The New York Times has a great little piece on what the Eskimos have done to dramatically improve health care while controlling costs.  There are no doubt some good lessons here we should consider when discussing how to improve our broken, expensive health care system.

¶Assigning small teams — consisting of a doctor, a nurse, and various medical, behavioral and administrative assistants — to be responsible for groups of 1,400 or so patients. The team members sit in the same small work area and communicate easily. When a patient calls, the nurse decides whether a face-to-face visit with a doctor or other health care provider is required or whether counseling by phone is sufficient. The doctors are left free to deal with only the most complicated cases. They have no private offices and the nurses have no nursing stations to which they can retreat.

¶Integrating a wide range of data to measure medical and financial performance. Southcentral’s “data mall” coughs up easily understood graphics showing how well doctors and the teams they lead are doing to improve health outcomes and cut costs compared with their colleagues, their past performance and national benchmarks, and it provides them with action lists of what they can do to improve and mentors to guide them. That almost always spurs the laggards. One doctor whose team ranked well behind 10 others in scheduling annual eye exams for diabetics jumped to first place within two months once she became aware of how poorly her team was performing.

¶Focusing on the needs and convenience of the patients rather than of the institution or the providers. The facilities feature rooms where providers and families can chat as equals on comfortable chairs, in sharp contrast to examination rooms where a doctor looms over a patient. Every patient visit is carefully planned so the patient can get in and out quickly without being delayed because, say, a needed lab test result is not available.

¶Building trust and long-term relationships between the patients and providers.

¶Changing from a reactive system in which a sick patient seeks medical care to a proactive system that reaches out to patients through special events, written and broadcast communications, and telephone calls to keep them healthy or at least out of the hospital and clinics.

Beezer here.  Of course these ideas come out of a culture that is different than that prevalent in the nation’s health care system.   Nationally, our system is based on a fee for service approach that encourages waste and drives up costs overall, while providing lousy actual health care.  But hey, it delivers beaucoup profits for all the players, and that’s what we’re all about.

There’s an old investment tautology that says “Don’t bet against the Fed.”  All this means is that if the Fed is making money plentiful and cheap the equity and commodity markets will rise.   

Bond markets, on the other hand, are less predictable and their values depend more upon the specific reasons that caused the Fed to ease.   Bond investors are primarily interested in cash flows greater than inflation and secure return of principal.  A normal business cycle recession means already issued bonds will rise in value because new bonds will offer lower coupons due to the overall drop  in interest rates created by Fed easing.   A deep, financial collapse recession like the one we’ve just experienced can hurt bonds for fear of widespread defaults.  In such a case the bond market, for a time, can become bifurcated with private bonds struggling and sovereign debt rising.  Only when the economy firmly enters recovery, and interest rates rise, can new issue bonds become attractive again.   

Easy money is the way the Fed tries to spur investment and thus jobs and incomes.  The key word here is ‘tries.’  In a financial recession this mechanism doesn’t work very well.  As a result easy money primarily devalues a currency.  Much of the equity and commodity price rises are nominal in nature, as opposed to real, reflecting the currency devaluation.  During the Great Depression of the 1930s, those countries first to step away from a strict gold standard were the first to recover because this allowed their currencies to ‘float’ and adjust their value downward–to devalue.

In a financial collapse recession the Fed faces two challenges at the same time.  On one hand it eases in an effort to invigorate a moribund private economy in recession.  On the other hand it tries to create inflation in an attempt to devalue existing debt and help debtors deleverage.   But deleveraging is a slow process which means the economic recovery will be slow too and creating jobs will be difficult.

Much of the private debt is in the form of mortgages this time around.  Not surprisingly, this means the private markets–particularly households–are having a terrible time repairing their personal balance sheets.  This property debt doesn’t change it’s number and no matter how much the Fed eases there’s little to no inflation being created in this particular debt market.  In fact this market is deflating, not inflating, which makes the existing debt even harder to pay down.  Couple that with incomes that are not inflating while commodities are (think gas and food prices) and you can see why the nation struggles to recover in any meaningful way for the majority.

This particular recession presents an additional, almost unique, problem that is only just beginning to be discussed:  Chronic trade deficits correlate with chronic loss of domestic job growth and a rise in income inequality.   Before and during the Great Depression foreign trade was a minuscule portion of America’s Gross Domestic Product (GDP).   But today’s globalized markets make foreign trade a much larger component of the nation’s output.  This larger trade volume has exacted a high, unexpected, cost on the composition of the nation’s labor force because high paying manufacturing jobs were outsourced to lower paying countries.  This has become the primary business model for almost all American based manufacturing companies.

From Apple to General Electric, these large multinational corporations have been directing capital investment and job creation overseas, particularly into populous Far East countries like China and India where billions of potential customers are rising out of poverty.   This very rational change in investment flows adds another impediment in front of the Fed’s efforts to spur domestic growth and create job and income growth.

All the Fed easing and all the tax cuts mounted on top of earlier tax cuts haven’t been able to put Humpty Dumpty back together again because the investment flows are being channeled overseas. 

This is the conundrum.  This is why it’s been so difficult to create jobs domestically, particularly jobs that historically have paid a living wage.

One traditional cure for this situation would be to impose tariffs designed to sterilize trade weaknesses in one or more industries.   This has already been tried successfully following the recent recession, but economist’s fear trade wars will ensue if tried too often and with today’s globalized economies such a war would worsen America’s current economic woes rather than improve them.   

Another traditional cure is to have the Federal government direct investment flows by creating large infrastructure projects and jobs.  Franklin Delano Roosevelt did this during the Great Depression, cutting unemployment in half as a result.  Many of the projects built then are  in productive use today.

But this type of effort has been hobbled by fears of adding too much debt to existing debts created by previous tax cuts, foreign war expenses, and an expansion of Medicare benefits without explicit funding of those benefits.    In addition, social safety net expenses rose while revenue declined because of the recession, aggravating the existing debt levels with short term deficits. 

What to do?  Here’s my list.

• Use targeted tariffs more often thus encouraging both domestic and foreign companies to invest in America.  This has already worked:  Import tariffs on steel pipes caused China to build a $1 billion pipe manufacturing plant in Texas.
• Reverse the 50 year decline in infrastructure spending by creating large infrastructure projects that funnel tax money into private corporations that will build the projects.   Much of the employment created will decrease current unemployment insurance expenses and will improve America’s economic competitiveness for decades to come.
• Expand use of domestic gas and oil supplies.  This will suppress global prices, or at least slow their rise, and will take a huge chunk out of the chronic trade deficits because a large portion of those deficits come from our purchases of foreign oil.   Increased royalty payments will increase government revenue.  In addition, subsidizing cleaner, more sustainable energy from solar, wind and geothermal use (not to mention conservation and efficiency efforts) will create jobs and technological innovation while further limiting our use of imported fuel.
• Previous tax cuts must be reversed.  These cuts did not produce new jobs but they did produce wide, structural deficits and a huge housing bubble the collapse of which sparked the Great Recession.   Reducing deficits and structural debt cannot be accomplished just by cutting government spending.  Such cuts at this time particularly are likely to slow recovery or even cause it’s reversal.  The best way to eliminate deficits and pay down debt is to grow the economy.  Prior to the 11 year splurge of tax cutting that began with the last Bush presidency, the economy enjoyed strong growth and produced a surplus.  Tax cuts obviously don’t pay for themselves.
• Allow the health care reform legislation to play out.  Medical cost increases are considered the largest threat to our long term fiscal health and returning to the status quo ante will increase costs not reduce them.  This industry must be reformed.  
• Stop subsidizing the corn/ethanol and oil industries.  The $8 billion annual corn subsidy is warping our food production, making it too narrowly focused and unhealthy, not to mention the stupidity of tying the price of food to the price of petroleum.  Oil simply doesn’t need a tax break.   These companies are among the most profitable in the world.
• Reduce America’s military presence wherever possible.  We can’t do much about the expenses created by baby boomer retirements, but we can save billions annually by better rationalizing our military spending.
• Reform immigration laws.  Some of the world’s best and brightest come to America for university education.  We should encourage them to stay and prosper in America not force them to leave as we do now.   Today there are more immigration requests by Americans to work overseas than there are requests by foreigners to work in America.  This has never happened before.

  Beezer here.  It’s a relatively short list and thus oversimplified.  And I didn’t dwell on the current sharp political divide, although this is the proximate cause of the country’s inability to agressively create jobs.  

Let’s see what needs doing.

• Create jobs.  Right now we’ve got about 16 million people willing to work fulltime but can’t find a job.  A good portion of these people, maybe 10 million, are receiving government unemployment checks.   So if we’re paying them anyway we might as well give them something productive to do.  Everyone knows we’ve got a $2.2 trillion backlog in various infrastructure projects.  We can can employ about 10 million people there, it is reasonably estimated.   Problem solved for the better part of the decade.
• Bring down deficits, reduce overall debt.  Creating jobs solves the short term deficits because employed people pay taxes and don’t require unemployment insurance.  If unemployment levels stay low, this creates more consistent demand which increases sales, which increases everyone’s income, including  government income.  Rationalize health care spending by implementing reforms already passed in the health care reform bill.  Maybe raise the Medicare tax up from the current 2.9% on payroll.  Raise the Social Security ‘cap’ to $180,000 from the current $106,000.    Go back to the Clinton era tax tables (see surplus).
• Diversify energy sources with a long term aim of erecting a sustainable, cleaner system.   Short term, extract more domestic petroleum and natural gas.  Use these relatively plentiful sources while subsidizing building to scale alternative sources such as wind, solar, geothermal, nuclear.  In the efficiency department, improve and build out train systems, most particularly urban subway systems.  Raise CAFE standards for autos and trucks too.  Get more with less is the basic theme.  And make it as clean as possible.
• Reduce ocean acidification.  Even if we are not responsible for climate change (most scientists think we are) no one argues about the really bad effect of the rise in ocean CO2 levels we’re experiencing.   This acidification is attacking the bottom of our ocean food chain, which covers  2/3 of our planet and supplies the major source of protein for a billion people.  High acid levels destroy coral and shellfish thus disrupting the existing food system in the ocean.   The most effective way of reducing CO2 in the atmosphere is to have more plants growing in more fertile soil.  Plants basically clean CO2 from the atmosphere.  Regenerative agriculture methods that enrich soil, such as greater use of natural compost, more advanced tilling techniques, and crop rotations that increase plant diversity and avoids leaving soil fallow, could vacuum as much as 30% of the atomosphere’s CO2.  Get rid of the $8 billion corn/ethanol subsidy which is effectively destroying soil and plant diversity in America, not to mention poisoning wide areas of the Gulf of Mexico while tying the price of oil to the price of food:  A front runner for the world’s stupidest legislation prize.
• Make our military/industrial complex more efficient.  Estimates are that we could trim $200 billion per year in the federal budget without compromising our military effectiveness.  Some argue we can’t afford to be the world’s policeman.  That’s a pipe dream because we have private assets spread around the world.  Everytime some region experiences political upset, America gets involved because American businesses have facilities there.  Being a global commercial power is expensive for many reasons, one of them being the cost of military strength to protect those commercial investments.   Efforts to build effective diplomatic alliances are far cheaper than war making.

Beezer here.  Feel welcome to add  to this list.

In an astonishing post the nation’s business and finance journal, the Wall Street Journal, recognizes our health care delivery system sucks.  What will they learn next?  Maybe that tax cuts do not pay for themselves.  One can only hope.

By Mark Whitehouse

141%: How much more the U.S. spends on health care, per person, than the average OECD nation

At a time when politicians in Washington are battling over — among other things — the future of the U.S. health-care system, it’s instructive to see just how well that system operates. According to the Organization for Economic Cooperation and Development, we’re doing a terrible job.

A new report finds that the U.S. spends far more on health care than any of the other 29 OECD nations, and gets less health for its money. Annual public and private health-care spending in the U.S. stands at $7,538 per person, 2.41 times the OECD average and 51% more than the second-biggest spender, Norway. Meanwhile, average U.S. life expectancy is 77.9 years, less than the OECD average of 79.4.

Improving the health-care system could go a long way toward fixing the U.S. government’s finances. The OECD estimates that if the U.S. reached the efficiency level of the best-performing countries, the government could save the equivalent of 2.7% of economic output every year. That’s enough to solve about a third of the country’s budget-deficit problem.

The hard part is figuring out how to make the system work better. Here, the report attempts to derive some guidance from the experience of the most successful countries.

Interestingly, the type of system doesn’t seem to matter much. Countries with state-run systems do about as well on average as countries with private systems. Among the things that do matter: Consumers need to have some skin in the game, through mechanisms such as co-payments; care needs to be well-coordinated among doctors’ offices, hospitals and nursing homes; providers of care need incentives to do a better job, such as pay for performance; and the price and quality of services should be better monitored and easier to see.

Many of those features are included in the health-care law the U.S. passed last year, though much has yet to be implemented. Improvements are undoubtedly possible. Whatever we decide to do, it’s time we did something.”

From Princeton economist Uwe E. Reinhardt, who is a specialist in the medical health care field.  It’s a reasoned, thoughtful explanation about how our basic system works and shows that, except for the VA system which is pure socialism, even a reformed system remains in the hands of private providers.

The Economics of Privately Sponsored Social Insurance

 Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

On March 23, Senator Ron Johnson, Republican of Wisconsin, marked the first anniversary of President Obama’s signing into law of the Affordable Care Act of 2010 by publishing a commentary in The Wall Street Journal, “ObamaCare and Carey’s Heart.”

He began with a touching celebration of the life-saving operation that had been performed some 27 years ago by highly skilled surgeons on the senator’s young daughter, who was born with a serious heart defect. He noted that this undoubtedly expensive operation had been financed by a “run-of-the-mill plan available to every employee of an Oshkosh, Wis., plastics plant.”

His commentary suggests that he views this “free market” approach to financing health care as the foundation of our health system’s remarkable innovations and achievements.

Senator Johnson’s commentary then veered into a sharp broadside aimed at the Affordable Care Act of 2010:

I don’t even want to think what might have happened if she had been born at a time and place where government defined the limits for most insurance policies and set precedents on what would be covered. Would the life-saving procedures that saved her have been deemed cost-effective by policy makers deciding where to spend increasingly scarce tax dollars?

Not surprisingly, this comment elicited much critical commentary, some of it needlessly vehement.

I do not wish to join that a vituperative chorus, because there is much I admire in the senator. He worked hard in his youth to put himself through the University of Minnesota and studied at night for a master’s of business administration, and he eventually risked his own money and used his vision and even harder work as an entrepreneur to please customers worldwide and, in the process, create a good livelihood for his family and for his employees. I look up to such entrepreneurs. We all should.

Even so, I am puzzled about why the senator does not see in the Affordable Care Act a sincere attempt to replicate his family’s fine health care experience for millions of low-income, uninsured Americans.

The idea is to help those with family incomes above 133 percent of the federal poverty level (currently about $30,000 for a family of four) procure — on an organized state- or federally run health-insurance exchange — community-rated, publicly subsidized, private health insurance of the sort that financed his daughter’s cure.

A government-run health insurance exchange is not such a novel idea, nor should it be controversial. The federal government’s Office of Personnel Management has for decades run such an exchange for every member of Congress and for federal employees, and very successfully, by all accounts.

To see why the Affordable Care Act is actually trying to mimic employment-based private health insurance, let me propose this definition: Employment-based group health insurance, American style, is publicly subsidized, privately sponsored, community-rated social insurance sold to American employees on formally organized health insurance exchanges.

Let me explain how I come to this definition.

First, economists are virtually unanimous that the bulk of the cost of fringe benefits –- including health insurance –- that is ostensibly covered by an employer is actually taken out of the paychecks of employees collectively, if not year by year then in the long run. Exactly what fraction of the cost is shifted back to employees in this way depends on a number of factors.

As I jokingly put it to my students, employee-benefit managers, basically kindly social workers camouflaged in business attire, are similar to pickpockets who take money out of your paychecks and then use it to buy you health insurance, for which you thank them profusely.

In other words, the employees actually pay most or the full premiums for their employment-based health insurance, even if they do not make an overt contribution toward the insurance premium.

Second, to assist employees in making this purchase, the benefit managers organize a formal health-insurance exchange that lists a side-by-side comparison of the different insurers among which employees can choose.

While there are some variations in the benefit packages offered by the various insurance companies on the list, the packages are typically dictated by the employee-benefit department, which also selects the health insurance plans permitted to list themselves on the exchange (and those that are not) and tightly regulates these companies’ behavior during and after the enrollment period.

Of course, smaller companies usually list fewer and sometimes only one or two insurers on their exchanges. Part of the intent of the Affordable Care Act is to offer these small employers access to the larger state-run exchanges, so their employees have more choices among insurers.

Third, the contributions employees make directly toward the premium for health insurance (through explicit deduction from their paychecks), plus their indirect contribution through reductions in take-home pay, are effectively community rated. This means healthier employees are forced to subsidize through their premiums the health care of sicker employees by effectively paying the same premiums.

Consider two workers performing the same work in a company, one healthy and the other chronically sick. They will make the same direct contribution to the identical insurance policy and receive the same take-home pay.

In other words, the idea that raised so many hackles last year — that younger, healthier Americans should, through community-rated health-insurance premiums, subsidize sicker Americans — has long been accepted by the bulk of Americans at their place of work.

In this sense, then, private employment-based group insurance qualifies for the label of “social insurance,” even though it is privately sponsored. It is, of course, not socialized medicine, but neither are the Medicare, Medicaid and Tricare programs, government-sponsored social insurance programs that procure health care from the private sector.

Only the program that Americans reserve for military veterans, and apparently preferred by them — the vast Veterans Administration Health System — is pure socialized medicine.

Finally, Americans who procure health insurance at their place of work receive generous public subsidies toward that purchase, and higher-income earners receive larger subsidies than lower-income earners. This is so because the contributions employers make toward the group health-insurance premiums of their employees are tax-deductible business expenses, but not taxable compensation to the employee — even though it is a form of compensation.

Estimates of the total dollar amount of that subsidy range between $200 billion and $300 billion a year, depending on what taxes are included in the analysis – only federal income taxes, or also payroll taxes, or also state income taxes, if any. Estimates consistently show that high-income earners receive the bulk of that public subsidy.

The current amount of that subsidy is estimated at around $200 billion a year, although some estimates go higher, depending on what taxes are included in the analysis –- only federal income taxes, or also payroll taxes, or also state income taxes, if any.

Estimates consistently show that high-income earners in high marginal tax brackets receive the bulk of that public subsidy.

Having said all this, I ask you to imagine a low-income family whose head or heads of household work at very low wages in small companies that do not offer their employees health insurance, which is the case at many small companies. Suppose their little daughter was born with exactly the same condition as was Senator Johnson’s daughter. What should the fate of that little girl be?

Perhaps the senator could provide some commentary on that, as well.”

Beezer here.   The challenge posed is that with the large baby boomer generation passing into retirement, health care spending will necessarily rise.   Fiscal health requires that rise be kept in line with wage income growth.  If it isn’t then it swallows up government spending.  The challenge can be met, but not if parties to the debate refuse to consider reform. 

A true story as printed in the New York Times.

Redwood City, Calif. 

THIS isn’t the story of a poor family with a mother who has a dreadful disease that bankrupts them, or with a child who has to go without vital medicines. Unlike many others, my family can afford medical care, with or without insurance.Instead, this is a story about how broken the market for health insurance is, even for those who are healthy and who are willing and able to pay for it.

Most employees assume that if they lose their job and the health coverage that comes along with it, they’ll be able to purchase insurance somewhere. The members of Congress who want to repeal the provision of last year’s health insurance law that makes it easier for individuals to buy coverage must assume that uninsured people do not want to buy it, or are just too cheap or too poor to do so.

The truth is that individual health insurance is not easy to get.

I found this out the hard way. Six years ago, my company was acquired. Since my husband had retired a few years earlier, we found ourselves without an employer and thus without health insurance.

My husband, teenage daughter and I were all active and healthy, and I naïvely thought getting health insurance would be simple.

Why did we even need insurance? First, we wanted to know that, if we had a medical catastrophe, we would not exhaust our savings. Second, uninsured patients are billed more than the rates that insurers negotiate with doctors and hospitals, and we wanted to pay those lower rates. The difference is significant: my recent M.R.I. cost $1,300 at the “retail” rate, while the rate negotiated by the insurance company was $700.

An insurance broker helped me sort through the options. I settled on a high-deductible plan, and filled out the long application. I diligently listed the various minor complaints for which we had been seen over the years, knowing that these might turn up later and be a basis for revoking coverage if they were not disclosed.

Then the first letter arrived — denied. It never occurred to me that we would be denied! Yes, we had listed a bunch of minor ailments, but nothing serious. No cancer, no chronic diseases like asthma or diabetes, no hospital stays.

Why were we denied? What were these pre-existing conditions that put us into high-risk categories? For me, it was a corn on my toe for which my podiatrist had recommended an in-office procedure. My daughter was denied because she takes regular medication for a common teenage issue. My husband was denied because his ophthalmologist had identified a slow-growing cataract. Basically, if there is any possible procedure in your future, insurers will deny you.

The broker then proposed that the three of us make individual applications. Perhaps one or two of us might be accepted, rather than the family as a group.

As I filled out more applications, I discovered a critical error in my strategy. The first question was “Have you ever been denied health insurance”? Now my answer was yes, giving the new companies reason to be wary of my application. I learned too late that the best tactic is to apply simultaneously to as many companies as possible, so that you don’t have to admit to a denial.

I completed four applications for each of the three of us, using reams of paper. I learned to read the questions carefully. I mulled over the difference between a “condition” and “something for which you have sought treatment.” I was precise and succinct. I felt as if I was doing a deposition: Give the minimum true information, and not a word more. I was accepted by exactly one insurance company. So was my daughter, although at a 50 percent premium over the standard charge for a girl her age. My husband was also accepted by one insurer but was denied by the company that approved me.

Our premiums, which were reasonable at first, have increased substantially over the last six years; the average annual increase has been 20 percent. I now am paying premiums that are more than double what they were initially. And because these are high-deductible policies, we still are paying most of the medical bills ourselves.

The new health care reform legislation is not perfect. Nothing that complex could be. But I have no doubt that the system is broken and reform is absolutely essential. If we are not going to have universal coverage but are going to rely on employer plans, then we must offer individuals, self-employed people and small businesses a place to purchase insurance at a reasonable price.

If members of Congress feel so strongly about undoing this important legislation, perhaps we should stop providing them with health insurance. Let’s credit their pay for the amount that has been paid by the taxpayers, and let them try to buy health insurance in the individual market. My bet is that they all would be denied. Health insurance reform might suddenly not seem to them like such a bad idea. ”

Donna Dubinsky, a co-founder of Palm Computer and Handspring, is the chief executive of a computer software company.

Beezer here.  Yeah, it’s definitely the freeloaders, the drug dealers, the shiftless lazy people responsible for crashing our existing health care system.  What nonsense.  The truth is the existing health care industry owns too many Congresspeople.  These people don’t give a rat’s behind about the nation’s overall health care.  They care only about the profits extracted by the current winners.  That’s who pays them and that’s who they work for.