, theories of transmission.  He argued that because the symptoms were intestinal, it was likely that cholera was a waterborne disease and entered the body through the mouth. 

At the time of the second and third epidemics, there were two water companies serving the Soho district, Southwark and Vauxhall Waterworks and Lambeth Water Company. Both had their water intake source in the tidal basins of the Thames River, downstream from the major population areas.  Using basic spatial analysis to prove his hypothesis, Snow mapped the cholera deaths and identified patterns associated with the water sources available in the neighborhoods. 

In 1854 another cholera outbreak occurred, providing Snow with another opportunity to advance his theory.  This time, however, he was provided with a perfect natural experiment to test his hypothesis.  In 1852 Lambeth moved its water source upstream in an area of the Thames that was not affected by the tidal waters and was thus much less polluted.  Moving house to house, he spent several months mapping the occurrence of the disease and noted the difference in the death rates between the customers of the two water companies.  Lambeth customers had a death rate of 180 per 100,000 customers while the death rate for Southwark and Vauxhall customers was 916 per 100,000, over five times as high.  

Snow was able to convince the local water authorities to take the handle off the water pump on Broad Street (now Broadwick Street) that was the source of contaminated water for many of the local residents, and cholera cases diminished immediately.  He documented his research in a book entitled On the Mode of Transmission of Cholera in 1855.  But the cholera problem did not end there.  Unfortunately most of the scientific community continued to hold to the miasma theory of cholera transmission for several decades.  It was not until Koch and Pasteur developed the germ theory of disease long after Snow’s death that his theory of transmission was substantiated.

Stumbling Toward Implementation

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Some would call it “Bait-and-Switch.”  Others would see it as a cruel joke.  Those who are inclined to be more tolerant and understanding defend it as an expected part of any major change in operating procedure.  No matter which way you view it, the Affordable Care Act is not what its proponents said it would be. 

When proponents praise the reform effort they frequently point to the insurance provision that plans must offer dependent coverage for adult children until they reach their 26th birthday.  But whether this mandate has actually increased coverage is a matter of contention.    A study published by the Robert Woods Johnson Foundation (April 2013) estimates that adult children (age 19-25) covered as dependents on their parents’ policies increased from 30.7% in 1999 to 36.5% in 2011.  That increase looks good until you factor in the decrease in those in the age group who are covered on their own from 21.8% to 16.5% over the same time period, a net 0.5% increase. 

Several provisions in the law have actually been repealed.  In early 2011 Congress eliminated the requirement that business firms issue 1099 income tax forms to any supplier that receives more than $600 for goods and services provided.  Normally, the 1099 is used to document compensation payments to free-lance contractors, such as temporary workers or consultants, who are not classified as an employee.  But in this case it was in the law to better track inter-firm payments and to improve tax compliance. 

More recently the CLASS Act, the long-term care insurance provision in the law, was eliminated.  Soon after passage HHS recognized that CLASS was not financially sound and postponed further efforts toward its implementation.  Finally, as part of the vote to avoid the 2013 fiscal cliff, Congress fully repealed CLASS. 

Led by Minnesota Senator Al Franken, Congress repealed the 2.3% revenue tax on medical devices, which translates into an average tax of 34% on industry profits.  According to the Manhattan Institute the tax would have generated over $30 billion in revenues and eliminated 146,000 jobs in the that industry.  Because the tax was on revenues and not profits, it would have cut the R&D budgets of many of the firms in the industry, 80% of which employ less than 50 employees.   In this case, economic reality triumphed over bad policy. 

Other aspects of the law have not fared well in their operation.  The Act provided a $5 billion subsidy to operate a high-risk pool for individuals with pre-existing conditions until the full law became operational in 2014.  Instead of the expected 350,000 participants, there were never more than 135,000 enrolled.  In early 2013 the program ran out of money and new enrollment was suspended. 

An important element of the plan to secure small business support was the Small Business Health Options Program (SHOP).  Intended to provide a marketplace where owners and employees of small businesses could select from a list of qualified health plans, SHOP will not be ready by the October 2013 target date, but instead implementation is delayed until 2015.  And even then there may only be one option available, instead of many as promised.    

IPAB, discussed repeatedly in this blog, is scheduled to produce its first report and recommendations for the Medicare program by January 2014.  Yet, not one of the 15 member board has been nominated by the President, or vetted in the Senate, much less appointed to the board.  Defenders will argue that this is really not a problem because the law allows the Secretary of HHS to take over the responsibilities of the board.  No wonder Modern Healthcare has listed Kathleen Sebelius as one of the top five most powerful people in health care in each of the last several years. 

Quite possibly, the biggest failure looming in our future is the federal government’s failure to set up the health insurance exchanges.  HHS has known since 2010 that a significant number of the states were not inclined to set up their own exchanges and that the task would be left to the federal government.  Yet, with less than 5 months left until the October deadline, there is still not a federal model.  The individual mandate requires that affordable plans be available for low income individuals and the exchanges must be functioning to deliver the subsidies to make that a reality. 

Failure to have operable exchanges would be a catastrophe.  Senator Max Baucus (D, Montana) recently showed his concern by labeling the implementation process a “train wreck.”  Baucus is not the only one to show concern.  Senator Jay Rockefeller (D, WV) described the implementation efforts as “beyond comprehension.”  And Henry Chao, chief technical officer responsible for implementation, showed his concerns when he admitted to being “nervous,” worried that process may end up “a third world experience”  for the millions of Americans who will be relying on the exchanges as the marketplace for their personal coverage. 

How should we respond to the looming collapse of the health care sector?  One suggestion is to simply sit back and let it happen.  Unfortunately, the American public often has to be hit square in the face with total disaster before demand action.  Recent polling shows that 40% of those surveyed didn’t even know that the Affordable Care Act was actually the law.  The poll results are perfectly understandable because nobody in the administration is publically promoting the law.  We’re less than 5 months away from the early sign up date for insurance coverage.  It’s getting late in the game and things don’t look good for the home team. 

The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University.   Baylor is not responsible for the accuracy of any of the information provided in this post.

Will Employers Drop Insurance Coverage?

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A controversial McKinsey report came out in 2011 predicting that 30% of those with employer sponsored insurance would lose coverage because of the provisions in the Affordable Care Act.  This study along with one by Towers Watson (predicting that 10% would lose private coverage) has been used by opponents of the legislation in their criticism of various aspects of the new law.   Even proponents recognize that there will be some crowding out of private coverage with the CBO estimating that 11 million employees will lose their coverage, or about 7%. 

There is no doubt that ObamaCare will change the balance between group insurance (through employer-based plans) and individual insurance (obtained via the exchanges).  The incentive to drop a plan is obvious for even the casual observer.  The cost of employing the median worker (earning $50,000 annually) is shown below.  It will cost the employer who sponsors a group plan and pays the average of 75% of a family premium is $41,500.  The cost of employing that same worker, if the employer chooses not to play the insurance game and pay the penalty, is only $36,985, a savings of over $4,500. 

With Insurance

Employer

Without Insurance

$50,000

Salary Paid

$50,000

  10,025

Family Premium (75%)

            0

$60,025

Salary + Insurance

$50,000

     3,825

FICA (7.65% Medicare Salary)

    3,825

$63,850

BT Personnel Expense

$53,825

  22,350

Tax Deduction (35%)

  18,840

$41,500

AT Personnel Expense

$34,985

            0

Penalty

    2,000

$41,500

Personnel Expense AT & Penalty

$36,985

What will the employer do with the savings?  I believe there is reason to believe that the employer (who was previously paying over $10,000 to insure the worker’s family) will give the savings to the employee to purchase insurance in an exchange.  This employee can purchase a family plan in the exchange for only $3,385, receiving a generous subsidy to pay the rest of the premium.  So the employee has insurance and an additional $1,000.  Everybody benefits.  In fact, it might benefit the employee to simply pay the penalty tax and forego insurance until it’s needed.  Then, because ObamaCare ignores all sound actuarial principles of insurance and requires insurance companies to issue coverage to all who apply, sick or healthy, the uninsured can opt into coverage anytime it’s convenient.  This sort of gaming will lead to insurance pools populated with higher than average risk, leading to higher premiums.  And down that slippery slope we go.    

The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University.   Baylor is not responsible for the accuracy of any of the information provided in this post.

Should States Participate in the Medicaid Expansion?

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Medicaid expansion, a critical element of ObamaCare, is expected to increase the number of low-income Americans enrolled in the program by 11 million by the end of the decade.  That number is down significantly from earlier CBO estimates because of last summer’s Supreme Court ruling that states are not required to adopt the new eligibility requirements.  To date only 18 states have decided to expand the program to meet the federal standards.  So the question for the rest looms forebodingly: Should we participate in the expansion?  Is expansion the only rational choice for states?  Or was your mother right in warning you that when something sounds too good to be true, it probably is? 

Proponents argue that in the long run state treasuries are only responsible for $1 of every $10 in new spending.  Furthermore, providing coverage to low-income patients will eliminate the need for hospitals to shift costs from those who don’t pay for their care to those with insurance (more on that later).  And to top it off, the stimulus provided by the federal spending will increase economic activity in the state enough to increase state tax revenue by more than the state’s required contribution for the expansion itself.   This may be something that will actually pay for itself. 

There are at least 2 important considerations that are largely ignored by proponents of the proposed Medicaid expansion.  The first is the formula for calculating the federal medical assistance percentage (FMAP) for a state.  Under the current formula the federal share of Medicaid spending ranges from 50-75% with states picking up the remainder.  The income threshold for eligibility is a state decision and varies from 25-200% of the federal poverty level (FPL). The Medicaid expansion is designed to cover all families with incomes less than 138% of the FPL and for the years 2014-16 the federal government will cover the total cost of the expansion.  Beyond 2016 the federal share will settle at 90% of the expansion cost with the state paying the other 10%.   Will the federal money be available at this rate forever?  The concern is whether the federal government will continue to spend money that it doesn’t have.  The time will come and is coming soon when Congress must address the problem of excess spending.  With entitlements responsible for a large share of the deficit, reform of the FMAP formula is likely.  Maintaining programs will require the states to absorb a larger share of the financing. 

The second consideration is the expansion’s effect on the existing Medicaid program.  The adult take-up rate in the current program is 65-70%, indicating that a large fraction of the eligible population does not participate at all.   Policy makers expect that the take-up rate will rise to 85% with the expansion.  Currently in Texas only 800,000 of the 1.23 million eligible adults are enrolled.  If the state expands Medicaid eligibility, not only will we see an additional 1.5 million newly eligible enrollees, but an estimated 365,000 of those currently eligible will emerge out of the “woodwork” and enroll.  The state will be responsible for 40% of the cost of their health care, effectively doubling the state’s share of the overall expansion costs. 

Taking a more practical approach to the argument, proponents claim that if the state refuses the federal funding to expand Medicaid that our tax dollars will simply flow to some other state.  That logic is flawed.  Medicaid spending is determined by the number of eligible enrollees in a state.  The only way that California gets more of the Medicaid expansion money is for otherwise eligible residents in Texas to move to California to receive benefits.

Estimates showing the economic benefits of these kinds of policy changes are often based on simulations using a category of economic models called regional input-output models.  The accuracy of these models depends critically on the basic assumptions buried in its estimating equations.  These models are notoriously sensitive to the assumptions made and when used improperly can easily be manipulated to provide just about any answer you want.  Input-output models are demand-side oriented and ignore supply-side constraints and the opportunity cost of resource investments.   These limitations result in overall estimates for job growth that do not consider whether the economy can attract the workforce to support the market expansion.   The Texas estimate of an additional 988,000 jobs in the health care sector begs the question: How will the state be able to attract an additional 988,000 workers?  Remember, every other state that is expanding with these federal dollars is trying to attract the same workers. 

The argument for accepting the federal money and expanding the Medicaid program is grounded in assumption that private insurance spending pays for the free care provided to the indigent population via the mechanism called “cost shifting.”  Cost shifting assumes that medical providers are able to offer free care to some patients knowing that they can pass the excess costs on to privately-insured patients.   The cost-shift theory is used in policy arguments because of its intuitive appeal, but like much of the conventional wisdom in health care, it is unfounded. 

The fact that Medicare and Medicaid pay only 90% of cost while private insurance pays almost 135% does not prove cost shifting.  It simply shows price discrimination across categories of payers.  And price discrimination does not prove cost shifting.  It merely reflects differences in relative bargaining power in local markets between payers and providers.  Research indicates that there may have been a time in the late 1980s when providers had the power to increase prices to private payers when Medicare and Medicaid lowered payments.  The reason that hospitals could do that was they had not fully exploited their market power and were able to practice cost shifting. 

By the 1990s the expanded use of managed care principles and the increase in the number of for-profit hospitals brought an end to that era.  With the elimination of indemnity insurance plans, the expansion of PPOs, and introduction of consumer directed health plans, coupled with expanded provider networks, payers are better able to resist price increases.  The only response left for hospitals when government payers cut payments is to reduce costs.    

Furthermore, Obamacare provides incentives to consolidate systems (evidenced by the recent agreement between Baylor Health Care System and Scott & White).  Consolidations will increase market power and enhance the ability to price discriminate among payers based on the number of covered lives they bring to the bargaining table.  Thinking that expanding Medicaid coverage will reduce or eliminate the price differences between private and public payers is not warranted by the evidence.    Some will blame the price increases on cost shifting, but they will be wrong. 

Where does that leave us?  If the state does not expand Medicaid what do we do?  If we do nothing, an additional 420,000 of the 1.75 million adults with incomes between 100 and 133% of FPL will be eligible for subsidies through the new exchange (set up by the federal government) at a premium cost of 2% of income, or about $40 per month. 

So what about the other 1.33 million who remain uninsured because the state did not expand Medicaid?  Why not expand the Texas Federally Qualified Health Center (FQHC) program with the money the state would spend expanding Medicaid?  The program is currently funded for $5 million per year.  Five new clinics began operation in 2012 bringing the state total to 69.  The state’s share of an expanded Medicaid program would cost at least $2 billion per year.  How many new FQHCs could be started with that kind of money?  I believe it was Albert Einstein who said “the definition of insanity is doing the same thing over and over again and expecting different results.”  Pumping more money into a flawed Medicaid program is not the way to make the program better; it may even be insane.

Running from a Negative Image

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Corporations engage in rebranding for a variety of reasons.  Often they are trying to hide from past shortcomings or wipe away a negative image.  Phillip Morris attempted to change its image by changing its name and logo to Altria in 2003.  More recently after emerging from bankruptcy, General Motors began selling itself as “the New GM” with fewer models, stronger models, and greater efficiencies.  Rebranding is either accompanied by a change in the product being sold or it’s simply an attempt to escape a bad image. 

A January 16, 2013, post on the HealthCare Blog from HHS Secretary Kathleen Sebelius (http://www.healthcare.gov/blog/2013/01/affordable-insurance-countdown.html ) provides a good example of rebranding.  One of the key elements in the legislation is the establishment of “American Health Benefit Exchanges,” that will serve as a mechanism for individuals to purchase qualified insurance plans.  Called “exchanges” from the beginning of the debate, Sebelius has now introduced new language referring to them as the “new Health Insurance Marketplace,” or simply “Marketplace.”  A newly redesigned website (www.Healthcare.gov) has expunged all reference to exchanges and is using the term marketplace exclusively. 

So, what’s the problem with these changes, you ask?  It’s just marketing.  No, it’s not just marketing.  It’s putting lipstick on a pig.  It’s still a pig.  Normally, when private companies reintroduce a product, rebrand it, there is some change.  The product is always marketed as “new, improved, redesigned, or updated.”  There are no such changes in the exchanges.  They’re still the same mechanism as envisioned in the original legislation, except now 25 states have said that they will not create their own exchange.  Instead, they will let the federal government set them up, run them, and spend billions of dollars in the process.  This in my opinion is a pretty smart move. 

Let’s be clear.  These exchanges are not marketplaces.  As established these exchanges are required to undertake activities that are not typically a part of an open marketplace, who can buy, who can sell, what is available, and the price that is charged.  Specifically:

  • The exchanges must screen all applicants to determine if they are eligible to participate.  This requires the exchange administrators to have the prospective participants employment records, including income, insurance status, availability of employer sponsored insurance, number of dependents, and the same information on other members of the household (in particular, the spouse).  Additionally, the exchange must keep track of any changes in employment information in order to determine eligibility for government subsidies. 
  • The exchanges must certify and rate plans according to HHS guidelines to ensure that they are qualified.  This means that to qualify as an insurance option, a plan must meet certain standards as defined by HHS, including a required benefit package and pricing.  If premiums are determined to be too high, the exchange can refuse to include the plan in its offerings.  The freedom to determine the product being sold and its price is determined solely by the government. 
  • The exchange must provide this information to the government and the applicant’s employer. 

No wonder so many states are not eager to join the federal government in setting up these highly regulated insurance pools.  No wonder that Secretary Sebelius is changing the name of one of the centerpieces of ObamaCare.  No more popular now than the day it was signed into law, the Administration is desperately trying to rebrand one of the main components of the legislation, hoping that by changing what it’s called, we will suddenly see the exchanges as marketplaces.  Let’s hope that Americans are smart enough to see this ruse for what it is, putting lipstick on a pig. 

The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University.   Baylor is not responsible for the accuracy of any of the information provided in this post.

It’s not over, ‘til it’s over

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While that Yogism applies uniquely to baseball, it has it’s applications in health policy as I’ll explain.  Unless you‘ve been stranded on a desert island for the past 6 months, you know that the Supreme Court has spoken on the constitutionality of ObamaCare.  In a creative rewriting of the act, Justice Roberts cast the deciding vote in a 5-4 decision that the Affordable Care Act is constitutional.  It’s not because the forced purchase of health insurance is justifiable under the Commerce Clause.  It’s because the penalty for not complying with the regulation is a tax and Congress has the constitutional authority to levy taxes. 

It’s also clear that the Republican effort to “repeal and replace” the legislation is all but dead in the water since Mitt Romney failed miserably to provide the electorate with a good reason to unseat President Obama and give him the job.  So we just need to accept the fact that ObamaCare is the “law of the land” and get about the business of successfully implementing its provisions. 

Oh, but wait.  What did Yogi say?  It turns out that the Supreme Court did more than pass on the constitutionality of the law, they, in effect, took a flawed piece of legislation and made it functionally unworkable.  And in so doing, have opened the way for new constitutional challenges. 

An important element of the law expected to expand coverage to millions of low-income Americans is the expansion of Medicaid to cover families with incomes below 138% of the federal poverty level (or about $31,800 for a family of four).  The way the law was written states that failed to comply would lose all federal Medicaid funding (amounting to 25% of average state budget).  But the Court didn’t interpret the law that way.  The ruling stated that Congress could not force states to comply with the Medicaid expansion by threatening to defund the existing program.  With the new flexibility 7 states have already announced that they will not expand eligibility.  An equal number will likely follow, creating a serious constitutional problem. 

The Constitution requires that taxes be “uniform throughout the United States” (Article I, Section 8).  This provision keeps states from forming alliances to shift the tax burden to other states.  The result of the Court’s rewriting of the new law is citizens with incomes above the federal poverty level, but eligible for expanded Medicaid are taxed differently depending on where they live.  In expansion states they simply comply with the individual coverage mandate by signing up for Medicaid.  The identical citizen living in a non-expansion state cannot. 

By rewriting the law turning the mandate into a tax, the Court has opened up a challenge to the law on based on the fact that the tax is not uniformly applied across states.  The challenge will not come until someone is actually required to pay the tax.  So for now we wait, until April 16, 2014, that is.

ObamaCare was poorly written from the beginning.  A patchwork quilt constructed from a wish list of liberal policies waiting for a Democrat super-majority in the Congress.  That super-majority only lasted about 5 months from the seating of Al Franken (D, MN) in the summer of 2009 to the to the special election of Scott Brown (R, MA) in January of 2010.  But that was enough time for Democrats to pass this sweeping domestic legislation (without a single Republican voting with the majority).  And we will live with the consequences of that moment in history for quite some time. 

The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University.   Baylor is not responsible for the accuracy of any of the information provided in this post.

Senate Democrats Seek Delay in ObamaCare Tax

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In early December 16 Senate Democrats signed a letter to the President asking for a delay in one of the tax provisions of the Affordable Care Act.  The tax, a 2.3% levy on medical devices, is scheduled to go into effect on January 1, 2013.  The signees include Franken, Durbin, Schumer, and Kerry are now concerned about the “job-killing” nature of the tax and will eventually seek its outright repeal. 

It comes as no surprise to most economists that a revenue tax that amounts to over 50% of the typical device firm’s annual profits will have profound consequences on the way a firm operates.  Some estimates expect a loss of over 40,000 high paying jobs because of the tax.  Additionally, the expectation is for price increases in such devices as hearing aids, wheelchairs, prosthetics, and implantables used in hip, knee, and spine surgery.   The political establishment expected controversy all along.  One key senate staffer responsible for writing the bill called ObamaCare a “coverage bill, not a cost reduction bill.”  Phase 1 was the passage of the act to get more people covered.  Phase 2 will be a battle to control costs. 

This is exactly the pattern that is being followed in Massachusetts where a similar reform has been in place since 2006.  The legislation in that state, labeled RomneyCare, has resulted in a broad expansion of coverage.  But 4 out of 5 of the newly insured are covered in a public program.  As a consequence healthcare spending consumes 54% of the state’s budget (up from 21% in 2001); Massachusetts has the highest per capita healthcare spending in the world; and healthcare costs are 27% higher than the US average. 

The conventional wisdom in Massachusetts holds to the philosophy that the only way to control healthcare spending is through government control.  So Phase 2 started with caps on premiums and is now moving to secure government’s role as the final authority over health care.  The most recent piece of legislation limits the growth in healthcare spending to the growth in state GDP until 2017.  After that date until 2022, the limit is state GDP minus 0.5%.  Thereafter, providers will be placed on a global budget, virtually eliminating fee-for-service and subjecting providers to a capitated payment system.  As a requirement for the privilege of practicing medicine in the state, all providers will have to register with a new state bureaucracy, the Health Policy Commission.  This state agency, similar to the Independent Payment Advisory Board set up under ObamaCare, will have sweeping powers to enforce the new rules on spending, rewrite contracts, establish fees, and punish providers that spend too much money on patient care. 

Well, it took 6 years for Massachusetts to admit that a government-run healthcare system is unable to control spending without taking over all decision-making.  It’s just a matter of time before the rest of the country follows down the same path.  Maybe the Mayans were right and we won’t have to deal with the consequences of this emerging fiasco. 

The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University.   Baylor is not responsible for the accuracy of any of the information provided in this post.

How it feels to withdraw feeding from newborn babies

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An anonymous British physician challenged the sensitivity of the readers of the British Medical Journal (BMJ) with his recent letter published in the November 1, 2012, issue of the prestigious UK publication (see http://www.bmj.com/content/345/bmj.e7319 ).  The physician describes his feelings as he applies the Liverpool Care Pathway (LPC) to pediatric patients in his hospital.  (Those who read this blog regularly may remember the post on the LPC last month; see https://blogs.baylor.edu/jimhenderson/2012/11/02/the-liverpool-care-pathway. )

The emotional burden of working with parents who must witness the slow demise of a severely ill child takes a toll.  The situation as described in the letter is more than merely dealing with a dying child.  It is the ethical challenge of issuing the order to withdraw nutrition and hydration to speed up the process.   

The doctor wrote that parents “wish for their child to die quickly once the feeding and fluids are stopped.  They wish for pneumonia.  They wish for no suffering.  They wish for no visible changes to their precious baby.   Their wishes, however, are not consistent with my experience.  Survival is often much longer than most physicians think; reflecting on my previous patients, the median time from withdrawal of hydration to death was ten days.”

When I first wrote about the Liverpool Care Pathway, my thoughts were focused on end-of-life care for the critically-ill elderly.  Deciding not to prolong the life of someone who has lived a “complete life” is one thing.  Refusing nourishment and hydration to a new-born child for 10 days borders on cruel and unusual treatment; not compassionate care by any definition of the term. 

Once again the media in the UK is blowing up as these stories are making their way into the press.  Palliative care is supposed to ease a person’s way into the final stage of life, not hasten death to save money. 

Read more: http://www.dailymail.co.uk/news/article-2240075/Now-sick-babies-death-pathway-Doctors-haunting-testimony-reveals-children-end-life-plan.html#ixzz2E0iPYfvW. 

The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University.   Baylor is not responsible for the accuracy of any of the information provided in this post.

OBAMACARE: FLAWED FROM ITS INCEPTION

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Remember when Nancy Pelosi said, “But we have to pass the [health care] bill so that you can find out what is in it.”  Well, they passed it.   We’re finding out what’s in it.  And there’s a lot not to like.  This sentiment is not based on my ideological stance against big government.  This legislation is flawed and Republican opposition or not, it needs to be fixed if there is any chance of a successful outcome.  It is understandable that there are problems.  The bill was cobbled together in the first place to ensure the required votes for passage (220-215 in the House without a single Republican vote).  The House had to accept the Senate version in its entirety because of the loss of the Massachusetts seat to the Republicans.  What we have is a document with 8 glaring problems that will be its undoing unless they are addressed. 

  1. Weak individual mandate.  The tax penalty is small relative to the premiums.  The mandate lacks a strong enforcement mechanism: no garnishing of wages, no attaching assets, no jail time.  The only hammer is a lien on over-withholding.  The lesson here is don’t expect refund if you don’t have insurance.  If you plan to forego insurance, make sure you withhold only what you will owe in taxes.   The result is an incentive to game the system.  In other words, don’t buy insurance until you absolutely need coverage and then drop it when you don’t.  This will create adverse selection in insurance pools with only sick people purchasing insurance and premiums will continue their upward march. 
  2. Disruptive employer mandate.   Firms with more than 50 full-time workers (defined as those who work more than 30 hours per week) are required to provide affordable insurance for their employees.  Those that don’t are subject to a $2,000 fine per worker.  The incentive exists to reduce current workers to part-time status, and only hire part-timers in the future.  Fully, one-third of the restaurant and hospitality industry (with unskilled, low wage employees) will make the shift to part-time labor.  Papa John’s, Carl’s Jr, Olive Garden, Red Lobster, Kroger, Hampton Inn, Sheraton, Holiday Inn, and even the College of Allegheny County have already announced their intentions to limit worker hours.  Welcome to the era of the 28-hour workweek. 
  3. Ambitious Medicaid expansion.  The legislation makes Medicaid eligibility uniform across the country at 138% of the federal poverty level (approximately $30,000 for a family of four).  Because establishing eligibility standards has historically been a state’s responsibility, they vary wildly from a low of 17% of FPL in Arkansas to as much as 285% in Minnesota.   The impact of the expansion would have relatively little impact in some states and result in significant increases in state spending in others.  Texas, for example, would see about a billion dollar per year increase in state obligations to the program.  The Supreme Court ruled that the expansion was voluntary, so as many as 17 states may choose to forego expansion.  Instead of covering an additional 18 million nationwide, the expansion will add only about 11 million. 
  4. Complex insurance exchange rules.  States were expected to set up and finance their own insurance exchanges to provide coverage for uninsured residents.  These exchanges require a massive amount of information to verify user identity, certify health plans, and provide a platform for individuals to shop and purchase plans.  The systems must be able to access employment information and IRS files to determine an individual’s eligibility for subsidies.  The complexity is enormous and states do not have to comply.  They can simply sit back and let the federal government do it for them.  Sixteen have already said that they will follow that route.  There is a potential problem if the states don’t act.  The subsidy is clearly available if insurance is purchased from a state-level exchange.  Any mention of subsidies in federal exchanges is glaringly omitted from the legislation.  Expect litigation. 
  5. Medicare spending cuts.  The Congressional Budget Office (CBO) reports that the law will cut Medicare spending by $741 billion over the next ten years.  This “savings” will be used to fund the Medicaid expansion and the state-level exchange subsidies.  CBO scoring of the law indicates that these same dollars will also be used to shore up the Medicare Trust Fund.  But as any first year economics student knows, every dollar has an opportunity cost.  If spent on Medicaid coverage, it can’t be spent to save the Medicare Trust Fund.  In other words there is no “savings.”  The result will be that by the end of the decade, 1 in 7 hospitals will drop Medicare and more physicians will refuse to take new Medicare patients (already 1 in 3 do not). 
  6. Spending continues to rise.  A bill that was promised to “bend the cost curve” falls woefully short.  Currently, health care spending at 17.6% of GDP will approach 20% by the end of the decade.  Premiums will continue to rise, especially for the young who will be pooled with their elders and pay substantially more for their insurance than is actuarially fair.  Many will opt out, choosing not to buy insurance, but rather pay the tax penalty (or not), and insurance premiums for everyone who does buy insurance will be higher. 
  7. Not universal coverage.  The CBO estimates that at least 30 million will not have insurance coverage, about 10% of the non-elderly population.  States opting out of Medicaid, the problems with subsidies in the federal exchanges, and widespread gaming are likely to drive that number up substantially. 
  8. Does not improve access.  Nothing in the legislation addresses the current and future physician shortage.  Basic economics tells us that when you increase demand and do nothing to supply, prices go up or if they don’t, availability lags.  The law has a backup plan for Medicare when this happens.  It’s the Independent Payment Advisory Board (IPAB).  With Medicare price controls as their only tool, seniors can expect at best bottlenecks in their access to care.  At worst, the low hanging fruit is end-of-life care.  (If you want to read more on this topic go to https://blogs.baylor.edu/jimhenderson/2012/10/15/will-obamacare-lead-to-death-panels/). 

ObamaCare is a flawed document.  The Democrats were in such a hurry to pass it that they forgot the fundamental tenant of medical care: First, do no harm.  Well, we’re stuck with it, so what do we do?  The current makeup of body of lawmakers does not bode well for compromise.  All too often with the leadership we have, it’s either “my way or the highway.”  They say that we deserve the leaders we elect.  If that’s true, I’m fearful for the Republic. 

The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University.   Baylor is not responsible for the accuracy of any of the information provided in this post.