Besides being perhaps one of the most intelligent, insightful, and articulate observers and critics of the US health care “system”, Bob Laszewski has an ability to make sense out of what is a complex and occasionally contradictory business.
In his latest observation, Bob notes that what is happening in the US health care system is “different than any other (year) I have watched.” The net – as a nation, a trade union,a government, a business, or a municipality, we can no longer afford making expensive promises re health care and/or pensions.
Bob cites the Pension Benefit Guaranty Corporation’s finding that it now has a deficit of $30 billion and the PBGC’s report that private plans and union plans are underfunded by $650 billion.
That’s bad. Health care is worse.
If Medicare grows by 1% more than the rest of the economy (which would be a lot slower than it has been growing over the past ten years) it will be larger than the entire US budget by 2050.
The first baby boomers are eligible for Medicare in six years. Six years.
GM, Ford, Delphi, big steel and airlines are all cutting health benefits or have already done so. Bob believes other big firms, in better financial shape than these behemoths, will soon follow suit.
State budgets are being hammered by Medicaid expenses, leading to higher copays, changes in benefits, and outright slashing of Medicaid rolls.
His point is that we are now in a phase of “renegotiation”; promises are not going to be kept whether they are promises made by our government or employers. These promises, made in the day of cheap health care, restrictions on wage increases, a booming national economy driven by the world’s dominant manufacturing companies and a much younger population, are no longer affordable.
What does this mean for you?
Significant changes in the health care delivery system are coming. Yes, there are barriers to change in the form of strong lobbying groups. Yes there are powerful politicians. Yes, these are incredibly hard problems. But the tsunami propelled by demographic change and the continued rapid influx of technology will blow these barriers away.

There is a truly terrifying problem in the US that no one has paid attention to until now. Health care costs for public-sector retirees may represent a total cost of $1 trillion, according to Mercer Human Resources.
State and local governments are facing a requirement to report their future health care cost liabilities within the next three years. You will hear the explosion of public outrage and feel the impact on future state and local taxes shortly after individual governments announce the results of their analyses. And it will be ugly.
According to a New York Times article featuring Duluth Minn.,
“For years, governments have been promising generous medical benefits to millions of schoolteachers, firefighters and other employees when they retire, yet experts say that virtually none of these governments have kept track of the mounting price tag. The usual practice is to budget for health care a year at a time, and to leave the rest for the future.
Off the government balance sheets – out of sight and out of mind – those obligations have been ballooning as health care costs have spiraled and as the baby-boom generation has approached retirement. And now the accounting rulemaker for the public sector, the Governmental Accounting Standards Board, says it is time for every government to do what Duluth has done: to come to grips with the total value of its promises, and to report it to their taxpayers and bondholders.
My home state, Connecticut, is one of those that budget for health care on a pay-as-you-go-basis. I have been encouraging our local town officials to come to grips with this problem for two years, to no avail. So, it is encouraging that we are being forced to do so. Disappointing that we could not act like adults and do this on our own, but better forced to do it now than later.
Meanwhile, Medicaid and Medicare are the subject of a major fight over $10-50 billion in budget cuts. This is truly tweaking around the edges, and almost a waste of time compared to the local and state problems with health care liabilities. Clearly, we need more than accounting tricks and small benefit design changes if we are to adequately address the nation’s health care cost and access problem
What does this mean for you?
Higher taxes.

The California HealthCare Foundation has released two excellent reports examining individual health insurance and employer-based health insurance in California, comparing costs and access to other states, and assessing how employers and individuals make decisions regarding insurance.
The reports, part of the ongoing research of the Foundation, were based on work done by the Center for the Study of Health System Change, a D.C.-based organization known for its excellent work at the national level.
Highlights (term loosely applied) include:
—premium increases doubled the overall inflation rate, with the latest figures at 8.2% compared to a 3.9% overall inflation rate in CA
—monthly premiums averaged $858 for families and $321 for individuals
—PPOs cost more in California than the national average, with HMO pricing lower
–70% of large employers are likely to raise employee contributions in 2006
–providing more and better access to information about individual health plans can have just as much impact as subsidizing premiums.

Research by the California Health Care Foundation on potential strategies for covering the uninsured indicates that employer-sponsored plans and insurance pools don’t hold much promise. Two studies published by the Foundation provide details; both are worth reviewing.
The employer study looked at a multi-year experiment in San Diego wherein smaller employers’ health insurance plans were subsidized in an effort to encourage the employers to offer coverage. It turns out that many employers already offered insurance while those that did not were not often swayed by the subsidy. And, less than one-fifth of the state’s uninsureds were full time employees or dependents of full time employees.
The evaluation of health insurance pools is somewhat more promising. The net is these require extensive planning, careful implementation, and thorough management if they are to be effective. In addition, market considerations such as competitive plans, the cohesiveness of pool members, and demographics have considerable impact.
The net – creating a successful pool is a time-consuming, detail-intensive effort.
What does this mean for you?
While the studies are not exactly encouraging, at least we have a better grasp of the challenges associated with these two popular ideas. Perhaps we are getting closer to understanding what might work to improve coverage.

It’s always interesting to read Mathew Holt’s blog, and today is no exception. His post highlights one European’s perspective on health care spending, funding for same, and what we should, and should not, be spending health care dollars for.
In the world of health care policy wonks, Mathew stands out.

In yet another sign that health care, national health policy (or the lack thereof), and the impact of same on the US economy (free subscription required) is fast becoming a national crisis, Paul Krugman has published an editorial linking GM’s incredibly high health care tab to its recent financial problems, and using GM’s troubles to highlight the impact health care costs have on other manufacturers.
I’d extend that to any employer that provides health insurance for its workers. I was speaking with a senior partner at a large Florida law firm at the Florida Workers Compensation Conference in August about just this issue. The gentleman, a self-described conservative, was reflecting on the costs of health insurance, and the problems firms such as his encountered in obtaining and funding coverage. We had just heard a talk by former HHS Secretary Donna Shalala in which she made a case for national health insurance.
This gentleman, no fan of Shalala or governmental solutions in general, was acknowledging that the present health care “system” was not serving his firm or its employees very well, was costing a huge amount of money, and there did not appear to be any promising solutions in sight. We discussed the unseen costs of health insurance – higher costs prevented them from hiring a new associate, opening a new office, or adding a new document management system. By the end of the conversation, I sensed a willingness to relook at health care and health insurance, to consider it as not a governmental hand-out or employee benefit, but rather as a drag on his firm’s effectiveness.
The more this happens, the closer we get to a solution.
What does this mean for you?
My guess is we will have some form of consensus on national health policy, perhaps with universal coverage, within five years.

Two states’ child health insurance initiatives (free subscription required) show different approaches to the same problem; providing access to health care for the nation’s kids. South Carolina is adopting a scheme based on private insurers while Illinois is pursuing a plan based on public funding and management of the program.
And these are not the only states experimenting with different approaches: California activists are hoping to get an initiative on the ballot next November that would fund child health insurance through a higher tax on cigarettes; New Mexico’s Governor will propose universal health insurance for kids under 5 in his next budget; and Florida has already received approval for the privatization of much of Medicaid.
While Washington dithers over very minor changes to Medicare and Medicaid, the states are once again the laboratories for innovative ideas. These ideas can be differentiated into two broad categories; defined benefit and defined contribution.
The defined benefit programs are those that pay for any care that is consistent with the benefits outlined in the Medicare or Medicaid programs. Defined contribution plans are entirely different – they pay a set amount of money to a program state, or beneficiary that the program, state or beneficiary must use to cover as much of their care as possible.
The ideological distinction here is obvious – have the state responsible for funding the care that is needed v. make private enterprise, the insurance program, and/or the individual responsible for figuring out how much care they need.
With the present regime in Washington, expect the Feds to promote more of the defined benefit programs, and more privatization in the next two years.
While I am all for innovation, remember that administrative costs associated with private health insurance are several times higher than the costs of programs run by the government. The question remaining to be answered is “can the innovations and creativity of private firms deliver better results in terms of lower health care costs and healthier people despite their higher administrative expenses?”
Thanks to Tom Barrett of Choice Medical Management for the reference.

A quarter of employers in Rhode Island do not offer health insurance, and over half of employers said health care costs are driving down profits.
A survey by the State’s Insurance Commissioner covered 1444 employers in the state and focused on the availability of health insurance, employee adoption rates, premium increases, and the wage status of the employees.
Here are a few of the more salient results.
1. 20% of employers saw health insurance costs increase more than 25% this year
2. Almost half of the employers experienced increases above 20%
3. 71% of “low wage” employers offer health insurance; 99% of other employers do (Low wage employers are those who pay more than half their employees less than $21,000 annually)
4. Six years ago, 61% of employers paid the full cost of insurance; 21% do now.5. 20% of employers offer only high-deductible plans with deductibles above $1000
But the real impact of rising health insurance costs is seen in the rapid rise in the number of people without health insurance. According to Insurance Journal, (the report) “also shows the proportion of the state’s population without health insurance rose from 6.2 percent to 11.4 percent, between 2000 and 2004.
Clearly, the nation’s smallest state’s experience is similar to the rest of the country. Rising health insurance rates are decreasing access to health care, especially for the lower economic classes.
What does this mean for you?
Another straw added to the load on the camel’s back.

Administrative expenses account for 34% of private health care spending in California according to a report authored by University of California-Santa Barbara researchers and noted in California HealthLine. The 34% is comprised of insurance paperwork (21%) and medical records (13%).
Billing expenses amounted to 8% of private health insurance premiums; 11-14% of hospital spending and 14% of physician office expense went to billing as well.
Total private insurer administrative expenses totaled 9.9%; Medicare came in at 4.5%.
The full study, published in Health Affairs, noted :
“Including health plan profits, we estimated that 19.7-21.8 percent of spending on physician and hospital services in California that are paid for through privately insured arrangements is used for billing and insurance-related functions.
This is not “new news”; administrative expenses in the US consume a significant portion of health care expense. However, the study notes that these dollars, which are often labeled as “waste”, are not. Here is a quote from the full study:
“some administrative effort is required and desirable in a well-functioning system. Hospitals are complex organizations, and administrative effort is needed to use inputs efficiently and produce good outcomes. As physician practice moves toward larger medical groups, administrative effort is required to assure that the groups function efficiently. Administrative activities here include the work of the office manager, the receptionist, the billing staff, the information technology experts, and other personnel not directly contributing to the hands-on care of patients.”
Thus, the definition of “administrative expense” is quite broad, encompassing both payer and provider functions. This may be lost in some of the other publicity surrounding reporting of this study.
What does this mean for you?
Lots of opportunity to reduce administrative expense.

USAToday reported that 19 states are considering some form of state-wide health insurance programs. While there is wide variation in the programs being considered by the legislatures, all seem to be in response to frustration with the lack of movement on the federal level.
Proposals range from Massachusetts’ initiative requiring all citizens to purchase health insurance to Florida’s child health insurance program to a universal health system in Maine. It will come as no surprise that many of these are simply studies by committees, are already dead, or have been referred to committee (and may never see the light of day).
That said, it is notable that many state legislatures and governors, ranging from conservative to moderate to liberal, are pushing for reform.
Many of the proposals deal with coverage for children, a politically popular move that has some basis in existing programs in a number of states.
Another sign that the momentum for reform is growing? I think so.
What does this mean for you?
Watch the bellwether states carefully, as successful initiatives often start there and move into the Federal arena (remember how Tommy Thompson got his publicity) .