2007 Health Care Conference - Emerging Trends in Health Care
2007-09
Held on June 14, Washington Policy Center’s fifth annual half-day conference on Health Care provided a valuable forum for the discussion of an undeniably important subject. Bringing together over 260 attendees—from legislators and physicians to businesspeople and insurance industry leaders—the conference began with a briefing on the relevant activity of the state legislature and moved through panels on public opinion, new trends in health care, and Medicaid reform.
At lunch, the audience heard a keynote address by Dr. David Gratzer, a physician with experience in both the U.S. and Canadian health care systems and author of the award-winning book, The Cure: How Capitalism Can Save American Health Care. Dr. Gratzer’s incisive and humorous presentation closed the conference on a positive note, encouraging his listeners not to lose faith in what he called “the power of American innovation.”
What follows is a summary of the day’s activity.
Rep. Eileen Cody, Chair, House Health Care and Wellness Committee (D - Seattle)
Rep. Bill Hinkle, Ranking Republican, House Health Care and Wellness Committee (R - Ellensburg)
Jonathan Seib, Executive Policy Advisor, Governor Gregoire’s Office.
Citing the approximately six hundred thousand uninsured citizens of Washington State, Robert Mak began the panel’s discussion by asking each participant for the “one thing the state [of Washington] should do” in the field of health care policy. Rep. Bill Hinkle replied that his priority would be to “get government to step back” from what he called an expensive and bureaucratic system that does little to address the problem of the state’s uninsured. Rep. Eileen Cody, on the other hand, said she would like to see the state government encouraging insurers to focus on spending that will actually begin to solve the issues facing Washington’s health care system. Jonathan Seib largely agreed with this evaluation, saying that the state government’s priority should be to “redirect dollars so that they are used in a way which provides [cost-effective coverage].”
Next up for discussion was the idea of the state functioning as a “connector” between private insurance companies and individual consumers. Rep. Cody, as lead sponsor of the recent “Connector Bill” (HB 2098) which proposed such a role for the state,[1] predictably favored the proposal. In her conception, the state could and should act as a facilitator of higher spending on health care by providers and insurance companies.
Rep. Hinkle questioned this approach, however, saying that it would be much more effective to use the private sector to create large health care purchasing pools. He went on to assert that a disconnect exists between the reality of a largely well functioning health care system and the public’s perception that the same system is broken; the State, therefore, should pause before considering intervention. Reacting to the latter comment, Seib reminded the audience that one hundred fifty thousand uninsured small business employees are, indeed, a major problem facing Washington.
Mak next asked whether the “connector mandates” proposed in Olympia earlier in the year would drive up health care costs. Making the point that the “connector” plan would in fact utilize in large part the private market, Cody answered a definitive “no.” Hinkle responded to this by questioning the role of the State as a subsidizer of health care, claiming that doing so would create an “entitlement attitude,” and that inevitably too large a portion of it would be spent on the children of illegal immigrants. With the proposed subsidy available for Washingtonians earning less than 300% of the poverty level (or approximately $62,000 per year), costs, he said, would undoubtedly rise. In its place, Hinkle proposed a legal cap on the State’s expenditures on health care.
For his part, Seib stated that it is benefits, not mandates, which cause health care costs to spiral upwards. Accordingly, the government’s real responsibility is to spend its money wisely, not simply to cut costs. For example, the most efficient way to provide care for low-income children is for the State to help provide them with insurance. Seib and Cody went on to stress that Washingtonians in fact already do pay for the uninsured, and that the choice facing the State was not between high and low costs, but paying for existing costs in an efficient or inefficient manner. For the same reason, Cody said, health insurance should be mandatory in the way automobile insurance already is.
This last point led to Mak’s next question: How can policymakers convince the uninsured to cover themselves? To Seib, the principle of “shared responsibility”—i.e. that those large employers who shirk their responsibilities should be required by law to provide some degree of health insurance to their employees, as in the federal “Wal Mart Bill”—holds some promise of resolving this issue.
Rep. Hinkle, however, responded that a mandate system is clearly not the way to go. Experience suggests a government mandate is, after all, no guarantee that ordinary citizens will comply. Furthermore, employers should not have any responsibility to provide their employees with health insurance, nor should, as Mak suggested in his next question, the State Insurance Commissioner have the power to regulate the prices charged by private insurance companies. Instead, Hinkle told the audience, Washington ought to remember the “value of competition.”
An opposing viewpoint was again provided by Cody and Seib, both of whom thought that giving the Insurance Commissioner some control over insurance prices would be more useful. Rate regulation, in Seib’s words, would be workable within “reasonableness,” even though government regulation can still only be pushed so far.
Finally, the panel took a number of questions from the audience, who raised the problem of the public’s negative perception of insurance companies, ostensibly due to high and rising insurance prices. Unsurprisingly, the panelists’ responses matched the tone of their earlier discussion: Hinkle said that he envisioned the “market stepping up to inefficiencies” through increased competition, while Seib suggested that the State investigate how much of the insurance companies’ revenue actually goes towards providing for patients’ health care, and regulate accordingly. Overall, he later said, he did not want a “figure it out for yourself” system operating in Washington.
Rep. Cody also fielded a question from the audience about the place of insurance brokers in a “connector” system. She replied that although brokers would still function to “assist individuals in their choices,” she saw the internet as playing a larger role in providing information about health care to consumers. Brokers, she said, are like “travel agents,” and consumers are increasingly able to choose between using one and finding themselves the information they need online.
Lastly, when asked about her thoughts on health savings accounts, Cody told the audience that she envisioned a role for them, but added that they are “not for everybody.” Hinkle, however, stated unequivocally that HSAs are the future, not least because they provide strong incentive for consumers to make prudent decisions regarding their lifestyles and healthcare spending.
Summary Points
Rep. Cody: The idea of the State as a public-private “Connector” will help solve the problem of Washington’s large number of uninsured, while still being an efficient program; Health Savings Accounts may have a role to play but they are not the solution in-and-of themselves.
Rep. Hinkle: Less government regulation of the market and more competition are the way to keep costs down and increase quality; the “Connector” idea is an expensive and ultimately ineffective one; HSAs are the way forward.
Jonathan Seib: The State should use its power to make sure that insurers and providers spend their money efficiently; insurance rate regulation would be good in moderation.
Public Opinion on Health Care Panel
Stuart Elway, Elway Research, Inc.
Dr. Mathew Manweller, Professor of Political Science, Central Washington University and WPC Advisory Board Member
Aaron Katz, Senior Lecturer, University of Washington School of Public Health and Community Medicine.
The second panel’s discussion centered on the often-strained interaction between public opinion, political leadership, and the health care industry. The panel began with an interesting exercise conducted by Stuart Elway, which compared the conference attendees’ views of health care to those of the public in our state at large. Provided with electronic polling machines, each attendee was asked to respond to a number of questions. The results from the audience were then tabulated and instantly displayed alongside the data gathered when Mr. Elway polled the public on the same questions.
Overall, Mr. Elway’s exercise revealed a disconnect between the attitudes of the audience and those of the state as a whole. Speaking generally, conference attendees were much more inclined towards individual choice and responsibility, and more averse to government mandates and regulation than the average Washingtonian. For example, 75% of those at the conference believed that health care should be financed privately (as opposed to by “society as a whole”), while only 56% of the public nationwide felt the same way.
Similar was the public’s preference for government to deal directly with insurance companies and providers to establish limits on prices, which stood in contrast to the audience’s desire for the government simply to provide consumers with incentives to buy high-deductible plans. A majority of attendees also thought that keeping health care costs down should be reformers’ highest priority, while a similar proportion of the public believes that providing coverage for the uninsured is in fact the most critical current issue.
Perhaps most consequential, however, was the public’s apparently strong belief that health care is a right enjoyed by all Americans, an idea with which the audience just as strongly disagreed. Clearly, such a divide in opinion has the potential to be problematic.
Asked to respond to the polling results, Aaron Katz began by stating that there exists a profound misunderstanding on the part of the public about the nature of the American health care system and its problems. Part of this, he said, was the problem of misleading questions—that is, ones that provide incomplete or incorrect information to the respondent. Overall, however, what public polling really indicates is not where policy should go specifically, but instead the need for stronger leadership to inform the public about the realities of the health care system.
Prof. Mathew Manweller came at the subject from a different angle: What polls really expose, he said, was the severe “cognitive dissonance” present in the public’s thinking. For example, Americans apparently consider health care at once a fringe benefit and something worthy of a government mandate, not to mention that although most people are satisfied with their own health care, they tend to think that everyone else’s is somehow sub-par. Manweller further warned the audience about polling on “questions of fact,” noting that price floors in health care—which have been consistently demonstrated to be either ineffective or destructive—are favored by 63% of the public. Polling, then, is simply asking for answers to questions not well understood.
Even more, the professor stated that he was “morally queasy” about the public’s apparent notion that health care is a right. Given the finite amount of health care services available at any one time, giving more to one citizen inevitably means taking away from another—a trade-off that is not faced when dealing with more established rights, such as freedom of speech or freedom of religion.
Summary Points
A gap in opinion exists between health care industry insiders and the general public, with the latter being much more disposed to government intervention, mandates etc., and the idea that health care is a right.
Aaron Katz: Such a disconnect signals the need for stronger political leadership.
Mathew Manweller: Polls demonstrate the public’s “cognitive dissonance;” one should be weary when polling on “questions of fact;” health care is not a right.
New Trends in Health Care Panel
Randy Turner, Vice President, Sales/Marketing, Premera Blue Cross
Tine Hansen-Turton, executive director of the Convenient Care Association
Diane Giese, Communication and Development Director, Puget Sound Health Alliance
Paul Guppy set the stage for the third panel, which dealt largely with the increasingly direct involvement of consumers in the health care system, with a bit of history.
The current American arrangement, Guppy explained, has is roots in the Second World War, when American firms faced wage and price controls and a severe labor shortage brought about by the military draft. Looking for a way to attract skilled workers but unable to raise wages directly, employers began offering health insurance as part of their compensation packages. In an October 1943 ruling, the IRS made such benefits tax-deductible, and thus the distinctive American system of employer-provided health care coverage was born. Now, after more than sixty years, the advent of tax-free health savings accounts has finally, in Guppy’s words, “let consumers in on the deal.”
Randy Turner, Premera Blue Cross’ Vice President for Sales and Marketing, spoke on what he called the “shift towards consumerism” currently underway in the health insurance industry. Specifically, Mr. Turner saw health savings accounts at the center of this trend, not least because they provide incentives to consumers to economize and make careful decisions. Ultimately, Mr. Turner said, HSAs have the ability to help “engage consumers in the health care process.” Driven in large part by small business, four and a half million Americans have enrolled in qualified high-deductible plans, representing a 28% increase over the year before. Most important, though, is the fact that only 27% of this group were previously insured, hinting at HSAs’ huge potential when it comes to decreasing the number of uninsured Americans.
Nonetheless, HSAs are still in the early stages of development. Premera, 13% of whose customers are on high-deductible plans, is still in the process of learning how to price them effectively. Even more, as Mr. Turner put it, “just because you build it doesn’t mean they will come,” that is, there is a growing need for pricing transparency, and to make personally relevant information more easily available to the consumer. Most importantly, though, Turner said, insurers must take a “less paternalistic view” of consumers if HSAs are to fulfill their true potential.
Tine Hansen-Turton was up next presenting an overview of the emerging “convenient care” sector of the industry. Her organization, the Convenient Care Association, was founded in October 2006 to help organize and promote a small but rapidly growing form of care provision which, she said, fits in neatly with the existing American model.
Convenient care clinics provide affordable, highly accessible, non-emergency care, filling the gap created by the high cost and limited operating hours of most existing health clinics. Staffed typically by nurse practitioners, the clinics Hansen-Turton represents operate on a low-overhead business model, emphasizing efficiency, effective communication (consumers usually leave with their own copy of their electronic health record) transparency in pricing, and easy accessibility. Although they are not intended to provide ongoing primary care, convenient care clinics serve to connect the approximately 30% of their customers without consistent primary care arrangements with more long-term health care providers. Thus far, Hansen-Turton explained, convenient care clinics have attracted two distinct demographic groups: First, “convenience-seekers,” and second, low-income individuals.
Ultimately, Ms. Hansen-Turton said she envisioned convenient care as providing an “overflow outlet” for the current health-care system. Perhaps more consequential to the American system, however, is its ability to lower costs, both through its preventative aspect—that is, providing early access to care so that long-term conditions can be headed off—and by offering help to those who would otherwise have gone to the emergency room unnecessarily.
“The consumers,” Diane Giese began, “are coming.” In her view, this is not a bad thing, but certainly something to which the health care industry will have to adapt in the coming years. Ms. Giese’s organization, the Puget Sound Health Alliance (PSHA), is composed of 150 Western Washington businesses and organizations, plus individuals, and acts as a sort of connection between health care consumers and providers. In doing so, the PSHA provides, among other things, “consumer reports for health care” to the public, and encourages the use of promising health care information technology. Specifically, the PSHA measures the extent to which health care services are “safe, effective and consumer-centered,” and then disseminates this information to the public.
To Ms. Giese, such reports are a necessity when one considers the alarming rate of health care service defects compared to other industries, not to mention the popular, but untrue notion that the most expensive health care is also the most effective. The opposite, she said, is often true. Knowing this, it becomes clear that the general lack of information available to health care consumers leads to enormous costs. To avoid this, Giese told the audience, the industry should do all it can to close its historical disconnect with the consumer.
Summary Points
Randy Turner: HSAs are a fast-growing element of the health insurance market, reflecting consumers’ entry in to the market.
Tine Hansen-Turton: Convenient care provides accessible, low-cost, consumer-oriented, non-emergency treatment, filling a crucial niche and helping to reduce the overall cost of care.
Diane Giese: “The consumers are coming,” and the Puget Sound Health Alliance is providing them with information and helping to orient the industry in their direction.
Dr. Ariella Herman, Senior Lecturer, Health Care Institute at UCLA’s Anderson School of Management
Carol Gormley, former Deputy Chief of Staff to Florida Governor Jeb Bush and Health and Human Services Policy Coordinator for Governor Bush, currently director of the Healthcare Council in the Florida House of Representatives.
Dr. Hugh Maloney began the panel by speaking briefly about his own Washington State Medical Association. The goal of the association, he explained, is “to make Washington a better place to practice medicine and receive care.” At the top of his organization’s list of concerns is the decreasing number of doctors taking up a role in primary care provision, a phenomenon that has been nonetheless accompanied by decreasing public access to specialty care. With this, he handed over the floor to the two panelists to discuss Medicaid reform and health care financing, perhaps one of the more politically visible topics in health care today.
Dr. Ariella Herman introduced an interesting program targeted at educating lower-income families about basic medical issues, helping to increase the quality of life for these families and decrease the cost borne by Medicaid. Dr. Herman’s “Head Start” program centers around a book written at the third-grade reading level entitled “What to do When Your Child Gets Sick,” and a complementary classroom program for families. The latter of these uses a “train the trainer” structure, in which the trainers, most often bilingual, are taught how to teach the course in turn to other members of their own community. For example, in the Seattle area alone the book and course have been translated in to seven different languages: Spanish, Somali, Cantonese, Amharic, Oromo, Tigrinya and Vietnamese.
Prior to taking these classes, most families in the target demographic received all of their information about health care from the emergency room or other very costly sources. Simple information—such as how to treat a common cold at home—can therefore have a measurable impact in lowering costs. Indeed, Dr. Herman cited statistics that showed her relatively new program is already having an effect. Head Start participant families, surveyed both before and after their involvement, treated much more of their less-serious health problems at home. This trend was accompanied by noticeably fewer missed school and work days. More directly relevant to Medicaid reform, average savings to the program were more than $500 per family per year, not counting the value of those saved school and work days. Thus, according to Dr. Herman, programs such as Head Start have the potential to reduce Medicaid costs while increasing quality of life, all without having to change Medicaid law. With a pilot program now underway in Washington, our own state may soon realize some of the benefits that the Head Start program has to offer.
Rounding out the panel was Carol Gormley, who presented an overview of the Medicaid reform initiated by Florida Governor Jeb Bush. Faced with a $16 billion-per-year commitment, expenses growing faster than revenue, and declining physician participation, Florida is moving away from a system in which the government acts as the consumer and functions by writing “blank checks” to recipients. Broadly, Gormley sees the use of a market-based system—as opposed to the status-quo of bureaucratic planning—as the way to more cost-effective Medicaid in her state.
Among the innovations of Florida’s Medicaid reforms, five stand out: First is allowing variation in the “amount, scope and duration” of the coverage plans offered, and thus competition between them. Such flexible plan design, according to Gormley, has already increased benefits for the consumers even as premiums have remained the same. Second is the opt-out, which lets Medicaid recipients use their entitlement money to pay for an employer-provided plan. Seventy thousand Florida Medicaid consumers have also taken advantage of the third innovation, the opportunity to earn additional credit towards their insurance by following “defined healthy practices and behaviors.” This in turn shares much in common with the fourth innovation, assigning recipients risk scores based on statistical models of their likely future needs, and adjusting premiums accordingly.
Finally, Florida now acts to reinsure Medicaid recipients in some cases, providing catastrophic coverage if extraordinary expenses cannot be covered by their own plan. Only time will tell if such reforms—thus far only adopted in two urban counties—are effective in the long run. The challenge of the coming years will be, in Gormley’s words, “moving the State out of the way of an innovative system.”
Summary Points
Dr. Ariella Herman: Health education programs for low-income families and minorities are an effective way of lowering overall costs while increasing quality of life. Such a program will now be tried in Washington state.
Carol Gormley: Florida’s five innovations in Medicaid: Flexible plan design, the ability to “opt-out” to a subsidized employer-provided plan, provision of incentives for defined health practices, risk-adjusted premiums, and state reinsurance.
Keynote Lunch with Dr. David Gratzer, MD
Author of The Cure: How Capitalism Can Save American Health Care
If there is any upside at all to life’s catastrophes, it is that they often make us consider questions not previously asked. This is certainly true in the case of Dr. David Gratzer, who was forced to face up to the “black box” of American health care in the aftermath of his wife’s Colorado skiing accident: Bombarded with “blind choices” and expenses opaque even to an MD, Gratzer gradually came to realize the absurdity of such a system. Where else in the American economy, he asked, do we haggle and negotiate about “secret prices?” Why was the inconsequential information regarding his hotel reservation all easily accessible to him, while the information he needed to make choices about his wife’s health essentially hidden?
Such questions, of course, have consequences not only at the individual level, but at the national as well. According to Gratzer, many smart, talented people are looking towards socialized medicine, in part as a response to the same issues raised by his ski trip experience. When considering, however, his own experience in what is perhaps the prototypical socialized health care system—that of his native Canada —Gratzer concluded that increased government involvement is not the way forward.
Having taken for granted the presumed superiority of such an arrangement through most of his education, he spoke his shock when he experienced firsthand the packed waiting rooms and lengthy wait-lists implicit in his country’s health care system. “ Canada,” he realized, “didn’t have it right.” This insight ultimately led to the writing of his first book, Code Blue, which highlighted the problems of socialized medicine and urged market-based reforms.
Although the book was derided by the Canadian publishing establishment—he received thirteen rejection letters from twelve publishers—it nonetheless struck a chord with Canadians and eventually became a best-seller. Indeed, Gratzer pointed out that the broad trend in countries with socialized health care systems is towards privatization. The demand, then, that America move towards a public system would seem to run exactly counter to health care’s current direction.
The United States’ system is, in Gratzer’s words, “so terribly expensive because it is so terribly cheap.” That is, a fundamental distortion of incentives lies at the base of its problems. In explaining how such distortions came to be, Gratzer referred to three critical dates in modern American health history, starting with February 12, 1941 —the first clinical use of penicillin. The antibiotic saved millions of lives and in the process helped make modern medicine the highly effective practice that it is today.
In economic terms, however, the invention of antibiotics also marked the beginning of a trend that continues strongly even today. In health care, prices and quality tend to rise together, while for most products quality tends to rise even as prices fall (for example, computers in the last fifteen years). Why is health care so different? According to Gratzer, it is not, as some have claimed, a matter of increasing sophistication requiring higher premiums, but of pure economics.
Which leads to Dr. Gratzer’s second date, October 26, 1943 —the day the IRS ruled that U.S. businesses could pay for health insurance premiums tax-free. Faced with both price controls and a shortage of labor, firms operating in the wartime economy turned to compensating their employees with health care, and thus the IRS’ decision at the time seemed only fair. The phenomenon of employer-provided health care, however, long outlived the war. On top of it was eventually layered the Medicare/Medicaid programs, and the resulting dual system remains with us today. This brings us to Gratzer’s final date, January 1st, 2013, the day when total U.S. health spending is due to double from its current level to $4 trillion.
Considering the looming costs presented by the United States’ existing health care arrangement, Gratzer sees three options: 1) A government-run system, which would serve to contain costs but open the U.S. to the same problems Dr. Gratzer witnessed in Canada, 2) the middle road of managed care, which would be paternalistic but is likely to contain costs, or 3) “individual choice and competition,” that is, capitalism.
As one might guess from his book, Gratzer is a strong proponent of the latter alternative. In particular, he told the audience his “five simple ideas” to improve American health care through the functioning of the market: First, make health insurance more like any other kind of insurance, freer from government mandates and market distortions. Second, foster competition within the industry. Third, do something about Medicaid, currently a program wholly owned by neither the states nor the federal government, by turning it all over to state governments. Fourth, seriously restructuring Medicare, again through increased choice and competition. Lastly, reform prescription drug regulation.
Instead of instituting price controls, as many have suggested, Gratzer proposes easing the FDA’s strict and costly drug-approval processes. Doing so, Gratzer believes, would break the cartel of the dozen or so drug companies currently able to bring new drugs to market in the U.S., thereby lowering prices and increasing innovation.
Responding to questions from the audience, however, Gratzer emphasized that it is neither costs nor spending per se that are at the root of American health care’s problems, but the inefficiencies that result from such a distorted marketplace. In reforming health care, we should be “not cost obsessed, but efficiency obsessed.”
The underlying message here, that health care’s problems are both comprehensible and soluble through price transparency and open-market economics, fits well with Gratzer’s closing words: Despite the serious flaws he sees, he is ultimately optimistic about the future of American health care. One should not underestimate “the power of American innovation,” which, after all, has solved far graver problems than those discussed at today’s conference. What is most needed, then, is an open environment in which that innovation can truly flourish.
Summary Points
The world trend in health care is moving away from socialized medicine.
In order to fix the inefficiencies of the United States’ “dual system,” we must move towards “individual choice and competition.”
Dr. Gratzer’s “five simple ideas” for health care reform:
Make health insurance more like other kinds of insurance.
Foster competition
Reform Medicaid by handing it over to the states completely.
Reform Medicare
Reform prescription drug regulation in order to break the existent drug “cartel” and make it easier to bring promising medicines to market.
In thinking about reform, we should be “not cost obsessed, but efficiency obsessed.”
Video of the conference and Dr. Gratzer’s keynote talk is available at TVW.org and washingtonpolicy.org. For more information about WPC and its work on health care issues, visit washingtonpolicy.org.
Washington Policy Center is an independent, non-profit 501(c)(3) research and education organization. Nothing in this document should be construed as an attempt to aid or hinder any legislation before any legislative body. Contact: (206) 937-9691 or www.washingtonpolicy.org.
[1] WashingtonVotes.org. Accessed June 18, 2007. http://apps.leg.wa.gov/billinfo/summary.aspx?bill=2098&year=2007#documents