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Healthcare Dreams, Healthcare Realities

Thursday, July 16, 2009

President Obama is not the first chief executive to discover that it was much easier to promise grand dreams on the campaign trail than to reconcile them with stubborn realities.

President Barack Obama is not the first, or last, chief executive to discover that it was much easier to promise grand dreams on the campaign trail than to reconcile them once in office with the stubborn realities of congressional lawmaking, contradictory public opinion sentiments, and political accountability. The last month in particular has begun to reveal increased signs of stress across the fault lines separating the magic words of old from the more pedestrian messages of daily political compromise. From his June 15 speech before the American Medical Association (AMA), to his exchanges with participants in an ABC News town hall on June 24, and up to his most recent “revised and extended” remarks, the president has trotted out a mixed assortment of blanket denials, exaggerated factoids, and contradictions; followed later by a catch-up round of equivocations and verbal misdirection.

Perhaps the signature pledge of the Obama presidential campaign’s healthcare plan was that his proposed reforms would not undermine any insurance or physician arrangements that individual Americans already had and wanted to keep. Or, as the president reminded AMA delegates last month, “And that means that no matter how we reform healthcare, we will keep this promise. If you like your doctor, you will be able to keep your doctor. Period. If you like your healthcare plan, you will be able to keep your healthcare plan. Period. No one will take it away. No matter what.”

Even President Obama conceded at a White House news conference on June 23 that delivering on the ‘you can keep what you have’ pledge might be beyond his control.

Unfortunately, “period” has turned into a question mark. What has eroded the premise of that promise are the proposals of the Obama administration and Democratic congressional leaders for much tighter federal regulation of mandatory health insurance benefits, more intrusive government guidance on what might constitute effective medical care worthy of taxpayer-subsidized reimbursement, and a politically favored public plan “option” likely to crowd out many existing private insurance choices. Indeed, even President Obama conceded at a White House news conference on June 23 that delivering on the “you can keep what you have” pledge might be beyond his control. He explained, “what I'm saying is the government is not going to make you change plans under health reform.” In other words, the government may change the overall rules of the healthcare market, add new burdens and requirements for employer-sponsored insurance, subsidize its own brand of “competing” public coverage, tighten reimbursement for what it deems is unnecessary healthcare, and provide strong incentives for employers to drop their current types of coverage or for physicians to practice medicine differently. But it won’t officially order any of them to do so (at least not yet). The harsh political reality ahead is that it will be hard to keep what you have when you cannot find it around much longer.

Public Plan Entry and Exit Wounds

At his town hall meeting televised by ABC News on June 24, President Obama also tried to reassure viewers that the government or an employer will not force an individual into the controversial “public option.” He emphasized, again, “So if you're happy with your plan, as I said, you keep it." But earlier that day on "Good Morning America," the president’s remarks to Diane Sawyer included some additional conditions on that promise: "If you're happy with it, and your employer's happy with it, keep it," he said. "If your employer is not providing you the healthcare that you need, then we're going to give you a set of options to make sure that you continue to have healthcare" (emphasis added). That seemed to echo his earlier remarks before the AMA the previous week, when he more broadly promised, “If you don’t like your health coverage or don’t have any insurance, you will have a chance to take part in what we’re calling a Health Insurance Exchange” (emphasis added).

Playing his own verbal ping-pong match, the president pressed on in his town hall meeting televised by ABC News, also on June 24, with another promise that employers could not just drop coverage and toss their employees, willing or not, into the public plan that he insists must be offered in the Health Insurance Exchange. “One of the things that we've said is that, if you are eligible for your employer plan, then you can't just go into the public plan, you can't decide that you're already having a pretty good deal in insurance, and you're just going to dump that, what's called a firewall.”

How to actually enforce that fuzzy version of a firewall between current employer coverage and newer insurance options in a national Health Insurance Exchange remains in doubt. This renewed stance to embrace current employer coverage, rather than undermine it, is only the latest version of the president’s changing plans, for the moment. It seems to square with the original Obama presidential campaign’s initial marketing of the exchange as a means to provide new choices to those largely shut out of the traditional employer-sponsored group health insurance market. Otherwise, it might operate like an alluring “roach motel” of centralized regulation and one-way public subsidies, into which private insurance plans and their enrollees might check in, but never be able to check out.

Although soft-pedaled as just another option for those seeking health insurance, Obama’s public plan would start with several prefabricated advantages on a tilted playing field.

Moreover, the inclusion of a Medicare-like public plan option in candidate Obama’s 2007 health reform proposal originally was not open to all, but only to individuals without access to group coverage through their workplace or current public programs, as well as people who were self-employed and small business owners who wanted to begin to offer insurance to their employees. However, shortly after Election Day, those limits were “revised” on the Obama-Biden website to clarify that “all” Americans would have the opportunity to enroll in the new public plan or a politically approved private plan, through the exchange. All the private plans offered in the exchange also would be required to provide coverage at least as generous as the new public plan, charge fair premiums, and meet the same standards for quality and efficiency.

In any case, even larger employers already offering coverage to their workers might well begin to face new competition from the public plan, as well as exchange-approved private plans. Although soft-pedaled as just another option for those seeking health insurance, Obama’s public plan would start with several prefabricated advantages on a tilted playing field. As a large government purchaser, it could leverage the administered price controls of the current Medicare program to pay providers less than private insurers and promise beneficiaries more—with indirect taxpayer subsidies (either before or after the fact) and a nationwide package of government-determined benefits. As a regulator of its private competitors, the federal government could handicap them to play by rules favoring the public plan option.

After all, it is hard to imagine the administration and Congress failing to protect its own legislative offspring; particularly when the president has already revealed his underlying preference for government-directed healthcare. In 2003, Obama told the Illinois AFL-CIO, “I happen to be a proponent of a single-payer, universal healthcare plan.” At a town-hall meeting in August 2008, Obama responded to a question about the single-payer concept, “If I were designing a system from scratch, I would probably go ahead with a single-payer system.” He then hinted that, once implemented, his reform plan could help move the country in that direction anyway: “My attitude is let’s build up the system we got . . . [and] we may . . . over time . . . decide that there are other ways for us to provide care more effectively.”

Indeed, the Lewin Group recently projected that, over a relatively short time, an option under which the public plan reimbursed healthcare providers at Medicare payment rates would be able to offer premiums up to 30 percent less than premiums for comparable private coverage. If such a public plan was open to all employers, Lewin estimated that it would enroll more than 131 million Americans and people with private insurance would decline by 119 million. That would not just “crowd out” private insurers; it would quickly engulf and devour their customer base, while removing existing options from consumers.  

Pick a Number You Like

The president continues to play rather fast and loose with various numbers to support his case for reform. They almost seem real at first, until one examines them more closely. For example, he told ABC town-hall participants, “Each time an uninsured American steps foot into an emergency room with no way to reimburse the hospital for care, the cost is handed over to every American family as a bill of about $1,000 that is reflected in higher taxes, higher premiums, and higher healthcare costs; a hidden tax that will be cut as we insure all Americans.”  

A study concluded that attributing increased private health insurance premiums to any expanded costs of treating the uninsured is a misperception.

Let’s take that factoid apart in pieces. It originates from the latest advocacy piece, posing as an empirical study, published by Families USA this past May. “Hidden Health Tax: Americans Pay a Premium,” follows in the wake of several earlier flawed studies that exaggerate the degree to which the costs of uncompensated care provided to the uninsured are “shifted” to higher premiums paid by the privately insured. In this case, Families USA contracted with the actuarial consulting firm, Milliman, Inc., to analyze various federal data sources such as the Medical Expenditure Panel Survey (MEPS) and provide updated estimates of the purported hidden tax. Those latest findings, partly recycled by President Obama, were that Americans without insurance received approximately $42.7 billion in net uncompensated care in 2008, the entire amount of which purportedly was shifted to the private insured population (but not to anyone covered by Medicare or Medicaid) at annual costs of $1,017 per insured family and $368 per insured single person.

The Milliman numbers conflict noticeably with a more thorough empirical analysis of uncompensated care costs and burdens developed by a group of Urban Institute researchers (Jack Hadley, John Holahan, Teresa Coughlin, and Dawn Miller) and published by the Kaiser Family Foundation last August. The authors refined and updated their earlier path-breaking work in 2003. They concluded that, under one method using MEPS-based estimates, uncompensated care received by the uninsured in 2008 amounted to $54.3 billion but only half of it ($27.8 billion) came from “implicitly subsidized” care, that is, funds potentially cost-shifted to private insurance premiums. The rest ($26.5 billion) of that funding for uncompensated care represented payments from other public sources and other private sources.  

However, the Urban Institute researchers also cross-checked their findings with an alternative method, based on independent data from other provider and government sources. The overall estimate of uncompensated care from those sources amounted to $57.4 billion in 2008, leading to Hadley et al.’s conclusion that the total cost of uncompensated care received by the uninsured last year was roughly $56 billion. But they also calculated that federal, state, and local government funds accounted for $42.9 billion that was available to pay for that uncompensated care, even after adjusting for possible misallocation of funds spent in the name of the uninsured. Their study concluded that attributing increased private health insurance premiums to any expanded costs of treating the uninsured is a misperception; particularly when a net balance of only about $14.5 billion was arguably financed by the privately insured in the form of higher (cost-shifted) private payments for care and, ultimately, higher insurance premiums. Indeed, they estimated that the amount of uncompensated care potentially available for private cost-shifting is most likely even lower, at about $8 billion in 2008, which was less than 1 percent of private health insurance costs ($829.9 billion).

What accounts for the inflated findings by Families USA and Milliman, which just happened to suit the president’s line of argument? First, they undercounted other sources of payment for care received by the uninsured, in some cases arbitrarily dismissing better estimates by others. Second, they too crudely assumed that the costs of care for the part-year uninsured would be proportionate to the portion of the year that they were uninsured (unlike Hadley et al., who adjust for the clustering of more health spending into periods of insurance coverage). Third, they inflated MEPS healthcare costs for the uninsured by factors greater than those used by Hadley et al., by overlooking the different rates of growth for insured versus non-insured health spending. Fourth, in a glaring statistical whopper, the Milliman figures evidently failed to adjust the 2006 MEPS numbers they report for total private insured spending ($557 billion) to their 2008 value under National Health Expenditure accounting methods. Fifth, Milliman unconvincingly limited the entire amount of any possible cost-shifting of uncompensated care only to the smaller base of privately insured health premiums, overlooking the difference between reimbursement fee levels under administered pricing in government programs and the behavioral offsets used by providers to increase reimbursed spending through greater volume and upcoding. In the trade, one might call the latter two statistical tricks suppressing the denominator in order to inflate the resulting percentage. Sixth, one of the clinching arguments for the Hadley et al. view of cost-shifting is their statistical demonstration that the share of hospitals’ overall costs due to uncompensated care remained remarkably stable over time amidst rising levels of uninsurance—even as hospitals’ cost-to-charge markup ratio for private payers has fluctuated for other reasons in a completely uncorrelated manner.

This renewed stance to embrace current employer coverage, rather than undermine it, is only the latest version of the president’s changing plans.

In other words, President Obama’s opportunistic recycling of those flawed estimates should carry a marked-to-market-reality price tag that distinguishes better between taxpayer costs and private premium payer costs, as well as acknowledging several other inconvenient truths related to his other plans to expand Medicaid coverage substantially. Medicaid beneficiaries currently are about 70 percent more likely than the uninsured to use hospital emergency department care. The uninsured represent only about one-sixth of all emergency department visits. And even by estimates provided by other Milliman actuaries, the actual amount of estimated cost shifting to private insurance by the low-paying Medicaid and Medicare program (to the extent that such cost shifting actually occurs) is nearly twice the amount of any purported cost shifting due to uncompensated care for the uninsured.

Other examples of numerical challenges within the president’s past promises include reconciling his campaign pledge that “no one making less than $250,000 a year will see any form of tax increase. Not income tax, not capital gains tax, not any kind of tax” with his more recent vow that “healthcare reform must be and will be deficit neutral in the next decade. There are already voices saying the numbers don’t add up. They are wrong.” With initial Congressional Budget Office ten-year estimates for early legislative versions of health reform starting above $1 trillion and generally climbing higher, congressional leaders last month began to add up those numbers and start exploring revenue-enhancing vehicles. They ranged from taxing at least a portion of “non-rich” workers’ health insurance benefits on the Senate side, to taxing the soft drinks they consume on the House side, or taxing some of their wages indirectly through insurance coverage mandates on their employers (on both sides). What they shared was the reality of taxation by various means.

On July 13, the president repeated his campaign promise that Americans making $250,000 a year or less would not pay more in taxes: “These are promises that we’re keeping as reform moves forward.” The next day, reform moved forward with a tri-committee House bill full of hundreds of billions of dollars of tax increases on employers as well as upper-income earners, sure to land sooner than later on the backs of lower-income workers destined for lower wages and fewer jobs.

The Evolution of the Individual Mandate Resolution

President Obama apparently has felt the need to move beyond his ambiguous presidential campaign stance, when he endorsed only an employer “pay or play” mandate (exempting some small firms) and a partial individual mandate (just for kids), but rejected the idea of a coverage mandate imposed on anyone else because it would require “a very harsh, stiff penalty.” He promised universal coverage, but only if it first was made “affordable.” Yet during his presidential campaign, Obama said flatly that “every American has the right to affordable healthcare.” Then last month, he acknowledged that his thinking on the issue has “evolved.” Obama said he now could support a law mandating that individuals purchase healthcare coverage, with fines for those who do not, but he stressed there must be some kind of waiver for those who are simply unable to afford it, apparently even after new public subsidies are approved by Congress.

The harsh political reality ahead is that it will be hard to keep what you have when you cannot find it around much longer.

The various switches in his stance on an individual mandate leave some wondering whether the president simply ran out of taxpayer money to make good on his earlier promise, or might instead consider at least some Americans less deserving of affordable coverage.

Finally, we have the increasingly predictable Obama rhetorical device of positioning his own proposals for action in opposition to the straw man alternative of “doing nothing.” Before AMA delegates, the president first painted an ominous and unacceptable picture of what would unfold in the future if nothing was done. He said “the status quo is unsustainable. Reform is not a luxury, but a necessity . . . the cost of inaction is greater.” Unfortunately, the real measure of health reform will be between doing something badly (the Obama way), and doing it better (another way). Action without improvement is another luxury we can no longer afford. Real reform that will actually help, not hurt, is what we need.

Thomas P. Miller is a resident fellow at the American Enterprise Institute. He is a former senior health economist for the Joint Economic Committee of the U.S. Congress and serves on the National Advisory Council for the Agency for Healthcare Research and Quality.

FURTHER READING: Miller wrote “ What DO We Know About the Uninsured?” and “Obama Healthcare 2.0,” on how the president’s opening offer of healthcare at a teaser rate fails to deliver what we actually need, value, and can afford. His other articles include “What You Don’t Know Can Hurt You,” on how there is a strong association between educational attainment and health—one more reason to empower Americans, not Washington, with greater ownership of their healthcare.

Image by Darren Wamboldt/Bergman Group.

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