US health care costs are much higher than any other nations’. Why? Do we have better access to care? Are our doctors paid more? Is it the fault of higher drug costs? Do the related issues of malpractice insurance and defensive medicine have much impact?
A new report sponsored by the Commonwealth Fund compares US and other industrialized countries’ health care and attempts to answer those questions. The report’s conclusions go a long way towards dispelling some of the “urban myths” surrounding health care.
Overall results
According to the report, “

A new study indicates three quarters of US employers will increase employee contributions for health insurance in 2006 while a quarter will reduce pay increases as a result of higher health insurance premiums. The survey, a poll of 150 US employers by PriceWaterhouseCoopers, also noted that health insurance costs were up 12% this year, with respondents estimating costs next year would climb by 11%.
The study also indicates that health insurance, which accounted for 8% of payroll at large employers in 2000, now consumes between 12% and 15% of payroll. The fallout from these increases is significant, with 20% of employers likely hiring fewer new employees as a result of and 25% attributing reduced profits to increased health care expenses.

For a real world view of consumer-directed health care, we can turn to the recent report by the Kaiser Family Foundation which indicates “Twenty-seven percent of women under age 65 delayed or went without needed medical care in the last year because they did not think they could afford it”. And these weren’t just the uninsured. In fact, “17% of women with private insurance delayed or went without care because of cost concerns.”
While I don’t mean to sound like a strident opponent of consumer education or deny the importance of involving individuals in the economic consequences of their health behaviors, it does strike me that when one out of six insured women delay care or skip it entirely due to cost we have a pretty good sense of the real effect of so-called “consumer-directed” health care – economic rationing.
It will be interesting to see if other studies of actual plans that are based on these ideas have different outcomes.

Steve Case, late of AOL-TimeWarner, has made a huge bet on consumer-driven health care with his investments in Revolution Health Group. Case and fellow investors including Colin Powell, Jim Barksdale (Netscape), Steve Wiggins (Oxford Health Plan), Franklin Raines (Fannie Mae) are planning to purchase at least seven (unnamed) companies to form the core of an entity that will (at least according to the USA Today article):
–provide consumers with access to data on physician and hospital cost and quality
—lower health insurance costs by streamlining the purchasing process
–enable consumers to rapidly access their personal health care data at convenient locations
These guys are not fooling around – Case intends to invest $500 million of his own money in the venture, and the other partners’ pedigrees and personal fortunes will certainly make Revolution one of the larger new ventures in the health care business.
The question is, does the premise of the idea, consumer-directed health care, make sense?
Sort of, but not really.
To illustrate, here is a quote from Colin Powell from the article about shoppers looking for a TV;
“they can go on the Internet and “within a second and a half, get hundreds of choices of where to buy,” along with information about the TV, the seller and any additional charges. “Why should that not apply to health care?” he asks.”
Well, Mr. Secretary, buying a TV is not exactly the same as trying to find out what to do about a lump in your neck, a gradual loss of nighttime vision, or general sense of fatigue. When buying a TV, you already know what the solution is. The issue with health care is a big chunk of the effort and expense is associated with trying to answer the “what’s the problem” question.
The other significant problem w the whole “consumer-directed” idea is the nature of health care as an economic good. As Matthew Holt of “the Health Care Blog” has noted repeatedly, health care is not a typical economic good, it is not like guns or butter. People use different criteria when deciding what is worth spending when they or their loved ones are at risk. Case in point.
My daughter was admitted to a local emergency clinic with an adverse reaction to a medication. She was stabilized, appeared to be doing fine, was not in paid, fully alert and conversational. As the clinic neared closing time, the doc suggested that she be sent on to Yale for further observation before discharge, as there was some information that the reaction could lead to a problem with her breathing. She was breathing fine, talking, and appeared normal.
We are insured under a high-deductible MSA plan, so any charges would come out of our pocket. I thought about it for a few seconds, than agreed. I also agreed to have her brought over in an ambulance for the fifteen minute trip. I knew full well that the risk was minimal, the costs would be over $2000 for this “preventive” measure, and I would pay all that out of my own pocket. Was the very small risk worth the outrageously inflated cost?
You bet your life it was.
The net here is I do not believe health care’s cost problem can be addressed in any significant way by this drive to consumer-directed health care. In addition to the emotional buying decision process noted above, it is also instructive to remember that a significant portion of total health care dollars are spent on treatment in the last six months of life; and that a majority of the health care dollars go to treat individuals with serious chronic conditions who get almost all their care paid for.
While better educating individuals will undoubtedly help them solve their individual health issues, and perhaps cut a few cents off their bills, it will do nothing to reduce the national health care tab.

An article in today’s New York Times discusses some of the issues inherent in the introduction of new medical devices and the quest for insurance reimbursement for same. Predictably, a spine surgeon accuses insurers of refusing to reimburse just to save money, insurers say they won’t pay until the device is proven more effective than alternatives, the manufacturer touts supportive studies and ignores less supportive data, and patients are completely confused.
The article does an excellent job of laying out the issues in an even-handed manner, and actually alludes to the significance of any new technology’s demonstrated ability to improve on the present “state of the art” in the reimbursement decision process. However, that is about as far as it goes. The article, and other commentary in California HealthLine, does not delve into other alternative treatments and their associated benefits and costs for conditions addressed by devices such as artificial disks, stents, and pacemakers.
It strikes me that device manufacturers certainly have this kind of information, as it is likely part of whatever studies they do. If that assumption is correct, the data is either not reported, was not used by the reporter, or was inconclusive. is no discussion about the potential for the device to replace other medical treatments (e.g. pain meds, therapy, etc.).
Reimbursement decisions are one of, if not the key success measures for new technology – and the way to get payers to cover these new devices is to show the impact on patient outcomes, functionality, and/or lifestyle improvements as well as the elimination of other medical treatment and the costs thereof.
I must be missing something here.
What does this mean for you?
Before approving a new technology for reimbursement, ask what the impact on patient outcomes is, in addition to what other services/devices/procedures it replaces.

Health care inflation rates are unsustainable. Costs are now growing four times faster than wages, driven primarily by hospital pricing and drug utilization. The average family of four with health insurance now pays over $12,000 in health care related costs each year; their health insurance premiums alone are just under $11,000. The cost of health insurance has forced employers and employees to forgo heath insurance, causing providers to shift costs to their insureds, thereby raising premiums by $922 per family.
I have been speaking with several knowledgeable individuals about these issues, trying to puzzle out when the crisis will reach a point where it will be addressed in a meaningful way. One of the conversations has been with Bob Laszewski, one of the nation’s leading experts on health care policy, the insurance markets, cost drivers, and pragmatic approaches to all. In a recent conversation with Bob about health care cost drivers, he pointed out that the “leveling off” of the health care inflation rate is now affecting pricing for health insurance. Indeed, early indications are that large employers and health plans buying reinsurance (insurance to cover unexpectedly high losses from their members) are keeping rate increases somewhat lower than overall trend rates.
How is this happening? Simple, really. The

On a plane yesterday I engaged in a brief conversation with a professional woman (accountant) working for ING Insurance about health care. An opinionated person, she was quick to tell me that employer-based health care was the only solution and that government based programs were bad due to waste and long waiting lines for treatment.
When I pointed out that Medicare was one of the highest-rated “health plans” in the nation, with administrative expenses significantly lower than any other plan, she stated that the only innovation would come from private insurers, and that the “Clinton plan would have been a disaster”. She then proceeded to complain about the one-year waiting lists for surgery in the UK, and about the problems w the pharma reimbursement system in the UK and it’s refusal to pay anything for “profits”.
Here is a very intelligent, educated, numbers-oriented person who likely votes and contributes and is active, who has some serious misconceptions about health care, and absolutely no appreciation for the trade-offs inherent in health care. As an accountant I would have expected her to argue the cost-benefit of procedures or financing mechanisms, but her arguments were more based on the Health Insurance Assn of America (a now defunct organization)’s famed “Harry and Louise” advertising campaign.
There was no time to engage, and it would not have been productive – her mind was made up. When asked about how to handle the uninsured, she said that doctors should be required to do pro bono work, and then proceeded to complain about socialised medicine. Leaving aside the thought that requiring workers to do something for no compensation via governmental fiat smacks of socialism or communism for that matter, I was amazed at the complete lack of thought given to these obviously firmly-held beliefs.
If this is the kind of voter we have, than we are indeed a long way from addressing the problems inherent in our health care system.
What does this mean for you?

Likely continued frustration…

A conference on Cape Cod this weekend concluded that the US’ dependence on employer-sponsored health care is “fundamentally flawed, as it restrains productivity and leaves too many people without health coverage.” I could not disagree more.
Before we enter the debate, a few take-aways from the conference. Panelists noted the benefits of employer-sponsorship which include a drive for innovation and purchasing power together with the enormous costs of “de-coupling the employment link” (63% of non-elderly Americans are insured through their employers) make it quite difficult to shift away from the employer-sponsor system.
Sponsored by the Federal Reserve Bank, notables including Alain Enthoven of Stanford, Henry Farber of Princeton, and Henry Aaron of the Brookings Institute all view the link between employment and health insurance as a significant problem, with Enthoven noting “The employment basis of health insurance is hopelessly flawed.” Among these flaws are:
1. “companies are not in the business of managing health.” They are motivated to produce their particular good or service, and the “responsibility” of providing health coverage is a burden.
2. “Job-based insurance leads to distortions in the labor markets