Parts to Wholes: the Socionomic Systems Nexus

The Dysfunctional Feedback Loop of Cost Growth

To understand why that's true, what all the price/piece parts are, how they are linked and why it's the structural feedbacks that are creating this mess we've drawn up this little interpretative graphic. It doesn't do justice to all the links but a fair job at capturing the key ones.

As costs escalate out of control that makes insurance more and more unaffordable for more folks and exposes more people to catastrophic risk (the only system that does so). Aside from the existing uninsured that means that many are under-insured, at risk of loosing their coverage or being thrown out of the system. It also raises business costs and/or forces many small businesses to not cover employees. Rising costs also lead to insurance companies cherry-picking the healthy while rescinding coverage for the at-risk, worsening the overall problems. Meanwhile because the un/under-insured are treated that drives up costs as well. Rumors to the contrary HC Insurance is not competitive but is controlled in each state by a few companies who are the bureaucrats between you and treatment which they ration in the pursuit of profits. At the same time tort suits, liabilities, etc. force providers to add on tests and treatments beyond the necessary and carry excess insurance. Finally, the central driving engine, is that providers are compensated for services which causes they to charge for every little kleenex, see to many patients, "sell" too many kleenexes and keeps on driving up costs.

Fix the System: Reverse the Feedback

Amidst many other things last night the President put a lot of substance on the table that's workable, innovative in major parts, builds out very nicely as an incremental enhancement to the existing system but also lays the groundwork for creating a "forcing function", that is a driving change engine, that over time could/should reverse the feedback spiral and cause it to start working in the other direction. It's also pragmatic, non-radical and based on competitive market solutions with built-in incentives to work together.

He started by pointing out that single payor was already off the table, which took the Left's shibboleth from it, as was rescinding employer-based insurance, which took away the Right's. So, right off the bat we're already centrist and pragmatic. Then he outlined the three major goals of providing security and stability for existing insurees, providing insurance for the uninsured and controlling costs. He then offered the major planks of his proposal. First, 1) no existing coverage will be forced to change but (and this is a critically important, substantive but incremental fix that addresses the security and stability problems) 2) said that insurance couldn't be rescinded for existing conditions, that arbitrary caps for out-of-pocket expenses were forbidden and routine preventative exams would be included. Right there that fixes the major problems for current policy holders.

Then he said we'll provide insurance for the uninsured but specifically focused on those who've lost their jobs, are changing jobs, in small businesses or are independents. That's a  real game-changer and what makes it work is 3) a public health insurance exchange where all those folks can pool themselves into a new group, or risk pool, and all the insurers can participate. What makes insurance work is when the risks are spread across a pool of people and this creates pools of millions who were previously inaccessible. That creates huge incentives and potential profits for the insurors. He further added that 3a) tax credits would be provided for small businesses and individuals on a sliding scale but 3b) individuals and businesses would be mandated to get coverage with hardship waivers, including for 95% of the very small businesses who might not find it workable to start. 

With consumer protection plus exchanges plus mandates the security, stability and coverage goals would be met and we'd have a major leg up on cost control. At this point he took on three of the most egregarious attacks (e.g. death panels) that have been promulgated and then threw some sharp elbows:"I've don't have time for distortions and if you keep on we'll call you out".

Then he got really creative and added 4) a public option that will be designed/forced to function as a profit-making enterprise and not subsidized that would operate thru the exchanges. This introduces both a mechanism for the un-covered BUT a huge source of competition in all those local and state markets that are uncompetitive. To that was added 5) a standards advisory board (details TBD) that would provide enforceable recommendations on treatments, reimbursement rates and qualified insurors and providers. Combing exchanges plus a public option plus treatment and reimbursement standards and you truly lay the foundations for driving down costs. Finally he added 6) reform of mal-practice (tort) suits that will further reduce costs by reducing doctor's insurance but also lowering the incentives for extra tests and treatments.

Time to git 'er Done

There's been a lot of criticism from various quarters about the process the White House chose to pursue that's not grounded in a very good understanding of what was actually going on. And of course there was a huge amount of rude and disrespectful behavior by the Republicans last night. Frankly, we think they're hurting themselves more than they are helping.

They've used hindbrain appeals to oppose every initiative brought forth but sadly the early returns are that they're working as well, or better, than can be expected. In fact these proposals are ones that any previous Republican president would have been proud to bring forward and are market-based and increase competition.Where the R's might get themselves into real trouble is in 2012 when the results of all this starts to be clearer.

A while back we compared his approach to Japanese vs. American decisions making. The former take longer and gets all the objections on the table. The latter rush to decide and then take 5x the time in implementation. People have completely missed that because all of the objections, rational and otherwise, got surfaced as a preamble instead of now waiting to come out of the woodwork. He's completely mousetrapped the Rips. And they fell right into it.

In this case consider the phases. In Phase I all the interest groups and stakeholders were brought into the picture, got their objections on the table and agreements were worked out that has changed them from publicly and strongly negative (the killers of reform in '92) to at least tolerant and somewhat supportive potential beneficiaries. In Phase II, rather than hand down something from the mount, general principles and guidelines were set out and Congress went to work with the results that a lot of good ideas and strong objections were uncovered. There are not secrets here, now.

Finally, during August, Phase III let as yet ill-defined proposals be flight-tested and uncovered all the possible attacks, barring some new craziness. The opposition should be supporting these proposals on the merits because it helps their constituents, addresses urgent national problems AND aligns with their purported philosophies. By choosing to only say NO and do it with the not-so-clandestine support of the nutjobs (when a major Senator speaks up in favor of the death panel attack or a Congressman accuses a President of lying it's impossible to pretend otherwise).

Now it's time to get 'er done and that's going to take a lot of work, a lot of politiking and a lot of selling, especially the later. But we're never going to see another chance this good and forty years from now it could be a disaster. This is about as good as it gets....let's go for it.

 

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Healthcare Critical Issues Review

4 Conundrums That Impede Healthcare Reform Everybody agrees that something is wrong. Yet it remains remarkably hard to fix our $2 trillion healthcare system. Part of the reason, obviously, is that a lot is at stake. Healthcare accounts for 16 percent of the economy, a far higher portion than in most other developed nations. Yet even though we pay more, the care we get is hardly better and in some cases worse than what's available elsewhere. President Obama's plans to improve the return on our healthcare dollar would affect the livelihood of millions--some for the better, and some for the worse. That makes healthcare reform an epic political battle. But the sporadic availability and skyrocketing cost of healthcare are inherently vexing problems that have bedeviled reformers for 50 years. Here are a few of the factors that make it so difficult to revamp America's healthcare system: Exorbitant costs are often hidden. The foremost problem with healthcare is its cost, which is rising at least twice as fast as overall inflation. Healthcare is becoming an unsustainably large part of the economy. Yet many of the people hurt most by this problem are oblivious to it. The majority of Americans with insurance say they're satisfied with their healthcare. But chances are they're earning less money in exchange for satisfactory health insurance. There's even new evidence that soaring healthcare costs are killing jobs in industries with the highest rates of coverage, such as manufacturing, finance, and education. Pollsters should really ask Americans if they're comfortable giving up a raise, and maybe even their job, in exchange for decent healthcare. And whether they're willing to pay even higher roundabout costs in the future. It costs money to save money. About one sixth of the American population, or 47 million people, have no health insurance, and when they need care it's often the most expensive kind: Treatment at the emergency room. That's one major source of healthcare inflation, and we all pay for it through higher premiums. Containing other costs without covering the uninsured is like building half of a bridge: What's the point? Rationing is OK in practice but abhorrent in theory. God forbid we should ever ration healthcare based on which treatments provide the most bang for the buck. We could end up with a system that's . . . the same as the one we have now. Apparently we don't mind it when insurance companies ration healthcare, we only object to theoretical government rationing meant to keep the nation solvent. If we applied the same mentality to other aspects of government, we'd insist on a police officer to protect every home, a tutor to guide every student, and a food inspector to check every meal for E coli. All without a tax increase. Incremental reform could be worse than nothing. A rational approach to any complex problem is to break it into pieces and tackle one thing at a time. Yet Obama and his congressional allies are doing the opposite, aiming for a massive overhaul of the whole healthcare system in the space of weeks. It's hardly surprising that Americans are jittery about sudden changes that are hard to understand, could cost them money, and might affect their access to a vital resource. The catch, of course, is that politics isn't rational, and that Obama probably has a limited window of time to exploit his power and push this boulder up and over the hill. Americans would prefer incremental changes, but those could easily be undone if power shifted in Washington or special interests maneuvered adroitly. And stutter-step changes based on political whims are often worse than nothing at all, since they waste money and time. So we will either wreck or save the entire system all at once. That's not what most of us want, but it's the best our politicians can offer. Good thing they're not doctors.

U.S. Health Care Reform & Big Pharma [06-19-09] U.S. President Obama's health care reform plan is stoking fears for many in the health care industry. BNN speaks with Steve Brozak, analyst, WBB Securities.

• A History of Health Care Reform
• Seven Questions About Health Care
• Why Health Care Is Different
• Denis Cortese, President and CEO of the Mayo Clinic
• A conversation with Peter Orszag, Director, OMB
• Part II of a conversation with Peter Orszag

Health care costs to top $8,000 per person A new government report on medical costs paints a stark picture for President Barack Obama, who is expected to call for a health care overhaul in a speech Tuesday night to a joint session of Congress. Even before lawmakers start debating how care is delivered to the American people, the report shows the economy is making the job of reform harder. Health care costs will top $8,000 per person this year, consuming an ever-bigger slice of a shrinking economic pie, says the report by the Department of Health and Human Services, due out Tuesday. As the recession cuts into tax receipts, Medicare's giant hospital trust fund is running out of cash more rapidly, and could become insolvent as early as 2016, the report said. That's three years sooner than previously forecast. At the same time, the government's already large share of the nation's health care bill will keep growing. Programs such as Medicaid are expanding to take up some of the slack as more people lose job-based coverage. And baby boomers will soon start reaching 65 and signing up for Medicare. Those trends together mean that taxpayers will be responsible for more than half of the nation's health care bill by 2016 -- just seven years from now. "The outlook for health spending during these difficult economic times is laden with formidable challenges," said the report by statisticians at HHS. It appears in the journal Health Affairs. The health care cost forecast did not take into account recent legislation that expanded medical coverage for children of low income working parents, and added to the government's obligations. The report "accelerates the day of reckoning," said economist John Palmer of the Maxwell School at Syracuse University. "It is bringing home more immediately the problematic dimensions of what we face," added Palmer, who has served as a trustee overseeing Social Security and Medicare finances. "The picture was bad enough ten years from now, but the fact that everything is accelerating gives greater impetus to be concerned about health reform."

Americans Pay $2.5 Trillion for Health Care That Cost $912 Billion in 2003  The last time a president tried to overhaul U.S. health care, Americans were spending $912 billion on the system and 40 million were uninsured. Today they’re spending $2.5 trillion and almost 50 million lack coverage. President Barack Obama’s effort to revamp the system faces resistance from lawmakers of both parties who warn that the more than $1 trillion cost of the plan will break the budget at a time when the government already faces record deficits. “Despite what President Obama claims, the bill he is promoting today will make health care even more expensive,” House Minority Leader John Boehner said last week when the president visited Boehner’s home state of Ohio. The experience of the 15 years since Bill Clinton failed to win passage of legislation suggests that the price of inaction may be even higher than the cost of Obama’s plan. Congress refused to touch the issue for a decade after the collapse of Clinton’s 1994 bid. A similar outcome this year would likely add millions to the ranks of the uninsured, boost costs for businesses and workers, and do nothing about what may be the top threat to the government’s long-term fiscal health, proponents of the plan argue. For companies, the cost of health care “appears to be borne by the employees in the form of forgone wage increases and by consumers in the form of higher prices,” according to an October 2007 research paper by economists Victor Fuchs and John Shoven of Stanford University. Some companies say the rising costs are also hurting them. “Health reform could not be more critical,” Mike Duke, president of Wal-Mart Stores Inc., the nation’s largest private employer, said in a letter last month to Obama. “Reforming health care is necessary not just to improve the health of all Americans, but also to remove the burden that is crushing America’s businesses.” For Louis Gerstner, former head of International Business Machines Corp., failure to curb medical-care costs will have a devastating, ripple effect.

Health Care in Crisis: Needless Costs, Needless Deaths It might be a mere cost-benefit equation to most people. But when the families tell their stories, one hears the sadness that fills their voices when they speak of the moment that they lost hope that their loved ones could be healed. For these survivors, it was a near-absolute faith in modern medicine that led them to make decisions that ended in tragedy. It is operations such as these that have sent U.S. health-care costs soaring out of control, certainly when compared to those of other industrialized nations. Dr. Ralph Rashbaum, a renowned back specialist with the Texas Back Institute in Plano, frequently speaks on this issue. Rashbaum is a physician who believes surgery should always be the last resort to correct medical problems -- often counter to what the public wants to believe. People are convinced that somehow the miracle of modern surgery can cure all ills. Rashbaum also knows the other key reason why U.S. health-care costs are so outrageously high. Some 80% of all spending on health care goes to only 20% of the public -- in the last two years of their lives. Today, America's moral dilemma lies in the high price of trying to save the unsavable life. Some may cynically suggest that this is only because doctors and hospitals want to increase their incomes, but the vast majority of physicians are far more honorable and dedicated than that. In the three cases listed in this column, each patient was given the opportunity to turn down the operation and was fully informed of the potential risks. All chose to undergo the procedure. Nor will federalized health care fix the issue of high costs. It will simply transfer them. It won't correct the inherent financial waste in the system because we cause much of it. When it is our lives -- or those of loved ones -- on the line, most of us will demand increasingly expensive care, no matter how many studies and statistics show it likely will not be a long-term cure. As mentioned in the first column of this series, our already broken health-care system will rapidly be devastated as nearly 80 million baby boomers head toward retirement. Aside from the incalculable misery that inadequate health care can cause, the greater danger is that we could divert so much into expanding expensive health care that we could ensure the U.S. economy's destruction. Our current standard is to try to save the unsavable at the end of their lives, but that is not the standard in other developed countries. Nor do they debate the consequent moral dilemma. This is likely the primary reason that U.S. health care is in such serious trouble.

Sick and Getting Sicker For entrepreneurs trying to start or run a business, the obstacles are huge. But few loom as large as one: health care. For years, small businesses have griped about the burden of rising health-care costs and warned that the situation was near a crisis point. Well, it’s fair to say that the crisis point is here. At some businesses, in fact, health care is the highest expense after salaries—with devastating consequences. Owners must skimp on vital investments like marketing and research. Some can’t hire the people they want because top candidates demand premium coverage. Or they end up understaffed because of the high cost of insurance—and lose potential clients as a result. At the same time, to keep costs in check, countless companies are slashing coverage or dropping it entirely. Some are turning to freelancers or offshore workers instead of hiring full-timers and locals. And some would-be entrepreneurs find insurance so onerous that they’re not even starting a business in the first place. What’s more, it isn’t just individual companies at risk. It’s the entire economy. Historically, small businesses have boosted recoveries significantly. Since they can’t simply make mass layoffs and hunker down, as so many big companies do, they must take risks to survive—like investing in innovative ideas and hiring more workers to implement them. But stratospheric health-care costs threaten to damp that enthusiasm and choke off investment. “We have got to figure out how to get an affordable [insurance] package to people who would be entrepreneurs,” says Carl Schramm, president and chief executive of the Ewing Marion Kauffman Foundation, a pro-entrepreneurship organization in Kansas City, Mo. If such a package existed, he adds, “the chances of a more robust recovery at the hands of entrepreneurs would decidedly be higher.” Mr. Schramm believes that Washington has had few constructive ideas so far, as most of the focus and the funds have been directed to big business, particularly the bailouts of banks and auto makers. “You don’t have a general chatter right now on the importance of entrepreneurs in government circles,” he says. “There’s a decided emphasis on protecting the framework of big business,” even though small companies historically create the most U.S. jobs.

Industries Hurt Most by Soaring Health Costs It started as a dull throb in the economy, with the pain growing sharper. Now there's finally a diagnosis: Runaway healthcare costs are directly harming businesses and their employees. As just about everybody knows, the cost of healthcare is rising much faster than wages, profits, and most other things in the economy. Healthcare spending accounted for about 11 percent of GDP in 1987; today it's more than 16 percent, and by 2017 it's very likely to be almost 20 percent. We spend more than $2 trillion a year on healthcare—roughly the same amount we spend on housing—and the cost is rising about five times faster than wages or overall inflation. Exorbitant cost is the main reason 47 million Americans have no health insurance—and why President Obama's ambitious plan to expand coverage and overhaul the entire system is in jeopardy. Somebody has to absorb those painful price hikes every year, and since companies provide the insurance for about 60 percent of Americans, they're the first to get the bill. Some economists believe that businesses simply shift the cost of health insurance to workers, by offering lower wages to compensate for the costly benefit, and to their customers, by charging higher prices to cover the costs of healthcare. A new study, however, shows that some industries have become chronically hamstrung by rising healthcare costs, with lower growth and employment than they'd have if costs were lower—or somebody else paid them. Researchers Neeraj Sood, Arkadipta Ghosh, and José J. Escarce of the Rand Corp. analyzed the performance of 38 industries from 1987 to 2005 and found that sectors where a high proportion of workers have company-provided health insurance—such as manufacturing, utilities, communications, education, and finance—showed the lowest growth over the 19-year period. Industries where fewer workers get company-paid health insurance—such as agriculture, hotels, entertainment, retail, and construction—grew more.

• Health Care Cost Growth and the Economic Performance of U.S. Industries

Interactive Map: Health Care CompetitionToday many Americans have few choices when it comes to health insurance. This is because many insurance markets are dominated by only a handful of firms, even though there are over 1,000 private health insurance carriers in the United States. This concentration limits employers’ and families’ health insurance options as well as the care they receive.In many states small insurers compete against one another in the individual market to insure only low-risk, healthy individuals. They refuse to insure Americans with pre-existing conditions such as high blood pressure, asthma, cancer, or diabetes and those who have ever taken certain prescription drugs—and they create barriers to needed care for those who are insured.The map shows that in many states insurance markets are dominated by only one or two insurance carriers. In at least 21 states, one carrier controls more than half the market. More than half of the market is controlled by two carriers in at least 39 states. In 2007, a survey conducted by the American Medical Association found that in more than 95 percent of insurance markets, a single commercial carrier controlled at least 30 percent of the insurance market.[1]The result of this market concentration is that health insurance interests come before Americans’ health care needs. Where markets are dominated by only a few firms, health insurers revenues are growing faster than health inflation as insurers maximize rates they charge employers and families and create barriers to care.[2] Employers are then unable to afford meaningful health insurance options for their employees or, in the case of small businesses, are unable to offer their employees insurance at all, while most Americans seeking health insurance in the individual market never purchase coverage.

Refining Health Care(Harvard Business School) Health care is on a collision course with patient needs and economic reality. In today's dysfunctional health care competition, players strive not to create value for patients but to capture more revenue, shift costs, and restrict services. To reform health care, we must reform the nature of competition itself. Redefining Health Care provides an overall framework for diagnosing and solving this immense problem, with detailed action steps for all participants in the health care system.

• Competition in Health Insurance (AMA)
  

Need for Cost Data Slows Health-Care Overhaul Senate leaders are working against a tightening calendar in tackling two of the most difficult aspects of a health-care overhaul: how to provide every American with health-insurance coverage and how to pay for it. Senate Finance Committee leaders want to have bipartisan legislation drafted by June that would remake the nation's health-care system. But Democratic and Republican aides say that timetable is looking challenging, and they have yet to resolve a variety of contentious issues. A key reason is that it is taking longer than expected to figure out how much each change will cost, or save, the government. Lawmakers must rely on estimates from the Congressional Budget Office. In an interview, Douglas Elmendorf, director of the Congressional Budget Office, confirmed that the estimates are taking longer than lawmakers would like. "This is as complicated as all get out," he said. The office already has initial estimates for the costs for most of the Senate Finance Committee's proposals for changing the health-care delivery system. But it is still working on budget estimates for expanding coverage and lawmakers' broader question of how to finance the entire plan. Part of what has slowed things down, Mr. Elmendorf said, is that Senate staffers are asking the CBO to estimate a range of scenarios at once. CBO has between 40 and 50 people working "more than full time" to generate the estimates, he said.

Health Care, a Lesson in Pain The events of the last few weeks have raised the odds that a health care overhaul will really happen this year. Democrats have suggested that they are willing to play hardball and pass a bill without Republican support. Arlen Specter, the senior Pennsylvania senator, became a Democrat, potentially adding one more vote. At the White House on Monday, lobbyists for doctors, insurers and other industry groups pledged to reduce the growth of medical spending. Yet none of these developments has removed the main hurdle to health care reform: the matter of the missing $90 billion. Providing health insurance to the roughly 50 million people without it will cost something like $120 billion a year. President Obama has proposed $60 billion or so in new revenue for this purpose — a “down payment,” his advisers say. But Congress seems set to reject about half of the down payment (a plan to limit high-income families’ tax deductions for charitable giving and other such things). That makes for the $90 billion health care hole. And no one is quite sure how to fill it. Because Mr. Obama has made it clear that health care is his top legislative priority, the $90 billion hole has become one of the biggest political issues of 2009. The Obama administration’s health care team is now preoccupied by it. On Tuesday, the Senate began to consider it, at a packed round-table discussion among 13 prominent health experts and members of the finance committee. The experts at the round table — liberal and conservative — actually agreed to an impressive degree about the best way to fill the hole. They urged the senators to limit the tax deduction for employer-provided health insurance. The deduction may seem a wonderful thing, but it isn’t. It benefits the wealthy more than anyone else. It encourages employers to overspend on health insurance, because $100 in untaxed medical benefits is more valuable to workers than $100 in taxed income. And, as Mr. Baucus said, the deduction has a certain Willie Sutton appeal for Congress: it’s where the money is. The government forgoes $250 billion a year in taxes because of the deduction. Capping it, to apply only to reasonably priced health plans, would bring in enough money to fill most of the $90 billion hole. The idea seems to be classic Obama: empirical, pragmatic, bipartisan. Unfortunately, it happens to be an idea that John McCain campaigned on last year and that Mr. Obama, sensing a political opening, blasted as a tax increase. “Taxing health care instead of fixing it,” intoned the narrator in an Obama campaign advertisement, with ominous music playing in the background. “We can’t afford John McCain.” Mr. Obama’s economic advisers would be happy to see him reverse his position. But his political advisers remember that ad and know it could be used against him. Further complicating matters, labor unions and Charles Rangel, the influential Democratic House member, say they remain firmly opposed to capping the deduction.

• UPDATED: CBO's Preliminary Estimates
• Numbers Racket The bean counters who could kill health care reform.