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For January, 2011

Funding health care reform

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from Jonathan Starr:
The article “Funding for health care law next  big battle” by Prof. Robert
Reich (San Francisco Chronicle, 1/23/11)  makes the case that funding
universal health-insurance through taxes is likely  to be better accepted than
funding it through mandating individual policy  purchases.  But it does not
make the case that using FICA-style payroll  taxes (i.e. like Social Security
and Medicare taxes) would be preferable to  using progressive income taxes to
fund single-payer health  insurance.  And there are many reasons why the
latter would be much  better.

For entitlement programs like Social  Security and Medicare, there may be
some psychological advantage in  designating a specific tax that appears
separately on paycheck stubs and W-2  statements.  This is because people,
during their working years, tend to  see these as programs for which they pay now
in order to receive specific  benefits in the future.  Making the mental
connection across time between  the payments now for benefits later may be
enhanced by having a designated  associated tax, visible in writing.

But this would not be necessary for universal  single-payer health
insurance.  Upon implementation, universal health  insurance coverage would be part
of the panoply of government services and  benefits that everyone would
receive at all times.  As such, there  would be no need for some written
artifice to calm the public psyche.

After all, no one now needs to see on their  paystub what portion of their
income taxes goes to fire and police  protection, water quality, food
inspection, national defense, etc.  That is  because people can see every day that
they are deriving the same benefits  as everyone else; they do not need
written proof that they are entitled to  them.  The same would be true of
universal single-payer health  insurance.  It would be another such benefit to
which citizens would  know they have access every day, without anything about
it needing to appear on  their tax-related documents.

Meanwhile, progressive income taxes, scaled by  ability to pay, would be a
far more fair and equitable way to fund  single-payer health insurance than
FICA-style payroll taxes.  That is  why countries with single-payer systems
now, like Canada, have chosen to fund  them with progressive income taxes.

The Social Security payroll tax in particular is  very regressive, since it
applies only to earned income (i.e. wages and  salaries), and only up to a
certain cap level.  Unearned income (e.g.  capital gains, dividends,
interest), which accrues overwhelmingly to wealthy  people, is entirely exempt from
both Social Security and Medicare taxes.

And the employer portion of FICA payroll taxes  is very inequitably
distributed as well, and in a way that discourages hiring  and employment, and even
threatens business viability.  In accordance with  the principle of taxing
by ability to pay, business taxes should be based on  level of profits.  But
instead, employer FICA taxes are applied by number  of employees,
regardless of the level of profitability of the business.   So, for example, a
barely-surviving company that employs many people will pay  much higher FICA
payroll taxes than a highly profitable business with few  employees.
Essentially, these are substantial taxes on hiring,  strongly encouraging businesses to
make do with as few employees as possible,  and making it much harder for
labor-intensive businesses to survive at  all.

In FDR’s famous “Four Freedoms” speech, he said  “the principle of tax
payments in accordance with ability to pay should be  constantly before our eyes
to guide our legislation”.  Progressive income  taxes, scaled by ability to
pay, comply with FDR’s principle, while regressive  and inequitable
FICA-style payroll taxes do not.  The implementation of  universal single-payer
health insurance, available to everyone immediately and  at all times, would
eliminate the perceived need to document eligibility for  benefits later based
on payments made now.  As such, equitably applied  progressive income taxes
are the better way to fund single-payer health  insurance.

– Jonathan Starr
The New Great Society
Santa Clara,  CA

Can rate control help?

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I am going to initiate a discussion here.  I’ve posted it here on the EQUAL discussion blog in case some people want to hash it out – we’ll report back to the list once everyone declares unity or a truce:
 
A single payer system would certainly be a vast improvement, and probably ultimately our only salvation.  But I’m not sure Don’s excellent statement exactly nails the case.  Even if true, I want to suggest that it is possible to wring out savings as we progress towards that solution.
 
Blue Shield claims that rising health care costs account for their need to raise rates.  Insurance Commissioner Dave Jones disputed that claim in our interview today.
 
Could the insurance industry do better?  How?
 
If their rates were regulated, they would start to figure it out.  They don’t have to spend 20% of our premium on administration; they just do, because they can.  One MD who is a listserve member regularly sends me piles of useless and misdirected memos from one of his insurers, spewing out useless advice about coordinating care and medications for people who aren’t his patients or who aren’t taking the meds the company is suggesting they shouldn’t take. ( One reason the medical loss ratio should be better adjusted!) Nor do they have to pay exorbitant executive compensation.
 
A single payer system would certainly bring drug companies, hospitals, doctors and others to the negotiating table with governments to lower prices.  However: a. That will be a bloody battle when it happens.  b. Again, not only don’t insurance companies have the leverage in many cases to negotiate – they have no incentive to do so. (It’s not easy.) Regulated rates would give them that incentive.  Ultimately they’ll backtrack because (although many of them probably are very nice people) private plans will likely be less accountable and more driven to show a surplus of funds than are government-run programs.
 
Subsidized premiums proposed under the ACA are in fact affordable for the vast majority of the presently uninsured who earn less than 400% of poverty, who generally are entirely priced out of insurance now (the Blue Shield plan at issue now proposed to raise monthly premiums for one individual from $271 to $431):
 
•150% of FPL($16,245): $68/month
•200% of FPL ($21,660): $113/ month
•250% of FPL ($27,075): $191/month
•300% of FPL ($32,490): $257/month
•Hardship exemption: will be available to individuals whose lowest cost plan option exceeds 8% of an individual’s income

Out of pocket expenses can drive up these costs. And for people over 400% of poverty (who would not get subsidies – a minority of the uninsured), premium costs can also be a deterrent.  So affordability in the ACA is a problem; it’s just not prohibitive in all cases, and for a lot of people it is ok.

How to provide higher quality care, while controlling costs:  the ACA proposes some “best practices” models; somewhat more primary care (through community health centers, the National Health Service Corps, and payment reforms); and other measures a single payer system would have to at least explore.
 
A single payer system would (or at least could) effectively negotiate prices for drugs and health care goods and services vastly better than the fragmented insurance industry; we the public would be far better able to hold it accountable to control costs, and administrative inflation would be much better controlled (no need to evaluate enrollees for eligibility e.g.).  
 
Regulating insurance company rates, meanwhile, would help make premiums more affordable, while we’re figuring out how to replace the industry with a more humane public system, and to actually deliver high quality, affordable, publicly accountable health care. Meanwhile we should not let Blue Shield off the hook. – Ellen Shaffer 

On Fri, Jan 7, 2011 at 2:47 PM, aaron roland <doctoraaron@pacbell.net> wrote:

Many of you have probably already seen these comments by Dr. Don McCanne about these rate hike proposals but I think they are important for all to read so I have copied them below.  Only true reform through a single payer gives us any chance of controlling costs with while providing reasonable quality care for all:
Last year California’s for-profit Anthem Blue Cross, a division of WellPoint, enraged everyone when they attempted to raise premiums as much as 39 percent. In contrast, Blue Shield of California is a non-profit insurer attempting to compete in a market in which the rules are established by investor-owned insurers, yet they are now calling for premium increases as high as 59 percent. As a provider or a patient, it is difficult to tell the California Blues apart.
That said, the brief statement released by Blue Shield of California explains the reasons for the increases: higher provider prices, increased utilization, and a decline in enrollment in a bad economy resulting in spiraling premiums due to adverse selection. In spite of these premium increases, Blue Shield expects to lose tens of millions of dollars on its individual health plans.
These premium increases are intolerable, but is Blue Shield really to blame? Keep in mind that the average working family of four now uses over $18,000 worth of medical care (Milliman Medical Index), and Blue Shield is trying to sell a product that covers those costs plus its own administrative expenses. With insurer administrative costs at 20 percent for the individual market, that’s about $22,500 that the premium would have to be. To lower the premium, costs are shifted directly to the family through deductibles, co-payments, coinsurance, and paring of benefits, but how much in direct costs can the family bear when median household income is about $50,000?
Blue Shield is facing an impossible situation. They cannot create a product that has both affordable premiums and adequate protection against out-of-pocket medical expenses.
That is why the Patient Protection and Affordable Care Act provides income-indexed subsidies for both premiums and cost sharing, but applying simple math to these subsidies will demonstrate that they are inadequate for the majority of low- and moderate-income families who have health care needs.
If we were to increase the subsidies to a level where they would be adequate, then you would be paying more than an improved Medicare for all would cost since the subsidies would have to pay not only for health care but for all of the administrative excesses of our fragmented system composed of a multitude of private and public plans. If taxpayers are going to pay the bill, we might as well pay the one that is a bargain.
The administrative team at Blue Shield of California is composed of fine people. We should thank them for their dedicated service and offer them job retraining to serve in our expanded and improved Medicare program. For the investors and administrative team at Anthem Blue Cross, we should show them the door.
 
Peace,
 
 
Aaron
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