The Alan Katz Health Care Reform Blog

Health Care Reform From One Person's Perspective

Failing to Address Health Care Costs Just Puts Off the Big Accounting

Posted by Alan on October 28, 2007

Bill Robinson, a health insurance agent in the Palm Springs area, sent me an interesting article last week. The article reiterates a key, but too often overlooked, truth about health care reform. Until lawmakers tackle the rising cost of health care, all the debate over health care coverage will eventually amount to little.

Take even the most extreme reform: a single payer system. Supporters claim that eliminating health insurance companies, agents and the rest of the private health care sector will provide enough money to support a government-run system providing everyone with virtually unlimited health care. They’re wrong, but for now, let’s give them the benefit of the doubt. What is likely to happen in, say, 10 years? Consider that cost of $1,000 worth of medical care in January 1997 cost over $1,470 in December 2006 according to Tom’s Inflation Calculator and it’s clear even single-payer advocates are going to have to come up with a boffo second act. A one time saving just doesn’t cut it.

Which brings us to the article Bill sent from Financial Week, “Cost of health-care system bugs employers”. The article points out the motivation for business executives to be fully engaged with health care reform. Of the $1.9 trillion in total health care spending in 2005, $694 million was spent on private health insurance premiums. Employers paid for $462 million of this, fully two-thirds. It’s a bottom-line issue for employers of substantial proportions.

Which is why folks like Andrew Mekelburg, Verizon Communications’ vice president of federal government relations complains that the presidential candidates are focusing on health care coverage, not health care costs. “Until you fix the system we’re all going to pay more,” complains Mr. Mekelburg. He notes that the health care system lags other areas of the economy in leveraging technology to increase efficiency and improve results.

Many of those interviewed in the article agree that achieving universal coverage is important. But as Helen Daring, president of the National Business Group on Health, puts it, “It’s ironic: the main reason people do not have coverage is because they can’t afford it….Politicians say, ‘we’ll get the coverage in first, and we’ll worry about the costs later,’ but you’ll never be able to do the cost part later.”

And that’s the crux of the matter. The reforms being debated in Sacramento and elsewhere are important. Some are necessary. Yet most miss the point that it’s constraining the cost of the underlying care that drives everything. Worse, some of the solutions being put forward could make things worse. Consider the pay-or-play approach of Assembly Bill 8, the approach favored by the Legislative Leadership. Ted Nussbaum, a consultant on health care coverage to large companies, offers this warning. “They have to prescribe the amount we spend. ‘You spend X% of your payroll on health care.’ … And when you set the amount it takes out the incentives for employers to come up with more cost-effective care. … [A mandate] leaves no room for innovation and flexibility and creativity.”

This is common sense. If the government creates the floor for spending on a specific item, why would anyone fight to make the cost of the item less expensive?

The debate today turns on who gets coverage and who pays for it. This debate needs to expand to include a discussion on how much we all pay. Until that happens no reforms, not even the most radical, are going to do more than put off the big accounting that is coming. And the longer we wait, the tougher corralling cost will be.


3 Responses to “Failing to Address Health Care Costs Just Puts Off the Big Accounting”

  1. Ken Terry said

    As Bill Robinson, Helen Darling and many others have pointed out, we must deal with the cost of care, or any effort to provide universal coverage will be futile in the long run. Single-payer proposals, unlike mainstream universal coverage ideas, do address the spending issue by imposing some kind of a national or regional budget. But that top-down approach—which is also favored by the National Coalition on Health Care in the form of price controls—won’t work, either. As we’ve seen time and again in the political battles over the annual Medicare budget, provider interest groups insist on getting the increases they feel are due to them. If they don’t get them, they threaten not to treat Medicare patients. And the majority of physicians already turn away Medicaid patients because of the low fees they receive from state Medicaid programs.

    To get the cost monster under control, we need deep, structural reform of our health care financing and delivery system. When people hear this, their first reaction is that it’s impossible. Nothing as huge and complicated as the U.S. health care system could ever be completely restructured, they say. For one thing, how would politicians be able to withstand the assault of powerful interest groups, including providers, insurers, and pharmaceutical companies? I don’t deny that this is a problem, but I firmly believe that if enough people lose coverage or find out that their insurance isn’t sufficient to guarantee them access to care, we’re going to have major systemic reform in this country. And that isn’t going to happen 20 years from now, but more likely within five to 10 years.

    The key to overhauling the system, as I explain in my book Rx For Health Care Reform (, is to make two changes: First, all primary-care physicians must join groups that are large enough to take financial responsibility for professional services. And second, competition among these physician groups, based on quality and cost, should replace competition among insurance companies. In my modified single payer system, there would be only one government-regulated health insurer per region, and it would have nothing to do with negotiating prices or managing care. Instead, the physician groups would determine how much they needed to provide good care to everyone who signed up with them.

    In this model, individuals and companies would pay health care contributions (similar to insurance premiums) in proportion to their income or the size of their payroll. Consumers would use group quality and cost data to choose a primary-care doctor who would coordinate all of their care. If they picked a doctor in a higher-cost group, they’d pay a higher health care contribution.

    If we designed a system around these principles, we’d immediately be able to cover the uninsured from administrative savings. And in the long run, savings created by the competition among physician groups would cut health-care spending by 30 percent or more.

  2. Alan,

    I’m not sure which comes first — reforming health care delivery or reducing health care costs. A lot of folks will tell you that if you reform the process of delivery, it will reduce or reverse the growth rate in health care costs.

    In any case, great post. We blogged about it on our site today.

    All Best,

  3. You are absolutely correct about keeping costs down. As an RN for 37 years in acute care in hospitals I see huge waste of supplies and resources in them. The model being considered is Kaiser, where I worked for 8 years. I now work in a hospital owned by a for-profit chain and see huge waste. The sky’s the limit. They spared no expense in building a new wing that caters to the middle and upper-middle class patients with elevators that look like the ones you see in a fancy hotel. They had to close another hospital in San Jose abruptly several years ago that served many poor and uninsured pts. I am sure it was because the fancy new wing of the other hospital went over budget. Then they stopped caring for the poor and Medi-Cal pts. at another one of their hospitals. 2 sibling doctors own this chain. So much for the hippocratic oath. And one almost ran for President of the United States. Scary!
    I also worked in a county hospital. One place where there is waste is in the dietary dept. Ill people are not usually very hungry so there is a huge waste of food. We take the trays from the pts. and see how much food is not touched. It’s also labor-intensive to prepare and deliver the food. Kaiser has airline-like trays with fairly decent food and much less waste. The nurses nuke the food and deliver it mto the bedside.
    Kaiser has been looked at as the model for a cost-effective system. It has been in the business of keeping costs down for years yet delivering good care.
    So you are correct that precious health care dollars are wasted in the current system and that’s why the spiraling costs.
    Another way to cut costs is to adopt the chronic care model proposed by Dr. Hal Holman, retired Stanford Medical professor and rheumatologist. We waste money focusing on acute instead of chronic care. As the baby boomers age there is a larger population with chronic conditions. Most care can be treated on an outpatient basis using medications and other self-care strategies. Group appts. and getting patients to manage their diseases help promote self-care which decrease the number of office visits.
    AB1555, introduced by Assemblywoman Sally Lieber, was written with Dr. Holman. It would create a Chronic Care Model Task Force to study this model. It is in Assembly Appropriations currently.
    In the meantime there are many folks suffering who are un-or under-insured or denied care. And many who go bankrupt due to excessive bills. I would like to see a proposal drawn up by Alan Katz that would cover everyone, for life, for less. Then we can compare it with SB840, which, in spite of the misleading negative rhetoric, was analyzed by the non-partisan Lewin Group twice and found to save money and cover everyone. And it is not “free” which the opponents love to say advocates say. Michael Moore did a disservice keep saying “free” when referring to the other Single Payer countries. Nothing in life is free!
    Employers would kick in half of what they do now and all workers would have to pay into the system. It would be afforable for all.
    There will still be jobs for insurance claim processors in the new system. And I believe that Medicare contracts with Blue Cross to process their paperwork-the State could do the same. This is the one service the insurance industry does well. The government does better in managing the dollars because it doesn’t deny care. And our bill promotes preventive and evidence-based care. Unlike those who are the “me” folks described in SiCKO, “we” who care about our fellow man, like the Canadians, feel that health care is human right and its time has come.

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