Best of All Worlds? The Healthcare Affordability Model [Updated & Bumped]

[Welcome Industry Radar readers!]

Bob Laszewski is one of the brightest health wonks I know, and a frequent read for me. Joe Paduda, another bright health care policy guy, sent us (and several other health care policy bloggers) a link to Bob's newest effort, called the Health Care Affordability Model.

Bob's proposal is, if nothing else, exceedingly long, and unnecessarily repetitive. It pains me to be so critical, because he's generally a very profound guy, but I fear that a lot of potential readers will be turned off simply by the length of the post (which clocks in at just under 7,000 words). Very frankly, I was disappointed in the effort, and have chosen to address a few of its problems. Readers wishing for an extended analysis may drop me an email, and I'll happily comply.

Bob starts out by positing that, under his plan, providers and insurers who fail to toe the line would lose tax advantages. He specifically states that premiums "for a non-qualified health plan would no longer be tax deductible for individuals or plan sponsors who used these unqualified plans."

Is he so out of touch with the current system that he doesn't know that premiums for individual plans are not generally deductible now?

He then posits that providers "who were not in a tax qualified health care network would lose patients to networks that did control costs." I'm not convinced that this follows: quality of care may be more important than cost.

He next claims that "insurers and providers would be required to first begin to stabilize and then control their costs." A noble goal, to be sure, but he never really lays out specific ways for that to be accomplished.

Bob then moves on to a Nine Point strategy to implement his recommended policy; as noted, I'll address only a key few:

■1. "(L)ive healthier lifestyles and more often practice good prevention." Well, that's certainly preaching to the choir as far as IB and its readers are concerned. But how do we encourage and/or enforce this? Maybe no tax deductions for fatties or smokers? Rotsa ruck with that.

■2. "We Have to Work Together." No kidding. But, and I realize that I'm beginning to sound like a broken record, what policy needs to be changed/implemented for this to occur?

■4. "Payers and providers generally know...where waste is." Really? How does he know this? And what's "waste" versus "defensive medicine?" If that's what he means, then let's see tort reform on the table.

■5. "During the last decade quality has slipped and health care costs have doubled." I reject that. First, care has improved and second, I suspect cost has more than doubled.

■7. "Patient-centered solutions cannot occur in a system driven by central planning." No argument, but no real progress, either. Lots of pretty words, and yes we're very bright people. But there needs to be incentives and/or "consequences."

■8. He calls for stakeholders to meet "face to face." And that's why there are so many insurance AGENTS being asked to the table? We have a unique and valuable perspective to offer: we know what works, and doesn't work, from all three sides (consumer, provider and insurer). Why isn't our input being actively solicited?

Keep in mind that saying "health insurers have been consulted" is meaningless in this context: their interests and perspective do not often coincide with agents'.

Once he's outlined his starting assumptions, Bob makes a rather startling new one: that we can "begin to slow, and then moderate, and even reduce the climb in America’s health care costs."

Okay, but HOW? I don't see concrete suggestions here. There's reference to tax consequences, but I don't see them delineated. Did I miss something?

He says his plan "would not impose government controls over insurance or provider prices." But, as we'll see in a moment, that's (at best) disingenuous.

He goes on:

In fact, insurers and providers have had compelling reasons not to make the health care system cost effective—providers and insurers get paid more not to."

Bull----. First, there's the substantial cost-shifting as a result of government programs (I'm looking at YOU, Medicare). Second, technology ain't free. I think he really misses the mark on this one.

"Simply lopping off the fees either providers or insurers receive (as the Public Plan Option would do) would do little to create a sustainable system over the long-term."

Agreed; in fact, this is the first - maybe the only - thing he's said that makes sense in terms of "the big picture."

He completely misses the mark, though, with his diatribe against profitability of insurers and providers. For one thing, he seems not to understand the difference between "profit" and "profit margin" (the latter is significantly smaller than he seems to believe).

And he seems not to have been reading the WSJ for the past, oh, nine years or so:

"Between 2001 and 2008, private health insurance costs increased between 6% and 14% each year—multiples of inflation and growth in the overall economy—while health insurers, drug companies, and device companies booked record profits, and most hospitals and doctors did well."

Correlation is not causation. He's overlooking a major (likely THE major) contributor to those profits: Wall Street. Look at where the "story" ends: 2008. Ring any bells?

"Under the Affordability Model there would be less money available than what would have been in the relatively unfettered system with costs exploding as they are today."

Really? Why is that? I see the conclusion, but I don't see the facts to back it up.

Unfortunately, he takes a seriously wrong turn here, advocating that "a new system of insurance exchanges would be created for the individual and small group health insurance market."

Right, because it's worked so well in Massachusetts (for example).

And he continues down the wrong path:

"Health insurers would be required to offer at least the standard option benefit plan in each state in which they operate through the insurance exchange. Through competitive bidding each plan would establish its baseline costs in the first year."

So he knocks Medicare, but then basically buys into the MC Supplement model. I'm not claiming that that model's "fatally flawed," but look at where we are today (MC Advantage Plans or Part D, anyone?).

Bob then proposes that "(s)elf-insured plans would be required to provide an actuarial certification attesting to the relationship its overall plan costs had compared to what they would have been had the plan offered the standard plan option to all employees (including age and severity adjustments). In the first year, that cost would become the baseline for future year costs."

Uh-hunh. And guess what those first year numbers are going to look like. Color me cynical, but methinks there will be some major benefits and cost-shifting juggling going on. And I'm still waiting to hear how we cap medical inflation.

Here's a doozy:

"An employer who chose to terminate their health plans in favor of their employees purchasing benefits through the insurance exchange would be required to “cash-out” their benefits"

DING DING DING! This is one of the most insidious parts of the Public Plan, and he wants to adopt it? Sheesh.

"Legislation would set national health care affordability goals expressed as a percentage of growth in the nation’s GDP—as defined and measured by the Department of Commerce."

Oh great: because they've been so accurate on all the other metrics? Tell me about the Spendulus and unemployment rates.

He believes that his model would "reduce national health care expenditures as a percentage of GDP."

There's an assumption here that I'm not sure I buy into. What's the "appropriate" ratio of health care costs to GDP? Isn't that pretty much an arbitrary number? Yes, 17% (or whatever) SOUNDS like a lot. But is it? I'm not saying it's not, but I'm not sold that it is.

"A Health Care Actuarial Certification Board would administer the goals."

DING DING DING again! Yes, the gummint will be in charge of setting health care costs, reimbursement and inflation. Lovely.

So we get a Health Czar, too.

Frankly, I'm done. That killed any cred this plan MAY have had. Once you've ceded the cost and valuation functions to the gummint, you can call it anything you like, but it is de facto government-run health care. Period.

Mike is more succinct (no surprise there):

"The biggest obstacle for me, in deciding whether to try to read a 7,000 word paper from one of the policy wonks, is that Bob seems to be deep into solution mode at a time when you can barely find 10 people at once who agree what the problem is.

It would be easy to determine if we're going at this the wrong way, in two easy steps:

1. Ask Bob if he can succinctly (less than 7,000 words) define the problem(s) that he thinks must be solved, and then

2. Ask a broad sample of people if they agree with his definition.

My bet - this proposal will stir up conversation and argument, but not much more."

And I suspect that this post will generate some interesting comments; we ask that the level of discourse be polite and respectful.

Have at it.

UPDATE: Joe sent along this link to an abridged version of Bob's Affordability post. I'm pleased to see a tightened-up version, but there's not enough substantive difference to justify a major revision to this post.

There are, however, two items in this abbreviated version which I'll address:

1) Reference to the newer Wyden bill (about which I intend to blog shortly), which seems to be a winner, and

2) Continued reference to the mystical (likely mythical) "30% waste" figure. First, the only place I've ever seen this number applied is to Medicare, and I don't see Bob discussing major changes to that soon-to-be-bankrupt system. Second, I'm skeptical that this alleged 30% can be cut, for the simple reason that no one has ever budgeted 30% waste in the first place.