The Constitution

The 10^th Amendment to the Constitution of the United States says the following:

“The powers not delegated to the United States by the Constitution, or prohibited by it to the states, are reserved to the states respectively, or to the people”.

The purpose of this provision is to enshrine into our society the concept that power resides with ‘we the people’.  Our federal government has only limited powers to impose its will on all people in the 50 United States.  Clearly, there must be rules that govern how we live together.  How do 50 separate states function together, properly balanced by individual freedoms to choose how we wish to live our lives?  Therein lies the purpose of the 10^th Amendment.

Creating Rules For A Civil Society

In the absence of rules, there would be chaos, which regrettably prevails in far too many places around the world.  We are lucky to live in a civil society called the United States of America, where we maintain our individual freedoms but accede to certain basic requirements such as:

• Stopping at a red light (both as pedestrians and drivers)
• Purchasing of insurance if you choose to drive a car
• Paying taxes

We could not function as a society without rules, but how are the rules made and by whom?  The answer lies in the genius of our Founders, who established the Constitution as the basis for rulemaking in this country, with a balance of powers between the executive, legislative, and judicial branches of government.

How Does This Apply To Healthcare Services and the Purchase of Health Insurance?

We now return to the fundamental question….can and should an individual be required to purchase health insurance?  Most people would agree that in a civil society, people who have heart attacks should not be left on the street to die.  But it is more complicated than that, including:

• How does the patient reach a hospital?
• Who is responsible for treatment?
• Who pays for the patient’s care?

These questions all have to be answered, starting with do we take care of the heart attack victim lying in the street.   The 10^th Amendment tells us that the answers must come from the states and/or the people, but generally not from the federal government.

So, does it EVER make sense to require every individual to purchase a health insurance policy?  Insurance is based on the “law of large numbers”, and it is a fact that an individual mandate will create a larger, more stable risk pool.  A larger risk pool is likely to have a mixture of good risks and bad risks, greater predictability of loss and financial stability, and lower cost of risk.  A state legislature must weigh the benefits of an individual mandate against the perceived ‘negatives’ associated with requiring specific action(s) on the part of all of its citizens.

I conclude that the individual mandate is one, but not the only, valid approach to establishing a large risk pool which is essential to creating stable prices for health insurance.  And, it is perfectly appropriate, and legal, if it is so determined at the state level.

Is The Individual Mandate Reasonable (EVEN FOR CONSERVATIVES)?

YES, if it is the decision of a state government, and not a requirement of the federal government.  If you pay taxes, buy car insurance, and stop at red lights, you should have no problem with a requirement to purchase private health insurance IF that is the decision of your state government.  It’s that simple, consistent with the 10^th Amendment.

So, let’s see an end to all the bickering about the individual mandate.  It is consistent with states’ rights and conservative principles when done at the state level, as in Massachusetts.  At the same time, it is arguably unconstitutional when imposed on all 50 states, as in PPACA.  If conservatives want to “repeal and replace” ObamaCare, let’s start with the fact that 50 state experiments are an appropriate and legal way to fix our healthcare system, some of which may even include an individual mandate.

I have written previously in favor of health exchanges, and an important related question is whether or not to incorporate an individual mandate, as contained in the Patient Protection and Affordable Care Act (PPACA).   Some argue that an individual mandate is an essential element of health reform, but I don’t think it is.  Furthermore, the constitutionality of PPACA is being challenged based on the question of whether the individual mandate violates the principle of limited federal government powers (i.e, the 10^th Amendment or “states’ rights”).  The remainder of this discussion focuses more on the desirability and less on the legality of the individual mandate.

What is the Individual Mandate?

Simply stated, the individual mandate requires all individuals in a specific geography to purchase insurance.  Many state legislatures require its licensed drivers to purchase automobile insurance, but those residents have an option of whether or not they wish to drive.  There is no equivalent ‘option’ regarding health insurance (whether to “live”?).  So therein lies the principle difference in the individual mandate for health insurance—is it an overreach of the federal government to require all living US residents to purchase health insurance, since living is a human condition and not a choice?  But moving on to the issue of desirability, the first question is….

Does the Individual Mandate Make Economic Sense?

Yes, because insurance is based on the “law of large numbers”.  The individual mandate creates a larger, shared risk pool, and the larger the pool, the more likely you are to have a mixture of good risks and bad risks.  A larger risk pool also means greater predictability of loss, greater financial stability, and lower costs.  You do NOT want to create a pool where certain participants (the perceived ‘good’ risks) can be “cherry-picked”.  Many insurance pools have failed (with serious financial consequences) because certain participants choose to leave the pool in order to realize short-term premium savings (sometimes the result of “predatory pricing”).  If this happens to a significant degree, the pool will inevitably fail and EVERYONE ends up paying more.

Creating a Large, Stable Risk Pool

An individual mandate is one way to do it, but not the only way.  Consider a “conditional” mandate, where individuals or small employer groups (below a certain size, say 25 employees) that choose to buy health insurance must buy it through a State Health Exchange.  There would be an annual open enrollment period when the election to participate and choice of plan takes place.  In other words, a person cannot wait until they are sick or become injured to buy health insurance coverage.   In my view, people seek health insurance to avoid catastrophic losses, and thereby provide their families with financial protection from a serious illness or injury (e.g., the $100,000 healthcare bill that may cause bankruptcy).  Most people would feel compelled (but not obligated) to buy health insurance at an annual open enrollment because nobody knows if a serious illness or injury looms 6 months into the future.

ObamaCare vs. RomneyCare

So, we have determined that in order for health reform to succeed, there must be:

1. Competition between carriers on the basis of cost and quality.
2. A large and stable group of health insurance purchasers (the “risk pool”).
3. No “cherry-picking” of the good risks.

An individual or conditional mandate within the context of a health insurance exchange accomplishes these objectives.  When implemented at the State level through State legislation, such as RomneyCare, the approach clearly passes Constitutional muster and complies with the concept of “states’ rights”.  Other states can learn from the experience and may choose to follow a similar approach if it is proven successful.  Furthermore, the Massachusetts legislature (or succeeding states that adopt either an individual or conditional mandate) can decide to improve, change, or repeal its legislation at any time.  That, in my view, is the vision of our Founders.

Does the ObamaCare individual mandate pass muster on these same Constitutional questions regarding States’ rights?  Does the individual mandate fall within the definition of enumerated powers of the federal government?  I have my doubts, and the Supreme Court of the United States will likely soon tell us.

Romney was Governor of Massachusetts from January 2003 through January 2007.  When RomneyCare was passed and signed into law in 2006, it was the right thing to do—a state experiment, a 90 page bill, and passed on a bi-partisan basis.  ROMNEY DESERVES CREDIT FOR TRYING SOMETHING, to fix a system that everyone knows is broken.  RomneyCare succeeded in covering the uninsured in Massachusetts, but it failed as a means to control healthcare costs.  Could RomneyCare been modified subsequent to 2006 to address healthcare costs?  I think so.  Is Romney to blame for the failures of RomneyCare?  Not in my view, because he’s been out of office for 4+ years.

Romney’s explanation last week could have turned a negative, RomneyCare, into a positive for Romney.  RomneyCare is a failed experiment in health reform.  But, instead of learning from the experience of Massachusetts, ObamaCare REPEATS the mistake of RomneyCare.  ObamaCare does little to address the problem of healthcare costs, but rather covers all Americans into a broken health insurance system.  Romney should say that as President,  I will not allow that to happen.  We will design a program at the federal level that will NOT impose the failed lessons of Massachusetts on the entire country.  Rather, we will let states experiment to find the right answer for them and let other states follow their lead, should they so decide.

My positions about ObamaCare are well known in my blog and newsletter archives–there are some positive aspects to Obamacare, but it is poor legislation (2900 pages) passed poorly.   Obamacare still needs to be fixed. Your thoughts??

It is true that the devil is in the details.  So, for a more detailed discussion of this topic, I refer you to “Health Reform in the 112^th Congress”, where I offer suggestions on:

1.      Positive aspects of the new law that should be retained.

2.      Problematic provisions (e.g., 1099 reporting) that should be removed.

3.      Important elements of health reform that are missing from the current law and should be added.

This debate will continue for weeks, months, and probably years.  There will hopefully be an expedited review, because otherwise the Supreme Court is not expected to rule on the constitutionality of the individual mandate for a year and a half.  I’m happy to present to Boards, senior managers, and other groups on the implications of Obamacare and what they could (and should) be doing now.

I would welcome your questions, comments and suggestions.

Medicare has 4 parts:

• Part A, Hospital (started in 1967)
• Part B, Physician and Other (started in 1967)
• Part C, Medicare Advantage (started in 1985 under a different name)
• Part D, Prescription Drugs (started in 2004)

When people talk about Medicare, they generally refer to ‘traditional Medicare’—Parts A & B & later D.  This is where the federal government ‘negotiates’ with providers, sets the rates of payment, and cuts the checks.  And, those who can afford it typically purchase a private Medicare supplemental policy to cover those services not paid by Medicare.  KEY POINT: this program is a financial disaster.  This is the program that is costing taxpayers 10X what was originally projected, and is the reason that thankfully the concept of a ‘Public Option’ was turned down as a part of Obamacare.  The government has no track record of success in the health insurance business.

Part C or Medicare Advantage is an effort to deliver Medicare benefits through the private sector.  It is justly being criticized today for payment excesses, but it used to be a VERY successful program.  At the outset, private plans were compensated based on a formula that approximated 95% of what the government would normally pay per capita.  Because of better ‘managed care’ leading to efficiencies, the plans were able to add benefits in order to attract membership.  That is why Medicare Advantage is popular.  SO WHAT HAPPENED?  Under the watchful eye of our elected representatives, capitalism and a lack of transparency allowed this program to be bastardized by the insurance companies (sound familiar Wall Street?).

So, the demise of Medicare Advantage under Obamacare (except for the deals cut in certain states) is misplaced—let’s not throw out the baby with the bath water.  Let’s fix what is wrong with the Medicare program , and go back to the Medicare Advantage basics of the 1980s.  How do we do this?

• Allow only PPOs and HMOs to participate in Medicare Advantage
• Limit the number of plan choices to foster competition.
• Return to rates of payment to private plans approximately equal to what the government would pay under traditional Medicare.

Obamacare can be fixed.  Big government control and over reliance on regulation in health care will reduce quality and innovation, and be a financial disaster.  We can do better.

I’ve worked in this business for 32 years and honestly, I’m not sure what to do next.  Do I join with the forces crying ‘foul’ and work for repeal of a bad bill that was rammed through our legislature with little mandate, aided by arm twisting, unsavory deals, and outright bribery?  Or, do I say to myself that we needed health reform and now that we have health reform, let’s work to fix what we have?  What do you think?

The Road Ahead…

Truthfully, our options today for fixing what is wrong with health care in this country are the same ones we had a year ago.  They are:

1. Massive new debt and deficit spending.
2. Government rationing of healthcare services.
3. Increasing efficiency (i.e., cut the 30% of wasteful spending).

The President and Congress have chosen Option 1.  The bill signed into law two days ago (and the fix still being debated) will insure tens of millions of new people into a broken health insurance system.  There was little done in the way of meaningful healthcare cost containment, which is my business.  That is why I was arguing against “throwing good money after bad”, but that is, in fact, what was passed into law.  Health reform was passed AFTER our annual deficit spending was tripled.  Therefore, “reducing the deficit” over ten years by $130 billion or so is of little consolation, and it is not even true (it is what CBO had to say—simply add back in the cost of the doctor ‘fix’ and we are increasing the deficit).

In time, when the levels of massive federal debt become unacceptable, we will inevitably move into a phase of massive rationing by government (Option 2).  It is the only way to contain the unbridled demand for healthcare services at someone else’s expense.  It may come first in the form of price controls.  It may come in the form of fewer hospitals, waiting lists for certain services, less choice, and less control by the patient/consumer over their health care—this is how a truly socialized, single payer system works.  But make no mistake—it WILL occur because it is the only ‘regulatory’ alternative to massive deficit spending.  (NOTE: this approach can be described as “lowest common denominator” care available to everyone.  It is a viable option, as in Canada, and a public policy position some people advocate, but let’s have an honest debate about where this type of health reform may take us.)

Or, we can seek a return to basic American principles and values represented by Option 3—massive increases in efficiency.  It is a fact that approximately 30% of what we spend on healthcare in this country is wasted on unnecessary care, inappropriate care, and poor quality care.  The country’s annual spend on healthcare is approaching $2.5 trillion, so just imagine what the possibilities if we could move towards good economics in healthcare.  We can maintain cutting edge innovation in the best system of health care in the world, and still have money left over to subsidize those unable to purchase healthcare services on their own.

What Can You Do?  What Should You Do?

If you’re like me, you’re going to take a break from the political wars, but it will be a short break.  Constitutional challenges to certain provisions of the bill are worthwhile.  Since outright repeal of the bill that has passed is unlikely, we have to keep working on fixes that will achieve the objective of Option 3, and in effect obviate the need for Options 1 and 2.  We should focus on promoting HSAs, competition across state lines, tort reform, pooling for individuals and small groups, and other similar approaches.  It can be done.  It must be done.

Please join me in this effort.  Sign up for my newsletter.  Comment on this blog.  Get involved.

Obamacare (In A Nutshell)

Former Reagan speechwriter Peggy Noonan, writing in the Wall Street Journal (3/6/10, “What A Disaster Looks Like”) characterized Obamacare thusly:  “His (Obama’s) essential mistake was to choose health-care expansion over health-care reform.”   In other words, Obamacare does not fix what is broken; rather, it merely insures more people into an already broken system, thereby throwing good money after bad.  The following is my condensed version of Obamacare and its impact:

• A 2000+ page bill with a significant amount of new regulation, bureaucracy, and cost.
• An estimated cost of $1 trillion, but actual cost that will total trillions.
• A no-win situation where the ONLY way to avoid massive deficits is with massive rationing of healthcare services by a government bureaucracy.
• Promises from government to cut wasteful and unnecessary healthcare spending that will not happen—there has never been the political will to do so for Medicare and Medicaid.

Health Reform Done Right

The healthcare industry is complex and some would argue its problems intractable, but it doesn’t have to be that way.  There are successful models for reducing healthcare costs to guide our efforts:

• First, break health reform into smaller, manageable parts.  Address pre-exiting conditions, portability, insurer anti-trust exemption, and competition across state lines.
• The State of Indiana has a successful example of health reform.  Read Governor Mitch Daniels account called “Hoosiers and Health Savings Accounts”.
• Let’s build health reform around consumer driven health care and personal responsibility.  Reward healthy lifestyles, as in the example of Safeway Corporation.

Successful health reform is not about the government forcing its citizens to do it a certain way.  It’s about learning from success and encouraging widespread adoption of best practices.  Trust the states and the American people to do the right thing.  We should no longer subsidize the financing of our healthcare the old and inefficient way, as Obamacare does.

Send a Message To Your Elected Representatives

The prevalent argument for Obamacare is that we must do something now.  We agree, but let’s start by defeating Obamacare.  Contact your Members of Congress with the following message—on February 24, 2010, there was an overwhelming bi-partisan vote (406 to 19) to strip health insurers of their anti-trust exemption in the House of Representatives.  This is a small, but important, first step.  So, the message is as follows:

Senators:  The Senate should pass a similar bi-partisan legislation already approved by the House to remove the health insurance industry’s anti-trust exemption.  Any efforts at reconciliation (or the nuclear option) to pass Obamacare should be resisted.  Health reform is critically important legislation that should require a super-majority (60 votes) in order to pass.

Representatives:  The Senate Health Reform bill is a bad bill and should not be passed by the House. It contains the Cornhusker kickback, Louisiana purchase, and other irresponsible deal-making needed by Senate leaders to pass a bad bill.   If your Representative is a Blue Dog Democrat, encourage the entire caucus to oppose this bill.  If they claim to be fiscal conservatives, they must vote accordingly.

What do you think about the future of Obamacare?  Please post your comments.

FACT: IT WAS AN OVERWHELMING, BI-PARTISAN MAJORITY VOTE OF 406 TO 19!!!

Wednesday’s (2/24/10) Action in the House of Representatives

I am an advocate for effective, bi-partisan health reform that can be accomplished by breaking the large problem into smaller, manageable parts.  The viability of this approach was demonstrated by Wednesday’s vote to repeal the exemption from federal anti-trust laws.  Certain partisan obstructionists tried to stop it—for example, Republican House Minority Leader John Boehner (Ohio) opposed the measure.  Yet, there was constructive Republican leadership from Minority Whip Eric Cantor (Virginia) who encouraged Republicans to support the measure, which they did overwhelmingly.  It the end, it’s not about right vs. left; it’s about right vs. wrong.  In this case, doing what is “right” for the American people prevailed.

Thursday’s (2/25/10) Summit Meeting at Blair House

On the other hand, yesterday’s bi-partisan summit to discuss health reform, convened by President Obama, was mostly for show.  The President’s supposedly new, health reform proposal, which was announced on Monday, is more of the same.   The President’s plan mirrors the existing legislation with one addition: a new federal government agency to regulate health insurance premiums.  The President is not unaware of the role currently played by State Insurance Departments, but I guess he thinks the Federal Government will do it better.  Though the Summit was marked by partisan rancor, I believe that the Republicans demonstrated that they are not obstructionists and that they support viable steps to reform health care that do not spend the country into oblivion.

Where Do We Go From Here?

First, encourage your Senators to take action on the bill passed in the House this week.  The Senate should pass similar legislation to remove the health insurance industry’s anti-trust exemption and SEND A BILL TO THE PRESIDENT’S DESK FOR SIGNATURE.

From an overall policy perspective, bi-partisan action to reform healthcare is not impossible—we should focus on those aspects of health reform on which reasonable people agree (see After Massachusetts: NOW WHAT?)  From a political perspective, it’s much more difficult because so many of our elected representatives believe that partisanship is more important that serving the best interests of the American people.

Yet, the House of Representatives proved on Wednesday that bi-partisanship is possible, but it’s only a small first step.  I encourage you to send your Members of Congress, Democrat and Republican, the following message—start over and pass meaningful health reform NOW (as demonstrated in the House of Representatives) or pay the price at the polls in November.

Searching For Alternatives to Traditional Medicare

Around 1980, the Federal Government began a demonstration project where Medicare beneficiaries could join private health plans in order to receive their Medicare benefits.  It was called the “Medicare Capitation Demonstration Project”, involving 8 HMOs from around the country, including 4 in the Minneapolis/St. Paul region.

HMOs were paid a fixed monthly amount established by formula (95% of the area adjusted per capita costs or AAPCC) designed to save money for the government.  In exchange, the HMO provided an enrollee with their standard Medicare benefits plus ‘additional’ benefits (provided at the discretion of the participating HMO) designed to attract beneficiaries to voluntarily sign up,.

Beginning in 1981, I was working for a consulting firm based in Rockville, MD named Jurgovan and Blair, Inc. (JBI).  JBI had the evaluation contract, and I was part of a team of 8 or so people traveling the country to evaluate all aspects of the financial and operational effectiveness of this Demonstration program.

Demonstration Results

The government concluded that the concept of Medicare beneficiaries joining private plans was a success, a ‘win-win-win’ proposition.  The Federal Government saved money, the participating plans benefited from membership growth from a new source of patients, and the Medicare beneficiaries received great benefits (generally better that traditional Medicare) for little or no cost.  As a result of this demonstration, Congress passed a law in 1985 (part of the annual budget reconciliation) to allow qualified HMOs to contract with the government on this basis.

Two Plus Decades of Change (NOT for the Better)

The original Medicare Capitation Demonstration program has evolved into today’s Medicare Advantage (Part C) program.  However, the program has changed significantly since 1985, with over 11 million Medicare beneficiaries covered at the end of 2009.  But over the course of two decades and despite its popularity, the program has become costly and unwieldy in the following ways:

1. The government began allowing PPOs and later private fee-for-service (PFFS) plans to participate in the program.
2. The number of plan options has grown dramatically, making it very difficult for Medicare beneficiaries to understand and comparatively shop for coverage.
3. Payment formulas have been co-opted such that average payments to the plans are now 15% to 18% above average traditional Medicare costs (instead of 5% below).

Medicare Advantage should be fixed, but not eliminated as suggested by many Democrats.  Traditional Medicare is a financial mess and is decidedly NOT a better model for financing health care for the elderly.  The evidence—it costs 3X as much per capita for Medicare in Miami, FL compared to Honolulu, HI?  The major differences in costs and utilization reflect structural deficiencies in the government’s approach to paying for health services.

Solution To Runaway Medicare Costs

We need to go back to basics—the original principles for private plan participation in Medicare that worked in the 1980s.  The following changes should be made:

1. Allow only managed care plans (PPOs and HMOs) to participate in the program that meet specific standards for effectively managing utilization and cost.
2. Limit the number of benefit plan options—there should be 10 or so standard plan designs that any eligible insurer can offer to beneficiaries in its service area.
3. Continue using the current payment formula, but limited by a payment cap tied to average Medicare per capita costs in the country that is phased in over three years (e.g., 2011—the lesser of the current formula amount or 130% of the national average cost; 2012—cap reduced to 120%; 2013—110%; 2014—capped by the national average).

The above plan will force inefficient providers to model themselves after programs in other parts of the country that are delivering high quality care for less money.  This is managed competition—requiring insurance carriers to compete on the basis of cost and quality.  What do you think?

The Mess We Are In

The focus in Washington is now on jobs, jobs, and jobs.  But guess what, we have an employer-based system of health insurance in this country and employers are not hiring new workers (i.e., NO NEW JOBS) in the current climate of uncertainty.  One of the principal reasons is our failure to control healthcare spending in this country and address the exorbitant cost of health insurance.  Small business is the economic engine that drives our country, so the President is correct when he says we will not fix our economy until we fix our broken healthcare system.

Voters Send A Message

The American people delivered a message in recent elections in Virginia, New Jersey, and now Massachusetts.  The same message was delivered in the waning years of the Bush Administration.  That message is that we are a people guided by certain principles and values and we want to be governed accordingly.  We do NOT want to be governed by partisanship or extreme political ideology (right or left).  Politicians who fail to understand this phenomenon will be gone.

Democrats desperately want to deliver on their promise to the American people to pass health reform.  While some Republicans may see political advantage from not passing a bill in 2010, the truth is that a major Republican constituency, small business, NEEDS a health reform bill.  Any political advantage from the politics of obstruction will be short lived.  Both parties need to commit themselves to getting something positive accomplished for the benefit of the American people.

Starting Down The Road To Bi-Partisanship

Republicans should reach out to Democrats who have shown an interest in meaningful reform and who claim the mantel of fiscal responsibility.  There are 40 Democrats who voted against HR 3962.  There are currently 54 conservative Democrats who are members of the Blue Dog Coalition.  This is a good place to start.

If our legislators need more guidance on what to do next, we can help there too.  Read our blog called, “After Massachusetts: NOW WHAT?”   It is time for the grownups to take charge in Washington, DC.  And just in case our politicians need a little push, I would urge everyone to call their Congressman or woman, and call your two US Senators, and tell them to pass a good health reform bill, and do it NOW!!