What do GM, Ford, hotels in LA, grocery stores and public transit in Sacramento, public transit in Philly, and Boeing have in common?
All were faced with strikes and/or labor strife due primarily to conflicts about health care insurance, costs, and access. The strike by Sikorsky workers in Connecticut (registration required) is yet another example of health care’s growing pressure on US employers.
There’s a great quote in the NYTimes article on Sikorsky from one of Sikorsky’s flight technicians that crystallizes this issue – ” “This isn’t only about us,” said Bruce Peters, a flight technician … This is a nationwide problem with medical care.” Peters notes that any wage increases the workers have been offered will be consumed by insurance costs – the additional copays, co-insurance, and employee premium contributions contained in the company’s latest contract offer.
Peters personalizes the national disparity between wage growth and employees’ personal health care costs. Premiums for employer-sponsored health care have grown five times faster than wages since 2000.
In 2004, the average family’s insurance premiums came within an x-ray charge of $10,000. In contrast, median family income in 2004 was slightly over $43,000. Yes, you read that right – health insurance costs came to 23% of family earnings.
And yes, things have gotten worse since the sunny days of 2004; predictions are that 2006 will see the average family’s insurance costs hitting $14,500 per year.
A survey of smaller employers in California indicates that more than half will not be offering health insurance to their workers this year. This despite their optimism about growth and increased revenues in 2006.
The sky is falling, and it is crashing down around the heads of US employers, employees, taxpayers, and governments.
What to do?
Of all the groups out there, the National Coalition for Health Care Reform is making the most sense. NCHC’s goals are universal coverage; health care quality improvement; cost management; equitable financing and simplified administration.
What is notable about their work is nowhere does the coalition advocate single-payer, private insurance, or any other system. Yes, they research, study, and report on the potential impacts, positive and negative, of the several types and sources of funding. No, NCHC doesn’t take a political stance.

The “Wal-Mart” legislation on the docket in over 20 states is pushing some pro-business advocates into a Hobbesian choice – support Wal-Mart and other opponents of mandatory benefits legislation, thereby adding thousands to Medicaid rolls, or support the legislation and place a heavier financial burden on the world’s largest retailer.
Wal-Mart and several other large employers have thousands of employees covered under state Medicaid programs. The modestly paid employees qualify for the taxpayer-funded coverage due to their relatively low income. And, Wal-Mart’s health insurance plans are too expensive for these employees; different souces indicate different participation levels for employees, but none report participation above 46%. (The Wall Street Journal claims 46% of employees are enrolled in the company’s plans, other sources indicate 43% of the company’s 1.3 million workers are covered under their plans in 2005, a drop of five points from last year’s 47%.)
The average income for a Wal-Mart employee is less than $20,000 per year, making it difficult for them to afford even the least-expensive plans offered by the company. The company has developed a low-cost alternative plan (the “Value Plan”) that provides minimal coverage for an employee contributing $11 per month; while there are tight limits on benefits in the first year, these restrictions make sense; they will help mitigate adverse selection risks.
Improvements to the health benefits annonced by CEO Lee Scott include a reduction in the eligibility waiting period from two years to six months for full time workers; allowing children of part-time workers access to the plans; and reducing the waiting period for part time workers.
There are more than enough Wal-Mart bashers and advocates throwing stones over these and other issues. And the company is (somewhat unfairly) being made into a whipping-boy for a national problem. Remember, the number of employers offering health insurance has dropped by 15% over the past five years…
Simply put, labor expenses are a very significant part of Wal-Mart’s overall cost structure, and health benefit costs are hitting the company both directly (via employees on insurance) and indirectly (via the tax burden from uncompensated care, Medicare and Medicaid). This increases the company’s cost of doing business, and thereby their prices to consumers.
This is not a value statement, but reality.
What does this mean for you?
The US health care system is a burdeon on employers and our industrial competitiveness.

When the (registration required) FDA approves new medical devices for specific conditions, insurers are almost always required to cover them. Even if the approval makes no sense, the device fails in clinical trials, and there is no conclusive evidence of its efficacy.
The cost per case for the device and surgery is about $25,000; over 500 implants have been performed to date (the majority during the so-called clinical study).
Dr. Daniel G. Schultz, director of the Center for Devices and Radiological Health, approved an electrical stimulator for the treatment of depression, despite the unanimous opinion of the Center’s clinical staff that the device had no discernable impact. A Senate committee investigating the FDA could find
“no previous instance in which the director of the center had approved a device in the face of unanimous opposition from staff scientists and administrators beneath him. “(NYTimes)
In fact, in a study conducted by the device’s manufacturer, the device utterly failed to produce any measurable impact on depression in the study group.
Now that the device is approved for treatment of depression, expect manufacturer Cyberonics to put on a full-court press to get doctors to prescribe it. This over the concerns expressed on the floor of the Senate:
“I am greatly concerned the FDA standard for approval may not have been met here, and if that’s the case it raises further difficult questions about whether Medicare or Medicaid dollars should be used to pay for this device now,” Grassley, an Iowa Republican, said during a speech on the Senate floor.” (Reuters)
What does this mean for you?
More of your dollars spent on highly questionable and really expensive technology.

I’ve been avoiding posting on this because there are so many smart people who know a lot more than I about epidemiology, flu transmission, viral mutation, and public health. Thank goodness for that.
But, a post by Revere at EffectMeasure scared me silly.
If this disease mutates (and reports indicate it is only two mutations away from becoming transmissable from human to human) and travels to the US (which it is sure to do) we are going to face not only a public health crisis, but an insurance crisis as well.
Who’s paying for the tamiflu, intensive care, respirators, and hospital charges? Medicare, Medicaid (taxpayers), insurance companies and self-insured employers. The industry has done an excellent job of managing medical loss ratios by negotiating with providers and increasing prices. Many health plans pride themselves on this, and so they should.
What we haven’t done, nor do we have any experience in, is planning for a pandemic. Here’s a few numbers that may do to you what Revere did to me.
If the bird flu is similar to the relatively mild flu pandemic of 1968, the WHO prediction is for between 2-7 million deaths worldwide, and millions more infected. That may be optimistic.
If it is similar to the 1918 flu, projections are for 150 MILLION deaths, and hundreds of millions more infected. Not to mention a tremendous impact on the world economy, transportation, trade,
The US has about 5% of the world population. Extrapolating from the higher number, we could see 7.5 million deaths and tens of millions sickened. Let’s say that number is way too high, as we have an excellent health care infrastructure, lots of money, and lots of docs and pretty good public health. All those positives may reduce the impact by, say, 90%. So, we are left with 750,000 Americans dying and millions more sick.
What does this mean for you?
I don’t see how the US health insurance industry can pay for this.

Cost is preventing cancer patients in both the US and Britain from receiving certain cancer drugs. There are striking parallels between yesterday’s post on the price of cancer drug Avastin and its impact on patients and an article in today’s NYTimes on the decision by Britian’s National Health Service to deny Herceptin (free subscription required) to women with early stage breast cancer.
In both cases, the decision by payers to not cover the full cost of the drugs is based in part on a lack of clinical evidence. Only in part. The other basis for the decision is clearly cost related. Britian’s NHS is under very heavy pressure to keep costs under control. This pressure has come up against patient advocacy groups and physicians who want to be able to treat as they see fit. Eerily similar to the situation on this side of the Atlantic, where patients find themselves unable to afford drugs that their physicians think will help them battle cancer.
The tendency is to personalize the problem by focusing on one patient. While there are individually painful stories, they take away from a very important, albeit painful, discussion that both Britain and the US must have about cost, benefits, and opportunity cost.
The patient profiled in the Times lives in an area administered by the Swindon Primary Care Trust. The Trust is looking at the cost of paying for Herceptin for 20 potential recipients of the drug, balanced against the needs of all 200,000 residents they have to provide care for under a finite budget. There are 20 women with early stage breast cancer that theoretically might benefit from Herceptin; at a cost of $40,000 each, that’s $8 million annually.
For all those that decry the British health system’s inherent rationing of health care, I would ask if it is “better” to spend that $8 million on a drug without proven efficacy for that specific condition for 20 patients, or use it to provide pre-natal care to prevent low birth weight babies; fund an anti-smoking program to reduce future cancers; or perhaps buy vaccines and treatments for the bird flu that is just off Britain’s shores.
Anyone for playing God?

The tone and debate here of late has been strident, loud and contentious. In the interest of maintaining sanity among the participants, here’s a public service by managed care matters.com.
A video about the horrid folk at insurance companies, well worth the watch, especially if you’re working in a health insurance company. Turn up the sound!
BTW – no, I don’t believe in, support wholeheartedly, or otherwise think this video is factual.

This is getting tiresome. I am being assailed by economists who protest that they can boil health care down to supply and demand, and that demand creates supply. True on its face, but the economic devils are in the details. And they don’t want to hear the details, or they want to ignore them, or they’re just so smart ….well, clearly that’s not it.
The problem with health policy today is that too many people who style themselves as economists (including one commenter on a previous post), and therefore experts on everything, make flat out wrong statements like “Adding supply does not increase demand. The increased supply of health services over the last forty years is due to an increase in demand (due to Medicare).”
How simplistic. The reason health care costs are increasing is an aging population, medicine’s position as more art than science, a lack of control over new and expensive technology and medicines, and the US subsidizing much of the world’s pharma research. But back to demand and supply.
Here’s healthcare 101. Some may have heard of John Wennberg, MD. Here’s an excerpt from his seminal study on hospital utilization in Boston and New Haven. (Lancet, May 23, 1987)
” The populations of New Haven and Boston are demographically similar and receive most of their hospital care in university hospitals, but in 1982 their expenditures per head for inpatient care were $451 and $889, respectively. The 685,400 residents of Boston incurred about $300 million more in hospital expenditures and used 739 more beds than they would have if the use rates for New Haven residents had applied. Most of the extra beds were invested in higher admission rates for medical conditions in which the decision to admit can be discretionary. The overall rates for major surgery were equal, but rates for some individual operations varied widely. These findings indicate that academic standards of care are compatible with widely varying patterns of practice and that medical care costs are not necessarily high in communities served largely by university hospitals.
Why was utilization higher in Boston? Because they had more hospital beds, and admitted more patients with conditions such as COPD than docs in New Haven did (may not be in an economics textbook, but known to we morons in health care as chronic obstructive pulmonary disease). The supply drives demand in health care.
And that is but one reason health care is NOT like any other good or service.
Here’s another quote from a more recent Wennberg article on variation in medical utilization:
“Medicare spending varies more than twofold among regions, and the variations persist even after differences in health are corrected for. Higher levels of Medicare spending are due largely to increased use of “supply-sensitive” services-physician visits, specialist consultations, and hospitalizations, particularly for those with chronic illnesses or in their last six months of life. Also, higher spending does not result in more effective care, elevated rates of elective surgery, or better health outcomes.
There are many other reasons so-called economists’ simplistic opinions on health care are naive and ignorant – there is little to no accurate data on what procedures, facilities, or providers provide optimal outcomes so buyers don’t know what to buy; it is often impossible for the layman to determine if a symptom or set of symptoms is an indicator of something serious; the most expensive patients cost far more than any deductible anticipated by the CDHP advocates, thereby eliminating any price sensitivity on their part; poor folk can’t afford basic insurance anyway so their care gets covered under EMTALA, and on and on.
Economists talking health policy are like priests talking safe sex. They know all about it in theory, but their knowledge is purely academic, as is their understanding of the basic concept and sensitivity to the potential positive and negative outcomes. And the visual is decidedly unappealing.
I wish I could bill for this.

Loyal reader TrapierMichael (Trapper to his policy friends) questioned the source of a quote used in a post here earlier today attributed to the McKinsey study on CDHPs. Trapper could not find the quote in the article, but did locate it in another report, done by the folks at the Employment Benefits Research Institute, a well-respected industry group.
The EBRI study, entitled “Early Experience With High-Deductible and Consumer-Driven Health Plans: Findings From the EBRI/Commonwealth Fund Consumerism in Health Care Survey” was out in December of 2005; six months after the McKinsey report.
One of the key points in the original McKinsey document was this statement:
“it remains to be seen whether CDHP plans with HSAs inhibit the appropriate use of maintenance drugs and treatments for behavioral conditions…”
The EBRI study points directly to this issue, as Spike noted in his quote, albeit mis-cited. This is in conflict with the McKinsey study’s finding that “One striking finding was the increased likelihood of CDHP consumers with chronic diseases to report that they were taking greater responsibility for their health.” CDHP partipants were over 20% more likely to “carefully follow their treatment regimens.”
Of note, the companies implementing CDHPs that did not do so just to lower costs, but invested in employee education, communicated clearly, and provided access to data and information about lifestyle changes, had the most satisfied employees. The employer with the highest employee satisfaction even went so far as to start an employee fitness center, reward employees with cash for attainment of certain health goals, and extensively trained employees on the health plan itself as well as sources for health information.
The research methodology and cohort for each study was different, with EBRI using data from the Harris Interactive Study and McKinsey surveying individuals from specific employers with full-replacement CDHPs (where the old health plan was terminated and replaced in its entirety by CDHPs).
I’d like to get into more detail but I have to get some work done.
Compliments to Trapper for his research, and I’ll try to do a better job of vetting sources.

Spike has done his homework. UPDATE – well, Spike actually quoted a different report, not the original McKinsey one. I should have done some source checking, did not, and apologize for the oversight.) In response to a comment from another reader (Michael Trapier), he read the entire article by McKinsey on CDHPs et al. Here’s Spike’s quote from the article, which deserves its own post. (again, turns out this quote was from an EBRI research report), and read the comments below:
“While people reported using health services at similar rates across health plans, adults with CDHPs and HDHPs were significantly more likely to report that they had avoided, skipped, or delayed health care because of costs than were those with comprehensive insurance, with problems particularly pronounced among those with health problems or incomes under $50,000. The survey asked whether in the last year respondents had delayed or avoided getting health care services when they were sick because of costs. About one-third of people in CDHPs (35 percent) and HDHPs (31 percent) reported delaying or avoiding care, twice the rate of those in comprehensive health plans (17 percent).
Having a health problem made it more likely that people avoided or delayed care. Among people who reported being in fair or poor health or having at least one chronic health condition, those in CDHPs or HDHPs reported delaying or avoiding care at higher rates than those in comprehensive plans: 40 percent of those in CDHPs and 31 percent of people in HDHPs, compared with 21 percent in comprehensive plans. People with HDHPs and CDHPs in households with incomes of under $50,000 were also more likely to avoid or delay care: nearly half of those in CDHPs and more than two in five in HDHPs reported delaying or avoiding care, compared with one-quarter (26 percent) of those in comprehensive plans in that income range.
In addition to delaying or avoiding health care, people in HDHPs were significantly more likely to skimp on their medications than were those in comprehensive plans. The survey asked respondents whether in the last 12 months they had not filled a prescription because of costs. More than one-quarter (26 percent) of those with HDHPs said they had not filled a prescription because of cost, compared with 16 percent of those in comprehensive health plans (Figure 17). Having a health problem made it more likely that people avoided filling prescriptions, particularly those with HDHPs: One-third of those in HDHPs with health problems had not filled a prescription because of cost, compared with one-fifth (21 percent) of people in comprehensive plans.”
That’s a (rather lengthy) quote from the study you cited. In fact, that whole study talks about how total healthcare use is the same for each group, but out of pocket costs are way higher for those in CDHPs and that people in comprehensive group care found that their plan made it easier for them to incpororate costs into their decisions about treatment.
As for health economics, the reality is that as long as there is EMTALA, (which says that hospitals must treat patients in need of emergency care regardless of their ability to pay), creating systems where preventive pay is discouraged will only be more expensive for all of us. And I don’t see anybody having the political will to void EMTALA. We’re all in this together, whether you like it or not.”
That’s a lot of good work, Spike.
Notably, the time period for the study did not enable the researchers to identify changes in health care costs over time. One has to wonder if the failures to comply with drug regimens etc. would actually lead to increased health care costs over time. Actually, you don’t have to wonder.
BTW – the McKinsey report also notes that CDHPs did have a substantial correlation with participants’ awareness of costs; desire to seek alternative treatment, and likelihood of involvement in healthy behaviors. But I wonder if the latter was not an artifact, and if the participants’ healthy behaviors made it more likely that they would select CDHPs.
What does this mean for you?
More evidence that CDHPs will do nothing to reduce medical expenses.