Health Care for America -- The Hacker Plan

I attended this morning's launch of Health Care for America, a proposal authored by political scientist Jacob Hacker of Yale University to provide health insurance for all Americans. It is, essentially, a pay-or-play plan requiring employers to either provide insurance for their workers or pay 6 percent of payroll into an "Americare" fund, which is an expansion of the Medicare program to cover all the uninsured.

Launched as part of the Economic Policy Institute's Agenda for Shared Prosperity, the plan will be championed in the House of Representatives by Rep. Pete Stark (D-CA), and will have the strong support of the newly formed "economic populist" caucus in the Senate, which includes newly elected Senators Webb (VA.), Tester (MT), Brown (OH), Sanders (VT) and incumbent Dorgan (ND).

Judy Feder, a long-time health care policy specialist who is dean of the Georgetown University School of Public Policy (she was defeated in a heavily Republican district in northern Virginia in the November election), laid out the reasons why this plan will become the rallying point for progressives in the new Congress.

* It insures everyone with a defined set of benefits that cover the full range of necessary health services;

* It avoids the pitfall of plans that rely on individual mandates (the California and Massachusetts plans) that do not adequately subsidize low- and moderate-income families; and

* It creates a centralized insurance system for the elderly, the poor, and everyone not covered by their employer plans (which must be as good as the national plan), so that there is no possibility of adverse selection, the fancy economists' phrase for private insurance plans' penchant for avoiding the sickest or poorest people.

The biggest barrier to winning support for the plan, Feder said, was the fear among the 85 percent of Americans who already have health insurance. They worry that tinkering with a system that they know is unraveling will only make things worse. It's a fear that the special interests (read insurance companies) will exploit to the hilt. She reminded the sympathetic audience about the ubiquitous Harry and Louise ads that sank the 1993-4 Clinton health care reform plan.

"We'll hear about big government, how we'll be robbed of choice, how it will lead to rationed care," she said. "Will these charges stick as they have in the past? Maybe."

She also gave the plan high grades for its commitment to cost containment. It calls on the government-run plan (Americare) to invest in evidence-based research to determine what health care works, and use the purchasing power of the centralized authority to negotiate lower prices for that select list of services.

Reading quickly through Hacker's EPI position paper, I saw little recognition of the hornet's nest of opposition that serious cost containment would generate from drug, device and durable equipment manufacturers, organized physicians and their professional societies, and the hospitals -- which are the primary providers of health care services.

It accurately points out that Americans pay the highest prices in the world for every one of those services, and get much less health in return. But as a wise economist once pointed out, one man's waste is another man's income. Insurance companies aren't the only special interest that will come after this plan.

The plan also focuses a lot of attention on the administrative waste of the private sector. "Medicare's administrative costs amount to roughly 2% of total program spending, compared with 14% on average in the private sector," Hacker writes. "The historical experience of Medicare shows conclusively that concentrated purchasing power is by far the most effective means by which to restrain the price of medical services."

There's a bit of disengenuousness and naivete in these statements. First, by leaving the current employer plans alone, there are no savings to be had by creating Americare. And to the extent that employers drop coverage and opt to go into Americare, those administrative savings would be a one-time only event. It will do nothing in and of itself to hold down prices for drugs, PET scans, stents and the rest of America's high-cost, high-tech health care goodies, or limit their unnecessary diffusion.

A significant fraction of what Americans call health care is waste, pure and simple. Until someone learns how to just say no to the Nexiums, the unnecessary drug-eluting stents, and erythropoietin-driven hematocrit levels that are killing dialysis patients (not to mention coming up with some public health strategies to find and treat the people with untreated hypertension and uncontrolled diabetes who wind up on dialysis), health care will continue to grow at two to three times the rate of inflation.

Another point: If Medicare is such a good negotiator, why did its cost go up more than 9 percent in 2005, the most recent year for which statistics are available, compared to just 7 percent in the private sector? In recent years, organized providers like the drug companies, the doctors and the device makers have been very adept at capturing their government minders at regulatory agencies like Medicare and the Food and Drug Administration. If you think Medicare (or an expanded Americare) as presently structured can automatically hold down costs through negotiations, you haven't been paying attention.

My point is that opposition to this plan will come from the people who make their daily living from collecting that 16 percent of GDP. And that opposition will be intense. The insurance companies led the last war on health care reform. The drug companies, the device and equipment manufacturers and organized medicine will lead the assault on this or any other plan that is serious about controlling costs.

And unless the American public is willing to pour even more money into the health care system (which won't be good for the rest of the economy), controlling costs in the end is the only way to make universal health care coverage affordable.

Posted by gooznews at January 11, 2007 09:09 PM