NCPA Commentaries by John C Goodman
Dr. John C. Goodman, President and founder of the NCPA, is known as the father of Medical Savings Accounts and was dubbed by National Journal as "A winner of the devolution derby." He is an expert on tax, welfare, Social Security and health care reform. Dr. Goodman has testified before Congressional committees and regularly briefs member of Congress on these issues.
Jul 30, 2008
If you listen only to presidential campaign rhetoric, you might conclude that Hillary Clinton and Barack Obama proposed bold new changes for our health-care system, while John McCain is offering only small improvements. If so, you are in for a surprise. Most health-policy analysts believe that Mr. McCain is proposing the most fundamental health-care reform.
Jul 02, 2008
Typically, Medicaid enrollees face restricted treatment options and limited access to health care. At the same time, they are sheltered from health care costs because they pay nothing out of their own pockets when they receive care.
Jul 01, 2008
As of January of this year, U.S. employers can automatically enroll their employees in 401(k) plans with diversified portfolios- without fear of lawsuits and without certain regulatory burdens. Automatic enrollment should increase participation by about one-third, and diversification should produce larger and safer returns, although employees are able to opt out of both decisions. In the future, roughly one of every two 401(k) enrollees is likely to be so enrolled.
Jul 01, 2008
In a rational world, deductibles and copayments serve an economic purpose.
In the health insurance market, however, those principles are increasingly being turned upside down as a result of government interference and providers' attempts to cope with it.
Click to read more about the irrational world of health insurance.
Oct 16, 2007
America's health care system has three fundamental problems: cost, quality and access. Why do we have these problems? What do the Democratic presidential candidates propose to do about them?
Health care spending per capita is growing at twice the rate of growth of national income. If that trend continues, health care will crowd out every other form of consumption by the time today's college students retire. The reason for this dilemma is that patients are rarely forced to choose between health care and other uses of money. No one is ever asked to decide whether one more knee replacement or one more MRI scan is worth the money it costs. No one ever has to decide whether it is worthwhile to spend one-third of Medicare's budget on patients who are in the last year of life.
Sep 18, 2007
Thirty years ago Michael Dukakis campaigned for president with the boast, "I have insured everybody in Massachusetts." Of course he hadn't, and three decades later, everybody in Massachusetts is still not insured. Along the way there have been many other plans to create "universal coverage." They haven't worked either.
Jul 27, 2007
The state children's health insurance program (SCHIP) was originally a Republican program to provide health insurance to children in near-poor families who did not qualify for Medicaid. Democrats now want to expand SCHIP to children of the middle class. Their efforts to do so are rightly being resisted by the White House, but Senate Finance Committee Republicans have already caved on an unwise compromise - agreeing to raise the eligibility to 300% of the poverty level ($62,000), up from the current 200%. House Democrats will now see if they can get the GOP to cave some more. House Democrats want to push coverage to 400% percent ($83,000 annual income).
On the surface, congressional Democrats appear to be rescuing children from the scourge of uninsurance. The reality is quite different. If they get their way, millions of children will have less access to health care than they do today, and the same will surprisingly be true for many low-income seniors. On top of all this, Democrats would also impose highly regressive taxes.
Studies by MIT economist Jonathan Gruber show that public insurance substitutes for private insurance and the crowd-out rate is high. In general, for every extra dollar spent on Medicaid, private insurance contracts by 50 cents to 75 cents. For SCHIP, depending on how it is implemented, private insurance could contract by about 60 cents.
These findings make sense. Why pay for something if the government offers it for free? Under congressional proposals to expand SCHIP, the crowd out would likely be much worse. The reason: almost all the newly eligible beneficiaries already have insurance.
Yet almost eight of every 10 children whose parents earn from 200%-300% more than the poverty level already have private health-care coverage, according to the Congressional Budget Office (CBO). At incomes between 300% and 400% more than poverty, nine of every 10 children are already insured.
What about the eight to nine million children currently uninsured? Nearly 75% of them are already eligible for Medicaid or SCHIP, according to the CBO. So the main result of the Democrats' proposal to expand SCHIP will be to shift middle-class children from private to public plans.
Why is that bad? One reason is that most SCHIP programs pay doctors at Medicaid rates-rates so low that Medicaid patients are having increasing difficulty getting access to health care. Anecdotal evidence suggests that U.S. Medicaid patients already must wait as long for specialist care and hospital surgery as in Canada.
Many doctors won't see Medicaid patients. Among those that do, many will not accept new patients. As a result, children who lose private coverage and enroll in SCHIP are likely to get less care, not more.
There is also the issue of who exactly will be covered. Republicans want to restrict SCHIP to children. The Democrats want adults covered as well. Even under the current system, children's health insurance is increasingly a ruse to cover adults. Minnesota spends 61% of SCHIP funds on adults. Wisconsin spends 75%.
Seniors will suffer from SCHIP expansion too. When millions shift from private to public coverage, not much happens to the overall rate of uninsurance. But the government's cost soars. Where's the money to come from? One idea popular with some house Democrats is to reduce federal payments to Medicare Advantage plans. These plans provide comprehensive coverage to low-income seniors who can't afford supplemental insurance to fill all the gaps in Medicare. One in five seniors has enrolled in these plans and one in four of those is a minority. In the House of Representatives, health care for this group is a great risk.
The proposal to expand SCHIP comes at a time when health-care spending already poses a serious threat to the federal budget. The Medicare trustees tell us that the program's unfunded liability is six times that of Social Security. The CBO predicts that on the current course, income tax rates paid by the middle class will reach 66% by midcentury and the top marginal rate will reach 92%.
So what do congressional Democrats plan to do about this problem? Ignore it.
A key provision of the 2003 Medicare modernization act says that when Medicare's finances deteriorate to a certain level (that level is already reached), the president must propose an appropriate reform and congress must fast-track the proposal. Yet one senior Democratic legislator-as yet unidentified-wants the SCHIP bill to repeal that provision.
In a way, repeal makes a certain sense. If the ship is going down anyway, why spoil the fun?
Jul 16, 2007
Michael Moore's documentary "SiCKO" opened to wide release and much fanfare on June 29th. Generally lauded as "thought-provoking" and "affecting" by movie reviewers, Moore's new opus has gained attention for "asking the right questions." But the "right questions" is a subjective term, and is defined far differently by those familiar with the issues Moore is attacking.
The film is actually full of errors and omissions, but that is almost beside the point. Since the stated purpose of the film is to compare the worst features of American health care with the best features of health care in Britain, Canada, France and even Cuba, who can complain about a few errors here and there?
"SiCKO" isn't a movie about health care and how to fix it. It is a one-sided attempt to drive a very specific agenda - single-payer, government-run health care.
Moore recently told ABC's Good Morning America that in Britain and Canada people "have a basic core belief that if you get sick, you have a human right to see a doctor and not have to worry about paying for it." By contrast, according to Moore, "people are dying in this country as a result of the decisions that get made by [private] health insurance companies."
If you have never tried to see a doctor in Britain or Canada, you might even believe it. People who actually live there, however, know they have no right to any particular health care service. A Canadian, for example, has no "right" to an MRI scan or heart surgery. There is not even a right to a place in line. Far from enjoying a "right to health care," people in other countries often wait for needed care. For example:
- In Britain, about 1 million are waiting to be admitted to hospitals at any one time.
- In Canada, more than 876,000 are waiting for treatment of all types.
- In New Zealand, the number of people on waiting lists for surgery and other treatments is more than 90,000.
Patients who wait are often waiting in pain. Many are risking their lives. People have to wait for care because of a conscious decision by the government to limit health care resources. When Moore boldly asserts that Britons "wouldn't trade their NHS cards for his Blue Cross card," he could not be more wrong. In fact, people in other countries often have to pay out-of-pocket for care that has been denied them by the government.
Why then, is national health insurance in other countries as popular as Moore says it is? One reason is that people do not realize how much they pay for it in taxes. Even mediocre care looks good if you think it is free. A second reason is that doctors in other countries often don't tell their patients their care is being rationed. Instead, they say, "there's nothing more we can do." A third reason is that most people are healthy.
Relative to U.S. levels of provision, countries with national health insurance routinely underprovide to the seriously ill and overprovide to patients with minor ailments. Thus, the scene where patients in Canadian waiting room are asked how long they had to wait, and they all reply with times under an hour. Moore didn't bother to revisit these patients and ask how long they would have to wait to see a specialist. Seventeen and half weeks would definitely add to the average wait time.
In a typical U.S. private health care plan, 4 percent of the enrollees spend more than half the money. In a government-run, universal health care system, politicians cannot afford to spend half of the budget on 4 percent of the voters, many of whom are probably too sick to vote anyway. The temptation is always to take from the few who are sick and spend instead on the many.
So what are we to make of Moore and his "documentary?" Economists, like other scientists, study reality in order to adapt to it. Artists, by contrast, selectively focus on some facts and ignore others in order to recreate reality. For some, this subjective recreation doesn't cease just because the camera has stopped rolling.
Apr 05, 2007
Originally Published in: The Wall Street Journal
Our public-school system and our health-care system may seem as different as night and day. Yet both systems share something in common: Mediocrity is the rule and excellence, where it exists, is distributed randomly.
In both cases the reason is the same. There is no systematic reward for excellence and no penalty for mediocrity. As a result, excellence tends to be the result of the energy and enthusiasm of a few individuals, who usually receive no financial reward for their efforts.
Research by John Wennberg and his colleagues at Dartmouth Medical School suggest that if everyone in America went to the Mayo Clinic, our annual health-care bill would be 25% lower (more than $500 billion!), and the average quality of care would improve. If everyone got care at Intermountain Healthcare in Salt Lake City, our health-care costs would be lowered by one-third.
Of course, not everyone can get treatment at Mayo or Intermountain. But why are these examples of efficient, high-quality care not being replicated all across the country? The answer is that high-quality, low-cost care is not financially rewarding. Indeed, the opposite is true. Hospitals and doctors can make more money providing inefficient, mediocre care.
In a normal market, entrepreneurs in search of profit would solve this problem by repackaging and repricing their services in order to make customer-pleasing adjustments. Yet in health care, contracts and prices are imposed by large impersonal bureaucracies. The individual physician has virtually no opportunity to offer a different bundle of services for a different price. As a result, very little entrepreneurship is possible.
Sometime in the early 20th century, lawyers, accountants and most other professionals discovered that the telephone was a useful instrument for communicating with clients. Yet even today, consultations with doctors by telephone are quite rare. Sometime in the late 20th century most other professionals discovered email. Yet only 21% of patients exchange email with their physicians; of these, slightly more than 2% do so on a frequent basis.
One would be hard-pressed to find a lawyer in the U.S. today who does not keep client records electronically. Ditto for accountants, architects, engineers and virtually every other profession. Yet although the computer is ubiquitous and studies show that electronic medical record systems have the capacity to improve quality and greatly reduce medical errors, no more than one in five physicians or one in four hospitals have such systems.
Why has the practice of medicine (as opposed to the science of medicine) changed so little in the modern era? The reason is because of the way we pay for medical care, particularly the way we pay doctors. At last count, there were about 7,500 specific tasks Medicare pays for. Telephone consultations are not among them. Nor are email consultations or electronic record keeping. What is true of Medicare is also true of Blue Cross and most employer plans.
Things are made worse by the fact that patients do not usually pay for health care with money; they typically pay with their time instead. As in Canada and most other developed countries, health care in the U.S. is mainly rationed by waiting, not by price.
When the doctor's time is rationed by waiting, the primary care physician's practice is usually fully booked, unless the practice is new or located in a rural area. As a result, there is very little incentive to compete for patients the way other professionals compete for clients. Because time -- not money -- is the currency we use to pay for care, the physician does not benefit very much from patient-pleasing improvements and is not harmed very much by an increase in patient irritations. Bottom line: When doctors and hospitals do not compete on the basis of price, they do not compete at all.
Where third-party payment is the norm, markets tend to be bureaucratic and stifling. But in those health-care sectors where third-party payment is rare or nonexistent, the market is vibrant, entrepreneurial and competitive.
Take cosmetic and Lasik surgery, for example. In both markets, patients pay with their own money. They also have no trouble finding what is virtually impossible to find for other types of surgery -- a package price covering all aspects of the procedure. People can compare prices, and in some cases quality. Providers are competing on price and quality and competition pays off. Over the past decade and a half, the number of cosmetic procedures grew sixfold along with numerous technological innovations of the type that are blamed for rising costs everywhere else in health care. Yet despite tremendous growth and technological change, the real price of cosmetic surgery declined. Over the past decade the real price of Lasik surgery fell by 30%.
The market for prescription drugs is another area where a great many people are paying out of pocket. In response, Rx.com was the first online outlet that began competing based on price and quality (they make fewer mistakes than local pharmacies). Wal-Mart's new policy of offering a month's supply of generic drugs is yet another example. Can anybody imagine Wal-Mart offering the same deal to Blue Cross?
Perhaps the most spectacular instance of a health-care product developing outside the third-party payment system is the walk-in clinic. These can be found in shopping malls and drug stores in the upper Midwest and they are spreading like wildfire around the country. They post prices. There is very little waiting. They maintain records electronically. The quality of service is comparable to traditional primary care at half the cost.
I know what you're probably thinking. Markets may work for certain specialized services; but can they work for run-of-the-mill hospital surgery? Medical tourism is proving that the answer is yes. If you're willing to leave the country you too can have access to efficient, high-quality health care. In India, Thailand and elsewhere around the world, facilities are offering U.S. citizens virtually every kind of procedure for package prices, covering all the costs of treatment, and sometimes airfare and lodging as well. These prices are often one-fifth to one-third the cost in the U.S. and care is often delivered in high-quality facilities that have electronic medical records and meet American accreditation standards.
One part of our health-care system (the part where third parties are absent) is teeming and bristling with entrepreneurship and innovation. In the other part (where third parties pay the bills), entrepreneurship has been all but extinguished. How can we make the latter more like the former?
Public and private efforts to reform the health-care system have been actively underway for the past two decades. The results have been disappointing, to say the least, and they all have one thing in common: They focus on the demand side of the medical marketplace.
Managed care, practice guidelines, pay-for-performance -- each of these short-lived fads involves buyers of care telling the providers how to practice medicine. Does no one notice how strange this is? In normal markets, buyers do not instruct sellers on how to efficiently produce their products. Even the HMO movement is a demand-side reform in this context. The HMO doctor is just as trapped as the fee-for-service physician and just as unable to rebundle and reprice his services in innovative ways.
Some believe that health savings accounts (HSAs) will radically reform the health-care system. Yet this is also a reform that focuses on demand, not supply. Even with an HSA plan in hand as you approach the doctor's office, you should know that your insurer has already spelled out what services will be paid for, which ones will not and how much will be paid. HSAs, therefore, will not free doctors to take advantage of telephone, email, computerized records or any other truly innovative service. Like school vouchers, HSAs create new freedom on the buyer side without loosening the shackles on those who produce. The reform is commendable. But real innovation must come from the supply side of the market.
One would think that health insurers and employers would find it in their self interest to break the mold. To the extent that entrepreneurs raise quality and lower price, the insurance product itself should become more attractive to potential customers. The trouble is that the entire third-party payment system is completely dominated by government (principally through Medicare and Medicaid). Private insurers tend to pay the way the government pays and providers who break Medicare rules in order to better serve the patient risk being barred from the entire Medicare program.
A possible way out of this morass is to start with government. Under the current system, Medicare and Medicaid stifle entrepreneurial activity and financially punish efforts to lower costs or improve quality. Why can't these agencies reward improvements instead? Suppose an entrepreneur offered to replicate the Mayo Clinic in other parts of the country -- potentially saving Medicare 25% of costs and improving quality of care along the way. Medicare should be willing to pay, say, 12.5% more than its standard rates in order to achieve twice that amount in lower total costs. That would leave the entrepreneur with a 12.5% profit -- an amount that one would hope would encourage other entrepreneurs to enter the market with even better ideas.
Once government agencies jump-start the entrepreneurial process in this way, private insurers are likely to follow suit. In this way, government could promote entrepreneurship, instead of stifling it.
Mr. Goodman is president of the National Center for Policy Analysis.
Mar 26, 2007
Applying the "Do No Harm" Principle to Health Policy
For article: 20070326JCG.pdf
Author Posting. (c) Taylor & Francis, 2007.
This is the author's version of the work. It is posted here by permission of Taylor & Francis for personal use, not for redistribution.
The definitive version was published in Journal of Legal Medicine, Volume 28 Issue 1, January 2007.