Posted on 01/25/2007 3:51:52 PM PST by shrinkermd
WHY THIS BOOK SHOULD BE READ: Six months before his death Milton Friedman wrote the Foreword to this book. Seldom does a Nobel Laureate economist recommend a physician’s book. Dr. Friedman believed Dr. Gratzer’s understanding and recommendations were meritorious and worthy of consideration.
This book contains the facts necessary to understand our health care system. In a short, 200 pages Dr. Gratzer summarizes past and present health care policy.
ABOUT THE AUTHOR AND WHAT OTHERS SAY ABOUT HIM AND HIS BOOK: Dr. Gratzer is a physician and a psychiatrist. He is licensed to practice medicine in both Canada and the US. Presently, he is a senior fellow at the Manhattan Institute. Among his research and writing interests are Medicare, Medicaid and FDA reform. While a comparatively a young man he has published many articles in lay and professional journals.
A summary of his experience and work can be found HERE. Sally Pipes has done a beautifully written book review in the New York Post. Another professional review done by Steven Moore can be found in the Wall Street Journal. Many other short laudatory comments can be found HERE.
AN OVERVIEW AND SUMMARY: The basic problem with US health care is payment is divorced from care. Americans do not directly pay for the health care they receive.
This problem began during WW II when employers because wages were frozen offered health care as an incentive. The IRS later declared these costs not taxable to the employee; hence, health care became employer based and government subsidized.
Medicare and Medcaid began in 1965. The former was for the elderly and the latter for the poor. Demand and costs have exploded in both these programs. For example, in Ohio Medicaid expenses now exceed monies spent on K1-12 education. In Florida Medicaid costs have gone up, on the average, 13% a year; Medicaid in Florida now represents one-quarter of the state budget.
Medicare in 2003 as now constituted will cost 25 percent of federal income-tax revenues. The unfunded liability for the next 75 years is 63 trillion dollars--more than five times the current GDP. As seen by the Urban Institute Medicare suffers from the four I’s:”inadequate, inefficient, inequitable and insolvent.”,
Dr. Gratzer’s three broad remedies are: (1) Health care must be made portable; (2) We need to re-think how we provide elderly health care; (3) And, we must do this in a way that maintains and extends innovation in drugs and health care devices.
WHAT I HOPE TO ACHIEVE WITH THIS REVIEW: I hope to summarize a few of Dr. Gratzer’s efforts sufficiently well for the average reader to both understand and use. This is neither a critical review nor a comprehensive summary. Quite definitely it is not a substitute for the book. I do hope many buy this excellent book.
DR. GRATZER’S INTRODUCTION:Most Americans are concerned about rising health care costs. As mentioned before, in 1943 the IRS decided employer-sponsored health insurance would not be taxed either to the employee nor the employer. Shortly after this the technology of medicine accelerated. The combination of payment divorced from the person plus the increase in medical technology and services has led to a medical cost explosion
CHAPTER I: DICK CHENEY’S HEART: In this chapter the author documents the rapid development of medicine beginning with Penicillin in 1941. Suffice it to say that half of all presently used medical treatments have been developed in the last 25 years. After a number of heart attacks, in the past Dick Cheney would have either died or been left a cardiac cripple. His continued functioning as Vice President of the United States is emblematic of medical progress.
CHAPTER II: TWO DAYS THAT CHANGED HEALTH CARE:The first date was the discovery of Penicillin in 1941. The second date is the day the IRS made health insurance tax deductible.
Tax deductibility has resulted in a tax subsidy to the employee. In 2004 if employees had been taxed on their work provided insurance the Federal government would have received an additional 188 billion dollars. Presently, 48% of health care is paid for by federal and state governments. Add the tax subsidy of 188 billion and result is substantially over one half of all health care costs are now paid for by the government.
As the science of medicine has advanced health, costs have exploded. Health costs are now about 17% of the GDP and this is projected to rise to 28% by 2030. For purposes of perspective, in 1946 food, beverages and tobacco together were seven times what was spent on health care. Fifty years later health care costs are twice that of food, beverages and tobacco.
Americans do not directly pay for health care. A third party makes the majority of payments. Out-of-pocket costs are now only 14%. Medicaid is 16% and Medicare is 16%. Another 12% is other public (VAH, Bureau of Indian Affairs, etc). Private insurance is 37% and other private is 5%. The biggest payer and player is government.
Since so little is paid by the individual, they play only a small part in cost containment. To control costs vast bureaucracies have been established. These are divorced from patient care and decisions are made with a primary goal of saving money.
Technology has changed cost structure. We have 60% fewer hospital beds than we did fifty years ago but each hospital bed costs 40 times more! Hospital days have been cut but we now have almost 10 times more hospital personnel for these fewer beds.
Costs per patient vary widely across the country. An elderly patient in Minneapolis costs $3,341 a year but $8,414 a year in Miami (2003).
CHAPTER THREE NIXON’S REVENGE: This chapter is about Health Maintenance Organizations (HMOs). President Nixon in 1973 signed the enabling legislation. HMOs were a new take on an old idea: managed health care. At first they were highly successful in both capturing the market and reducing cost increases. To do this required telling patients “no” to some health care choices. The outcome was predictable. The HMO enrollees complained to government and, eventually, HMOs began to fall out of favor.
The remaining HMOs are now structured much like conventional insurance. They may have open or closed panels of physicians and other providers but otherwise they are run much like ordinary health insurance plans.
It must be noted, HMOs did control costs in the 1990s but paternalism did not sell to the medical consumer. Consumers are used to making choices. Anyway, spending as much money as one desires with little or no personal effect is hard to beat. HMOs interfered with that; hence they had to change.
Not mentioned by the author is that the cost savings of the HMOs did not accrue to the patient but to the plan. To be sure, the plan could then keep premiums lower. To the enrollees, however, it often appeared that the cost savings went to corporate entities and their management. Envy is a destructive emotion and it destroyed whatever chance the HMOs had in effectively controlling costs. The HMOs had to stop aggressive attempts to control costs or else. They didn’t choose “or else.”
CHAPTER IV: THE THIRD WAY (HEALTH SAVINGS ACCOUNTS):I would have put this chapter later in the book but the author chooses to place it here.
When the HMOs ceased cost discipline, medical costs began to escalate. Lately, those increases have been double digit. To restore some control the new thought is to have the enrollees do this for the usual reason—to save money.
A Health Savings Account (HSA) is one possible remedy. Essentially they are a combination of a catastrophic indemnity policy combined with a permanent savings account. When sponsored by the employer the amounts into the account are tax free; ditto for a self-employed person. The money in the saving account can then be used to purchase health care as needed; the back-up indemnity insurance is used only when an extraordinary expense occurs. The employee, after a specified time, can take the tax free remaining funds and spend them on anything. In this way the employee is spending his or her own money.
Since HSAs are tax deductible they equal the benefits of the usual employer based health plan. Criticisms of HSAs include people are not medically sophisticated enough to shop for health care, they can be tax shelters for the wealthy and they discriminate against the chronically ill. Dr. Gratzer answers each of these criticisms.
Dr. Gratzer also points out that health care planning is often by whim and trend. For example, both the AMA and 23 Republican Senators supported Hillary Clinton’s failed employer based health care plan Presently, government sponsored, single payer plans are out of favor and a HSA approach seems to be the new trend.
CHAPTER V: INSURING AMERICA (THE UNINSURED PROBLEM):If you compare the governors of Massachusetts, Minnesota and California two similarities stand out. First they are all Republicans who have claimed at one time or another to be “conservatives.” Send, they all have instituted policies to solve the “uninsured” problem.
The governors with the best of intentions have been shocked and moved to action by two fundamental claims—there are 46 million US uninsured and there are 18,000 unnecessary deaths because of this. Both of these are powerful political statements demanding redress and the governors have redressed them each in their own way. But the real issue is not what to do but why do it?
The 46 million figure is an estimate of “point prevalence” of those uninsured. At a given point in time this figure is correct, but people do transfer from one insurance company to another. In a given year there are only 21-31 million uninsured for the entire year. Twenty percent of these are not citizens. About one third of all households without insurance have incomes of $50,000 a year or more and 16% have incomes of $75,000 a year or more.
Since 2003 the alleged percentage of uninsured has been 14-15%; however, if you correct for those who are eligible for Medicaid and have not applied, illegal aliens and those with high incomes who refuse to pay for health insurance you probably are talking abut 7% of the population who are actually uninsured at any given point in time.
Statistics done on length of time uninsured document that only 13% of those uninsured have been so for 12-24 months and only 16% have been uninsured for longer than 24 months. Most find insurance in four months (45%) with another 26% finding insurance from 5 to 12 months. The point is, many of the “uninsured” find ways to remedy the situation.
All told, the chronically uninsured are no more than 8.2 million. A conservative estimate then would suggest that over a year’s period of time a full 93% of all Americans either have or will have health insurance.
Even the “uninsured” receive health care. They can apply for Medicaid right in the hospital ER room and no hospital can refuse them care. The Emergency Medical Treatment Act (EMTLA) of 1986 mandates any hospital to treat in an emergency situation regardless of ability to pay.
As far as the 18,000 deaths per year this statistic was forwarded by the prestigious “Institute of Medicine.” This as a statistical inference not an actual nose counting study. Indeed it was based on the increased mortality of the uninsured vs. the insured; however, using the same data and approach, it is also found that those on Medicaid have even a higher mortality rate than those uninsured. Something is wrong with the way this 18,000 figure was arrived at. What seems to be a play here is the “use of statistics like a drunk uses a lamp post—for support rather than illumination. The ”Institutes of Medicine” has been a long time proponent of single payer health care. Confirmation bias is the sine qua non of health care political argumentation—even among the medical cognoscenti.
Almost as an afterthought the author discusses the effect of health care mandates on the cost of insurance. Legislatures want to do “good.” They often see this “good” as mandating more and more services on insurers licensed in their state.
Lately the big state legislative thrust has been to make all “community rate” and for all to practice guaranteed issue.”Community rating means premiums are not based on age, sex or health status. It is a way to shift costs from the chronically ill to the healthy. Guaranteed issue means insurance companies must sell policies to all applicants. This results in people getting sick, applying for insurance and paying the same rate as everyone else in the community.
Vermont was the first state to require “guaranteed issue” and “community rating.” Only a few insurers remain and premiums are almost twice of the neighboring state of New Hampshire. Even worse is New Jersey. Because of the mandates, insurance costs for a $500 deductible, family policy now range from $3,700 to $7,400 a month! In New Jersey, it is now cheaper to rent the most expensive Ferrari than to provide private family insurance.
Some studies suggest one in four of those without insurance do so because of high cost. This is particularly true of high income single males who take their chances and “go bare” rather than pay outrageous costs predicated on other peoples health needs.
CHAPTER VI: MILLS REVENGE—MEDICAID: Wilbur Mills added Medicaid to the 1964 Medicare Bill. Medicaid was designed to provide health care for those on welfare. The initial cost was 5 billion a year but presently the cost is 360 billion a year. It is now 16-17% of the entire federal budget.
States have wide latitude on what Medicaid insurance covers. This results in some strange consequences. For example, Medicaid in New York costs more than the states of Texas and California combined. The biggest problem is that the program has been expanded by the states and Congress such that if it were to cover only those on welfare 60% would no longer be eligible.
Medicaid covers all outpatient and inpatient costs including drugs. It also pays for nursing home care for seniors. Usually there are no deductibles or copays. The average federal contribution is 57% with the rest the responsibility of the states. For children the feds pay 75% of some plans. Some states like New York will provide a month’s supply of Viagra for $2.00; until last year incarcerated pedophiles were obtaining this medication.
Controlling costs has been difficult. Reimbursement rates have been cut. Bureaucratic utilization and review efforts have not worked. Not only do a minority of providers steal but States have been found to use Michelangelo-like accounting such that they steal as well.
What is even worse, by expanding Medicaid coverage the number enrolling in private insurance has actually decreased.
Some studies suggest 20 percent of the Medicaid enrollees are responsible for 80% of the costs.
Various possible remedies include block grants to the States, buying private insurance with public funds and HSA like attempts to empower Medicaid recipients. At the very least, Medicaid should not be used to fund nursing home care for people who have hired attorneys to “spend down” assets. No one seems to be anticipating any real changes soon.
CHAPTER VII: MEDICARE---MILLS REVENGE:Medicare part A is for hospital care, Part B is for outpatient care, Part C is a means to permit HMO participation and Part D is the recently passed pharmacy benefit. Wildly popular Medicare has no elected detractors and is likely to have none.
In spite of its popularity Medicare is in the process of failing. Recipients are divorced from payment and costs continue to increase at an alarming rate. The recent ”Medicare Modernization Act”has provided a massive solution to a small problem. Before the plan began 76% had some type of prescription coverage. It is estimated than only 1 in 16 dollars will actually go to seniors who cannot afford drugs. A few efforts at meaningful market reforms may take place beginning in 2010.
The passage of this “Modernization Act,” the federal government will become the largest source of prescription drugs in the world. Since there are already price controls for hospitals and doctors, one can easily predict the same for drugs.
The growth of Medicare spending suggests it will surpass Social Security spending in 2024. By 2030 Medicare will consume 25% of federal revenue.
Dr. Gratzer suggests Medicare be switched to a plan similar to the ”Federal Employee Health Benefits Program. (FEHBP)”Medicare would continue to have no waiting period, no age rating and no preexisting conditions restrictions. There would be a wide choice of vendors including HMOs and other closed panel plans. There would not be a prescribed plan of benefits except in a very general sense. Dr. Gratzer reports that lately private health care spending has increased by 9.1% annually while the comparable figure for the FEHB is 6.5%.
CHAPTER VIII: THE DRUG PROBLEMThe American pharmaceutical industry has been extraordinarily successful in developing new drugs. For a variety of reasons the public mistrusts their efforts even though 44% of Americans take at least one prescription drug.
Part of the problem is we are overinsured. In 1990 Americans paid 60% of the prescription drug bill. Now they pay 30%.
Another part of the problem is FDA approval. The FDA now approves drugs for efficacy and safety. Dr. Gratzer suggests the focus should be changed to safety only. This was the case in times past and it worked quite well. By focusing only on safety costs would be reduced and it would take less time to introduce new drugs.
CHAPTER IX: THE HIP THAT CHANGED HISTORY (IN CANADA):This chapter is about health care in Canada and Britain. A frequent demand from some pundits and politicians is that we adopt the “Single Payer Canadian Plan.” Not mentioned is the escalating problems occurring in single-payer-plans.
Canada is now in the process of adding a private practice component to their health system. This is being done reluctantly and only after several court actions. The reason is a pressure for change. Some emergency room the wait times are 7 hours or more. The “wait time” for elective surgical procedures continues to grow and about 25% are now waiting for 4 months or more. In Ontario 70% of cancer patients wait four weeks or more for treatment. Diagnostic procedures available on an immediate basis in the US require long waits in Canada. Studies suggest a considerable number die waiting for diagnostic procedures. A survey of 1500 Canadians revealed that 8 out of 10 thought the health care system to be in crisis.
Dr. Gratzer goes into detail as to the above problems and also reviews the cancer mortality statistics for single-payer-plans. He also reviews the statistics and problems for Britain. All told the problems seem to be that it is easy to propose the single-payer-plan but hard to raise the necessary taxes as costs escalate.
Another problem not mentioned by Dr. Gatzer is single-payer-plans being “free” are wildly popular until you get sick. Since most are well, single-payer-plans have a strong political constituency.
THE THREE KEYS (SOLUTIONS): Dr. Gratzer’s three keys are: (1)make health care portable; (2) re-think how we provide health care to the elderly; (3) make changes in the development of drugs and medical devices.
Making health care portable will be difficult since employer based health care is so popular. A good start would be to eliminate the tax deduction of medical care expenses. This might generate an additional 200 billion dollars of tax revenue. It would also force people to purchase high deductible policies. Insurance would then be bought by the employee from outside providers. At the same time reducing or eliminating regulations on health insurance would make possible new insurance pools. Special, government subsidized programs would be available for those not able to purchase private insurance.
An argument might be made that making health care portable would penalize the chronically ill. In 1996 1 percent of health-care users accounted for 28 percent of expenses; the top 5 percent accounted for 56 percent of expenses and the top 10 percent 70% of expenses. The good news is that in the following year, only one in seven remained in the top one percent.
In respect to Medicare, The Federal Employee Health Plan (FEHP) has been suggested for passage by The Breaux-Thomas Bipartisan Commission On The Future OF Medicare.Some have suggested pre-funding and investing Medicare funds. This could be done either by a commission or by escrowing a small portion of Medicare taxes.
We need to make changes in the way we evaluate drugs. Dr. Gary Becker, a Nobel Laureate economist, suggests the FDA return to only assessing safety. This would also solve the off-label problem where physicians routinely use drugs for conditions the FDA has not certified as effective. Efficacy trials add at least 40% to drug development costs. Dr. Gratzer supports the Becker proposal and it is the third of his three points.
MY THOUGHTS: Dr. Gatzer did not mention “stop loss” insurance. The federal government could subsidize “stop loss” insurance as a means to encourage portable insurance. Note that 10% of the enrollees are responsible for 70% of the costs. Having a yearly and a lifetime stop loss paid by the federal government would reduce premiums. While expensive, this could be paid from the funds made possible by taxing employer paid health plans.
Also not mentioned is the increasing use in the US (at least in Minnesota) of “Minute Clinics” where one pays a flat fee for the usual common problems of inoculation, diarrhea, colds and so forth. This seems to work very well. There are no claim forms and complaints about deficient care have been few.
In general, with fine efforts such as Dr. Gratzer’s as well as changes now occurring in health delivery, there is every reason to hope that Congress and the President will re-think what the government’s responsibility really is. If they do, Dr. Gratzer’s book is a first step.
Some richo or PAC should buy a copy of this book for each member of Congress. It would go a long way to correcting misinformation that is read almost daily into the Congressional Record.
Excellent - thank you for posting this.
It sounds thought-provoking.
We are facing a healthcare challenge of monumental proportions as the Boomers reach medicare age.
And we can and do spend hundreds of thousands of dollars in the final months of life, and for what?
I'd give you my recommendations for controlling the cost and quality of a college education, but they're exactly the same.
Mostly because no one wants to be the one to tell grandfather to put his affairs in order or that it's time to pull the plug on one's aunt.
Even socialized medicine doesn't directly do this. They just put you on the waiting list and everyone can say that the sick and elderly have equal access to health care (if they live long enough).
That's probably true, but grandfather should understand the situation and do it without being told.
Art Buchwald said, I'm just not going to do kidney dialysis anymore. Let nature take its course.
That's the right thing to do. I'm not sure it's even compassionate, much less a wise use of resources, to prolong the life of someone who is on borrowed time as it is.
It is shocking to see elderly people lose the last few months of their lives to expensive, discretionary surgery. Somebody should find a way to shame docs who do things like double mastectomies on frail old ladies who can't possibly live long enough to die of breast cancer.
From 2001 -- How Much Money For One Year Of Life? http://www.forbes.com/2001/11/05/1105aspirin.html
True, but when someone else is paying for it some people make bad choices.
Great find. Thanks!
"THE CURE: HOW CAPITALISM CAN SAVE AMERICAN HEALTH CARE By David Gratzer"
I will give in to the Socialists. This is how you fix health care:
At the age of 21 the government buys you a one million dollar universal life insurance policy. You use the cash value of the policy whenever you get sick. At 65 the policy is paid in full and the cash account is yours to use for medical benefits. If you die before age 65, your beneficiary gets the policy and the government gets back the cash value.
1. Restore the price mechanism.
2. Restore the price mechanism.
3. Restore the price mechanism.
And, failing that:
"If you think health care is expensive now, wait until you see what it costs when it's free."- P.J. O'Rourke
It is never a good position to be in, being calculated as of more worth dead, than alive...
Particularly by your government....
So:
1. Align incentives properly (as with Medical Savings Accounts),
2. Reduce tort liability,
3. Use information technology to increase efficiency and effectiveness,
4. Minimize government interference in the health-care sector,
5. Increase the prevalence of living wills (whereby people refuse unnecessary end-of-life procedures), and
6. Provide government funding for only necessary care as a charity to those who have failed to provide any better for themselves.
You have no idea how a universal life policy works do you??
Art Buchwald said, I'm just not going to do kidney dialysis anymore. Let nature take its course.
That's the right thing to do. I'm not sure it's even compassionate, much less a wise use of resources, to prolong the life of someone who is on borrowed time as it is.
Why don't we all give up right now. Look at the savings you could provide your family. How 'conservative' of you.
Any one of us could be in Art Buchwald's position and Art made the choice for himself, not because it was expected of him. What about eliminating organ transplants along with neonatal care of premature births? Afterall, those shopping for someone else's organ is near death facing expensive procedures.
Car accident, never mind EMS leave 'em on the pavement but don't forget to rescue those guys on the mountain or in the sailboat on rough seas.
I am so disgusted by this mindset on FreeRepublic. Maybe you should talk to your grandparents or parents and see how they feel about denying themselves medical procedures because someone says they are in an end-of-life circumstance because you think it is the right thing to do. What age would that be anyway?
What right do you to have hundreds of thousands of dollars of medical care, which you won't pay for, to keep you alive a few months longer?
I'll pay for that, and I don't know you, and based on your post, I don't like you.
So what gives you the right? Why should I work damn hard at my job to keep you alive for a couple more months when you hate my guts?
Bookmark. (thanks, shrinkermd)
Presently, I have my own medical plan but the Federal Government (through those elected) has decided they also want to provide it. And who is going to make the determination that my life has no worth? Would that be you?There are all types of social programs and we all (including you) feed at the government trouth. Think about the tax breaks you take that someone else may not qualify for.
I'll pay for that, and I don't know you, and based on your post, I don't like you.
Well, I probably have paid for some of your relatives via any number of the SS programs, GI bills, student loans, etc. Should I ask for my money back because they were not worthy. I too worked hard and pay taxes and have for many years. What does liking me have to do with it? If you liked me, you would be willing to commute my sentence?
So what gives you the right? Why should I work damn hard at my job to keep you alive for a couple more months when you hate my guts?
Decisions regarding my life gives me the right and who determined I only have a couple more months? You have no right to take my life. Obviously, you think you are the only one that has worked hard and that makes you worthy to make decisions regarding others lives. Point me to where I said, I "hate [your] guts. I never said that. You need to develop some value for life and recognize that you too are taking from our society.
marking
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