tag:blogger.com,1999:blog-25847057574365110382024-03-06T01:19:08.624-08:00Gen Y HealthcareHealthcare Explained for our GenerationAndy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.comBlogger17125tag:blogger.com,1999:blog-2584705757436511038.post-85773736889505435402010-07-06T16:57:00.000-07:002010-07-06T17:05:57.204-07:00Healthcare Reform RecapI reflected on the many twists and turns of the healthcare reform legislation in my previous post (The Political March Sideways), and with the benefit of hindsight, we can see that the Democrats were successful in passing their reconciliation bill to bring an end to the healthcare debate. I believe I’ve said this before, but this bill achieves only the first of the 2 original Democratic goals: coverage expansion and cost containment. We’ll take a look at how the bill goes about doing it.<br /><br />Quick look at the Healthcare Reform bills by the numbers (CBO estimates):<br /><br />• 2 bills passed (H.R. 3590 – the Patient Protection and Affordable Care Act [PPACA] and H.R. 4872, the Health Care and Education Reconciliation Act of 2010)<br />• $940bn of spending projected over 10 years<br />• $143bn of overall deficit reduction over 10 years ($1,083bn of taxes and cuts)<br />• 32mm uninsured lives will be covered<br />o +24mm in the new healthcare exchanges<br />o +16mm in expanded Medicaid eligibility<br />o -5mm will lose individual health insurance<br />o -4mm will lose employer-based coverage<br /><br />If we take a step back and look at the general approach of the bill, it sets up a regulated insurance exchange that creates a more efficient marketplace for individuals to get simplified insurance products. To prevent only the sick from buying insurance, it mandates/forces all individuals to buy health insurance (For a look at the disaster that unfolds without this mandate, read my post on <a href="http://genyhealthcare.blogspot.com/2009/11/state-experiments-in-individual-market.html">“State Experiments in the Individual Market”</a>). One thing the Democrats didn’t want to do was force people to buy insurance who can’t pay for it, so their solution was to expand Medicaid coverage eligibility (ie. the government will pay for you) and offer subsidies for the near-poor. <br /><br />Great, now they have a plan going, but how does the government pay for it? Here are a few of the provisions…you’ll notice that the bulk of it comes from a few select buckets. <br />1) Explicit taxes<br />2) Phantom taxes in the form of industry fees and industry rate cuts that will ultimately make its way into health insurance pricing<br />3) Cuts to Medicare Advantage – I wouldn’t cry for these seniors. Some of them were basically getting the equivalent of a $12,000/year health plan for free. (Gym memberships, vision and dental coverage, transportation, recreation centers…on second thought “free” is probably the wrong term since they paid into Medicare their entire life) Anyway, that benefit is just getting scaled back a bit.<br />4) Notably absent is tort reform, which could save the government $54bn and even more on the private sector side through reduced premiums, alleviation of ‘defensive medicine,’ reduced cost shifting, and other benefits. Of course, the brunt of the medical malpractice award caps would be borne at the expense of lawyers and the few victims who actually deserve a very large award. (Personally, the lack of this provision makes me sick). <br />Here are the specific numbers (don’t expect it to add to the $1 trillion…there are some interactive effects and other items I’ve left out)<br />• $69bn from individual and employer mandates<br />• $83bn in various taxes and fees on the healthcare industry including my favorite the 10% tax on indoor tanning bed services. Almost all of these fees by the way will only increase the underlying costs of healthcare.<br />• $32bn from the “Cadillac Plan” tax (taxes high benefit health plans as taxable wages…the savings are theoretically generated not from tax dollars but from the shift from health benefits to cash wages. This is literally the only provision in the bill that reduces medical cost inflation, and the unions managed to water it down very significantly.<br />• $210bn from increasing the Medicare payroll tax from 2.9% to 3.8% (but only for those making $200k or more)<br />• $136bn from cuts to the Medicare Advantage program<br />• ~$129bn from hospital Medicare rate cuts<br />• ~$60bn from rate cuts to other Medicare providers<br /><br />For the average Congressman, they more or less viewed it as expand coverage and pay for it by any means necessary that doesn’t affect my supporters. (So you would see Connecticut Senators defending insurance companies, Massachusetts senators defending medical device/biotech companies, or Missouri senators defending pharmacy benefit managers, etc...pretty typical pork barrel negotiating) As for the details, there certainly were a slew of Congressional staffers that actually <strong>did </strong>understand the nuts and bolts of the various healthcare subindustries. I’ve met some of them – they’re smart people, but with the peculiar meshing of the Senate bill and reconciliation bill, they didn’t get the chance to fix some of their mistakes. <br />Many of the unintended consequences of a bill are usually removed when the House and Senate reconcile (puts together) their bills. Many of the staffers told me that they created the Senate bill with the intention of ironing out the edges later. In other words, it was not meant to become the final version of a bill, which is partially why “the Secretary shall” appears at least 490 times (by far the most used phrase). While most giant bills like this have a few refinement bills that follow, I get the feeling this one will have more than usual. The government and industry will be working through implementation of these regulations for years to come, and while it may seem like we’ve finished, it’s really only the end of the beginning. <br /><br />Sources: Congressional Budget Office Reports and LettersAndy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.com0tag:blogger.com,1999:blog-2584705757436511038.post-66974638006169427392010-03-16T18:27:00.000-07:002010-03-29T14:37:21.582-07:00The Political March SidewaysI have to say it’s been interesting watching the political process for the past 18+ months. For me, it started with Senator Baucus’s “Call to Action” white paper on what he believed would be the essential elements of healthcare reform and Tom Daschle’s book “Critical: What we can do about the Healthcare Crisis” (remember that guy? Ever wonder what the process would have been like if he had become Secretary of Health and Human Services instead of Sebelius?). These works were meant to be base cases worthy of being a jumping-off point for discussions. The Baucus paper was released November 12, 2008, and the book was released in 2008. For some Democrats, this saga started in 1993 when the Clintons attempted to tackle healthcare reform. For the historical buffs, the start date could be pinned with 1965’s social security act (the creation of Medicare and thus the ever-present looming tweaks to the system) or even earlier (Obama frequently cites Teddy Roosevelt). <br /><br />Obama’s 2009 budget helped to kick-start the great healthcare debate, which has gone from bipartisan Senate Finance committee talks, to reconciliation threats, to August town halls, to House and Senate passages, to Scott Brown’s election, to where we are today. It’s been a winding journey, and I do feel we are nearing the final forks in the road. <br /><br />Scott Brown’s election in Massachusetts to take over Ted Kennedy’s seat brought the healthcare reform bill to a screeching halt. The House had previously passed their version of the healthcare bill. The Senate had passed their own version as well. As the legislative process dictates, the two arms of Congress were hammering out compromises in conference committee when the Republicans gained this seat. Normally, a single bill comes out of conference committee and both the House and Senate pass it again to send it to the President. In this instance, with only 59 Democrats remaining, the Senate would be unable to pass the bill again, so suddenly the options became limited.<br /><br />1) The House can pass the Senate version as-is, without any amendments. This requires 216 House votes<br /><br />2) The House passes the Senate version as-is, without any amendments and both the House and Senate pass another bill (via reconciliation) to incorporate all the changes they would have made. This requires 216 House votes and 50 Senate votes.<br /><br />3) Start over. This requires 216 House votes and 60 Senate votes.<br /><br />The finals steps began with Obama’s healthcare summit on February 25th, 2010. It was meant to be a bipartisan conversation between Democrats and Republicans to push the legislation forward. It was televised on cspan, and all 6.5 excruciating hours are available on the web (<a href="http://www.cspan.org/Watch/Media/2010/02/25/HP/A/30039/White+House+Health+Care+Summit+with+Congressional+Leaders.aspx">AM Session</a> and the <a href="http://www.cspan.org/Watch/Media/2010/02/25/HP/A/30059/White+House+Health+Care+Summit+with+Congressional+Leaders.aspx">PM Session</a>) for those that enjoy mind-numbing pain. Both sides made a couple good points, but they were few and very far between, and I found the demeanor and points of some members of each party to be saddening. Right now though, healthcare reform is stuck in an odd catch-22. Option 3 (start over) has been pulled off the table by Democratic leaders, including Obama. Option 1 (House pass the Senate version only) is untenable for some House members whether that has to do with abortion language (Bart Stupak), pork barrel spending (“Cornhusker kickback,” “Louisiana Purchase,” or the “Florida carve-out”), or reelection fears (Dems in Republican districts). So that leaves Option 2 – the Senate version with a sidecar of amendments. With 216 remaining Democrats who voted “yes” for the House-version of the healthcare bill, Democrats are walking a very fine line as to whether or not they can pass healthcare legislation.<br /><br />Reconciliation is a tricky beast. Originally conceived as a way to hasten budget cuts, it limits its scope to budgetary matters only. Unfortunately, the tool has been perverted and abused by both parties to pass legislation with only a simple majority rather than the usual 60 votes it takes in the Senate. Ignoring whether or not you believe reconciliation can or should be used as part of the healthcare reform process, there are at least 2 main issues that Democrats are coming to grips with. <br /><br />1) No one is sure what is permissible through reconciliation. One example of an issue that is NOT permissible is abortion funding. This obviously creates some issues for someone like Stupak who has openly stated that he can not vote yes on the existing Senate language regarding abortions. For him, he needs assurance that these provisions will be changed when it’s all said and done. <br /><br />2) There is a large distrust between the House and Senate chambers. It is probable that the House must vote on the Senate bill before taking up the sidecar bill (ie. a bill must be law before another bill can be written to amend the law). The big fear for House members is that they pass the Senate version, and then the Senate fails to pass the sidecar bill, which means House members are stuck without their changes. <br /><br />3) A litany of other issues that include Medicare Advantage cuts , Medicaid funding, controlling costs, and other items.<br /><br />As our lawmakers tussle with the best course of action, I think it’s fair to say that politics and the political process have overtaken policy issues at this point. There’s a soft deadline to move this legislation forward in the next week or two. As of Tuesday 9:00PM ET March 16th, that means a House vote on Saturday. We’ll see what happens though. I salute anyone with the fortitude to continue following the politics of healthcare reform. It’s been a long March.Andy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.com2tag:blogger.com,1999:blog-2584705757436511038.post-50046771587783727162010-02-15T20:34:00.000-08:002010-02-15T20:37:27.935-08:00Pharmaceutical Marketing“Drug manufacturers are paid way too much money, just look at all those ads talking about erectile dysfunction, urination issues, or heartburn. We should just cap what they’re paid, and then maybe these ads would stop.” <br /><br />I’ve heard statements like this many times before, and it definitely brings up issues worth discussing. I myself find the underlying issues concerning but think the solution offered is misguided.<br /><br />Ever wonder how doctors learned about the newest drugs and what they did? Perhaps you thought they learned it through scientific trade journals, so they update themselves on which one works best. Maybe that is true to a certain extent, but there are far too many drugs nowadays to learn about them all. Doctors are also busier than ever, so it isn’t possible to spend 20 hours a week just to read trade journals about potential new drugs. On the contrary, the real way most learn about new drugs happens with a pharmaceutical representatives visit. The representatives conduct tutorials and luncheons to educate the physician about the drug and all its potential uses. This was the earliest form of pharmaceutical marketing before pharmaceutical companies found out that “direct-to-consumer” (DTC) advertising could help control the sales channel as well. <br /><br />With this background in mind, let’s break down the statement above to read between the lines.<br /><br />Statement: “Drug manufacturers are paid way too much money.”<br />Underlying issue: Healthcare costs too much<br />Proposed solution: “We should cap what [drug manufacturers are] paid”<br /><br />Statement: “Look at all those ads talking about erectile dysfunction, urination issues, or heartburn”<br />Underlying issue: Uncomfortable subjects combined with frequency of media<br />Proposed solution: “Maybe these ads would stop [if they had less money]”<br /><br />Look at the two underlying issues – healthcare costs too much and annoying advertisements.<br /><br />Well in the last post titled, “<a href="http://genyhealthcare.blogspot.com/2010/01/technology-and-innovation.html">Technology and Innovation</a>,” I tried to explain why I think (branded) pharmaceuticals costs a lot – ie. theoretically to make up for the R&D that is spent. So changing the costs of a branded pharmaceutical drug involves a change in the law. One proposed change is a cap on the drug costs (perhaps as a fixed % of the actual manufacturing cost or some other method). One perceived benefit would be the reduced advertisement budgets that the pharmaceutical manufacturers would have – killing 2 birds with 1 stone right? Well unfortunately, the pharma manufacturers have figured out that to maximize their long-term profits, an incremental dollar spent on advertising is actually more valuable than an incremental dollar spent on R&D. What this means is that any reductions in the price would result in direct cuts to R&D spending. Now Henry Waxman fans would cry foul here – the whole point of the patent protections is to encourage R&D investment, not profits and excessive SG&A expenses. As often is the case, I’m not going to take a political stance here, I just want to point out what would be the real effects of price caps on drugs.<br /><br />So what would I recommend? I think the more appropriate way to cut out all of these direct-to-consumer advertisements would be to place restrictions on the advertisements themselves. There is precedent with the tobacco industry. Such restrictions would 1) save consumers from bombardment of annoying advertisements, 2) save doctors from having to answer frivoulous requests for unnecessary medications, 3) reduce utilization of drugs, and 4) effectively reduce the expenditures made by the pharmaceutical manufacturers. I’m perfectly comfortable with doctors remaining the gatekeepers of healthcare – the way they were meant to practice medicine. <br /><br />Sources: Normally, I’d try to cite here that “an incremental dollar spent on advertising is actually more valuable than an incremental dollar spent on R&D” was based on a McKinsey study done in the early ‘90s, but I haven’t been able to find it anywhere, so my apologies on the lack of a primary source.Andy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.com1tag:blogger.com,1999:blog-2584705757436511038.post-31542245705378621912010-01-24T21:11:00.000-08:002010-01-24T21:16:15.253-08:00Technology and InnovationHi everyone! I’m back from the holidays, so the blogging is returning. I had the honor of serving as best man at my older brother’s wedding! I also attended a week-long healthcare-focused investor conference in San Francisco. I appreciate the encouragement from those of you who’ve seen me around. <br /><br />In the last post, we took a look at some various health systems around the world, but I wanted to point out one of their understated flaws. Many point to their lower costs and better health outcomes. One example of this is the better drug pricing that these countries receive because of their aggregated purchasing power with the drug makers. The economics from a negotiation standpoint makes sense; the marginal cost of a pill <span style="font-weight:bold;">that already exists</span> is fairly low. If the choice for a drug manufacturer is to make a smaller margin on larger volume or no profit at all, then obviously they will sell the drug at the lower price. <br /><br />The US pays significantly more for their branded drugs than other countries. The most salient of which is Canada. Politicians even talk about allowing drugs purchased in Canada to be reimported into the US on a large scale (we’re not talking about families bringing drugs across the border, but making it an industry). Think about that…US manufactured drugs, shipped to Canada, only to be reshipped back to the US. I don’t even want to bother going through the laundry list of reasons why this is ridiculously stupid, but I’ll just go through a couple of the practical realities for the sake of argument. 1) Would the drug manufacturers allow Canada to purchase the type of volume required to be sent back to the US? 2) Does the Canadian government want to get involved with trying to control US healthcare costs? (I think both of these answers would be no). Okay, admittedly I don’t have the highest opinion of all politicians…I’ve definitely found rhetoric, grandstanding, and pandering to popular opinion to be more prevalent than true, honest thoughtfulness about the best policy for the long-term benefit of our country. I contend the real reason the US pays so much more for these drugs is that US law has carved out a monopoly for them. Patent law allows 17 years of monopolistic competition, which allows the manufacturer to charge an excessive premium for their product in the US. In theory, this excess profit is meant to encourage the initial investment into research and development.<br /><br />Now, to be honest, (and I’ve been up front about this before), I’m a big believer in economic incentives and I think the patent protections and laws that encourage innovation have genuinely helped increase the funding to find the next big idea or create the next helpful drug or product. [It’s part of what make this country so great.] Granted, one of the legal side effects results in me-too type “innovative” products and gross abuse of intellectual-property law to sustain/hide-behind these patent protections far beyond the originally intended 17 years (that’s another discussion). Aside from these, I think the US healthcare system has ~funded~ many of the pharmaceutical drugs that we see today. Clearly the production cost of an additional pill is very tiny, so once you have one market that is making up for the losses in R&D (the US), the drug companies would be willing to slash prices for additional volume elsewhere. This is where countries like Canada and the UK can step in to be the beneficiary of being the marginal buyer as opposed to the initial buyer. Without the initial buyer willing to pay such a large premium, the investor may never fund the research costs required to discover new drugs. <br /><br />The fundamental flaw of every government trying to be the marginal buyer should be pretty clear. It would be like every airline passenger refusing to pay more than the marginal cost of flying on a plane (peanuts, soda, and some meager fuel costs) without anyone helping to pay for the fixed costs (plane, pilot, flight attendants, airport fees, etc.). Now is there a solution to have countries other than the US funding the pharmaceutical innovation? Perhaps, but I can’t think of one that doesn’t have massive ripple effects. Can you imagine the international outcry if there were a tariff on US drug exporters? What if other countries just manufactured US-patented drugs? Seems like another case of underpaying for intellectual property – like the massive amounts of stolen software and movies that you can find in Asia or Chinatowns in the US. If you have a good suggestion – I’d love to hear it.Andy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.com3tag:blogger.com,1999:blog-2584705757436511038.post-36770411968320642772009-12-20T23:15:00.000-08:002009-12-20T23:20:23.985-08:00Fixing the System – Where do we start?<meta equiv="Content-Type" content="text/html; charset=utf-8"><meta name="ProgId" content="Word.Document"><meta name="Generator" content="Microsoft Word 11"><meta name="Originator" content="Microsoft Word 11"><link rel="File-List" href="file:///C:%5CDOCUME%7E1%5CANDYJU%7E1%5CLOCALS%7E1%5CTemp%5Cmsohtml1%5C01%5Cclip_filelist.xml"><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="place"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="City"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="country-region"></o:smarttagtype><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> <w:usefelayout/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:latentstyles deflockedstate="false" latentstylecount="156"> </w:LatentStyles> </xml><![endif]--><!--[if !mso]><object classid="clsid:38481807-CA0E-42D2-BF39-B33AF135CC4D" id="ieooui"></object> <style> st1\:*{behavior:url(#ieooui) } </style> <![endif]--><style> <!-- /* Font Definitions */ @font-face {font-family:Batang; panose-1:2 3 6 0 0 1 1 1 1 1; mso-font-alt:"Arial Unicode MS"; mso-font-charset:129; mso-generic-font-family:auto; mso-font-format:other; mso-font-pitch:fixed; mso-font-signature:1 151388160 16 0 524288 0;} @font-face {font-family:"\@Batang"; panose-1:0 0 0 0 0 0 0 0 0 0; mso-font-charset:129; mso-generic-font-family:auto; mso-font-format:other; mso-font-pitch:fixed; mso-font-signature:1 151388160 16 0 524288 0;} /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:Batang;} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} </style> <![endif]--> <p class="MsoNormal">This is another piece that takes a bite out of the ideas of writer Atul Gawande.<span style=""> </span>One thing we haven’t looked at are the diverse systems that can be found internationally that seem to work.<span style=""> </span>The British system uses a purely governmental-run healthcare system called the National Health System.<span style=""> </span><st1:country-region st="on"><st1:place st="on">Canada</st1:place></st1:country-region> uses a government-run health system established in 1966.<span style=""> </span><st1:country-region st="on"><st1:place st="on">Sweden</st1:place></st1:country-region> uses a privately run health insurance model with insurance mandates like US car insurance.<span style=""> </span><st1:country-region st="on"><st1:place st="on">France</st1:place></st1:country-region> uses a payroll-tax funded private insurance system.</p> <p class="MsoNormal">
<br /></p><p class="MsoNormal">
<br />The interesting part is a lot of these systems seem to work, and a very fair question is – can these systems work in the <st1:country-region st="on"><st1:place st="on">US</st1:place></st1:country-region> too?<span style=""> </span>Well in this article titled “<a href="http://www.newyorker.com/reporting/2009/01/26/090126fa_fact_gawande?currentPage=all">Getting There From Here</a>,” Atul Gawande argues that these systems could work, but that doesn’t mean every country should model their system off of any particular example.<span style=""> </span>Interestingly, his argument is that these systems weren’t developed because some bureaucrat decided to mandate a certain health system, they were developed because of the circumstances of the country at the time – incidentally a lot of these circumstances were in connection to World War II – and so is ours (see a previous posting: <a href="http://genyhealthcare.blogspot.com/2009/10/why-does-healthcare-come-from-our.html">Employer-Based System</a>).<span style=""> </span></p> <p class="MsoNormal"><o:p> </o:p></p><p class="MsoNormal"><o:p>
<br /></o:p></p> <p class="MsoNormal">Again, just like last time with the <a href="http://genyhealthcare.blogspot.com/2009/11/tale-of-two-towns.html">Two Towns</a> posting, this will be a slight summary of Dr. Gawande’s main points, so I highly encourage you to read the source article to help formulate your own opinion.<span style=""> </span></p> <p class="MsoNormal"><o:p> </o:p></p><p class="MsoNormal"><o:p>
<br /></o:p></p> <p class="MsoNormal">Back in the 1940s, the British system consisted of a variety of hospitals and health insurance systems.<span style=""> </span><st1:city st="on">London</st1:city> was obviously the most concentrated <st1:country-region st="on">UK</st1:country-region> city of the time; however, when <st1:country-region st="on">Germany</st1:country-region> starting its bombings of <st1:city st="on"><st1:place st="on">London</st1:place></st1:city>, the government needed to evacuate millions of its citizens out of the city and into the smaller towns.<span style=""> </span>This created a large strain on its healthcare system, and the only way to create the infrastructure to care for the large healthcare needs of its citizens in these suburban and rural areas, the British government had to build all of its own facilities and employ the providers itself (this is much like the US military’s Veterans Administration healthcare system).<span style=""> </span>Amid the bombings, the private infrastructure in <st1:city st="on">London</st1:city> was destroyed, and by the time the war ended and the rebuilding of <st1:city st="on">London</st1:city> ensued, the government took it upon their own shoulders to again build-out the infrastructure of <st1:city st="on"><st1:place st="on">London</st1:place></st1:city>’s healthcare.<span style=""> </span>Ergo, by the time any real debate about healthcare started to happen, the government was already running its own healthcare system.<span style=""> </span>It was a natural extension for the <st1:country-region st="on"><st1:place st="on">UK</st1:place></st1:country-region> to continue using its government-run healthcare.<span style=""> </span></p> <p class="MsoNormal"><o:p> </o:p></p><p class="MsoNormal"><o:p>
<br /></o:p></p> <p class="MsoNormal">The French system developed in a different way. <span style=""> </span>Before the war, large manufacturers and unions had organized insurance cooperatives through a payroll tax. <span style=""> </span>By the time <st1:place st="on"><st1:country-region st="on">France</st1:country-region></st1:place> set to rebuild its country post WWII, it simply expanded on this already existing insurance system. <span style=""> </span>Nowadays over a hundred non-profit, local insurance funds serve as the basis of <st1:country-region st="on"><st1:place st="on">France</st1:place></st1:country-region>’s healthcare system</p> <p class="MsoNormal"><o:p> </o:p></p><p class="MsoNormal"><o:p>
<br /></o:p></p> <p class="MsoNormal">The other example that Dr. Gawande presents is the Swedish system.<span style=""> </span>Because they chose to be neutral, it was not ravaged by the war the way the rest of <st1:place st="on">Europe</st1:place> was.<span style=""> </span>The private sector continued to chug along during the war, and consequently their system built upon its history of private sector involvement.<span style=""> </span></p> <p class="MsoNormal"><o:p> </o:p></p><p class="MsoNormal"><o:p>
<br /></o:p></p> <p class="MsoNormal">The <st1:place st="on"><st1:country-region st="on">US</st1:country-region></st1:place> system developed into the employer-based system because of the laws and restrictions implemented during the war.<span style=""> </span>For a detailed description of how it developed, please go back and read the piece on the “How did we end up with the Employer-based system?”<span style=""> </span>So ultimately, the conclusion of the article is that we should not push ourselves to be a national payer system like the <st1:country-region st="on"><st1:place st="on">UK</st1:place></st1:country-region>.<span style=""> </span>Nor should we abolish the employer-based system and turn into a Swedish private model. <span style=""> </span></p> <p class="MsoNormal"><o:p> </o:p></p> <p class="MsoNormal">I know this concept doesn’t make a whole lot of intellectual sense. <span style=""> </span>If a system is bad to begin with, why don’t we scrap it and go with something else that is better? <span style=""> </span>Atul Gawande goes on to describe a few more examples of this “path-dependence” including VHS vs. beta-max (a superior technology to VHS), the telephone system, the gasoline-based transportation network.<span style=""> </span>Sometimes nations are too far down one path to turn it around, and any such upheaval of the existing system can pose serious risks (like Mao’s Great Leap Forward). <span style=""> </span></p> <p class="MsoNormal"><o:p> </o:p></p><p class="MsoNormal"><o:p></o:p><meta equiv="Content-Type" content="text/html; charset=utf-8"><meta name="ProgId" content="Word.Document"><meta name="Generator" content="Microsoft Word 11"><meta name="Originator" content="Microsoft Word 11"><link rel="File-List" href="file:///C:%5CDOCUME%7E1%5CANDYJU%7E1%5CLOCALS%7E1%5CTemp%5Cmsohtml1%5C01%5Cclip_filelist.xml"><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> <w:usefelayout/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:latentstyles deflockedstate="false" latentstylecount="156"> </w:LatentStyles> </xml><![endif]--><style> <!-- /* Font Definitions */ @font-face {font-family:Batang; panose-1:2 3 6 0 0 1 1 1 1 1; mso-font-alt:"Arial Unicode MS"; mso-font-charset:129; mso-generic-font-family:auto; mso-font-format:other; mso-font-pitch:fixed; mso-font-signature:1 151388160 16 0 524288 0;} @font-face {font-family:"\@Batang"; panose-1:0 0 0 0 0 0 0 0 0 0; mso-font-charset:129; mso-generic-font-family:auto; mso-font-format:other; mso-font-pitch:fixed; mso-font-signature:1 151388160 16 0 524288 0;} /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:Batang;} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} </style> <![endif]--> </p><p class="MsoNormal">
<br /></p><p class="MsoNormal">Our country is built on a patch-work of 1) the employer-paid piece, 2) the government-paid piece for seniors (Medicare), 3) government-run piece for veterans (Veterans Administration), and 4) the federal/state government-paid piece for the poor (Medicaid). <span style=""> </span>Any realistic/pragmatic expansion would build on these already-existing programs. <span style=""> </span>Indeed, just earlier this morning, the Senate is pushing a package through that will expand Medicaid and establish a new health insurance exchange that will help solve the broken individual market. <span style=""> </span>They are building on what already exists; not by intellectual choice, but by practical necessity. <span style=""> </span></p> <p></p><span style="font-size: 12pt; font-family: "Times New Roman";"></span>Andy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.com2tag:blogger.com,1999:blog-2584705757436511038.post-8427670091568156882009-12-04T21:20:00.000-08:002009-12-04T21:39:39.604-08:00Model Health SystemsHey Readers! Thanks for helping to make Gen Y Healthcare such a success. You can now follow us on Facebook and/or Twitter (SN: genyhealthcare) to get the latest updates and even extra tidbits from time to time. There have been a lot of insightful comments so far, so keep 'em coming!<br /><br />http://www.facebook.com/pages/Gen-Y-Healthcare/187150235177<br /><br />---------<br />As broken as the American health system is, there truly are pockets of amazing systems that we can look to: <a href="http://intermountainhealthcare.org/Pages/home.aspx">Intermountain Healthcare</a> (Utah), <a href="http://www.geisinger.org/">Geisinger Health System</a> (PA), <a href="https://www.kaiserpermanente.org/">Kaiser Permanente </a>(primarily CA). These guys deliver technologically advanced care with better outcomes, lower costs, and happy employees. It is worthy to note that they’re all non-profit entities as well. I’ll be honest – I haven’t personally visited any of these systems, so my information is admittedly second hand. I have, however, spoken to key figures in some of these systems and read numerous studies and anecdotes about these systems, but the point isn’t whether or not these systems are better – the question is HOW are they better. So what’s the secret sauce?<br /><br />The crucial pieces of their success are cooperation and motivation. Normally, a patient’s care can be done in numerous settings – a hospital, a primary care physician, multiple specialists all in different places, and possibly even other places like a long-term care facility or nursing home. These entities bring together the key elements of care – the hospital, the primary care physician, the specialists, and the payor (ie. the insurance piece). Instead of shuffling the patient back and forth among provider settings with disparate patient records and an inherent dependence on patient’s memory, understanding, and effort, these places bring the care TO the patient. With the patient’s primary care physician always nearby, a full team of specialists can communicate with each other to discuss a patient’s issues and treatment. Think about that – each physician gets to see a variety of cases and gets more experience than the average individual specialist can, and they get the benefits of practicing together as a team and pooling their knowledge. Now the cardiologist can speak directly with the radiologist and primary care physician to get a quick, efficient understand of the issue on top of knowing the patient’s history and current medication. Just avoiding the common errors alone (conflicting medicines, mis-diagnoses, repeated tests, etc.), these systems easily give care that is better, faster, and more cost-efficient. Of course, we’d all love if all healthcare delivery systems could do that, but how do the physicians get the motivation in place? <br /><br />Remember that most physicians get paid on a per-service basis. Each test they order, each service performed means more revenue. There is no pecuniary motivation to spend extra time speaking with the patient to ensure they completely understand the instructions or taking extra time to speak with other specialists to double check themselves etc. What these systems do is to employ the physicians. The physicians get paid more than the average physician would earn on their own, and they are given the freedom to practice the way they want to – to give the patient the best care without an eye on how it impacts their own financial situation. Essentially, the financial motivation for more services is taken away from the physician. The pursuit for the intellectually-correct care is the main goal for most of these guys. <br /><br />For the hospital, the motivation is different as well. Instead of a fee for service basis, this ultimately boils down to a single basic principle – capitation. These systems are given a fixed amount of money to care for their patients. The more money they save, the more money they get to keep. That means that they’ll be very mindful of waste, inappropriate uses of services, and long-term health of the patient. In short, they are taking on insurance-type risk.<br /><br />So why is this system the El Paso rather than the McAllen? Can it be transported elsewhere?<br /><br />1) It takes a certain type of <span style="font-style:italic;">physician </span>to be successful in this environment. They’ll do well financially by hitting doubles, but they won’t be given the opportunity to swing for the fences.<br />2) <span style="font-style:italic;">Patients </span>need to buy into the program. They need to accept that they’ll be funneled into a specific hospital system and only get to see a specific set of physicians. They won’t be given a vast choice of doctors to choose from.<br />3) <span style="font-style:italic;">Employers </span>need to be small-mid sized companies that are either local or regional employers. National employers have no use for such a narrow network, so the addressable market is much smaller. <br />4) <span style="font-style:italic;">Hospitals </span>will need to redesign themselves. Integrating physicians into the entity, spending more money than ever on information technology and capital expenditures, renegotiating the fundamental way they are compensated. <br /><br />In short, it is pretty hard for a system like this to start up, but it’s certainly possible. Some of the Medicare Advantage health insurers have some pretty deep and integrated HMOs, so perhaps we’re seeing advanced health systems in their nascent stages. Or perhaps that’s wishful thinking – <a href="http://genyhealthcare.blogspot.com/2009/10/how-can-we-put-on-brakes-on-cost-why-is.html">after all the promise of HMOs as the savior to the health system has been around since the 1990s</a>.Andy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.com4tag:blogger.com,1999:blog-2584705757436511038.post-73522337843948256912009-11-23T19:54:00.000-08:002009-11-23T19:59:01.199-08:00A Tale of Two TownsThe summary below comes from an <a href="http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande">article</a> originally printed in the New Yorker on June 1, 2009 and written by Atul Gawande. <a href="http://www.gawande.com/">Atul Gawande</a> is a practicing surgeon in Boston, MA, frequently writes for New Yorker magazine, and has written his own books called Complications and Better. <br /><br />I love this article. I highly, highly encourage you to read it yourself on the New Yorker website. I think Atul is a beautiful writer, and this article has been vetted by some of the best editors in the business, so this summary barely does it justice.<br /><br />Atul compares two towns in Texas with similar demographics, incomes, population sizes, public-health statistics, illegal immigrant percentages, and unemployment rates. Basically, just about everything is the same, but the big difference between these two towns is that McAllen, TX costs twice as much as its nearby neighbor El Paso, TX and almost twice as much as the national average. In fact, Medicare spends $15,000/enrollee even though the per capita income of the town is $12,000! He explores many different possible reasons for such a big difference, but it boils down to one thing: overutilization of healthcare. There are too many tests, services, and procedures being ordered by physicians. Ultimately, Atul blames the entrepreneurial spirit and culture of McAllen that has infected the market since 1992 – the last time that McAllen’s costs were on par with the national average. Doctors not only own their own practices but may also be part equity owners in various specialized surgery centers and other provider facilities. The incentive to recommend too many procedures and tests proves to be too much. <br /><br />I think my favorite part of the whole article is the sentence that states, “the real puzzle of American health care…is not why McAllen is different from El Paso. It’s why El Paso isn’t like McAllen. Every incentive in the system is an invitation to go the way McAllen has gone.”<br /><br />Having read a lot of political opinions and listened to political pundits, it’s quite refreshing to see the correct conclusion being drawn from an example of two divergent healthcare costs. Many people point to the efficient exception asking – why isn’t everyone else just like this? I’m a big believer in motivations from incentives and conditioning through learned behavior. I studied a lot of economics, psychology, sociology, and statistics, so this education significantly influences my view the world. The fact is that our system today rewards the behavior in McAllen, so it should not be a surprise that McAllens exist in the US. Perhaps the degree is a bit amazing, but look for the outlier, and it will be found. Atul’s ending is a bit fitting and foreboding, “the decision is whether we are going to reward the leaders who are trying to build a new generation [healthcare delivery models]. If we don’t, McAllen won’t be an outlier. It will be our future.” I think he’s right. <br /><br />We can’t continue to ask our doctors to be altruistic saints by choosing between what is right and what makes financial sense. If each doctor did what was best for himself, as they do in McAllen, the result is disaster. In a certain way, it is similar to a prisoner’s dilemma where the collection of individuals’ optimal decisions is the worst outcome for the group. Antibiotics is one example – physicians almost always prescribe the antibiotic for the patient because that patient will be better off in any individual instance, but over time this overprescribing produces antibiotic-resistant bacteria that is worse for the entire system. Of course if physician 1 does it, it’s not a big deal, but if physicians 1-10,000 do it, then it becomes an issue. Changing the incentives of physicians is not an easy task. However, there are a few places that have managed to change the way they delivery healthcare.<br /><br />Next we’ll take a look at some of these places that seem to have achieved healthcare Zen – lower costs, better outcomes, happy patients, and happy doctors. <br /><br />Sources: New Yorker http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawandeAndy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.com5tag:blogger.com,1999:blog-2584705757436511038.post-49385619342662830012009-11-16T18:13:00.000-08:002009-11-16T18:17:18.398-08:00The Public PlanThere has been a lot of buzz about the public plan, but what exactly is it, and what would it do to the US healthcare system? You’ll probably hate this answer, but it all depends. Here’s the general tension: one side believes that the government can run the healthcare system more efficiently and cheaply than the private sector. The other side is a belief that the private sector generally can do things better than the government and that the healthcare sector is no exception. I’ll start with the most liberal/powerful version, and move towards the right. <br /><br />Strong public plan option <br />To me this is defined by 2 key elements: (1) required provider participation and (2) Medicare-based rates. Since no bill has actually <em>required </em>providers to participate, I won’t get into that. I did make a reference to low Medicare rates in an earlier post, but suffice it to say that there are studies, including one from the Lewin Group, which is admittedly a subsidiary of United Health Group, that show that Medicare rates are as low as 71% of standard commercial rates. If you don’t believe me or doubt the validity of the study, go ask your doctor (or ANY doctor) if the rates that Medicare pays come remotely close to the rates for commercial payors. One key question though is, why should providers care – isn’t Medicare+Plus better than an uninsured patient, who’s paying pennies on the dollar? Well the fear for hospitals and physicians alike is not about converting uninsured patients into some type of insured patient (government or commercial). The key fear is what if the commercial patients turn into a lower paying government-insured patient? If half of the patients are commercial paying patients, then the average rate that hospitals receive is slashed by 30% for half its patients. This would devastate the hospital industry. Remember, 30% off of reimbursement goes straight to the bottom line, so after accounting for mix and taxes, it’s roughly 10% of net income gone. For an industry that makes an average of ~3% profit margins (~85% of hospitals are non-profit), taking out 10% is infeasible. Even though every proposal has limited the eligibility of a public plan to a small group of people, industry experts, conservatives, and moderates alike have recognized that establishing a public option could be the “camel’s nose under the tent.” In other words, if the plan is eligible for groups under 50 today, then who’s to say that eligibility won’t be expanded down the road to groups of 100, 500, 1000…until eventually the government controls the entire healthcare industry? It’s for these reasons that the earliest versions of the House bill with a strong public plan at Medicare + 5% rates were defeated in committee. <br /><br />House version Public plan option<br />To compromise a little with the moderates, the early House version switched from a Medicare+Plus system to a “negotiated rates” system. Loosely defined, the Director of Health and Human Services (the department in charge of Medicare, Medicaid, FDA, CDC, etc.) would be in charge of negotiating rates with providers. Ignoring the difficulties of negotiating with >5,000 hospitals and the hundreds of thousands of doctors, it is unclear if these rates would be closer to Medicare or commercial rates. Again, the same argument (Camel’s nose) is being used to argue against putting in the public plan infrastructure in this form. <br /><br />Other proposed verions<br />There are a few other versions in the Senate being thrown around as ideas. 1) Senate Majority leader Harry Reid’s state-based public plans with an opt-out clause, 2) Senator Olympia Snowe’s public plan with trigger provisions if the health insurance industry does not meet certain coverage or cost goals, and 3) Senator Kent Conrad’s non-governmental, state-based cooperatives akin to the agricultural industry cooperatives (think FL orange growers). The state-based plans are nearly as powerful as their national-based cousins, but it would allow states to opt-out. Considering that a few moderate Senators do not like this plan, it has no chance of passing. Chalk this one up to politicking by Senator Reid. The cooperative has been blasted by liberals as being too impotent to cause any change in the current environment. In other words, it would be the same as not having a public plan at all, and those critics would be right. Private insurers have already been competing against non-profit, non-governmental entities for decades. The intriguing one to me is the trigger-based public plan. On the surface, it solves the general tension that debaters have: it gives the private sector the chance to prove that it can bend the cost curve and cover the uninsured under new regulation, but it also creates a public plan if the private sector fails as the public plan backers would believe. It seems like the perfect compromise, but then the question becomes what is the “trigger” itself? Can insurers really be responsible for cost controls when they control only 15-20% of the premium via SG&A and profits? Will the trigger be strong enough to motivate the journey towards efficiency? This and many other questions remain to be seen.<br /><br />If you asked me my opinion (and I emphasize this is an opinion because I can respect the belief that government can do things better than the private sector – defense and utilities for example), I’d tell you that I look at Medicare as the model for the government’s ability to run a health insurance program. If you’ve read my earlier post about Medicare, then you’d know that I think it is a pretty miserable program full of inefficiency and fraud. Regardless, the public plan is truly a big <em>distraction </em>from all the things that need to be fixed. As an American, I really do sincerely hope that legislation gets passed in some form. It is impossible to argue that the current system works. We’re next going to explore some of the ideas and writings of Atul Gawande and identify some of the positive changes that are being proposed to the system.Andy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.com6tag:blogger.com,1999:blog-2584705757436511038.post-55035966614872051262009-11-02T19:07:00.000-08:002009-11-02T19:12:49.309-08:00State Experiments in the Individual MarketThere are really only a handful of states that have tried to put serious restrictions/regulation into their individual insurance market. We saw in the previous post about the individual insurance market how most states, like Texas for example, favors the currently healthy. The most extreme example of a state that favors the currently sick is New York. This state has both pure community rating and guaranteed issue requirements. This means that everyone buying individual insurance in the state pays the same price (community rating), and that insurance companies can not deny you if you apply for insurance – even if you are already sick (guaranteed issue). That may sound great and fair in principle, but once you dig deeper into what the effects are, it’s simple to see that it too is a broken market. Today, the cost of a New York insurance premium is $1,300 per month for an individual (not family). Only about 44 people of the 19.5mm New York residents have individual insurance. Most just go uninsured and many delay minor-moderate care needs. I have friends that are one sports accident or an apartment-moving injury away from wiping out their savings and moving back home. For comparison’s sake, in Kentucky the premiums are as low as $95/month – clearly more affordable for the average person. <br /><br />Understanding what happened to New York isn’t that hard. If you’re guaranteed to be able to get insurance, then you’ll only buy it when you know it’ll be more beneficial to have it than not. So a rational person would wait until a tangible need arose. Since only sick people are buying insurance and using more services than they’re paying for, the insurer then raises rates the following year to make up for the losses. The marginally healthier people subsequently drop out, and the cycle repeats. This is the classic spiral of adverse selection: the higher the premiums drive out the healthier population leaving the sicker population to pay ever higher rates. <br /><br />Herein lies the problem – how do you get someone to pay for something they don’t (think they) need? Well the answer is pretty easy, even if it is unpopular. You force them to get it (taxes anyone?). The same has been true in auto insurance for decades. Auto-insurance is a prerequisite for driving (even if compliance is lower than the 100% hoped). In my humble opinion, there has been only 1 state to date that has tried with any amount of success: Massachusetts.<br /><br />In 2006 Massachusetts passed one of the most ambitious healthcare reform bills to date. Its reforms had several elements, but here are the key features:<br /><br />• Insurance “Connector” for individuals and small groups <br />• Guaranteed coverage for people in the connector – insurance companies must either offer insurance to everyone or not sell insurance to individuals at all<br />• Penalties for not having health insurance (individuals relinquish the $219 state personal exemption and/or non-exempt employers pay a small penalty if they don’t offer insurance)<br />• Insurance companies must contract with providers (hospitals and physicians); in other words, it is voluntary participation for providers<br />• Subsidies for the poor<br /><br />The result was that a lot more people got coverage. Employers felt obligated to offer insurance (possibly from the pressure from their employees), individuals purchased coverage to avoid the penalty, and coverage was kept affordable since healthy members bought in and broker commissions were eliminated. Step 2 of the reform was reining in the costs of the program. Unfortunately, the recession hit at the same time that step 2 needed to take place, and the dual impact put an incredible strain on the state. Some might argue that Massachusetts was one of the only states that could have pulled this off. It happens to have a few built-in advantages in executing its version of universal coverage. <br /><br />• It already had a high insurance coverage rate to begin with (~94% pre-reform/ ~97% post-reform)<br />• It has an affluent population (median income of $62,365 vs. $41,994 national average).<br />• Many of the residents culturally believed that insurance was a necessity/right/basic need etc. It is, after all, one of the most liberal states in the US. <br /><br />I’d say that Massachusetts was successful in achieving the second goal of covering the uninsured (See: What’s wrong with the individual market? A look into the uninsured.) It failed pretty miserably at achieving what is the first goal of US reform: controlling costs. One of the ways that is repeatedly cited as a way to control costs is a national public plan option. After all, if England can do it, can’t we do it too? (Yes, we can!)<br /><br />Sources: Interviews with Blue Cross Blue Shield insurance executives, US Census Data<br /><br />Next Post: What is a public plan? What are its advantages? Disadvantages? Is one feasible in the US?Andy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.com0tag:blogger.com,1999:blog-2584705757436511038.post-84503535324139261422009-10-26T19:10:00.000-07:002009-10-26T19:32:57.278-07:0060 Minutes: Medicare FraudLast night, CBS's 60 Minutes aired a 14 minute piece on Medicare Fraud titled "The $60 Billion Fraud." It hits a lot of good points in an easy-to-digest way including fake providers billing for fake services and equipment. It doesn't even get into some of the other ways these criminals defraud the system like inventing patient ID numbers (necessary to bill Medicare) or paying off seniors to let providers bill for high reimbursement services - such as fake chemotherapy (ie. a kickback or bribe). The investigation does go straight to the Medicare fraud capital of the US - South Florida where there are hundreds of thousands of Medicare recipients. In Miami-Dade county, it is expected to cost Medicare $14,851/person/year in 2009 primarily due to the extra fraud costs. For comparison's sake, there are other US counties where it costs $6,000-8,000/person/year to cover the elderly (primarily the more rural counties with cheaper labor costs.) It's quite an interesting video!<br /><br /><embed src='http://cnettv.cnet.com/av/video/cbsnews/atlantis2/player-dest.swf' FlashVars='linkUrl=http://www.cbsnews.com/video/watch/?id=5419844n&tag=cbsnewsSidebarArea.0&releaseURL=http://cnettv.cnet.com/av/video/cbsnews/atlantis2/player-dest.swf&videoId=50078666&partner=news&vert=News&si=254&autoPlayVid=false&name=cbsPlayer&allowScriptAccess=always&wmode=transparent&embedded=y&scale=noscale&rv=n&salign=tl' allowFullScreen='true' width='425' height='324' type='application/x-shockwave-flash' pluginspage='http://www.macromedia.com/go/getflashplayer'></embed><br/><a href='http://www.cbsnews.com'>Watch CBS News Videos Online</a><br /><br />Sources: CBS News, Centers for Medicare and Medicaid ServicesAndy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.com0tag:blogger.com,1999:blog-2584705757436511038.post-64901467610804040782009-10-20T17:45:00.000-07:002009-10-20T17:48:24.018-07:00What’s wrong with the individual market? A look into the uninsured.Today’s healthcare reform has started with two goals in mind: 1) Lower the overall future cost of healthcare (dubbed “bending the cost trend”) and 2) cover the uninsured. Unfortunately, most of proposals currently being debated in Congress do little to attack problem #1, but they do cover quite a bit of the uninsured. What exactly does that mean though? To understand how to do it, it will help to understand what the uninsured population looks like in the first place. Unfortunately this may prove to be useful information. With unemployment trending higher and the young workers being more likely to be laid off (ie. Gen Y!), we may find ourselves dealing with finding insurance on our own sooner than we’d like. <br /><br />Today, there are 45.7mm uninsured people in America. 17% of that population makes over 300% of the Federal poverty limit or $66,150 per family of 4. These people can generally afford some type of healthcare coverage, but they choose not to get it either because they feel that they do not need insurance or may not even know how. Another ~30% already qualifies for Medicaid – the state/Federal health insurance program for the poor. It may sound like a funny concept to qualify for such a beneficial assistance program and not take advantage of it. There could be several reasons for this. They may not realize their income (or lack thereof) qualifies them for the program. Some may be children of low-income families where the child qualifies but the parents do not. Whatever the reason, they qualify for Medicaid but aren’t in the program. (Incidentally, if you live in the New York, New Jersey, New Mexico, or California areas, there is a great program called Single Stop that helps needy families find programs and services that are already available to them. http://www.singlestopusa.org/) The remaining uninsured earn somewhere around $22,050 to $66,150 for a family of 4, which is a zone where buying health insurance would arguably constitute a significant burden on them. <br /><br />Each state regulates its own insurance market today. Before we get into the exceptions, we can take a look at what a typical state looks like to understand why there are so many uninsured people. It’ll be pretty easy to see how broken this system really is. In the individual market, health insurers can underwrite individuals – nobody is pooled together and nobody has guaranteed coverage. This means that they can take an assessment of your health status and charge you a premium that they would expect to cover their costs + a profit. This works great for 3 parties: 1) healthy individuals, 2) the insurance companies, 3) the insurance brokers. For healthy individuals, they are getting charged a low premium because they don’t cost a lot in the first place. It’s certainly a lower premium than if they were pooled together with more expensive, older patients. For insurance companies, very few of them actually lose money on the individual market unless they are subject to special rules, so they’re typically making 5-15% of profits. The insurance brokers are skimming as much as 20% of the premium for their services. [Opinion alert – I am biased against health insurance brokers. They’re not taking on any risk like the insurance companies, and I don’t think that selling that product should warrant 20% of the cost. With online brokers and online shopping becoming more prevalent, I am sure this piece of the cost will shrink significantly.] If you take a step back, you see that as little as 60% of the premium is actually going to medical cost. <br /><br />Really, it gets worse from here. I did say that it works great for healthy individuals. Part of that is the access to the discounts that health insurers get on drugs, hospital admissions or surgeries, etc. It’s great to have coverage if you need one-off care like mending a broken arm from a rugby accident or something. What isn’t very appealing is if you need chronic care. If you get cancer and need chemotherapy for the next 3 years or if you get diabetes or have heart problems, your rates will go up severely enough that you will either lose your coverage or won’t be able to afford it. [To be fair, in a market like this, it’s easy to argue that insurers aren’t taking significant risk either.] So for the sick or future sick, the individual health insurance market is not a pleasant place. While the individual insurance market is broken, we’ll look at various ways that some states have tried to solve it.<br /><br />Sources:<br />Kaiser Family Foundation - The Uninsured<br />(http://www.kff.org/uninsured/upload/7451-05.pdf)<br />Department of Health and Human Services<br /><br />Next Post: What have other states tried? What can we learn from them?Andy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.com1tag:blogger.com,1999:blog-2584705757436511038.post-70587850160773171892009-10-09T18:39:00.000-07:002009-10-09T18:53:25.234-07:00How can we put on the brakes on cost? Why is “Health Maintenance Organization” a bad word? How has it influenced our current employer-based system?It’s certainly not the first time in history that we’ve had uncontrollable costs. Back in the 1990s, the US turned to the Health Maintenance Organizations (HMOs) as the answer to control costs. Well, they “worked” – and I use that term loosely here. The mid-90s brought some of the lowest cost trends this country has seen ~0% (Remember healthcare cost trends are historically 6-10%). If you’ve heard the term at all, HMO has a bad connotation to it, and for good reason. First though, it is helpful to understand what it’s ~supposed~ to be. Then we’ll look at what they morphed into back in the 90s.<br /><br />An HMO is an insurance product that gives access to a tightly managed network of providers. It’s supposed to be more efficient through two methods. 1) Negotiate better rates with providers by guaranteeing a certain number of patients – trading lower rates for volume. 2) It is supposed to give better care and keep its members healthier than they otherwise would be. It uses the ‘gatekeeper’ model, where you have a specific primary care physician that coordinates all your care. In an ideal world, he oversees your care and refers you to specialists when such care is called for. In this hub-and-spoke model of care, he should have intimate knowledge of the patient, the drugs being taken, any treatments being performed, etc. He would also be responsible for preventing any adverse interactions – if drug A from specialist #1 can not be taken along with drug B from specialist #2. Of course, that is more relevant for the senior population who can often be on 6+ drugs at a time vs. a health individual taking 0-2 drugs at a time. On the fiscal side of things, these HMOs are given a fixed monthly premium to care for the patient, so the less money they spend on the care, the more money they get to keep. I think this incentive was a foreshadowing of potential issues, but the earliest HMOs had some success providing better care at a lower cost. Then a lot of things went wrong pretty quickly.<br /><br />There are a couple key things to consider. One is that the earliest HMOs were genuine medical companies that had been in the business for decades. Some of these guys were Kaiser Permanente, Blue Cross Blue Shield, and other smaller local companies. Second, these organizations targeted small-medium sized employers so that the volume of patients was manageable for a small-medium sized group of doctors. It didn’t take long before every insurance company, including life and property insurers who had no experience in health insurance, was throwing together a haphazard group of doctors and calling it an HMO. On top of this, larger sized employers started to join HMOs and forcing thousands of employees into groups of hundreds of doctors and a handful of hospitals. If you can imagine the scene, you had doctors with little to no experience in an HMO being overwhelmed by thousands of employees who previously were able to see any doctor they wanted. The inexperienced insurance companies turned to their only weapon to stay in business – they started to deny care. To clarify, whenever care is properly managed, some care will be denied. Inherently keeping costs down involve denying wasteful spending or seeking lower cost alternatives with superior health benefit / dollar cost ratios. These inexperienced insurance companies were denying/discouraging optimal care. You can imagine all of these factors combined lead to dissatisfaction for everyone involved, especially the physicians and patients. To exacerbate those problems, it’s a pretty heartfelt news story to show a soon-to-be-retired grandpa not getting his heart medication and dying of a heartattack a few weeks later. By the late-90s with the economy roaring back and employers and employees able to afford indemnity plans again, the era of the HMO was gone. Employees pushed back hard against being forced to see an overworked primary care physician and being subject solely to his medical opinions.<br /><br />The pendulum of cost and choice had swung back around. To give employees more choices but still keep an eye on costs, the PPO (Preferred Provider Organization) was invented. This insurance product gave a list of physicians and hospitals that were “in-network” that carried reduced co-pays, co-insurances, and deductibles. To go “out-of-network,” employees had to pay higher cost-sharing amounts. The other primary difference is that employees had to find their own primary care physician and were again allowed to see any doctor or go to any hospital they wanted – as long as they paid a higher amount. This really amounts to little more than a discounting system.<br /><br />Today, different geographies are dominated by different systems. The HMO system still thrives in California, where it had its strongest roots and its best practices. Kaiser Permanente was founded there – we’ll look at them at a different post. The PPO product has become the dominant form in most areas, particularly the Northeast. Although, with the consolidation of insurance companies (only 4 major ones), the PPO product of today can almost feel like an indemnity product that allows employees to go anywhere. As an example, my Oxford health insurance PPO (aka. United Healthcare) offers me well over 300 potential primary care physicians within 1 mile of where I live. Heck, I have my choice of 56 acupuncturists too! Granted, I live in Manhattan, so maybe that’s a poor comparison. <br /><br />Where do you live? What type & brand of insurance do you have? How much choice do you have when picking your physicians? In other words, how many primary care physicians (sometimes called internists, OBGYNs, or general practioners) can you choose from within 1 mile of where you live or work (or 5-10 miles if you’re in a suburb)?Andy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.com1tag:blogger.com,1999:blog-2584705757436511038.post-50802445576692747122009-10-01T19:02:00.003-07:002009-10-01T19:05:52.017-07:00Why does healthcare come from our employers anyway? How did that get started?It started long ago with the idea that employers should do their part to keep their employees healthy and productive. Of course that was a lot more relevant in the 1800s when industrial revolution’s working conditions and the era’s public health were mediocre at best. The US employer-sponsored healthcare took firm root during World War II when the US government placed wage restrictions on employers but did not restrict the amount of fringe benefits. To compete for the best talent in an environment with fewer workers, employers beefed up their health benefits. <br /><br />It was the Revenue Act of 1954 that solidified the employer-based healthcare system that we have today. It explicitly categorized health benefits as non-taxable income. This created a ripple effect that has influenced the way we purchase and receive our healthcare. The first effect is that workers would always demand healthcare through our employers. Any other way would be tax-inefficient. All else being equal, $1 of health benefits and $1 of cash wages cost the same to the employer; however, the employee health benefit would be $1 through the employer but only $0.65 if purchased on the individual market with taxed cash wages. This tax arbitrage lead to more compensation being given in the form of non-cash health benefits, and this fact is readily apparent in many union negotiation contracts. Unions have some of the best benefits available, and its origin is derived from the tax treatment of such benefits. It’s no wonder that GM now spends more on healthcare than steel or that Starbucks spends more on healthcare than coffee beans! <br /><br />An employer typically offers benefits in one of two ways, either on a fully-insured or self-insured basis. Both types function the same way for employees. Fully-insured employers tend to be small to mid-sized companies that purchase health insurance from an insurance company – usually a United Health, Aetna, Cigna, or Blue Cross / Blue Shield plan, who can take on the insurance risk and pool it with other employers. Self-insured employers tend to be large to nation-wide companies that purchase only the administrative services portion but takes on the fiscal responsibility/liability of paying the claims. The idea is that with a sufficiently large employee population, the company can act like a mini-health insurer and save on cash-insurance costs, particularly if it finds that it employs a younger or healthier-than-average population. Because of our insurance mechanism of payment, the second (and likely unintended) effect is that employees incur primarily indirect costs, which skews the purchase decision. The employer pays most or all of a premium on behalf of the employee to the health insurer. That premium is determined by the aggregate cost of covering all the employees or in the case of smaller companies by the aggregate cost of covering everyone in the insurance pool. Because of this pooling, the individual’s use of healthcare will only serve to increase future premiums by a relatively small amount, i.e. a relatively small marginal cost. With this imperfect information, consumers do not know or understand what the true costs of the healthcare that they are consuming relative to the benefit that the employee is receiving. Said another way, a doctor’s visit may feel like it’s costing $10 out-of-pocket for the co-pay, but the real cost of the visit may be $80. The hidden $70 makes it way back to the insurance pool where the rates get raised later. Since the marginal cost is hidden away, demand and overconsumption runs rampantly in the system. <br /><br />So while employers wanted to do something good for their employees and the government wanted to encourage a way for people to get healthcare coverage, the tax-advantaged health insurance system has certainly contributed to the way healthcare costs have grown unchecked.<br /><br />Next Post: How can we put on the brakes? Why is “Health Maintenance Organization” such a bad term?Andy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.com0tag:blogger.com,1999:blog-2584705757436511038.post-49638981787539091252009-09-23T18:06:00.000-07:002009-09-23T18:29:19.022-07:00Why is Medicare bankrupting us? Why are the costs out of control?We’ve heard many times that healthcare costs are spiraling out of control, but a lot of things are described that way, so how can we put this into context? The two best figures to compare are the US Gross Domestic Product (GDP), which grows at 2-3%/year in normal times, and the US Consumer Price Index (CPI), which has been 0-4%/year since 1990s. Medical cost trend has grown around 6-10%/year since the turn of the century. Quick sidenote - for employees, it feels even higher since they are being asked to pay for a greater share of their healthcare costs. It's no wonder that healthcare is taking on a greater share of the economy and the consumer's wallet.<br /><br />Medicare officially keeps a relatively low cost trend for the program – roughly 5-8%/year. However, Medicare’s hidden trick is that it pays providers a predetermined rate that providers can not negotiate. If a hospital doesn’t like its Medicare rate, the only thing it can do is not accept Medicare. Considering the volume of business that Medicare commands, that’s an impossible option. Said another way, because of the high fixed cost nature of hospital, hospitals without Medicare volume would not survive, but hospitals with only Medicare rates across all their volume would not survive either. This means that Medicare is actually underpaying providers by paying above variable cost but below average cost. Hospitals cope in 2 ways: 1) They increase the number of billable services they perform on Medicare patients (we'll revisit this below) and 2) They charge the commercial insurers more than they normally would. [See this Milliman report for more information on cost shifting to the commercial insurers http://www.milliman.com/expertise/healthcare/publications/rr/pdfs/hospital-physician-cost-shift-RR12-01-08.pdf]<br /><br />What this really means is that the true cost of Medicare does not show up in its official Medicare medical cost trend. That’s because some of the costs that Medicare should be paying for is paid for by the commercial insurance population. In fact, even the true administrative cost of Medicare is higher than what is claimed. For example, while only the Center for Medicare and Medicaid Services is counted towards the 2-3% administrative costs, the cost of enrollment is actually housed under the social security administration. <br /><br />So what makes Medicare’s true cost trend so high? The answer is in the utilization of services. Breaking Medicare’s cost trend into two parts: it’s roughly 20% rate increases and 80% volume (utilization) increases. Roughly the opposite is true in the commercial managed care environment with 20% utilization and 80% price inflation. Remember how Medicare is an unmanaged fee-for-service program? That means Medicare reimburses whatever a physician charges to Medicare – no questions asked. I’ll give a few examples of extreme cases to illustrate the point. First example, if someone walks into a hospital with some knee pain there are a few things that could happen ranging from least to most expensive: a) an external examination and some aspirin, b) an x-ray, or c) an MRI. All of these practices are equally acceptable to Medicare. There are parts of the country where the care is delivered in a cost appropriate manner (ie. giving x-rays where appropriate and MRIs where appropriate), but there are certain parts of the country where an immediate MRI is standard operating procedure. [Expect a future post on geographic disparities.] Second example, if a senior needed an oxygen ventilator to help them breathe, Medicare pays the same monthly rental of that equipment whether it is new, used, or outdated. There were ventilators that had been passed through multiple patients and racked up $11,541 in rental charges to Medicare while having an original price tag of $745! There are cases where a single patient would rack up enough charges to pay for 12 ventilators. This is equipment that has “minimal servicing and maintenance” required. There is a clear reason that almost no commercial plans pay for oxygen equipment rental – they just buy them and administer it themselves. Today, there have been a lot of limitations imposed and cuts to the rates of these oxygen providers, but they still continue to make some pretty enviable margins. Honestly, how hard could that be? Third example, the plain vanilla hospitals (called inpatient acute care hospitals) are paid based on the diagnosis that someone has. That means they get paid the same amount whether someone stays for 5 days or 55 days because of a mild or nasty case of XYZ. Ideally, that encourages hospitals to be efficient and get patients better more quickly. There’s a special type of hospital called long-term acute care hospitals. These guys treat some of the sickest patients that require more attention (think a step below the intensive care unit). One day the inpatient hospitals decided that this was actually a pretty good business to be in, so they started their own long-term acute care hospitals, except they would put it on another floor of their own hospitals. So the egregious part of it is what they did with the patient to maximize the revenue they get from each patient. Remember, they should be getting a flat rate for the whole thing. First, they would admit a patient into their inpatient hospital (bill Medicare once), discharge the patient and roll him upstairs to admit him to their long-term acute care hospital (bill Medicare a 2nd time), discharge the patient after the allowable amount of time, and then READMIT him into the inpatient hospital (bill Medicare a 3rd time)! I’ll emphasize a few things. The latter two are just examples of old, ridiculous loopholes in the Medicare reimbursement system there have been caught and addressed (although I wouldn’t say closed), but trust me many more examples of these abuses exist. <br /><br />So reading this stuff may make you wonder why there is zero management to reduce some of the fraud, waste, and abuse of the Medicare system. The reason there is no management of services is that culturally and/or politically speaking, many citizens in the US believe that the government should not get between the physician and his patient to determine the type of care the patient needs. I think this is a very well-intentioned principle that has inadvertently lead to some ill consequences – namely uncontrollable costs. To be clear, I’m not commenting here that I think the government or private sector should be involved in the physician/patient decision; I am merely underscoring one of the major effects of having Uncle Sam’s blank check available. <br /><br />We’ll next explore another well-intentioned principle that has had some boneheaded ripple effects. <br /><br />Sources: Bureau of Labor Statistics, Barclays Capital, Office of the Inspector General<br /><br />Next Post: Why does healthcare come from our employers anyway? How did that get started?Andy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.com5tag:blogger.com,1999:blog-2584705757436511038.post-33047827295891164152009-09-20T14:02:00.000-07:002009-09-20T14:03:56.180-07:00What is Medicare? How did it start? What makes it so great?Every US citizen gets Medicare when they turn 65 or qualify through disability status. Today, there are over 45mm people on the program. That’s roughly the same number of people who are uninsured, and about a fourth of the number who get health insurance through the commercial market (ie. their employer, spouse, or parents). The Medicare program itself is divided into 4 parts called Part A (hospital insurance), Part B (physician insurance), Part C (Medicare Advantage or private Medicare), and Part D (prescription drug insurance). Traditional Medicare includes Parts A and B. A senior can choose Medicare Advantage (Part C), which replaces traditional Medicare coverage. Medicare Advantage can also be known as privatized Medicare or as Obama called it in his speech to Congress the “Medicare voucher program.” Seniors can opt into Part D at any time but pay a penalty for opting in later than 65. Confused yet? We’ve barely scratched the surface.<br /><br />Traditional Medicare is a fee-for-service insurance program or an indemnity program. This means a patient can go to any willing provider in America to get their healthcare. What that effectively means is that they can go to any hospital and almost any physician to get treatment. This is vastly different from what we may be used to in the commercial market, which is dominated by network products. We are familiar with the concepts of in-network and out-of-network (and if you’re not, you’ll figure it out when you start working) and the cost savings associated with going in-network. <br /><br />So how did Medicare get started, why do some Congressmen believe Medicare or a program like it is the answer to all our problems, and what are its flaws?<br /><br />In the 1960s, Lyndon B. Johnson overcame a lot of political hurdles to cover the nation’s sickest and most vulnerable population, the elderly. This was an admirable goal, and the debate over whether or not to have this program was remarkably similar to the one we have today. Think about it – huge public plan, criticized that it was going to be a Trojan Horse to government take over, promises by supporters that it could support itself through premiums and modest taxes. That didn’t exactly work to plan.<br /><br />It is believed by some Congressmen that Medicare is an efficient, popular program that should be expanded to the entire population – boom all problems solved. In fact, Pete Stark of California introduces a “Medicare for all” bill to every new Congress or in other words every 2 years. So, why do people like Pete Stark think of it as efficient? Well the argument is that 1) the administrative costs of Medicare are much lower than a private health insurer and 2) there is no need for profits. To put this into perspective, let’s look into where an average healthcare dollar goes for a for-profit insurance company in the Medicare Advantage space. Roughly 85% of each $1 is spent on medical costs. 10% is spent on administrative costs, and 5% is kept in the form of profits. These numbers vary company to company and product to product, so to be fair in the commercial market these numbers would look closer to high 70s medical costs, mid double digits administrative costs, and high single digit pretax profit margins. The not-for-profits may have something like mid-high 80s medical costs, low-mid double digit administrative costs, and less than 2% profit margins (yes they make something, but they give it back later). To keep the comparison equivalent, we’ll stick to the senior population. So what’s the thought process for efficiency? Eliminate the 15% spent on administrative costs and profits and replace it with the 2-3% of administrative costs borne by the government. The problem…the other 85%!<br /><br />Next Post: Why is Medicare bankrupting us? Why are the costs out of control?Andy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.com0tag:blogger.com,1999:blog-2584705757436511038.post-12762163763117041042009-09-16T19:05:00.000-07:002009-09-16T19:22:14.743-07:00What is the healthcare system? How is the government involved today?First, I am not a doctor or scientist. This is a focus on the services side of healthcare, not the products. I am not in the position to deeply explore the pharmaceutical world, the intricacies of a surgery, or the medical devices that are used to make miracles happen. What I will try to explain is how the hospitals, doctors, nurses, pharmacists, health insurers, and patients fit together in this system and what role the government plays today. This will help frame many of the future topics we will explore and put context around any posts that analyze current events. Below is a simple diagram of healthcare services system. <br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmM1Y2tiYzDg8kakGo5IkEJcQ7kMaZtuOdYZ1oDHXUFFDJF-tiTsfoNCBHYzUAkFXe-X5JDZV7syrKR44kQk8LYkPHYdk2vO9Rr9D6VGsokBKFlRvRTEVBuXOKf0rRSqOfgf68OKLtvog/s1600-h/Post+2+-+What+is+health+insurance+and+how+is+the+government+involved+(Figure+1).bmp"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 309px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmM1Y2tiYzDg8kakGo5IkEJcQ7kMaZtuOdYZ1oDHXUFFDJF-tiTsfoNCBHYzUAkFXe-X5JDZV7syrKR44kQk8LYkPHYdk2vO9Rr9D6VGsokBKFlRvRTEVBuXOKf0rRSqOfgf68OKLtvog/s400/Post+2+-+What+is+health+insurance+and+how+is+the+government+involved+(Figure+1).bmp" border="0" alt=""id="BLOGGER_PHOTO_ID_5382254616410307362" /></a><br />The majority of people have some type of insurance coverage. This can be private insurance through their employer, family insurance through their parents, Medicare through the Federal government, Medicaid through their state government, or even military health benefits. At interaction #1, Americans or their employers are paying these insurance companies premiums up-front each month for future uses of services. At interaction #2, a patient renders services from some type of healthcare provider. At interaction #3, the healthcare provider requests reimbursement from the health insurer. We won’t worry about all the details of the bullets now, but we’ll come back to them eventually.<br /><br />The government is involved in the insurance side through two major programs: Medicare and Medicaid. Medicare is a program started in 1965 to offer coverage for the elderly. It is by far the largest health insurance entity in America by dollars spent. Medicaid is a Federal-state government partnership started in 1965 to offer coverage for the poor and uninsured. The program is run by each individual state, but the Federal government subsidizes the states by giving states money for each $1 spent on the Medicaid program. For example, in a 40-60 split, the Federal government gives certain states $2 for every $3 that the state spends. <br /><br />Healthcare happens to be the perfect example of the 80/20 rule. Roughly 80% of the spending is done by 20% of the people. More than half of all healthcare spending is done by those with less than 2 years left to live. Of the entire $1.9 trillion annual spending in the healthcare industry, 22% comes from the Medicare program. It also stands to take an even greater role as our parents, the baby boomers, begin to age into the Medicare program. Understanding Medicare is fundamental to understanding why our Federal government is going bankrupt and how the program shapes the entire healthcare system itself. If Walmart is the 800-lb. gorilla that shapes the retail industry and its practices, then Medicare is the 4 ton gorilla that shapes the healthcare industry. <br /><br />Whether we like it or not, Medicare affects our generation directly and indirectly. The most direct effect is the 2.9% tax on income paid 50/50 by employees (1.45%) and employers (1.45%). This money is going directly into paying for existing Medicare beneficiaries. No matter what the government claims, it is not being socked away untouched for 40 years in a trust fund. Seniors are getting ~$11,000 health plan and paying ~$2,300 out of pocket. Rolling back to the birth of the program, the 1st generation of seniors received the entitlement benefits but never paid for it through Medicare taxes like our generation is doing today. Ultimately this means that deterioration of the financial health of the program will lead to either a) benefit cuts or b) higher taxes. Fundamentally that means either our government can’t keep its promises or it must tax us. Considering the size of our generation – I’d make a big bet that a lot of these taxes will fall squarely on our shoulders. <br /><br />Sources: www.medpac.gov<br /><br />Next Post: What is Medicare? How did it start? Why do people think it's great?Andy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.com1tag:blogger.com,1999:blog-2584705757436511038.post-65420977068218184872009-09-11T20:03:00.000-07:002009-12-04T22:01:08.799-08:00Inaugural PostWelcome readers! Healthcare is such a powerful and complex issue for many Americans. In 2009, it engulfed 16% of the US GDP, and it was the number one cause of bankruptcies in America. If the system continues its course, it will be 20% of the US GDP by 2018 and bankrupt the Medicare trust fund by 2017. Clearly this is a growing issue, but how can we begin to understand it? <br /><br /> The purpose of this website is to explore the healthcare system. Specifically, this is written for our generation (Generation Y) to seek answers to our favorite questions – why and how? Why is it so expensive? Why does it grow so quickly? Why haven’t we changed it yet? Who are the players? What are their roles? How does it affect us? Why should we care? How can we help? While I truly believe we are one of the smartest generations with an unquenchable thirst for knowledge, I also believe our generation is ill-informed of the healthcare system. Part of that problem is that many of the resources available are geared towards older generations. We are not big users of the healthcare system – yet. We are healthy and young. If we’re thinking about healthcare, we’re probably either dreaming of the potential advancements 50 years from now or thinking about it from the perspective of a loved one. We need to grow our understanding of the system so that we can make informed opinions. <br /><br /> I spend every day at work learning about the US healthcare system and how it works. The twist that makes healthcare such a complicated industry to analyze and comment on is the political aspect to it. As I start this website, it is the summer of 2009 – the middle of one of the greatest healthcare debates this country has had thus far. Many of the platitudes and anecdotes being espoused in the media have been both misleading and sensationalized. This makes it terribly difficult to sift through the rhetoric in search for truth. My goal is not to convince you into any way of thinking or belief. It is to develop your knowledge base so that the foundation of your opinions stands on well-informed ground. At the same time, through the comments and discussion I hope to learn new ways to think about the system and new viewpoints that I never would have had before. <br /><br /> So here are my pledges to you: <br />1) I will try to be as unbiased as possible. This means that I will present both sides of the argument in an intellectually honest way. Facts will not be bent or omitted to support one idea or the other. This does not mean I won’t have opinions. <br />2) I will try to cite credible sources of information where possible and avoid passing off anecdotes as a proxy for real research. <br /><br /> Next Post: What is the healthcare system? How is the government involved today?Andy Juanghttp://www.blogger.com/profile/02921959709575775344noreply@blogger.com4