Observations on Health Care Reform

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Today, Obama signed the bill to repair bad parts of the health bill, and all are now the law of the land. Things might have gone better if this were called “Insurance reform” as that section caused the most heated debate.  Underlying the disagreements are two opposing philosophies. Those who think access to health care is a privilege will disagree with this reform.  Those who think that access is a basic right tend to agree.  Below are some observations about the whole messy process.

Everyone is entitled to their own opinion.   No one is entitled to their own facts. These last 14 months have seen far too many allegations passing as facts, and when repeated often enough, has many believing they are facts. Having spent so many months researching real facts from nonpartisan sources, most of the critics’ allegations are simply untrue.

One often repeated charge is that Democrats rammed this through and excluded all Republican attempts to participate.  One reason this process took so long is that Senators Baucus (Democrat) and Grassley (Republican) took months longer to reach agreement on their committee bill that was a bipartisan effort and more than 200 Republican ideas are included in the final bill.  Republican input is substantial and to say they had no voice is just politics, not fact.

Another reason is the Republican Party opted for a strategy to “just say no” to any partisan Obama bill and to appointments requiring Senate approval.  They even called the health bill, Obama’s Waterloo months before they knew what was in it. Withholding of appointments and repeated 100% NO votes attests to their non cooperation.  After months of joint effort, even Senator Grassley voted against his own committee bill.

Minority Leader Boehner complained that this bill would be Armageddon and Senator McCain said he would no longer participate.  Such hyperbole would be humorous save that far more inflammatory comments have stirred up unruly conduct in the public while leaders on the right remain mostly silent.

The majority of Americans disapprove this bill. One truth is political bickering has turned off the majority people. But it also depends on how the questions are worded.   Non partisan Kaiser Foundation asked about 12 specific benefits.  Over half favored 11 benefits, with 60%+approval on 6 benefits.

The individual mandate is unconstitutional. What people do not realize is federal law requires everyone be treated in emergency rooms, regardless of their ability to pay.   If you have mandatory expenses, you need mandatory income. Republicans initiated the idea of mandate during Hillary care and Democrats objected much like Republicans do now.  But like a card table, take out a key leg and the whole table falls down.  Healthcare is far more complex than four legs and all need to work together or reform collapses.

Republican governor Romney who passed universal health care for his state wrote in 2006 (and which it and the new law are quite similar) “Some of my libertarian friends balk at what looks like an individual mandate. But remember, someone has to pay for the health care that must, by law, be provided: Either the individual pays or the taxpayers pay. A free ride on government is not libertarian.”

This is a government takeover of healthcare. Somebody might want to remind those folks that 100 million people and ½ of all medical costs are already on government health care. While reform calls for an expansion of Medicaid, the bulk of reform retains the current mix of private and government insurance.  What IS reformed are the health insurers who over time have engaged in more and more nefarious acts that favor profits at the expense of the health of their insured.

Insurance reform is the number one issue for the public and this statute goes a long way, albeit gradually, in making those egregious acts illegal.  Controls on insurers are what all other industrialized nations do and their costs are about half ours.

Government will dictate coverage and ration care. There is some truth to that.  However, today, health insurers dictate coverage and too many care more about Wall Street than people’s health.  In fact, some 45,000 people die each year because of lack of access to health care.  If one wants to complain about death panels and health care rationing, look no further than your for-profit health insurer of today.

Buried in those thousands of pages are new data reporting standards and requirements that will allow comparison of medical practices.  Since half of all costs are already taxpayer funded, why shouldn’t the government make an effort to eliminate waste by encouraging effective practices and discouraging non-effective ones.  Contrary to “popular” opinion, the bureaucrats analyzing those practices are not political flunkies, but doctors and medical personnel.

This will cut Medicare benefits. Hard as it may seem today, the government had grave initial concerns that few people would sign up for Medicare.  To encourage participation, Medicare offered private insurers a “bonus” of 15% above Medicare’s own costs to entice seniors to sign up.  Today, 25% of seniors are in Medicare Advantage programs.  Private insurers are free to modify that coverage and add benefits, but also free to charge more for any enhancements.

What reform does is gradually reduce that 15% “bonus” as it certainly is not needed to encourage seniors to sign up. But it does so in an intelligent way, allowing efficient insurers to keep more of the bonus while discouraging inefficient ones.

Closing Medicare Drug “doughnut hole”. There is bipartisan support for this provision as there was in the initial Bush statute.  What few remember is that there was zero funding included in that Republican bill and its 10 year costs about equal the current reform bill. Republican complaints of adding to the deficit or raising taxes are rather hypocritical given their history of deficit spending.

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Key Healthcare Provisions – Fortune Magazine

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Fortune Magazine Source

By David Ewing Duncan, contributor

March 22, 2010: 12:58 PM ET

(Fortune) — Those of us alive last night will one day retell the story of how mere mortals in Congress and the White House defeated a combined army of Harpies, Gorgons and Minotaurs that for decades have thwarted all efforts to reform the American health-care system.

So maybe most of America last night was riveted not by Parliamentary antics in Congress, but by college basketball. Nonetheless the House of Representatives did the deed when they passed the Senate’s health reform bill at 10:44 pm. A package of changes to the bill still needs to be approved by the Senate, but the basic health-care bill will become law when President Obama signs it.

Now we really can get busy and work on health-care reform.

I’m not talking about the sort of epic reform that was just passed by Congress. That was as much about showing the country that Washington can govern and take on powerful interests, as it was about healing our ailing health-care system.

I’m talking about an agenda of urgent matters that still need to be addressed to truly fix American health care. But not in the hyperventilated, do-or-die atmosphere that has characterized the health-reform debate every time it has been seriously proposed since at least Harry Truman. These remaining issues can be thought of as smaller epics, like chapters in the health-reform Odyssey rather than the entire narrative.

Here’s what’s left to do.

Reduce costs: According to President Obama and Congressional Democrats, the bill just passed will pay for itself over the next ten years. But what about the rest of the $2.7 trillion the nation will spend this year on health care? That works out to almost $9,000 per American — which is nearly twice what the next most expensive country in the world — Switzerland shells out.

Spending this much on health care takes away resources from education, defense, and other priorities. Medicare and Medicaid alone are estimated to cost $763 billion in 2010, which have edged out defense and social security for the first time as the number one expenditure for the federal government, costing 21% of the president’s $3.5 trillion budget.

Improve care: Contrary to the widespread belief that the U.S. has the best health-care outcomes in the world, on many measurements we lag behind nations that spend far less. For life expectancy, the U.S. ranks 23rd out of 27 for Organization for Economic Co-operation and Development countries, which also include most of Europe, Japan, Korea, Turkey, Australia, New Zealand and Canada.

While mortality rates in the U.S. for stroke and some cancers rank among the best — meaning fewer deaths, according to the OECD — the U.S. ranks toward the bottom in mortality rates for other maladies such as diabetes. We rank 26th, second to the last, for our infant mortality rate.

Comparative Effectiveness: The bill just passed by Congress allocates funding for investigating and assessing which pharmaceuticals, devices and procedures work best. This effort needs even more funding and a larger mandate to rid health care of expensive treatments that don’t work — or that work no better than less expensive alternatives. We wouldn’t buy a car without consulting Consumer Reports, so why shouldn’t we have the same information available for health-care treatments?

Personalized Health: A revolution in predictive and preventive health care is underway thanks to new discoveries in genetics and molecular biology. The current bill provides some funding and support for translating these scientific discoveries into clinical applications — which is added to previous funding provided by the National Institutes of Health — but much more is needed.

The goal is to shift health care from focusing on sickness and symptoms to emphasizing prediction, early diagnosis, and prevention. (Not all prevention is high tech — holding anti-smoking classes for middle-school students, for instance, is a low-tech option for preventing teens from becoming smokers).

Expanding the publicly funded safety netRight now 100 million Americans — one in three — have govern ment-funded and administered insurance, mainly through Medicare, Medicaid, and the military. The bill that just passed will go a long way to making sure most of the rest of America is insured, though efforts to provide a publicly financed option to private health insurance failed to make it into the final measure.

Making sure that Americans have an affordable insurance option required by law is unfinished business. We now need to insure that every American — like every citizen in Britain, Germany, Japan, and Korea — is covered by a basic insurance safety net.

Of course, none of these mini-epics will be addressed anytime soon, not with so many other monsters running amok like financial reform, jobs, education, and Afghanistan. But what a relief that the mortals in Washington rose above their bickering to slay at least one or two of the beasts plaguing our land.

Download PDF Report >>> Key Healthcare Provisions

Key Healthcare Provisions – Kaiser Foundation

Download PDF Report >>> Key Healthcare Provisions

Kaiser Foundation Source

Some of the items that go into effect in the first year include:

NEW HELP FOR SOME UNINSURED: People with a medical condition that has left them uninsurable may be able to enroll in a new federally subsidized insurance program that is to be established within 90 days. The legislation appropriates $5 billion for this, although that may not be enough to cover all who apply; it’s not clear how much consumers would pay as their share of the cost. About 200,000 people are covered in similar state programs currently, at an estimated cost of $1 billion a year, says Karen Pollitz, a research professor at Georgetown University.

DISCOUNTS AND FREE CARE IN MEDICARE: The approximately 4 million Medicare beneficiaries who hit the so-called “doughnut hole” in the program’s drug plan will get a $250 rebate this year. Next year, their cost of drugs in the coverage gap will go down by 50 percent. Preventive care, such as some types of cancer screening, will be free of co-payments or deductibles starting this year.

COVERAGE OF KIDS: Parents will be allowed to keep their children on their health insurance plan until age 26, unless the child is eligible for coverage through a job. Insurance plans cannot exclude pre-existing medical conditions from coverage for children under age 19, although insurers could still reject those children outright for coverage in the individual market until 2014.

TAX CREDITS FOR BUSINESSES: Businesses with fewer than 25 employees and average wages of less than $50,000 could qualify for a tax credit of up to 35 percent of the cost of their premiums.

CHANGES TO INSURANCE: All existing insurance plans will be barred from imposing lifetime caps on coverage. Restrictions will also be placed on annual limits on coverage. Insurers can no longer cancel insurance retroactively for things other than outright fraud.

GOVERNMENT OVERSIGHT: Insurers must report how much they spend on medical care versus administrative costs, a step that later will be followed by tighter government review of premium increases.

Some of the major changes the reconciliation proposal would make to the Senate-passed bill:

HEFTIER SUBSIDIES: Compared to the Senate legislation, the reconciliation bill would provide more generous subsidies to low- and moderate-income Americans to help them buy health coverage.

THE “MASERATI” TAX: The levy on high-cost insurance plans is scaled back and delayed, rendering it more a “Maserati” than a “Cadillac” tax. It would apply only to the portion of plans costing more than $10,200 a year for individuals, up from $8,500, and $27,500 for families, up from $23,000. The tax wouldn’t kick in until 2018, reducing the projected revenue to the government by 80 percent. Over time, however, the tax would hit more and more plans, because the tax’s threshold is set to increase at the rate of inflation while premiums are expected to continue to grow much more quickly than that.

CLOSING THE DOUGHNUT HOLE: Unlike the Senate bill, the reconciliation measure would eventually close the coverage gap, called the “doughnut hole,” for Medicare beneficiaries enrolled in Part D drug plans. (Currently, seniors who hit the gap must bear the full cost of their medications until they spend a certain amount, when coverage kicks back in.)

Under the new bill, seniors who hit the gap this year would get $250 to help cover the costs of their medications. Starting next year, they’d get a 50 percent discount on brand-name drugs, with the cost borne by the drug industry. In subsequent years, the discounts would expand and begin covering generic drugs, with the expense picked up by the government. By 2020, the discounts would reach 75 percent.

SHIFT IN MEDICARE ADVANTAGE PAYOUTS: Government payments to Medicare Advantage, the private-health plan alternative to traditional Medicare, would be cut back more steeply than under the Senate bill: $132 billion over 10 years, compared to $118 billion.

The government currently pays the private plans an average of 14 percent more than traditional Medicare. The new bill, besides reducing payments overall, would shift the funding; some high-cost areas would be paid 5 percent below traditional Medicare, while some lower-cost areas would be paid 15 percent more than traditional Medicare. The Senate’s plan that would have shielded some areas of the country such as South Florida from major cuts was largely eliminated.

A RAISE FOR DOCTORS: Primary care doctors would get a Medicaid payment boost in the reconciliation bill. Beginning in 2013 and 2014, the doctors’ payment rates would be on par with Medicare rates, which typically are about 20 percent higher than Medicaid. The goal is to ensure that there will be a sufficient number of doctors willing to care for the millions of additional people who would become eligible for Medicaid under the health care overhaul.

PUSHING UP THE MEDICARE TAX: The Senate bill adds a 0.9 percentage point to the Medicare payroll tax on earned income above $200,000 for individuals, or $250,000 for couples. Under the reconciliation bill, starting in 2013, people in those income brackets also would face a 3.8 percent tax on investment income, such as interest, capital gains and dividends.

PENALTY FOR NOT HAVING INSURANCE: Under the new bill, most Americans without insurance would face an annual penalty, starting in 2014 at $95 – the same as in the Senate bill. But in following years, the penalties in the reconciliation bill are slightly different. Those without insurance in 2016, for example, would pay the greater of two alternatives: a flat fee of $695, down from the Senate’s $750, or 2.5 percent of their income, up from 2 percent in the Senate bill.

EXPANDING MEDICAID: The reconciliation package differs from the Senate-passed bill in several ways. It would delete a provision dubbed the “Cornhusker kickback” that would have exempted Nebraska from paying any cost of a Medicaid expansion included in the bill. But it would provide full federal funding to all states for newly eligible Medicaid recipients for three years. And it would give additional funding to states like Vermont and Maine that have already moved to cover adults without children, which isn’t required under the Medicaid program.

MEDICARE SPENDING BOARD: The Senate bill would create an independent, 15-member board to recommend ways to control Medicare spending. The board remains in the reconciliation package, but would be expected to produce just about half of its original projected savings of $23 billion in the Senate bill. That’s because the new proposal would make greater cuts in Medicare Advantage plans.

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Insurers Hide Profitability Behind Return on Sales

Download PDF Report>>> Insurers Hide Profitability Behind Return on Sales


Health insurance companies have repeatedly claimed their earnings were a very modest 3-5% return on sales. Implicit in their claim is that many others earn far greater returns.  But comparing sales ratios to other industries can be misleading.

High value added industries like software have high sales margins.  Low value added industries like groceries and insurance and have low sales margins. While health insurers may not compare well with the high valued group, they show very fair returns compared with lower added value industries.

Other financial ratios used to compare include ROI and ROE that key not on sales but on gross and net investment. How much money was used to generate profits.  Here the picture is significantly more favorable for health insurers. They are not only near the top of basic industries, but are well positioned compared with more discretionary industries.


Return on sales, while prevalent, is not the only financial ration used to compare performance.  Each ratio has its strengths and weaknesses.  The weakness of return on sales is that it completely obscures the differences in the value companies add to the goods and services that they sell.

The chart below highlights returns for three industries based on value added. (Ratios are for example only.) The bottom bar represents high value added firms like computer software where purchased goods and services are nominal compared to what they pay their staffs and what they earn on sales.

The mid range covers companies like manufacturers who buy raw materials and intermediate goods, perform significant steps (like conversion and assembly) incurring added costs, and (hopefully) sell at a margin above their internal costs.

Finally, at top are industries where the bulk of their costs are purchased, like groceries and insurance, and while they add value it is small compared to their purchase costs.

In all three cases, a consistent ratio of internal costs of 60% and margin of 40% was applied.  But notice that the margin on final sales (at 100%) ranges from 36% for high value added industries to only 4% for low value added. To rely on returns based on sales is meaningful only within industries with similar value added components.


Ratios of returns on sales are also influenced by where they stand on a “necessity” scale.  Sales for basic items like food, housing, and utilities, tend to be fairly stable and many of their costs are simply “passed through” to the customer. The more the pass through, the lower the markups tend to be.

Conversely, purchases discretionary purchases for luxuries, entertainment, and cell phones can be expected to have higher margins.  Sales levels are more affected by economic conditions and higher margins compensate for greater risks.

As noted, health insurers act like the poor kid on the block using net profits on sales.  It is true that a group of industries have far better returns than health insurers as shown below. The chart shows returns based on net profit margins divided by sales (Source: Yahoo Finance – Industry Index by Sector).

Insurers ARE the “poor kids on this block.”  But look at the “block.” Cigarettes, beer, wine and liquor, golf clubs and perfume, cell phones and cable TV.  These industries can hardly be defined as meeting basic customer needs.  These are discretionary purchases that can cut back on during tough times.  Purchases of basic necessities are harder to cut back.

Below is a different group of industries covering more basic needs. One would reasonably assume that health insurance is a basic industry and where value added is small compared to total costs.  While Health Insurers (gold bar) may not be the highest in this group either, they are by no means the lowest.  What you don’t see are these other industries complaining about their low returns on sales as health insurers do.


With wide swings in returns based on sales revenue, Wall Street uses several other ratios to compare rates of return. One is return on investment (ROI).  Buy a CD and earn 2.5%.  It’s simple.  ROI = 2.5%.  Now buy a house. Pay cash and it’s just like a CD.  But if you take out a mortgage, you have leveraged your returns.  Your house will change value the same regardless of how much equity you have invested. But your Return on equity investment (ROE) is different.

The chart below shows how this works. Assume you buy a house and take out a mortgage for 60% of the purchase. A number of years later, you sell the house for 20% more than you paid.  If you had paid cash, your return would be 20%. But if you had mortgaged 60%, you put up only 40% cash and your return is a 50% (20% return /40% cash invested). ROE is similar to return on investment (ROI) or assets (ROA) but reflects only the net amount of equity investment.


Previously described were two groups of industries, those dealing in basic necessities, and those more in discretionary items.  The groups are the same but comparison is different, using the return on equity (ROE) ratio as just described.

Again we begin with the discretionary group where health insurers fared poorly.  Using ROE ratios, health insurers rose in rank, passing up beer, cable TV and cell phones.  Again, one has to ask whether anyone should be comparing the service provided by health insurers to be in this “block.”

Wall Street considers returns on equities in the 15-16% to be normal average for all industries. But again the question is whether health insurers should be considered “average” when they satisfy basic needs where lower ROE’s are expected.

Comparing health insurers with the same group of basic industries shown previously, the picture below dramatically changes.  Insurers are near the top of the group with the majority of industries coming in lower.  These industries are more suitable comparisons than insurers prefer to use.

One final observation.  Health insurance used to be heavily non-profit. For profit insurers came later as life insurance companies began to diversify into more profitable fields.  Now look at the ROE for life insurance: at the bottom.

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Fact Check: Lines of Business Obscure Profit Margins

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FACT CHECK: In 2009, the percentage of premiums that went towards administrative costs and profits declined for the sixth year in a row and have been consistent for decades.

FACT CHECK CHECKED: America’s Health Insurance Plans (AHIP) combines self-insured line of business (LOB) and insured LOB and presents the results as if it were one homogeneous market.   Nothing could be further from the truth. Size wise, the ratio of self insured LOB to insured LOB is roughly 58% / 42% of self-insured / insured or underwritten.

Insurers charge self-insured (ASO – administrative service only) groups an administrative fee that, for the top 10 health insurers, averaged 6.94% of costs.  That translates to 6.5% of “premiums” which are really medical benefits plus service fee income.  This “efficient” administrative expense is not evident in the insured LOB.

To identify the administrative costs and profits for the insured group, one computes and then removes the self-insured revenues and expenses from the CMS Totals as shown in the table below.  Sources and stepwise methodology (top to bottom) are shown in the far right column.

The claim that insurers’ average percentage of premiums that went towards administrative costs and profits was around 11.75% (and have been consistent for decades) totally obscures two radically different lines of business with divergent expense ratios.   For 2008, self-insured admin costs and profits were about 6.5% for self-insured groups, but about 18% for insured groups.  Since the profit margin is VERY slim for the self insured, the bulk of profits are born on the backs of the insured groups which include small business and individuals. A reasonable question to ask is “why are insurers satisfied with profit margins of well under 1% on 55 % of their business but feel a need to push margins well beyond 10% on 45% of their business?”  Though risk is a small factor in the insured LOB, they have to compete far harder on self-insured LOB than on insured LOB where they hold oligopoly power in local market areas and convert that market power into profits.

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Senate Gridlock – the Filibuster Factor

This Analysis has been replaced with a new version: Senate Filibusters Reveal Deliberate Obstruction


Health Care Reform: Separating the Wheat from the Chaff

Download PDF Report >>> Healthcare Reform Pro-n-Con

By Andrew Kurz* and Miles J. Zaremski**


It is time to hit the reset button—not on legislation—but on all the disparaging rhetoric surrounding it.  Denigrating a position or viewpoint one knows nothing about or is premised on incorrect “facts” makes it harder to adopt positions that best serve what Americans need and really want.  It is also more difficult to garner broad support from the general public if one succumbs to only what special interests desire.

The shot across the bow sent Democrats by the voters of Massachusetts with the election of Scott Brown can have many meanings, but one in particular has to be striking: politicians in Washington are not getting things done to help us outside the beltway.  A clear message from the Massachusetts’ electorate was that it is just as easy to remove an elected-official, as it was to vote that individual into office.

Americans are rightly upset with Washington, and certainly with good reason—particularly with health care reform, and other major pieces of legislation.  So little gets done, and when something is finally accomplished, it generally contains much unneeded and unnecessary pork.

We are here to focus strictly on explaining health care reform issues that make sense to all parties.  The focus is not on the current state of legislation, on Congress, or on the President.  We begin with the premise that accessing and affording health care in this country is truly broken.  On that, there is universal agreement.  Most would also agree that basic health care is a right for all Americans, not a privilege or responsibility—although a measure of personal responsibility is certainly involved. The authors also have the luxury of being “outsiders” and are not otherwise bound by having to politically compromise.   We can look at the best of what both sides of the aisle have offered that every American can readily understand and assimilate into their own experiences and household needs.

We offer a couple of other observations before we do.  Of the 2,000 pages in either the present House or Senate bills, less than 20% of them are concerned with much discussed reforms to private health insurance.  The remaining portions improve Medicare and Medicaid, and as well public health and the workforce.  Those changes are extremely important to bending down the cost curve for a segment that consumes about 50% of all health care dollars.  Ironically, for those who believe that reform is socialism, these programs are already government managed or sponsored.

Health care is cast in terms of affordability and accessibility.   Affordability is typically cast through the prism of a health insurance policy since that is how and where the majority of Americans receive their care.  Main Street also knows that what they pay for insurance is out of sight—sending thousands into bankruptcy, and, for millions, effectively denying them any insurance coverage at all.  For the overriding majority of the uninsured, insurance premiums either would consume far too much of their income, or they are locked out because of some pre-existing condition.  So health care reform, at least for starters, is health insurance reform.

Insurance reform has three fundamental goals or objectives: lowering costs, increasing availability, and maintaining or improving quality.  While there is wide agreement on these goals, there remains less agreement on how to achieve them.  When reviewing the paths to achieve each of these “end points”, the question is, whether they lead to progress toward achieving them (goals) or whether the means to get there are simply different paths with no discernible difference in outcome.  The strength of any analysis must focus on the former, as we now do.


The following objectives of which we speak have no adversary, though politics has a habit of tinting some folks’ glasses.

1. Accessibility: Broad agreement exists that insurance policies should (a) not exclude pre-existing conditions; (b) not allow cancellation of an existing policy owing to a medical condition; (c) guarantee issuance and renewals; (d) extend dependent child coverage to 26 years; and (e) allow cancellation only premised on non-payment of premium or fraud in the procurement of a policy.

2. Affordability:  Broad agreement also exists that insurance policies should (a) not set lifetime or annual limits on benefits; (b) set reasonable annual limits for cost sharing, i.e., deductibles and co-pays; (c) not allow pricing differentials based on sex; (d) set reasonable restraints on age-related differentials; and (e) create a national high risk reinsurance pool to protect insurers from the few enrollees who incur extremely high cost medical treatments.

(3) Quality:  Broad agreement also exists that insurance policies should (a) not require cost-sharing for basic, preventive health care services, though not necessarily for visits beyond recommended check-up intervals; (b) require an essential benefits package that covers all basic health care needs and allows comparison based only on price and service; (c) standardize forms in order to reduce paperwork and inefficiency in processing claims and enrollment; and (d) further the work of computerizing necessary medical information without running afoul of privacy laws.

Virtually every other industrialized country worldwide has health care inclusive of the above provisions.   These nations also provide universal coverage, exceeding the 95% range.  While all such programs operate differently, all have a private marketplace component and deliver health care at half the cost and with about the same average quality as the U.S.   Moreover, while the U.S. leads other nations in some criteria used to judge access and affordability, it lags in other criteria.  One measure where our country lags is the number of patient visits.  Our falling down on this measurement is oxymoronic to the claim that the US has the best health care system while citizens elsewhere wait an interminable amount of time to see his or her physician.


While Medicare at 55 has been proposed to increase accessibility, the three major avenues to increase accessibility have been: (1) a public option; (2) lifting the antitrust exemption; and (3) allowing insurers to sell health insurance across state lines.   We address the latter three now.

PUBLIC OPTION: Arguments favoring a public option are that it would be a non-profit insurer with the sole goal of providing basic insurance while incurring minimum overhead.  This should bend prices down which also improves affordability.  Arguments against a public option are that it adds government insurance into the mix, pulling business and profit margins away from private insurers.  It is fair to note that private insurers did not object to government insurance for seniors – Medicare –which took the lion’s share from private insurers, though the private market still operates within segments of these programs.

ANTI-TRUST: The second method for increasing access through competition is to remove private insurers’ anti-trust exemption.  This exemption allows insurers to not only collude on setting premium prices, but also to monopolize markets of whatever size.   Both promote concentration, less competition, and higher prices.

SALES ACROSS STATE LINES: The third method is for insurers to sell across state lines. There are two ways to achieve this.  The first alternative is leveling the playing field with a uniform set of rules that a national exchange would establish, similar to what CAFE mileage standards do for car manufacturers when mandating “corporate average fuel economy” that apply in all states.  A national exchange is the health equivalent for enforcing uniform standard rules.  The other alternative is to use the credit card “model”, where different rules apply to different policies depending upon the insurer’s home state.  The question becomes, would the public prefer insurers to act more like credit card companies (banks) with no federal intervention, or to participate on a level playing field with federal enforcement?


TORT REFORM: High on the list for many is tort reform, though neither pending bill in Congress includes this.  Typically cast in terms of placing caps, or ceilings, on non-economic damages, it is an element of the health care reform debate that has gained attention in many quarters.  Many states already have such reform, but this would be a federal cap.  The argument in favor of caps on these damages is that there would be less defensive-medicine, overall health care costs would drop significantly, and doctors would find their malpractice insurance premiums lowered. The argument against caps is that there is minimal relationship between caps on these type damages and premium charges, or health care costs.  Opponents argue that premiums increase more as a result of insurers’ not obtaining projected financial returns from investments while “defensive medicine” has more to do with generating income than avoiding liability.

If the theory is correct, viz, that a cap on damages will reduce health care costs, consider establishing a 3-5 year period with a federal cap of, let’s say, $1.0M on non-economic damages and that would not pre-empt states which have such ceilings in effect.  If utilization drops significantly indicating less defensive medicine, then such caps could become permanent; it not, then the federal cap would sunset.

AFFORDABILITY CREDITS: Affordability credits are a sliding scale subsidy for individuals and families earning less than some multiple of the federal poverty level (FPL).  The House suggested an upper limit of 400% of FPL while the Senate proposed less.  To fund affordability credits (the premium subsidies), a tax could be levied on individuals with adjusted gross income exceeding $250K ($500K for families), and taxing plans with “Cadillac” benefits.  Rather than setting a flat rate, a fairer method would be to use regional cost bases, and to tax only the amount exceeding some percent of average, basic, benefits by region.  Arguments for and against affordability credits tend to center on the method of funding.  The two above are funding options under consideration.

PURCHASE MANDATE: This provision mandates that all citizens purchase health insurance.  Arguments in favor are that by adding millions of customers, insurers would incur lower costs.  First, overhead would be allocated over more policies creating unit savings.  Second, with larger risk pools, the “risk margin” insurers require would be less, which should lead to lower premium prices.  Mandatory insurance would also have the salutary effect of reducing the number of those without insurance who rely on hospital emergency rooms for non-emergency health care—a very inefficient way to render treatment.  Arguments against mandatory purchase includes whether such a requirement is constitutional, though it seems similar to employees “purchase” of Medicare insurance through wage withholding at work.  Those who do not favor a mandate as well point to insurers’ gaining considerably in revenues, yet question whether or not insurers will increase premiums for any new insurance reforms, like no pre-existing condition barring coverage.

The only way a mandate works is if affordability credits are extended to millions of financially disadvantaged.  Those affordability credits will come from government subsidies, and because taxpayers are responsible for these monies, many believe it fair to expect insurers to discount, or reduce, premium charges when setting rates.  Insurers are not likely to do this voluntarily.  Price controls are one way to restrain premium rates, but are not viewed as a long term solution.  The best solution remains competition.  This is why many argue that the anti-trust exemption must end, though they feel even that may not be enough; that stronger measures are needed.  The current mix of for-profit and not-for-profit insurers has not been successful in restraining prices, and a government backed not-for-profit is needed.  This thinking is the impetus behind advocating for a strong public option.

DISCOUNTED DRUGS: The final affordability issue would be to allow Medicare to negotiate drug discounts and to allow cross-border purchases.  Arguments against discounting are that margins are needed for research into new drugs and that the quality of imported drugs cannot be assured.  Arguments in favor of discounts are similar to the purchase mandate.  The government handed big pharmaceutical companies $Billions of new business with no risk.  Many feel that the pharmaceutical industry should be forced to accept “discounts”.  The current no discount policy has resulted in U.S. drug prices far above what pharmaceuticals cost in other industrialized countries.  As for quality, many of the drugs purchased here are the very same pharmaceuticals that buyers in other industrialized countries purchase.  Recall, too, that the Medicare drug program costing hundreds of billions of dollars was not funded, with the entire cost of the program being added to the federal deficit.


Many of the above provisions cannot be implemented quickly.  Some method is needed to restrain premium increases in the interim.  To prevent health insurers from imitating credit card companies who increased rates before reforms became effective, a gatekeeper, whether through a national commission, state insurance commissions, percent increases imposed by statute, or another mechanism, ought to be in place from the outset of any reform enacted into law.


In less than ten pages, we have summarized the salient components of 2010 health care reform.  What we have penned allows the reader to understand the core provisions for any reform, pro and con.   Moreover, the material described in the foregoing pages is a give and take where no one constituency will be entirely happy.  But in order for every American to afford and access health care, each segment of our society must give up something that may have been sacrosanct to them.  Such compromising also levels the playing field between corporate and Main Street America.   If every “player” comes to the table called health care reform in good faith and acts fairly and openly, the nation as a whole will benefit.  Partisanship only leads to what occurred in Massachusetts; we cannot afford to see this with efforts to reform health care any longer—our system is broken and on the brink of disaster.

© 2010 Andrew Kurz and Miles Zaremski

*   Mr. Kurz is a former CFO for Blue Cross-Blue Shield of Wisconsin.  He has done extensive research into healthcare reform and has been recognized and quoted for his analyses, statistical charts, and insights into reform efforts.  He is now retired in suburban Chicago and can be reached at agkurz@att.net.

** Mr. Zaremski is a health care attorney and author, with extensive background in healthcare policy.  He has counseled and represented Members of Congress.  His law firm is in Northbrook, Illinois; he can be reached at mzaremski@gmail.com.

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