Thursday, July 31, 2014

Fwd: qotd: Victor Fuchs on the solution for high health care costs in U.S.

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From: Don McCanne <>
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Subject: qotd: Victor Fuchs on the solution for high health care costs
in U.S.
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The Atlantic
July 23, 2014
Why Do Other Rich Nations Spend So Much Less on Healthcare?
By Victor R. Fuchs

Despite the news last week that America's healthcare spending will not
be rising at the sky-high rate that was once predicted, the fact remains
that the U.S. far outspends its peer nations when it comes to healthcare
costs per capita. This year the United States will spend almost 18
percent of the gross domestic product (GDP) on healthcare.

Why does the United States spend so much more?

The biggest reason is that U.S. healthcare delivers a more expensive mix
of services. For example, a much larger proportion of physician visits
in the U.S. are to specialists who get higher fees and usually order
more high-tech diagnostic and therapeutic procedures than primary care

A second important reason for higher healthcare spending in the U.S. is
higher prices for inputs such as drugs and the services of specialist
physicians. The prices of branded prescription drugs in the U.S. are, on
average, about double those in other countries. The fees of specialist
physicians are typically two to three times as high as in other
countries. The lower prices and fees abroad are achieved by negotiation
and controls by governments who typically pay for about 75 percent of
all medical care. Government in the U.S. pays about 50 percent, which
would still confer considerable bargaining power, but the government is
kept from exerting it by legislation and a Congress sensitive to
interest-group lobbying.

The third and last important reason for higher spending in the U.S. is
high administrative costs of insurance. Many of our peer countries have
lower administrative costs through more coordination, standardization,
and in some countries a single national system or several regional
healthcare-insurance systems, even when the provision of care is
primarily a private-sector responsibility.

The complexity of private-sector insurance is not in the public
interest. Each company offers many plans that differ in coverage,
deductibles, co-pays, premiums, and other features that make it
difficult for buyers to compare the prices of different policies.

If we turn the question around and ask why healthcare costs so much less
in other high-income countries, the answer nearly always points to a
larger, stronger role for government. Governments usually eliminate much
of the high administrative costs of insurance, obtain lower prices for
inputs, and influence the mix of healthcare outputs by arranging for
large supplies of primary-care physicians and hospital beds while
keeping tight control on the number of specialist physicians and
expensive technology. In the United States, the political system creates
many "choke points" for diverse interest groups to block or modify
government's role in these areas.

For those who would like to limit government control, there is an
alternative route to more efficient healthcare through "managed
competition," proposed by Alain Enthoven, a Stanford University Business
School Professor, more than 25 years ago. It is based on integrated
group practice, which brings the insurance function, physicians,
hospital, drugs, and other elements of care into a single organization
that takes responsibility for the health of a defined population for an
annual risk-adjusted per capita payment. Examples include the Group
Health Cooperative of Puget Sound in Seattle and the Kaiser Permanente
organizations in California.

With regard to healthcare, the United States is at a crossroads. Whether
the Affordable Care Act will significantly control costs is uncertain;
its main thrust is to reduce the number of uninsured. The alternatives
seem to be a larger role for government or a larger role for managed
competition in the private sector. Even if the latter route is pursued,
government is the only logical choice if the country wants to have
universal coverage. There are two necessary and sufficient conditions to
cover everyone for health insurance: Subsidies for the poor and the sick
and compulsory participation by everyone. Only government can create
those conditions.


Comment by Don McCanne

Highly respected Stanford economist Victor Fuchs has long supported
private solutions to universal coverage, such as Alain Enthoven's
managed competition. Although there is much to be said for establishing
integrated health care delivery systems within the community, the
logistics of providing all care through competing integrated delivery
systems have proven to be insurmountable, as witness the managed care
revolution that reduced this concept to competition between inefficient,
expensive and intrusive third party insurer money managers.

Fuchs now notes that "the complexity of private-sector insurance is not
in the public interest." He acknowledges the crucial role of government
in other nations. He states that we are now at a crossroads between "a
larger role for government or a larger role for managed competition in
the private sector." Even if private managed competition is selected,
"government is the only logical choice if the country wants to have
universal coverage."

But look at the government requirement he would impose if the private
managed competition option were selected: "Subsidies for the poor and
the sick and compulsory participation by everyone." We already have that
in the Affordable Care Act, and yet we will be left with 31 million

At least Fuchs is right when he says, "Only government can create those
conditions." But the vehicle has to be functional. That's why we need to
do it through a single payer national health program. We can still have
our integrated health care delivery systems that Arnold Relman also
supported, but in addition we will need the other components that make
the system work efficiently for all of us.

Tuesday, July 29, 2014

Fwd: qotd: David Dranove and Craig Garthwaite warn of a system without narrow networks

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-------- Original Message --------
Subject: qotd: David Dranove and Craig Garthwaite warn of a system
without narrow networks
Date: Tue, 29 Jul 2014 12:31:03 -0700
From: Don McCanne <>
To: Quote-of-the-Day <>

Code Red: Two Economists Examine the U.S. Healthcare System
July 29, 2014
Narrow Networks Redux
By David Dranove and Craig Garthwaite

The Affordable Care Act is premised, at least in part, on the notion
that competition can be harnessed to reduce healthcare costs and improve

When most people think about the benefits of competition, they tend to
think about prices. Monopolies charge high prices; competitors charge
low prices. There is nothing wrong with this perspective, but it misses
a more fundamental point. In the long run, the greatest benefit of
competition is that it has the potential to fuel innovation.

This is as true, in theory, for health insurers as it is for
telecommunications and consumer electronics. It hasn't always been true
in practice; for several decades after the IRS made employer-sponsored
health insurance tax deductible, insurers tended to offer the same
costly indemnity products. But consumers eventually demanded lower
premiums, and insurers responded with managed care. After the backlash,
insurers developed high deductible health plans and value based
insurance design. Insurers are now moving towards reference pricing.
These plans offer consumers reimbursement up to a pre-specified level
for treatments that can be easily broken into a treatment episode such
as hip replacements or MRIs.

High deductibles and reference pricing are fine, but do not always work
in practice. Chronically ill patients quickly exhaust their deductibles,
and reference pricing does not work well for chronic diseases. In order
to complement these tactics, some insurers are once again offering
narrow network plans. We commented in earlier blog posts that the ACA
would catalyze the return of these narrow networks and also warned that
this might fuel another backlash. Unfortunately, a recent New York Times
article shows, the backlash is well underway.

Make no mistake, restrictive networks are essential to cost containment.
Through narrow networks, insurers can negotiate lower prices. More
importantly, they can direct enrollees to providers who have lower
overall costs and higher quality. Dranove has written two books about
this. Don't take his word for it. The independent Robert Wood Johnson
Foundation has published two comprehensive studies showing that the
competition triggered by networks has been successful in reducing costs
and improving quality.

By definition, some providers are excluded from narrow networks, and
this is where the trouble begins. Excluded providers who have lost out
in the cauldron of competition always complain the loudest. We should
have no sympathy for them.

What about patients? Some patients knowingly choose health plans with
narrow networks in order to save money, and should not be surprised to
find that some of their favorite providers are excluded. Others may be
in the dark about their networks. The solution isn't to regulate narrow
networks out of existence; it is to shine some light on network structure.

Another concern may be that low income enrollees who cannot afford
broader networks might be at a disadvantage. But if we want to provide
big enough subsidies so that all enrollees have broad networks, we will
have to either (a) raise taxes further, or (b) limit the number of
uninsured we can enroll. Neither choice seems better than the status quo.

Now, this does not mean that we think there is no place for regulation
of narrow network plans. We don't think that the newly formed ACA
exchanges, or any market, should be the proverbial Wild West. For
example, if we want consumers to make educated choices across insurance
plans, then they require timely and accurate information about which
providers are in which networks. We would think this would be more than
feasible, though <> was somehow
unable to provide this information to many of the initial enrollees. We
understand that providers go in and out of networks all the time and it
would be burdensome for insurers to inform enrollees of all network
changes in real time. But insurers could provide regular updates. We
also wonder if insurers have the capability of identifying, through
billing records, when a particular patient's provider has gone out of
network, and sending that patient an immediate update. In these
situations, patients should be allowed to change their choice of plans
outside of the open enrollment period in the same way they might be able
to if they had another qualifying event such as the birth of a child.

In addition, narrow network plans are only effective if there are
multiple high quality providers offering services in an area. Given the
recent wave of provider consolidations, it is critical that anti-trust
authorities carefully monitor these mergers. After all, competition can
only work in truly competitive markets.

But what we must avoid is mandating broader access. This would spell the
end of market-based health reform. If insurers cannot exclude some
providers, then providers have little incentive to lower prices and
become more efficient.

Many states have already attempted to mandate minimum access through Any
Willing Provider laws. These laws require insurers who have come to
terms with a specific provider to accept all providers who agree to
those same terms. This may sound fair, but the economic implications of
AWP for patients are anything but fair. Under AWP, no providers need
negotiate with insurers or accede to an insurer's request for discounts.
Providers can bide their time, knowing that they can always force their
way into the network. Having lost all their leverage, insurers can no
longer demand discounts, and prices invariably rise.

The push for broad access seems to be especially strong in sparsely
populated states such as Montana. But proposals to assure access, which
often take the form "At least X% of enrollees must live within Y miles
of a provider" do more to drive up costs than any other rules we can
imagine, because they grant effective monopoly rights to rural
providers. Insurers facing such rules have two options (a) accede to the
pricing demands of the local monopolies, or (b) drop coverage in areas
where providers have been granted local monopolies. Montanans may as
well have nationalized healthcare.


Comment by Don McCanne

This blog entry by David Dranove and Craig Garthwaite is another
example, like yesterday's, where economists from "the other side"
clearly understand the policy issues, but are guided by an ideological
preference for market solutions as opposed to more effective government

Narrow networks do terrible things. As these authors state, narrow
networks provoke backlashes from patients who are unhappy with the
restrictions. Healthy individuals select their plans primarily based on
price but then are disappointed when they find that the networks are
unable to meet either their needs or their choices. The narrow networks
become anti-competitive when excluded providers leave the community and
are not available for the next year of provider contracting. The authors
point out that requiring the providers to be within a reason distance
from patients drives up costs, as if cost containment is far more
important than access. With the inevitable changes in patient plan
enrollment and in provider network enrollment, narrow networks can be
highly disruptive because of the need to leave your established care and
enter new narrow networks. Perhaps worst of all, the authors state that
"low income enrollees who cannot afford broader networks might be at a
disadvantage." But then they state that if we are to broaden the
networks we must "either (a) raise taxes further, or (b) limit the
number of uninsured we can enroll," as if there were absolutely no other
option for containing costs that did not involve narrow networks. They
seem to believe that the trade-off is worth the cost of disadvantaging
low income enrollees.

They contend that "restrictive networks are essential to cost
containment," after making the case that other market tools of
competition have been inadequate. But ideology dictates that market
competition must be the driving force for cost containment. They caution
that mandating broader access "would spell the end of market-based
health reform."

The case they make for Montana seems to be the clincher on why narrow
networks are such a highly flawed policy - a conclusion that they did
not intend. They complain that requiring reasonable distances to health
care creates a provider monopoly that will cause insurers to either
charge outrageous rates or simply drop coverage. They say that
"Montanans may as well have nationalized healthcare." Maybe they should,
as should the rest of us.

If the inadequacy of other tools of market competition have required
insurers to turn to perverse narrow networks maybe we should be
questioning whether market competition is the best policy for
controlling costs. Come to think of it, maybe we should listen to these
authors when they say that allowing broader access "would spell the end
of market-based health reform." Other national systems depending on
government administered pricing provide care for everyone at an average
of half of what we are spending per capita. Now that's effective cost
containment, and it's accomplished without kowtowing to the ideologues
who insist that health reform must be market based.

Friday, July 25, 2014

Fwd: qotd: Kshama Sawant on single payer

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-------- Original Message --------
Subject: qotd: Kshama Sawant on single payer
Date: Fri, 25 Jul 2014 13:11:52 -0700
From: Don McCanne <>
To: Quote-of-the-Day <> (Seattle)
July 23, 2014

Glimmers of healthcare politics at meeting of Western Washington docs

Tough talk from Kshama Sawant and others at annual gathering of Western
Washington Physicians for a National Health Program.

By Ted Van Dyk

Seattle City Council member Kshama Sawant also was critical of
Obamacare, arguing that the administration colluded with drug and
insurance companies in framing it. Sawant spoke longest and most avidly
at the meeting. She called on committed single-payer supporters to
follow the example of those who sought a $15 minimum wage in Seattle,
and bring tireless pressure to bear on Democratic officeholders in
particular. Sawant is a committed socialist who often referred to
"working class interests" and "corrupt corporations, banks, and hedge
fund operators."

Kshama Sawant (video at 4:45):

"Our discussion should be formulated not on the basis of whether or not
the ACA delivered something good. Maybe it did, but that's not the
point. The point is, what are we not getting from it, and why didn't we
win single payer health care? That's what I would like to focus on."


Comment by Don McCanne

Socialist Kshama Sawant, a member of the Seattle City Council, came to
national attention by leading her fellow council members in passing a
$15/hour minimum wage for their city. Having shown that political
activism can still be effective, she has important advice for us in our
efforts to enact single payer reform.

Currently attention has been diverted from single payer, as most
progressives are celebrating the supposedly great successes in
implementation of the Affordable Care Act (ACA). Even the Republicans in
Congress who have voted several times to repeal ACA, are now suing
President Obama for not implementing it fast enough.

Those of us who continue to adamantly support single payer are facing
criticism for not joining the ACA bandwagon. This is where Sawant's
message is so important. Whether "ACA delivered something good" is not
the point. The point is, we have to inform the public on "what are we
not getting from it." And what we are not getting is most of the goals
of reform! The accomplishments are extremely modest compared to the
reform that we need.

What are we not getting from ACA that we would be getting from single payer?

* Truly universal coverage
* Dramatic reduction in administrative waste
* Removal of financial barriers to care
* Coverage of all essential health care services
* Free choice of hospitals and health care professionals
* Removal of the interventions and excesses of the private insurers
* Taxpayer financing based on ability to pay
* Infrastructure reform that would slow spending to sustainable levels

And what successes are the ACA supporters touting (though using
different rhetoric)?

* Coverage of only about half of the uninsured
* Shift to underinsurance products
* Guaranteed issue of these underinsurance products
* Deductibles that keep patients away from care by erecting financial
* Insurance subsidies that are inadequate
* Ultra-narrow networks that take away choice
* Insurance marketplaces that increase administrative complexity and waste
* Inadequate cost containment policies (except for perverse higher

Sawant delivers a very strong leftist message on social justice issues,
and includes in her comments the failures of the Democratic Party to
act. But this point on what we are not getting from ACA and why we need
single payer is not a leftist message. It is a call for all of us from
across the political spectrum who support single payer to take control
of the message. We can no longer allow ourselves to be a meek voice
silenced by those who, for noble and ignoble reasons, celebrate the
paltry successes of ACA.

Again, the something good that ACA did is not the point. The point is
what we are not getting from ACA and would be getting under a single
payer system. Let's drown out the message of the ACA supporters who
wimped out on real reform.