One of the common "reforms" proposed by Republicans is to limit how much money people can sue for if they believe they experienced medical malpractice. Here are two articles that seem to me to SOUNDLY refute the value of tort reform:
http://www.nakedcapitalism.com/2007/12/caps-on-medical-malpractice-awards.html
http://www.slate.com/id/2145400/
The first article discusses the fact that CALIFORNIA HAS BEEN LIMITING MALPRACTICE AWARDS EVER SINCE 1975. It makes a great subject of study for the benefits, then, of tort reform. The article claims that malpractice insurance there has increased to improve insurance companies' bottom lines, despite the protection of the 1975 law! Another law in California, proposition 103, passed in 1988, regulates insurance rate increases and is posed as being more responsible for low insurance cost increases in that state. Oh, and by the way, lawyers in California are next to unwilling to take a malpractice case because they won't earn enough money to make it worth their while (the cap is $250,000). So medical malpractice insurance went up, uncorrelated to the decrease in malpractice awards, and valid cases against care-givers have been stifled. Great work that tort reform.
The 2nd article shows that there are FAR less suits than are warranted. In fact, people are generally far less likely to sue than our Republican friends would like us to believe. According to the article, "After all, including legal fees, insurance costs, and payouts, the cost of the suits comes to less than one-half of 1 percent of health-care spending." So, Republicans answer to health reform is to reign in that out of control 0.5% of health care cost, medical malpractice suits?!!! Good job Repubs! You're really ferreting out the root cause of the problem. You have earned the low count in the senate you so deserve.
The Slate article also points out the benefits of malpractice suits:
"Anesthesiologists used to get hit with the most malpractice lawsuits and some of the highest insurance premiums. Then in the late 1980s, the American Society of Anesthesiologists launched a project to analyze every claim ever brought against its members and develop new ways to reduce medical error. By 2002, the specialty had one of the highest safety ratings in the profession, and its average insurance premium plummeted to its 1985 level, bucking nationwide trends."
How's that for a reason NOT to enact tort reform. Malpractice suits are a way for THE MARKET, you know, the thing Republicans place on a pedestal, to correct poor behavior in the medical industry.
I honestly do hope Republicans will come up with some viable cost saving measures in the insurance reform debate. But posing tort reform as one of their main cases for doing so shows the total disingenous position they are taking.
Monday, August 31, 2009
Saturday, August 22, 2009
Corrections And More
After the last post, I attended a town hall and engaged a retired gentleman who had worked as a salesman for a health insurance company. He told me there was no way insurance companies were making 25% profit. He was right. The 25% to 30% number listed on Wikipedia is gross profit, which includes losses due to cost of goods, but, if I understand correctly, does not include the cost of services (wages to employees). In another blog ( http://www.lockergnome.com/swordofdestiny/2009/08/13/are-these-evil-for-profit-health-insurance-companies-really-so-evil/ ), the profits after paying employees and other expenses are accounted for, showing that health insurance companies, at least the ones listed, make more like 2% to 4% net profit on their revenue. So for every $100 they bring in, they make $2 to $4. As the blog points out, plenty of other well known companies make much more than that. The numbers are confirmed at another site: http://the-american-catholic.com/2009/08/03/excessive-health-care-profits/
The blog above does point out that the drug companies are making between 16% and 26% net profits. This is a huge amount of profit and is therefore a group that I would say is getting preferential treatment. The document from which Wikipedia gets its estimates of how the health care dollars are spent, http://www.phrma.org/files/PhRMA_annualreportFianl.pdf, shows Rx Drugs getting 10% of the health care budget. If 25% of that is profit, then the profit made by the pharmaceutical companies can be estimated as:
0.1($2.26 trillion)(0.25) = $56.5 billion.
If the rest of the health care industry were making 3% profit, we can estimate the net profits for them at:
0.9($2.26 trillion)(0.03) = $61 billion.
From which we see that, if these assumptions are correct, the pharmaceutical companies ARE MAKING ALMOST AS MUCH NET PROFIT AS THE REST OF THE INDUSTRY!
So, the total net profits of the industry are far less than the $565 billion I calculated in my first post. And I would say that the 3% net profit being made by the industry, barring pharmaceutical companies, is not what I would call a greedy amount.
But, and there is a but, at what cost profit? If insurance companies were acting in good faith and providing a fair service while making this profit, I would be grateful they are willing to work so hard to provide such a vital service at such a low return. But there are a few weaknesses in health insurance in the U.S.: pre-existing condition clauses, and the rleated recission activity.
Let's say you had knee surgery while working at your current job, and you want to take a new job. The new employer is offering great insurance, but they will not cover anything to do with your knee injury. So, if there's a complication from the previous surgery, or even a new problem with your knee, you get to pay for all medical help.
Recission is related. It's the practice of canceling someone's insurance for failing to disclose some medical information. Please, please have a look at the short article in Mother Jones listing a few of the sickening examples of people whose health care insurers dropped them when they most needed it for horribly weak reasons:
http://www.motherjones.com/kevin-drum/2009/06/healthcare-ceos-shoot-themselves-foot
So, now that I understand the margins on health care profits are small, I also understand why they have some distasteful practices that leave people who have payed for their health care for years hanging out to dry when they finally need care. And then we can all begin to understand why having a for profit health care insurer between us and our doctors is the last thing we should want!
Unfortunately, there is no silver bullet that the government can load in the chamber to solve the skyrocketing costs of health care. The congressional budget office (CBO) performed an independent analysis for the Obama administration, making many assumptions that are preliminary, but that I would call the most trustworthy analysis of the government option overall cost. The cost they estimated over the next ten years is $100 billion a year. This certainly doesn't help sell the government option as a cost reduction. The challenge, then, is to sell an expansion of health care, in terms of covering everyone, while not breaking the federal budget. Since end of life care eats up a great deal of the health care budget, there is a fear that the government plan will limit the options for people near the end of life. There are studies showing that many of the tests and treatments given to the elderly near the end of life do little to prolong their lives. So, understandably, people are worried this group will be targeted to save costs.
Having read the CBO report and also having realized my mistake in understanding the health care profit margins, I understand now that (go figure), this is a complex issue. If the government plan comes in to effect, we are very likely to see deficit spending increase.
But, you know, I never hear the conservatives saying, "Until we can bring deficit spending go to zero, we need to stop spending money on defense." In fact, the same person who told me at a town hall meeting recently that poor people will just have to suffer if they can't afford health care, also told me she believed we need to increase defense spending. Her arguments are to my mind indefensible!
The good news this week, though, is that the lies about death panels that were dominating the landscape have been thoroughly debunked. Sarah Palin and those who supported her B.S. claims, such as Newt Gingrich (among the most surprising backers), have lost a great deal of credibility. At least on ABC, where I saw Newt taken to task for trying to continue the lies. I don't know what's happening on Fox news, as I would risk destroying my television if I watched their lies at home...
The blog above does point out that the drug companies are making between 16% and 26% net profits. This is a huge amount of profit and is therefore a group that I would say is getting preferential treatment. The document from which Wikipedia gets its estimates of how the health care dollars are spent, http://www.phrma.org/files/PhRMA_annualreportFianl.pdf, shows Rx Drugs getting 10% of the health care budget. If 25% of that is profit, then the profit made by the pharmaceutical companies can be estimated as:
0.1($2.26 trillion)(0.25) = $56.5 billion.
If the rest of the health care industry were making 3% profit, we can estimate the net profits for them at:
0.9($2.26 trillion)(0.03) = $61 billion.
From which we see that, if these assumptions are correct, the pharmaceutical companies ARE MAKING ALMOST AS MUCH NET PROFIT AS THE REST OF THE INDUSTRY!
So, the total net profits of the industry are far less than the $565 billion I calculated in my first post. And I would say that the 3% net profit being made by the industry, barring pharmaceutical companies, is not what I would call a greedy amount.
But, and there is a but, at what cost profit? If insurance companies were acting in good faith and providing a fair service while making this profit, I would be grateful they are willing to work so hard to provide such a vital service at such a low return. But there are a few weaknesses in health insurance in the U.S.: pre-existing condition clauses, and the rleated recission activity.
Let's say you had knee surgery while working at your current job, and you want to take a new job. The new employer is offering great insurance, but they will not cover anything to do with your knee injury. So, if there's a complication from the previous surgery, or even a new problem with your knee, you get to pay for all medical help.
Recission is related. It's the practice of canceling someone's insurance for failing to disclose some medical information. Please, please have a look at the short article in Mother Jones listing a few of the sickening examples of people whose health care insurers dropped them when they most needed it for horribly weak reasons:
http://www.motherjones.com/kevin-drum/2009/06/healthcare-ceos-shoot-themselves-foot
So, now that I understand the margins on health care profits are small, I also understand why they have some distasteful practices that leave people who have payed for their health care for years hanging out to dry when they finally need care. And then we can all begin to understand why having a for profit health care insurer between us and our doctors is the last thing we should want!
Unfortunately, there is no silver bullet that the government can load in the chamber to solve the skyrocketing costs of health care. The congressional budget office (CBO) performed an independent analysis for the Obama administration, making many assumptions that are preliminary, but that I would call the most trustworthy analysis of the government option overall cost. The cost they estimated over the next ten years is $100 billion a year. This certainly doesn't help sell the government option as a cost reduction. The challenge, then, is to sell an expansion of health care, in terms of covering everyone, while not breaking the federal budget. Since end of life care eats up a great deal of the health care budget, there is a fear that the government plan will limit the options for people near the end of life. There are studies showing that many of the tests and treatments given to the elderly near the end of life do little to prolong their lives. So, understandably, people are worried this group will be targeted to save costs.
Having read the CBO report and also having realized my mistake in understanding the health care profit margins, I understand now that (go figure), this is a complex issue. If the government plan comes in to effect, we are very likely to see deficit spending increase.
But, you know, I never hear the conservatives saying, "Until we can bring deficit spending go to zero, we need to stop spending money on defense." In fact, the same person who told me at a town hall meeting recently that poor people will just have to suffer if they can't afford health care, also told me she believed we need to increase defense spending. Her arguments are to my mind indefensible!
The good news this week, though, is that the lies about death panels that were dominating the landscape have been thoroughly debunked. Sarah Palin and those who supported her B.S. claims, such as Newt Gingrich (among the most surprising backers), have lost a great deal of credibility. At least on ABC, where I saw Newt taken to task for trying to continue the lies. I don't know what's happening on Fox news, as I would risk destroying my television if I watched their lies at home...
Sunday, August 9, 2009
Health Care Reform Debate
Health Care Reform Debate
The government health care debate is one of the most discussed topics right now, as president Obama made it a major issue of his platform and has carried through with placing it as a high priority. He had pushed for congress to deliver him a bill before the fall congressional recess (going on now), but this was not achieved. It has become a flash point topic, encompassing individual views on:1. Whether health care is a right or a privilege.
2. The role government should play in health care.
3. The ability, or lack thereof, of the government to provide quality health care insurance efficiently.
4. Whether or not the government wants to take over health care.
5. Whether a single payer plan should be on the table.
6. The quality of government run health care in other countries.
7. The equating of government health care to socialism.
8. Whether or not private industry can ethically deliver health care.
I am attempting to educate myself on the costs of our health care system and hope to share here what I have learned. I will provide references to sources and my goal is to distill the information in the hope that readers will be able to get a somewhat concise overview of the information, while being able to follow the references for two reasons: to fact and conclusion check, and to dig more into the topic.
Before diving in to the topic, I clearly and proudly state first that I am a liberal. To me, this label means that I believe a share of the wealth of our country--which these days means a share of the deficit we choose to spend now at a cost we will pay later--should be spent to provide a minimum quality of life to members of every income strata in our country. I do not oppose personal wealth, but I oppose personal wealth at the exclusion of this minimum quality of life. Given that the wealthiest 20% of families in the United States owned 84.6% of the country's wealth, according to:
http://www.faculty.fairfield.edu/faculty/hodgson/Courses/so11/stratification/income&wealth.htm
I do not believe it is an unfair burden to believe that some of this wealth should be redistributed to help the poorest 20% of the population. I believe it is more important that we as a society provide health care, for example, to help someone making minimum wage fight cancer with chemotherapy, radiation, or whatever treatment is appropriate, than it is to allow our wealthiest to hold that money in their bank account or real-estate investments, or to spend on their third sports car of choice, for example.
This belief pervades my opinions on health care. Even if you do not agree with it, I hope that the information here will stand on its own to provide insight into the health care situation in our country.
QUALITY OF CARE
-----------------------
While many people in this country enjoy high quality health care, I am not sure that the following is a well known fact: the World Health Organization ranked us 37th in quality of health care ( http://www.photius.com/rankings/healthranks.html) and 24th in life expectancy (http://www.photius.com/rankings/healthy_life_table2.html). This data is from 2000, the last year the WHO produced such data. At that time, the U.S. spent more than any country, as a percentage of gross domestic product, except the Marshall Islands (who were 141st in quality of health care--at least we outperformed somebody) :
http://www.photius.com/rankings/total_health_expenditure_as_pecent_of_gdp_2000_to_2005.html.
A further statistic where we fall far down on the list is in infant mortality, where 32 countries have better live birth to death ratios (http://en.wikipedia.org/wiki/List_of_countries_by_infant_mortality_rate).
By comparison, France--often vilified for providing poor quality socialist medical coverage, but only through anecdotes--was rated as having the best quality of care, had the 3rd longest life expectancy, and was number 10 in health expenditures as a percentage of GDP.
All this is to say, the United States spends more of it's wealth on health care than any other country in the world, yet we're not in the top 10, nor even the top 20 in terms of quality of health care. With regard to life expectancy, I personally believe this is also largely influenced by diet, but a discussion of trans fats and high fructose corn syrup, while related to the general topic, is too distracting in this post.
PRICE OF HEALTH CARE IN THE U.S.
---------------------------------------------
So far, the discussion has related the cost as a percentage of GDP. Wikipedia quotes health care costs in the United States in 2007 at $2.26 trillion (reference 1). I now copy in its entirety the information on the President's budget for 2008 from Wikipedia ( http://en.wikipedia.org/wiki/2008_United_States_federal_budget):
Begin Wikipedia Copy and Paste
---------------------------------
The President's budget for 2008 totals $2.9 trillion. Percentages in parentheses indicate percentage change compared to 2007. This budget request is broken down by the following expenditures:
- Mandatory spending: $1.788 trillion (+4.2%)
- $608 billion (+4.5%) - Social Security
- $386 billion (+5.2%) - Medicare
- $209 billion (+5.6%) - Medicaid and the State Children's Health Insurance Program (SCHIP)
- $324 billion (+1.8%) - Unemployment/Welfare/Other mandatory spending
- $261 billion (+9.2%) - Interest on National Debt
- Discretionary spending: $1.114 trillion (+3.1%)
- $481.4 billion (+12.1%) - Department of Defense
- $145.2 billion (+45.8%) - Global War on Terror
- $69.3 billion (+0.3%) - Department of Health and Human Services
- $56.0 billion (+0.0%) - Department of Education
- $39.4 billion (+18.7%) - Department of Veterans Affairs
- $35.2 billion (+1.4%) - Department of Housing and Urban Development
- $35.0 billion (+22.0%) - Department of State and Other International Programs
- $34.3 billion (+7.2%) - Department of Homeland Security
- $24.3 billion (+6.6%) - Department of Energy
- $20.2 billion (+4.1%) - Department of Justice
- $20.2 billion (+3.1%) - Department of Agriculture
- $17.3 billion (+6.8%) - National Aeronautics and Space Administration
- $12.1 billion (+13.1%) - Department of Transportation
- $12.1 billion (+6.1%) - Department of the Treasury
- $10.6 billion (+2.9%) - Department of the Interior
- $10.6 billion (-9.4%) - Department of Labor
- $51.8 billion (+9.7%) - Other On-budget Discretionary Spending
- $39.0 billion - Other Off-budget Discretionary Spending
End Wikipedia Copy and Paste
So, as a nation, we spent $2.26 trillion on health care in 2007, while the federal government spent $2.9 trillion in 2008. To say that health care is big business is an understatement. The Wikipedia page on health care in the U.S. (ref1) states, "Reports on the percentage of costs that go to profits varies from 25-30%." Using the lower value, $565 billion is being made as profit by the health care industry. By comparison, the health care industry's profit exceeds the United States defense budget by $83 billion. One now starts to see why the health care industry is lining up solidly to fight any change in the status quo. If you're making more money IN PROFIT than the U.S. spends on its military, well that's something worth fighting for.
Given the sheer size of the health care budget, it is easy to see why people on both sides of the isle in congress are acting with full intention now that the health care issue has become a debate, rather than a campaign talking point. As congress is now in recess, and representatives return home, the public town halls being held by said reps have health care as the front and center issue. As it is an emotional issue, as well as a political and fiscal one, for many people, such meetings have already been the site of arrests and fist fights ( http://www.youtube.com/watch?v=zTXBOgPCh9w&feature=channel_page ). With all this intensity on the issue, I think it is incredibly important to wade through bogus arguments and stay focused on the realities of our health care system and our goals for its improvement.
In 2007, Wikipedia states that nearly 46 million people were uninsured for at least part of the year (ref 1). 9.7 million of those are listd as non-citizens. Further, Wikipedia states, "It has been estimated that nearly one fifth of the uninsured population is able to afford insurance, almost one quarter is eligible for public coverage, and the remaining 56% need financial assistance (8.9% of all Americans)." That means roughly 26 million people in the U.S. cannot afford insurance and require assistance to do so. Given the cost of health care per person was listed at $7,439, one can estimate that roughly $192 billion is required to pay for health care for those who cannot afford it. Where this money will come from is a hot topic of the current debate.
SOURCES OF EXCESS SPENDING
---------------------------------------
Some people that I've talked to who don't believe the government should have a role in health care have posited that we should first try to recover some of the waste in health care and use that to help pay for covering the uninsured. Others, of course, believe being uninsured is the uninsured's problem. But certainly with a budget of this magnitude, the waste will add up to large dollars. The CATO institute has a paper looking at the cost to benefit ratios of various government regulations on the health care industry that covers much of this topic:
http://www.cato.org/pubs/pas/pa527.pdf
The author, a Duke University Professor, attempts to compare the cost imposed on business and consumers due to government regulation to the financial benefits reaped. The author has much leeway in how he computes the values, but does attempt to spell out the basis for his decisions. He concludes that the cost of health care regulation to the consumer and business is $339.2 billion, while the benefit to same is estimated at $170.1 billion. This leaves a net cost due to health care regulation of $169.1 billion. This is about 7.5% of the health care budget and not an insignificant amount. He lists the medical tort system (the ability of people to seek a judgement for malpractice, for example) as the highest offender at approximately $80 billion. By contrast, the requirement that hospitals provide emergency room care and community service care, totals just less than $7.5 billion.
The National Coalition on Health Reform cites a study by the Institute of Medicine that states hospitals provide $34 billion in uncompensated care, and another $26 billion is paid out of pocket by the uninsured ( http://www.nchc.org/facts/coverage.shtml ). This total of $60 billion spent more closely matches the maximum value that the CATO study predicted, rather than the expected values used to come up with a $7.5 billion loss.
In the discussion on tort reform (reigning in legal costs due to malpractice), the author discusses the defensive medicine practices that are induced by the current system, e.g. doctors having testts performed not because they think they are useful, but rather because performing the test will protect them legally. The author states the following, "In New York, a multivariate analysis
showed that the medical malpractice system reportedly deters 28.8 percent of all malpractice,
but this estimate was not statistically significant,possibly due to small sample size." (his reference 67). "The ratio of negligent injuries to negligent deaths was 2.9:1 in New York" (his reference68) "but was 10.4:1 in a study of Colorado and Utah." (His reference 69). Earlier in the article he claims that it is widely accepted that 10's of thousands die annually due to medical malpractice. If one assumes the number of deaths is 20,000 (tens of thousands is rather ambiguous), and that 28.8% of malpractice is deterred, and that 1 out of 3.9 of those deterrences were a deterrence of death, then the number of lives saved is on the order of:
20,000 x 0.288 x 1/3.9 = 1,477 lives saved.
If I divide the $80 billion that lack of tort reform is supposed to cost us by the number of lives saved (this doesn't include the greater number of people who are not injured or impaired due to the extra testing), I come up with the cost of saving each of those lives: $54 million.
The above is based on a lot of loose numbers, in my opinion, but certainly the cost of maintaining malpractice insurance and calling for defensive procedures, rahter than those that are based on the doctors assessment, is significant.
Interestingly, Obama's original choice for Health and Human Services secretary, Tom Daschle, claims there is $600 to $700 billion in defensive care ( http://content.usatoday.com/communities/theoval/post/2009/06/68120137/1 ). This is quite a huge number and off by the CATO paper's estimate by a factor of almost 10. I find it hard to believe that 30% of the health care budget is being spent on unnecessary testing, especially when Wikipedia (ref 1) lists diagnostics as 23% of the health care cost. Given Tom Daschle's close ties to the health care industry as a lobbyist (part of the reason he is not Health and Human Services secretary), I conclude that this number is grossly inflated.
Medicare fraud is another topic that's been shared with me. One article quotes the cost as high as $60 billion ( http://www.msnbc.msn.com/id/22184921 ). A house hearing of the Energy and Commerce Subcommittee resulted in federal officials stating that billions of dollars in fraud are perpetrated agains Medicare ( http://www.medicalnewstoday.com/articles/68371.php ). So, the number may fall between say $3 billion to $60 billion and is another that is hard to tie down. Whatever the true number, it seems that there is much waste to be reclaimed by putting more law enforcement energy (and dollars) into the problem.
Sadly, the $7.5 billion spent on caring for the uninsured is a very ineffective way to help them. I will concede, however, that it is a much lower cost thant the $192 billion I calculated above that would be required to insure those who cannot afford to insure themselves.
In addition, emergency rooms are the most expensive form of health care, and they are not set up to help those with more common place ailments that, while deserving of a doctor's care, are not legally required to be dealt with under the government mandates. For example, if you are uninsured and need to have a cancerous growth removed surgically, you will not be treated. You may be treated for the pain that it is causing you, but no hospital is required to provide the surgery. This is the harsh reality for me, who like far too many of us lost a close family member to cancer, that someone who aquires such a harsh and devastating disease would not be provided medical support to fight it. I think that no-one should fight this battle without the option for medical treatment, and that the remaining $192 billion short fall in a $2.26 trillion dollar overall budget is a pittance to pay for the support of those who cannot access such care.
TODAY'S CONCLUSION
----------------------------
Approximately 47 million people are uninsured in the U.S. Nearly 80% of those are legal citizens, and nearly 26 million of the 47 million simply cannot afford health care. The number of uninsured now is surely higher as we have just experienced the greatest recession since the Great Depression. Medical debt is the principal cause of bankruptcy in the U.S. (ref 1). The medical budget in the U.S., at $2.26 trillion, is close to the amount of the entire federal budget. The amount of waste and fraud that can be recovered is a large percentage of the roughly $200 billion needed to insure those who cannot afford insurance (using numbers from 2007 and my own calculations). Limiting medical malpractice suits and fighting fraud against Medicare and Medicaid could yield from $60 to $100 billion in return.
Many opposed to a government health care option believe the costs will be too burdensome. Given the costs we are already paying, I believe paying to care for those who cannot afford care in the current system is not as burdensome as some believe. I hope to have provided a basis for why I reach this conclusion, and I invite feedback.
--------------------
REFERENCES
ref 1: http://en.wikipedia.org/wiki/Health_care_in_the_United_States
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