Should progressive reformers talk about reining in the cost of care?

By Maggie Mahar

Maggie Mahar is an award winning journalist and author. A frequent contributor to THCB, her work has appeared in the New York Times, Barron's and Institutional Investor. She is the author of Money-Driven Medicine: The Real Reason Why Healthcare Costs So Much, an examination of the economic forces driving the healthcare system. A fellow at the Century Foundation, Maggie is also the author the increasingly influential HealthBeat blog, one of our favorite healthcare reads, where this piece first appeared.

“It seems that John McCain may have stolen some of the fire that Democrats traditionally wield on health issues by making cost control his top priority, rather than universal coverage.” -Rob Cunningham, “Health Affairs” May/June 2008

Last week, the bold proposal for health care reform that Dr. Ezekiel Emanuel outlines in Healthcare, Guaranteed drew high praise from the American Prospect’s Ezra Klein. As Klein described it:

Emanuel’s Guaranteed Health Care Access Plan maps out “a total transformation of the system.  It does not build on the inefficiencies of the current structure, preserving them in amber for the next generation.”

Rather than expanding on the dysfunctional system that we have today, Emanuel, who is the director of bioethics at NIH (and brother to politician Rahm Emanuel), is calling for structural reform. This is what makes his proposal both brave and fresh.

But Emanuel’s plan isn’t just exciting; it’s practical. As usual, Klein cuts to the heart of the matter: “The big deal, he explains is cost control. In health care, cost control is everything.”

“At the current rate, health care will grow to 30 percent of GDP by 2030,” he continues. “That's money -- in the trillions -- that can't be spent on other things, either progressive priorities like universal pre-k or personal priorities like buying a home and taking a vacation. And what are we getting for the amount we spend?  . . experts estimate that 20 cents to 50 cents of every dollar spent on care is wasted on unnecessary or ineffective treatments. It's a tragically bad deal . . . Arguably nothing more progressive could happen in our country than for health care to get cheaper, so families and the government have more money for other priorities. There's nothing progressive about wasting 20% to 50% of the dollars spent on health care.”

As Congressional Budget Director Peter Orszag recently pointed out, we’re facing a crisis.

“We need to weed out the treatments that don’t improve outcomes," Orszag declared. “Health Care is the least efficient sector of our economy” . . . and one “unexpected effect” is that the price of health care has been “driving up the cost of tuition at state universities because state support for Medicaid has been crowding out state support for higher education.”

That is why I believe that progressives must begin talking about the high cost of care, and how we need to wring the waste out of the system to make truly effective, high quality care affordable for everyone. Don’t let the conservatives dominate the debate about spending. If they do, they’ll take the conversation in the wrong direction.

What Emanuel’s Plan Offers

But first, let me re-cap, in a paragraph, what I wrote last month here and here about Emanuel’s proposal.

Emmanuel would offer free, high quality health care to all Americans. No premiums. No deductibles. Low co-pays. Rather than depending on an employer for health insurance, every American would receive a government voucher that he could trade in for a health care plan of his choice. Insurers would be tightly regulated. Every plan would have to offer the same comprehensive benefits –- coverage that is more generous than Medicare’s and more comprehensive than what 85 percent of all employers offer their employees.

Because no money would be changing hands, insurers could not charge customers more if they suffer from “pre-existing conditions.” (If a company winds up with a disproportionate number of sick or elderly patients, the government would pay the insurer more on a risk-adjusted basis.) Ultimately, insurers would have to compete on quality, not on price, by providing patients with a network of hospitals and doctors where outcomes are better, errors are rarer, and patients find what patients want: competence and kindness.

How the Guaranteed HealthCare Access Plan Controls Costs

Emanuel’s plan reins in health care inflation in three ways.

First, it mends a hopelessly fragmented system. “Integration is crucial for cost control, Klein observes. “Today “800+ private insurers, all operating in their own little fiefdoms, forge hundreds of different contracts with thousands of different employers and millions of individuals. You can't effectively regulate it because you can't get your hands around it. Add in Medicare, Medicaid, S-CHIP, the VA, the IHS, and all the other mop-up plans, and you're left with a dizzyingly broken and diffuse system.

The administrative costs of such a system are huge. By removing the employer as middle man, Emanuel shows that his plan could save roughly $120 billion a year. Moreover, over time, Emanuel would fold Medicare, Medicaid and SCHIP into the Guaranteed HealthCare Access Plan, further unifying and streamlining the system. (From the outset, anyone who wanted to leave one of those programs to join the new Plan would be welcome.)

Insurers also would save because they wouldn’t have to market their plans to millions of employers. Instead they deal only with 12 Regional Boards that oversee the insurers -- and make sure that they are following the rules. Because insurers would be competing on quality, they would have an incentive to sink any administrative savings into investments that reduce errors in their hospital networks. For instance, they might plow some of the savings into the electronic medical records that they would need in order to report patient outcomes to the Regional Boards.

Secondly the Plan sets up an independent Institute for Technology and Outcomes Assessment that would compare the effectiveness of various drugs, devices and procedures. (Earlier this week, I explained how comparative effectiveness research works.)

Today, because we have so little data comparing different treatments and interventions, physicians find themselves at the mercy of what manufacturers choose to tell them about their products. Doctors are “flooded with hundreds of publications on cancer alone,” Emanuel and health care economist Victor Fuchs note in a recent issue of Fuchs originally collaborated with Emanuel on creating the voucher approach over a period of five years. )

But without head-to-head comparisons, they conclude, “it is extremely difficult for doctors to judiciously incorporate new data into their practices.”

Meanwhile pharmaceutical companies spend more than $7 billion annually — about $10,000 per physician -– on marketing aimed at doctors. As Emanuel and Fuchs point out: “Companies can selectively highlight favorable studies from the mass of research, confident that there are few comparative effectiveness data for physicians to put the marketers' desired conclusions into a proper context.”

By contrast, an Institute for Technology Assessment would give doctors the unbiased information that they need in the form of “guidelines” (not rules) for best practice,” outlining which treatments are likely to be most effective for particular patients.

Third, the Institute would be insulated from both Congress and the lobbyists  who promote the most lucrative products because the entire Plan would be funded by a dedicated 10 percent Value-Added Tax that could be used only for health care. Because revenue from the tax would grow with normal inflation in the cost of consumer goods and services, the Plan would not have to go back to Congress each year for appropriations.

Revenue from the VAT would be the only funding available to the Guaranteed Health Care Access Plan, and as a result, Klein points out: the VAT would “act essentially as a global budget. It is extremely powerful cost control. If people want more expansive insurance options in the basic plan, they have to elect politicians who will raise the VAT tax.”

Few politicians would want to vote for a tax hike. As a result, the VAT will act as an automatic cap on health care spending.

How the VAT Would Be Off-Set by Higher Wages and Lower Taxes

But would Americans sit still for a brand new 10% national sales tax on everything they buy? This “will unsettle a lot of folks,” Klein acknowledges. “This is particularly true because people believe, wrongly, that their employers pay for their health care. In fact, as research by Emanuel shows, that money is coming out of their wages. But folks don't know that, and the necessary work has not been done to convince them of it.”

In truth, benefits are part of what employers call “total compensation.” When they pay more for health care benefits, they pay lower wages. This helps explain why wages have stagnated over the past three decades.

As Emanuel and Fuchs observed not long ago in the Chicago Tribune:

“This cost-wage trade-off is usually well hidden from employers and workers, but many studies show that it is a painful reality for average Americans. For instance, over the last 30 years, health-insurance premiums have increased by 300 percent after adjustment for inflation. During that time, after-tax corporate profits per employee have increased 200 percent, while workers' average hourly earnings, adjusted for inflation, decreased by 4 percent. Rather than coming out of corporate profits, the increasing cost of health care has resulted in relatively flat wages for 30 years.”

If employers were no longer expected to pick up the check for health insurance, many would very gratefully give their employees raises equal to what they now pay toward premiums. If they didn’t, other employers surely would — and steal their most valuable employees.

Employers who offer health care benefits to workers earning more than $60,000 now contribute an average of $9,000 to $13,000 toward the cost of a family plan. Under Emanuel’s plan, those households could expect to receive a $9,000 to $13,000 pay hike—which would go a long way toward covering their new VAT taxes. And they would no longer have to pay anything toward their premiums.

In addition, because states would no longer be funding Medicaid and SCHIP, many Americans could look forward to cuts in state income taxes. Imagine a household that earns $150,000, spends $140,000 and pays $14,000 in VAT taxes. That family could reasonably expect a raise of roughly $11,000 and a break on their state income taxes of $3,000- or more—depending on where they live. Moreover, under Guaranteed Healthcare Access they could feel secure that they would never lose their insurance, even if they changed jobs.

Granted, employees on the bottom half of the income ladder would be less likely to receive raises equal to their benefits. In many cases, their employer probably doesn’t offer benefits. Or if he does, he makes a modest contribution to a skimpy plan that that doesn’t really protect the employee or his family.

But under the Guaranteed HealthCare Access Plan, a middle-class or lower-income family is assured comprehensive coverage at a very low price. Imagine a median income household that earns $50,000; assume that the family spends the entire $50,000, and pays $5,000 in VAT taxes. In return, they receive a insurance package worth roughly $13,000 (the average cost of employer-based family plan). This is why the VAT in Emanuel’s plan in not regressive—all of the revenues are re-distributed in the form of health benefits worth far more than the VAT taxes a low-income

“ Don’t Talk About Costs—You’re Helping the  Conservatives”

As Klein points out, the necessary work has not been done to explain to Americans how runaway health care inflation has been hurting them by capping wages while draining state coffers of the dollars that states could be spending on social goods like higher education.

Why haven’t progressives done that work? Because too often, liberals reformers shy away from talking about the sky-high cost of health care in the U.S. — or how we’ll need to eliminate ineffective, sometimes harmful treatments in order to afford universal care.

I cannot tell you how many times I have heard intelligent, progressive reformers say: “We shouldn’t talk about costs and cost control. If you do that, you’re handing ammunition to the conservatives.” This is one reason why some don’t like Emanuel’s plan; it’s too candid about the fact that while millions of Americans receive too little health care, others receive too much in the form of redundant tests, ineffective, sometimes unproven procedures, and exorbitantly priced drugs and devices that are no better than their less expensive rivals.

The argument goes like this: “The conservatives will say that when liberals talk about ‘cost control’ what they are really talking about is RATIONING—government denying Americans the care they need. Don’t talk about ‘putting a brake on health care inflation,’” they counsel. “We’re a rich country. No one wants to hear that.”

So it’s left to the conservatives to talk about cutting costs, while progressives emphasize covering everyone.

Certainly that’s how the Los Angeles Times framed the debate last week, in an editorial which stated that the candidates are “giving voters a stark choice”: Obama "is calling for government to do more to address the nation's ills," while “McCain is embracing the traditional GOP faith in free-market solutions . . ."

The Obama proposal would "make coverage mandatory for children, expand federal subsidies for the uninsured and impose new funding requirements on employers.” This sounds generous, but one can’t help but wonder: won’t it be expensive?

McCain, on the other hand, “shuns that infusion of government money and authority" and "instead would rely on market competition to drive down costs."

Message received: Obama wants to help the uninsured. McCain wants to “drive down costs.” But most Americans are not uninsured. Their biggest worry is the price of care. They are very concerned that, as premiums continue to spiral, insurance will soon become unaffordable, both for them and for their employer. They want to hear about how health care reform will lower costs.

The conservatives know exactly what they’re doing: “It seems that John McCain may have stolen some of the fire that Democrats traditionally wield on health issues by making cost control his top priority, rather than universal coverage,” Health Affairs deputy editor Rob Cunningham observed last month. Indeed, “McCain spokesman Doug Holtz-Eakin appeared to relish his role as a champion of fiscal discipline in a panel discussion with representatives of the Democratic candidates. “

In truth, Obama, like Emanuel, realizes that we cannot let health care spending continue to spiral. And he says so on his web page, “BARACK OBAMA’S PLAN FOR A HEALTHY AMERICA.”

Obama pulls no punches, acknowledging that “Though Americans spend almost twice as much per person as citizens of other industrialized countries, their health status is no better and by many measures actually worse . . .

“A growing body of research points to substantial opportunities to improve quality while reducing the costs of care,” Obama adds. “Some researchers estimate that as much as 30 percent of health care is not contributing materially to patient outcomes. Health care systems in many parts of the country deliver high quality care to the populations they serve at half of the costs of other equally renowned academic medical centers in other parts of the country.”

Obama makes it clear that spending more does not guarantee better care, and that we must address geographic variations in health care spending which have nothing to do with better health. There is no reason for Medicare to spend twice as much on a patient in a Boston hospital as it spends on a very similar patient at the Mayo Clinic in Rochester, Minnesota.

And, like Emanuel, he explicitly calls for “Comparative Effectiveness Reviews and Research, pointing out that while “The U.S. provides some of the best health care and most sophisticated medical technologies in the world, “ it does so at a cost that is making the effort to expand access to care ever more difficult.

“In order to be able to provide health care coverage for all,” Obama declares, we need to deliver the same quality of care at much lower cost. This is possible because there is considerable waste in our health care system . . . . One of the keys to eliminating waste and missed opportunities is to increase our investment in comparative effectiveness reviews and research. Comparative effectiveness studies provide crucial information about which drugs, devices and procedures are the best diagnostic and treatment options for individual patients. This information is developed by reviewing existing literature, analyzing electronic health care data, and conducting simple, real world studies of new technologies.”

Obama pledges to “establish an independent institute to guide reviews and research on comparative effectiveness, so that Americans and their doctors will have accurate and objective information to make the best decisions for their health and well-being.”

Yet some of Obama’s staunchest supporters insist that progressives shouldn’t call attention to their candidate’s plans to lower costs by weeding out the waste. They say Americans don’t want to hear about “Comparative Effectiveness” research.

Americans Already Know

I submit that while the lobbyists don’t want to hear about head-to-head comparisons, the American public recognize that in the institutionalized chaos that we call a health care system, everyone seems to be selling something. And the price tags are exorbitant. This makes many Americans more than a little wary.

We realize that as a nation, we are over-medicated. Virtually everyone knows an elderly person who is taking twenty or thirty pills. We realize that drug-makers, device-makers and some hospitals are gouging us, charging fantastic sums for bleeding-edge products and procedures that are no better than — and often riskier than — the older remedies that they have replaced.

Our newspapers are filled with tales of cutting-edge products being withdrawn from the marketplace — but only after dozens of deaths prove that they were never fully tested. Then there are the tales of surgeons taking kickbacks from medical device makers in return for using their most expensive (but not necessarily best) products.

In the New York Times, we read that each year, tens of thousands of patients undergo angioplasties that provide no benefit. The cover of Business Week asks “Do Cholesterol Drugs Do Any Good?" and the story inside warns that up to half of the patients taking these medications may be exposing themselves to risk without benefit.

How many of us have seen a loved one suffer through days and even weeks of unwanted and often unexplained end-of-life treatments?

Granted, as Emanuel observes, “US patients prefer high technology over high touch.” It may not be easy to convince them that “More Care is not necessarily Better Care” — or that, in fact, higher quality and lower costs go hand in hand.

But lately we have been learning that “more” is not as desirable as we once thought. Think about it: Larger Portions, Larger Cars, Larger Homes -- and Larger Utility Bills. Not to mention Jumbo Mortgages. (See last Sunday’s New York Times touting “The New Trophy Home, Small and Ecological.” Raise your hand if you remember Jerry Brown.

What’s Wrong with Emanuel’s Plan

After writing a post about what the pro’s of Emanuel’s plan, Ezra Klein promised that he would follow up with a post about the cons. A few days passed, and finally, he posted “The Case Against.”

In the very first paragraph, he sums it up: “The case against comes down to basically one word: Politics.”

Klein continued: “The other day, I said, ‘when evaluating health plans, a good rule of thumb is this: The closer it is to our current system, the less it does to control costs. The farther it is, the more it does.’ [Emanuel’s] voucher plan is pretty far from our current system, and does a lot to control costs. The flip side of that rule is that the farther a health care plan is from our system, the more it does to control costs, the harder it is to pass through the United States Senate.”

Exactly. It’s not the American people who object to talk about controlling costs. Senators squirm at the very idea — because they know what the lobbyists would say. Voters might want lower prices, but lobbyists want higher profits. And Congressmen don’t like to find themselves caught between a rock and a hard place.

Overall, Klein suggests, Guaranteed HealthCare Access represents excellent public policy, but politically, it would be a very hard sell.

“If we lived in a sensible polity, and legislative politics were basically good-faith negotiations between public-spirited, responsible Democrats and public-spirited, responsible Republicans, I'd imagine that we'd end up with something a whole lot like this plan,” Klein acknowledged. “But we don't live in that polity. And while this plan makes a lot of policy sense, it's harder to fit it into a political system that's rarely interested in what makes sense.”

Klein does point to some problems: Americans might be very reluctant to give up the employer-based system they know for an unknown. (Though many chafe at the fact that their need for insurance limits their employment choices.) Klein also notes that “Serious up-front cost controls mean you're ripping a lot of profit from the system. Which means a lot of stakeholder opposition. ... This is “ not to be underestimated,” he adds, “and a clear political strategy has to exist for overcoming these forces.” Klein also would also like to see a public-sector insurance plan competing with the private insurers. I agree — this is one of the strongest parts of Obama’s plan.

Klein does leave a window open: “If Emanuel and Fuchs were able to convince a Senator to offer it as legislation, and then it turned out to get a lot of cosponsors and hit a nerve, that would be different. But until that happens, it's just a very sensible plan that clarifies exactly how far we are from a very sensible political system.”

I’d add that, with the right political backing from the right Senators, elements of Emanuel’s proposal could be blended with Obama’s plan. I’m not suggesting that Congress should rubber-stamp an Emanuel-Fuchs-Obama plan in the first six months of the next administration. I am suggesting that progressive reformers should take a close look at Guaranteed Healthcare Access and see what elements they might use. Begin with the vouchers—which insure equality—and the VAT tax, which could insulate health care reform from Congress and Lobbyists. Think about the high administrative costs that accompany employer-based insurance.

Finally, talk about cost control. As I’ve said before, runaway health care inflation is the elephant in the middle of the room. Try to ignore it and we’ll wind up with an unaffordable, unsustainable system that pleases no one—except, perhaps, those who feed at the health care trough.