Public Optional

[Last updated Nov. 19th 2009]

To use an aviation analogy, we have turned from the downwind vector and are now (Aug 23rd) in mid-approach "base leg" on this policy reform flight prior to turning 90 degrees into the turbulent fall 2009 headwinds of final approach and (crash?) landing of "health care reform" legislation. I will add a few more observations, and recap central points and issues I've addressed in my prior three posts before moving on to another topic (drought and water policy).

"PUBLIC OPTIONAL"

I am really sick of hearing about the "public option" wrangle 24/7 in the media these days. I am increasingly skeptical of its inclusion of any final legislation that may or may not reach the President's desk, and likewise skeptical that it would comprise much of an improvement even should it pass the Congress (and, it looks increasingly to me like a slickly orchestrated "misdirection" strategy). Without a "public option" (our having taken Single Payer off the table a priori), it is difficult to see what "health care reform" would truly amount to. But, then, "public option" as currently proffered (e.g., H.R. 3200) merely looks like -- as I've said before -- [1] corporate welfare ("Play or Pay" forcing everyone to buy health insurance policies under threat of tax penalty for non-compliance), and [2] outright "welfare" (means-tested government subsidy for health insurance "affordability").

The sarcastic title of this post simply alludes to the very real political fact that, to the extent that the priorities of key legislators align with true needs of the aggregate public (e.g., universal access, better clinical quality, and restraint on cost), they will work for such things, but, the overriding, never-ending imperative of most lawmakers seems to be simply that of re-election. And, for the Legislative Branch (in particular the House**), there's only one viable source of effective campaign funding -- special interest money. This is beyond debatable, and is not exactly news. You might be able to mount and sustain a viable Presidential campaign on broad-support grassroots small-increment donation money -- as Obama obviously did -- but this is simply not the case for Senators and Representatives. It has been recently reported that there are today six health care industry lobbyists in place for every member of Congress. The money is flowing generously, and the backroom special interest pleading is in high gear.

[**] It has long been noted that roughly 80% of a Representative's time is spent on campaign fundraising, given the short 2-year re-election cycle. In the House, staff do nearly all of the actual legislative detail work, with the elected official mostly just stopping in for "drive-by" votes.

So, your interests as a citizen are "optional."

A couple of headlines today:

• Healthcare insurers get upper hand
  Obama's overhaul fight is being won by the industry, experts say. The end result may be a financial 'bonanza.'
  
  
• WSJ: Investors Believe Reform Package Will Be Watered Down To Exclude Elements Onerous To Industry
  
  

"OK, so, how much is AHIP Job?"



This one is blanketing the TV channels of late. AHIP (American's Health Insurance Plans) is the lobbying organization for the private health insurance industry. From their March 2009 "Board of Directors’ Statement on Setting a Goal to Achieve a More Affordable and Effective Health Care System" -

Health care reform has eluded our nation for nearly a century. But today, a broad consensus is emerging that comprehensive reform of the system – that covers all Americans and provides safer and more effective care – is possible if the growth in health care costs can be brought under control. Health care costs are rising at an unsustainable rate and adding a burden on families and small businesses, and hampering our competitiveness as a nation...

Can't argue with that: universal coverage improved quality, cost containment. Recall the opening words of my May 25th post, "The U.S. health care policy morass":

Some reform advocates have long argued that we can indeed [1] extend health care coverage to all citizens, with [2] significantly increased quality of care, while at the same time [3] significantly reducing the national (and individual) cost. A trifecta "Win-Win-Win."

Note the soothing v/o in the AHIP PSA above: "...If everyone's covered, we can make health care as affordable as possible (0:14)...and the words 'pre-existing condition' become a thing of the past (0:19)..."

Laudable, without a doubt (notwithstanding the red-flag weasel phrase "as affordable as possible").

Again, citing the AHIP Directors' Statement:

Health plans are doing their part by pioneering disease management and care coordination programs; promoting prevention, wellness and early intervention; and implementing innovative payment strategies that reward performance and outcomes. We are committed to working with the Administration, Congress and other stakeholders to advance strategies that promote effective, efficient, and high-value health care.

So, assuming this is not simply finely crafted rhetorical lorazepam PR spin, the AHIP membership in fact regard themselves as indispensably embedded, value-adding, necessary clinical adjuncts, rather than the bloodsucking, obscenely profitable (and otherwise ruinously expensive), paper-pushing, value-hampering, care-denying intermediary parasites their political adversaries claim them to be., e.g., liberal OpEd writer Chris Hedges:

The real debate, the only one that counts, is how much money our blood-sucking insurance, pharmaceutical and for-profit health services are going to be able to siphon off from new health care legislation. The proposed plans rattling around Congress all ensure that the profits for these corporations will increase and the misery for ordinary Americans will be compounded. The corporate state, enabled by both Democrats and Republicans, is yet again cannibalizing the Treasury...

...The Democrats are collaborating with lobbyists for the insurance industry, the pharmaceutical industry and for-profit health care providers to craft the current health care reform legislation. “Corporate and industry players are inside the tent this time,” says David Merritt, project director at Newt Gingrich’s Center for Health Transformation, “so there is a vacuum on the outside.” And these lobbyists have already killed a viable public option and made sure nothing in the bills will impede their growing profits and capacity for abuse.

A commentor on Salon.com notes:

A Broken Process

As I've said before; our political system is not capable of dealing with long term complex issues. Between entrenched special interests that fight to maintain the status quo, a legislative branch beholden to those interests, a political culture that only looks as far as the next election cycle, a fundamentally broken news media, an ignorant misinformed and unengaged electorate and a host of other problems it will be miracle if US makes to the half century mark as anything other than third rate power with most of its citizens living in abject poverty trying to get buy with crumbling infrastructure and a collapsing environment.

A skeptical commentor in my local paper observes:

Trust in government must be earned. The 'government' programs called Social Security and Medicare have been headed for insolvency for years. What have our representatives done about that? Nothing. We have needed real immigration reform and a sane immigration policy for years. What have our representatives done about that? Nothing. I could go on but you get the point. Health Care insurance needs reform and it will not be reformed without some government action. That said, it is possible for the present system to be reformed by legislation and not replaced by a full government program if our representatives took some tough action. But just like Social Security, Medicare and Immigration, either nothing gets done or what is done is overkill or ineffective or both. I feel both shame for my government and fear of my government and in my estimation I have good reason...our government has done such a poor job for so long on so many big issues I don't have much belief in them at this point.

An even more skeptical commentor writes to my other local paper:

It is important for all of us to realize that the health care legislation currently being hotly debated is not about insuring the uninsured, reducing health care costs, etc.

This legislation is all about power -- greatly expanded power for the Obama administration, for Speaker of the House Nancy Pelosi and for Senate Majority Leader Harry Reid.

The federal government and the unions already effectively control the American automobile industry. The government has recently gained great power over the financial institutions of the United States.

Renewable energy regulations give the government a lot of power over utilities. If the cap-and-trade legislation passes the Senate, the government will totally control the production of energy in this country.

If the proposed health care legislation passes, the federal government will control one-sixth of the U.S. economy. President Obama's appointed czars and other unelected bureaucrats will control the health care system in the United States, maybe not in the next year, but certainly within the next five years.

Make no mistake, this health care legislation is all about power.

That is why President Obama, even in the face of stiff opposition from some of his own Democrats, refuses to give up his demand for a government-run health care system to compete with the private sector.

It is precisely this frequently heated divergence of characterization that comprises the core of the health care policy reform issue soon to resolve itself one way or another, for better or worse.
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"OK, so, what exactly is AHIP Job?"

From the March 2009 AHIP Directors' Report:

What Our Community Brings to the Table

Health plans offer strategies and tools to consistently improve quality and drive down the cost of care delivered to patients across all care settings:

1. Tools to Coordinate Care Across a Variety of Settings for Specific Patient Populations: Health plans have a wealth of administrative and clinical information which can be integrated to help clinicians have a comprehensive view of a patient’s clinical history. For instance, plans may evaluate this [sic] data to identify preventable medical errors, providing clinicians with this information to address gaps in care and help make efficient, informed patient-care decisions.
   
   
2. Incentives for an Interconnected Electronic Health Care System: A fully integrated, electronic health information exchange is essential to ensuring that high-value health care is delivered to the right patient, at the right time, and in the right setting.
   
   
3. Clinical Decision-Making Based on Best Evidence: Health plans encourage clinical practices that rely on best data and best evidence. A strong base of evidence can help evaluate whether the costs of services, devices, and drugs are commensurate with the value of care delivered.
   
   
4. Innovative Payment Models That Drive Real Delivery System Change: Health plans have experience with and are committed to innovative payment models that reward improved clinical outcomes and overall health status, and optimize the patient experience, such as an enhanced medical home, paying for episodes of illness, and shared risk models that promote comprehensive care management.
   
   
5. Benefit Design: Plans can implement benefit design strategies to encourage consumers to choose the safest, highest quality and most cost-effective drugs, devices, and procedures. These strategies include offering lower cost sharing for those procedures and technologies that are proven to be the safest, higher in value and lowest in cost.
   
   
6. Administrative Efficiencies: Health plans, in concert with providers and consumers, can drive down administrative costs and by doing so, improve efficiency and care delivery.
   
   

Mostly all high-mindedly Mom & Apple Pie laudable, no doubt. The foregoing, however, do beg a few questions. First, if the AHIP membership is equipped with and savvy with "strategies and tools to consistently improve quality and drive down the cost of care," then why the evolved crisis nearly everyone agrees is extant? Why the pressing, politically front-burner imperative for comprehensive reform? Why do we see chronically suboptimal, uneven outcomes quality, and cost escalation running three times the rate of inflation -- in particular when concomitant with the AHIP membership's enviable, ever-increasing profits? What have they been doing with all of that money?

Asked and Answered.

Feeling the reform heat, are we?

[1] "Health plans have a wealth of administrative and clinical information which can be integrated to help clinicians have a comprehensive view of a patient’s clinical history." Really? I would take issue with this with respect to private, and most notably, employment-based coverage. "Plan-hopping" has become a commonplace, as bottom-line anxious employers increasingly shop the most affordable benefits plan du jour. As I noted in a prior post, during my last two-year job tenure, my employer switched plans THREE times. I had no say in the matter, and was not consulted in advance. Each time, my personal "administrative and clinical information" became the private HIPAA-firewalled "business intelligence data" of the new vendor. Seamless ongoing longitudinal "continuity" of my "patient history" may have a nice ring, but it is not the predominant reality -- except, I should note, for those covered under Medicare or the VA, i.e., the public entitlement de facto "single payer" programs.

[1.b] "...plans may evaluate this [sic] data to identify preventable medical errors, providing clinicians with this information to address gaps in care and help make efficient, informed patient-care decisions." Well, that is precisely the type of analytic data-mining work I did during my two tenures with the Medicare QIO. It is also the type of extensive outcomes research performed by the CMS Agency for Healthcare Research and Quality (AHRQ). A salient -- no, critical -- difference is that entitlement beneficiaries are not put at risk of coverage exclusion/"rescission" that is increasingly common within the for-profit actuarial insurance model.

[2] "A fully integrated, electronic health information exchange is essential to ensuring that high-value health care is delivered to the right patient, at the right time, and in the right setting." Yes, of course. Again, see my foregoing comments in response to [1]. These things go the acronym "RHIO" or "RHIE" ("Regional Health Information Organization/Exchange"). The Utah Health Information Network (UHIN) stands as a fairly mature example here. During my last QIO tenure, I sat on the Steering Committee for a southern Nevada RHIO startup attempt. I recall the fractiousness of the proceedings, given the disparate interests of the various for-profit and non-profit interests. We still don't have one in Nevada. I applaud these efforts, but they remain fraught with technical and policy difficulties [a], difficulties that would be significantly abated under a universal coverage "social insurance" paradigm (be it a "Single Payer" model or one more akin to a "Swiss Model").

[a] The private sector "EMR" (Electronic Medical Records) industry -- regarding which I am thoroughly evangelistic -- has been in high gear for a number of years and has matured greatly, but it has nothing to do directly with the health insurance industry, except to the enervating extent that the latter significantly complicates the work of the former. An integrated EMR is one wherein the front office (demographic & scheduling), mid office (the clinical/patient encounter and historical record), and back office (billing and admin) functions are synch'd (with automated CPT/ICD-9 encounter coding linked with the front and back office functions). The focus, though, ultimately remains that of reimbursement, i.e., the back office imperative of billing -- having to deal with the hundreds of 3rd party payers, each with their own proprietary submissions forms, policies, and procedures. This adds nothing substantive to improved actual health care effectiveness. Single Payer would simplify this aspect of health information technology immeasurably, enabling software developers and their end-users to focus more on leveraging the EMRs for better care.

[3] "A strong base of evidence can help evaluate whether the costs of services, devices, and drugs are commensurate with the value of care delivered." Again, no argument with that ideal. However, again, it begs the question of efficiency and effectiveness, when health care data constitute in large measure the proprietary "business intelligence" of competing for-profit actuarial model enterprises. By contrast, the research initiatives of public entities such as AHRQ (a) suffer from no such potential profit-model conflicts-of-interest, and (b) are already focused on patient populations with the higher levels of utilization experience (increasingly so as the population ages).

[4] "...innovative payment models that reward improved clinical outcomes and overall health status..." It's called "P4P" (Pay for Performance), already long a front-burner priority within CMS. Nothing exactly "innovative" about it -- it's called "evidence-based medicine," i.e., "science," which results in "clinical practice guidelines" (which, it should be noted in fairness, is derisively referred to by numerous skeptical docs as "cookie-cutter medicine"). I find it the height of hypocrisy that this is touted as a virtue by the likes of AHIP while it is also attacked by reform opponents as looming, ominous "death panels" and "federal health/lifestyle police" if undertaken by the public sector.

[5 & 6], OK, what, precisely, have you been waiting for? AHIP claims that their membership "can" do these things. The for-profit private sector evidence to date seems to infer the opposite.
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MENDACITY OF THE DAY

"And you know what public option is? It leads to single-payer, completely government-run health care system and no choice. And we want to preserve choice for our people."

- Senator Charles Grassley (R-IA), Des Moines Register, 09/25/09
___

Main Entry: op·tion
Pronunciation: \ˈäp-shən\
Function: noun
Etymology: French, from Latin option-, optio free choice; akin to Latin optare to choose
Date: 1593
1: an act of choosing
2a: the power or right to choose: freedom of choice

Not exactly the sharpest knife in the drawer, this man. Beyond the patent lexical contradiction, it's undergrad sophomoric Slippery Slope Fallacy 101.

First of all, we have had Medicare in place for 44 years now. And, guess what? This government entitlement beneficiary cohort also can and does avail itself of private sector "Medi-Gap" insurance coverage. And, guess what? The Evil Government-run agency Medicare itself touts these policies on its website:

Medigap (Supplemental Insurance) Policies

A Medigap policy is health insurance sold by private insurance companies to fill the “gaps” in Original Medicare Plan coverage. Medigap policies help pay some of the health care costs that the Original Medicare Plan doesn’t cover. If you are in the Original Medicare Plan and have a Medigap policy, then Medicare and your Medigap policy will pay both their shares of covered health care costs...

In addition to Senator Grassley's transparent Slippery Slope rhetoric, he also commits the "False Dichotomy" appeal. Some germane thoughts from a blog post on the "Swiss Model" by Dr. Steve Blevins:

The Swiss system works by regulating commercial insurance. People buy insurance directly from insurance companies, so businesses are out of the loop. Everyone must carry insurance, and those who don’t pay a penalty.

The government subsidizes the cost of insurance for low-income individuals (about one-third of the population). The affluent are not subsidized. (Contrast that with Medicare, which covers everyone over the age of 65, including wealthy people who don't need government assistance.)

In Switzerland, insurance companies must provide basic insurance to all recipients and cannot deny coverage on the basis of poor health. Premiums are not affected by health status. "Basic insurance" is defined by government, which decides which drugs, lab tests, and devices will be covered. Deductibles and premiums are tightly regulated and cannot exceed certain limits. Insurance companies cannot profit from the basic plan, though they may profit from supplemental insurance...

I, for one, would oppose any type of "single payer" reform plan, such as "Medicare For All" that did not permit ancillary supplemental "private option" choices according citizens the freedom to buy coverage beyond that provided by a public program (as in the Swiss system, and as we already unremarkably seen with widely available "Medi-Gap" insurance here). As I have stated before, notwithstanding, for example, that we take basic police and fire protection as a tax-funded given, people are quite free to buy all the additional enhanced private sector protective products and service their wishes dictate and their financial resources can sustain.
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"Why We Need Government-Run Universal Socialized, Call It Whatever You Want Health Insurance"

LOL. This is pretty interesting.



CONTRARIAN VIEWS

I will give voice herein to an articulate and representative two ("representative" in the non- angrily shouting banal bumper sticker "Town Hell Meeting" sense).

First, the libertarian arguments of Whole Foods CEO John Mackey, whose recent Wall Street Journal OpEd unleashed a torrent of contentious debate (much of it quite hostile, and which included calls for a boycott of his company).

While we clearly need health care reform, the last thing our country needs is a massive new health care entitlement that will create hundreds of billions of dollars of new unfunded deficits and moves us much closer to a complete governmental takeover of our health care system. Instead, we should be trying to achieve reforms by moving in the exact opposite direction-toward less governmental control and more individual empowerment...

...Many promoters of health care reform believe that people have an intrinsic ethical right to health care -- to universal and equal access to doctors, medicines, and hospitals. While all of us can empathize with those who are sick, how can we say that all people have any more of an intrinsic right to health care than they have an intrinsic right to food, clothing, owning their own homes, a car or a personal computer? Health care is a service which we all need at some point in our lives, but just like food, clothing, and shelter it is best provided through voluntary and mutually-beneficial market exchanges rather than through government mandates. A careful reading of both The Declaration of Independence and the Constitution will not reveal any intrinsic right to health care, food or shelter, because there isn’t any. This “right” has never existed in America...

Then there's David Goldhill's thoughtful Atlantic Monthly essay "How American Health Care Killed My Father."

I’m a Democrat, and have long been concerned about America’s lack of a health safety net. But based on my own work experience, I also believe that unless we fix the problems at the foundation of our health system—largely problems of incentives—our reforms won’t do much good, and may do harm. To achieve maximum coverage at acceptable cost with acceptable quality, health care will need to become subject to the same forces that have boosted efficiency and value throughout the economy. We will need to reduce, rather than expand, the role of insurance; focus the government’s role exclusively on things that only government can do (protect the poor, cover us against true catastrophe, enforce safety standards, and ensure provider competition); overcome our addiction to Ponzi-scheme financing, hidden subsidies, manipulated prices, and undisclosed results; and rely more on ourselves, the consumers, as the ultimate guarantors of good service, reasonable prices, and sensible trade-offs between health-care spending and spending on all the other good things money can buy...

I would exhort everyone to closely read and assess these two arguments. I will detail my own reactions shortly.
___

JOHN MACKEY, OR "HELL HATH NO FURY LIKE THAT OF AN EX-LIBERAL"

It's difficult to accord much credence to a man who transparently engages in vague and broad-brush Straw Man framing right at the outset. To wit: "Many promoters of health care reform believe that people have an intrinsic ethical right to health care - to universal and equal access to doctors, medicines, and hospitals."

Many? Who, in the mainstream forefront of the policy debate, exactly? Maybe some far-left fringe elements within the "Comrade" contingent, for whom "Property" remains "Theft," but his implicit charge of incipient "Communism" -- "how can we say that all people have any more of an intrinsic right to health care than they have an intrinsic right to food, clothing, owning their own homes, a car or a personal computer?" -- is merely the sophomoric Straw Man tactic (wherein you disingenuously "knock down" a spurious, inflated characterization of a position with which you disagree). Conflating health care with the panoply of consumer products is simply dishonest, a red herring means of rousing peoples' ire at the thought of undeserving "Moochers," in order to poison the well.

How can we say that people have an "intrinsic right" to military defense, or to police and fire protection, (or to safe food and water, or to otherwise safe products that won't electrocute us when we plug them in)? Well, we simply say it. And then we codify it. And, then, having codified it, we don't lie awake nights worrying that everyone will demand a Special Forces FOB dug into his or her front yard, or an occupied Metro PD Black & White, an ambulance, and a hook & ladder truck parked at the curb 24/7.

"A careful reading of both The Declaration of Independence and the Constitution will not reveal any intrinsic right to health care, food or shelter, because there isn’t any." Really? So,

• The 1776 observation "We hold these truths to be self-evident, that all men are created equal" was intended to exclude fundamental aspects of successful living such as viable health?
  
• the Preamble phrase "promote the general welfare" is nothing more than vapid, gratuitous filler?
• That Article I, Section 8 of the Constitution -- "provide for the common Defence and [again] general Welfare of the United States..." (a.k.a. "the Commerce Clause") -- well, they really didn't mean it. Neither did they mean the subsequent declaration providing the Legislative Branch the authority to "make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the government of the United States, or in any department or officer thereof."
  

Silly me.

Move over and make room, poignantly foaming "Birthers," and "Deathers." Here come "The Tenthers"!

...all part of a movement whose members are convinced that the 10th Amendment of the Constitution prohibits spending programs and regulations disfavored by conservatives. Indeed, while "birther" conspiracy theorists dominate the airwaves with tales of a mystical Kenyan baby smuggled into Hawaii just days after his birth, these "tenther" constitutionalists offer a theory that is no less radical but infinitely more dangerous.

Tentherism, in a nutshell, proclaims that New Deal-era reformers led an unlawful coup against the "True Constitution," exploiting Depression-born desperation to expand the federal government's powers beyond recognition. Under the tenther constitution, Barack Obama's health-care reform is forbidden, as is Medicare, Medicaid, and Social Security. The federal minimum wage is a crime against state sovereignty; the federal ban on workplace discrimination and whites-only lunch counters is an unlawful encroachment on local businesses.

Tenthers divine all this from the brief language of the 10th Amendment, which provides that "the powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." In layman's terms, this simply means that the Constitution contains an itemized list of federal powers -- such as the power to regulate interstate commerce or establish post offices or make war on foreign nations -- and anything not contained in that list is beyond Congress' authority...

I guess by such "logic" the United States Air Force must be disbanded. The Constitution speaks explicitly only to the establishment and sustenance of an army and navy.

Speaking of the Navy, a bit of Sept 1st blog news...


BACK TO THE MACKEY PLAN

I will mostly just excerpt his eight points below. For the full text of his OpEd, click here.

1. Remove the legal obstacles which slow the creation of high deductible health insurance plans and Health Savings Accounts...
2. Change the tax laws so that that employer-provided health insurance and individually owned health insurance have exactly the same tax benefits...
3. Repeal all state laws which prevent insurance companies from competing across state lines...
4. Repeal all government mandates regarding what insurance companies must cover...
5. Enact tort reform to end the ruinous lawsuits that force doctors into paying insurance costs of hundreds of thousands of dollars per year...
6. Make health care costs transparent so that consumers will understand what health care treatments cost...
7. Enact Medicare reform: we need to face up to the actuarial fact that Medicare is heading towards bankruptcy and move towards greater patient empowerment and responsibility.
8. Permit individuals to make voluntary tax deductible donations on their IRS tax forms to help the millions of people who have no insurance and aren’t covered by Medicare, Medicaid, SCHIP or any other government program.

Some of his proffers make good sense, in the abstract. Some require verification to determine whether he's just gilding the lily, and some are questionable.

[1] What exactly are the "legal obstacles" to the creation of high deductible plans? He does not say, and I'm not aware of any. Perhaps a coupling of high-deductible "catastrophic coverage" plans and tax-deductible Health Savings Accounts (HSAs) can be of benefit to those for whom they are economically practicable, but they won't be of much help to those at the lower socioeconomic margins of society (and/or the un- or underemployed), which brings us right back to health care as a disparate economic "privilege." Perhaps at a lower aggregate cost, but disparate nonetheless.

[2] End employment-based vs "private" tax deduction discrimination for health plans? In principle, I would have to agree. My concern here is more general. For example, certain costs associated with my residential mortgage are "deductible." I have to assume, though, that this "tax benefit" may be in fact chimerical, i.e., its "value" is directly (if subtly) reflected in the market value of my property. I tend to view a lot of this "deductibility" idea as a Zero Sum Game.

[3] "Buy anywhere" and "portability"? Again, in principle, I cannot take issue with this -- provided that we don't end up with the bulk of insurance companies ending up nominally chartered in the least-regulated states. There is little mystery regarding why major bank credit card operations seem to be mostly chartered in South Dakota.

[4] Government mandates on what insurance "must cover"? I'm not at all persuaded that this is a serious problem. Moreover, insurance regulation is a state-level patchwork. I'm not aware of any overarching "federal primacy" law mandating the specifics of insurance coverage.

[5] Tort reform? I have two words: "Loser Pays." Look it up.

[6] Price transparency? Here, Mr. Mackey, David Goldhill and I could not agree more. Details when I get to the Goldhill article (which is much more nuanced and detailed).

[7] "Medicare reform"? Mr. Mackey offers up no clue as to what he means by this. The fact that Medicare has prospective unfunded liabilities cannot be disputed, but, that is a problem for Congress. I tire of critics conflating Medicare administration with its congressional funding. Moreover, what, precisely, Mr. Mackey, is the putative financial "responsibility" of a retired fixed-income Medicare beneficiary?

[8] Voluntary tax deductions for donations? Again, this already exists, and truly only serves to nominally financially benefit those who can afford to make the donations. How that will materially abate the aggregate problem of health care financing for those at coverage risk escapes me.

John Mackey clearly and unapologetically regards heath care as a privilege, one based substantively (beyond adequate financial resources)
on one's own "lifestlye" diligence:

...every American adult is responsible for their own health. Unfortunately many of our health care problems are self-inflicted with over 2/3 of Americans now overweight and 1/3 obese. Most of the diseases which are both killing us and making health care so expensive-heart disease, cancer, stroke, diabetes, and obesity, which account for about 70% of all health care spending, are mostly preventable through proper diet, exercise, not smoking, minimal or no alcohol consumption, and other healthy lifestyle choices...

i.e., get off your butts, go to the gym, and then shop for groceries at Whole Foods on your way home. Problem solved." I posted my reaction to that in another blog comment:

I saw that assertion and then went at looked at WHO (World Health Organization) data for the European nations last night. Guess what? Similar prevalence of these same suboptimal "lifestyle" conditions, yet they STILL somehow manage to significantly outperform us on a broad array of health metrics -- at roughly HALF our per capita spending.

While it ought be a Blinding Glimpse of the Obvious that we, of course, should tirelessly exhort and rationally incentivize healthier living, it does not axiomatically follow that such measures will alone suffice to replace affordable health care access. Genetic and environmental factors alone may well serve to negate for many the most "circumspect" of "lifestyles" as currently favored by those bent on patronizingly lecturing everyone else. Consider the apt observation of Dr. Rahul K. Parikh:

I agree we need to pay for cost-effective prevention options...But it's a tough fit because that's not going to end disease in America. And as long as people continue to get sick, they will face the problem of an inadequate insurance system and an out-of-control medical system. As one intelligent commentator pointed out, every one of us is eventually going to get sick, face a traumatic injury or an unexplained illness. Every one is going to die, and many will face agonizing end-of-life medical choices -- no matter how healthful their lifestyles.

When any of that happens, they deserve a well-functioning and reasonably priced sick care system. The last thing a sick person needs is a lecture on how they ate wrong and failed to get enough exercise in the months and years leading up to the acute event."

THE DAVID GOLDHILL ARTICLE

This one, "How American Health Care Killed My Father," deservedly got a lot of national attention.

ALMOST TWO YEARS ago, my father was killed by a hospital-borne infection in the intensive-care unit of a well-regarded nonprofit hospital in New York City. Dad had just turned 83, and he had a variety of the ailments common to men of his age. But he was still working on the day he walked into the hospital with pneumonia. Within 36 hours, he had developed sepsis. Over the next five weeks in the ICU, a wave of secondary infections, also acquired in the hospital, overwhelmed his defenses. My dad became a statistic—merely one of the roughly 100,000 Americans whose deaths are caused or influenced by infections picked up in hospitals. One hundred thousand deaths: more than double the number of people killed in car crashes, five times the number killed in homicides, 20 times the total number of our armed forces killed in Iraq and Afghanistan. Another victim in a building American tragedy...

...My survivor’s grief has taken the form of an obsession with our health-care system. For more than a year, I’ve been reading as much as I can get my hands on, talking to doctors and patients, and asking a lot of questions.

Keeping Dad company in the hospital for five weeks had left me befuddled. How can a facility featuring state-of-the-art diagnostic equipment use less-sophisticated information technology than my local sushi bar? How can the ICU stress the importance of sterility when its trash is picked up once daily, and only after flowing onto the floor of a patient’s room? Considering the importance of a patient’s frame of mind to recovery, why are the rooms so cheerless and uncomfortable? In whose interest is the bizarre scheduling of hospital shifts, so that a five-week stay brings an endless string of new personnel assigned to a patient’s care? Why, in other words, has this technologically advanced hospital missed out on the revolution in quality control and customer service that has swept all other consumer-facing industries in the past two generations?...

...I suspect that our collective search for villains—for someone to blame—has distracted us and our political leaders from addressing the fundamental causes of our nation’s health-care crisis. All of the actors in health care—from doctors to insurers to pharmaceutical companies—work in a heavily regulated, massively subsidized industry full of structural distortions. They all want to serve patients well. But they also all behave rationally in response to the economic incentives those distortions create. Accidentally, but relentlessly, America has built a health-care system with incentives that inexorably generate terrible and perverse results. Incentives that emphasize health care over any other aspect of health and well-being. That emphasize treatment over prevention. That disguise true costs. That favor complexity, and discourage transparent competition based on price or quality. That result in a generational pyramid scheme rather than sustainable financing. And that—most important—remove consumers from our irreplaceable role as the ultimate ensurer of value.

These are the impersonal forces, I’ve come to believe, that explain why things have gone so badly wrong in health care, producing the national dilemma of runaway costs and poorly covered millions. The problems I’ve explored in the past year hardly count as breakthrough discoveries—health-care experts undoubtedly view all of them as old news. But some experts, it seems, have come to see many of these problems as inevitable in any health-care system—as conditions to be patched up, papered over, or worked around, but not problems to be solved...

Again, I commend this thoughtful, detailed article to everyone. He accurately notes something I have long been concerned with:

How often have you heard a politician say that millions of Americans “have no health care,” when he or she meant they have no health insurance? How has a method of financing health care become synonymous with care itself?

The reason for financing at least some of our health care with an insurance system is obvious. We all worry that a serious illness or an accident might one day require urgent, extensive care, imposing an extreme financial burden on us. In this sense, health-care insurance is just like all other forms of insurance—life, property, liability—where the many who face a risk share the cost incurred by the few who actually suffer a loss.

But health insurance is different from every other type of insurance. Health insurance is the primary payment mechanism not just for expenses that are unexpected and large, but for nearly all health-care expenses. We’ve become so used to health insurance that we don’t realize how absurd that is. We can’t imagine paying for gas with our auto-insurance policy, or for our electric bills with our homeowners insurance, but we all assume that our regular checkups and dental cleanings will be covered at least partially by insurance. Most pregnancies are planned, and deliveries are predictable many months in advance, yet they’re financed the same way we finance fixing a car after a wreck—through an insurance claim...

Yes. As I've noted before, while I have car insurance and homeowner's insurance, etc., I regard them simply as necessary (required, really) hedges against potentially bankrupting disaster, and I fork over my premiums sans significant complaint for the benefit of the contractual indemnity while being also perfectly happy to never have to file a claim. On the other hand, some sort of health care service is something most of of are going have have to seek out eventually (increasingly so as we age). Navigating an entire life without encountering one or more serious accidents or illnesses is overwhelmingly unlikely. And, while a prudent lifestyle comprising, among other behaviors, habitually healthy nutritional regimens and exercise diligence is of course to be encouraged and incentivized, the extent and impact of random malignant events beyond our control looms chronically larger than it does with respect to other aspects of economic life. We are nearly all at risk of medical malady to a far greater extent than some care to admit.

The question then becomes one of how best to address the risk? Mr. Goldhill joins the chorus of critics who claim that we must all become "smarter consumers" of health care goods and services. Arguing for price "transparency," he complains:

...try discussing prices with hospitals and other providers. Eight years ago, my wife needed an MRI, but we did not have health insurance. I called up several area hospitals, clinics, and doctors’ offices—all within about a one-mile radius—to find the best price. I was surprised to discover that prices quoted, for an identical service, varied widely, and that the lowest price was $1,200. But what was truly astonishing was that several providers refused to quote any price. Only if I came in and actually ordered the MRI could we discuss price.

Several years later, when we were preparing for the birth of our second child, I requested the total cost of the delivery and related procedures from our hospital. The answer: the hospital discussed price only with uninsured patients. What about my co-pay? They would discuss my potential co-pay only if I were applying for financial assistance...

I have had similar experiences. It is maddening. Imagine going to a restaurant and looking at a menu that had no prices therein, to then be informed that you had to order first before the price was revealed. Imagine going to the auto repair shop, only to be told that they'd tell you what your transmission repair would cost only after you signed the work order. Absurd.

David Goldhill:

Keeping prices opaque is one way medical institutions seek to avoid competition and thereby keep prices up. And they get away with it in part because so few consumers pay directly for their own care—insurers, Medicare, and Medicaid are basically the whole game. But without transparency on prices—and the related data on measurable outcomes—efforts to give the consumer more control over health care have failed, and always will...

...It’s astonishingly difficult for consumers to find any health-care information that would enable them to make informed choices—based not just on price, but on quality of care or the rate of preventable medical errors. Here’s one place where legal requirements might help. But only a few states require institutions to make this sort of information public in a usable form for consumers. So while every city has numerous guidebooks with reviews of schools, restaurants, and spas, the public is frequently deprived of the necessary data to choose hospitals and other providers.

'How often have you heard a politician say that millions of Americans “have no health care,” when he or she meant they have no health insurance?"'
-David Goldhill

Sometimes it's not easy to determine the difference, even if you're not a politician. I am 63. I am overdue for a colonoscopy. My wife and I were both laid off, me in 2007, she in 2008. We then lost our COBRA coverage and went for an anxious time without any insurance. Finally, she found another job, and I am now covered under her employer-provided health plan (while her coverage is part of her compensation, we pay for my coverage).

I saw my primary care doctor earlier this year. He gave me a referral for the colonoscopy. I called to schedule. The first -- and I mean first -- four words I heard in reply to my inquiry were "who is your insurance?"

Not "what is your name?" Not "what is your age?" Not "How are you today?" Not "do you have any family history of colorectal disease?" Not "thank you."

"Who is your insurance?"

I provided the requisite information, and we scheduled my consult, six weeks or so out.

The morning of that 1:30 pm consult, the phone rang. "Mr. Gladd, we're very sorry, but we just found out that we do not in fact take your insurance" (Great West/CIGNA).

The caller magnanimously told me "you won't be charged for today if you have to cancel."

A quick Google search tells me that the average cost of a colonoscopy is approximately $3,100.

I canceled, and until I can find a specialist who does take my coverage, I am "without [this aspect of] health care," given that I don't have a spare $3,100 in the bank. Perhaps the likely delay of several months will be of no clinical consequence to me. One hopes.
___

"Talk to the Invisible Hand"
"The promises and perils of treating patients more like consumers."

In light of the Goldhill lament, an interesting and cautionary tale.

Five years ago, former President Bill Clinton developed chest pains caused by blockages of several coronary arteries. After going to a small hospital near his home in Chappaqua, N.Y., Clinton had further tests at nearby Westchester Medical Center, where cardiologists suggested that he undergo surgery at Columbia-Presbyterian Hospital in New York City. Clinton's condition required a complex procedure called coronary-artery bypass grafting, in which blood vessels are harvested from the patient's legs or chest and sewn around the heart to "bypass" the blocked arteries.

It's hard to imagine a savvier, better-connected health care consumer than the former president. But consider this: Beginning in 1991, state health officials in New York began releasing hospital- and surgeon-specific death rates from heart surgery. Anyone can see them online. At the time of Clinton's surgery, the most current report showed that Columbia-Presbyterian had the highest death rate of any of the 35 hospitals doing bypass surgery; it was twice the expected rate (about 4 percent instead of 2 percent, a margin not explained by random chance). Clinton's surgeon was the chief of cardiothoracic surgery, a man named Craig R. Smith. Among the four surgeons at Columbia-Presbyterian who performed more than 100 bypass surgeries each year, Smith had the worst mortality rate. (After the procedure, notably, Clinton suffered a complication requiring yet another major surgery.) According to the New York Times, there was "no indication that the Clinton family was aware of the state report."

Mortality statistics from heart surgery accurately predict future death risks (both for hospitals and individual surgeons) and also catalyze targeted improvement efforts. But Clinton isn't alone in overlooking them. Studies show that most consumers don't bother looking for this information; physicians also wrongly dismiss the statistics and fail to inform their patients about their existence.

Advocates for consumer-driven health care often claim that patients should have "some skin in the game" by sharing decision-making power for their medical care. This depends on patients making informed decisions about their care based on quality and price—but as the case of Bill Clinton demonstrates, even the brightest, most educated people don't always do that reliably...

Excellent brief article by Darshak Sanghavi on Slate.com. He continues:

In short, the usual rules of the marketplace seem not to apply to health care. When left to their their own devices, buyers ignore product quality, fail to value goods properly, and overpay vast sums. (Weirdly enough, they're also happy as clams with the results.) Yet every health reform bill with a chance of passing involves significant cost shifting to patients. Like it or not, patients will have to be better consumers. That's why it's critical now to fix the failures of the market before we throw open the gates for business.

To continue with my restaurant menu analogy, given that there are tens of thousands of ICD-9 and CPT codes pertaining to health care goods and services, an individual health care "shopper" would face a "menu" the size of the Manhattan phone book.

Multiple "phone books," actually. Perhaps they'd be more like the venerable Sears or J.C. Penney catalogs, replete with color-coded "Good/Better/Best" options for your meds or hip job or bypass or MRI.

David Goldhill again:

The most important single step we can take toward truly reforming our system is to move away from comprehensive health insurance as the single model for financing care. And a guiding principle of any reform should be to put the consumer, not the insurer or the government, at the center of the system. I believe if the government took on the goal of better supporting consumers—by bringing greater transparency and competition to the health-care industry, and by directly subsidizing those who can’t afford care—we’d find that consumers could buy much more of their care directly than we might initially think, and that over time we’d see better care and better service, at lower cost, as a result.

A more consumer-centered health-care system would not rely on a single form of financing for health-care purchases; it would make use of different sorts of financing for different elements of care—with routine care funded largely out of our incomes; major, predictable expenses (including much end-of-life care) funded by savings and credit; and massive, unpredictable expenses funded by insurance...

...How would we pay for most of our health care? The same way we pay for everything else—out of our income and savings...

...Today, insurance covers almost all health-care expenditures. The few consumers who pay from their pockets are simply an afterthought for most providers. Imagine how things might change if more people were buying their health care the way they buy anything else. I’m certain that all the obfuscation over prices would vanish pretty quickly, and that we’d see an end to unreadable bills. And that physicians, who spend an enormous amount of time on insurance-related paperwork, would have more time for patients...

"Imagine how things might change if more people were buying their health care the way they buy anything else."

That would be a sweeping and difficult, if perhaps abstractly laudable, social experiment. But, as I write this update to this post (having just watched much of the contentious Nov. 7th House H.R. 3962 debate on CSPAN), the political momentum seems to be marginally heading the other way -- a worrisome way, in my view. But, much remains in flux, and the only thing of which I can be certain is a further ramping up of the already overheated, increasingly inane rhetoric.

FINAL APPROACH

The legislative debate now moves to the much less populist, much more patrician U.S. Senate.

NY Times
November 9, 2009
Obama Presses Senate to Act Quickly on Its Health Bill

By SHERYL GAY STOLBERG
WASHINGTON — The White House, growing concerned that the Congressional timetable for passing a health care overhaul could slip into next year, is stepping up pressure on the Senate for quick action, with President Obama appearing Sunday in the Rose Garden to call on senators to “take up the baton and bring this effort to the finish line.”

Mr. Obama’s remarks came just 14 hours after the House narrowly approved a landmark plan that would cost $1.1 trillion over 10 years and extend insurance coverage to 36 million uninsured Americans; the president called it “a courageous vote.” But the votes had barely been counted when the White House began turning its attention to an even bigger hurdle: getting legislation passed in the Senate.

In the Senate, where proposals differ substantially from the House-passed measure on issues like a government-run plan and how to pay for coverage, the bill is stalled while budget analysts assess its overall costs. The slim margin in the House — the bill passed with just two votes to spare, and 39 Democrats opposed it — suggests even greater challenges in the Senate, where the majority leader, Harry Reid of Nevada, is struggling to hold on to all 58 Democrats and two independents in his caucus.

Mr. Obama has staked his domestic agenda on passing comprehensive health legislation, a goal that has eluded presidents for decades. While Democrats were forced to make major concessions on insurance coverage for abortions to win House passage of the bill, they were nonetheless ebullient on Sunday, with many saying the vote gave them momentum to push the bill forward.

“For years we’ve been told that this couldn’t be done,” Mr. Obama said in the Rose Garden. Of the American people, he said, “Moments like this are why they sent us here.”

But for all the exultation, there was a sense inside the White House and on Capitol Hill that the hardest work is yet to come. The House debate highlighted the pressures that will come to bear on senators as they weigh contentious issues like federal financing for abortion, coverage for illegal immigrants and the “public option,” a government-backed insurance plan to compete with the private sector...

Those on the activist progressive left are unhappy on a number of counts. Jane Hamsher:

I was on Democracy Now with Dennis Kucinich this morning talking about the health care vote.

Kucinich voted against the bill after they didn’t allow a vote on his amendment to allow states to create single-payer health care systems...

...It was hard to be happy about the passage of the health care bill on Saturday given the incredible blow to women’s rights that it represents...

...A public option was never anything more than a stepping stone to Medicare for all, a foothold in what would have otherwise been nothing more than a huge transfer of wealth to the insurance industry (which is still by-and-large is). But it’s going to take a lot more political organizing on the inside before any real headway can be made on that front, and we’re working on that now.

"A public option was never anything more than a stepping stone to Medicare for all..." Well, this is precisely the objection of the reactionary right, which gets derided as a slippery slope fallacy. The whole acrimonious "government takeover of health care" objection.

One concludes we should simply be grateful for not yet having been forced under the oppressive heel of government takeover of military, police, fire, and food safety services.

THE STUPAK AMENDMENT: A POISON PILL?

Monday, Nov. 9th: The media are ablaze with firestorms concerning the inclusion of the Bart Stupak [D-Mich] anti-abortion amendment in H.R. 3962.

In an interview with ABC News's Jake Tapper, President Obama said he did not support any change in current abortion laws through the health care bill -- an implicit rebuke to the House for passing an amendment that could considerably restrict women's access to abortions. The president said that he doesn't want to change "the status quo" one way or another.

• TAPPER: Here's a question a lot of Senate Democrats want to know. You said, when you gave your joint address to Congress, that under our plan, no federal dollars will be used to fund abortions. This amendment passed Saturday night which not only prohibits abortion coverage in the public option, but also prohibits women who receive subsidies from taking out plans that -- that provide abortion coverage. Does that meet the promise that you set out or does it over reach, does it go too far?
  
  
• OBAMA: You know, I laid out a very simple principle, which is this is a health care bill, not an abortion bill. And we're not looking to change what is the principle that has been in place for a very long time, which is federal dollars are not used to subsidize abortions. And I want to make sure that the provision that emerges meets that test -- that we are not in some way sneaking in funding for abortions, but, on the other hand, that we're not restricting women's insurance choices, because one of the pledges I made in that same speech was to say that if you're happy and satisfied with the insurance that you have, that it's not going to change. So, you know, this is going to be a complex set of negotiations. I'm confident that we can actually arrive at this place where neither side feels that it's being betrayed. But it's going to take some time...

It will be (depressingly) interesting to see how this plays out. It may in fact drown out all other major points of contention (cost, coverage, public option, etc) and may comprise the effective torpedo below the waterline the GOP has been searching for as a weapon to finally sink the reform effort and hand the President a major political defeat heading into the congressional mid-term election period.

Strange Bed Fellows:
Health Care Reform and the Stupak Amendment
- Michelle Kraus, Huffington Post

How did women’s reproductive rights become the bargaining chip for health care reform in this country? Federal funding for clinics is essential to the future of women’s reproductive rights and health. The Stupak Amendment slams women back to a time of unsafe abortions. What is the President thinking? Didn’t we fight this battle before and wasn’t it put to rest decades ago? And what alliances were forged that put women’s reproductive rights into play yet again? There is something very odd about this dilemma. It causes one to ponder how we got here and why. Realistically, health care reform has become very nasty business fraught with religiosity, prejudice, hatred and fear mongering. It has become the divisive issue that the Iraq War was in 2002, 2003, and 2004. Either you are with us or against us – clear and simple. Partisan lines were drawn again, and GOP support was withheld in the landmark bill passed in the House on Saturday evening.

Yet somehow, women’s reproductive care became the oil thrown on an already smoldering fire...

BTW, I have previously written at some considerable length on the seemingly intractable reproductive rights issue. Apparently, "conservatives" are 100% for "choice" and against "government control of health care decisions" except where it bears on womens' reproductive rights.

Nice examination of the salient issues here in the L.A. Times:

Also, the NY Times chimes in on its Opinion Page (11/09/09):

...The restrictions would fall on women eligible to buy coverage on new health insurance exchanges. They are a sharp departure from current practice, an infringement of a woman’s right to get a legal medical procedure and an unjustified intrusion by Congress into decisions best made by patients and doctors.

The anti-abortion Democrats behind this coup insisted that they were simply adhering to the so-called Hyde Amendment, which bans the use of federal dollars to pay for almost all abortions in a number of government programs. In fact, they reached far beyond Hyde and made it largely impossible to use a policyholder’s own dollars to pay for abortion coverage...

One last take on the issue for now (click the image):

At this point, I would think, it's too early to conclude what will be the upshot with respect to any final bill. Expect more nasty, counterproductive hyperbole, I suppose.

NOV 12TH UPDATE

Well, this is just a tad inconvenient. From the Think Progress blog:


IOKIYAR, 'eh?
___

For now, I return to my initial thoughts when I commenced this series back in May. Can we

• [1] extend health care coverage to all citizens, with
• [2] significantly increased quality of care, while at the same time
• [3] significantly reducing the national (and individual) cost?

Is there even -- yet, at this late date -- overwhelming public consensus that such are worthy and necessary national goals? If so, how do we get there in the most effective manner? Comprehensive federal legislation? Incremental federal and state legislation (e.g., incremental regulatory/tort/market reforms)? Unfettered competitive free-market initiatives, perhaps coupled with expansion of Health Savings Accounts (HSAs) and regulation anew only in areas of "price transparency" ostensibly enabling citizens to become more astute health care "consumers?"

HEALTH CARE "COVERAGE"

It's obvious that the overriding U.S. political focus remains that of private for-profit health care "insurance" regulatory reform, with lobbying entities such as AHIP battling tooth, claw, and checkbook to preserve their members' core commercial advantage while paying P.R. lip service to actual reforms of significant benefit to the public.

I put the word "insurance" in quotes in recognition of the the observations of critics such as David Goldhill (and, going all the way back to my May 2009 post, Malcolm Gladwell), as we're really properly talking simply about 3rd party remittance intermediaries, not indemnity "insurance" in the otherwise accepted meaning of the term. Meaningful discussion of of this differential policy nuance is by now pretty much off the public/political radar.

Attention of late has turned to (weak?) threats of removing the health insurance industry's anti-trust exemption, concomitant with proposals to enable consumers to buy health insurance across state lines. A recent graphic posted on HuffPo readily illustrates the problem.


In a number of states your choices are limited to those of a few large players such as Anthem/Blue Cross, United Heath Group or CIGNA, etc. Removing the industry's anti-trust exemption might well force true downward price pressure competition into the industry.

Which is precisely why the AHIP membership will fight this to the legislative death. The mainstream media are increasingly ablaze with the requisite fear-mongering.

More on this from the Denver Post:

Health insurers' antitrust exemption becoming a focus of reform debate
By Jennifer Brown
The Denver Post, 11/12/09

Dr. John Bender, a family physician in Fort Collins, says his power to negotiate with health-insurance companies packs the might of a tiny bug: "We are like gnats to them."

About half of Bender's patients have either Anthem Blue Cross Blue Shield or United Healthcare — the two companies that hold 53 percent of the market in Colorado — so losing either contract could push him toward bankruptcy.

It's forbidden under antitrust law for doctors to collude about rates and demand that insurance companies reimburse them more for their work. But in what some argue is lopsided policy, insurance is one of the few industries exempt from federal antitrust laws that prohibit price fixing and "bid-rigging," the practice of unscrupulous brokers ensuring that favored insurers get contracts.

A major goal of national health care reform is to spur competition in the insurance industry. Reform advocates argue competition would drive down costs. Among the latest proposals up for debate in Washington: yank the antitrust exemption in place since 1945.

The health-insurance industry argues that it is not engaging in anticompetitive conduct and that the exemption doesn't shield such conduct anyway.

Health insurance is regulated by state insurance commissioners, so repealing the federal antitrust exemption would do little more than undermine the current regulatory structure, said the industry's national trade organization, America's Health Insurance Plans.

Democratic lawmakers pounced on the antitrust exemption soon after insurance companies pulled support for leading reform proposals. Insurers, who had cautiously supported reform throughout the past year, released reports this fall predicting that health care premiums would rise even faster than they do now under current reform plans.

"It's just political battling back and forth," said John Soma, who teaches antitrust law at the University of Denver's Sturm College of Law. "The power of this insurance lobby is just awesome."...

Click the link above to read the entire article. A subsequent salient point therein:

Regulation of anticompetitive behavior among insurers is weak in most states, Balto said. A recent Center for American Progress survey found no antitrust actions brought by state insurance commissioners and that about one-third of the states "brought no significant consumer protection actions."

Health insurers don't need the antitrust exemption now because the market isn't competitive, Balto said. But after health care reform, new companies or cooperatives will emerge and the country will need to prevent the four or five dominating insurers in a given area from colluding to kill off new competition, he said...

AGAIN, ON "CHOICE"

I would commend to everyone an instructive book "The Paradox of Choice" by Barry Schwartz. Additionally, Thaler and Sunstein's excellent "Nudge" is usefully illuminating in the context of this topic.

It is particularly hard for people to make good decisions when they have trouble translating the choices they face into the experiences they will have...

Take the problem of choosing a mutual fund for your retirement portfolio. Most investors (including us) would have trouble knowing how to compare a "capital appreciation" fund with a "dynamic dividend" fund, and even if the use of those words were made comprehensible, the problem would not be solved. What an investor needs to know is how a choice between those funds affects her spending power during retirement under various scenarios -- something even an expert armed with a good software package and complete knowledge of the portfolios held by each fund can have trouble analyzing. The same problem arises for the choice among health plans; we may have little understanding of the effects of our selection. If your daughter gets a rare disease, will she be able to see a good specialist? How long will she have to wait in line? When people have a hard time predicting how their choices will end up affecting their lives, they have less to gain by numerous options and perhaps even by choosing for themselves...

...people may most need a good knowledge for choices that have delayed effects; those that are difficult, infrequent, and offer poor feedback; and those for which the relation between choice and experience is ambiguous. A natural question is whether free markets can solve people's problems, even under such circumstances. Often market competition will do a lot of good. But in some cases, companies have a strong incentive to cater to people's frailties and exploit them.

Notice first that many insurance products have all of the fraught features that we have sketched. The benefits from holding the insurance are delayed, the probability of having a claim is hard to analyze, consumers do not get useful feedback on whether they are getting a good return on their insurance purchases, and the mapping from what they are buying to what they are getting can be ambiguous. But the insurance market is competitive, so a natural question to ask is whether market forces can be relied upon to "solve" the problem of fraud choices.

...There is a general point here. If consumers have a less than fully rational belief, firms often have more incentive to cater to that belief then to eradicate it...

The foregoing speak directly to my own dubiety with for-profit market-based "choice" driving, to the virtual exclusion of all other considerations, health care policy reform. Every marketing, legal, and otherwise corporate bureaucracy dollar devoted to the concoction of, hawking of, and administration of excess, inscrutably byzantine (and frequently spurious) "choice" is a dollar unavailable for actual clinical care.

But, as my former QIO Senior Medical Director Dr. Brent James would often say, "every misspent dollar in the health care system goes into someone's paycheck."
___

SOME DEMOGRAPHIC IMPLICATIONS

Recall from my initial post on this topic which commenced on May 25th a simple, broad, and bracing statistical revelation set forth by AHRQ:

How Are U.S. Health Care Expenses Distributed?
A Small Proportion of the Total Population
Accounts for Half of All U.S. Medical Spending

As policymakers consider various ways to contain the rising costs of health care, it is useful to examine the patterns of spending on health care throughout the United States. In 2004, the United States spent $1.9 trillion, or 16 percent of its gross domestic product (GDP), on health care. This averages out to about $6,280 for each man, woman, and child.

However, actual spending is distributed unevenly across individuals, different segments of the population, specific diseases, and payers. For example, analysis of health care spending shows that:

• Five percent of the population accounts for almost half (49 percent) of total health care expenses...
• ...[while] half of the population spends little or nothing on health care...
  
  

And, the rest of us move up and down somewhere in between from year to year. It should be obvious that the highest expenditure cohort is -- unsurprisingly -- generally correlated with advanced age (as I have come to know all too well via the course of my next-of-kin duties concerning my aged and ailing parents). Now, consider a summation of some data I just culled from a U.S. Census Bureau database.

Click the graph to enlarge. It depicts relative percentages of our population in five-year age increments (dark blue line) along with projections going out 25 years (2024, light blue line), and 50 years hence (2049, red line). I drew in a vertical black line to demarcate the +/- age 60 threshold. You might think of these as simple current and forecast "survival curves" indicative of our graying population, i.e., relatively more people will be alive in the 60+ group going forward. Increasingly so with the advance of time.

Sometimes, a data table is more illuminating than a graph. While the foregoing illustrates shifts in relative age-strata percentages, we must be even more concerned with the impact of growing population in actual enumerative terms. Below, blended projected U.S. population growth (both sexes, all races) 25 and 50 years out respectively.

Most noteworthy here is that, while our population is projected to increase by perhaps 42% by 2049, the age 60+ cohort -- precisely the demographic accounting for a hugely disproportionate share of health care expenditures -- is predicted to double.

The most excruciating of economic and ethical choices inescapably await us. And, while much of the public continues to sleepwalk into this morally daunting future (abetted by the well-funded stultifyingly fear-stoking fallacies of corporate status quo interests), we really don't have the luxury of time to continue to kick this policy can down the road. Sadly, it appears to a worrisome degree that that is precisely where we're headed at best.

Health insurers could bypass some key reforms
By David S. Hilzenrath
Washington Post Staff Writer
Friday, November 13, 2009 4:54 PM

Nobody wants to spend a lot of time, energy -- and taxpayer money -- and end up back where they started. But that's what could happen with one of the principal elements of health reform, the so-called exchange or gateway.

Legislators are designing this new insurance marketplace to protect consumers from many of the pitfalls and inequities in the current system. But even as they focus on the details of how the marketplace will work, senators have indicated that they would allow insurers to continue operating outside it, much as the health insurance lobby has sought.

One of the Senate bills would preserve the possibility that insurers could tailor policies to draw healthy individuals out of the new markets, leaving coverage less affordable for those who stay behind.

"It's a leak in the system," said Karen L. Pollitz, a professor at Georgetown's Health Policy Institute. "It returns you to problems that we have today."

Senate bills guarantee that certain basic reforms -- such as requiring insurers to accept people regardless of preexisting medical conditions and banning annual and lifetime limits on coverage -- would apply both inside and outside the new markets for individuals and small businesses. But that would not be true for a host of other requirements that should help consumers compare health plans on an apples-to-apples basis and force insurers to compete more directly on price.

For example, the bill written by the Senate health committee would not require insurers operating outside the marketplace to provide standardized disclosures about what they cover.

It would not prohibit health plans outside the exchanges from using marketing practices that discourage the seriously ill from enrolling, nor would it demand that they offer "a wide choice" of medical providers -- including "essential community providers . . . that serve predominantly low income, medically-underserved individuals," as the bill prescribes for insurers inside the exchanges.

Perhaps the sharpest dichotomy is that, under the health committee proposal, certain standards governing the nature and extent of covered benefits would apply only to policies sold inside the exchanges.

All of those factors contribute to the possibility that insurers might offer cheaper, less comprehensive policies outside the exchanges and entice healthier people to leave the new markets. That would leave the exchanges responsible for sicker people who are more expensive to insure.

Similarly, outside the exchange, the bill drafted by the Senate Finance Committee would not regulate the marketing of individual coverage, nor would it require that health plans be rated based on quality and price...

The image above (from a Nov 15th HuffPo article) says everything. Nothing new, either. Recall from my July 9th, 2008 post "Privacy and the 4th Amendment amid the 'War on Terrror'."

"INTELLIGENT MAIL"?

I had to laugh when I found out about this one. Amid the recommendations of President Bush's Postal Reform Commission was one advocating the implementation of what they called "intelligent mail" as yet another "tool" for combatting terrorism. Ostensibly driven by anxieties regarding toxic "anthrax letter" incidents, the idea was to require verified sender and recipient ID for every piece of USPS mail...

...given my chronic and tedious inclination for looking under the hood, I reviewed transcripts and supporting documentation of the Postal Commission hearings. Therein I found a document supporting "intelligent mail" proffered by Pitney-Bowes, one of the vendors salivating over the prospect of getting the contract to implement such a system.

Well, guess, what? The section of the Postal Commission's final report advocating implementation of "intelligent mail" was lifted nearly verbatim from the Pitney-Bowes proffer...

Different day, same, M.O. Bidness as usual within DC and the halls of Congress.

"Public Optional"

___

"CREATION SCIENCE" COMES TO HEALTH REFORM

This is rich:

Health bill foes solicit funds for economic study
By Michael D. Shear
Washington Post Staff Writer
Monday, November 16, 2009

The U.S. Chamber of Commerce and an assortment of national business groups opposed to President Obama's health-care reform effort are collecting money to finance an economic study that could be used to portray the legislation as a job killer and threat to the nation's economy, according to an e-mail solicitation from a top Chamber official.

The e-mail, written by the Chamber's senior health policy manager and obtained by The Washington Post, proposes spending $50,000 to hire a "respected economist" to study the impact of health-care legislation, which is expected to come to the Senate floor this week, would have on jobs and the economy.

Step two, according to the e-mail, appears to assume the outcome of the economic review: "The economist will then circulate a sign-on letter to hundreds of other economists saying that the bill will kill jobs and hurt the economy. We will then be able to use this open letter to produce advertisements, and as a powerful lobbying and grass-roots document."...

I have just a couple of brief reactions.

• To the (debatable) extent that conventional "economics" can be considered "science, "this is classic "junk science" (as is the poignant "Creation Science"), wherein you start with an a prior conclusion and then work backward, picking off and retaining only "evidence" that supports your ideological conclusion;
• While the relative socioeconomic impacts of various flavors of national health policies around the world have been studied in detail for decades, given that we as yet have no firm final reconciled House-Senate legislative proffer, this "study" would necessarily be entirely speculative -- and, the thrust of that speculation is, of course, already known. This would be nothing more than one more latter-day exercise in partisan fig-leafery posing as economic "research."

SPEAKING OF "STUDIES"

Uninsured ER patients twice as likely to die
New study highlights disparity of care for those who don't have coverage CHICAGO [AP] - Uninsured patients with traumatic injuries, such as car crashes, falls and gunshot wounds, were almost twice as likely to die in the hospital as similarly injured patients with health insurance, according to a troubling new study. The findings by Harvard University researchers surprised doctors and health experts who have believed emergency room care was equitable. "This is another drop in a sea of evidence that the uninsured fare much worse in their health in the United States," said senior author Dr. Atul Gawande, a Harvard surgeon and medical journalist...

...The researchers couldn't pin down the reasons behind the differences they found. The uninsured might experience more delays being transferred from hospital to hospital. Or they might get different care. Or they could have more trouble communicating with doctors.

The hospitals that treat them also could have fewer resources.

"Those hospitals tend to be financially strapped, not have the same level of staffing, not have the same level of surgeons and testing and equipment," Gawande said. "That also is likely a major contributor."...

CONCLUDING REMARKS

While I will continue to follow the legislative developments as this policy fight draws to a close, let me end where I began back in May. Can we, via federal legislation

1. provide health care coverage for all, with
2. improved levels of quality, while concomitantly
   
3. reducing health care costs?

Incontrovertibly laudable goals, one would think, but the skeptics remain many and loud (many of them simply rigid ideologues, most of them comfortably and hypocritically secure in their own amply feathered nests). I have tried through this series of posts to shed detailed light on the various core aspects and issues from all of the serious contending perspectives. As I follow the "final approach" debate these day, I hear this or that argument and think "yeah, I already covered that," so it's time to move on.

What are the options going forward?

1. Do nothing;
2. Further de-regulate free market health care, with legislation perhaps limited to expansion of things like Health Savings Accounts (HSAs), tort reform, and permitting consumers to buy insurance across state lines;
3. Health insurance reform containing a "public option" via which to put countervailing pressure on health coverage costs;
4. Health insurance reform based more or less on the "Swiss Model";
5. One or another of the "Single Payer" variants -
   
   • "Medicare for All";
   • UK Model National Health Service (true "government run health care");
   • "Canadian" style Single Payer Model (essentially just "Medicare for All").

Possible outcomes this time around? Option 1 remains a serious possibility ("...hand the President a serious political defeat heading into the mid-terms.."). Option 2 is politically DOA right now, as are options 4 and 5. So, in my view only one or another inscrutably complex version of option 3 is likely to pass should the entire effort not fail. To date I see nothing to materially abate my concern that we will not accomplish much of truly transformative, socially beneficial substance that gets us anywhere near goals 1, 2, and 3.

Where do I come down? Net, (and guardedly), "Single Payer / Medicare for All" (all not otherwise covered by the active DOD or VA systems) But, I could live with a "Swiss Model" system, perhaps to exist alongside our current long-functioning single payer systems -- (VA and Medicare) -- the latter perhaps expanded to permit lower age enrollment as a de facto "public option" without being structured as means-tested "welfare" with a wasteful "corporate welfare" "affordability eligibility" vetting process. (And under that scenario I would subsume Medicaid under Medicare, and do away with the former).

I won't be holding my breath.

TV is incessantly blaring these days with well-funded anti-reform ads replete with the ominously sneering baritone voice-overs gloomily intoning the terrible job-killing, economy-wrecking upshot of passage of health policy reform, given the estimated federal price tag. Intentionally glossed over, of course, is that fact that the money will have to be spent one way or another, and, by all accounts, absent some sort of mandated restraint, we are on course to national financial ruin. The for-profit actuarial model, applied to health care, contains the toxic seeds of its eventual destruction, and left to continue largely unabated, will be a principal factor in that national ruination.

The shallow, media-fueled antipathy toward "government" (emblematically characterized by the "Teabagger" movement), to me, speaks to a broader concern; the still mostly inchoate anxiety increasing numbers of us are feeling that the world has gotten too complex and unmanageable, and the favored U.S. sociopolitical perch of our lifetimes is inexorably attriting away.

It is not a baseless concern. We comprise roughly 5% of world population, while consuming 25% of its resources. As climate scientist Tim Flannery observed in his book "The Weather Makers,"

In 1961 there was still room to maneuver. In that seemingly distant age, there were just 3 billion people, and they were using only half of the total resources that our global ecosystem could sustainably provide. A short twenty-five years later, in 1986, we had reached a watershed, for that year our population topped 5 billion, and such was our thirst for resources that we were using all of Earth's sustainable production.

In effect, 1986 marks the year that humans reached Earth's carrying capacity, and ever since we have been running the environmental equivalent of a budget deficit, which is sustained only by plundering our capital base. The plundering takes the form of overexploiting fisheries, overgrazing pasture until it becomes desert, destroying forests, and polluting our oceans and atmosphere, which in turn leads to the large number of environmental issues we face. In the end, though, the environmental budget is the only one that really counts...

...By 2001 humanity's deficit had ballooned to 20 percent, and our population to over 6 billion. By 2050, when the population is expected to level out at around 9 billion, the burden of human existence will be such that we will be using -- if they can still be found -- nearly two planets' worth of resources." [pp. 78-79]

As I wrote in a prior post in response:

We can choose to continue to drill, mine, cut down, and grind up the planet in pursuit of short-term business-as-usual, unevenly distributed consumerist comforts, but the day of tragically harsh mass reckoning draws ever closer. The lessons to be drawn from Jared Diamond's "Collapse" are compelling in this regard. There is no shortage whatsoever of constructive and remediative work to be done in support of a sustainable and broadly prosperous future for all of humanity. But, let's not kid ourselves that an unregulated "invisible hand free market" alone will suffice to insure its emergence. Recent economic history alone refutes that assertion.

Complicating this unsustainably destructive "consuming the future" market ethos, consider this: In this decade, more than 40% U.S. corporate profits have come from the "financial services sector," with perhaps 3/4 of those "profits" accruing from iterative, non- tangible-value-adding, grotesquely leveraged "fee income" that fueled the recent economic bubble and caused the current recession.

Let me repeat what I wrote a few days ago (scroll back up a bit):

"The most excruciating of economic and ethical choices inescapably await us. And, while much of the public continues to sleepwalk into this morally daunting future (abetted by the well-funded stultifyingly fear-stoking fallacies of corporate status quo interests), we really don't have the luxury of time to continue to kick this policy can down the road. Sadly, it appears to a worrisome degree that that is precisely where we're headed at best."

I would love to be wrong. I would love to hear from others, too. I certainly don't have all the answers.
___

CODA: MY PRIOR HEALTH REFORM POSTS

1. The U.S. health care policy morass
2. Doing some basic health care reform math
3. BREAKING: Foreign born Radical Communist Obama wants to kill Grandma and Grandpa

___

EPILOGUE

Harry Reid has released his compromise Senate draft, H.R. 3590.

Our private, for-profit health insurance system, designed to fatten the profits of private health insurers and Big Pharma, is about to be turned over to ... our private, for-profit healthcare system. Except that now private health insurers and Big Pharma will be getting some 30 million additional customers, paid for by the rest of us.

Upbeat policy wonks and political spinners who tend to see only portions of cups that are full will point out some good things: no pre-existing conditions, insurance exchanges, 30 million more Americans covered. But in reality, the cup is 90 percent empty. Most of us will remain stuck with little or no choice -- dependent on private insurers who care only about the bottom line, who deny our claims, who charge us more and more for co-payments and deductibles, who bury us in forms, who don't take our calls.

- economist Robert Reich

BREAKING: Foreign born Radical Communist Obama wants to kill Grandma and Grandpa

FROM "BIRTHERS" TO "DEATHERS"

Sometimes you just have laugh, notwithstanding the lack of actual humor in the circumstance. I recently had my bit of Photoshop fun with this inane "Birther" thing (regarding people who continue to increasingly insanely claim that Barack Obama was not really born in Hawaii to an American citizen mother and, consequently, cannot be our legitimate President).

Click to enlarge.

Now we get to put up with the equally idiotic "Deathers," people who claim that health care reform will result in forced euthanasia of the too-costly, expendable elderly, e.g., GOP House member Virginia Foxx of North Carolina:



and the unbelievably hokey Family Research Council's "After A Government Health Care Takeover":



LOL. In terms of "acting," next to them, Harry and Louise look like Oscar nominees.

BTW, Mrs. Foxx and FRC, my personal, actual "pro-life" bona fides are succinctly documented here.
___

OK, back to serious health policy reform discussion. It takes something less than rocket scientist acumen to ascertain that health care expenditures are to a significant degree correlated with age. As I noted in a previous post, my health care CQI mentor Dr. Brent James long ago pointed out that, on average, roughly 80% of a person's lifetime health care expenditure comes during the last six months of life. I would today call that A Binding Glimpse Of The Obvious.

Consider the following graphic, from UCSC:

31 nations, rank-ordered, high to low (L-R) in terms of "average life expectancy" as a function of per capita cost expressed in currency-adjusted "International Dollars" (Note: I drew the black "trend line" through the chart in Photoshop. Eyeballed it -- not having access to the underlying data -- and I tried to visually ignore the U.S. "outlier"). What is noteworthy here? Well,

• the life expectancy range, or "spread," is about 5% from the highest to the lowest (Japan to Portugal);
• The United States ranks near the bottom, notwithstanding far and away the highest per capita cost (again, as we have discussed before, roughly 2x the otherwise average);
• cost, while a salient contributory factor, is nowhere near determinative; e.g., Cuba's spending is nil relative to ours, all the while their having essentially the same average life expectancy. Moreover, Japan, ranked highest in life expectancy, appears to be around the average in terms of per capita expenditures. Myriad other elements are clearly at play. In general, one needs to be aware of the post-hoc, ergo propter hoc fallacy ("correlation=causation"). This very graphic refutes it -- i.e., given U.S. expenditures, Americans ought easily all survive into our 90's and beyond, given the money spent;
• just for a thought, visually take out the extreme high/low cost outliers of the U.S. and Cuba in your mind's eye, and then also visually "connect" my informal trend line from Japan (highest longevity on the left) to Portugal (lowest, on the right). The "slope" -- which would pretty much run through the center of the amended distribution -- would be close to flat, i.e. the correlation would be next to nil.
  

What can you rationally take away from the foregoing? [1] Older people cost more to care for (duh, hel-LO?); [2] Other nations do it far more efficiently and effectively overall -- and without having to resort to heartless, whiney "Kill Grandma" canards.

Spare me.
___

CANARDS UPDATE

"When the government gets involved in health care, things go rapidly downhill."

- Standard GOP obstructionist talking point.

OK. Here's the relative distribution of private vs. public health care expenditures since 1997:

Roughly half of health care expenditures (45% vs 55%) have been publicly funded across this period. I was going to graph it, but it's pointless, the trend lines are flat. You can see that right there in the table. [Source: HHS (pdf), click the image to enlarge]

Below, for historical context. In 1960, 3/4 of NHE were "private." Medicare came to the sociopolitical landscape in 1965, and subsequently, as the population has aged, the relative proportions have indeed shifted inexorably in the direction of public funding.

The point? We have had Medicare for 44 years. It works (and is going to have to continue to do so, as its share of the patient population grows with the incipient huge eligibility wave of the Baby Boom generation). We have had a Veterans' Administration since 1930. It works. No, neither or them perfectly. But they effectively serve their intended functions. Which is that of serving their beneficiaries, rather than the portfolio accounts of for-profit stockholders.

A FEW PERSONAL OBSERVATIONS ON THESE "BURDENSOME ELDERLY"

I have quite a bit more than just a passing familiarity with health care costs. I have been studying many of the issues professionally since 1993 (see my prior posts), when I took up my first tenure as an analyst with the Nevada-Utah Medicare QIO, where much of my work initially involved analytical data mining of the Part-A acute care hospitalization claims databases (today known as the CMS ISAT data).

Then, in the spring 1996, I was summarily thrown into the world of the medically indigent as next-of-kin caregiver to my terminally ill daughter, Sissy. Later that year, my then- 80 yr old Dad came to the brink of dying from heart valve failure. An aortic valve replacement and bypass would forestall his demise.

Sissy died in 1998 in the wake of a horrific and expensive struggle against metastatic liver cancer (paid for mostly by federal and California taxpayers via Medi-Cal). Notwithstanding that we were not legally on the hook for Sissy's expenses, still, we wearily shlepped back to Vegas from Hollywood in the summer of 1998 tens of thousands of dollars in debt in the wake of the experience.

Several years later -- the day after the 9/11 terror attacks in 2001, to be precise -- my Dad, who'd never fully recovered cognitively from his heart surgery, keeled over at home in Florida in cardiac arrest. EMTs revived him, and, after several week in acute care, he was transferred to a nursing home, where he would subsequently languish for years in an increasingly befuddled, often shit-and-urine-soiled state of dementia.

Fast-forward to 2004, where my Mother, then 82 and increasingly enfeebled, would spend most of the fall in revolving-door acute and rehab unit care (and I would spend much of my time on the Delta red-eye from Vegas to Melbourne). An attorney drew up the papers appointing me her Attorney-in-Fact, and I would subequently end up increasingly running most aspects of her logistical and financial life. In December of 2004, doctors would forestall her demise via a pacemaker implant. She'd gotten so wobbly from her increasing cardiac instability that she'd become a constant, serious fall risk. She'd already had one hip replacement. Another fall might well kill her.

In 2007 I moved them both to Las Vegas, Pop to a nursing home, and Ma into assisted living. She lasted all of 9 days. Fell while in the bathroom, and was transported to nearby St. Rose hospital, whereupon she suffered a recurrence of the enervating C-diff infection and UTI that had kept her in Florida hospitals most of the first six months of 2007. She spent the remainder of the year in and out of hospitals and rehab facilities.

My requisite POA pen ever at the ready.

She never made it back to assisted living (I wasted ten grand on that Quixotic effort; her remaining furnishings and effects we'd shipped from Palm Bay and lovingly moved into her new apartment now sit in a storage unit a few blocks from my house). Mother is now bedridden and wheelchair-bound in a nearby nursing home. Private pay (Medicare does not pay for long-term care). I now cut a check for about $6,300 a month on her behalf. She's now 87. I sit with her nearly every day, ongoing.



Dad finally died last year, just shy of his 92nd birthday, and five months after I'd spent close to $4,000 in legal fees to obtain Legal Guardian status, owing to my concern that my POA on my Ma would die with her, and he had no legal cognitive ability to grant me POA on him (she had it on him, but it was non-transferable to me).

Just one personal story. And, I have not the slightest doubt that I'm in extensive company (increasingly so). The ethical issues and quandaries pertaining to the just allocation of health care resources are myriad and maddeningly complex (I addressed that two posts ago in citing the 1994 works of Elhauge and Dr. James). These serious sociopolitical issues deserve orders of magnitude higher-level policy discourse than those proffered by the ignorant, cynical likes of a Virginia Foxx or a Family Resource Council.

My kin have undoubtedly "cost the health care system" millions during the past dozen years or so. How much of that went into actual necessary clinical care and its requisite support services, and how much went into the multi-million dollar compensation packages of for-profit "health care" executives, I have no formal way to calculate. But, look at the "Cost of a Long Life" graphic above.

What would you estimate?
___

AUGUST 11th UPDATE

Sometimes, the sheer willful, unreflective ignorance just leaves you shaking your head. I just saw this photo over at Jon Taplin's blog. It's of a piece with the recent rantings of the numerous "Town Hell" shouters angrily crying 'keep your government hands off my Medicare.'


Well, sir, perhaps because

1. He's not a Canadian citizen, and,
2. in addition to his generous insurance provided by the federal employee health insurance program he has as a member of the Senate, he's a MEDICARE BENEFICIARY!

___

RAGING SOCIALIST RANT

"The discoveries of healing science must be the inheritance of all. That is clear. Disease must be attacked, whether it occurs in the poorest or the richest man or woman simply on the ground that it is the enemy; and it must be attacked just in the same way as the fire brigade will give its full assistance to the humblest cottage as readily as to the most important mansion. Our policy is to create a national health service in order to ensure that everybody in the country, irrespective of means, age, sex, or occupation, shall have equal opportunities to benefit from the best and most up-to-date medical and allied services available."

- Prime Minister Winston Churchill, March 1944, arguing for the establishment of a British National Health Service.

__

Doing some basic health care reform math

This is a short follow-up to my prior lengthy post "The U.S. health care policy morass." (Cross-posted at Open Salon.)

Some necessary basic arithmetic

The image above is taken from a quick Excel spreadsheet I put together and uploaded here. You can download it and play with it as you wish. The user input cells are the 1st, 2nd, and 6th respectively ("Total Population," "Total Current Expenditure," and "Pct spending reduction."

[NOTE: to speculate on the effects of spending increases, simply enter a negative decimal fraction, e.g., enter "-.25" to see the upshot of a 25% increase, and so forth.]

In my lengthy post "The U.S. health care policy morass," I cited some aggregate health care expenditure data proffered by the bipartisan National Coalition on Health Care.

In 2008, total national health expenditures were expected to rise 6.9 percent -- two times the rate of inflation. Total spending was $2.4 TRILLION in 2007, or $7900 per person. Total health care spending represented 17 percent of the gross domestic product (GDP).

I roughly estimated the 2007 figure up in the spreadsheet to $2.55 trillion for 2008. The rest is simple long division and percentage math. Nothing fancy.

As I've observed in comments elsewhere, some analysts have argued that we can in fact cover everyone, with materially better outcomes, and save perhaps 30% in the process. Even so, do the per capita math (sit down first). 2008 estimated U.S. "health care" spending ~= $2.55 trillion. Divide by a 307 million U.S. population. Decrement by 30%. You still get more than $5,800 per year per person. And, substantially more if you restrict the gross "population" figure to only adult civilian non-institutionalized, i.e., those actually or potentially on the hook for payment. Now, of course, Congress is not buying the "save money" part. The draft Senate bill only speaks to reducing "the growth in spending" (link to that 852 page draft legislation document in my prior blog post appendix). So, re-do the math. Give yourselves more heartburn.

Recognizing that it's never going to be allocated strictly "per capita," (e.g., just look at the monthly "family of 4" data), then the essentially zero-sum game becomes deciding who (individually) or which socioeconomic strata have to pay proportionally more. It's worth noting that, even were we to somehow miraculously cut the NHE (National Health Expenditure) by 50% [1], the resulting aggregate amount would still be more than twice our military budget.

[1] Take out the military and those incarcerated or otherwise institutionalized, ratcheting down the population to, say, an even 300 million, enter a 50% aggregate cost reduction; you still would have more than $1,400 per month for a family of four. If you further deduct an estimated "retired" subset cohort from among the 39 million people over the age of 65 -- those who would now be almost exclusively recipient-beneficiary health care system users rather than tax/premium contributors, the per capita numbers worsen concomitantly, rather dramatically so.

I'm not making any of this up. This is just grade-school arithmetic based on some published national numbers, along with some readily adjustable Excel "what-ifs?"

A big problem.
___

JULY 22nd UPDATE

Well, I watched the President's much anticipated "health care news conference" tonight. Not much really new there. He still claims that he and Congress must -- and will -- get health policy reform legislation agreed to, passed, and signed into law this year.

A core theme in all of this remains "making health care affordable" -- both for individuals and for the nation, given its impact on both personal and public budgets.

What do we mean by "affordable"? Who decides? I simply decide for myself that I cannot afford a Lexus or Dom Pérignon champagne, or caviar, or vacations in Monaco, etc. Others with more substantive financial assets decide otherwise, as is their free choice. But, what about health care insurance? Many people today "decide" that they cannot "afford" it (should it not be provided as part of their employment compensation). Meaning that their own value preferences dictate that they allocate their finite financial resources toward other freely chosen ends (this usually pertains to younger, healthier people).

But, now, we're being told that we all have to contribute in some fashion. No more "free riders," because, should you get seriously injured or ill and have no coverage, society will in fact be picking up your tab.

Stipulated. That is unlikely to change materially, should you find yourself in life-threatening circumstances and bereft of resources.

It's also increasingly increasingly argued of late (albeit not universally) that health care is a fundamental "right." Now, as a matter of long-settled law and policy -- as I pointed out in my prior post -- access to health care is indeed a "right," but it is a "right of last resort," a contingent, means-tested safety net "right" that comes with economic destitution (or close enough to it).

And, as of now, once you reach the age of 65 (I'm 18 months out), it becomes simply an "entitlement" right in no way contingent on personal income or net worth -- i.e., Medicare.

But, now, we're being told that we all have to contribute in some fashion

Well, consider military defense, and police and fire protection. We regard those without a second thought as basic "rights,"[**] and we assume that our various tax contributions suffice to provide them. Taxes may go up or down, defense, police, and fire department budgets may rise or fall, but we don't expect an annual arithmetic average "per capita" bill from the government for them. You earn more, you pay more. Justifiably so, it is argued, because you have more to lose (whether that should properly be progressively so is another argument for another topic).

** And, we readily recognize that those with sufficient means and desires can freely purchase enhanced protections via private security services and/or moving to more affluent areas -- e.g., gated communities -- that accord greater protective amenities.

Look at my spreadsheet example above. How many families could be expected to "afford" a monthly health care premium of of $2,769, or even $1,938 a month in the wake of a 30% decrement in annual costs?

THE CURRENT DRAFT HOUSE BILL: "AFFORDABILITY CREDITS"

Having taken a "social insurance" basic "entitlement" model off the table, federal policymakers are now busy hastily constructing yet another inscrutably complex system via which to assess and provide for "affordability." For example, from page 135 of the 1,018 page draft House bill:

The requisite individual "affordable contribution credit" is to be capped at 11% of income for those at a maximum of 400% of the "Federal Poverty Limit (FPL)."

(Click any of these images to inflate them for easier viewing, btw.) That 2nd graphic is from page 137. Let's take a look at the most recent stratified FPL table (just for the lower 48 states and DC; Hawaii and Alaska are perhaps 20-25% higher)

OK, sticking with our "family of 4" meme, 11% of $22,050 divided by 12 months comes out to $202.13 per month ($2,425.50 a year) for a 4-person household with an income of $88,200 (4x the FPL).

A couple of observations:

• This look distressingly like "corporate welfare," in that the government will be expected to make up the difference between the "market price" of insurance coverage and your "affordable contribution" (just as is the case with the Federal Employees Benefit Plan) should you not be otherwise covered through your employer (or via your own wealth enabling you to purchase coverage and/or services at retail). Perhaps this explains why "Harry and Louise" are now on board ad nauseum of late touting reform. Forcibly bring in 40+ million new "policyholders," without having to charge them anywhere near full retail, while still making bank via the U.S. Treasury? What's not to love?
  
• It also looks distressingly like -- well -- "welfare," overtly (begging yet again the question of health care as a fundamental "right" like national defense). We will need another numbing federal bureaucracy within which to vet "affordability eligibility" ongoing for millions. And, while some people are inveterate wards of the state, many others move repeatedly up and down in the socioeconomic strata. Eligibility will have to be re-determined at least annually. Take a number. Now serving number 342 at window 8. Provide two photo IDs and your last IRS 1040. No, I'm sorry, we do not recognize Power of Attorney, your mother must come here in person. Yes, I understand that she's bedridden in a nursing home. Sorry. She must appear in person. Two photo IDs, and last Form 1040. No, your place in the queue expires at 5 pm today.
  

In my prior post I concluded:

We seem to be headed toward an inscrutably hyper-complex re-jiggering of our no-value-adding "health care" paper-pushing industry. I hope I'm wrong.

I'm not yet seeing much to allay that concern.
___

JULY 30TH UPDATE

The draft House bill -- "America's Affordable Health Choices Act of 2009" -- now has a number, H.R.3200. Now, recall my concern set forth just above in the 2nd bullet point:

"We will need another numbing federal bureaucracy within which to vet "affordability eligibility" ongoing for millions. And, while some people are inveterate wards of the state, many others move repeatedly up and down in the socioeconomic strata. Eligibility will have to be re-determined at least annually."

Well, here you go:

H.R.3200, SEC. 245. INCOME DETERMINATIONS.

(a) In General- In applying this subtitle for an affordability credit for an individual for a plan year, the individual's income shall be the income (as defined in section 242(c)) for the individual for the most recent taxable year (as determined in accordance with rules of the Commissioner). The Federal poverty level applied shall be such level in effect as of the date of the application.

(b) Program Integrity; Income Verification Procedures-

(1) PROGRAM INTEGRITY- The Commissioner shall take such steps as may be appropriate to ensure the accuracy of determinations and redeterminations under this subtitle.

(2) INCOME VERIFICATION-

(A) IN GENERAL- Upon an initial application of an individual for an affordability credit under this subtitle (or in applying section 242(b)) or upon an application for a change in the affordability credit based upon a significant change in family income described in subparagraph (A)--

(i) the Commissioner shall request from the Secretary of the Treasury the disclosure to the Commissioner of such information as may be permitted to verify the information contained in such application; and

(ii) the Commissioner shall use the information so disclosed to verify such information.

(B) ALTERNATIVE PROCEDURES- The Commissioner shall establish procedures for the verification of income for purposes of this subtitle if no income tax return is available for the most recent completed tax year.

(c) Special Rules-

(1) CHANGES IN INCOME AS A PERCENT OF FPL- In the case that an individual's income (expressed as a percentage of the Federal poverty level for a family of the size involved) for a plan year is expected (in a manner specified by the Commissioner) to be significantly different from the income (as so expressed) used under subsection (a), the Commissioner shall establish rules requiring an individual to report, consistent with the mechanism established under paragraph (2), significant changes in such income (including a significant change in family composition) to the Commissioner and requiring the substitution of such income for the income otherwise applicable.

(2) REPORTING OF SIGNIFICANT CHANGES IN INCOME- The Commissioner shall establish rules under which an individual determined to be an affordable credit eligible individual would be required to inform the Commissioner when there is a significant change in the family income of the individual (expressed as a percentage of the FPL for a family of the size involved) and of the information regarding such change. Such mechanism shall provide for guidelines that specify the circumstances that qualify as a significant change, the verifiable information required to document such a change, and the process for submission of such information. If the Commissioner receives new information from an individual regarding the family income of the individual, the Commissioner shall provide for a redetermination of the individual's eligibility to be an affordable credit eligible individual.

(3) TRANSITION FOR CHIP- In the case of a child described in section 202(d)(2), the Commissioner shall establish rules under which the family income of the child is deemed to be no greater than the family income of the child as most recently determined before Y1 by the State under title XXI of the Social Security Act.

(4) STUDY OF GEOGRAPHIC VARIATION IN APPLICATION OF FPL- The Commissioner shall examine the feasibility and implication of adjusting the application of the Federal poverty level under this subtitle for different geographic areas so as to reflect the variations in cost-of-living among different areas within the United States. If the Commissioner determines that an adjustment is feasible, the study should include a methodology to make such an adjustment. Not later than the first day of Y2, the Commissioner shall submit to Congress a report on such study and shall include such recommendations as the Commissioner determines appropriate.

(d) Penalties for Misrepresentation- In the case of an individual intentionally misrepresents family income or the individual fails (without regard to intent) to disclose to the Commissioner a significant change in family income under subsection (c) in a manner that results in the individual becoming an affordable credit eligible individual when the individual is not or in the amount of the affordability credit exceeding the correct amount--

(1) the individual is liable for repayment of the amount of the improper affordability credit; and

(2) in the case of such an intentional misrepresentation or other egregious circumstances specified by the Commissioner, the Commissioner may impose an additional penalty.

"Provide two photo IDs and your last IRS 1040. No, I'm sorry, we do not recognize Power of Attorney, your mother must come here in person. Yes, I understand that she's bedridden in a nursing home. Sorry. She must appear in person. Two photo IDs, and last Form 1040. No, your place in the queue expires at 5 pm today."

As I've also stated before: We seem to be headed toward an inscrutably hyper-complex re-jiggering of our no-value-adding "health care" paper-pushing industry.

And, should these provisions survive to become part of any passed legislation, this requisite new "affordability eligibility" bureaucracy will be a big part of it, diverting scarce, precious clinical health care dollars into clerical verification cubicles as "the Commissioner shall establish...for the verification of income for purposes of this subtitle..."
___

IT GETS WORSE

Under this legislation, we've obviously given up on the concept of health care as a "right" in favor of viewing it as a personal responsibility -- enforceable under tax law via IRS scrutiny. You are to be additionally taxed should you not be able to produce documentation of your having "acceptable health care coverage."

TITLE IV--AMENDMENTS TO INTERNAL REVENUE CODE OF 1986

Subtitle A--Shared Responsibility

PART 1--INDIVIDUAL RESPONSIBILITY

SEC. 401. TAX ON INDIVIDUALS WITHOUT ACCEPTABLE HEALTH CARE COVERAGE.

(a) In General- Subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new part:

`PART VIII--HEALTH CARE RELATED TAXES

`subpart a. tax on individuals without acceptable health care coverage.
`Subpart A--Tax on Individuals Without Acceptable Health Care Coverage
`Sec. 59B. Tax on individuals without acceptable health care coverage.

`SEC. 59B. TAX ON INDIVIDUALS WITHOUT ACCEPTABLE HEALTH CARE COVERAGE.

`(a) Tax Imposed- In the case of any individual who does not meet the requirements of subsection (d) at any time during the taxable year, there is hereby imposed a tax equal to 2.5 percent of the excess of--

`(1) the taxpayer's modified adjusted gross income for the taxable year, over
`(2) the amount of gross income specified in section 6012(a)(1) with respect to the taxpayer.

`(b) Limitations-

`(1) TAX LIMITED TO AVERAGE PREMIUM-

`(A) IN GENERAL- The tax imposed under subsection (a) with respect to any taxpayer for any taxable year shall not exceed the applicable national average premium for such taxable year.
`(B) APPLICABLE NATIONAL AVERAGE PREMIUM-

`(i) IN GENERAL- For purposes of subparagraph (A), the `applicable national average premium' means, with respect to any taxable year, the average premium (as determined by the Secretary, in coordination with the Health Choices Commissioner) for self-only coverage under a basic plan which is offered in a Health Insurance Exchange for the calendar year in which such taxable year begins.

`(ii) FAILURE TO PROVIDE COVERAGE FOR MORE THAN ONE INDIVIDUAL- In the case of any taxpayer who fails to meet the requirements of subsection (e) with respect to more than one individual during the taxable year, clause (i) shall be applied by substituting `family coverage' for `self-only coverage'.

`(2) PRORATION FOR PART YEAR FAILURES- The tax imposed under subsection (a) with respect to any taxpayer for any taxable year shall not exceed the amount which bears the same ratio to the amount of tax so imposed (determined without regard to this paragraph and after application of paragraph (1)) as--
`(A) the aggregate periods during such taxable year for which such individual failed to meet the requirements of subsection (d), bears to

`(B) the entire taxable year.

`(c) Exceptions-
`(1) DEPENDENTS- Subsection (a) shall not apply to any individual for any taxable year if a deduction is allowable under section 151 with respect to such individual to another taxpayer for any taxable year beginning in the same calendar year as such taxable year.

`(2) NONRESIDENT ALIENS- Subsection (a) shall not apply to any individual who is a nonresident alien.

`(3) INDIVIDUALS RESIDING OUTSIDE UNITED STATES- Any qualified individual (as defined in section 911(d)) (and any qualifying child residing with such individual) shall be treated for purposes of this section as covered by acceptable coverage during the period described in subparagraph (A) or (B) of section 911(d)(1), whichever is applicable.

`(4) INDIVIDUALS RESIDING IN POSSESSIONS OF THE UNITED STATES- Any individual who is a bona fide resident of any possession of the United States (as determined under section 937(a)) for any taxable year (and any qualifying child residing with such individual) shall be treated for purposes of this section as covered by acceptable coverage during such taxable year.

`(5) RELIGIOUS CONSCIENCE EXEMPTION-

`(A) IN GENERAL- Subsection (a) shall not apply to any individual (and any qualifying child residing with such individual) for any period if such individual has in effect an exemption which certifies that such individual is a member of a recognized religious sect or division thereof described in section 1402(g)(1) and an adherent of established tenets or teachings of such sect or division as described in such section.

`(B) EXEMPTION- An application for the exemption described in subparagraph (A) shall be filed with the Secretary at such time and in such form and manner as the Secretary may prescribe. Any such exemption granted by the Secretary shall be effective for such period as the Secretary determines appropriate.
`(d) Acceptable Coverage Requirement-

`(1) IN GENERAL- The requirements of this subsection are met with respect to any individual for any period if such individual (and each qualifying child of such individual) is covered by acceptable coverage at all times during such period.

`(2) ACCEPTABLE COVERAGE- For purposes of this section, the term `acceptable coverage' means any of the following:

`(A) QUALIFIED HEALTH BENEFITS PLAN COVERAGE- Coverage under a qualified health benefits plan (as defined in section 100(c) of the America's Affordable Health Choices Act of 2009).

`(B) GRANDFATHERED HEALTH INSURANCE COVERAGE; COVERAGE UNDER GRANDFATHERED EMPLOYMENT-BASED HEALTH PLAN- Coverage under a grandfathered health insurance coverage (as defined in subsection (a) of section 102 of the America's Affordable Health Choices Act of 2009) or under a current employment-based health plan (within the meaning of subsection (b) of such section).

`(C) MEDICARE- Coverage under part A of title XVIII of the Social Security Act.
`(D) MEDICAID- Coverage for medical assistance under title XIX of the Social Security Act.
`(E) MEMBERS OF THE ARMED FORCES AND DEPENDENTS (INCLUDING TRICARE)- Coverage under chapter 55 of title 10, United States Code, including similar coverage furnished under section 1781 of title 38 of such Code.

`(F) VA- Coverage under the veteran's health care program under chapter 17 of title 38, United States Code, but only if the coverage for the individual involved is determined by the Secretary in coordination with the Health Choices Commissioner to be not less than the level specified by the Secretary of the Treasury, in coordination with the Secretary of Veteran's Affairs and the Health Choices Commissioner, based on the individual's priority for services as provided under section 1705(a) of such title.

`(G) OTHER COVERAGE- Such other health benefits coverage as the Secretary, in coordination with the Health Choices Commissioner, recognizes for purposes of this subsection.

`(e) Other Definitions and Special Rules-

`(1) QUALIFYING CHILD- For purposes of this section, the term `qualifying child' has the meaning given such term by section 152(c).

`(2) BASIC PLAN- For purposes of this section, the term `basic plan' has the meaning given such term under section 100(c) of the America's Affordable Health Choices Act of 2009.

`(3) HEALTH INSURANCE EXCHANGE- For purposes of this section, the term `Health Insurance Exchange' has the meaning given such term under section 100(c) of the America's Affordable Health Choices Act of 2009, including any State-based health insurance exchange approved for operation under section 208 of such Act.

`(4) FAMILY COVERAGE- For purposes of this section, the term `family coverage' means any coverage other than self-only coverage.

`(5) MODIFIED ADJUSTED GROSS INCOME- For purposes of this section, the term `modified adjusted gross income' means adjusted gross income--

`(A) determined without regard to section 911, and
`(B) increased by the amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax.

`(6) NOT TREATED AS TAX IMPOSED BY THIS CHAPTER FOR CERTAIN PURPOSES- The tax imposed under this section shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit under this chapter or for purposes of section 55.

`(f) Regulations- The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance (developed in coordination with the Health Choices Commissioner) which provide--

`(1) exemption from the tax imposed under subsection (a) in cases of de minimis lapses of acceptable coverage, and

`(2) a process for applying for a waiver of the application of subsection (a) in cases of hardship.'.
(b) Information Reporting-

(1) IN GENERAL- Subpart B of part III of subchapter A of chapter 61 of such Code is amended by inserting after section 6050W the following new section:

`SEC. 6050X. RETURNS RELATING TO HEALTH INSURANCE COVERAGE.

`(a) Requirement of Reporting- Every person who provides acceptable coverage (as defined in section 59B(d)) to any individual during any calendar year shall, at such time as the Secretary may prescribe, make the return described in subsection (b) with respect to such individual.

`(b) Form and Manner of Returns- A return is described in this subsection if such return--

`(1) is in such form as the Secretary may prescribe, and
`(2) contains--
`(A) the name, address, and TIN of the primary insured and the name of each other individual obtaining coverage under the policy,
`(B) the period for which each such individual was provided with the coverage referred to in subsection (a), and
`(C) such other information as the Secretary may require.

`(c) Statements To Be Furnished to Individuals With Respect to Whom Information Is Required- Every person required to make a return under subsection (a) shall furnish to each primary insured whose name is required to be set forth in such return a written statement showing--

`(1) the name and address of the person required to make such return and the phone number of the information contact for such person, and

`(2) the information required to be shown on the return with respect to such individual.

The written statement required under the preceding sentence shall be furnished on or before January 31 of the year following the calendar year for which the return under subsection (a) is required to be made.

`(d) Coverage Provided by Governmental Units- In the case of coverage provided by any governmental unit or any agency or instrumentality thereof, the officer or employee who enters into the agreement to provide such coverage (or the person appropriately designated for purposes of this section) shall make the returns and statements required by this section.'.

(2) PENALTY FOR FAILURE TO FILE-
(A) RETURN- Subparagraph (B) of section 6724(d)(1) of such Code is amended by striking `or' at the end of clause (xxii), by striking `and' at the end of clause (xxiii) and inserting `or', and by adding at the end the following new clause:

`(xxiv) section 6050X (relating to returns relating to health insurance coverage), and'.

(B) STATEMENT- Paragraph (2) of section 6724(d) of such Code is amended by striking `or' at the end of subparagraph (EE), by striking the period at the end of subparagraph (FF) and inserting `, or', and by inserting after subparagraph (FF) the following new subparagraph:

`(GG) section 6050X (relating to returns relating to health insurance coverage).'.

(c) Return Requirement- Subsection (a) of section 6012 of such Code is amended by inserting after paragraph (9) the following new paragraph:

`(10) Every individual to whom section 59B(a) applies and who fails to meet the requirements of section 59B(d) with respect to such individual or any qualifying child (as defined in section 152(c)) of such individual.'.

(d) Clerical Amendments-

(1) The table of parts for subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

`Part VIII. Health Care Related Taxes.'.

(2) The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by adding at the end the following new item:

`Sec. 6050X. Returns relating to health insurance coverage.'.

(e) Section 15 Not To Apply- The amendment made by subsection (a) shall not be treated as a change in a rate of tax for purposes of section 15 of the Internal Revenue Code of 1986.

(f) Effective Date-

(1) IN GENERAL- The amendments made by this section shall apply to taxable years beginning after December 31, 2012.

(2) RETURNS- The amendments made by subsection (b) shall apply to calendar years beginning after December 31, 2012.

What will be the bureaucratic FTE necessarily devoted to determining compliance with the myriad foregoing provisions? How many childhood immunizations, annual checkups, MRIs, arthroscopic surgeries, splints, and rounds of chemo and radiation would these FTE otherwise pay for?
___

The U.S. health care policy morass

Some reform advocates have long argued that we can indeed [1] extend health care coverage to all citizens, with [2] significantly increased quality of care, while at the same time [3] significantly reducing the national (and individual) cost. A trifecta "Win-Win-Win." Others find the very notion preposterous on its face. In the summer of 2009, this policy battle is now joined in full fury. I will try to add some constructive argument to the fray.

This likely will be a lengthy post that will accrue over time, given the complexity and importance of the topic, but,

FIRST, A PREFATORY STORY

In the mid-late 1990s, while caring for my terminally ill daughter in Hollywood, I recall reading that there were more MRI machines deployed in the Los Angeles area than in the entire nation of Canada, the inference being that the American economics of hugely expensive sense-extending diagnostic imaging technologies such as MRI units, CAT scanners, cardiac dynamic stress test machines, etc tended toward the economically problematic. Every medical institution feels compelled to have them to be credible, competitive Players in the market, but everyone also needs to keep them all profitably humming, with viable billable payers at the end of the back office line. And, every additional install exacerbates the billable utilization problem. Damned if you do, damned if you don't.

Well consider a brief true story from several decades ago, written by surgeon and writer Dr. Richard Selzer:

On the bulletin board in the front hall of the hospital where I work, there appeared an announcement. “Yeshi Dhonden,” it read, “will make rounds at six o’clock on the morning of June 10.” The particulars were then given, followed by a notation: “Yeshi Dhonden is personal physician to the Dalai Lama.” I am not so leathery a skeptic that I would knowingly ignore an emissary from the gods. Not only might such sangfroid be inimical to one’s earthly well-being, it could take care of eternity as well. Thus, on the morning of June 10, I joined a clutch of whitecoats waiting in the small conference room adjacent to the ward selected for the rounds. The air in the room is heavy with ill concealed dubiety and suspicion of bamboozlement. At precisely 6 o’clock, he materializes, a short, golden, barrely man dressed in a sleeveless robe of saffron and maroon. His scalp is shaven, and the only visible hair is a scanty black line each hooded eye.

He bows in greeting while his young interpreter makes the introduction. Yeshi Dhonden, we are told will examine a patient selected by a member of the staff. The diagnosis is as unknown to Yeshi Dhonden as it is to us. The examination of the patient will take place in our presence, after which we will reconvene in the conference room where Yeshi Dhonden will discuss the case. We are further informed that for the past two hours Yeshi Dhonden has purified himself by bathing, fasting, and prayer. I, having breakfasted well, performed only the most desultory of ablutions, and given no thought at all to my soul, glanced furtively at my fellows. Suddenly, we seem a soiled, uncouth lot.

The patient had been awakened early and told that she was to be examined by a foreign doctor, and had been asked to produce a fresh specimen of urine, so when we enter her room, the woman shows no surprise. She has long ago taken on that mixture of compliance and resignation that is that the facies of chronic illness. This was to be but another in an endless series of tests and examinations. Yeshi Dhonden steps to the bedside while the rest stand apart, watching. For a long time he gazes at the woman, favoring no part of her body with his eyes, but seeming to fix his glance at a place just above her supine form. I, too, study her. No physical sign nor obvious symptom gives a clue to the nature of her disease.

At last he takes her hand, raising it in both of his own. Now he bends over the bed in a kind of crouching stance, his head drawn down into the collar of his robe. His eyes are closed as he feels for her pulse. In a moment he has found the spot, and for the next half hour he remains of us, suspended above the patient like some exotic golden bird with folded wings, holding the pulse of the woman beneath his fingers, cradling her hand in his. All the power of the man seems to have been drawn down into this one purpose. It is tell patient of the pulse raced to the state of ritual. From the foot of the bed, where I stand, it is as though he and the patient had entered a special place of isolation, of apartness, about which a vacancy hovers, and across which no violation is possible. After a moment the woman rests back upon her pillow. From time to time she raises her head to look at the strange figure above her, then sinks back once more. I cannot see their hands joined in a correspondence that is exclusive, intimate, his fingertips receiving the voice of her sick body through the rhythm and throb she offers at her wrist. All at once I am envious -- not of him, not of Yeshi Dhonden for his gift of beauty in holiness, but of her. I want to be held like that, touched so, received. And I know that I, who have palpated 100,000 pulses, have not felt a single one.

At last Yeshi Dhonden straightens, gently places the woman’s hand upon the bed, and steps back. The interpreter produces a small wooden bowl into sticks. Yeshi Dhonden pours a portion of the urine specimen into the bowl, and proceeds to whip the liquid with the two sticks. This he does for several minutes until a foam is raised. Then, bowing above the bowl, he inhales the older three times. He sets down the bowl, and turns to leave. All this while, he has not uttered a single word. As he nears the door, the woman raises her head and calls out to him in a voice at once urgent and serene. “Thank you, doctor,” she says, and touches with her other hand the place he had held on her wrists, as though to recapture something that had visited their. Yeshi Dhonden turns back for a moment to gaze at her, then steps into the corridor. Rounds are at an end.

We are seated once more in the conference room. Yeshi Dhonden speaks now for the first time, in soft Tibetan sounds that I’ve never heard before. He has barely begun when the young interpreter begins to translate, the two voices continuing in tandem – a bilingual fugue, the one chasing the other. It is like the chanting of monks. He speaks of winds coursing through the body of the woman, currents that break against barriers, eddying. These vortices are in her blood, he says. The last spendings of an imperfect heart. Between the chambers of her heart, long, long before she was born, a wind had come and blown open a deep gate that must never be opened. Through it charged the full waters of her river, as the mountain stream cascades in the springtime, battering, knocking loose the land, and flooding her breath. Thus he speaks, and is silent.

“May we now have the diagnosis?” A professor asks.

The host of these rounds, the man who knows, answers. “Congenital heart disease,” he says. “Interventricular septal defect, with resultant heart failure.”

A gateway in the heart, I think. That must not be opened. Through it charge the full waters that flood her breath. So! Here then is the doctor listening to the sounds of the body to which the rest of us are deaf. He is more than doctor. He is Priest.

I know, I know, the doctor to the gods is pure knowledge you’re healing. The doctor to man stumbles, most often wound; his patient must die, as must he.

Now and then it happens, as I make my own rounds, but I hear the sounds of his voice, like an ancient Buddhist prayer, its meaning long since forgotten, only the music remaining. Then the jubilation possesses me, and I feel myself touched by something divine.

[1976: Richard Selzer, MD, Mortal Lessons: Notes on the art of surgery]
__

For me, such an inferentially instructive tale goes beyond mere abstract epistemological interest -- achingly so. Several years prior to being diagnosed with fatal liver cancer, my daughter also had encounters with non-western medical diagnostic assessments, one of which might well have saved her life (and this father's now permanently broken heart) had she not blown it off. As I wrote in my "1 in 3" essay, ruminating on this aspect of "alternative medicine":

It was, after all, a Santa Monica Chinese practitioner of acupuncture and herbal medicine, one Dr. Yi Pan, who first called Sissy's attention to a problem with her liver several years prior to her HCC diagnosis. She'd been referred to him by a girlfriend for attention to a menstrual problem. Dr. Pan had a diagnostic acumen requiring no x-rays, CT scans, or blood tests. Yet, the internet medical fraud site www.quackwatch.com dismisses traditional Chinese medicine as "ineffective," as do many other critics of alternative practices.

Tragically, Sissy summarily discounted his prescient admonition. I can only speculate wistfully on the implications of our having known three years earlier.
__

Indeed. Indeed.

I bring up the foregoing only to pose some questions I ask myself all the time. To what extent is our potentially bankrupting dependence on crushingly expensive and ever more "sophisticated" medical technology at least in part a function of our enslaving cognitive enfeeblement wrought by reliance on such technologies? Would we have ICD-9 or CPT "dx" ("diagnosis") 3rd-party payor billing codes through which to encapsulate (and reimburse for) the (accurate, as they were) evaluative encounters of a Yeshi Dhonden or a Yi Pan?

The answer to the latter question is an unequivocal "no".
___

THE U.S. "HEALTH CARE" "SYSTEM"?

I will by no means be the first to note that our medical industry is not really a "system," nor is it predominantly about "health care." It is more aptly described as a patchwork post-hoc disease and injury management and remediation enterprise, one that is more or less "systematic" in any true sense only at the clinical level. Beyond that it comprises a confounding perplex of endlessly contending for-profit and not-for-profit entities acting far too often at ruinously expensive cross-purposes.

Another quick personal story:

During my first tenure (early 1990's) serving as an analyst for the Nevada/Utah Medicare Peer Review Agency (they're now called "QIO's" - Quality Improvement Organizations), in addition to our core Medicare oversight work, we had a number of small sidebar contracts, one of which involved ongoing analytical assessments of the Clark County Nevada self-funded employee health plan. One morning I accompanied my Sup, our Senior Analyst Dr. Moore, to a regular meeting of the plan's Executive Committee, wherein we would report on our latest plan utilization/outcomes evaluation.

A portion of the morning -- perhaps a half-hour, IIRC -- was always devoted to hearing claims denials appeals brought by Clark County employees. This day, two appeals were heard: one regarding an outpatient medical claim, the other concerning a dental encounter. The total sum at issue was about $350. Both appeals were denied, thereby "saving" the plan this nominal amount.

Bored by this administrative tedium, as I sat at the conference table, I did a quick, rough estimate back-of-the-envelope calculation. About a dozen executive/professional people consumed a half hour adjudicating these disputes, or, equivalently, 6 FTE hours. Assume a plausible blended G&A-multiplied cost estimate of the total compensation time for all these folks, plus all of the clerical/administrative time consumed in the processing (and subsequently denying) of these minor claims from the moment of their filing to this very hour.

Clark County easily spent well in excess of an additional $1,000 to "save" $350 at the expense of these two hapless employees, by my reckoning.

Similiar scenarios -- public and private -- surely play out every day within our "health care system." Clark County would have been way ahead to have simply vetted the intial claims for fraud and then paid them! (This is one observation implicitly at the heart of the "Universal Coverage / Single Payer" model.)

But, as my Senior Medical Director was fond of pointing out, "every misspent dollar in our health care system goes into someone's paycheck."

"16% OF GDP"

And soon to rise to 20% and beyond, it is asserted -- lest we find the political will to rein in the nationally and personally eviscerating cost of "health care" in the U.S.

Question: in my foregoing Clark County Health Plan anecdote, beyond the two denied employee claims I cited that totaled about $350, is the extra thousand or so administrative outlay also placed on the "health care" expenditure ledger? So that what should have cost $350 (plus minimal initial clerical claim processing overhead) ended up as ~$1,350? (Note that the ~$350, while denied by Clark County, still had to be paid by the respective employees.)

We really have no clear picture regarding episodes such as this. And, we have no clear picture as to how prevalent are such ongoing wheel-spinning, sand-in-the-gears activities, and to what expense ledger they get posted.

Consider some macro stats from the bipartisan National Coalition on Health Care:

By several measures, health care spending continues to rise at a rapid rate and forcing businesses and families to cut back on operations and household expenses respectively.

In 2008, total national health expenditures were expected to rise 6.9 percent -- two times the rate of inflation. Total spending was $2.4 TRILLION in 2007, or $7900 per person. Total health care spending represented 17 percent of the gross domestic product (GDP).

U.S. health care spending is expected to increase at similar levels for the next decade reaching $4.3 TRILLION in 2017, or 20 percent of GDP.

In 2008, employer health insurance premiums increased by 5.0 percent – two times the rate of inflation. The annual premium for an employer health plan covering a family of four averaged nearly $12,700. The annual premium for single coverage averaged over $4,700.

Experts agree that our health care system is riddled with inefficiencies, excessive administrative expenses, inflated prices, poor management, and inappropriate care, waste and fraud. These problems significantly increase the cost of medical care and health insurance for employers and workers and affect the security of families.

National Health Care Spending

• In 2008, health care spending in the United States reached $2.4 trillion, and was projected to reach $3.1 trillion in 2012.1 Health care spending is projected to reach $4.3 trillion by 2016.
  
  
• Health care spending is 4.3 times the amount spent on national defense.
  
  
• In 2008, the United States will spend 17 percent of its gross domestic product (GDP) on health care. It is projected that the percentage will reach 20 percent by 2017.
• Although nearly 46 million Americans are uninsured, the United States spends more on health care than other industrialized nations, and those countries provide health insurance to all their citizens.
  
  
• Health care spending accounted for 10.9 percent of the GDP in Switzerland, 10.7 percent in Germany, 9.7 percent in Canada and 9.5 percent in France, according to the Organization for Economic Cooperation and Development.
  

Irrespective of your preferred data source, suffice it to observe for the purposes of this essay that Americans undeniably spend approximately twice per capita on health care than do their comparable industrial nation "consumer"/patient counterparts. I suppose that such would be defensible were we getting twice the "bang for the buck" (in terms of clinical outcomes quality and concomitant public and personal health) but, sadly, the aggregate data suggest significantly otherwise. Consider observations proffered in Malcolm Gladwell's 2005 New Yorker essay "The Moral Hazard Myth."

Americans spend $5,267 per capita on health care every year, almost two and half times the industrialized world's median of $2,193; the extra spending comes to hundreds of billions of dollars a year. What does that extra spending buy us? Americans have fewer doctors per capita than most Western countries. We go to the doctor less than people in other Western countries. We get admitted to the hospital less frequently than people in other Western countries. We are less satisfied with our health care than our counterparts in other countries. American life expectancy is lower than the Western average. Childhood-immunization rates in the United States are lower than average. Infant-mortality rates are in the nineteenth percentile of industrialized nations. Doctors here perform more high-end medical procedures, such as coronary angioplasties, than in other countries, but most of the wealthier Western countries have more CT scanners than the United States does, and Switzerland, Japan, Austria, and Finland all have more MRI machines per capita. Nor is our system more efficient. The United States spends more than a thousand dollars per capita per year—or close to four hundred billion dollars—on health-care-related paperwork and administration, whereas Canada, for example, spends only about three hundred dollars per capita. And, of course, every other country in the industrialized world insures all its citizens; despite those extra hundreds of billions of dollars we spend each year, we leave forty-five million people without any insurance. A country that displays an almost ruthless commitment to efficiency and performance in every aspect of its economy—a country that switched to Japanese cars the moment they were more reliable, and to Chinese T-shirts the moment they were five cents cheaper—has loyally stuck with a health-care system that leaves its citizenry pulling out their teeth with pliers.
_

And that was four years ago. The numbers continue to worsen.

As this post progresses, I will draw again on Mr. Gladwell's incisive New Yorker piece, along with other relevant works such as Einer Elhauge's in-depth 1994 "Allocating Health Care Morally" [82 Cal. Law Review 1449] and the 1994 JAMA "A Better-Quality Alternative: Single-Payer National Health System Reform," among many others.

Coming shortly, a look at some representative recent top level Health Care CEO compensation. While not exactly Wall Street level oligarchic excess, it'll make your head spin.

Recall:

...as my Senior Medical Director was fond of pointing out, "every misspent dollar in our health care system goes into someone's paycheck."

___

JAMA 1994 SINGLE PAYER ARGUMENT

My first graduate school paper ("Argument Analysis") comprised a required analysis and evaluation of a peer-reviewed journal article. I chose the JAMA article cited and linked above. "Argument analysis" consists of two phases: [1] the "analytical," wherein you work to honestly, fully, and accurately describe the argument at hand as intended by the proponents, followed by [2] the "evaluative," segment within which you detail your forthright logically critical assessments of the relative strengths and weaknesses of the proffers advanced by the author(s) ostensibly buttressing of their aggregate conclusion.

My method was to number every paragraph and sentence therein (and sub-sentence clause where warranted), depicting the textual "if/then/therefore" sub-arguments with flow charts illustrating the premise/assumption/objection/conclusion flow. e.g.,

[dotted lines indicate "objection/counter" clauses such as "notwithstanding" or "despite".]

I tediously slogged through the often dense, heavily footnoted 49 paragraphs of the article, assertion by assertion.

My analytical phase summary-

Argument synopsis:

Notwithstanding public misgivings about making significant public policy driven changes in the U.S. health care industry, there is extensive and persuasive empirical evidence of costly inadequacies in the system-such as lack of access/coverage, uneven levels of quality of service and outcomes, market-driven rather clinical priorities, waste and duplication, etc.-that can best be corrected by a unified approach to improvement driven by a scientific focus on quality issues (broadly defined) rather than those of short-term cost-control, competition, and piecemeal regulatory strategies and tactics. A single-payer health care system reformed by implementation of the ten principles detailed herein would at once extend medical access to all, reduce costs, improve clinical outcomes of the sick and injured, and elevate the overall health status of the nation, resulting in win-win consequences for providers and citizens alike.

The foregoing was simply my assessment of what the authors were driving at. I would subsequently have to critically evaluate the myriad merits and liabilities of every sub-argument (along with evaluating how well they all fit together in fortifying the overall case). My final, aggregate conclusions follow:
___

Overall Evaluation:

The following alternative courses of action are generally advanced in the health care debate:

1. Status quo: the system works fine, and normal incremental quality improvements at the provider level will suffice. Get a job.
   
2. Insurance reform: prohibit exclusion and enforce community rating to reduce the insurance premium stratification characteristic of the present system.
3. Expand existing public payer programs such as Medicare to cover the working poor and otherwise uninsurable.
4. Capitated managed competition, with “employer mandates” to provide choices and beneficiary of alliances for pooled coverage buying power, administered through the workplace.
5. Tax inducement programs such as the “Medi-Save” approach in which workers use pretax dollars to purchase catastrophic coverage and pay for routine health expenses themselves.
6. The public single payer system based more or less on the Canadian model.

No one can dispute that the healthcare industry can be improved. Any system can be improved. Problems such as lack of access, arbitrary and often wildly excessive pricing, inexplicable variations in clinical practice and outcomes are well documented and cry out for solution. That tends to rule out Option 1. The question is one of extent; has the case been made that the healthcare industry requires comprehensive national reform?

Option 2: many see the problem as an insurance reform issue rather than a health-care reform issue per se. The debate brings us face to face with fundamental questions about the nature of private insurance. Where do we draw the line on the freedom to assess and underwrite risk? Is health care insurance ethically different from ensuring cargo? Part of the image problem health insurers have is self-inflicted; arbitrary, unscientific risk assessment, payment denials and delays, and the financial imperative to “cherry pick” (attempting to only contract with those posing minimal risk” have made insurers objects of suspicion and resentment). Insurers uniformly bemoan their meager financial returns, yet even a cursory examination of their real estate furnishings portfolios and executive salaries (not to mention their highly visible and aggressive “Harry and Louise” lobbying against reform this past year) tends to discredit their apologies.

Option 3: US Representative Pete Stark proposed exactly this: it was called “Medicare, Part C” and would via Medicare expansion ensure the working poor who are neither eligible for Medicaid nor otherwise insurable. This option would extend more nearly universal coverage but would do nothing about the chronic cost shifting that is prevalent in healthcare financing. It would also fail to address the cost containment problems seen in the existing program. This proposal was seen by the insurance industry as a “Trojan Horse” for an eventual single-payer system, and, as such was successfully lobbied down.

Option 4 is exactly what comprised the Clinton legislative proposal for reform. It proved inscrutably complex. Having seen the 1,400-odd page text of the proposal I am skeptical of its Byzantine complexity. Those 1,400+ pages would have necessitated something on the order of millions of pages of implementing policy regulations, with all the potential for bureaucratic gridlock they might effect.

Option 5: “Medical IRAs” are a favorite of conservatives, and have considerable theoretical merit. The central idea is that, when people directly spend their own money, they tend to be smarter shoppers, and this would control prices. Third-party payment for health services tends to reduce the incentive to ride herd on costs. But healthcare encounters are not the psychological equivalent of shopping for a new VCR, and becoming an informed healthcare consumer is not at all easy. And finally, these may be saved accounts would do nothing for those without jobs (if they are to be funded via pretax employment compensation), or for those whose taxable incomes are so low as to nullify the tax incentive. The Medi-Save approach would have to be supplanted by additional programs or those it would not touch.

Option 6, single-payer: using the Canadian example as a model for US reform has a couple of liabilities. First the US population is roughly 10 times the size of Canada’s; we would be engineering and vastly larger institution, and there may well be unforeseen dis-economies of scale. Our record in the operation of large public bureaucracies is considerably less than stellar. Secondly, there is considerable reputable disagreement with respect to the relative virtues of the Canadian system. Many Canadians (and not only wealthy ones) routinely come to the US for treatment, and there are additional documented signals of increasing dissatisfaction in Canada. It is a more humane system in that it covers everyone by entitlement, but it does significantly impact the cost of living in Canada. There is reason to believe that same or worse would be the case here, at least in the relatively near term.

The envisioned unified computerized data system such an institution would require could well be a development nightmare that might be in many respects obsolete before it went online. The documented in adequacies of both the IRS and FAA computer systems stand as a warning. The sheer volume of health care data proposed for online storage and access is daunting. An article in the byte magazine earlier this year detailed the CPR system (computerized patient record) under development at Brigham and Women’s Hospital in Boston, and revealed that the daily data storage requirement was approximately 3.5 GB! (3.5 billion bytes) Remember, this is for one institution. Constructing a single national healthcare data system would be fraught with a breadth of imposing technical and policy difficulties. It would require the latest hardware, the finest software development teams, and an unprecedented level of policy agreement and guidance.

In sum, the authors’ argument has many strengths, particularly in their exhaustively documented enumeration of the shortcomings of our present health care system – to the extent to which it can be characterized as a “system.” There is, however, a plausible alternative to a public national single-payer system that would meet many of the goals sought by these advocates, and it is not a theoretical one. Utah’s IHC (Intermountain Healthcare) organization is a private, vertically integrated healthcare Corporation serving Utah in western Wyoming residents. It is a large network of hospitals, clinics, physicians, and related operations such as home health services. IHC is essentially a managed care system with subscribers who pay set fees and minimal copayments. Unlike other HMO type operations in the state that typically experience subscriber turnover rates of approximately 15% per year, IHC’s turnover rate is less than 0.5% (that’s 0.005), at competitive prices. They accomplish this by an organization wide, enthusiastic, almost religious commitment to the very CQI principles outlined above. IHC quality improvement programs are directed by Dr. Brent James, a surgeon and nationally respected leader in health care CQI education. Having myself undergone their healthcare CQI training course over the period of the past six months as part of my work, I can attest that IHC, while not yet perfect, effectively applies nearly all of the recommendations cited in this article, albeit on a smaller scale (and that may indeed be a significant virtue). They are in essence a microcosmic single-payer system, but one successful in the private sector, driven not by publicly impose mandates, but by their own thorough knowledge of and dedication to CQI. It is difficult to see at this point whether the asserted advantages of a national public system would add net value beyond the type of operation that IHC represents.

To be fair, IHC operates in a fairly prosperous, culturally homogeneous region enjoying a great deal of social and political unity. Here in Nevada, by contrast, though we share a common border and similar population size and geography with Utah, the social mileau could not be more different. IHC might not encounter the same level of success in other regions, and their successes do not impact those who cannot obtain coverage – and the central issue of this article has been about the significant negative impact of such a deficit. The IHC example does, however, stand in stark relief to both the inadequate business-as-usual attitude, and the proposition advanced above that a national single-payer system is the best path to effective health care reform. Other examples exist around the nation also; one that comes to mind is Northwest Hospital in Seattle, whose presentation at the Annual Quality Congress of the American Society for Quality control this year reveals yet another organization deriving significant cost savings and quality improvement from diligent application of CQI methods.

Rule number one of CQI is “listen to the customer,” and thus far the customers are prohibitively wary of the idea of creating a huge new national program, and political reality that is unlikely to shift anytime soon. The argument provided by shift at Al takes into account an enormous amount of evidence and theory generated from within healthcare and the wider quality sciences, but serious questions remain unresolved with respect to the needs and concerns of health care consumers, whose overwhelming support would be needed to implement a single-payer health care system.
___

Some of that now seems a bit quaint (in particular my data systems concern; and, what is a "VCR"?). It was, after all, composed 15 years ago, written at a time when health care issues had only been on my cognitive radar for about a year and a half. But, in other respects it continues to resonate well, and reflects to a significant degree how little things have changed for the better.

UPDATE: I just finished scanning, and then uploading the entire 56 page paper here (2.7 meg PDF file). I no longer have the original MS Word document available. Though, I think it's on a 3.5" floppy disk somewhere in a box out in my garage, LOL.

Most visibly of late, "Harry & Louise" have now been exhumed reincarnate in the person of one Rick Scott ("Conservatives for Patients' Rights"), blanketing the airwaves to exhort us to repudiate the putative life-threatening terrors of "government-controlled" "socialized medicine."

My snarky reaction to Mr. Scott's transparent status quo corporate shilling was published by the Las Vegas Sun on May 11th, 2009:

"Regarding any proposed health care reform, I, for one, am not about to allow some federal bureaucrat to interfere with my current CEO-patient relationship."

LOL!

MAY 29TH UPDATE

My latest issue of The New Yorker arrived in my mailbox yesterday, and contains an excellent, lengthy, and timely article on health care policy issues, "THE COST CONUNDRUM" -

Highly recommended. To quote, in summation:

"We will need to do in-depth research on what makes the best systems successful—the peer-review committees? recruiting more primary-care doctors and nurses? putting doctors on salary?—and disseminate what we learn. 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."

Indeed. The author cites the cost-and-clinically-effective examples of of both the Mayo Clinic and Grand Junction, Colorado medical communities. I find a striking and gratifying similarity to my 1994 IHC example.
___

HEALTH CARE: A "RIGHT," OR A "RESPONSIBILITY"?

Rewind back to the fall Presidential debate in Nashville, October 7th 2008:

MODERATOR TOM BROKAW: Quick discussion. Is health care in America a privilege, a right, or a responsibility?

Senator McCain?

SENATOR MCCAIN: I think it's a responsibility, in this respect, in that we should have available and affordable health care to every American citizen, to every family member. And with the plan that -- that I have, that will do that. But government mandates I -- I'm always a little nervous about. But it is certainly my responsibility. It is certainly small-business people and others, and they understand that responsibility. American citizens understand that. Employers understand that. But they certainly are a little nervous when Senator Obama says, if you don't get the health care policy that I think you should have, then you're going to get fined. And, by the way, Senator Obama has never mentioned how much that fine might be. Perhaps we might find that out tonight.

SENATOR OBAMA: Well, why don't -- why don't -- let's talk about this, Tom, because there was just a lot of stuff out there.

TOM BROKAW: Privilege, right or responsibility. Let's start with that.

SENATOR OBAMA: Well, I think it should be a right for every American. In a country as wealthy as ours, for us to have people who are going bankrupt because they can't pay their medical bills -- for my mother to die of cancer at the age of 53 and have to spend the last months of her life in the hospital room arguing with insurance companies because they're saying that this may be a pre-existing condition and they don't have to pay her treatment, there's something fundamentally wrong about that.

Mr. McCain's muddled response was clearly an attempt to avoid the clear, direct question and appear to have it all ways. It remained unclear regarding "whose responsibility?" The responsibility of all individuals to fend for themselves and maintain either adequate insurance coverage or sufficient assets via which to pay retail? Or, the responsibility of a society to provide coverage for all, as both a utilitarian and moral matter?

Mr. Obama's response could have been more on point. Access to health care is in fact a "right," but at present it is a qualified right, a "right of last resort" (rather than a presumptive "inalienable" right). It is the right accorded my daughter when she was medically bankrupted on day one of her fatal cancer illness. It the the right (as of now) to Medicaid-funded long-term facility care that will be accorded my currently bedridden / wheelchair-bound nursing home resident Mother should she outlive her finances (now attriting at a "private payer" commercial rate of approximately $6,300 a month).

It is beyond dispute that, should you show up at the hospital ER in life-threatening condition and documentably lacking material resources, you must be treated in the same clinical manner accorded the billionaire. So, in this quite limited sense, health care is a "right." But, beyond such narrow circumstances, access to health care is overwhelmingly a function of your ability to pay, unlike your "rights" to police and fire protection, or to military defense.

There are in fact communities where enforcement of the latter, more fundamental rights are contingent on your ability to pay.

They're known as Tribal Warlord Societies.
___

ACTUARIAL vs SOCIAL INSURANCE

We return for a moment to Gladwell's "The Myth of Moral Hazard."

"The issue about what to do with the health-care system is sometimes presented as a technical argument about the merits of one kind of coverage over another or as an ideological argument about socialized versus private medicine. It is, instead, about a few very simple questions. Do you think that this kind of redistribution of risk is a good idea? Do you think that people whose genes predispose them to depression or cancer, or whose poverty complicates asthma or diabetes, or who get hit by a drunk driver, or who have to keep their mouths closed because their teeth are rotting ought to bear a greater share of the costs of their health care than those of us who are lucky enough to escape such misfortunes? In the rest of the industrialized world, it is assumed that the more equally and widely the burdens of illness are shared, the better off the population as a whole is likely to be. The reason the United States has forty-five million people without coverage is that its health-care policy is in the hands of people who disagree, and who regard health insurance not as the solution but as the problem."

Quick recap:

"...health-care policy is in the hands of people who disagree, and who regard health insurance not as the solution but as the problem."

Well, it might be more accurate to say that large-scale changes to U.S. health policy status quo would be a problem. Say, for people like

• Ronald A Williams, CEO of Aetna (AET) for 3 years. Mr. Williams has been with the company for 8 years. The 60 year old executive ranks 1 within Health Care Equipment & Services. TOTAL COMPENSATION $38.125 mil, 5-YEAR COMPENSATION TOTAL $77.863 mil
  
  
• Timothy E Guertin, CEO of Varian Medical Systems (VAR) for 3 years. Mr. Guertin has been with the company for 34 years. The 60 year old executive ranks 10 within Health Care Equipment & Services. TOTAL COMPENSATION $9.56 mil, 5-YEAR COMPENSATION TOTAL $23.533 mil
  
  
• Stephen J Hemsley, CEO of UnitedHealth Group (UNH) for 2 years. Mr. Hemsley has been with the company for 12 years. The 56 year old executive ranks 17 within Health Care Equipment & Services. TOTAL COMPENSATION $5.035 mil, 5-YEAR COMPENSATION TOTAL, N/A
  
  
• Michael B McCallister, CEO of Humana (HUM) for 9 years. Mr. McCallister has been with the company for 35 years. The 56 year old executive ranks 25 within Health Care Equipment & Services. TOTAL COMPENSATION $2.39 mil, 5-YEAR COMPENSATION TOTAL $56.91 mil

The foregoing are drawn from the latest data at Forbes.com under the "Health Care Equipment and Services" category.

Then, there's the Top Dog within the "Drugs and Biotechnology" sector:

• John H Hammergren, CEO of McKesson (MCK) for 10 years. Mr. Hammergren has been with the company for 13 years. The 50 year old executive ranks 1 within Drugs & Biotechnology. TOTAL COMPENSATION $51.29 mil, 5-YEAR COMPENSATION TOTAL $137.78 mil.

You could also peruse the "Insurance" Sector for some equivalently stratospheric numbers.

By way of contrast, consider a current summary of clinical compensation for some of our most advanced physicians:

Median Salary by Years Experience - Job: Cardiac Surgeon (United States)

Those we train with the most demanding rigor in excruciating detail for years, and subsequently entrust to cut us open, fix our hearts, sew us back together, and extend our lives. This comparative disparity is ethically justified exactly how?

Well, corporate "shareholder value," of course.

Regarding which, I heartily recommend an important and illuminating read, Dr. John Abramson's expose of Big Pharma.

OVERDO$ED AMERICA

Excerpting Chapter 14:

This is the mother of all sleights of hand: the transformation of medical science from a public good whose purpose is to improve health into a commodity whose primary function is to maximize financial returns. As a result of this sleight of hand, the gap is widening between the scientific evidence that impartial experts (not paid or threatened by the medical industry, not biased by other personal concerns, and granted unrestricted access to all of the evidence) would agree upon and the perceptions that actually drive American health care. This growing gap is at the core of the crisis in American medicine. And why are we surprised? The drug companies have no more responsibility to oversee the public's health than the fast-food industry has to oversee the public's diet.

The substitution of narrow corporate interests for medical progress has produced some dramatic excesses. When the manufacturer of Paxil performs nine clinical studies on the treatment of adolescents for depression and finds that Paxil is no more effective than placebos and, in fact, significantly increases the frequency of "emotional lability" (including suicidal thoughts and attempts), it's no problem. The company publishes one study that shows a benefit, fails to publish the other eight, and markets away. When British drug authorities spill the beans? No problem. A task force of the American College of Neuropsychopharmacolgy is convened, and concludes that the new antidepressants are safe for adolescents after all. Too bad the task force didn't have access to some of the information that was available to the British drug authorities. But perhaps that didn't seem like so much of a problem, because, according to the New York Times, "Critics of the medicines noted that 9 of the 10 task force members had significant financial ties to the pharmaceutical industry..." (However, the task force insisted that no industry money financed their report.) What to do when the FDA epidemiologist in charge of analyzing all the antidepressant studies involving children concludes, just like the British drug authorities, that twice as many children treated with the new drugs (except Prozac, which is available as an inexpensive generic) became suicidal, and that the FDA should therefore discourage doctors from treating children with these drugs? Just bar the expert from testifying at the FDA's public hearing. Then don't make him available for an interview with the New York Times, which reported the story on April 16, 2004

You don't like the way the study of an expensive drug for blood pressure is going? A nonissue -- just stop the study before the results reach statistical significance.

Endovascular Technologies (a wholly owned subsidiary of Guidant, the company that manufactures implantable defibrillators) manufactured a $10,000 device to repair aortic aneurysms that dangerously malfunctioned in a third of the 7600 patients in whom it had been used. Did this frequency of malfunction stop Endovascular Technologies? No. The company reported 7 percent of these events to the FDA and sold on. According to a plea agreement entered into with the United States government in 2003, the company belatedly disclosed another 2628 serious malfunctions and 12 deaths. No problem. It agreed to pay $92 million to cover criminal and civil penalties and then picked up with business as usual on other products.

Your drug company just received an official warning letter from the FDA for the "false and misleading" marketing of Celebrex, Vioxx, Pravachol, or OxyContin? No problem. The FDA's corrective action is unlikely to displace the false information already firmly planted in the public's mind.

And the list goes on. Controlling medical costs in this near free-for all commercial grab is not just impossible, it is a contradiction in terms. Does it make sense to talk about reducing national expenditures for cars or clothes or beer? Medical care, by far the largest consumer commodity in the United States, is now no different.

Again, as my Senior Medical Director was fond of pointing out, "every misspent dollar in our health care system goes into someone's paycheck."

MORE ON "MORAL HAZARD"

I wrote on my prior post that "It has been fashionable among some "conservative" policy commentators of late to assert that the "problem" with U.S. health care is that we are "overinsured," i.e., that health care insurance induces "moral hazard" by making us sloppy, excessive "consumers" of health care services..."

A link to that entire passage here.

Specifically (citing Gladwell):

...in the past few decades a particular idea has taken hold among prominent American economists which has also been a powerful impediment to the expansion of health insurance. The idea is known as “moral hazard.” Health economists in other Western nations do not share this obsession. Nor do most Americans. But moral hazard has profoundly shaped the way think tanks formulate policy and the way experts argue and the way health insurers structure their plans and the way legislation and regulations have been written...

...“Moral hazard” is the term economists use to describe the fact that insurance can change the behavior of the person being insured...

...If you think of insurance as producing wasteful consumption of medical services, then the fact that there are forty-five million Americans without health insurance is no longer an immediate cause for alarm. After all, it’s not as if the uninsured never go to the doctor. They spend, on average, $934 a year on medical care. A moral-hazard theorist would say that they go to the doctor when they really have to. Those of us with private insurance, by contrast, consume $2,347 worth of health care a year. If a lot of that extra $1,413 is waste, then maybe the uninsured person is the truly efficient consumer of health care.

The moral-hazard argument makes sense, however, only if we consume health care in the same way that we consume other consumer goods, and to economists like Nyman this assumption is plainly absurd. We go to the doctor grudgingly, only because we’re sick. “Moral hazard is overblown,” the Princeton economist Uwe Reinhardt says. “You always hear that the demand for health care is unlimited. This is just not true. People who are very well insured, who are very rich, do you see them check into the hospital because it’s free? Do people really like to go to the doctor? Do they check into the hospital instead of playing golf?”...

To which I observed:

Exactly. I wouldn't go the the doctor were it "free," absent some compelling need. To be sure, you can always come up with the iconic ("anecdotalism fallacy") examples of people who engage health care services irrationally, either simply out of a mundane neurotic social need for "attention," or impelled by the more serious psychiatric clinical condition known as acute "Münchausen syndrome."...

...yes, of course, there will always be people who abuse any type of "entitlement" or "indemnity" system. Whether their sorry, isolated examples should drive policy is quite another matter, at least with respect to health care.

There is another, potentially more troublesome aspect to the otherwise predominantly abstract "moral hazard" issue, one having to do with putative "doctor-patient confidentiality" vis a vis the 3rd party intermediary payor. If you feel that utter candor with your doctor might cost you your insurance coverage, you have an economic incentive to be less than totally forthcoming, i.e., that perhaps you need to "keep your powder dry" until you really need to disclose the extent your clinical problem(s), lest your coverage be arbitrarily dropped by some faceless corporate actuarial designee.

It is a fact that where there is a 3rd party payor in an actuarial-based indemnity arrangement, there will be overriding 3rd party oversight that trumps "doctor-patient confidentiality," the breathless, slickly-produced "concern troll" corporate shill Straw Man / Red Herring disinformation of a Rick Scott notwithstanding.

Your only confidentiality- (and choice) preserving recourse is to pay in cash.

Unless, of course, you are a Medicare beneficiary. The simple reason for that is that Medicare is "social insurance" rather than an actuarial construct. It is a political "entitlement" obligation rather than a means-tested (i.e., welfare, such as Medicaid) or risk-based system (i.e., for-profit insurance).

Again, citing Malcolm Gladwell's Myth of Moral Hazard:

...insurance is meant to help equalize financial risk between the healthy and the sick. In the insurance business, this model of coverage is known as "social insurance," and historically it was the way health coverage was conceived. If you were sixty and had heart disease and diabetes, you didn't pay substantially more for coverage than a perfectly healthy twenty-five-year-old. Under social insurance, the twenty-five-year-old agrees to pay thousands of dollars in premiums even though he didn't go to the doctor at all in the previous year, because he wants to make sure that someone else will subsidize his health care if he ever comes down with heart disease or diabetes. Canada and Germany and Japan and all the other industrialized nations with universal health care follow the social-insurance model. Medicare, too, is based on the social-insurance model, and, when Americans with Medicare report themselves to be happier with virtually every aspect of their insurance coverage than people with private insurance (as they do, repeatedly and overwhelmingly), they are referring to the social aspect of their insurance. They aren't getting better care. But they are getting something just as valuable: the security of being insulated against the financial shock of serious illness.

Gladwell on the actuarial model:

There is another way to organize insurance, however, and that is to make it actuarial. Car insurance, for instance, is actuarial. How much you pay is in large part a function of your individual situation and history: someone who drives a sports car and has received twenty speeding tickets in the past two years pays a much higher annual premium than a soccer mom with a minivan. In recent years, the private insurance industry in the United States has been moving toward the actuarial model, with profound consequences. The triumph of the actuarial model over the social-insurance model is the reason that companies unlucky enough to employ older, high-cost employees—like United Airlines—have run into such financial difficulty. It's the reason that automakers are increasingly moving their operations to Canada. It's the reason that small businesses that have one or two employees with serious illnesses suddenly face unmanageably high health-insurance premiums, and it's the reason that, in many states, people suffering from a potentially high-cost medical condition can't get anyone to insure them at all.

The salient difference here is that your policy cost rating for car insurance is to a significant degree dictated by your own behavior, relative to that of your lifetime health condition and experience. While there are undeniable "lifestyle" contributory risk factors with respect to health, we are all at risk of injury and disease to a much higher degree by factors beyond our control.

SOME INTERIM CONCLUSIONS / POINTS TO KEEP IN MIND

To recap, Americans spend roughly twice per capita on "health care" goods and services relative to our comparable industrial nation counterparts. But, the highly visible anti-reform lobbyist Rick Scott is all over the airwaves of late claiming that "if we have more government involvement we’re going to have dramatically worse health care."

Ponder that for a second. How much worse could it be? For our current financially ruinous expenditures, we get

• woefully low comparative clinical and public health outcomes rankings vis a vis the rest of the developed world;
• close to 50 million citizens with no coverage whatsoever;
• millions more continually at risk of losing their coverage at the profit-motive-driven whim of some anonymous corporate bureaucrat;
  
• and/or living in fear of being bankrupted by merely one serious accident or illness, existing "coverage" notwithstanding. [**]
  

[**] From The American Journal of Medicine, Himmelstein, MD, et al, Medical Bankruptcy in the United States, 2007: Results of a National Study: "Using a conservative definition, 62.1% of all bankruptcies in 2007 were medical; 92% of these medical debtors had medical debts over $5000, or 10% of pretax family income. The rest met criteria for medical bankruptcy because they had lost significant income due to illness or mortgaged a home to pay medical bills. Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance. Using identical definitions in 2001 and 2007, the share of bankruptcies attributable to medical problems rose by 49.6%. In logistic regression analysis controlling for demographic factors, the odds that a bankruptcy had a medical cause was 2.38-fold higher in 2007 than in 2001."

Another salient point: it must be emphatically emphasized that our counterpart nations that manage to provide adequate health care for all with [1] significantly more nominal "government involvement," at roughly [2] half our cost, do so while also [3] purchasing the very same goods and services overwhelmingly provided by the very same multinational for-profit health care industry corporations from which we buy. The EU countries, for example, don't maintain "socialist" government "Ministries" through which to develop, manufacture, and distribute durable medical goods, hospital and outpatient clinic supplies, and pharmaceuticals. They overwhelmingly buy them from the private sector. I have a difficult time believing that these companies regard the rest of the developed world as "loss leader" markets; that, absent the handsome profits continually accruing from the U.S. market, they would simply all go out of business, leaving the world to clinical destitution.

THE ANECDOTALISM FALLACY


Mr. Scott has been blanketing the network and cable TV channels of late with his faux-poignant anecdotes portraying the cautionary travails of (randomly?) selected patients who ostensibly encountered serious, frequently life-threatening difficulties in obtaining health care within the Canadian and British systems -- putatively owing to the "government-run" nature of their medical infrastructures. Well, anecdotes do not an empirical policy case make, and in poker parlance, I (like many others) can "call and raise" -

It is the soggy and crushingly sad el Nino L.A. winter of 1998. My now- brain-met stroke-addled daughter is painfully traversing the final months of her life. While admitted to acute care facilities (she has been an acute care patient in seven across the two years of her horrific cancer struggle), she gets the best clinical attention available, no strings attached, courtesy of Medi-Cal (the California Medicaid agency for the poor and otherwise medically indigent). But, outpatient care is another matter. Sissy has ongoing need of follow-up physical and occupational therapy, regarding which Medi-Cal will not authorize reimbursement.

Her therapy team from Brotman Medical Center -- at great individual and aggregate personal and professional risk to themselves -- arrange to have her routinely come in incognito off the books to an outpatient rehab clinic in Beverly Hills where they work on the side, to continue her therapy -- notwithstanding that we all know by that time that she will not likely survive much longer.

That is an utterly unembellished true story. There are numerous unsung heroes within our health care industry, people whose unrelenting focus is "patients first."

Multimillionaire Mergers and Acquisitions Attorney Rick Scott is not among them.

JUNE 2009 HEALTH CARE REFORM HOT BUTTONS

As of today (June 5th), "public option" federal legislative proposals are abuzz, with Republicans predictably loudly decrying them as "price setting" that will impinge on free market competition. "Public option" is that of giving citizens the option of buying health care coverage from a government administered system in lieu of purchasing private sector policies.

Direct universal "Single Payer" coverage seems to be off the table, with a leading legislative policy model now being that of the Ted Kennedy effort -- basically the Massachusetts model writ large (where everyone would be required to buy coverage, but the poor would be accorded tax rebates with which to purchase insurance).

Earlier this year, proposals to expand Medicare surfaced:

Medicare Early Access
Seniors 55 to 64 Could Join Program
Deborah Mitchell

The 5.1 million Americans between 55 and 64 who do not have health insurance will likely be intently watching the outcome of a proposed bill for early buy-in to Medicare. The idea is to permit early enrollment and for these younger participants to pay a higher monthly premium than seniors do, yet be eligible for the same services.

That such a program is much needed is not in dispute. The number of Americans age 55 to 64 will reach 36.2 million by 2010, and an increasing number of them will be without health insurance given the current recession, job losses, and the fact that many employers have cut back on health insurance.

Medicare Early Access Act

This is not the first time that lawmakers have proposed a bill known as the Medicare Early Access Act. John D. Rockefeller IV introduced a bill on July 27, 2006, under Senate bill 3747 (S.3747). Then on November 20, 2008, Rockefeller tried again, and the bill was designated as S.3710.

Senate bill 3710 would amend title XVIII of the Social Security Act and the Employee Retirement Income Security Act of 1974 to allow people age 55 to 65 to access Medicare benefits.In order to be eligible to participate in this program, individuals would have to meet all of the following requirements:

• Be at least 55 years old
• Be eligible to receive Medicare benefits if they were 65 years old
• Currently be ineligible for health insurance under a group health plan or other federal health program

A Medicare Early Access program would be financed by the monthly premiums individuals would have to pay. These premiums would be greater than what people on Medicare pay, but less than they would pay through a private insurance company or their former employer. People could purchase Medicare coverage even if they were in poor health...

Again, such an idea will likely be lobbied down -- as was Pete Stark's "Medicare Part C" idea 15 years ago -- as a camel's-nose-under-the-tent proxy for Single Payer.

Interestingly, the Supreme Court recently ruled that employers could reduce (or eliminate?) health care coverage for older workers once employees reach age 65:

Supreme Court Allows Employers to Coordinate Retiree Benefits With Medicare
[AP, 03-24-2008]

The Supreme Court on Monday let stand a federal policy that allows employers to reduce their health insurance expenses for retired workers once they turn 65 and qualify for Medicare.

The justices turned down an appeal by the 35-million-member AARP to undo a rule that essentially allows employers to treat retirees differently depending on their age.

The rules were put into place by the federal Equal Employment Opportunity Commission, with the support of labor unions and other groups. They worried that employers would greatly reduce or eliminate health benefits for millions of retirees if they could not take Medicare into account when structuring the health benefit packages they voluntarily provide their retired workers.

The EEOC rule makes clear that employers can spend more on retirees under 65 years of age than those over 65 without running afoul of age discrimination laws.

The EEOC said it proposed the rule in response to a decision in 2000 by the 3rd U.S. Circuit Court of Appeals in Philadelphia that held that the Age Discrimination in Employment Act requires employers to spend the same amount on health insurance benefits provided Medicare-eligible retirees as those received by younger retirees.

AARP said EEOC violated the intent of Congress when it proposed the rule. But the EEOC said the same age discrimination law allows it to carve out an exemption to preserve the long-standing practice that allows employers to coordinate benefits with Medicare.

The same appeals court upheld the EEOC policy last year and the new rule took effect in December.

The case is AARP v. EEOC, 07-662.

Gotta love the "coordinate" euphemism. It remains to be seen whether employers will attempt the wholesale "dumping" of older workers onto Medicare in order to eliminate the health care component of their compensation packages. You would think that employers would have an economic incentive to support the idea of a "Medicare Early Access" plan (S.3710), thereby washing their hands of health care benefits for the considerable 55-64 age employee demographic. But, again, "conservatives" are likely to oppose this as yet another incremental stalking horse for Single Payer.

JUNE 7th, 2009 UPDATE

"Public Option" issues today in the New York Times:

...The very point of a federal public plan, as Mr. Obama explained in a letter to Senate leaders, would be to take advantage of an enormous risk pool and efficiencies of scale “to make the health care market more competitive and keep insurance companies honest.” But in projecting how such competition might actually affect the market, the devil is clearly in the details of who Congress would make eligible for coverage, what benefits would be granted and, perhaps most important, how much providers would be paid...

...But critics argue that with low administrative costs and no need to produce profits, a public plan will start with an unfair pricing advantage. They say that if a public plan is allowed to pay doctors and hospitals at levels comparable to Medicare’s, which are substantially below commercial insurance rates, it could set premiums so low it would quickly consume the market...

You see, what's of primary importance (politically), is not adequate, affordable health care coverage and access for everyone, it's competitive "fairness" for the extremely lucrative private intermediary insurance industry.

FORMER SECRETARY OF LABOR ROBERT REICH CHIMES IN:

June 8, 2009 | I poked around Washington Friday, talking with friends on the Hill who confirmed the worst: Big Pharma and Big Insurance are gaining ground in their campaign to kill the public option in the emerging healthcare bill.

You know why, of course. They don't want a public option that would compete with private insurers and use its bargaining power to negotiate better rates with drug companies. They argue that would be unfair. Unfair? Unfair to give more people better healthcare at lower cost? To Pharma and Insurance, "unfair" is anything that undermines their profits...

Yeah, I know, he's one of those Clinton-era "Statist Liberals." Read the whole argument. Decide for yourself.

MORE THOUGHTS ON FOR-PROFIT HEALTH CARE

Enduringly apropos of the current policy struggle, as I asked in my 1994 JAMA paper analysis:

The debate brings us face to face with fundamental questions about the nature of private insurance. Where do we draw the line on the freedom to assess and underwrite risk? Is health care insurance ethically different from ensuring cargo?

A huge component of health care accessibility has to do with Rx affordability issues. In that regard Dr. Abramson's heretofore-cited book "Overdo$ed America" is a compelling read (I will soon quote more of it), focused in particular on the issues of proprietary pharmaceuticals. He ruminates on the development of the Salk polio vaccine:

There was a time not so long ago when breakthroughs in medical science were driven more by health needs than by the search for corporate profits. Perhaps the best example is the research that produced the polio vaccine, one of the truly great breakthroughs of modern medicine. In 1955, amid the great fanfare that accompanied the initial release of the vaccine, Dr. Jonas Salk was asked who own the patent. He replied, “well, the people, I would say. Could you patent the sun?” [Pg 241]

I would take the observation back even decades from there. Consider, for a moment, the increasing clinical scourge of diabetes, an incurable chronic disease responsible for a host of dangerous, even lethal additional illnesses. During my last tenure with the Medicare QIO, I did some studies on its prevalence and impact for the Nevada State Department of Health. We were mostly interested in evidence of disparate treatment impacts regarding "underserved populations" (the poor, and ethnic minority groups), but I also encountered an interesting, worrisome Medicare population trend.

(click the graph to enlarge)

Mining data we'd obtained from the UNLV Center for Health Care Information Analysis, I found a disturbing and steadily elevating proportion ("prevalence") of Medicare patients admitted to a NV acute care hospital for any reason that had a diagnosis code ("dx") for diabetes (ICD-9 250.nn) somewhere in their claims file records -- a trend that, unchecked, will soon grow to more than 30% (probably later this year).

Uncontrolled diabetes can be a macroeconomically ruinous disease, given the life-threatening additional maladies it can cause. Now, beyond sustained lifestyle countermeasures (e.g., regular exercise and proper diet), a core therapeutic component of successful diabetic management is frequently insulin injection therapy. OK, for a moment, consider the seemingly ad infinitum TV and print ads we encounter for a host of maintenance meds. Again, Dr. Abramson admonishes:

Most of all, immunize yourself from the drug companies efforts to convince you that you desperately need their advertised products. If you really needed the product, it is unlikely that the drug companies would be spending money on advertising. Remember, there aren’t many ads for insulin on TV.

"Many"? I would challenge anyone to show me a TV, radio, or consumer print publication ad for insulin. You cannot. Neither can you show any shortages of it. Hell, I even buy it at the vet, for Max, my 16 yr old diabetic cat.

Insulin was discovered and developed in the early 1920's by a Canadian physician and his medical student (the work subsequently won a Nobel Prize). The University of Toronto was granted the patent for one dollar. It was then licensed to Eli Lilly & Co, which went on to mass-produce it. It continues to be universally available -- I have to assume, at a profit.

Draw your own conclusions.
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EINER ELHAUGE'S 1994 ARTICLE

A few pertinent snips from the lengthy "Allocating Health Care Morally" -

Health Law policy suffers from an identifiable pathology. The pathology is not that it employs four different paradigms for how decisions to allocate resources should be made: the market paradigm, the professional paradigm, the moral paradigm, and the political paradigm. The pathology is that, rather than coordinate these decision-making paradigms, health law policy and employs them inconsistently, such that the combination operates at cross purposes.

This inconsistency results in part because, intellectually, healthcare law borrows haphazardly from other fields of law, each of which has its own internally coherent conceptual logic, but which in combination results in an incoherent legal framework and perverse incentive structures. In other words, health care law has not – at least not yet – established its self to be a field a law with its own coherent conceptual logic, as opposed to a collection of issues and cases from other legal fields connected only by the happenstance that they all involve patients and healthcare providers. [pg 1452]

...To ground my analysis let me assert upfront a concrete proposal, one toward which I believe the national healthcare systems of the world are (from different directions) slowly converging. The analysis of the moral paradigm offered here supports, when coupled with the strengths and weaknesses of the other paradigms, and health-care system having the following elements.

1. A politically set annual health-care budget with an associated tax not linked to employment.
2. Free access for all individuals to a care allocating plan.
3. Individual choice about which plan they wish to join for some significant. (I suggest three years).
4. Competition among care allocating plants that each receive a share of the government budget based on the number of individuals they enroll, adjusted for each person’s health risk, and that cannot retain profits from their budget (other than a possible bonus linked to total number of enrollees) but must instead spend it on those enrollees. Plans must accept all who wish to enroll.
5. Management of those care allocating plans by professionals who have a range of diagnostic expertise to evaluate the healthcare needs of plan enrollees, who have salaries unaffected by spending decisions (other then a possible bonus for an role he), and who have a duty to decide how to allocate each plans budget to purchase those health services that maximize health benefit for the unit’s enrollees. Their sole incentive should thus be to do a good enough job at ration Inc. to keep and attract enrollees.
6. Maintenance of the vast majority of healthcare providers as private suppliers of procedures, tests, and technologies that compete with each other to sell to the care allocating plans. This should create incentives for cost-effective innovation because suppliers will now face purchasers who have both the knowledge and incentives to trade off the costs and benefits of care.
7. A politically appointed agency, the members of which are insulated from removal, that has only two tasks: setting risk adjustments and licensing care allocating plans by verifying their diagnostic expertise and fiscal soundness. In particular, this agency would not dictate a uniform schedule of covered services because that would be up to each care allocating plan.
8. The individual right to purchase additional care outside these plans on the open market. [pg 1453]
   

CONCLUDING REMARKS

The potential role ascribed to the moral paradigm in this article is large. But it’s far from suffices to guide all health-care decisions that any system must make. It is, after all, of no help in encouraging productive efficiency or in assessing scientific issues about what benefits (if any) of various treatments have. Nor should it have escaped attention that the moral paradigm has still left us with no answer to the question of how precisely to make trade-offs between health care and other social goods. That matter remains largely “incorrigible to moral reasoning.”

To address those issues, we must rely on market, professional, and/or political paradigms for making resource allocation decisions. But why should we have any more faith in those decision-making processes, and what role should we ascribe to which process? Clearly, a full justification for the healthcare system I advocate requires more than an assessment of the strengths and weaknesses of the moral paradigm, which is all this article offers. It requires a comparative assessment of the strengths and weaknesses of the other paradigms. The details of a full comparative paradigm analysis will have to await another day, but a sketch of the argument is probably necessary to provide context to this article’s analysis of the moral paradigm.

As I see it, the strength of the market paradigm are the standard ones: if consumers are knowledgeable, have similar resources, and have incentives to trade off the benefits and costs of each product, then market competition promotes productive efficiency, accommodates varying consumer preferences, and achieves allocative efficiency. The problem of unequal resources is largely external to the market paradigm and potentially remediable through vouchers. But the more fundamental problem of the healthcare market flows from an inherent division between knowledge and incentives. Unlike other markets no decisionmaker exists who has both the knowledge and the incentives to decide when the costs of supplying a particular good or service exceed its social value. Patients lack the knowledge and, even the fact that others (such as insurers or employers) cover much of the social costs, also generally lack the necessary incentives. Physicians and other healthcare providers are knowledgeable about medicine but not about social benefits and costs. Moreover, under current American market systems they either have incentives to provide too much care (if paid on a fee-for-service basis) or incentives to provide too little care (if paid on a capitation basis). Insurance plans generally lack the information to make case-by-case cost than if it decisions and have incentives to provide two little care, or to select for low-risk enrollees unlikely to need much care, because the insurers pay the cost of health care but do not enjoy its benefits…

… Where markets and self-regulation fail, it is natural to turn to the political process. The main advantages of the political paradigm are (1) that it can make the open-ended trade-offs between healthcare and other social goods that do not lend themselves to objective scientific analysis and (2) that, unlike decision-makers under market and professional paradigms, political decision-makers have incentives to weigh benefits against costs because both are experienced by the polity. The disadvantages are that the political process is inevitably too centralized to effectively trade off the benefits and costs of health care in individual cases, and is susceptible to problems of majoritarian bias, intransitive choices, an interest group politics. These weaknesses counsel for limiting the political process to one global issue: how high to set a national (or state) level of health care spending and associated tax. This avoids the political processes in ability to make operational decisions, and lessens the concern of majoritarian bias because funding levels are more likely to affect everyone equally and decisions about which treatments to fund. This way of framing the political decision is also more likely to produce both “single peaked” preferences resistant to intransitivity problems and, more important, Lowell political information costs that render the process less susceptible to interest group dominance. [pp 1542-4]
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Yeah, light bedtime reading. (There may be some "typos" in the foregoing; I used MacSpeech Dictate to read it in, given that the PDF file is not text-convertible. I've yet to proofread it.)

I will get to some comments on the foregoing ASAP. My point in posting it is that lot of intelligent people have been giving a lot of serious thought to this issue for a long time, yet we seem to not make much progress, so powerful are the major entrenched private interests.

BACK TO "THE COST CONUNDRUM"

In the wake of the Elhauge observations immediately foregoing, this might be a good place to focus a bit more on Dr. Gawande's New Yorker article.

Activists and policymakers spend an inordinate amount of time arguing about whether the solution to high medical costs is to have government or private insurance companies write the checks. Here’s how this whole debate goes. Advocates of a public option say government financing would save the most money by having leaner administrative costs and forcing doctors and hospitals to take lower payments than they get from private insurance. Opponents say doctors would skimp, quit, or game the system, and make us wait in line for our care; they maintain that private insurers are better at policing doctors. No, the skeptics say: all insurance companies do is reject applicants who need health care and stall on paying their bills. Then we have the economists who say that the people who should pay the doctors are the ones who use them. Have consumers pay with their own dollars, make sure that they have some “skin in the game,” and then they’ll get the care they deserve. These arguments miss the main issue. ..

...As America struggles to extend health-care coverage while curbing health-care costs, 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...

Again, citing Dr. Gawande:

Americans like to believe that, with most things, more is better. But research suggests that where medicine is concerned it may actually be worse. For example, Rochester, Minnesota, where the Mayo Clinic dominates the scene, has fantastically high levels of technological capability and quality, but its Medicare spending is in the lowest fifteen per cent of the country—$6,688 per enrollee in 2006, which is eight thousand dollars less than the figure for McAllen. Two economists working at Dartmouth, Katherine Baicker and Amitabh Chandra, found that the more money Medicare spent per person in a given state the lower that state’s quality ranking tended to be. 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 recent years, we doctors have markedly increased the number of operations we do, for instance. 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. Are we better off for it? No one knows for sure, but it seems highly unlikely. After all, some hundred thousand people die each year from complications of surgery—far more than die in car crashes...

...In an odd way, this news is reassuring. Universal coverage won’t be feasible unless we can control costs. Policymakers have worried that doing so would require rationing, which the public would never go along with. So the idea that there’s plenty of fat in the system is proving deeply attractive. “Nearly thirty per cent of Medicare’s costs could be saved without negatively affecting health outcomes if spending in high- and medium-cost areas could be reduced to the level in low-cost areas,” Peter Orszag, the President’s budget director, has stated.

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 (indeed, almost all the federal government’s budget problems for the next fifty years) would be solved. The difficulty is how to go about it...

...The Mayo Clinic is not an aberration. One of the lowest-cost markets in the country is Grand Junction, Colorado, a community of a hundred and twenty thousand that nonetheless has achieved some of Medicare’s highest quality-of-care scores. Michael Pramenko is a family physician and a local medical leader there. Unlike doctors at the Mayo Clinic, he told me, those in Grand Junction get piecework fees from insurers. But 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, at the behest of the main health plan in town, an H.M.O., to meet regularly on small peer-review committees to go over their patient charts together. They focussed on rooting out problems like poor prevention practices, unnecessary back operations, and unusual hospital-complication rates. Problems went down. Quality went up. Then, in 2004, the doctors’ group and the local H.M.O. jointly created a regional information network—a community-wide electronic-record system that shared office notes, test results, and hospital data for patients across the area. Again, problems went down. Quality went up. And costs ended up lower than just about anywhere else in the United States.

Grand Junction’s medical community was not following anyone else’s recipe. But, like Mayo, it created what Elliott Fisher, of Dartmouth, calls an accountable-care organization. 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...

I find that all very interesting; it resonates quite well with my 1994 observations above regarding Utah's InterMountain Healthcare (IHC). I continue to waffle in my own mind regarding "Single Payer" in the U.S. Maybe we just don't do bureaucracy nearly as well as other nations, particularly those comprising our EU brethren who don't take being called "socialist" as personal and national insults.

Again, Dr. Gawande:

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.

A NICE FAQ SUMMARY

Slate.com's Christopher Beam has posted a nice, concise article outlining some core issues pertaining to the upcoming reform fight, much of it laying out succinct pro/con summations:

Health Care Reform FAQ
What we argue about when we argue about health care policy.

• Should the plan include a public option?
• How do we pay for it?
• Should it include an individual mandate?
• Should we model it on the Massachusetts plan?
• Will health reform actually help the economy in the long run?
• Should the Senate use "budget reconciliation"?
• Does it really matter if reform happens this summer?

Well worth your time.

In addition to a proposed "individual mandate," there is trial-balloon talk of an "employer mandate" (requiring by law that all employers provide health care plans), as well as talk of making some existing employer-provided coverage "taxable income" (both of which I would view as politically radioactive).
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UPDATE: I'm sitting here at the moment writing while the President is speaking about health care reform to a "town hall meeting" in Green Bay. He's declaring his support for a "public option" component. Yesterday I listened to Speaker Pelosi on the MSNBC Ed Schultz Show declare that "single payer" was not going to happen. Indeed, as reported today by Dana Milbank in the Washington Post:

Socialism is not dead. It has, however, been confined to a House subcommittee.

Congressional Democratic leaders, as they search for a way to revamp the nation's health-care system, have ruled out a "single-payer" model -- the sort of government-run program that opponents ridicule as socialized medicine. President Obama said it would be a "huge disruption." Democratic lawmakers ignored the single-payer crowd so completely that 13 activists got themselves arrested last month protesting at Senate Finance Committee hearings...

"LIVEBLOGGING" UPDATE: The President is now taking questions from the Green Bay audience, and it's clear that he must have read the New Yorker article I cited above -- "The Cost Conundrum" -- , as he offered up the differential examples of The Mayo Clinic vis a vis McAllen Texas (the latter being the 2nd most expensive health care setting in the nation). Interesting.
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AS THE HEALTH REFORM DEBATE HEADS INTO PLAYOFF SEASON

A quick review of the All-Star fallacies that will likely dominate political discourse:

• The Slippery Slope: e.g., "Public Option is the first step toward inexorable government takeover of health care";
  
• The Perfectionism Fallacy: That your proposal has any arguable downsides means it not even need be debated, it's a non-starter;
• Line Drawing Fallacy: e.g., "Given that we will never be able to decide where to draw the line on "basic health care" to be publicly funded means we should not even try, it's hopeless. Let the market decide";
  
• False Dichotomy (a.k.a. False Dilemma): "The choice, the only choice, is yours: free-market capitalism or socialist totalitarianism";
  
• The Straw Man: e.g., this decade's Gold Medalist, the 50 ft tall, world-menacing, nuclear armed Saddam Hussein ready and eager to obliterate the West. Basically, you dishonestly frame a debate with a hyperbolic caricature of the opposition, whom/which you then knock down (in Saddam's case, with lethal force). With respect to health care, it's the omnipresent, always interfering, steely-eyed and stingy Federal Medical Review Board of Rick Scott's fevered imagination, ever at the ready to veto your doctor's decisions;
  
• The Red Herring: Any rhetorical device used to lead you away from the true objective evidence and logic at issue. In 'net-speak, this is commonly called the "Bright, Shiny Thing." Corporate shill "conservatives" posing as defenders of "patient-doctor inviolability" are being disingenuous, classic Red Herring. As I stated before, unless you pay in cash, you currently have non-clinical intermediaries interfering with your medical decisions;
  
• and, of course the venerable Ad Hominem: "Obama is a Radical Communist who wants to rule every aspect of your life." Attacking the person rather than the proffer.
  

Many of these overlap conceptually, and in concert comprise the favorite tools of those who feel their factual arguments may not suffice in advancing their ends.
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THE AMA: OPERATION COFFEE CUP



Yesterday The NY Times reported that the American Medical Association had pulled its support for the "Public Option." Now, today, they seem to be backing off that stance a bit. Recall my earlier citation of the 1994 JAMA Single Payer article? Well, there is in fact a national medical organization continuing to call for Single Payer. From their website (lots of great resources there):

Single-Payer National Health Insurance

Single-payer national health insurance is a system in which a single public or quasi-public agency organizes health financing, but delivery of care remains largely private.

Currently, the U.S. health care system is outrageously expensive, yet inadequate. Despite spending more than twice as much as the rest of the industrialized nations ($7,129 per capita), the United States performs poorly in comparison on major health indicators such as life expectancy, infant mortality and immunization rates. Moreover, the other advanced nations provide comprehensive coverage to their entire populations, while the U.S. leaves 45.7 million completely uninsured and millions more inadequately covered.

The reason we spend more and get less than the rest of the world is because we have a patchwork system of for-profit payers. Private insurers necessarily waste health dollars on things that have nothing to do with care: overhead, underwriting, billing, sales and marketing departments as well as huge profits and exorbitant executive pay. Doctors and hospitals must maintain costly administrative staffs to deal with the bureaucracy. Combined, this needless administration consumes one-third (31 percent) of Americans’ health dollars.

Single-payer financing is the only way to recapture this wasted money. The potential savings on paperwork, more than $350 billion per year, are enough to provide comprehensive coverage to everyone without paying any more than we already do.

Under a single-payer system, all Americans would be covered for all medically necessary services, including: doctor, hospital, preventive, long-term care, mental health, reproductive health care, dental, vision, prescription drug and medical supply costs. Patients would regain free choice of doctor and hospital, and doctors would regain autonomy over patient care.

Physicians would be paid fee-for-service according to a negotiated formulary or receive salary from a hospital or nonprofit HMO / group practice. Hospitals would receive a global budget for operating expenses. Health facilities and expensive equipment purchases would be managed by regional health planning boards.

A single-payer system would be financed by eliminating private insurers and recapturing their administrative waste. Modest new taxes would replace premiums and out-of-pocket payments currently paid by individuals and business. Costs would be controlled through negotiated fees, global budgeting and bulk purchasing.

I've emailed every member I could find to ask for commentary.

UPDATE: NEW HARPER'S ARTICLE

My July 2009 Harper's came in the mail today. I'm excerpting a portion of the cover article (again via my Godsend MacSpeech Dictate, as it's not yet online) "Barack Hoover Obama: The Best and the brightest blow it again" by Kevin Baker -

"A plan for universal health care that is not universal and doesn’t cut costs will not work."

Three months into his presidency, Barack Obama has proven to be every bit as charismatic and intelligent as his most ardent supporters could have hoped. At home or abroad, he invariably appears to be the only adult in the room, The first American president in at least 40 years to convey any gravitas. Even the most liberal of voters are finding it hard to believe they managed to elect this man to be their president.

It is impossible not to wish desperately for his success as he tries to grapple with all that confronts him: a worldwide depression, catastrophic climate change, and unjust and inadequate health care system, wars in Afghanistan and Iraq, the ongoing disgrace of Guantánamo, a floundering education system.

Barack Obama’s failure would be unthinkable. And yet the best indications now are that he will fail, because he will be unable – indeed he will refuse – to seize the radical moment at hand.

Every instinct the president has honed, every voice he hears in Washington, every inclination of our political culture urges incrementalism, urges deliberation, if any significant changes to be brought about. The trouble is that we are at one of those rare moments in history when the radical becomes pragmatic, when deliberation and compromise foster disaster. The question is not what can be done, but what must be done…

… Much like Herbert Hoover, Barack Obama is a man attempting to realize a stirring new vision of his society without cutting himself free of the dogmas of the past – without accepting the inevitable conflict. Like Hoover, he is bound to fail.

President Obama, to be fair, seems to be even more alone than Hoover was in facing the emergency at hand. The most appalling aspect of the present crisis has been the utter fecklessness of the American elite in failing to confront it. From both the private and public sectors, across the entire political spectrum, the lack of both wheeled and new ideas has been stunning…Obama…has had to contend with a knee-jerk rejectionist Republican Party.

More frustrating has been the torpor among Obama’s fellow Democrats. One might have assumed that the adrenaline rush of regaining power after decades of conservative hegemony, not to mention relief at surviving the depredations of the Bush years, or losing the vestigial tail of the white southern branch of the party, would have liberated congressional Democrats to loose a burst of pent up, and imaginative liberal initiatives.

Instead, we have seen a parade of aged satraps from vast, windy places stepping forward to tell us what is off the table. Every week, there is another Max Baucus of Montana, another Kent Conrad of North Dakota, and other Ben Nelson of Nebraska, huffing and puffing and harrumphing that we had better forget about single-payer health care, a carbon tax, nationalizing the banks, funding for mass transit, closing tax loopholes for the rich. These are men with tiny constituencies who sat for decades in the Senate without doing or saying anything of note, who acquiesced shamelessly to the worst abuses of the Bush administration and whom come forward now to chide the president for not concentrating enough on reducing the budget deficit, or for “trying to do too much,” as if he were as old and indolent as they are…

… President Obama, with a laudable respect for the separation of powers, has left the details and even the main tenets of his agenda to be worked out by the same congressional Democrats. This approach looks like an exercise in democracy drawn from his days as a community organizer, the sort of strategy that helps the neighborhood to decide whether it wants, say, a health clinic or a youth center period. What he doesn’t care to acknowledge is that, in the case of the U.S. Congress, he’s dealing with a neighborhood where maybe half want a health clinic and the rest are holding out for grenade launchers and crystal meth...

…In his masterful February speech before the joint houses of Congress, Obama explained to the country why we cannot afford to continue with a tottering healthcare system that has left 46 million Americans uninsured and that impedes our efforts by adding, for instance, $1,500 to the cost of every GM car…

… we are back in Evan Bayh territory here, espousing a “pragmatism” that is not really pragmatism at all, just surrender to the usual corporate interests. The common thread running through all of Bobby’s major proposals right now is that they are labyrinthine solutions designed mainly to avoid conflict. The bank bailout, And trade on carbon emissions, healthcare pools – all of these ideas are, like Hillary Clinton’s ill-fated 1993 health plan, simultaneously too complicated to draw a constituency and to threatening for Congress to shape and pass as Bobby would like. They bear the seeds of their own defeat.

Obama will have to directly attack the fortified bastions of the newest “new class” – the makers of the paper economy in which he came of age – if he is to accomplish anything. These interests did not spend 50 years shipping the greatest industrial economy in the history of the world oversees only to be challenged by a newly empowered, green economy working class. They did not spend much of the past two decades gobbling up previously public sectors such as healthcare, education, and transportation only to have to compete with a reinvigorated public sector. They mean, even now, to use the bailout to make the government their helpless junior partners, and if they can they will devour every federal dollar available to recoup their own losses, and thereby preclude the use of any monies for the rest of Obama’s splendid vision…

… Barack Obama should not deceive himself into thinking that such interest group politics can be banished any more than can the cycles of Wall Street. It is not too late for him to change direction and seize the radical moment at hand. But for the moment, just like another very good man, Barack Obama is moving prudently, carefully, reasonably toward disaster.

Buy a newstand copy and read it, if you're not a subscriber. It speaks painfully to my concerns. Were I to have to place a sizable bet today, it would be that we are simply going to yet again rearrange the deck chairs, mostly for the continuing comfort of Big Insurance and Big Pharma. Recall: "Every misspent dollar in our health care system goes into someone's paycheck."

NEW: PUBLIC OPTION LITE, HEALTH CARE "CO-OPS"

As reported in the Wall Street Journal Health "Blog" (June 12th) -

Debate on Public-Health Option Turns to Talk of Co-Op

President Obama says a public health-insurance option to compete with private insurers would help keep private insurers honest. Opponents say a public plan would eventually drive private insurers out of business. Could a member-run health-care cooperative bridge the divide?

Democrat Sen. Kent Conrad of North Dakota is proposing a plan where a co-op — which would be owned and organized by its members — would negotiate rates with providers and would meet the same licensing and regulatory requirements as private insurers, reports the Washington Post.

“I tried to come up with something that is not government-controlled, is a competitive delivery model, but nonprofit,” Conrad said. “It would be on a level playing field with everybody else with, with a different ownership structure.”...

Skeptics have been quick to return immediate and forceful critical fire, characterizing this as a red herring tactic via which to throw cold water on a federal "public option" program (the latter of which is itself viewed by many of the same people as a quarter-measure political distraction away from Single Payer). While it might be tempting to view/spin health care "co-ops" in the same light as, say, not-for-profit, member-owned credit unions, it would be a poor analogy. The vast majority of commercial health insurors exist on a corporate scale comparable to that of our large national banks. There is no credit union counterpart to the likes of a Bank of America or JP Morgan Chase or Wells Fargo. Consequently, the potential bargaining clout of health care co-ops would likely be nil. While financial credit unions certainly fill market niches, they are only marginally more competitive with respect to aggregate customer value relative to that of ordinary banks. My wife and I are members of two. Our deposit interest rates, credit card and HELOC APRs, and transaction fees, while somewhat more favorable, are only slightly moreso.

A COMMENTER ASKS

'Can you or a reader provide a breakdown of just how we are spending the 17 percent of GDP on health care. How much to hospitals, how much on pharmaceuticals, how much on insurance, how much physician fees, how much caregiver wages, etc. There must be a pie chart somewhere, or one of those "for every dollar spent on health care, ten cents goes for..."...'

Well, yes, such summary data graphics are indeed out there, e.g., 2007 data ostensibly from HHS (US Health and Human Services Department)

Aside from the rounding error imprecision (the above sum to 99%, and, 1% of the $2 trillion+ U.S. annual expenditure is ~$20 billion), I find such data of only the most marginal policy advocacy utility, being insufficiently granular, both in terms of likely aggregate ledger accuracy, and lacking necessarily revealing "drill-down/drill out" stratification. For instance, good luck acquiring accurate comparative categorical expense data regarding the proprietary for-profit health care sector. They call such "business intelligence," and are typically not thrilled about sharing it openly, for what should be obvious reasons.

Now, I make no pretense of being a "health care economist." It suffices for purpose of my rumination here that we in the U.S. spend roughly twice the amount on "health care" than do our G7 nation counterparts -- again, for materially inferior overall outcomes -- and that much of that excess outlay has nothing whatever to do with "health care" per se, i.e., direct clinical costs and their concomitant, necessary support costs. But, of course,

"Every misspent dollar in our health care system goes into someone's paycheck."

I find it difficult to see how "Public Option" or "Health Care Co-ops" offer anything beyond the prospect of simply rearranging the paper-pusher intermediary furniture.

A QUICK RECAP PRIOR TO FINISHING THIS POST

Can we achieve

1. universal health care coverage and effective access,
2. broad, clinically measurable, significantly higher quality of care, and
3. materially reduced cost

concomitantly? Some people would say "no." The most charitable among them surely simply feeling that trade-offs are inevitable, that covering nearly 50 million more citizens while delivering higher quality care to all cannot but cost much more -- and we don't have "more" to spend.

The least charitable among them, including those with minimal health care needs (for now, anyway) and/or who have ample financial resources, might be likely to concur with former President George W. Bush's callous, flip observation to a carefully-screened "town hall meeting" on July 10th, 2007:

"The immediate goal is to make sure there are more people on private insurance plans. I mean, people have access to health care in America," he said. "After all, you just go to an emergency room."

This from a man whose every health care need will be fully covered by the U.S. taxpayers for the rest of what will likely be his utterly comfortable quarter-decade or so retirement.

JUNE 15TH UPDATE


HHS Secretary Kathleen Sebelius appeared today on MSNBC's "Hardball" to assert that the President would not accept health policy reform legislation that fails to [1] provide coverage for all Americans, [2] improve clinical quality, and [3] reduce costs. Single Payer advocates -- as I cited in the 1994 JAMA article -- have long argued that we can in fact have all three (coverage, quality, and savings):

"The health system must work better to extend access and to control costs. In this article, we argue that a single-payer national health program provides a better framework for improving quality. First, we briefly review requirements for quality care. Then, we propose 10 principles that should be integral to reform strategies to augment quality. We contrast our approach with the current managed competition strategy, showing how a single-payer system is more likely to facilitate these 10 interrelated quality features."

The skeptics will doubtless be many and loud.

JUNE 16TH NEWS ITEM

From the L.A. Times. This is criminal. Or should be.

Blue Cross praised employees who dropped sick policyholders, lawmaker says
Workers received high marks on performance reviews after policies were rescinded, documents show. The health insurer denies the practice is a factor in evaluations.
By Lisa Girion
11:03 AM PDT, June 16, 2009

Blue Cross of California encouraged employees through performance evaluations to cancel the health insurance policies of individuals with expensive illnesses, Rep. Bart Stupak (D-Mich.) charged at the start of a congressional hearing today on the controversial practice known as rescission.

The state's largest for-profit health insurer told The Times 18 months ago that it did not tie employee performance evaluations to rescission activity. And executives with Blue Cross parent company WellPoint Inc. reiterated that position today.

But documents obtained by the House Committee on Energy and Commerce and released today show that the company's employee performance evaluation program did include a review of rescission activity.

The documents show, for instance, that one Blue Cross employee earned a perfect score of "5" for "exceptional performance" on an evaluation that noted the employee's role in dropping thousands of policyholders and avoiding nearly $10 million worth of medical care.

WellPoint's Blue Cross of California subsidiary and two other insurers saved more than $300 million in medical claims by canceling more than 20,000 sick policyholders over a five-year period, the House committee said.

"When times are good, the insurance company is happy to sign you up and take your money in the form of premiums," Stupak said. "But when times are bad, and you are afflicted with cancer or some other life-threatening disease...

Such is the inexorable competitive business imperative of the for-profit actuarial model.
___

SOME THOUGHTS ON HEALTH CARE EXPENDITURE DATA

When I see a large "per capita" health care statistic such as "$7,900 per year on average in the U.S." the statistician in me wants to see the rest of the story, in terms of the range (minimum to maximum) and the "shape" of the distribution (e.g., bell-curved vs skewed or multi-modal "lumpy"). The following, while a bit dated (June, 2006, AHRQ.gov) are instructive in this regard.

How Are U.S. Health Care Expenses Distributed?
A Small Proportion of the Total Population
Accounts for Half of All U.S. Medical Spending

As policymakers consider various ways to contain the rising costs of health care, it is useful to examine the patterns of spending on health care throughout the United States. In 2004, the United States spent $1.9 trillion, or 16 percent of its gross domestic product (GDP), on health care. This averages out to about $6,280 for each man, woman, and child.

However, actual spending is distributed unevenly across individuals, different segments of the population, specific diseases, and payers. For example, analysis of health care spending shows that:

• Five percent of the population accounts for almost half (49 percent) of total health care expenses.
• The 15 most expensive health conditions account for 44 percent of total health care expenses.
• Patients with multiple chronic conditions cost up to seven times as much as patients with only one chronic condition.

Further detailed analyses of these spending patterns, how they change over time, and how they affect different payers such as Medicare, Medicaid, private insurers, employers, and consumers shed important light on how to best target efforts to contain rapidly rising health care costs...

...Half of the population spends little or nothing on health care, while 5 percent of the population spends almost half of the total amount. In 2002, the 5 percent of the U.S. community (civilian noninstitutionalized) population that spent the most on health care accounted for 49 percent of overall U.S. health care spending (Chart 1, 40 KB). Among this group, annual medical expenses (exclusive of health insurance premiums) equaled or exceeded $11,487 per person. In contrast, the 50 percent of the population with the lowest expenses accounted for only 3 percent of overall U.S. medical spending, with annual medical spending below $664 per person. Thus, those in the top 5 percent spent, on average, more than 17 times as much per person as those in the bottom 50 percent of spenders. From 1977 to 1996, the overall distribution of health care expenses among the U.S. population remained remarkably stable (Table 1), according to data from MEPS and its predecessor surveys. In 1977, the 1 percent of the population with the highest expenses accounted for 27 percent of all expenses, the top 5 percent accounted for 55 percent, and the bottom 50 percent accounted for 3 percent. However, the concentration of expenses at the top has decreased in recent years. The total expenses accounted for by the top 1 percent of spenders declined from 28 percent in 1996 to 22 percent in 2002, and the amount for the top 5 percent dropped from 55 to 49 percent in the same time period. The lower 50 percent of spenders remained at 3 to 4 percent of total expenditures during this period...

While one would hope and expect that key legislative policy people would be aware of the implications of data such as the foregoing, you don't commonly find it discussed in the mainstream public media. Reviewing the data and narrative on the AHRQ link above is well worth your time.

"Half of the population spends little or nothing on health care"

Well, that assertion, if relatively accurate, points to a formidable political problem. But, first, a couple of questions pertaining to the "if relatively accurate" part: there are currently approximately 307 million people in this country. Does AHRQ mean half of that number, or half of the adult population overtly or potentially on the hook for payment for medical services (50% of the adult population would be perhaps ~120 million citizens rather than 153.5 million overall)? The "civilian noninstitutionalized" count is not enumerated.

Irrespective of that empirical quibble, for the sake of conservatism, let's assume that it's the paying/voting subset cohort. But, when we say "little or nothing," do we mean that literally, or do we mean that a significant portion of them may indeed have health insurance (paid for by some entity -- usually the employer), but file no claims (though, they do allude to "exclusive of health insurance premiums" with respect to the higher cost cohort). The "none-to-minimal health care" cohort remains healthy and go uninjured for "x" periods of time -- notwithstanding that the cost of their coverage is a legit "health care" ledger expense. So, the accounting is not entirely clear.

Either way, I suppose, this ~"50%" cohort currently "spends" next to nothing on health care individually ongoing (in their view). It will be a very tough political sell to persuade such a large demographic to explicitly, visibly now pay for coverage going forward, in order that all might be covered.

We don't want to buy it until after we need it, absent some legal requirement. An unsurprising attitude, to be sure, but one at the heart of proposals such as employer and/or individual "mandates."

Your taxes designated for the effective defense of your "rights" to, say, police, fire, and military protection are not voluntary (the rantings of anti-tax tinfoil hat-istas aside). They are simply a necessary cost of doing enlightened, secure civilization. Health care "social insurance model" advocates fail to see the difference -- on both utilitarian and moral grounds.

"CQI WON'T SOLVE THE HEALTH CARE PROBLEM"

It is April, 1994. I am sitting in a conference room in Snowbird, Utah for the opening session of what will be six months of intensive health care "Total Quality Management / Continuous Quality Improvement" training sessions provided by my employer and sponsored by Intermountain Healthcare. The keynote speaker is the highly regarded national authority on health care "CQI" (Continuous Quality Improvement), Brent C. James, MD, M.Stat. Dr. James opens with a cautionary admonishment; basically that fastidious devotion to CQI, while undeniably necessary and intrinsically worthy, will not of itself resolve the larger socioeconomic issues surrounding health care. "Delivering optimal, healing/curative treatment today only serves to ironically assure that you will likely face an older, sicker and much more expensive-to-treat patient in the future, and we will inevitably continue to face serious ethical social choices that go far beyond the clinical." Dr. James would go on to point out that perhaps 80% of a person's lifetime health care expenditure would, on average, occur during the last six months of life.

In this regard, the observations of Einer Elhauge [also circa 1994] also come to mind:

Moral absolutism has powerfully emotive appeal. Easy as it may be to reject in the abstract, moral absolutism remains difficult to reject in practice. Indeed, the persistent power of absolutist beliefs in the face of unending escalation of health care costs is the most striking moral phenomenon of health law policy in the past quarter-century.

Nonetheless, moral absolutism is wholly untenable as a societal system of resource allocation. Most knowledgeable observers believe we could today easily spend 100% of our GNP on health care without running out of services that would provide some positive health benefit to some patient. Surely, the most committed moralist must concede that, if these observers are empirically correct, some health care must be denied even though it has a beneficial effect. Otherwise, the extreme a moral vision would require that we fund health care even if that means starving ourselves to death. And once the moralist makes this concession, she acknowledges that at some point trade-offs must be made and that thus the moral principle is not in fact absolute. The moral question then becomes aware, rather than whether, trade-offs are appropriate. ["Allocating Health Care Morally," p. 1459]

I reflect on my own parents, who, like many other retirees, have dwelled in AHRQ's upper-tier of annual expenditures in recent years. Pop (age 80 at the time) was going down with heart valve failure in the fall of 1996. An aortic valve replacement and bypass saved his life, but he never fully recovered cognitively, and declined into increasingly serious dementia. On Sept 12th, 2001, he lurched into cardiac arrest at home, and EMTs, unable to locate a DNR (do-not-resuscitate order, which he did in fact have), paddled him back. After a stint at Melbourne, Florida's Holmes Regional Medical Center, he was transported to a nearby long-term care facility, where he languished in bewilderment until May of 2007, when I brought him to Las Vegas, to a nursing home here. He finally expired on May 6th, 2008, just shy of his 92nd birthday.

My mother started to crash and burn in the fall of 2004. She was found on the floor in her home, alone, in the wake of Hurricane Jeanne. She subsequently spent most of the fall in revolving door trips between Holmes Regional and a local rehab facility. She'd become increasingly cardiac unstable, and finally consented to a pacemaker implant. I moved her out of the house and into assisted living, and in late 2006 took her car keys (BTW- I found Pop's DNR while cleaning out and prepping their house for sale). In July of 2007 I moved Mother here to Vegas, intending to place her in a close-by assisted living facility. She'd spent most of early 2007 in and out of hospitals and rehab, at one point contracting the terrible chronic c-Diff infection.

But once in Vegas, she was not up to assisted living any more; nine days after we'd moved her in, she fell and had to be taken to St. Rose Hospital, where she would subsequently bounce around from hospitals to rehab units. She is now bedridden and wheelchair bound in long-term care, at age 87.



My folks have undoubtedly cost the health care system an aggregate "face amount" of well in excess of a million dollars across the past dozen years. I'm sure this is a quite common story.

Since 2004 I have served with power-of-attorney responsibilities (Mom) and legal guardianship (Dad), and have become quite familiar with the maddening Gordian Knot that comprises geriatric care adminstration and reimbursement. And, I have an acute appreciation for the ethical quandaries alluded to by Dr. James and Mr. Elhauge.

MEDICARE AGE POPULATION DATA

This morning (6-18) I grabbed some Census.gov data and assembled this quick table in Excel:

Note that the 80+ yr old cohort represents nearly 30% of the total. What if, you might ask, this more elderly stratum alone cost the health care system, say, an average of $20,000 year (about a quarter of my Mom's current outlay) per beneficiary? Do the math. You get $229,432,240,000 -- close to half the U.S. Defense Dept budget -- to care for less than 4% of the aggregate U.S. population.

Yes, we indeed face some vexing socioeconomic and ethical problems going forward on this front. Particularly when you consider that this 65+ demographic is growing rapidly as a proportion of the entire population. No, as Dr. James alluded, we will indeed not "CQI" our way out. It will require in addition both smart, broadly coherent, systemically aligned policy reform and searingly tough ethical choices.

Banal bumper sticker special-interest obstructionist sloganeering such as "Evil Government-Controlled Health Care" and "No To Socialism" will only serve to exacerbate the problem.

SOME CONCLUSIONS

I ran across an OpEd today by Marie Cocco that touches directly on many of the summary concerns I'd planned to air in conclusion:

Why Patch-And-Fill Won't Do
June 18, 2009

WASHINGTON -- You can't get there from here.

Not if there is defined as health insurance coverage for everyone in the United States, lower costs for the millions of insured who are being crushed by its price, and relief for employers who are burdened by an expense many wish they could wipe off their books.

And not if here is where the health insurance political debate is stuck...

...the private insurance industry would continue to be the chief source of coverage -- and the only one, if the industry gets its way and Democrats produce legislation that does not create a public insurance plan as one purchase option.

Advocates of a single, national insurance system that would involve explicit cost controls and guidelines for care -- that might put an end to such wasteful practices as over-testing -- have been shunted aside. This is in part because Democrats quiver when Republicans call them "socialists." But Republicans cry "socialist" even when Democrats promote weak reforms that barely nick the vested interests. That's what's happening now.

No one has seriously proposed an overhaul that would achieve what a single-payer system has been shown to accomplish in most other countries: universal coverage with lower costs that delivers better results than we now get in the United States.

Instead, Democrats have all but abandoned the idea that everyone be covered without exception. They've so far avoided endorsing clear cost-containment measures that would pass the budget-scorers' test of legitimacy. The wished-for savings that Obama says he wants the private insurance industry to achieve are exactly that -- wishes.

The winners so far are health-industry lobbyists. They sense that their chances of protecting the interests of big insurers, drug companies, medical specialties, technology companies and the like are improving every day. They're probably right.

That is precisely my concern. This urgent hyper-contentious political push to get legislation through both houses of Congress and on the President's desk by October is likely to result in a mammoth and internally inconsistent bill that most legislators will not even read, and will likely be largely ghost-written by lobbyists out to preserve their lucrative industry interests.

RITORNELLO al CODA

Recall my opening observation: numerous serious, knowledgeable health care reform advocates have insisted for nearly two decades that we can indeed [1] provide health care for everyone in the U.S., with [2] consistently higher quality, while at the same time [3] reducing individual and aggregate expenditures.

Such a dramatic reform of the health care industry would necessarily involve widespread voluntary and involuntary reallocation of resources (via clinical consensus and legislation respectively), deploying them far more rationally -- with a primary focus on patients before profits. Dr. Abramson ("Overdo$ed America") alludes to Darmouth studies, the implications of which are subsequently confirmed in the Mayo Clinic and Grand Junction examples set forth by Dr. Gawande in "The Cost Conundrum" -

...Dartmouth medical school’s Center for evaluative clinical sciences, headed by Drs. John Whennberg and Elliott Fisher. Their research focuses on the impact of regional variations in the use of medical services on health outcomes and costs. Intuitively, we would expect Medicare patients who receive more care in the higher spending regions of the country to get better care and be healthier…

… Fischer and colleagues specifically studied Medicare patients admitted to the hospital with a first diagnosis of heart attack, broken hip, or cancer of the colon. The cost of caring for the patients was 60% more in the highest spending regions than in the lowest spending regions. The patients in the highest spending regions spent more days in the hospital and the ICU, and had more visits with specialists, more diagnostic tests, and more minor, but not major surgical procedures. The extra services provided to patients in the higher spending regions did not, however, translate into better outcomes. The patients in the lower spending regions had better access to care, higher quality care, and less chance of dying over the five years of the study. The bottom line appears to be that once an adequate amount of care is being provided, as in the lowest spending regions of the country for Medicare patients, more care is worse care. This seems to be particularly true for the kind of care that is pushed into service by supply side pressure. (pp. 180- 181)

If the crisis in American medicine were simply due to the rising cost of ever more effective care, there would be no choice but to cobble together the least noxious combination of increased spending and ration in. But the bad news about American medicine – and, paradoxically, the good news as well – is that the primary problem is not the escalating cost but the low quality of medical care that results when those went health insurance receive too much of the wrong kind of care and those without health insurance received too little of the care that is necessary (p. 248).

He continues on to note that

...the medical industries maximize profits by providing the most care possible to those who pay full or almost full price. As long as the definitions of “quality of care” and the price structure of drugs, devices, and procedures are determined largely by commercial interests, universal health care will continue to appear unrealistic and in some vague way “un – American.”

The prospect of expanding health care coverage to the uninsured would jeopardize the medical industry’s excess profits and almost certainly trigger a demand for accountability: Americans of all political stripes would demand evidence of the real value of that day (and the uninsured) were receiving for their tax dollars…

…The cost of this care, according to the best evidence currently unavailable, would be about one third less than the current cost of commercial insurance or Medicare. The privileged profiteering of the drug, medical device, medical equipment, and hospital industry would be sharply curtailed…

… All Americans would then be winners – the currently uninsured and the insured a light – as the quality of their health care improved and their costs declined as the result of objective standards of medical excellent replacing our current commercially-based standards of care (p. 254).

Notwithstanding Democratic control of the White House and the House and Senate, Congress is still not buying it. An 852 page draft Senate health care reform bill just issued (June 20th, 2009, as yet not numbered) begins this way:

DIVISION A—AFFORDABLE HEALTH CARE CHOICES

SEC. 100. PURPOSE; TABLE OF CONTENTS OF DIVISION;

GENERAL DEFINITIONS.

(a) PURPOSE.—
(1) IN GENERAL.—The purpose of this division is to provide affordable, quality health care for all Americans and reduce the growth in health care spending.
(2) BUILDING ON CURRENT SYSTEM.—This division achieves this purpose by building on what works in today’s health care system, while repairing the aspects that are broken.
(3) INSURANCE REFORMS.—This division—
(A) enacts strong insurance market reforms;
(B) creates a new Health Insurance Exchange, with a public health insurance option alongside private plans;
(C) includes sliding scale affordability credits; and
(D) initiates shared responsibility among workers, employers, and the government;

To be fair, the bill proposes to deliver two out of three -- "affordable, quality health care for all Americans" -- but goes on to assume that health care reform costs will continue to rise, and that the best that can be done is to "reduce the growth in health care spending."

Assume for the moment -- just for the sake of argument -- that the best we might manage is the status quo in our annual ~$2 trillion "health care" outlay (alternatively and more stably stated as ~16% of GDP). Assume further that the goals of improved quality and universal access might be effected within that budgetary constraint. You then have the circumstance of the "Zero-Sum Game" within which the aggregate allocation is necessarily re-apportioned.

It should be immediately obvious that the multimillionaire CEOs of our major for-profit "health care industry" players are not about to sit idly by and see their respective slices of the pie diminished. Hence the intense lobbying now underway to delve out smaller slices elsewhere, e.g., by legislative tactics such as [1] raising the Medicare eligibility age from 65 to 70 or higher, [2] decreasing yet again Medicare payments to doctors and hospitals, [3] requiring that everyone buy private insurance, and [4] taxing employer-provided benefits. See (3)(D) above. Take the glaring hint.

More regarding the foregoing:

• 100(a)(2), "building on what works..." President Obama recently alluded to our U.S. "tradition of employer-based health coverage" in arguing that we cannot and should not "start from scratch." My father worked for AT&T/Bell Labs his entire adult life until retirement after mustering out of WWII service. My wife and I have 14 employers between us across our careers to date. Moreover, during my last tenure with the Medicare QIO, during the two years I served, my employer changed benefit providers three times. I had no say in the provider selections, nor the array of services provided. I just had to fill out the requisite lengthy re-enrollment paperwork iteratively. I have no doubt that this is increasingly common, as employers constantly look to reduce employee health care plan costs, jumping in response to one sales pitch after another. Moreover, employer-based coverage is subject to the whims of the job market -- as more than 6 million unemployed Americans are now acutely aware. It is also subject to the whims of bankruptcy courts, as hordes of U.S. retired auto and airline workers have learned to their dismay.
  
  
• 100(a)(3)(A), "...strong insurance market reforms." A for-profit insurance entity simply must have an actuarial business model. Risk-leveling "community rating" reforms, consequently, are likely to prove problematic. Expect the lobbying wrangling here to be especially severe.
  
  
  • An interesting irony obtains: the for-profit "actuarial/risk rating" model contains the seeds of its own eventual demise. As predictive diagnostic technologies inexorably improve (e.g., DNA), there will be fewer and fewer people left among whom to profitably "cherry-pick." We are mostly all at risk for some type of possibly expensive clinical malady over the course of our lives. Universal coverage eliminates all of the contention associated with the actuarial model.
    
  
  
• 100(a)(3)(B) and (C), "...a new Health Insurance Exchange...including sliding scale affordability credits..." Here we smell wafts of weasel-out "co-ops" along with means-testing for "affordability." "Means-testing" in one word? "Medicaid." I fail to see how this differs materially. At best, it augurs nothing beyond assuring more millions hours of of FTE expenditure on administrative eligibility paper-shuffling
  

When an initial version of this bill first tentatively surfaced some weeks ago, it numbered 615 pages. It is now at 852. By fall it may well rival Ira Magaziner's 1,400+ page Hillary-Care behemoth of the early 1990's. It will likely also rival it in inscrutable (but industry-friendly) cross-purpose, counterproductive complexity.

I intend to follow the legislative developments closely going forward. I am not at this time, however, optimistic about the outcome.

THE CANARDS IN THE COMMERCIAL HEALTH CARE COAL MINE

Profiteering industry status-quo apologists such as Rick Scott (and his congressional cheerleaders) are everywhere darkly and dishonestly bemoaning the incipient

• End of The Doctor-Patient relationship: Again, it is simply a fact that, unless you have to resources to pay cash/retail, your medical encounters are subject to both external clinical and non-clinical review by 3rd parties, none of whom in the for-profit sector have your medical best interests at heart. Their allegiances lie with the bottom lines of their employers. Period.
  
  Corollary to the foregoing is the recent MEGO assertion of GOP Chairman Michael Steele that reform will inevitably lead to the "Federal Health Police" showing up at your door to drag you off to the clinic for your required annual physical and preventive care -- without which you'd be ID'd as "costing the health care system too much." (I'm not making that up.)
  
  Also corollary to this phony totalitarian spectre is the notion that calls for far more research and transparency concerning effective procedures and promulgation of more uniform clinical practice are really calls for the establishment of the "Federal Medical Review Board" of Rick Scott's fevered imagination -- those anonymous clinical bureaucrats who are ostensibly going to interfere with your doctors' every decision. That this survives the reflexive laugh test is not reassuring.
  
  
• Inevitable rationing: We already have it, and will continue to. It is inescapable (see, e.g., Elhauge and Dr. James). The salient question is whether it should in the service of well-heeled CEOs and stockholders rather than that which promotes "the general welfare" underpinning the very legal (and utilitarian) rationale of our society. You have a say in the latter -- whether you realize it or not.
  
  
• "Millions forced into a 'government-run' system, depriving them of 'choice'": First, Google "The Tyranny of Choice." Reflect at some length on what you find. Second, while I choose to not buy a large-screen HDTV at this time, and while I equally choose to forego caviar and prime rib, my health care needs are entirely another matter. "Choice," while undeniably a good thing, becomes increasingly less so as the smokescreen mantra of "choice" becomes the advertised end in itself. Moreover, in that regard, my wants are fairly mundane; just provide me the array of choices accorded members of Congress and other federal employees. I'll shut up and go away.
  

Another staple canard revolves around Medicare. It is noted that Medicare pays much less than private payors, and, given that a "public option" is likely to be a de facto "Medicare" model (should it not wind up being the chimerical "co-op"), providers will likely shun it en masse even as millions of Americans "choose" it, leaving those millions without any care.

I recently asked my own physician who his "favorite payor" was (among the 1,000+ 3rd party payors he routinely deals with in the back office). "Medicare" -- without the slightest pause. I'd asked the same question of my daughter's Attending more than a decade ago. "The Medi-Medi," he quickly replied. Meaning, a Medicare beneficiary also means-test eligible for that other "government-run" Medicaid program. "Medi-Medi's" provided the quickest net reimbursement return with the least hassle, he told me.

The other observation I would proffer for now with respect to putative "Medicare/Medicaid" disdain. It assumes that the relative reimbursement disparity is essentially fixed -- begging the policy reform pie-slicing question. I have to wonder; what if there were no more "uncompensated care" (i.e., for the bottom-of-the-barrel indigent) requiring "cost-shifting" to the privately insured; what if Medicare etc were able to pay realistic compensation for necessary care (with people still free to buy private boutique ancillary coverage)?

What if we could just cut the crap and fix the national problem? Nah...



MONDAY, JUNE 22nd

Paul Krugman, writing in the NY Times:

The Republicans, with a few possible exceptions, have decided to do all they can to make the Obama administration a failure. Their role in the health care debate is purely that of spoilers who keep shouting the old slogans — Government-run health care! Socialism! Europe! — hoping that someone still cares.

The polls suggest that hardly anyone does. Voters, it seems, strongly favor a universal guarantee of coverage, and they mostly accept the idea that higher taxes may be needed to achieve that guarantee. What’s more, they overwhelmingly favor precisely the feature of Democratic plans that Republicans denounce most fiercely as “socialized medicine” — the creation of a public health insurance option that competes with private insurers...

BTW, for the record, notwithstanding the foregoing "Republican bashing," I am not a Democrat (notwithstanding my 2008 service as a precinct captain for and frequent contributor to the Obama campaign). My "ideology," to the extent I can be said to have one, is that of attention to facts and logic (and, while I try to do my studious best, I don't always get it right). I recently attended a local Democratic health care reform neighborhood meeting and got lambasted by one angry partisan (who's still obviously irate that Hillary is not President). He basically loudly told me to shut up, implying that my ideas were of no worth because, as he petulantly noted, "you're not even a Democrat."

Whatever. They can carry on without me. I will find other ways to serve.

I have to admit at this point to a net leaning toward the Single Payer concept, potential warts and all. I do not see that happening anytime soon, however -- certainly not this year. We seem to be headed toward an inscrutably hyper-complex re-jiggering of our no-value-adding "health care" paper-pushing industry. I hope I'm wrong.
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---- APPENDIX ----

While this post is essentially complete, I will add useful external resources from time to time.

• First, the excellent works of Dr. Robert Burton. His most recent article on Salon.com "Big Pharma says your mysterious pain is real" speaks to the seemingly ad nauseum media campaigns incessantly (and wastefully) targeted at those Dr. Burton calls the "Worried Well." His book "ON BEING CERTAIN: Believing You Are Right Even When You're Not" is one of my favorites.
  
  
• Noted writer David Brin: "Yin vs Yang on Health Care: conservatives make a few points"
  
  
• California Nurses Association Resarch page.
  
  
• Physicians for a National Health Program.
  
  
• The U.S. Agency for Healthcare Research and Policy.
  
  
• June 2009 Draft Senate health care reform bill (852 pg PDF file).
  
  
• July 1st, an Excel spreadsheet I put together for calculating per capita health care costs based on your input assumptions.
  
  
• July 14th, draft House heath care reform bill -- "America’s Affordable Health Choices Act of 2009" (1,018 pg PDF file).
  

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The Dukes of Moral Hazard

"Moral Hazard"? We've bludgeoned that phrase senseless of late, most recently in the wake of the 2008-09 financial meltdown. Is the current economic crisis causally reducible principally to a widespread epidemic of chronic "moral hazard"? Or, is something more serious at play?

The phrase "moral hazard" is typically defined indirectly, by examples, and some of them are too narrow or simply absurd. I reach for my hardcopy edition of Black's Law Dictionary quite a bit, but in this case what I found there was less than optimal. A bit narrow:

• moral hazard. 1. The risk that an insured will destroy property or allow it to be destroyed (usu. by burning) in order to collect the insurance proceeds. 2. The insured's potential interest, if any, in the burning of the property.

Black's has no direct entry for "moral hazard," it simply says "see 'hazard'," which is where I found the foregoing, which seems to me to speak more directly to one type of "fraud."

Let me take a stab at this. More broadly, "moral hazard" refers to the risk that people will engage in imprudent/risky or otherwise excessive behaviors to the degree they are indemnified from the consequences of their actions. In other words, the extent of your being "insured" against loss tends to make you susceptible ("hazard") to making riskier ("immoral"?) decisions.

I said sometimes "too narrow or simply absurd." Really? Well, I don't know about you, but I'm not about to drive recklessly just because I have good car insurance and medical policies. I'm not about to leave my house unlocked, or leave the house with the front door wide open simply because I have homeowners' insurance that extends to my furnishings and other possessions, and neither will I be negligent with respect to fire safety simply because I have structure "replacement value" coverage. For any rational actor, there are a number of "risk/hassle factor" considerations that trump any nominal face value policy obligations.

Other absurdities come to mind, some of them banal, others with more serious policy import. I have heard it laughably argued, for example, that protective sports equipment induces "moral hazard," i.e., that athletes will tend to engage in behaviors posing greater risk of severe injury knowing that they are "protected" by helmets and other padding.

Right. By that logic, the "safest" form of NHL hockey would be played in uniforms solely consisting of insulated Speedos. And, the "safest" construction worker is the one who foregoes safety glasses, a hardhat, and steel-toed boots in favor of flip-flops, Bermuda shorts, and a Tommy Bahama t-shirt.

• There is also an athletic converse increasingly evident to anyone who closely watches college and pro football, too. I am seeing more and more receivers, running backs, and defensive backs who wear no padding whatsoever below the shoulder pads, given the hyper-competitive quest for that fraction-of-a-second acceleration edge.

GLADWELL'S "THE MYTH OF MORAL HAZARD"

It has been fashionable among some "conservative" policy commentators of late to assert that the "problem" with U.S. health care is that we are "overinsured," i.e., that health care insurance induces "moral hazard" by making us sloppy, excessive "consumers" of health care services. Quoting from Malcolm Gladwell's New Yorker article:

...in the past few decades a particular idea has taken hold among prominent American economists which has also been a powerful impediment to the expansion of health insurance. The idea is known as “moral hazard.” Health economists in other Western nations do not share this obsession. Nor do most Americans. But moral hazard has profoundly shaped the way think tanks formulate policy and the way experts argue and the way health insurers structure their plans and the way legislation and regulations have been written. The health-care mess isn’t merely the unintentional result of political dysfunction, in other words. It is also the deliberate consequence of the way in which American policymakers have come to think about insurance.

“Moral hazard” is the term economists use to describe the fact that insurance can change the behavior of the person being insured. If your office gives you and your co-workers all the free Pepsi you want—if your employer, in effect, offers universal Pepsi insurance—you’ll drink more Pepsi than you would have otherwise. If you have a no-deductible fire-insurance policy, you may be a little less diligent in clearing the brush away from your house. The savings-and-loan crisis of the nineteen-eighties was created, in large part, by the fact that the federal government insured savings deposits of up to a hundred thousand dollars, and so the newly deregulated S. & L.s made far riskier investments than they would have otherwise. Insurance can have the paradoxical effect of producing risky and wasteful behavior. Economists spend a great deal of time thinking about such moral hazard for good reason. Insurance is an attempt to make human life safer and more secure. But, if those efforts can backfire and produce riskier behavior, providing insurance becomes a much more complicated and problematic endeavor.

In 1968, the economist Mark Pauly argued that moral hazard played an enormous role in medicine, and, as John Nyman writes in his book “The Theory of the Demand for Health Insurance,” Pauly’s paper has become the “single most influential article in the health economics literature.” Nyman, an economist at the University of Minnesota, says that the fear of moral hazard lies behind the thicket of co-payments and deductibles and utilization reviews which characterizes the American health-insurance system. Fear of moral hazard, Nyman writes, also explains “the general lack of enthusiasm by U.S. health economists for the expansion of health insurance coverage (for example, national health insurance or expanded Medicare benefits) in the U.S.”

What Nyman is saying is that when your insurance company requires that you make a twenty-dollar co-payment for a visit to the doctor, or when your plan includes an annual five-hundred-dollar or thousand-dollar deductible, it’s not simply an attempt to get you to pick up a larger share of your health costs. It is an attempt to make your use of the health-care system more efficient. Making you responsible for a share of the costs, the argument runs, will reduce moral hazard: you’ll no longer grab one of those free Pepsis when you aren’t really thirsty. That’s also why Nyman says that the notion of moral hazard is behind the “lack of enthusiasm” for expansion of health insurance. If you think of insurance as producing wasteful consumption of medical services, then the fact that there are forty-five million Americans without health insurance is no longer an immediate cause for alarm. After all, it’s not as if the uninsured never go to the doctor. They spend, on average, $934 a year on medical care. A moral-hazard theorist would say that they go to the doctor when they really have to. Those of us with private insurance, by contrast, consume $2,347 worth of health care a year. If a lot of that extra $1,413 is waste, then maybe the uninsured person is the truly efficient consumer of health care.

The moral-hazard argument makes sense, however, only if we consume health care in the same way that we consume other consumer goods, and to economists like Nyman this assumption is plainly absurd. We go to the doctor grudgingly, only because we’re sick. “Moral hazard is overblown,” the Princeton economist Uwe Reinhardt says. “You always hear that the demand for health care is unlimited. This is just not true. People who are very well insured, who are very rich, do you see them check into the hospital because it’s free? Do people really like to go to the doctor? Do they check into the hospital instead of playing golf?”...

___

Exactly. I wouldn't go the the doctor were it "free," absent some compelling need. To be sure, you can always come up with the iconic ("anecdotalism fallacy") examples of people who engage health care services irrationally, either simply out of a mundane neurotic social need for "attention," or impelled by the more serious psychiatric clinical condition known as acute "Münchausen syndrome." For example, during my first tenure with the Nevada Medicare QIO in the early 1990's, my Sup and I tracked the acute care hospitalization travels of a Medicare beneficiary who cleary suffered from Münchausen, showing up in Admitting at a different hospital every few days, frequently in far-flung states. We tracked this patient through close to 500 admissions across several years before the patient finally died (we suspected there was a good bit of chronic "drug-seeking behavior" going on in this patient's M.O.).

So, yes, of course, there will always be people who abuse any type of "entitlement" or "indemnity" system. Whether their sorry, isolated examples should drive policy is quite another matter, at least with respect to health care. But, that (rational health care policy) will be the topic of another in-depth post on another day.

BACK TO THE FINANCIAL WORLD

You might recall my citation of the Michael Milken quote in my prior "Tranche Warfare" post:

"In the gap between perception and reality,
there's money to be made."

An exemplar of true "moral hazard" (and worse) if ever there were one. Key to this idea is that of information asymmetry. If I am privy to critical relevant bargaining information and you are not, I can shape a deal to my advantage. Perhaps criminally so, in the extreme case (as Mr. Milken himself subsequently went on to learn up-close-and-personally via arrest, conviction, and incarceration).

The fundamental canon of classical free-market capitalism, we do well to recall, is that of asserting the optimal economic and moral utility wrought by the aggregation of individual actors operating in pursuit of rational, focused self-interest -- abetted in this aim by the availability of universal, relevant information transparency. All cards on the table, with best-case "win-win" outcomes consequently expressed by and objectively evident in the choices made by the participants thusly expressing their value preferences. Done. How's that for encompassingly succinct?

Right. Were it only the case.

Beyond the requisite implications of the views of one-time Junk Bond King-of-Decision-Data-Asymmetry Michael Milkin, I give you the considerable empirical works originating with and stemming from those of "behavioral economists" Kahneman and Tversky.

IRRATIONALITY, BORNE OF NAIVETE? OR PANDEMIC FRAUD?

Writer Daniel Gross, commenting on the current economic fiasco, recently asserted that "while there was plenty of alleged criminal activity—ahem, Mr. Madoff—law-abiding, respectable citizens who were operating well within the confines of laws and regulations racked up the overwhelming majority of losses. Everybody—individuals, companies, institutions, and governments—got caught up in the stupidity."

Really? "Overwhelming majority"? (Gimme a percentage: 80%? 83.47%? 90%?)

Consider a countervailing, and IMHO considerably more learned view:

Individual “control frauds” cause greater losses than all other forms of property crime combined. They are financial super-predators. Control frauds are crimes led by the head of state or CEO that use the nation or company as a fraud vehicle. Waves of “control fraud” can cause economic collapses, damage and discredit key institutions vital to good political governance, and erode trust. The defining element of fraud is deceit – the criminal creates and then betrays trust. Fraud, therefore, is the strongest acid to eat away at trust. Endemic control fraud causes institutions and trust to become friable – to crumble – and produce economic stagnation.

White-collar criminology emphasizes incentive structures. A criminogenic environment is one that has strong positive incentives to engage in crime. While economists stress incentive structures, economics ignores criminogenic environments. The weakness comes from three sources. Economic theory about fraud is underdeveloped, core neo-classical theories imply that major frauds are trivial, economists are not taught about fraud and fraud mechanisms, and neo-classical economists minimize the incidence and importance of fraud for reasons of self-interest, class and ideology.

Neo-classical economics’ understanding of fraud is so weak that its policy prescriptions, if adopted wholly, produce strongly criminogenic environments that cause waves of control fraud. Neo-classical policies simultaneously make control fraud easier and more lucrative, dramatically reduce the risk of detection and prosecution by maximizing “systems capacity” problems, and encourage crime by making it easier for fraudsters to “neutralize” the social and psychological constraints against deceit and fraud. Thus the paradox: neo-classical economic triumphs produce tragedy...

When Fragile becomes Friable: Endemic Control Fraud as a Cause of Economic Stagnation and Collapse, William K. Black, Executive Director, Institute for Fraud Prevention, IDEAS Workshop: Delhi, India, Financial Crime and Fragility under Financial Globalization, December 19-20, 2005
______

Back to Poster Boy Bernie (Madoff) for a moment. Recall my observation in "Tranche Warfare" -

Consider this lament by best-selling author Geneen Roth, in her recent Salon.com article "I was fleeced by Madoff":

"I often asked Richard, the head of our feeder fund, how Madoff made such consistently good returns. Although Richard tried to explain it to me, it was clear he didn't know, either, because I'd leave our meetings still unable to explain to anyone else how it worked..."

To which I replied:

...maybe nobody understood things because there was nothing much rational to understand. I guess the one encapsulating and overarching operative word (extending far beyond the likes of Madoff) is "fraud."
_____

Dr. William K. Black is a national authority on financial crime, author of "The Best Way to Rob a Bank is to Own One."

From his website:

[Dr. Black] was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and General Counsel of the Federal Home Loan Bank of San Francisco, and Senior Deputy Chief Counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.

Dr. Black has graciously sent me voluminous documentation detailing his views and those of equal industry cred and kindred viewpoint. I have gone through one yellow highlighter and a red pen by now on the printouts. I will cite his comprehensive work as this post continues.

It goes way beyond "mere" "moral hazard" and concomitant "stupidity." It goes to pandemic financial industry willful fraud.
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ONE LAST THING FOR NOW ON POSTER BOY BERNIE

From CBS "60 Minutes," March 1st, 2009

The Man Who Figured Out Madoff's Scheme
Tells 60 Minutes Many Suspected Madoff Fraud; Says SEC Is Incapable Of Finding Fraud


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ASYMMETRY

Previously, citing an emblematic remark by Michael Milken, I alluded to "informational asymmetry" as a significant component of moral hazard. Returning to Dr. Black:

...Akerlof (1970) argued that lemons markets arose because of information asymmetry – the seller knew far more about the true quality of the goods than the buyer. Reading the article also makes clear that, though he does not stress this point, Akerlof knew that the seller in his examples was intentionally misrepresenting the quality of the goods in order to deceive (defraud) the buyer...
[op cit.]

Yes, but there is additional criminogenc inducement in the financial sector owing to "outcomes symmetry" -

Neo-classical economics had one additional theory about looting – but overwhelmingly interpreted it to exclude fraud. The theory was “moral hazard.” Moral hazard theory relies on asymmetry of outcomes [emphasis mine - BG]. Limited corporate liability is a common source of moral hazard. When a corporation is impaired the shareholders have a strong incentive for the firm to engage in control fraud and/or take high risks. The logic is that because of limited liability the creditors – not the shareholders – will bear the resultant losses should the fraud or excessive risks fail. Conversely, should the fraud or gamble succeed the shareholders will capture the great bulk of the financial gain. In 1993, however, virtually every economist assumed (typically, implicitly without any explanation) that S&Ls would engage only in ultra high-risk investments – not fraud. There was no basis for this assumption, as Akerlof & Romer note, fraud was a “sure thing” (1993: 5).
[op cit.]

I cannot but be with Dr. Black et al on this:

Because neo-classical theory is virulently hostile towards government and has no explicit theory of fraud and implicitly assumes that control fraud cannot be material, it repeatedly produces recommended praxis that, if adopted, would optimize the criminogenic environment for control fraud. When neo-classical thought triumphs societies adopt simultaneously many elements of this anti-governmental agenda. This produces waves of control fraud and crisis.
[op cit.]

Yes, and this is where we undeniably find ourselves today in the wake of more than a generation of overt, intellectually shallow, broad-brush Joe-The-Plumber hostility toward the sneering red-meat pejorative soundbite, "government regulation."

My personal ordinary-citizen take on all of this is that "moral hazard" comprises a perhaps necessary, but insufficient condition for for the execution of pandemic fraud. The tipping-point sufficient condition comprises the evisceration of financial law/regulatory enforcement. Again, Bill Black:

As a white-collar criminologist and former financial regulator much of my research studies what causes financial markets to become profoundly dysfunctional. The FBI has been warning of an "epidemic" of mortgage fraud since September 2004. It also reports that lenders initiated 80% of these frauds. When the person that controls a seemingly legitimate business or government agency uses it as a "weapon" to defraud we categorize it as a "control fraud" ("The Organization as 'Weapon' in White Collar Crime." Wheeler & Rothman 1982; The Best Way to Rob a Bank is to Own One. Black 2005). Financial control frauds' "weapon of choice" is accounting. Control frauds cause greater financial losses than all other forms of property crime -- combined. Control fraud epidemics can arise when financial deregulation and desupervision and perverse compensation systems create a "criminogenic environment" (Big Money Crime. Calavita, Pontell & Tillman 1997.)
______

From "The Two Documents Everyone Should Read to Better Understand the Crisis"

'The FBI has been warning of an "epidemic" of mortgage fraud since September 2004.'

More than four years now. Not mere "moral hazard." Not mere "irrational exuberance." Not mere "stupidity." FRAUD. Unchallenged, until it was too late.

"No one was investigating Mr. Madoff at the end," Markopolos said.

"So he turned himself in before anybody, in a position of authority, began a serious investigation?" Kroft asked.

"That's typically how the SEC does it," Markopolos said. "They come in after the crime has been committed, they toe-tag the victims, count the bodies, and try to figure out who the crooks were after the fact, which does none of us any good.
["60 minutes"]
_____

Will we ever learn?

REKJAVIK RUMINATIONS: A "SHORT" STORY

Dr. Black posits widespread financial fraud as the driving force behind the now-global economic meltdown. The more I read, the more I have to agree. Consider the latest by Michael Lewis:

One of the hidden causes of the current global financial crisis is that the people who saw it coming had more to gain from it by taking short positions than they did by trying to publicize the problem. Plus, most of the people who could credibly charge Iceland—or, for that matter, Lehman Brothers—with financial crimes could be dismissed as crass profiteers, talking their own book.

"In the gap between perception and reality, there's money to be made."

Read the entire Lewis article. Yes, there has again been rampant stupidity, naivete, "irrational exuberance," susceptibility to "moral hazard." Without them, fraud cannot prevail.

Stupidity, naivete, and "irrational exuberance" are not criminal. Fraud is. And it should be dealt with promptly and firmly, irrespective of whether the perpetrators shower prior to or after the workday.
______

BILL BLACK UPDATE

February 24, 2009 (LPAC)--A senior regulator for the Resolution Trust Corp. during the 1980s savings-and-loan crisis demanded a "new Pecora investigation" and prompt bankruptcy receivership for U.S. banks, in a column on Huffingtonpost.com Feb. 23.

William K. Black, now a University of Missouri-Kansas City economics professor, forcefully laid down two principles for action in the column, entitled "Why Is Geithner Continuing Paulson's Policy of Violating the Law?" First, the S&L debacle of the 1980s established a financial regulatory system based on legal requirement of "prompt corrective action" by regulators to put insolvent banks into receivership quickly, before their drawn-out failure would explode the demands on the funds of the FDIC. U.S.-based banks, Black says, are collectively insolvent by a margin of at least $2 trillion, possibly much more. "Paulson's and Geithner's flouting of the law" will cost at least hundreds of billions in Federal credit, he says.

Black's second strong demand is for "a modern Pecora investigation.... If we were dealing with a crisis of airplane crashes and someone opposed studying the causes of the failures, we would (correctly) label him a lunatic.... It appears that only intense public pressure will suffice to overcome Congressional and Administration resistance to a Pecora investigation."

_____

MARCH 7TH UPDATE

I heard this segment on NPR's "This American Life" yesterday:

The collapse of the banking system explained, in just 59 minutes. Our crack economics team—the guys who explained the mortgage crisis, Alex Blumberg and NPR’s Adam Davidson—are back to help all of us understand the news. For instance, when we talk about an insolvent bank, what does it actually mean, and why are we giving hundreds of billions of dollars to rich bankers who screwed up their own businesses? Also, two guys go to New Jersey to look at a toxic asset.

Click the link to listen.

Nicely done, IMHO. Cuts past all the inscrutable jargon for a clear and fairly comprehensive lay-person-friendly survey of our 2009 economic circumstance.
______

CREDIT DEFAULT SWAPS UPDATE

The more I read, the more concerned and angry I become. Consider this:

Remember that the reason for shoring up AIG was its credit default swaps portfolio, in which it had written lots of unhedged guarantees on the cheery assumption that there was tantamount to no risk. Insurers are state-regulated in the US, and subject to a host country requirements overseas (and AIG has substantial foreign operations). Uncle Sam has no regulatory responsibility for AIG, but was hit up nevertheless as the most logical deep pocket that could prevent a financial train wreck...
___

And this:

The Fed’s moral hazard maximising strategy
March 6, 2009 7:44pm

The reports on the evidence given by the Vice Chairman of the Federal Reserve Board, Don Kohn, to the Senate Banking Committee about the Fed’s role in the government’s rescue of AIG, have left me speechless and weak with rage. AIG wrote CDS, that is, it sold credit default swaps that provided the buyer of the CDS (including some of the world’s largest banks) with insurance against default on bonds and other credit instruments they held. Of course the insurance was only as good as the creditworthiness of the party writing the CDS. When it was uncovered during the late summer of 2008, that AIG had nurtured a little rogue, unregulated investment banking unit in its bosom, and that the level of the credit risk it had insured was well beyond its means, the AIG counterparties, that is, the buyers of the CDS, were caught with their pants down...
___

What are we to make of these "financial instruments"? The BBC aired a fairly clear and concise (and depressing) explanation back in October:



I found this AIG graphic online (click to enlarge):

"AIG Global Marine and Energy combines leading worldwide marine and energy insurance, risk management and loss control expertise with the unsurpassed financial capacity and global network of the AIG companies..."

Diff'rent day, diff'rent "ENRON," same egregiously reckless, fraudulent M.O., it would appear. Recall how Enron had all those myriad nominally "independent business units" eventually simply trading pieces of paper back and forth, booking each inter-subsid "sale" as "revenue"? Recall their self-congratulatory PR chest-beating regarding their unsurpassed financial/risk management acumen and "unsurpassed financial capacity," blah, blah, blah? Some eerie parallels here, I would think.

I return to my "Tranche Warfare" lament: We appear to have learned nothing.

I also return to the admonitions of William K. Black in "The Audacity of Dopes" -

We are being played for chumps. The Bush and Obama plans could only have been designed by failed bankers -- for their principal beneficiaries are failed bankers. We already know enough to confirm that the Bush administration made us the "fool" in the market by massively overpaying for assets. The Obama administration is about to compound that scandal with a "guarantee" program. The bankers that caused the crisis designed both programs. The senior officers at big bank aren't very good lenders, but they are expert in maximizing their compensation...
___

THE UNREGULATED CASINO


Credit Default Swaps Explained
Posted Wed Sep 24, 02:14 pm ET
Posted By: Dirk van Dijk, CFA

"...If you buy a bond from, say, General Motors (GM), you are lending them money for a set interest rate for a specified length of time. You face two sets of risks in doing so. The first is that they go bankrupt and don't pay you back. The second is that interest rates rise and the bond falls in value (think of bond prices and interest rates as being on opposite sides of a see-saw).

With a CDS, you could go out and find someone who will insure against the default risk. For a given premium, the seller of the CDS will pay off on the GM bond if GM goes belly up. Now, if it was from a real insurance company, the insurance company would be regulated and would have to hold enough money in reserve to pay you off in case GM actually did go belly up. This is just like how a Life Insurance company has to have enough cash on had to pay off on your policy in case you die.

However, since this is an unregulated market, someone can sell you a CDS and blow the money in Las Vegas. In that case, if GM did go belly up, you would just plain be out of luck.

In the case of life insurance, there are strict limits on who can take out a policy on you. You can take out a policy on your own life, and on close family members. In some circumstances you can take out a policy on your business partner, but beyond that there are not many people you can take out a policy on. You have to have what is called an insurable interest; you can't just wander the halls of the hospital looking for people who are unlikely to make it and take out life insurance policies on them.

This is not true for the CDS market. You are perfectly free to take out a "life insurance policy" on GM, GE (GE) or any other firm that issues a bond, and you do not have to be holding the bond. You can even take out a "life insurance policy" on the synthetic garbage the Wall Street has been pumping out.

This ability to buy insurance on things that you have no insurable interest in transformed this market into a huge casino. It is totally unregulated...Regulation of this market was specifically prohibited under the Commodity Futures Modernization Act of 2001. That provision was slipped into the bill in the dead of night by our old friend Senator Phil Gramm of Texas -- now Vice Chairman of UBS (UBS).

People use this market to bet on the credit worthiness of companies, and often hedge funds will hold both long and short positions on the same underlying credit. For example (NOTE: figures are made up here, not a reflection of the actual creditworthiness of GE), the hedge fund might make a bet that it is worthwhile to get $200,000 up front and be on the hook for $10 million if GE defaults sometime in the next five years. Then after a few months, GE raises a bunch of capital which significantly strengthens its balance sheet and lowers the risk of default, so it can make a bet with someone else who would now be willing to take just $100,000 to bet that GE will not go belly up within then next five years. The hedge fund could have a perfectly matched book, so in theory they were totally indifferent if GE survives or not.

However, suppose that the person who they made the bet with goes bankrupt themselves and can't pay up. That hedge fund might then have a hard time paying its counter party. This is where the fear of "cascading cross defaults" comes in.

All this is to say that the CDS market has seen more growth than practically any market in the history of mankind. It is currently at over $62 TRILLION, up from under $1 Trillion a decade ago. It would not take a very big percentage of that market to fail to leave a very big mark on the world financial system..."
___

That is simply insane.

"COUNTERPARTY RISK"

Simply the risk that a signator to a contract will not be able to make good on a financial obligation imposed by the contract. AIG et al simply ignored the risk (recall from my "Tranche Warfare" post how AIG hubristically assumed it to be microscopically negligible, on the basis of their oh-so slick "proprietary quantitative risk model").

Consider an apt analogy:

"Imagine walking down the street and finding a $100 bill. Wow, you say, this must be my lucky day. To take advantage of this good fortune you decide to go to the race track. After reading the racing sheet you place a bet in the 3rd race on the long shot 'Never Wins'. 'Never Wins' has finished last in every race that he has run. Also in the race is the favorite, 'Always Wins'. 'Always Wins' has finished in first place in every race that he has run. You still go ahead and make the bet because you strongly believe that today 'Never Wins' will win. The bet is made for $100 and the odds are 100 - 1, if he wins your payoff will be $10,000.

It turns out that on this day a number of other bettors feel the same way as you and they place the same identical $100 bet that you did. The track executives while monitoring the incoming bets notice the large size of 'Never Wins' bets but they do not change the odds as they are so confident that history is on their side. After all 'Never Wins' never wins and 'Always Wins' always wins.

At race time you take your seat. The bell rings and 12 horses bounce out of the gate but five of them run into each other and fall to the ground. Then four more horses fall into a puddle and stumble onto the ground. Out of the three horses remaining, one gets disqualified as his jockey falls off. There are now two horses left - your horse the 100 - 1 long shot 'Never Wins' and the great champion 'Always Wins'. 'Always Wins' is about 10 lengths ahead of 'Never Wins'. As they reach the final turn, a bird flies into 'Always Win's' eyes; he becomes temporarily blinded and stops running. About 10 seconds later, the long shot 'Never Wins' runs right by 'Always Wins' and crosses the finish line in first place. You jump up with excitement and are beaming with joy. Time to collect. You say to yourself, what were the chances of all of those things happening in one race?

As you approach the pay off window, you see a large crowd gathered around and they seem upset. They are yelling things and asking questions and pounding on the closed payoff window. As you get closer you find out that about 200 people placed identical $100 wagers that you had and they were looking to collect their $10,000. You quickly do the math in your head and realize that the total payoff the track has to pay is $2 million. You make your way to the window and see a sign that reads, 'No More Winning Tickets on 'Never Wins' Are Going to Be Paid.' You are angry, in shock and say to yourself what about my money? Who is going to pay off my winning bet? Why did the race track take so many long shot bets? What kind of risk controls did the track have in place? How can this happen? How can the track or the counterparty not pay up?

Something similar to this is going on in the financial markets today..."
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Yep. Insane. No, criminal, actually. Now, Taleb might call "Never Wins'" victory a "Black Swan." Bill Black, OTOH, would probably say that the analogy falls a bit short, in failing to acknowledge the significant ongoing presence of outright, deliberate fraud. Dr. Black would say that the dangerously enervating global economic upshot was inevitable.
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"WALL STREET'S WORST INVENTION EVER"
The Market Oracle

I continue to try to fully wrap my brain around the Credit Default Swap. The following Martin Hutchinson article excerpt helps a good bit:

"...A $50 trillion credit derivatives market means there is $50 trillion of credit exposure on the dealer community, and no amount of collateral arrangements and fancy accounting can eliminate that fact. As for settlement, the dealers came up with an ingenious, but very un-foolproof scheme, whereby a mini-auction of the bankrupt credit would take place, so by buying a million or two in dodgy bonds you could corrupt the pricing of billions in credit default swaps that you held.

There are two other problems with credit default swaps CDS we didn't think of in the 1980s.

First, AIG stayed almost entirely on one side of the CDS market - selling credit protection - because it believed it could do so, book the premiums up-front as income, collect bonuses based on the total premiums each year and never account for the risks on the actual derivative contracts themselves. After all, the swaps were being AAA-rated mortgage backed bonds.

It would never have occurred to us in the 1980s that we could do this - we weren't sufficiently in control of our auditors!).

From the point of view of AIG, the company, this was extremely stupid, though it had its advantages from the traders' point of view. In the end, of course, it was all of us - the U.S. taxpayers - who were stuck paying the tab for a meal that others got to eat.

However, the second - and most serious - problem with credit default swaps is their potential use by short-sellers to cause bankruptcies.

Short-Sighted, Short-Selling
In the so-called “rational markets” that are so beloved by the textbooks, this should theoretically be impossible. In the real world, however, it would be fairly easy to engineer - especially in a period of uncertainty, such as we have had since 2007 - for a large operator to spread rumors, push down share prices, and thus cause the market to panic.

Richard S. “Dick” Fuld Jr. , the former chief executive officer of Lehman Brothers Holdings Inc. (OTC: LEHMQ ), the former CEO of Lehman, is convinced this is what happened in Lehman's case , and it has undoubtedly been tried in several others.

Short-selling of shares was banned for several weeks after the Lehman bankruptcy , the reality is that neither short share sales nor share put options offer anything like the potential of credit default swaps to profit from a bankruptcy - particularly the bankruptcy of a financial institution whose debt is several times its share capital. Citigroup Inc. ( C ) and JPMorgan Chase & Co. ( JPM ), for example, each have around $1 billion in short positions outstanding in their shares. In the traded options market, Citigroup has a nominal $1.4 billion worth of put options outstanding while JP Morgan Chase has $2.1 billion - the cash value of those contracts will be a fraction of those figures.

What's more, there are undisclosed amounts of over-the-counter equity options written between dealers. However, the volumes of credit default swaps were recently $65.7 billion on Citigroup and $62.4 billion on JPMorgan.

Now think about the arithmetic. To sell a share short, you risk all your capital - there's no limit on how high a share of stock can rise. To buy puts, you deal only in a small market, and most puts are short-dated, so you would have to act quickly. With a CDS, however, you pay only an annual premium that is a small fraction of the principal amount involved, you acquire an asset that typically lasts several years, and you can deal in a market of over $60 billion - enough potential profit for even the greediest hedge fund.

Thus, credit default swaps make causing a “run” on a bank or investment bank enticingly profitable, with a profit potential that far outweighs the cost of undertaking the operation. Because the CDS market is much larger than the market for stock options - or even the share markets themselves - the product is a standing temptation to bad guys, and a danger to the banking system.

By now, it's easy to see why credit default swaps are Wall Street's worst invention.

Granted, these particular derivative securities are so far only second in total losses, behind subprime mortgages, but they lack the social purpose of the home loans for borrowers with poor credit, since those mortgages at least had the somewhat redeeming benefit of putting some folks in houses.

While there are a few CDS securities that genuinely hedge credit risk, almost all of them have no such benefit: They are gambling contracts, pure and simple.

For the taxpayer to bail out the victims with self-inflicted CDS wounds is as ludicrous as asking us to bail out the Las Vegas casinos..."
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Yes, indeed, we have allowed our financial markets to become one huge global casino -- one essentially lacking any capital reserves with which to cover losses (thanks to increasing deregulation), one whose "card counters" were the insidious short sellers and kindred manipulators who wreaked utter havoc while lining their own pockets.

Fraud.

UPDATE: ANOTHER NICE VIDEO EXPLANATION: THE CRISIS OF CREDIT VISUALIZED

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Nice job, Mr. Jarvis.
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SOME NECESSARY HISTORY

More to come. Back to some roots. Keynes saw the inherent problems in the "de-coupling" of the financial economy from the true production economy a long time ago.

For now, how about a cartoon placeholder?

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What now?

EXECUTIVE SUMMARY, FOR THE SCROLL-KEY CHALLENGED OR OTHERWISE IMPATIENT

What productive, socioeconomically beneficial role might the venture capital industry play in the upcoming economic stimulus/recovery efforts? Read on...
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In the wake of my prior post "Tranche Warfare," the nagging practical question inexorably obtains: "what now?" In "What Cooked the World's Economy?" James Lieber observes:

It's 2009. You're laid off, furloughed, foreclosed on, or you know someone who is. You wonder where you'll fit into the grim new semi-socialistic post-post-industrial economy colloquially known as "this mess." You're astonished and possibly ashamed that mutant financial instruments dreamed up in your great country have spawned worldwide misery. You can't comprehend, much less trim, the amount of bailout money parachuting into the laps of incompetents, hoarders, and miscreants. It's been a tough century so far: 9/11, Iraq, and now this. At least we have a bright new president. He'll give you a job painting a bridge. You may need it to keep body and soul together...

(Highly recommended, if depressing reading, that entire article.)

Yes, and critics of all political stripes are slamming the perceived ad hoc, incoherent, shoot-aim-ready nature of the "federal bailout" to date (which, of course, largely predates the Obama administration, to be fair). The "TARP" program (Troubled Assets Relief Program) is increasingly viewed as the "WALP" program (Worthless Assets Lipstick Program), one seen as simply shoveling cover-your-ass taxpayer money, unrestrained, at many of the very financial industry miscreants responsible for the economic disaster within which we now struggle. Various of these entities are now deemed "too big to fail," and we simply must "socialize the losses" stemming from their aggregate venality and incompetence, lest we fall into a severe global economic depression.

As I write this, the salient details of President Obama's economic stimulus proposal are in heated flux, with liberals and conservatives alike sniping relentlessly from within their various ideological redoubts. Beyond respective partisan socioeconomic doctrines (e.g., ranging from the still widely disdained "socialist / command economy" position to that of the equally dubious "panacea of free enterprise"), much of the wrangling has a decidedly sophomoric "Perfectionism Fallacy" timbre (i.e., that your proposal appears to be in any way "imperfect" -- in my view -- renders it summarily nul and void; we need not even consider it).

All the predictable partisan sidelines sniping aside, it appears overwhelmingly likely that a significant quantity of (borrowed, of course) federal funds will in fact continue to be flushed forth into the economy in a frantic attempt to abate and reverse this extremely serious downturn. Will it simply comprise bailing out Wall Street and the bankers, along with iterative cash infusions into our geriatric rust belt industries? Or should we consider some additional alternatives?

A book I'm currently reading, Guy Kawasaki's "Reality Check," has triggered some thoughts in conjunction with a few other ideas that have crossed my mind recently. The other day I read this post by Ian Welsh at FireDogLake.com: "No Banks Means No Banking Crisis."

You don't need the current banks. If they won't lend, let them go under. If the Fed can lend to banks, why can't it lend directly to banks and consumers...

OK. But, there you run smack into the "socialist" de facto "nationalized banking" perceptual problem. Morever, much of the focus on bailout tactics for "unfreezing the credit markets" essentially assumes a ripple-effect return to more of status quo consumerism, however the funds get injected into the economy. Those on the right argue for even more tax cuts as the primary means of renewed economic stimulus, i.e., that "allowing taxpayers to keep more of their money will enable them to vote with their wallets and thereby reinvigorate the economy in the most efficient manner, as free markets respond to fill their needs." Newly installed Republican National Committee Chairman Michael Steele recently, on CNN:

STEELE: And first off the government doesn’t create jobs. Let’s get this notion out of our heads that the government creates jobs. Not in the history of mankind has the government ever created a job. Small business owners do, small enterprises do. Not the government. When the government contract runs out, that job goes away. That’s what we’re talking about here and those 2 to 4 million jobs that are projected? Won’t happen, trust me.

Well, putting aside the simplistic vapidity of that assertion (which, at its most naive, assumes that private sector jobs are permanent, notwithstanding voluminous recent evidence to the contrary), his observation does provide me an opening to proffer a potential "third way" as at least part of the recovery mix -- one that eschews both the tooth & claw Darwinian economic theories of the right and the We're-All-Victims-Who-Must-Be-Rescued silliness of the left.

I tend to agree that merely wheeling in truckloads of jump-start money anew to throw at the conventional economy simply amounts to papering over the problem and kicking the can yet again down the road. I am also dubious of the long-term viability of a "statist command economy wherein the government picks the winners and losers." However, the problem with the latter critical sentiment is that it ignores the reality of what has essentially become a megacorporate shadow government comprised of the "Too-Big-To-Fail" financial and industrial entities who've largely been "picking the winners and losers" (and overwhelmingly losers of late -- all while continuing to feather their own nests). The heartwarming Norman Rockwell-esqe notion of the lift-all-boats economic juice of entreprenurial small business Main Street -- with all due respect to RNC Chairman Steele -- seems to me vastly overblown, with regard to recent history anyway.

Is there a way out of this mess?

ENTER THE VC

So, how to spur the "New Economy" we will undoubtedly need for renewed and sustainable ecomomic growth? In a manner consistent with our "free market" values? In a manner that safely navigates the land mines buried in the mega-bureaucracy and equally bureaucratic megacorporate landscape?

Guy Kawasaki, author of the above-cited "Reality Check" and former Apple Macintosh "evangelist" (see "The Macintosh Way") is, among other things, an insightful and successful Silicon Valley "venture capitalist." Venture capital firms engage in "private equity" funding, taking stakes in companies they vet and fund. They are numerous; just a single cursory Google search yields 243 firms listed in a Google directory results page.

Perhaps the most reputable among them might be enlisted to serve a beneficial private sector role here (i.e., "public/private partnership") as federally contracted commercial recovery disbursement intermediaries, using their business model analytics and management expertise to evaluate, fund, and advise both promising startups and warranted expansion of existing companies. Some arguable upsides:

• Direct (and secondary spin-off/multiplier effect) job creation, in contrast to the hoped-for but largely speculative, loosely-coupled flow-through effect of simply funding more "demand-pull" consumerism;
• Much of the direct job creation will draw upon the depressingly vast and still rapidly growing pool of highly educated and experienced professionals of myriad stripes, for whom job searches have become largely problematic of late;
  
• VC's have no interest in funding dubious entities (or bridges to nowhere). They prosper only by picking winners. Many of such potential "winners" will unfortunately remain unfunded should they have to rely on banks or personal resources, and traditional root sources of venture capital funds have been severely adversely impacted along with the rest of the economy.
  

Some arguable downsides:

• Absent effective firewalls, this could end up being viewed as one more tangential avenue for de facto congressional "earmarks" and crony capitalism;
• Many VC's were for a time increasingly complicit in the "built-to-flip" mentality at the root of the "DotCom" bubble burst of 2000-2002. We would need a cardinal ethic of "build-to-hold-and-grow";
• Relatedly, within the "service sector" of the economy, we have no need of new firms that do little beyond "churning paper" within a business model principally based on on fee income, irrespective of its ostensible ROI/ROE potential. Again, see "Tranche Warfare." We have by now beyond ample evidence of the dead-end upshot of that M.O.;
• There is the potential chicken vs. egg / Catch-22 / bootstrapping problem, i.e., there actually has to be legitimate market demand, notwithstanding lingering residual romantic charms of the build-it-and-they-will-come aspect of "Supply Side" theory. Absent legit demand, you're wide open to political accusations of "make-work boondoggles" (painting bridges for Obama?) Still, smartly deployed pump-priming of sustainable, less environmentally adverse technologies and processes cannot be other than beneficial [**].
  

[**] To the final foregoing point, consider some of the findings in "The Weather Makers" by climate scientist Tim Flannery:

...the power and seduction of fossil fuels will be hard to leave behind. If humans were to look to biomass (all living things, but in this case particularly plants) as a replacement, we would need to increase our consumption of all primary production on land by 50 percent. We're already using 20 percent more than the planet can sustainably provide, so this is not an option...

In 1961 there was still room to maneuver. In that seemingly distant age, there were just 3 billion people, and they were using only half of the total resources that our global ecosystem could sustainably provide. A short twenty-five years later, in 1986, we had reached a watershed, for that year our population topped 5 billion, and such was our thirst for resources that we were using all of Earth's sustainable production.

In effect, 1986 marks the year that humans reached Earth's carrying capacity, and ever since we have been running the environmental equivalent of a budget deficit, which is sustained only by plundering our capital base. The plundering takes the form of overexploiting fisheries, overgrazing pasture until it becomes desert, destroying forests, and polluting our oceans and atmosphere, which in turn leads to the large number of environmental issues we face. In the end, though, the environmental budget is the only one that really counts...

...By 2001 humanity's deficit had ballooned to 20 percent, and our population to over 6 billion. By 2050, when the population is expected to level out at around 9 billion, the burden of human existence will be such that we will be using -- if they can still be found -- nearly two planets' worth of resources." [pp. 78-79]

We can choose to continue to drill, mine, cut down, and grind up the planet in pursuit of short-term business-as-usual, unevenly distributed consumerist comforts, but the day of tragically harsh mass reckoning draws ever closer. The lessons to be drawn from Jared Diamond's "Collapse" are compelling in this regard. There is no shortage whatsoever of constructive and remediative work to be done in support of a sustainable and broadly prosperous future for all of humanity. But, let's not kid ourselves that an unregulated "invisible hand free market" alone will suffice to insure its emergence. Recent economic history alone refutes that assertion.

To be sure, the U.S. comprises only ~5% of world population, and the responsibility of our federal government is constitutionally bound as a priority to address the "general welfare" of our own citizenry. However, we consume about 25% of the world's resources in the aggregate, and, given that our politicians never pass up an opportunity to extol the U.S. as "the greatest nation on earth," perhaps we might start acting like it in the area of sustainability leadership, for, in the end, humanity will survive or perish as a planet-wide species.
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The foregoing comprise just a few of the obvious pluses and minuses. To be sure, the Devil would be in the details. A rational and transparent VC firm contracting process, along with a just, "win-win" compensatory structure would be critical. Moreover, policy questions would extend to issues such as

• "U.S. firms, and U.S. citizen employees only?" (The public would simply not stand for taxpayer money used to further send jobs overseas);
• VC firms typically take equity positions in their client firms, but VC underwriting that used taxpayer money would beg a significant question regarding equity stakes and compensation (although, some concerns might be mitigated by "skin-in-the-game" provisions, i.e., I'm not necessarily advocating using VC's to deploy 100% federal money. Perhaps VC equity/compensation incentives could be a function of the level of their relative proportions of federal and private core fund monies allocated to client firms.).
  

There is much more to think about, and to learn. This is simply one quick idea.

While I cannot claim any in-depth knowledge of the VC field, I am now periphatically acquainted with a couple of the Principals and Associates in the VC firm Weston Presido. A perusal of their "Portfolio page, Companies by Sector" reveals a breadth businesses wherein people actually make things and provide real services. I don't see anything that smacks of paper-flipping. Venture capital firms like this might well provide one constructive avenue for economic recovery and reorientation. I'm sure there are numerous other VC firm examples beyond this one company with whom I am marginally familiar.

New, productive economic "golden eggs" (at the risk again reaching for the worn-out metaphor) await discovery, and are sorely needed. The question, then, is how best to establish and nurture them.

Just an idea. What do you think?

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FEB 11th UPDATE

Kudos to the Mercury Rising blog for noting this:

Venture capital groups make lifeline plea
By Martin Arnold, Private Equity Correspondent
Published: February 11 2009 21:35 | Last updated: February 11 2009 21:35

Hundreds of promising UK technology companies are expected to fail this year because of a lack of funding, venture capitalists are warning, as they press the government to finance a £1bn ($1.4bn) fund of funds to support the sector.

The financial crisis has caused investment in venture capital funds to dry up since the collapse of Lehman Brothers.This leaves many venture capital-backed technology companies facing a cash crunch this year.

Richard Anton, partner at Amadeus Capital, one of the UK’s biggest venture capital investors said: “Starved of capital, companies will go to the wall or they will be forced to cut back too far, reducing jobs and losing competitiveness.

“This question is of great importance to the UK, as these are the fast-growing companies that will create jobs.”...

Precisely my point.
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Tranche Warfare

I've been mulling writing this post for a long time, watching with increasing -- but hardly surprised -- dismay all year as the economic tailspin has accelerated, its increasingly debilitating effects impacting the lives of more and more ordinary citizens worldwide who had no part in its creation. Now, the Bernie Madoff Ponzi scheme scandal seems as though it might represent the final nail in the coffin of financial system trust.

We seem to never learn.

I first learned the precise meaning of the "SDO" (Securitized Debt Obligation) during my 2000 - 2005 tenure as a subprime credit card risk management analyst (more on that shortly). Today, in addition to the SDO, we witness the additional dismal overlappingly-related acronym litany of the inscrutable and increasingly failed CDO ("Collateralized Debt Obligation"), ABS ("Asset Backed Security"), MBS ("Mortgage Backed Security"), SIV ("Structured Investment Vehicle") arrangements, many of which simply comprise the bundling and re-bundling of thousands upon thousands of debt contracts, sold to the various "Holders in Due Course" (i.e., referring to the staple fine print down in any loan agreement), and emergent as aggregate bonds subequently yet again chopped up into "tranches" paying dividends correlated with their respective maturities and risk-associated "agency ratings" (and all of these pseudo-sophisticated, inscrutable "instruments" increasingly "insured" by unregulated "Credit Default Swaps," the now largely unreedemable indemnity contracts responsible for the demise of the company that invented them, AIG).

Today we find that all manner of these aggregated bonds, nothwithstanding even "AAA" ratings, are in fact either of distressingly indeterminate value or are in fact simply worthless. What I call "tranche warfare" has commenced, and will likely continue for 10 - 20 years as the circular firing squads of "unwind litigation" rage on.

No, we indeed seem to never learn. Enron? The "DotCom" crash? Long Term Capital Management? The Savings & Loan Meltdown? United American Bank? Drexel Burnham Lambert? Equity Funding Life? Just to cite a few.

"THE BEST THINGS IN LIFE ARE 'FEE'"

That was the oft-repeated sarcastic and cynical joke in executive circles at the privately held subprime VISA/MC issuer where I worked in risk management. My own initial supervisor, the hastily installed VP of Risk who'd been brought over from Collections, would candidly say in private that according our customers credit was like giving whiskey to alcoholics.

But, hey, it's legal. And, if we don't do it, someone else will.

"Churn & Burn"

I was hired initially in March of 2000 as a temp tech writer brought in to compose documentation for a pending OCC examination, and subsequently offered a permanent position as a "risk analyst" once they learned of my applied stats background and SAS programming fluency. When I arrived the operation was classic subprime "churn & burn," bordering on the "predatory" (some would say they'd crossed far over that border). Huge upfront and ongoing transaction fees charged to the financially desperate made it nearly impossible to lose money, heavy charge-off losses notwithstanding. Burn 'em up and churn new accounts.

At the outset of my tenure, the "Risk Department" was one effectively in name only, consisting of two holdovers of the prior risk manager's pro forma regime, one a quite saavy statistician, the other an econometrician -- both of whom had their eyes on the door.

There wasn't much "risk" to manage beyond those posed by nagging class-action litigation and pending consent decrees that were a familiar feature of the subprime domain (and cynically viewed simply as a manageable cost of doing business).

The new VP of Risk, though, set about to build an effective, "best practices" risk department, one eventually staffed by a platoon of astute MBAs and statisticians recruited from far and wide, one whose subprime credit risk modeling and portfolio management and operations analytics became the envy of the sector. The bank's portfolio and profits grew steadily and impressively, and charge-off losses declined impressively. We sailed through our regulatory examinations. The OCC eventually characterized us as "Best-in-Class." While most other subprime players crashed and burned during this period (including the largest issuers such as Providian and NextCard), our little bank had moved away from the reckless and predatory and into "near-prime" marketing territory.

2004: CHURN & BURN REDUX

A large Wall Street "Bad Paper" firm with whom we'd been doing business on our charged-off accounts bought majority control of the bank in 2004.

• "Bad Paper" companies traffick in debt that has been deemed uncollectible by its current owners and is written off their balance sheets -- hence "charged off." You may default on a loan, but down in the fine print is the staple loan contract provision that the account still represents an "asset" which can be sold to a "holder in due course" to whom you are subsequently legally accountable. Bad paper typically trades at between a fraction of a cent to several cents on the nominal dollar, depending on the buyers' assessed "quality" of its eventual collectibility.

My subsequent VP of Risk (my original Sup went back to Collections) explained the prospective M.O. expected by the new owners. In a word, "securitization."

Some E-Z round numbers readily illustrate the concept. Assume 100,000 new VISA accounts booked, each with a credit line of $1,000 (remember, this is subprime; a thousand dollar unsecured credit line was considered radical). My own portfolio studies had shown that our credit-hungry customers typically maxed out their cards within four to five months. So, in short order you have a pool of accounts representing a nominal "asset" present value of one hundred million dollars (100,000 accounts x $1,000 each). Now, some of these accounts will eventually go bad and charge-off, while others will perform acceptably ongoing (providing continuing fee and APR income), with many "graduating" to even higher lines (every dollar of which will get used). Securities traders, then, bid on the estimated blended risk-adjusted future value of blocks of such accounts bundled up into "SDOs" -- our "Securitized Debt Obligations."

You take the proceeds from the SDO sale and plow it back into booking another 100,000 accounts, etc, etc, etc. Lather, Rinse, Repeat. Once you've sold the accounts, you, the issuing bank, no longer have to "reserve" (with set-aside capital) against future losses stemming from any of them that subsequently charge off. Someone else now owns that risk (and, the retail customer is typically clueless; they get the same billing statement month after month, and are simply unaware that your bank is now simply administering the account that someone else owns. For a recurring fee, of course.).

You see where this is going?

THE WHOLESALE, INCREASINGLY UNREGULATED COMMODITIZATION OF RISK

Bothered by the entire dubious ethic of subprime lending and this incipient new M.O. of feverishly shoveling risk out the door and onto the markets, I quit in February of 2005 to move on to more socially meaningful work (electronic medical records consulting for the Medicare QIO).

Whereas the market bid/sale values of my bank's SDOs would in large measure be a function of the astuteness of our proprietary credit risk scorecard and portfolio risk management models (these were, after all, aggregate financial products secured solely by the signatures of the individual "obligors," the credit card holders), such fastidious diligence would not be the case as the securitization frenzy metastasized to other lending domains -- most notable and obvious among them (now!) the mortgage arena. By now the exemplar stories of the "instant approval, no income half million dollar loan" are legion.

The Best Thing In Life Are FEE! Writ large; with the myriad origination et al fees, of course, written into -- and paid immediately right back out of (to the profiteers) -- the loans going right out the door.

It all morphed swiftly into classic Boiler Room.

A succinct new confirmatory summation of the phenomenon as I have described it now emerges in a current ongoing series by The Washington Post:

...By 2004, Wall Street investment banks were discovering how to turn consumer debt into a moneymaker, churning out bond-like securities backed by mortgages and other assets. Credit-default swaps helped attract institutional investors to these mind-bendingly complex deals, known in Wall Street jargon as collateralized debt obligations, or CDOs.

CDOs defined a revolution in corporate finance called "securitization." Wall Street saw any income stream as a candidate for securitizing: mortgages, credit card payments, car loans, even student loans. The investment banks would bundle these loans, and the monthly payments that came with them, into a new security for investors looking for steady but higher yields than Treasurys or corporate bonds.

CDOs had been around for years, but the real estate boom suddenly made mortgages one of the hottest investments on Wall Street. The mortgage industry turned into the equivalent of a giant assembly line, lubricated by fees from one end to the other. New lenders sprung up by the month, offering loans to first-time buyers as well as existing homeowners who wanted to move up to more square footage. For people with shaky credit, the industry provided subprime loans, with higher rates that some homebuyers now cannot repay.

Banks packaged and resold the mortgages in pools, which became the basis for mortgage-backed securities. Wall Street scooped them up. The CDO market took off, ballooning to $551 billion issued in 2006 from $157 billion in 2004.

The CDO structure depended on the concept of layered risk. The securities in the "super senior" top tier were considered low risk and attracted the highest ratings. In return for their safety, these bonds paid the lowest interest rate. The reverse was true at the other end: The lower tiers absorbed the first losses in the case of loan defaults. For accepting extra risk, investors in these tiers earned a higher interest rate.

Financial Products made its money by selling credit-default swaps only on the super-senior tier. It seemed a safe bet: [AIG Financial Products President Joeseph] Cassano once defined super senior as the portion of the deal that was safe even "under worst-case stresses and worst-case stress" assumptions.

The mortgage-backed CDOs were also thought to be safe because of the geographic diversity of the underlying loans. Surely, investment bankers reasoned, people in different parts of the country would not default on their home loans at the same time. The real estate market was strong and showed no sign of faltering.

Financial Products executives said the swaps contracts were like catastrophe insurance for events that would never happen...

"Events that would never happen"? Naive epistemic hubris on steroids. Nicholas Nassim Taleb's "Black Swan" comes to mind for me immediately.

...The current subprime crisis has been doing wonders for the reception of any ideas about probability-driven claims in science, particularly in social science, economics, and "econometrics" (quantitative economics). Clearly, with current International Monetary Fund estimates of the costs of the 2007-2008 subprime crisis, the banking system seems to have lost more on risk taking (from the failures of quantitative risk management) than every penny banks ever earned taking risks. But it was easy to see from the past that the pilot did not have the qualifications to fly the plane and was using the wrong navigation tools: The same happened in 1983 with money center banks losing cumulatively every penny ever made, and in 1991-1992 when the Savings and Loans industry became history.

It appears that financial institutions earn money on transactions (say fees on your mother-in-law's checking account) and lose everything taking risks they don't understand. I want this to stop, and stop now— the current patching by the banking establishment worldwide is akin to using the same doctor to cure the patient when the doctor has a track record of systematically killing them. And this is not limited to banking—I generalize to an entire class of random variables that do not have the structure we thing they have, in which we can be suckers.

And we are beyond suckers: not only, for socio-economic and other nonlinear, complicated variables, we are riding in a bus driven a blindfolded driver, but we refuse to acknowledge it in spite of the evidence, which to me is a pathological problem with academia. After 1998, when a "Nobel-crowned" collection of people (and the crème de la crème of the financial economics establishment) blew up Long Term Capital Management, a hedge fund, because the "scientific" methods they used misestimated the role of the rare event, such methodologies and such claims on understanding risks of rare events should have been discredited. Yet the Fed helped their bailout and exposure to rare events (and model error) patently increased exponentially (as we can see from banks' swelling portfolios of derivatives that we do not understand).

Are we using models of uncertainty to produce certainties?...

"Free money...Just put it on your books and enjoy the money."

Returning to the WaPo series for a moment, yesterday's installment:

For months, several executives at AIG Financial Products had pulled apart the data, looking for flaws in the logic. In phone calls and e-mails, at meetings and on their trading floor, they kept asking themselves in early 1998: Could this be right? What are we missing?

Their debate centered on a consultant's computer model and a new kind of contract known as a credit-default swap. For a fee, the firm essentially would insure a company's corporate debt in case of default. The model showed that these swaps could be a moneymaker for the decade-old firm and its parent, insurance giant AIG, with a 99.85 percent chance of never having to pay out.

The computer model was based on years of historical data about the ups and downs of corporate debt, essentially the bonds that corporations sell to finance their operations. As AIG's top executives and Tom Savage, the 48-year-old Financial Products president, understood the model's projections, the U.S. economy would have to disintegrate into a full-blown depression to trigger the succession of events that would require Financial Products to cover defaults.

If that happened, the holders of swaps would almost certainly be wiped out, so how could they even collect? Financial Products would receive millions of dollars in fees for taking on infinitesimal risk.

The firm's chief operating officer, Joseph Cassano, had studied the model and urged Savage to give the swaps a green light.

"The models suggested that the risk was so remote that the fees were almost free money," Savage said in a recent interview. "Just put it on your books and enjoy the money."

Initially, the credit-default swaps business would amount to a fraction of the half-billion dollars in Financial Products' revenue that year. It didn't seem to them like a major decision and certainly not a turning point.

They were wrong. The firm's entry into credit-default swaps would evolve into insuring more volatile forms of debt, including the mortgage-backed securities that helped fuel the real estate boom now gone bust. It would expose AIG to more than $500 billion in liabilities and entangle dozens of financial institutions on Wall Street and around the world.

When the housing market tanked, a statistically improbable chain of events began to unfold. Provisions in the contracts kicked in, spurring collateral calls on swaps linked to $80 billion in questionable assets, requiring the firm and AIG to come up with billions of dollars in cash. They scrambled for almost a year to stave off the calls, but there were too many deals with too many counterparties.

In September, the Bush administration concluded that AIG's position at the nexus of the deals meant that it could not be allowed to fail, triggering the most expensive rescue of a private company in U.S. history. So far, the government has invested $152 billion in its efforts to save AIG. Federal investigators are sifting the carnage.

Credit-default swaps exemplify the contradictions of modern finance. At a basic level, they serve as insurance, but they aren't regulated as such. They have allowed companies to free up untold amounts of capital that otherwise would be tied up as collateral for loans. They were sold both to reduce risk and, in some cases, to give clients room to take on more risk -- a key component to making money on Wall Street.

But in the end, neither the buyers nor sellers truly understood the enormous risks they were creating. Anyone could sell such a swap, and anyone could buy one, even if he had no stake in the transaction. Some buyers used them to bet against failing companies, prompting a debate among state regulators about whether this type of swap was a form of gambling...

I have a couple of observations. First any empirically-based model purporting to assure "a 99.85 percent chance of never having to pay out" (or any "probability of x") is [1] an estimate (containing a variance component too often ignored or otherwise dismissed), and [2] is beholden to a host of implicit assumptions, chief among them -- beyond the overtly mathematical/statistical -- that "past remains prologue." That the "computer model was based on years of historical data about the ups and downs of corporate debt" could in fact turn out to be irrelevant, for an econometric/risk-cost/benefit model may well be significantly adversely impacted (perhaps fatally so) by both unexamined or poorly understood evolving structural changes in the aggregate economy and (relatedly) large-scale policy changes within the financial regulatory environment.

• Another note regarding the "99.85 percent chance" assertion. I cut my professional teeth in the 1980's in a forensic environmental laboratory in Oak Ridge. In that world, if you put down for the record a quantity such as "99.85," you had better be able to demonstrate to regulators, auditors, and attorneys your empirical ability to distinguish between the bracketing "0.84" and "0.86." Otherwise, you're just naive or blowing smoke. This is known in science as "significant figures rounding," the specs of which were typically written into our contracts, for every analytical parameter.
  

Unless you've been living in a cave on a South Seas Island for the past decade, you cannot but know what has been the "conservative" political attitude regarding all manner of "regulation" of late. The unfolding upshot of this most recent, pandemic de-regulatory frenzy seems to worsen by the day. The M. Wuerker cartoon below from Politico sums our current debacle up nicely (click the image to enlarge if you wish).


"IT'S ALL JIMMY CARTER'S FAULT"

Depending on your ideological perch location along the political fence line, you can fill in the blank with your favorite whipping boy: "It's all _______________'s fault." (Jimmy Carter, Ronald Reagan, Bill Clinton, Phil Gramm, Alan Greenspan, George W. Bush, etc)

The ever-dour WaPo columnist and Fox News panelist Charles Krauthammer lays the mess on former President Carter's desk:

...While the punch bowl -- Alan Greenspan's extremely low post-Sept. 11 interest rates -- was being held out, few complained about cheap loans and doubling home values. Now all of a sudden everything is the fault of Wall Street malfeasance.

I have little doubt that some, if not many, cases of malfeasance will emerge. But what we conveniently neglect is the fact that much of this crisis was brought upon us by the good intentions of good people.

For decades, starting with Jimmy Carter's Community Reinvestment Act of 1977, there has been bipartisan agreement to use government power to expand homeownership to people who had been shut out for economic reasons or, sometimes, because of racial and ethnic discrimination. What could be a more worthy cause? But it led to tremendous pressure on Fannie Mae and Freddie Mac -- which in turn pressured banks and other lenders -- to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity...

While there can indeed be many necessary yet insufficient conditions that can contribute to an eventual conflagration, to be fair, it must be pointed out that Carter's CRA was enacted more than 30 years ago, and, given that, it begs the question to Mr. Krauthammer of just how things could have remained so manageable for so long?

Critics on the left flew all over this type of finger-pointing by the right: 'yeah, if only those undeserving poor hadn't been accorded opportunities for home ownership, we wouldn't now be dealing with this mess.'

The simple truth is that our current mess is not "all" or even primarily any one person's fault, but rather the creeping cumulative result of an increasingly widespread series of deregulatory policy changes, mostly across the past decade, and, if there can be said to be the match that lit the blaze, it has to be the now-infamous 2004 SEC "Net Capital Rule Change."

...Many events in Washington, on Wall Street and elsewhere around the country have led to what has been called the most serious financial crisis since the 1930s. But decisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. The agency’s failure to follow through on those decisions also explains why Washington regulators did not see what was coming.

On that bright spring afternoon, the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks.

They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.

The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary.

A lone dissenter — a software consultant and expert on risk management — weighed in from Indiana with a two-page letter to warn the commission that the move was a grave mistake. He never heard back from Washington.

One commissioner, Harvey J. Goldschmid, questioned the staff about the consequences of the proposed exemption. It would only be available for the largest firms, he was reassuringly told — those with assets greater than $5 billion.

“We’ve said these are the big guys,” Mr. Goldschmid said, provoking nervous laughter, “but that means if anything goes wrong, it’s going to be an awfully big mess.”...

...The proceeding was sparsely attended. None of the major media outlets, including The New York Times, covered it.

After 55 minutes of discussion, which can now be heard on the Web sites of the agency and The Times, the chairman, William H. Donaldson, a veteran Wall Street executive, called for a vote. It was unanimous. The decision, changing what was known as the net capital rule, was completed and published in The Federal Register a few months later.

With that, the five big independent investment firms were unleashed.

In loosening the capital rules, which are supposed to provide a buffer in turbulent times, the agency also decided to rely on the firms’ own computer models for determining the riskiness of investments, essentially outsourcing the job of monitoring risk to the banks themselves [emphasis mine- BG].

Over the following months and years, each of the firms would take advantage of the looser rules. At Bear Stearns, the leverage ratio — a measurement of how much the firm was borrowing compared to its total assets — rose sharply, to 33 to 1. In other words, for every dollar in equity, it had $33 of debt. The ratios at the other firms also rose significantly...

This was an incendiary two-fer: essentially taking the cuffs off of "leveraging" by allowing the Wall Street investment firms to self-report their own modeling estimates of their risk exposure! All part of the GW Bush-era deregulation-uber-alles policy religion. Well, we've seen how well internal, proprietary risk modeling worked for AIG.
______

THE OPIUM ECONOMY
(Originally posted back in September on my music blog)

Below, NASA satellite image just taken of the U.S. economy.

Other Peoples' Irresistibly Undervalued Money.

My main 401k account netted about a 16% return in 2006 (16.2% to be exact). Not bad, 'eh, A 16% ROI? ("Return On Investment") Can't complain about that, really, given that my fund allocation was relatively conservative in the aggregate.

Well, consider that, also at the time, assuming you had a decent FICO score, you could borrow OPM (Other Peoples' Money) at around 8%.

So, hmmm, lessee, I take $100,000 of my direct liquid asset money and invest it in a fund or stock that returns $16,000 in a year (16%), I'm pretty pleased, if naively so.

But -- what if I borrowed $90,000 at a cost of 8% APR interest and threw in only $10,000 of my own cash? The OPM cost me $7,200 (90 grand at 8%), which I have to deduct from my $16,000 gross return. So, my net return after paying off the loan is $8,800.

Well, effectively, my ROI is my $8,800 net profit divided by the ten thousand of my own dough that I put at risk, or 88% -- 5 and a half times the ROI I'd have gotten using my own cash (and, during the period, I still had unrestricted use of my remaining 90 grand for other things).

Hell, why not borrow it all, (hey, while that might be illegal, nobody's apparently paying attention) and make a clean $8,000 for having put zero of my own dollars at risk? My lender gets a mundane ROI of 8%, while my "net" return is truly off-the-scale, given that I've incurred no risk whatsoever. Free money.

It's called "leverage." By astutely "working the spread" between what you pay for OPM and what you can earn from OPM, you can accrue up to infinite multiples of profit relative to the prospects of the prudent chump risking solely his or her own cash in search of maximal return.

Now, at the macroeconomic level, when the absolute OPM sums tossed about get really large -- e.g., in the multiple nine figures range or larger -- the spread can be much, much thinner and still provide acceptable nominal net profits, replete with those dizzying brokerage and bank CEO compensation packages.