Governor Palin vs. Certificate of Need (CON) Laws

 Gov. Sarah Palin

It shouldn’t be surprising that Alaska Governor Sarah Palin, Senator John McCain’s pick to be his running mate, has built her reputation more on natural resource issues than health care. She’s from Alaska, after all.

But Gov. Palin hasn’t been completely silent on health policy either. In February, she wrote an interesting opinion piece for the Anchorage Daily News in which she advocated repeal of the state’s Certificate of Need (CON) law.

CON laws were put in place in the 1970s in a desperate attempt to control rapidly rising health care costs. Medicare and Medicaid were passed in 1965, unleashing much new demand for health services, which, in turn, prompted a building boom of hospitals and nursing homes.

In response, the federal government and the states tried to slow down the rapid increases in use of inpatient services by imposing CON requirements, which essentially forced would-be hospital owners and administrators to prove the need for any new inpatient beds.

The problem, of course, was that these laws put politics in the middle of service supply decisions. CON laws were used and manipulated by incumbents to limit competition and protect their market share.

CON advocates point to studies here and there showing modest cost savings, but it is nearly impossible to determine for sure what would have happened in some markets without such laws.

But the overall picture is quite clear: costs have been rising rapidly for three decades, and CON laws did nothing really to alter that picture. It is telling that no serious analyst believes aggressive CON enforcement would do much to solve our cost problem today.

There are really only two choices when it comes to health care cost escalation: governmentally-enforced budgets, which use price controls to limit the supply of services (and therefore ration care) or a more effective marketplace, in which consumers are able to use their purchasing power to reward efficiency and patient-centered care.

In this crucial debate over costs, Gov. Palin has shown the right instincts. Repealing CON laws will not solve the whole problem, but repeal is a necessary step in fostering more effective competition among suppliers of services. Price and quality transparency, and strong financial incentives for cost-conscious consumption, are also crucial.

posted by James C. Capretta | 4:07 pm
File As: Health Care

Still More on Those Census Numbers

The National Institute for Health Care Management has issued two readable and extremely useful papers on the uninsured.

The first NIHCM paper, released in August 2006, is a primer on the alternative ways the uninsured are measured.

Most newspapers stories on the uninsured cite the measure put out by the Census Bureau every August, which is based on sample data collected as part of the Current Population Survey (CPS).

But, as the NIHCM primer notes, there are two important problems with this data.

First, the sample is collected every March, and respondents are asked essentially whether or not they were uninsured during the prior year. The question is supposed to elicit a “yes” only when someone went without coverage for the entire calendar year in question. But many people apparently answer “yes” based on an imperfect understanding of the question. Hence, many people who are uninsured at the time they are asked the question seem to answer yes, as well as those who were uninsured during a portion of the calendar year.

Other surveys, like the Survey of Income and Program Participation (SIPP), follow the same people for a number of years and collect data from them more frequently. This sampling approach allows better “point in time” versus “all year” determinations. And it is noteworthy that, based on SIPP data, the number of Americans uninsured all year in 2002 was only 23 million (compared to about 42 million using CPS data). The SIPP survey also found that about 43 million Americans were uninsured at any given point in time during 2002—fairly close to the CPS estimate of the full-year uninsured count.

The second NIHCM paper, issued in April of this year, looks at different subpopulations of the uninsured and the appropriate policy remedies to expand coverage to them. The paper sorts the uninsured into those eligible for public program coverage (about 12 million) and those who are not. Of those not eligible, the paper further estimates that about 40 percent live in households with incomes exceeding 400 percent of poverty.

The paper also notes that large numbers of the uninsured are in “transition” age groups: children leaving their parents’ coverage but not settled in stable job-based plans, and the near elderly who have left the workplace but are not yet eligible for Medicare. Public policy may need to target coverage options to the specific needs of these age groups.

The primer of CPS, SIPP, and other uninsured data is available here. The paper on uninsured subpopulations and possible policy responses is available here.

posted by James C. Capretta | 9:49 am
File As: Health Care

The Value of the Tax Subsidy

The Joint Committee on Taxation (JCT), Congress’ scorekeeping agency for tax legislation, issued a useful summary of the current law tax treatment of health insurance last month. JCT produced the summary in anticipation of a hearing called by the Senate Finance Committee on July 31st.

JCT estimates that the exclusion of employer-paid health insurance premiums reduced federal revenue by $246 billion in calendar year 2007. The revenue value of the exclusion from income taxes totaled $145 billion; the value in terms of payroll taxes not paid was $101 billion.

Among the more useful pieces of information in the summary was a distribution table showing the value of the tax exclusion across income categories, as shown in the chart. The data provided in the table confirms what many analysts have stated over the years, which is that today’s tax treatment of job-based health insurance is worth more to upper income taxpayers than lower income taxpayers. One of the reasons, of course, is upper income households pay higher marginal tax rates, so excluding premiums paid by their employers from their taxable income is worth more than it would be for a person paying a lesser rate of tax.

Average Savings Per Tax Return (2007)

The full JCT report is available here.

posted by James C. Capretta | 4:45 pm
File As: Health Care

Those Census Numbers, contd.

Devon Herrick of the National Center for Policy Analysis has written an interesting policy brief on the uninsured data, available here.

One of the points he makes is that the percentage of the population lacking coverage has actually fallen compared to a decade ago, which would probably surprise most Americans, given the way the media covers the issue.

As shown in the chart below, the total U.S. population increased by 30 million from 1997 to 2007. During that time, 26.7 million were added to the ranks of the insured, and 3.3 million to the uninsured. That translates into a drop in the uninsured rate from 15.7% to 15.3%.

Income, Poverty, and Health Insurance Coverage in the United States: 2007

The primary problem in health care is rapidly rising costs, which is putting financial pressure on low wage earners who struggle to pay premiums for coverage at work or elsewhere. Reform needs to focus on slowing cost escalation for everyone and making portable, affordable insurance available to low wage workers who switch jobs frequently. What’s not needed is a plan to move tens of millions of American with insurance out of what they have today in the name of universality.

posted by James C. Capretta | 3:28 pm
File As: Health Care

Those Census Numbers

2007 Census ReportOn Tuesday, the Census Bureau released new data on incomes, poverty status, and health insurance coverage rates for 2007.

As has been widely reported (see here and here), the most noteworthy change was a surprising drop in the number of uninsured Americans, from 47 million in 2006 to 45.7 million in 2007.

Of course, many analysts have correctly noted that these numbers were collected just prior to the housing sector meltdown last fall. Since then, the economy has cooled, and unemployment has risen. It is likely that 2008 will show a large uptick in the uninsured rate.

Even so, the drop in 2007 is worth pondering. What seems to be at work is the accumulation of a large number of states using the resources available to them to expand coverage for children through public insurance and to pursue broader reform strategies for the general population, such as in Massachusetts.

Less noticed but always startling are some of the subtotals beneath the headline uninsured number. For instance, according to the census data, about 23% of the population are between the ages of 18 and 34, but 40% of the uninsured are in that age range.

Why? The answer is straightforward. These are people just entering the workforce, so their wages are low, but their premiums are high in the sense that their expected health costs are often far below the cost of community-rated premiums for expansive insurance coverage. Consequently, they often take the risk of going without insurance in order to save on premium costs.

Addressing this problem is very different from trying to secure coverage for a person afflicted with an expensive chronic illness, but our public policy debates rarely make the distinction.

posted by James C. Capretta | 11:22 am
File As: Health Care

The Uber-Regulator

Former South Dakota Senator Tom Daschle is scheduled to speak today at the Democratic National Convention in Denver, no doubt in recognition of his early and vocal support for the presidential candidacy of Illinois Senator Barack Obama.

In recent months, Daschle has let it be known that he is interested in more than just helping the campaign:  he may want to lead the health care effort in an Obama administration.

That being the case, it’s worth asking: What is Daschle’s health care vision?

He is known in health care circles for his longtime support for establishing a new regulatory structure for health care, modeled on the Federal Reserve Board for banking. Daschle thinks such a board would be ideal in health care because it would be insulated from political pressure, thus protecting health decisions from political micro-management.  

But what is not reassuring is that such a board would have enormous power and little accountability. Political insulation means the board could decide that all insurance offered in the country will no longer cover a certain service or product, and the public would have little recourse to reverse the decision. That seems to be the worst of all worlds in terms of government-run health care.

All of this and more is covered in a piece posted today at National Review Online, available here.

posted by James C. Capretta | 4:25 pm
File As: Health Care

Realistic Options for the Uninsured

Health care in the United States has many flaws.  Insurance coverage is too unstable, and the quality of care provided is all too often of low quality and insensitive to the needs of the patient. 

But that does not mean we need to start from scratch.  Most Americans, especially those working for larger employers, still have good insurance protection which provides them with ready access to some of the finest medical institutions in the world.

In a rush to solve every problem with more centralized government control, we could make matters much worse.

Gary Andres and I published a piece recently in the Washington Times in which we argue legislating should be like practicing medicine, with the first rule being “do no harm.”

In the piece, we offer up one idea for covering more of the uninsured without reinventing the wheel.  A sizeable portion of the uninsured population is composed of workers and their families experiencing a temporary break in coverage based on job switching.  What’s needed for these workers and their families is not a massive new government entitlement but sensible and reliable bridge insurance to cover breaks in coverage that naturally occur in a flexible labor market.  The full article is available here. 

posted by James C. Capretta | 9:08 am
File As: Health Care

Who Are the Uninsured?

Too often, discussions of health care reform center on vague assumptions about who the uninsured are, which leads to distorted policy solutions.

Many people counted among the uninsured ranks are recent immigrants, as documented in this Employee Benefits Research Institute study.

Also, a large percentage of the uninsured are young adults, ages 19 to 30, who are often in good health and would gain far less in health benefits than they would pay in premiums (see this study from the Commonwealth Fund for the numbers -- but not necessarily the remedy!). Others are low-income people who are eligible for Medicaid and SCHIP but who don’t sign up for these programs. And then there are those who can afford coverage but choose to self-insure.

This is not to suggest that there aren’t many uninsured families who want, and need, insurance but go without because they are not eligible to enroll in anything affordable. These families often work for smaller businesses that either don’t offer coverage or offer plans with premiums that are too expensive for low wage workers.

The health care reform debate frequently occurs without regard to these elementary facts. That kind of factual vacuum can lead to flawed policy.

posted by James C. Capretta | 10:25 am
File As: Health Care

Making the Case

In June, the President’s Council on Bioethics held a meeting in Chicago to explore questions related to reform of American health care provision. I was asked to present the case for a tax-based reform approach, which I took to mean a reform plan built on consumer choice and market competition.

It was a lively discussion which went beyond the usual policy-intensive focus of most discussion of health care reform. The full transcript is available here, and the slides I used for my presentation are available here.

posted by James C. Capretta | 11:44 am
File As: Health Care

Something to Write Home About

“Medical Homes” and Reforming How Health Care Is Delivered

Last week, the New York Times had a piece on the latest policy fad in health care: the “medical home” -- “a base where doctors, staff and patients pull together as one big health-care family. Or at least that is the ideal.”

It may not be a bad idea. The article reports on an effort in Philadelphia to pay primary care doctors to oversee, in a comprehensive fashion, the health needs of their patients. It is now widely understood that today’s dominant fee-for-service insurance, especially in the Medicare context, shortchanges the time that doctors spend making sure their patients are following appropriate prevention strategies. The fee-for-service system rewards volume, not time. Consequently, there is an emphasis on diagnostic testing and procedures, not the labor-intensive task of ensuring patients stay on course with a treatment plan.

The idea of the medical home is that the solution is to pay doctors more for the time and effort needed to provide appropriate oversight of the health needs of their patients. And with more quality time from primary care physicians, there is a hope that complications from chronic illnesses will decline -- as will the demand for tests and procedures. Medicare is set to begin testing the medical home concept in coming years, too.

The medical home may very well produce some positive results. But it is far from clear that the pressure for more testing and procedures will decline. Medical homes would indeed reward more primary care, but they would not necessarily alter the strong incentive for volume. Specialists and hospitals would still gain if they were able to provide more services to more patients.

A more promising approach to reforming how health care is delivered would get at the underlying financial incentives faced by doctors and hospitals by allowing them to reap the gains from more efficient arrangements.

For instance, in Medicare, beneficiaries could be given a choice of delivery systems for their health care. Each delivery system would have to include physicians, hospital care, and other services, and the presumption would be that the beneficiary would get all of their care through their chosen network. Payments would be reformed so that a large portion of the Medicare entitlement would be managed by the network on behalf of the beneficiary. The idea would be to give physicians and hospitals the incentive to reorganize themselves to be more efficient. If more beneficiaries selected such a network based on their attention to prevention and wellness, they would gain from associated drop in use of other services.

It is certainly worth testing the medical home idea. But it is unlikely to solve the underlying problem. For that, a more sweeping and difficult reform is needed, one in which consumer choice is harnessed to incent sweeping, provider-led delivery reform.

posted by James C. Capretta | 4:23 pm
File As: Health Care

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