Florida's Medicaid reform demonstration is entering into its second year.  Now operating in five counties, the reform has unambiguously led to greater competition.  Many plans now offer more services and products than conventional Medicaid.  There are also a variety of benefit packages.  The most popular expanded benefits include over-the-counter drugs and adult preventative dental care.

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Is the evolution the result of randomness?  Or is there behind it some intelligent design?

During the primary season, Sen. Clinton put the annual cost of her health plan at $110 billion, compared to Obama's $60 billion.  The difference: both candidates pledged to increase taxes on capital (rescind the Bush tax cut for "the rich"). But Clinton claimed additional phantom savings from such measures as electronic medical records (EMRs), managed care, more efficient insurance, etc.

Phantom savings are savings that (1) no one seriously thinks are going to materialize; (2) sound good because they do not threaten the status quo in any serious way (thereby guaranteeing they will not materialize); and (3) are easily forgotten after the fact when they fail to materialize.  Score one for Obama for not yielding to the temptation to make things up.  But that was then.

Now Obama is taking a page from the Clinton playbook and shamelessly doubling the stakes.  Savings will amorphously appear in every part of the system, according to his advisors.  Hard to say who will get what or how they will get it (these things being very complicated), but count on $200 billion savings for ordinary people or $2,500 for "a typical family" every year.

For the record, the Congressional Budget Office [here] estimates that EMRs will save very little money.  The federal government found that its own experiment with managing the chronically ill saved not a dime [here].  Other studies, including one by RAND researchers, predict that managed care or coordinated care or insurers-telling-doctors-how-to-practice-medicine-under-any-other-name may not save money, and in some cases actually increases spending [here].

Note:  I am adding this new manifestation to my analysis of the Obama plan [here].

Senator Obama's critics have accused him of flip-flopping on such issues as campaign finance, wire-tapping, gun control, faith-based initiatives and the terms of withdrawal from Iraq.  The Obama health plan is also in danger of becoming a work in progress.  One week he eyes the Wyden-Bennett bill in the Senate favorably.  The next week he praises Massachusetts's new health care plan.  (Note: both have the very kind of mandates he found so objectionable in Hillary Clinton's health plan.)

More recently, he has endorsed federal subsidies for half of the premiums paid by small employers [here].  Yet the amount of money he would dedicate to this effort ($6 billion a year) is too meager to overcome the dissolution of the employer-based system his plan would cause.

I have modified my general analysis of the plan [here] to reflect this most recent evolution.

I normally agree with Tyler Cowen on most things.  Yet in an op ed in yesterday's New York Times and at his blog, he joined a group of people who (a) I like and (b) mistakenly believe you can solve the problem of rising health care costs by shifting them.

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A natural way to begin the process of reform is greatly expanding the role of Health Savings Accounts (HSAs).  Yet on his blog, Cowen took a gratuitous slap at them, declaring that "HSAs are ineffective as health reform."

            Et tu, Tyler?

Health insurance for most nonelderly Americans is purchased with funds from three sources: (1) an employer contribution, (2) an employee contribution and (3) a government tax subsidy.  The McCain health plan is based on the idea that the first two contributions should be determined by individual choice and competition in the marketplace.  The government's contribution, however, would be the same for everyone: $2,500 for every adult and $5,000 for every family. 

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Barack Obama rarely gives a speech these days without mentioning "universal coverage." Yet, in contrast to Hillary Clinton, Obama has no mandates (other than for children).   Instead, he would rely on incentives.  Yet the incentives in the Obama plan are perverse.  Based on reasonable assumptions, the number of uninsured would rise, not fall, under the Obama plan-even as taxes rise, regulations proliferate and the bureaucracy expands.

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A study by the Center on Budget and Policy Priorities (CBPP) claims that Medicaid and SCHIP deliver the same care at a lower cost than private insurance (the study ignored marketing and enrollment costs).  Policy conclusion: Enrolling low-income families in government programs is cheaper and better for all concerned than enrollment in private plans.

As an aside, I've never heard anyone, anywhere say he would rather be in Medicaid than private insurance.  People who say "Medicaid is better" always mean "for someone else." There are also other reasons to be highly skeptical, even without carefully examining how the study was done.

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Facts are such inconvenient things. What do you do when your own study produces answers that are the opposite of what you hoped for?  The Center for Studying Health System Change (CSHSC) has a solution: spin the results your way anyway. 

"More Americans Delay Health Care," blared a headline over a Wall Street Journal story.  "Cost Concerns Drive Even the Insured to Forgo Treatment," said the subhead.  Large deductibles and cost shifting to patients are the cause of the problem, said the lead author.  "Alarming," said The New York Times [link].

Imagine my surprise when I discovered what the study actually said.

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One of these days I'm going to announce the winners. In the meantime, the Commonwealth Fund submitted another entry. It gives me an excuse for a second mailing this week. The study is an update of a previous entry, this time claiming there are 25 million "underinsured" Americans.

After reeling from the sheer size of that number, my first question was: How many Americans are overinsured?…. Overinsured?…. Yes, overinsured. Since CWF claims that the primary reason for underinsurance is high deductibles and since the primary reason for a high deductible is to reduce the degree of overinsurance, one can't adequately study one problem without studying the other.

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A new paper [gated, but with summary] by Sharon Long about the Massachusetts experience was published in Health Affairs. It is quite a nice look at how things changed from the fall of 2006 and the fall of 2007. The state did indeed reduce the numbers of uninsured and secured better access to health care services for it residents. Curiously, though, the improvement in access to services was not as dramatic as the reduction in uninsured.

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Racial disparities in the use of the health care system and in health care outcomes have been well documented, including a new study by researchers at Dartmouth. Less well known is that this is a worldwide phenomenon. The Inuits and the Cree in Canada, the Maori of New Zealand, the Aborigines in Australia-all get less care and have worse health outcomes than the majority white populations. [See Lives at Risk.]

One foundation (guess who?) is planning to spend $300 million to study the U.S. problem. A better use of resources would be to put the money in the bank and download a few articles by University of Chicago Nobel Laureate Gary Becker, the economist who invented the whole field of the economics of discrimination.

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Mike Leavitt, Secretary of the U.S. Department of Health & Human Services (HHS), launched the first-ever, 12-community project to increase the use of electronic medical records (EMRs).  Secretary Leavitt's 5-year project will pay each doctor up to $58,000 per year for electronically monitoring and recording as many as 1,200 practices affecting up to 3.6 million patients. 

Have you ever wondered why physicians are the only significant group of professionals in our society who do not keep their client records on computers? Why is it that doctors don't do what lawyers, accountants, architects and engineers all do?

The answer, according to National Center for Policy Analysis President Dr. John C. Goodman, is: Medicare. Or more precisely, the way Medicare pays doctors-which is also the way Blue Cross and almost all other health insurers pay.

"Doctors use antiquated record keeping because we have an antiquated payment system," said Goodman. "Other professionals use electronic record keeping because they reap benefits from greater efficiencies. In medicine, perversely, the reverse is true.  Doctors who are efficient get less income."

Goodman points to Geisinger Health System in central Pennsylvania as an example of what is wrong with the payment system. Geisinger offers heart patients a warranty on their surgeries; patients and their insurers who choose to participate do not have to pay for readmissions. Whereas most hospitals make money on their mistakes, Geisinger loses money on its mistakes. This creates an incentive to use computer technology to reduce errors but, since Medicare won't pay anything for the warranty, Geisinger and other hospitals have little incentive to boost quality without any financial rewards.

"While we applaud the government effort to promote EMRs," said Goodman, "more progress could be made by changing the way Medicare pays for health care."

"It reminds me of a line from Shakespeare," he said. "'The fault, dear Brutus, lies not in the stars, but in ourselves.'"

There is a new book out on pharmaceuticals with a chapter by yours truly.  Is it the chapter worth reading?

That depends on how much you already know.  What follows is a list of seven deadly sins.  In each case the sin has one of two causes.  See if you can identify them:

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As of January of this year, U.S. employers can automatically enroll their employees in 401(k) plans with diversified portfolios - without fear of lawsuits and without certain regulatory burdens.  Automatic enrollment should increase participation by about one-third, and diversification should produce larger and safer returns, although employees are able to opt out of both decisions.  In the future, roughly one of every two 401(k) enrollees is likely to be so enrolled.

This opportunity was created courtesy of the Pension Protection Act of 2006, which reflected the joint efforts of the National Center for Policy Analysis (NCPA) and the Brookings Institution, including Capitol Hill briefings, publications, speeches, editorials, etc.  Yet the real intellectual groundwork came from University of Chicago professors Richard Thaler and Cass Sunstein.  They call the theory behind this effort "libertarian paternalism," and they have written a book about it called Nudge

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Actually, it's a Goodman/Musgrave idea that first appeared in Patient Power (1992) and later in "Applying the ‘Do Not Harm' Principle to Health Policy" (2007). To my knowledge, no politician, no other think tank, no other health policy wonk has yet endorsed it - but, hey, this is a sleepy field.

First things first. There are five mega-changes that motivate the solution. The first two you already are familiar with. The next three you may not have thought about.

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Medicaid is on a course to crowd out every other function of state government over the course of the next few decades.  However, Families USA claims to have discovered an upside to that bleak news.  Medicaid spending, the group says, creates jobs.  By their reasoning, a law diverting the entire GDP of the United States to the Medicaid program would leave the U.S. awash in jobs.  By contrast, the group claims the Bush administration's efforts to rein-in Medicaid spending will leave tens of thousands of people unemployed.  In an apparent nationwide media blitz, Families USA delivers the news state-by-state, even providing a clickable map linked to a Medicaid-cuts-and-job-loss calculator. Its numbers are being reported as fact in newspapers:

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I am sending out a second Health Alert this week because the news is so momentous.  The Commonwealth Fund is claiming success where so many others have failed:  Solving the triple problems of health care cost, quality and access [here].

IN THEIR OWN WORDS, the proposal would "ensure near universal coverage," cut insurance costs by "nearly one-third," and "potentially save $1.6 trillion over 10 years."

PLUS, no one has to make any hard choices between health care and other uses of money.   No patient.  No doctor.  No nurse.  No employer.  No insurance company.  No government agency.

AND no provider has to compete for patients based on price or quality.  No doctor.  No nurse.  No hospital administrator.  Nobody anywhere in the system.

UNBELIEVABLY, people can remain in the current "building blocks" - employer-sponsored plans, Medicaid, SCHIP, you name it. Also, there are connectors for small businesses and an optional Medicare plan for the under-age-65 set.

HOW DO THEY DO IT?  Better bureaucracy.

Have a great day.

John

P.S.  Why do I think we are looking at the blueprint for Obama's health plan?
If it is, I'll say more in the future.

In a rational world, deductibles and copayments serve an economic purpose.  Where it is appropriate and desirable for patients to make choices (e.g., primary care, small-dollar services), out-of-pocket cost sharing allows patients to bear some or all of the costs and reap some or all of the benefits of the choices they make.  Where patient choice is not appropriate or desirable (e.g., on a hospital gurney, large-dollar services), we would not expect to see cost sharing.  At least these are the principles that govern other insurance markets. 

Yet in the market for health insurance, those principles are increasingly being turned upside down.  In the small group market a typical plan covers primary care visits from the first dollar, but imposes high deductibles and copayments for inpatient hospital care.  And whereas tiered pricing for drugs once encouraged generics over more expensive brand names, today tiered pricing is being used to impose thousands of dollars of cost on patients who must take expensive drugs with no generic substitutes.  (See The New York Times article.) 

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In the series of reports, called "Dying for Coverage," Families USA purports to show how many people are killed by a lack of health insurance in each state.  For example, they claim 6 people die every day in Florida because they are uninsured.  Seven die every day in Texas, 8 in California, and 25 in New York. 

How is Families USA able to tally up all this carnage with such pinpoint precision?  As it turns out, these claims are based on a 15-year cascade of studies - each repeating the errors and misinterpreting or mischaracterizing the findings of the previous one and ultimately relying on data that is 37 years old. 

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Everyone agrees. Republicans and Democrats.  Conservative and liberals. Newt and Hillary.  Government should force doctors and hospitals to clean up their act by: adopting electronic medical records, practicing evidence-based medicine, coordinating care, integrating care, and doing numerous other things that all right-thinking health policy analysts have determined they should do.  Trouble is, what everybody knows turns out not to be true. 

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The biennial Dartmouth Atlas of Health Care is out and the findings are as eye-popping this year as they have been in the past.  Among chronically ill patients in the last two years of life: 

• New Jersey patients spent almost three times as many days in the hospital as patients in Utah.
• Patients in Manhattan had 3½ times as many hospital days as patients in Bend, Oregon.
• Among teaching hospitals, the variation in the amount spent was more than four to one.

So what impact did this wide variation in care have on the health of patients?  Not a whit. 

• There is no evidence that extra care and extra spending produce better outcomes, and some evidence that they produce worse outcomes.
• Further, variations in care correlate with variations in supply: the more hospital beds, the more bed days; the more CT scanners, the more scans; the more cardiologists, the more cardiac care, etc. [See Associated Press article ]

Is this the whole story?  I'll shelve that question for another day.  For the moment, what do we make of all this? 

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According to Elizabeth Edwards, the wife of former Democratic presidential contender John Edwards, neither she nor John McCain would be able to get health insurance under Sen. McCain's health plan.  He, because he has been treated for melanoma.  She, because she has breast cancer.  Under McCain's plan, says Edwards, insurance companies "wouldn't have to cover preexisting conditions like melanoma and breast cancer."  [link]  Here's what she doesn't know: 

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Barack Obama had it right from the beginning.  Hillary's health plan, he said, would try to force people to buy something they cannot afford and then impose a heavy fine on them when they don't buy it.  At the end of the day, they will be worse off than they were at the outset. 

Now Hillary has a rejoinder.  She says she will limit the amount people have to pay in premiums to, say, 5% or 10% of their incomes [link].  What's wrong with that?  A lot.  Here are 10 problems that spring to mind. 

[To avoid the charge of hypocrisy, let me say upfront: I have always favored a kinder, gentler version of individual pay-or-play, outlined here and elsewhere.]

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The idea that half of all bankruptcies are caused by medical debt has become part of the common folklore.  But where did the idea come from?  What is the evidence for it?  The claim, first made in a 2005 Health Affairs article, is at variance with four decades of economic research, including a finding that even large medical bills have no impact on family living standards.

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Today I'm going to let you in on a little secret about forecasting health care costs: All the forecasters cheat. Cheat? Yes, cheat.

There is nothing underhanded about it. For people who read footnotes and appendices, the information is all there. But for ordinary mortals, the projections you see are not what you think they are.

But let's back up. Why do you even care about forecasts of future health care spending? The rational reasons are: (1) to figure out what path we are currently on, (2) to decide whether the path is acceptable, and (3) if it is not acceptable, to figure out how to get off of it.

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