There is no problem that 100 years of government reform can t create.

H

EALTH

R

EFORM

B

ASICS

:

There is no problem that 100 years of

government reform can’t create.

Linda Gorman

Director, Health Care Policy Center Independence Institute

Denver, Colorado

IndependenceInstitute.org

Special thanks to:

The Buckeye Institute for Public Policy Solutions Columbus, Ohio

BuckeyeInstitute.org (614) 224-4422

The Problem 1: Ohio Medicaid Growth

Source: Brian Blase, December 2010. Crushing Weight: National Health Care Law Threatens to Make Medicaid an Unsustainable Burden for Ohioans. The Buckeye Institute for Public Policy

The Problem 2:

$0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Ohio Spending and Revenues

Ohio Revenues Ohio Revenues from Federal Gov Ohio Expenditures

Ohio Spending Ohio Revenues

The Problem 3: Ohio Medicaid and People in Poverty

0 500,000 1,000,000 1,500,000 2,000,000 2,500,000

Medicaid enrollment Individuals in Poverty

Sources: US Census Bureau SAIPE, Statistical Abstract (Medicaid Enrollment), Ohio

A different approach, New York, 1939.

Health Care at Beginning of the 1900s

♦ Cash is king.

♦ Fraternal societies provide sickness insurance. An estimated 1/3 of adult males belong.

♦ Charities help out.

♦ Progressive Party platform of 1912 includes national health insurance.

♦ Health care is expensive. Committee on the Costs of Medical Care, 1927-1932, recommends

• “groups of practitioners, organized preferably around hospitals”

• “encouraging high standards”

A Major Problem: Paying With Other People’s Money % HH Budget 1917-19 1960-61 1986-87 Food 41.1 26.0 19.4 Housing 26.8 29.2 33.7 Transportation 3.1 15.1 25.7 Clothing 17.6 10.3 5.2 Health Care 4.7 6.6 4.0

Out-of-Pocket Expenses as proportion of US National Health Spending:

1970 55% 2004 23%

Health Spending in 1929 and 2009

1929

(millions)

2009

(billions)

Total

$3,649

$2,486

Consumers

$2,973

(81%)

$1,256

(51%)

Public

$495 (14%) $1,146 (46%)

Charity

$217 (

6%

)

$84

(3%)

Per Capita

(2009 dollars)

$371

$8,035

The Regulatory Project Begins

♦ Protect supplier incomes.

♦ Expand third party payment and expert

control by limiting patient choice.

♦ Encourage central planning.

Regulatory Milestones 1—Protect Provider Incomes

1900-1925:

AMA convinces legislatures to limit physician

entry by passing licensure laws, delist medical schools using Flexner report criteria. AMA campaigns against licensure for “lodge doctors.”

1930s—American Hospital Association organizes hospital

owned Blue Cross to generate prepaid revenue during the Depression. Exempt from insurance premium taxes and

reserves. Community rating and cost plus pricing for

services.

1939-1946

—AMA physicians copy hospitals with prepaid

Regulatory Milestones 2—The Growth of Third Party Payment

1939--

6 percent of US population has private health

insurance

1942--

Stabilization Act. Congress imposes wage price

controls.

1943—Administrative tax ruling saying employers’

payments for employee health insurance not taxable as employee wages.

1949

—

Liberty Mutual introduces major medical

coverage.

1954

—

New Internal Revenue Code allows deductibility

Regulatory Milestones 3—Government Makes Health Care an Entitlement

1965—Medicare and Medicaid enacted. Copies the Blue

Cross/Blue Shield pay-as-you go approach and billing structure.

Medicare: Generous payment for small things coupled

with unlimited liability.

Medicaid: first dollar coverage. Federal government

pays ½ of the costs generated by the states.

Regulatory Milestones 4—Public spending out of control. Government turns to price controls, unfunded mandates, central planning, to control expenditure. Costs increase.

1973—HMO Act

1974—ERISA covers large employers.

1982—Start of prospective payment system, DRG.

1983—AMA CPT required for Medicare billing.

1985—COBRA

1986—CPT required for Medicaid billing, EMTALA

passes.

1989—RBRVS adopted for physician payment

schedule. Balance billing limited.

1996—HIPAA. States required to provide insurance for

uninsurable.

Percent of US Residents with Third-Party Health Coverage 1987-2007 0 10 20 30 40 50 60 70 80 90 100 2010 2005 2000 1995 1990 1985 Percent on Medicare Percent on Medicaid

Percent with Medicare or Medicaid

Direct Purchase, percent

Percent of Population With Coverage

Note: verification questions changed in 1999

The “Coverage Crisis” is Used to Excuse Continual Government Program Expansions

Other misrepresentations deployed to argue for still more government intervention in the health care “market”

♦ Myth of lower foreign spending, higher quality. Differences in national accounting systems, price controls, medical error rate, waiting lists? ♦ Advocacy from the Institute of Medicine—

♦ deaths from lack of health insurance from unrepresentative sample ♦ “To Err is Human” estimates of deaths from medical errors

repudiated by the authors of the study the IOM used.

♦ Notion that supply creates demand (Roemer’s law) used to underpin demands for national health planning, CON, rate-setting, HMOs, and ACOs.

♦ Exaggeration of extent of uncompensated care, uninsured ED use. ♦ False information on

♦ Ability of people with medical conditions to get insurance ♦ Policy cancelation.

♦ Adverse selection. ♦ Risk pooling.

And, in 2010, a final regulatory milestone is

reached...

Congressional Democrats pass a new,

straightforward, easy-to-understand, health care

system that has been designed for American

patients by academic experts…

Real Health Care Reform Basics

RAND Health Insurance Experiment:

When individuals pay for their own routine care expenditures fall by roughly 30%.

CDHC policies:

4 to 15% cut first year, lower

premiums, expenditure growth 3-5% below trend. Cash means less overhead, more freedom, lower costs. No evidence poor health effects.

Medicaid Cash & Counseling:

When the chronically ill control their Medicaid expenditures, quality of life improves, health improves, and

expenditures fall. People get the care that they need. (Sometimes costs fall, too.)

The RAND Health Experiment:

Annual ER visits per 10,000 persons

Cost share Free Cost/free

Surgical abdominal disease 42 38 1.11

Head injury 36 33 1.09

Chest pain/acute heart disease 59 57 1.04

Acute eye injury 34 31 1.01

Asthma 30 83 0.36

Ear infection 40 78 0.51

Abrasion/contusion 228 403 0.54

Sprain 164 249 0.63

Headache 8 59 0.11

Procedure North American Surgery Price Standard US Insured Price By-pass $15,000 $100,000 Cardiac Ablation $12,500 $55,000 Gallbladder removal $6,500 $12,500 Hysterectomy $7,500 $20,000 Microdiscectomy $10,000 $25,000 Hip/knee replacement $15,000 $43,520

How much do cash, provider freedom, deregulation,

and consumer activism control costs?

Total Cost Savings From Having a High Deductible Health Insurance Plan Under Three Scenarios

-$50,000 $0 $50,000 $100,000 $150,000 $200,000 $250,000 22 27 32 37 42 47 52 57 62 Age T o ta l C o s t Total savings: Excellent Health $154,637 Total savings: Good Health $128,690 Total savings: Chronic Illness $3,811 Total premium savings: $223,951

Characteristics of Effective Reform

1. Concern for patients:

only real choice creates accountability.

2. Increase cash payment by patients:

reduce the use of other people’s money, put patients back in control.

3. Reduce direct government control:

leave people free to innovate, encourage market entry.

4. Free the doctors, hospitals, and patients:

Specific Reforms:

Move Medicare to premium support. Dismantle price control

structure and the mandatory use of the 87,000 ICD-10 in-patient procedure codes and its 68,000 diagnosis codes.

Block grant Medicaid. Revert to helping those who are chronically or acutely ill and cannot take care of themselves.

Reduce Excess Regulation and level the health playing field. Same tax treatment for all kinds of insurance, no preferential payment rates, stop taxing private care to expand public care. Same malpractice standards for public and private entities.

Encourage the growth of cash payment via health savings accounts and decoupling employment from health insurance. Expand the Cash & Counseling model for those dependent on government support. Let people out of the Medicaid Ghetto.

Linda Gorman

Director, Health Care Policy Center Independence Institute

727 E. 16th _Avenue

Denver, Colorado 80203 (303) 279-6536

IndependenceInstitute.org

Websites for more information:

BuckeyeInstitute.org

PatientPowerNow.org

John Goodman’s Health Policy Blog,

(HealthBlog.NCPA.org)

Greg R. Lawson

The Buckeye Institute for Public Policy Solutions

88 East Broad Street, Suite 1120 Columbus, Ohio 43215

(614) 224-4422