Nixon’s Comprehensive Health Insurance Program

Download PDF Report >>> Nixon Comprehensive Health Plan

Below  is a reformatted version of President Nixon’s Message to Congress on a Comprehensive health Insurance Plan delivered on February 6, 1974.  What is striking is how many similarities there are between it and the Affordability Care Act (ACA). There are, however,  a few key differences between Nixon’s plan and the ACA plan.

  1. In Nixon’s plan, health insurance is mandatory for business to insure full-time employees and optional for individuals. In ACA plan, health insurance is not mandatory for business’ employees but is  mandatory for individuals.
  2. In Nixon’s plan, failure on the part of States to enact the necessary authorities would prevent them from receiving ANY Federal support of their State-administered health assistance plan that includes (current) Medicaid. The ACA plan manages insurance exchange but leaves Medicaid payments to states intact.

A serious problem with the first item is that companies would attempt to minimize full-time employees in order to avoid the mandate. Even without a mandate, employers are currently following this pattern and leaving part-time employees without a safety net. In the second item, the penalty on states for non-compliance is far stricter under the Nixon plan than under ACA. In other words, more power to the federal government and less to the states under Nixon than under ACA.

Democrats at the time opposed this plan and it never became law.

COMPREHENSIVE HEALTH INSURANCE PROGRAM

  1. It offers every American an opportunity to obtain balanced, comprehensive of health insurance benefits.
  2. It will cost no American more than he can afford to pay;
  3. It builds on the strength and diversity of our existing public and private systems of health financing and harmonizes them into an overall system.
  4. It uses public funds only where needed.
  5. It would maintain freedom of choice by patients and ensure that doctors work for their patient, not for the Federal Government.
  6. It encourages more effective use of our health care resources.
  7. It is organized so that all parties would have a direct stake in making the system work–consumer, provider, insurer, State governments and the Federal Government.

THREE PLANS TO OFFER BROAD AND BALANCED PROTECTION FOR ALL AMERICANS

  1. Employee Health Insurance, covering most Americans and offered at their place of employment
  2. Improved Medicare Plan, covering those 65 and over and offered through a Medicare system that is modified to include additional, needed benefits.
  3. Assisted Health Insurance, covering low-income persons, and persons who would be ineligible for the other two programs, with Federal and State government paying those costs beyond the means of the individual who is insured
  • One of these three plans would be available to every American, but for everyone, participation in the program would be voluntary.
  • The benefits offered by the three plans would be identical for all Americans, regardless of age or income. Benefits would be provided for:
    • hospital care
    • physicians’ care in and out of the hospital
    • prescription and life-saving drugs
    • laboratory tests and X-rays
    • medical devices
    • ambulance services
  • There would be no exclusions of coverage based on the nature of the illness.
  • In addition, it would cover treatment for mental illness, alcoholism and drug addiction
  • Certain nursing home services and other convalescent services would also be covered.
  • Home health services would be covered
  • The health needs of children would come in for special attention,
    • preventive care up to age six
    • eye examinations
    • hearing examinations
    • regular dental care up to age 13
  • A doctor’s decisions could be based on the health needs of his patients, not on insurance coverage.
  • Every American participating in the program would be insured for catastrophic illnesses
  • No family would have annual out-of-pocket costs for covered health services in excess of a cap
  • Low-income families would face substantially smaller expenses.
  • A Health-card, similar to a credit card, would be honored by hospitals, nursing homes, emergency rooms, doctors, and clinics across the country.
  • This card could also be used to identify information on blood type and .sensitivity to particular drugs-info which might be important in an emergency.
  • Bills for the services paid for with the Health-card would be sent to the insurance carrier who would reimburse the provider of the care for covered services, then bill the patient for his share, if any.

HOW EMPLOYEE HEALTH INSURANCE WOULD WORK

  • Every employer would be required to offer all full-time employees the Comprehensive Health Insurance Plan.
  • Added benefits may be included by mutual agreement.
  • The insurance plan would be jointly financed, with employers paying 65 % of the premium for the first three years of the plan, and 75 % thereafter.
  • Employees would pay the balance of the premiums.
  • Temporary Federal subsidies would be used to ease the initial burden on employers who face significant cost increases.
  • Individuals covered by the plan would pay a deductible. A separate deductible provision would apply for out-patient drugs. There would be a maximum of three medical deductibles per family.
  • After satisfying the deductible limit, an enrollee would then pay for 25 percent of additional bills
  • There would be an annual max out-of-pocket cost on family’s medical expenses for covered services.
  • As an interim measure, the Medicaid program would be continued to meet certain needs, primarily long-term institutional care.

IMPROVING MEDICARE

  • Medicare’s benefits would be improved so that Medicare would provide the same benefits offered to other Americans under Employee Health Insurance and Assisted Health Insurance.
  • Persons 65 or over, eligible to receive Medicare payments, would pay a lower deductible and a lower separate deductible for out-patient drugs.
  • He or she would also pay 20 percent of any bills above the deductible limit.
  • There would be an annual max out-of-pocket cost any Medicare beneficiary have to pay
  • The premiums and cost sharing for those with low incomes would be reduced, with public funds making up the difference.
  • Those now in the Medicare for the disabled plan would be eligible for Assisted Health Insurance, which would provide better coverage for those with high medical costs and low incomes.

HOW ASSISTED HEALTH INSURANCE WOULD WORK

Assisted Health Insurance is designed to cover everyone not offered coverage under Employee Health Insurance or Medicare, including

  • The unemployed,
  • The disabled,
  • The self-employed,
  • Those with low incomes
  • Persons with higher incomes if they cannot get coverage at reasonable rates including persons whose health status or type of work puts them in high-risk insurance categories.
    • A principal feature of Assisted Health Insurance is that it relates premiums and out-of-pocket expenses to the income of the person or family enrolled
    • Working families with very low incomes, would pay no premiums at all
    • Deductibles, co-insurance, and maximum liability would all be pegged to income levels.
    • Assisted Health Insurance would replace State-run Medicaid for most services.
    • Preempt State mandates, this plan would establish uniform benefit and eligibility standards for all low-income persons.
    • It would also eliminate artificial barriers to enrollment or access to health care.

MAKING THE HEALTH CARE SYSTEM WORK BETTER

To contain medical costs effectively over the long-haul, however, basic reforms in the financing and delivery of care are also needed.

PROFESSIONAL STANDARDS REVIEW ORGANIZATIONS (PSRO’s) would

  • place health services under the review of Professional Standards Review Organizations.
  • These PSRO’s would be charged with maintaining high standards of care and reducing needless hospitalization.
  • Operated ‘by groups of private physicians, professional review organizations can do much to ensure quality care while helping to bring about significant savings in health costs.

STATES would

  • Approve specific plans,
  • Oversee rates,
  • Ensure adequate disclosure,
  • Require an annual physical
  • Assure fair reimbursement for physician services, drugs and institutional services, including a prospective reimbursement system for hospitals.
  • Only with effective cost control measures can States ensure that the citizens receive the increased health care they need and at rates they can afford.
  • Failure on the part of States to enact the necessary authorities would prevent them from receiving any Federal support of their State-administered health assistance plan.

Republican President RICHARD NIXON

The White House, February 6, 1974.

Download PDF Report >>> Nixon Comprehensive Health Plan

Source: Complete speech at Kaiser Health News:  http://www.kaiserhealthnews.org/Stories/2009/September/03/nixon-proposal.aspx



Who Should Help Pay for Healthcare Reform

Download PDF Report >>> Who pays for healthcare reform

 Summary

Health care is expensive and is getting more so.  Further, the government is taking on a greater share as people age and move into the Medicare system.  Attempts that tweak the current system will likely fail to lower costs.  What is needed is a new model that would be phased in.

While the US does enjoy a quality system, it is not the top in comparison to many other industrialized countries.  However, the US does pay 50% or more of its GDP than do these same countries. And with its transaction based model, future cost increases will squeeze our productive sector.

Looking at several other countries, there is a clear difference in the health payment model.  In the U.S. the model has been relatively unchanged over decades.

One goes to a doctor or hospital, is billed for the encounter and the bill is paid by him, a health insurer or both.  It matters less whether the treatment resolved the health issue.

Other countries rely more on outcomes, where “bonus” payments are made to providers who solve the health issue.  Of course, it is risky to completely switch to this method overnight.  Rather it should be phased in over years.

Short term, however, increased costs are expected. And the fairest way to pay is to tax those who benefited more in the past.  Those who did benefit are a small group – the top 5%.

Some will argue that taxing the wealthy will cost jobs. But jobs are created not from income but from net worth, and gains there suggest that other factors weigh more heavily than marginal tax rates in job loss or creation.

Who is paying for healthcare today in the U.S.

The graph below shows 2006 funding of healthcare. With the aging of the population, Medicare creates increased government spending. Close to half of all health care is paid for by government.  For those worried about government getting involved, they are a little late. It’s already involved.

Private insurance is a major funds source, and most of that is provided through employers. Consumers with insurance through work see only out-of-pocket expenses. Even with costs rising, and with insured seeing higher cost sharing, they are still somewhat shielded from total health costs.

Conversely, those without insurance are exposed to the full brunt of higher health care costs.  Combining all people, the costs are not only a heavy burden, but that burden falls heavily on those who lose and do not have insurance.

Source: Center for Disease Control – Health, United States 2008 Figure 19

 What are others paying for healthcare today 

Some believe that the US costs are worth it.  We have high quality care and we pay for it.  But while quality is high, it is by no means the highest in the world.  And as the graph on the right shows, the US stands alone in how much it spends – some 50% more than other highest countries and almost doubles that of Japan.  These other countries must be doing something different and they are.

One factor is the payment business model. The US is primarily a transaction based system.  Higher rates, more revenue. More procedures, more revenues. The combined effect is healthcare costs that are not only more expensive, but rising faster than in the rest of the world.

As for tomorrow, we can learn by looking at components of growth in US health care spend, and how those trends portend future expenditures.

Source: OECD Health Data 2009, June 09

What healthcare increases may look like tomorrow

Aside from any current inequities in who pays for health care, these expenditures are not only rising but at an ever-increasing rate. The graph below shows the growth in costs from 1965. The spike in 1965-1970 was Medicare.

Population and general inflation are reasonably expected factors.  In addition, however, there is medical (price) inflation and intensity (more procedures) driving up costs.

Unless there is a major change in these trends, healthcare costs will consume an ever greater portion of GDP, and squeeze out productive output.

To bring this under control requires more than tweaking around the edges of the current healthcare model.  Other countries spend less on healthcare so how do other countries cover costs for less.

Source: Center for Disease Control – Health, United States 2008 Table 126

U.S. insurers & Medicare are very Transaction based

For decades, the U.S. has had a primarily transaction based model like figure 1 below.  You get treatment from a physician or hospital and pay for their time and expenses.

When Medicare began, it used this traditional model but quickly learned that costs were rising out of control. So they changed to a fixed price model like figure 2 below. But when Medicare squeezed down prices, some providers increased their volume to recoup part of their losses.

Managed care or HMO’s (not shown) had limited success in freezing total payments. But healthier groups can often select traditional coverage at lower cost, leaving HMO’s with more of the higher cost people. In short, reform with only a transaction based model will not likely succeed.

 

Other countries are more Outcomes based

What other countries did was adopt normal profit-making business models like figure 3 below where the goal is to offer rewards for greater productivity and improved quality, in a word — outcomes. 

It is the basis for most bonuses.  Also many contracts are include a bonus if a project comes in under budget and ahead of time. Healthcare payments in other countries rely far more on outcomes than the does the U.S. And it works.

Medicare is piloting this concept, paying small bonuses to providers who show better outcomes. As data is obtained, base amounts can be reduced and the outcome gradually increased bringing the U.S. closer to the world model.

Will private insurers adopt this model? Unless all insurers are required to do so, it is doubtful.  Alternately, a public option using this model would cause private insurers to voluntarily adopt as a way to remain competitive.

Can the U.S. afford more income taxes

Other industrialized countries are clearly providing quality health care at significantly lower costs than in the U.S.  But what about other taxes or more specifically, total taxes.

How does the U.S. compare in total taxes with these other countries?  The graph below shows tax components. Despite complaints about corporate rates, U.S. take is lower than most countries. Sales taxes are high but discretionary (no buy, no tax) as states rely heavily on this source.

Social Security and income taxes are two mandatory taxes affecting individuals and here the U.S. ranks near the bottom.  Without becoming just like Europe, some increase in mandatory taxes should let the U.S. remain competitive with the rest of the world.  And if real reform does come, higher initial costs can be expected to result in savings down the road as the U.S. costs approach other countries.

Source OECD in Figures 2008 – OECD © 2008 – ISBN 9789264055636

Looking at income tax as a source of new funds

Where does one look for new taxes. While there are several options, one key is to see who is earning what today.  The graph below displays the average after tax income for selected percentile groups.  The small blip at the furthest left is the average income of 60% of the U.S. Those in the 61% to 95% range average somewhat better.  Also noted is the greater number of households in these groups’ results in their paying the majority of income taxes.

But look at the highest 5% earners, and especially the top 1%.  That 1% averages over $1 million per household.  So if there is a tax increase, should all taxpayers contribute the same percent increase?  Or should increases be progressive as is the basic income tax structure.

One way to answer this is to see how income for these same households changed over time.

Source: Congressional Budget Office-Historical Effective Federal Tax Rates: 1979 -2005

Who benefited from income gains over 25 years

The graph below employs the same groups as above.  For several reasons, there has been a substantial income shift with enormous increases in income for the top 1%, with modest increase for the 95%-99% group.  ALL the rest of the percentile groups actually lost ground, and the lower the income bracket, the greater the loss.

Over the past 28 years, there has been a very sharp drop in marginal tax rates leading to two results.  First, high income earners keep more of their income.  But with high marginal rates, companies did not pay extremely high salaries and bonuses as most of it went towards taxes.  With lower marginal rates, executive compensation began an upward spiral that far exceeds their counterparts in other countries.

The combined effect of near runaway compensation and lower taxes is primarily responsible for the shift to the rich.

Source: Congressional Budget Office-Historical Effective Federal Tax Rates: 1979 -2005

Why are so many people afraid of higher tax rates

Some note that total revenues rose when Kennedy cut taxes and apply that logic to every tax change since.  But as the graph below shows, the marginal rate at that time was 90%.  Had the IRS run amuck? Actually, the U.S. raised taxes to pay down war debts, a good habit missing today. 

From the prior graph, one could assume that a fair way to apply new taxes to individuals is to tax those who gained the most relative to others from tax cuts in the past.

Today we have low marginal rates, major gains by the very rich, and a national debt that has been almost ignored. Not to increase taxes but to add to the national debt is to put a heavier burden on the next generations.

In conclusion, a logical and fair place to look for new sources of tax revenue is the top 5% of households.

Source: IRS – SOI Tax Stats – Historical Table 23

Net worth – the job generating engine

Some complain that taxing the income of the rich will cause a loss of jobs.  But income is not the prime determinant in job creation.  To start a business, one in fact, may have to give up current income. 

Businesses are started by those with net worth.  And if they are lucky, they can leverage that net worth with loans to fund their new enterprise.

The graph below shows the growth in net worth from 1989 for four selected percentile groups.  As one would expect, those less well off tend to work for others and their net worth (lower 50%) makes barely a blip on the scale.

Even the net worth of the 50%-90% groups is modest.  The greatest concentration of accumulated wealth is in the top 10%. And that group not only grew more in absolute dollars, but also as a percent gain over prior periods.

Source: Federal Reserve Board, 2007 Survey of Consumer Finance (March 9, 2009)

New worth grew more when tax rates were higher

The graph below details the increase in net worth over the prior period.  The lower 50% experienced inconsistent gains up and down.  Higher groups fared better but all were impacted by recessions.  Of note is that the two 3-year periods ending in 1998 and 2001 occurred during Clinton’s term where he had actually raised marginal tax rates.

One should skip the recession period of 2004. By 2007, the tax cuts of Bush’s term resulted in net worth increases, but they were significantly less than those of the Clinton period.

Obviously, there are additional factors at play, but to simply argue that any increase in marginal rates, and especially raises in the top brackets will result in loss of jobs is a tenuous argument not supported by this data.

Source: Federal Reserve Board, 2007 Survey of Consumer Finance (March 9, 2009)

 

 Download PDF Report >>> Who pays for healthcare reform

Cost and Access to Healthcare

Download PDF Report >>> Cost and Access to Healthcare

Summary

Health care reform is one of the most serious issues facing the United States today.  Past efforts at reform have been met with opposition from insurers, hospitals, doctors, business groups and political parties, and that opposition has stymied reform while the problems continued to worsen.

Today, there is more general acceptance of the need for reform but the level has not occurred uniformly across all stakeholders.  Insurers are recognizing the need to drop the most onerous “pre-condition exclusions” and providers are recognizing the need to get more efficient themselves.  Consumers of healthcare are a more divided lot.

Those who have health insurance coverage through work and who have never suffered a significant illness or injury may think this problem applies more to other people.

Conversely, those who have experienced medical problems or have lost jobs and health insurance are more aware of what has gone wrong with the system and are looking for better access to health care and better control of costs.

What the following shows is that health care problems cut across virtually all characteristics with adverse trends occurring in all areas except Medicare Prescription Drugs.

Insurance through the workplace is down, premiums as a percent of compensation are up, out-of-pocket costs are rising, insurance coverage by age group, marital status, race and region are all declining, and more people are not getting needed medical care or drugs because of costs. Finally, all this is aggravated by the rise in unemployment that has put at risk health insurance coverage for millions more Americans.

Health insurance through work is declining

The graph below shows the percent of employees obtaining insurance through their workplace by 4 regions and the USA as a whole.  The trend is almost consistently downward beginning around the year 2000.  The Midwest which once had the highest percent of employees insured, has dropped some 8% in just 6 years.

The Northeast and Midwest do, however, continue to lead the South and West in terms of percent of employees covered, and all regions experienced a coverage downturn in the late 1980’s and early 1990’s, a period of both slow growth and a recession.

If coverage declines in the current recession anything like that of 1991, there may be continued steep declines in workplace provided health insurance beyond the scope of this graph.

Source: Center for Disease Control – Health, United States 2008 Table 138

Health insurance is taking a bigger bite of income

The graph below shows the percent of total compensation going towards health insurance.  Since 2000, the trend in all regions is uniformly upward.  What the graph does not show is the percent of total compensation going towards co-pay and deductibles which are also rising.

The Midwest pays the highest percent of compensation, both currently and in the past.  The West and South, which at one time lagged behind the Northeast, are now tied.

With insurance a percent of compensation, the average compensation for these regions affects insurance. The South continues to lag due to low average compensation.  The Midwest insurance cost is mitigated somewhat as its compensation is lower versus the Northeast or the West.

From any viewpoint, health care costs are rising faster than compensation and putting a heavier burden on all.

Source: Center for Disease Control – Health, United States 2008 Table 135

More costly claims are becoming more common

Not only are insurance premiums taking a growing percent of compensation, but out-of-pocket costs are compounding the problem.  The graph below shows the percent of those having medical and drug claims whose out-of-pocket cost exceeded $2,000.

The trend is upward for all but children under the age of 18, and it is climbing most steeply for seniors 65 and older.  These steep increases for seniors has been mitigated by the Medicare Part D drug program whose effects are not yet evident in the time periods shown.

The message is that having insurance does not fully protect persons who are struck by illness or injury.  There are still risks of significant expenses.  And those who have never incurred serious illness or injury tend to be less aware of the out-of-pocket costs that they may incur.

Source: Center for Disease Control – Health, United States 2008 Table 133

Declining private health insurance favors no group

A graph above showed the decline in insurance coverage obtained through the workplace.  Although that is where most get their health insurance, the graphs below are for all persons under 65 and for all sources of insurance. Those with health insurance coverage have been on a downward trend for all classifications.

As expected, when a person gets older, health insurance becomes more important and that is born out in the upper right graph. Possibly a more disturbing trend is the lower graph where single, divorced or widowed people lag significantly behind married people. One conclusion is that families are very conscious of their children’s health care and covering them nearly always includes covering themselves … because that is how most insurance is sold.

Source: Center for Disease Control – Health, United States 2008 Table 137

People not getting needed costly medical care

The graph below shows the percent of people under the age of 65 who did not get needed medical care due to costs. More importantly, it only includes persons whose income exceeds 200 % of poverty level or about $44,000/year income for a family of four.

It is understandable that people with no medical insurance are less likely to get medical care due to costs. However, even some with insurance do not get that care because of co-pay and other out of pocket expense.  And roughly the same trend exists for those who lose health insurance for less than a year as for those who lose insurance for more than a year.

The graph shows an upward trend of 20% over a 10 year period and suggests little sign of change.  The decline in insurance coverage is aggravating the situation even more.

Source: Center for Disease Control – Health, United States 2008 Table 80

Those not getting needed medical care varies by age

The graph below is similar to prior but includes people over 65. As above, it only includes persons whose income is greater than 200 % of poverty level.

Those not getting needed medical care also varies by age, whether or not insured.  Both older people and children are less likely to skip needed medical care due to costs while the two middle age groups appear willing to risk skipping needed care.  Still, the trend for middle age groups is up.

Not getting needed medical attention can lead to more serious consequences if not treated promptly.  This is a risk that affects all people, not just the less well off.

Since these graphs end in 2006, they do not reflect the 2009 increase in unemployment that often leads to short periods of no health insurance for those who lost jobs.  And for many, those job losses extend for more than a year

Source: Center for Disease Control – Health, United States 2008 Table 80

People not getting needed costly medicines

The graph below shows the percent of people under the age of 65 who did not get prescription drugs due to costs. This graph also only includes persons whose income exceeds 200 % of poverty level or about $44,000/year income for a family of four.

Similar to the medical care graph, the trend is upward with more people forgoing needed drugs over the last 10 years.  However, there is a recent and measurable change in access by longer term uninsured as they appear to be getting some form of help with their prescriptions.

For those uninsured less than a year, the graph shows more skipping drugs, and the upward trend is worse than appears for basic medical care.

And like medical care, the steady decline in insurance coverage is aggravating the access to drugs even more.

Source: Center for Disease Control – Health, United States 2008 Table 80

Those not getting needed medicines varies by age

The graph below is similar to above but includes people over 65. As above, it only includes persons whose income is greater than 200 % of poverty level.

Those not getting prescription drugs also vary by age, whether or not insured.  A significant drop in not getting drugs among those over 65 was significantly affected by the introduction of Medicare Part D prescription drug program that lowered costs for seniors.

Though that program is not inexpensive, costs are lower, and so more are able to stay current on their medications.

Children are being adversely affected as drug costs continue to eat away at parents’ ability to buy drugs for them. Fortunately, this lack of access is at low overall levels but a potentially serious problem for those who are affected.

Source: Center for Disease Control – Health, United States 2008 Table 80

Download PDF Report >>> Cost and Access to Healthcare

World Healthcare Spend % of GDP

Below is a chart showing the percent of Gross Domestic Product spending on Healthcare.  Note, that the United States was at one time competitive with the other industrialized countries, but now spends far more than these other countries.

Government Bureaucracy?

Download PDF Report >>> Government Bureaucracy

Some people say any Government health plan is a huge bureaucracy. Below are two application forms for personal health insurance. The first is representative of private insurers. The second is from the Government.  Help me out here.  Which one is the bureaucracy?

Private insurer Personal Health Insurance Application Form

8 pages of questions


Government Medicare Personal Health Insurance Application Form

8 questions

Date of Birth:  
Marital Status:  
Type of Medicare Coverage:  
Do you have Medicaid:  
Are you living outside of the U.S.:  
Household Income Range:  
Are you receiving health benefits from employer:  
Retirement type:  

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McAllen & El Paso Texas – The Cost Conundrum

Download PDF Report >>>McAllen and El Paso Texas

Download New Yorker article PDF >>> New Yorker Mag – McAllen Tx

Atul Gawande wrote a long article for the June 1, 2009 New Yorker Magazine titled “The Cost Conundrum – What a Texas town can teach us about health care.  This document condenses some of the highlights from that article.

McAllen versus El Paso Texas

  • McAllen Texas is one of the most expensive health-care markets in the country.  In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average.
  • El Paso County, eight hundred miles up the border, has essentially the same demographics.  Yet in 2006 Medicare expenditures in El Paso were $7,504 per enrollee half as much as in McAllen.
  • And yet there’s no evidence that the treatments and technologies available at McAllen are better than those found elsewhere in the country.
  • The annual reports that hospitals file with Medicare show that those in McAllen and El Paso offer comparable technologies.
  • Public statistics show no difference in the supply of doctors.  Hidalgo County actually has fewer specialists than the national average.
  • Nor does the care given in McAllen stand out for its quality.  Medicare ranks hospitals on twenty-five metrics of care.  On all but two of these, McAllen’s five largest hospitals performed worse, on average, than El Paso’s.
  • Something fundamental had changed since the days when health-care costs in McAllen were the same as those in El Paso and elsewhere.

McAllen overuse of medicine

  • Compared with patients in El Paso and nationwide, patients in McAllen got more of pretty much everything more diagnostic testing, more hospital treatment, more surgery, more home care.
  • Between 2001 and 2005, critically ill Medicare patients received almost fifty per cent more specialist visits in McAllen than in El Paso.
  • In 2005 and 2006, patients in McAllen received  
    • 20% more abdominal ultrasounds,
    • 30%  more bone-density studies,
    • 60%  more stress tests
    • 200% more nerve-conduction studies
    • 550% more urine-flow studies
    • And Medicare paid for five times as many home-nurses visits. 
  • The primary cause of McAllen’s extreme costs was, very simply, the across-the-board overuse of medicine.

More Quantity does not mean more Quality

  • Americans like to believe that, with most things, more is better.  But research suggests that where medicine is concerned it may actually be worse.
  • In fact, the four states with the highest levels of spending Louisiana, Texas, California, and Florida were near the bottom of the national rankings on the quality of patient care.
  • That’s because nothing in medicine is without risks.  Complications can arise from hospital stays, medications, procedures, and tests, and when these things are of marginal value the harm can be greater than the benefits.
  • In 2006, doctors performed at least sixty million surgical procedures, one for every five Americans. No other country does anything like as many operations on its citizens.
  • Some hundred thousand people die each year from complications of surgery far more than die in car crashes.
  • Patients in high-cost areas were actually less likely to receive low-cost preventive services, faced longer waits at doctor and emergency-room visits, and were less likely to have a primary-care physician.
  • They got more of the stuff that cost more, but not more of what they needed.

Some places get it right

  • Most Americans would be delighted to have the quality of care found in places like Rochester, Minnesota, or Seattle, Washington, or Durham, North Carolina all of which have world-class hospitals and costs that fall below the national average.
  • If we brought the cost curve in the expensive places down to their level, Medicare’s problems (for the next fifty years) would be solved.
  • Health-care costs ultimately arise from the accumulation of individual decisions doctors make about which services and treatments to write an order for.
  • The most expensive piece of medical equipment, as the saying goes, is a doctor’s pen. As a rule, hospital executives don’t own the pen caps.  Doctors do.
  • Why do [doctors respond] so differently from one place to another?
  • It turned out that differences in decision-making emerged in only some kinds of cases.  In situations in which the right thing to do was well established made the same decisions.
  • But, in cases in which the science was unclear, some physicians pursued the maximum possible amount of testing and procedures; some pursued the minimum. And which kind of doctor they were depended on where they came from.
  • In case after uncertain case, more was not necessarily better.  But physicians from the most expensive cities did the most expensive things.

Medical Schools are not Business Schools

  • No one teaches you how to think about money in medical school or residency.  Yet, from the moment you start practicing, you must think about it.
  • Beyond the basics, however, many physicians are remarkably oblivious to the financial implications of their decisions.  They see their patients.  They make their recommendations.  They send out the bills.
  • Others think of the money as a means of improving what they do.
  • Then there are the physicians who see their practice primarily as a revenue stream.  They figure out ways to increase their high-margin work and decrease their low-margin work.  This is a business, after all.
  • In every community, you’ll find a mixture of these views among physicians, but one or another tends to predominate.
  • The anchor tenants [at shopping centers] that set norms encouraging the free flow of ideas and collaboration, even with competitors, produced enduringly successful communities, while those that mainly sought to dominate did not.
  • [Possibly] anchor tenants play a similarly powerful community role in other areas of economics, too, and health care may be no exception.
  • About fifteen years ago, it seems, something began to change in McAllen.  A few leaders of local institutions took profit growth to be a legitimate ethic in the practice of medicine. Not all the doctors accepted this.  But they failed to discourage those who did.

Medicine first, team approach

  • Mayo Clinic is among the highest-quality, lowest-cost health-care systems in the country.  Among the things that stand out was how much time the doctors spent with patients.
  • There was no churn no shuttling patients in and out of rooms while the doctor bounces from one to the other.  Most of the patients, required about twenty minutes.
  • The core tenet of the Mayo Clinic is The needs of the patient come first not the convenience of the doctors, not their revenues.
  • But decades ago Mayo recognized that the first thing it needed to do was eliminate the financial barriers.
  • It pooled all the money the doctors and the hospital system received and began paying everyone a salary, so that the doctors goal in patient care couldn’t be increasing their income.
  • Mayo promoted leaders who focused first on what was best for patients, and then on how to make this financially possible.
  • The aim is to raise quality and to help doctors and other staff members work as a team. But, almost by happenstance, the result has been lower costs.
  • The Mayo Clinic is not an aberration.  One of the lowest-cost markets in the country is Grand Junction, Colorado, that nonetheless has achieved some of Medicare’s highest quality-of-care scores.
  • Years ago the doctors agreed among themselves to a system that paid them a similar fee whether they saw Medicare, Medicaid, or private-insurance patients, so that there would be little incentive to cherry-pick patients.
  • They also agreed, to meet regularly on small peer-review committees to go over their patient charts together.  They focused on rooting out problems like poor prevention practices, unnecessary back operations, and unusual hospital-complication rates.  Problems went down.  Quality went up.
  • The leading doctors and the hospital system adopted measures to blunt harmful financial incentives, and they took collective responsibility for improving the sum total of patient care.

Someone has to be accountable for total care

  • The question we have to ask is whether the doctor is set up to meet the needs of the patient, first and foremost, or to maximize revenue.
  • There is no insurance system that will make the two aims match perfectly.  But having a system that does so much to misalign them has proved disastrous.  As economists have often pointed out, we pay doctors for quantity, not quality.
  • As they point out less often, we also pay them as individuals, rather than as members of a team working together for their patients.  Both practices have made for serious problems.
  • The lesson of the high-quality, low-cost communities is that someone has to be accountable for the totality of care.  Otherwise, you get a system that has no brakes.  You get McAllen.
  • Expanding public-insurance programs like Medicare and shrinking the role of insurance companies will not make much difference. [Neither will expanding insurance companies role.]
  • The use medical savings accounts and hold high-deductible insurance policies will not work. Who is going to haggle price for a surgery? Any plan that relies on the sheep to negotiate with the wolves is doomed to failure.
  • Providers have to be weaned away from their untenably fragmented, quantity-driven systems of health care, step by step.
  • And that will mean rewarding doctors and hospitals, in which doctors collaborate to increase prevention and the quality of care, while discouraging overtreatment, under treatment, and sheer profiteering.
  • Under one approach, insurers whether public or private would allow clinicians who formed such organizations and met quality goals to keep half the savings they generate.
  • Government could also shift regulatory burdens, and even malpractice liability, from the doctors to the organization.  Other, sterner, approaches would penalize those who don’t form these organizations.
  • Congress has provided vital funding for research that compares the effectiveness of different treatments, and this should help reduce uncertainty about which treatments are best.
  • But we also need to fund research that compares the effectiveness of different systems of care to reduce our uncertainty about which systems work best for communities.  These are empirical, not ideological, questions.
  • And we would do well to form a national institute for health-care delivery, bringing together clinicians, hospitals, insurers, employers, and citizens to assess, regularly, the quality and the cost of our care, review the strategies that produce good results, and make clear recommendations for local systems.
  • Dramatic improvements and savings will take at least a decade. But a choice must be made.
  • Whom do we want in charge of managing the full complexity of medical care? We can turn to insurers (whether public or private), which have proved repeatedly that they can’t do it.
  • Or we can turn to the local medical communities, which have proved that they can.
  • But we have to choose someone because, in much of the country, no one is in charge.  And the result is the most wasteful and the least sustainable health-care system in the world.
  • In the war over the culture of medicine the war over whether our country’s anchor model will be Mayo or McAllen the Mayo model is losing.
  • We face a decision that is more important than whether we have a public-insurance option, more important than whether we will have a single-payer system in the long run or a mixture of public and private insurance, as we do now.
  • The decision is whether we are going to reward the leaders who are trying to build a new generation of Mayos and Grand Junctions.  If we don’t, McAllen … will be our future.

Download PDF Report >>>McAllen and El Paso Texas

Download New Yorker article PDF >>> New Yorker Mag – McAllen Tx

High and Lowdown of Medicare Costs

Many seniors have become fearful that cutting excess costs means cutting benefits.  Medicare’s own data highlights differences between about 20% of states with the lowest costs and 20% of states with the highest costs.  Cost of living explains some of the differences.  But 71% higher physician and clinical service costs for essentially the same results suggests there are billions of dollars being spent with little or no added benefit.