Thursday, January 22, 2009

Health-Care Rationing in Britain

Bruce Hardy probably doesn't have long to live. But he could live longer, if it weren't for the attitude and policies of the British government. As recounted in a New York Times article, Mr. Hardy has kidney cancer that has spread to his lung. His doctor wanted him to take an expensive but effective new drug that has been shown to delay cancer progression for six months.

But Her Majesty's government refused the request. The Times reports: "If the Hardys lived in the United States or just about any European country . . . Mr. Hardy would most likely get the drug, although he might have to pay part of the cost. . . . But at that price, Mr. Hardy's life is not worth prolonging according to a British government agency, the National Institute for Health and Clinical Excellence." (In a supreme irony, the institute's acronym, NICE, is the same acronym C. S. Lewis used for the evil institute in his classic novel, That Hideous Strength.)

The Hardy case highlights many of the problems with socialized medicine: government rationing of health care, a lack of options, and an ultimate devaluation of human life. Remember, in most other countries, Mr. Hardy could have his treatment if he paid for part of it-but Britain isn't even giving him that choice. The government makes the health-care decisions. It's all out of his hands.

And the really scary thing is that other countries are starting to look to Britain as an example of how to manage health care!

Says the Times, "Top health officials in Austria, Brazil, Colombia and Thailand said in interviews that NICE now strongly influences their policies." And even here in the United States, some are calling for the adoption of some of NICE's practices, including officials with Medicare and Medicaid.

Way back during the Clinton era, I predicted that we'd have this kind of debacle here in America if the advocates of socialized health care got their way. As I pointed out then: "The truth is that capping costs will inevitably mean reducing services: Hospitals will have to stop using all the expensive medical technology. In plain English, they will have to stop treating so many people [that] people who are elderly, handicapped, or chronically ill will be pushed to the end of the line." Well, that's exactly what's happening to Bruce Hardy.

Yes, soaring health-care costs are a major problem, and we need solutions. But the great danger of systems like Britain's is that they invariably end up with the government performing a version of the old lifeboat exercise that so many children learn in school now: deciding whose life is worth saving and whose life should be thrown overboard. It doesn't matter how effective or efficient these systems may look on the surface. A government that takes upon itself the right to play God is a government that is not safe for its citizens.

"Everybody should be allowed to have as much life as they can," Bruce Hardy's wife, Joy, told the Times.

As we deal with our health care problems here in America, we would do well to remember her words. The goal of every government should be not to ration life, but to do everything possible to create a system that preserves it.


The Value of Innovation in Health Care

One of the untold stories of the Bush presidency is the progress that has been made over the last eight years on health reform. Though many other domestic and foreign policy issues have grabbed the headlines and many problems remain in our health sector, the administration and the Republican Congress have made notable progress.

In addition to several important policy changes, perhaps the most important accomplishment has been to create a climate friendly to innovation. Instead of offering promises of a sweeping, centralized overhaul of our health sector, President Bush took a step-by-step approach organized around his belief in individual freedom, free markets, competition, and choice. This has resulted in countless innovations from the private sector that have helped to moderate the rise in health insurance cost, create new models for care delivery and financing, and support the movement toward patient-centered health care.

Consider the progress that has been made in moderating costs over the last several years:

In 2007, U.S. health spending grew at its slowest rate since 1998, increasing just 6.1 percent, with year-over-year increases of 6.7 percent and 6.8 percent in 2006 and 2005.1 These increases are still higher than the general inflation rate, but not the double-digit spikes seen over the last several decades.

Premiums for private health insurance also rose by only 6 percent in 2007, the same rate as in 2006, but much lower than the peak of nearly 11 percent in 2002.2 Premiums for new consumer-directed health insurance plans introduced in this decade increased by much smaller amounts - 2.8 percent in 2005 and 2.6 percent in 2006 - helping to moderate costs overall.3

Change is indeed needed

There is a serious problem in our health sector: Health insurance and health care still cost too much. As a result, tens of millions of Americans don't have health insurance, and many more are worried they are one pink slip away from losing their coverage. The costs of Medicare and Medicaid are swallowing up a growing share of federal and state revenues, compromising other functions of government and threatening huge tax increases just to pay for current entitlement commitments. These and other challenges await the Obama administration.

But based upon the experience of this decade, the new president would be well advised to work for solutions that will offer greater choice of private health insurance in a market that continues to deliver innovation and quality of care. Because Americans consistently tell public opinion pollsters they do not want a larger role for government in the health sector, those policies that build on the private sector are much more likely to gain public acceptance.

A climate friendly to innovation

Continued innovation is vital in health care and health care delivery. The medical profession is moving toward patient-centered medicine, with micro-targeting of treatments tailored to the individual genetic code of individual patients. Advances in medical science demand that progress continue without being suffocated by the regulatory obstacles and restrictive payment systems now being considered in Washington. Instead, the government should continue to encourage more private-sector advances.

President Bush has consistently offered policy proposals based upon his belief that Americans should be empowered to make their own decisions about their health needs and that those needs will best be met if they have access to private health coverage that offers choice, flexibility, and incentives for quality health care. "In all we do, we must remember that the best health care decisions are made not by government and insurance companies, but by patients and their doctors," he said in his 2007 State of the Union address.4

A crossroads in the debate

The private sector is much more adept at innovation and evolutionary change than command-and-control public programs. But we are at a crossroads in the policy debate in this country where most of the proposals being offered by political leaders would exert much more centralized government control so that the private health sector would be forced to operate under largely the same rules as the public sector.5

Before we embark on that course, it would be wise to review what innovation has brought us and to assess whether we are ready to cast that aside to put much more control in the hands of public officials.

While the U.S. health sector continues to face many problems, this paper will do what few others have done and focus on the successes during a decade largely friendly to consumer choice and respectful of innovation. It is not possible to begin to describe all of the countless creative ideas, programs, and care delivery innovations in our $2.2-trillion health economy, but this paper will highlight some of the success in the private and public health sectors in this decade.

Two segments of the health sector

The U.S. health economy has two distinct segments - the public and private sectors - and each operates under different sets of rules. About 46 percent of the U.S. health sector is largely financed with tax revenues through government-operated programs, such as Medicare, Medicaid, the State Children's Health Insurance Program, the Veterans Health Administration, community health centers, and others. The rest of health care is financed privately, largely through businesses' contributions to support employment-based health insurance but also through direct purchase of insurance and out-of-pocket payments by patients.

Many analysts refer to our public and private health sectors as a health care system, but we do not have anything approaching a health system in the U.S. Rather, it is made up of conjoined twins, with one run by various government agencies and the other more reliant upon market forces. As health policy analysts attempt to achieve consensus on reforms for our health sector, it is becoming increasingly clear that this operational divide is one reason compromise is so difficult.

The government sector works primarily on a model that provides people eligible for public programs with an entitlement to a government-determined set of benefits within government-determined payment structures. Some patients receive care from physicians employed by the government in government-owned facilities, but most obtain care through private hospitals and physicians paid government-determined rates.

Within the public sector, private health plans also are involved. For example, many states have contracted with private managed care companies to offer care through their Medicaid and SCHIP programs, and Medicare allows participation by private plans in Medicare Advantage and the Part D prescription drug benefit program. But the majority of publicly-financed health care is delivered through the fee-for-service (FFS) model that the private sector largely left behind in the 1980s as unacceptably expensive and inefficient. The response of the public sector to these problems has been to place restrictions on benefits and payments to providers in an effort to restrain costs, which often result in patients having difficulty accessing services and providers.

The private health sector is much more diverse in its range of options and payment systems, representing an alphabet soup of program options from PPOs, POSs, MCOs, and HMOs to HSAs, HRAs, FSAs and even FFS.6 Private health plans, employers, and countless other companies in the health sector are continually innovating to provide options for care and coverage. But they are often constrained by regulation and also by tax policy that is better suited to the last century than to this one. This policy ties private health insurance to the workplace, restricting the market's responsiveness to consumer demands. This gives individual consumers less choice than they would have in a more competitive and open marketplace, as we have written in numerous papers, articles, and our book, Empowering Health Care Consumers through Tax Reform. (For more information see

While we do not have a properly functioning private market for health care in the United States, innovative ideas for improvements in the delivery and financing of health care nonetheless come largely from the private sector.

Health care traditionally is not an issue that Republicans have embraced. It is not clear if the issue would have received greater focus from the administration and Congress had the terror threat and the Iraq war not dominated the time and resources of the White House and the country. But the energy, investment, creativity, and responsiveness of the private sector we highlight below show that its engagement will be key to advancing positive change going forward.

Private sector innovation

Entrepreneurs and private investors have been making significant investment in new health care solutions: MinuteClinics, TelaDoc, specialty hospitals, innovative medical practices, and employer plans that empower consumers to engage in their health care and spending decisions are just a few examples in the innovation-friendly climate of this decade.

Here is a summary of some of the other countless private sector initiatives in care, financing, and delivery:

Employer innovations

Employers have taken giant steps to begin to get better value for spending on health care and health insurance for their employees. Some offer employees a variety of health plan options, allowing workers to decide whether they want to pay higher premiums for lower-deductible policies, for example, or agree to more restrictive panels of doctors and/or higher-deductible policies to save on premiums. The new products also give employers flexibility in shaping their health insurance offerings to fit their resources and workforces. A few examples:

Safeway chief executive Steve Burd has become an evangelist for consumer-directed health insurance arrangements. In the first year after the plans were introduced, the company's health costs went down 11 percent. "If you design a health care plan that rewards good behavior, you will drive costs down," he said.7 The company shared its cost savings disproportionately with employees, cutting their costs by 25 percent or more. Safeway also introduced a program called Healthy Measures that encourages employees to get health assessments and provides support and incentives for responsible health behaviors. Safeway also covers the full cost of recommended preventive care.8

Target offers its employees a range of health insurance choices. One Health Savings Account option costs them as little as $20 a month, and Target contributes $400 a year to health spending accounts for individuals and $800 for families.9 "We've seen, and national research supports, that team members make more cost-conscious decisions when they participate in a consumer-based plan," according to John Mulligan, Target's vice president for pay and benefits. "These plans engage our team members in a decision-making process that gives them greater ownership and control of their health care dollars." The company offers its 360,000 employees Decision Guides to help them compare price and quality and estimate their costs, plus access to wellness programs, a nurse hotline, and other support tools.10

Wal-Mart offers dozens of health plan options to its employees, one with premiums as low as $5 a month. For this, employees receive a $100 health care credit, more than 2,400 generic drugs available for $4 a month, and major medical coverage with no lifetime maximum that starts at $2,000 - basically the moment they step into a hospital. Employees can choose to pay higher premiums for lower deductibles and more comprehensive coverage.11 For $62 a month, employees can choose a $500 deductible policy with a $100 health care credit and no lifetime maximum on their insurance coverage.

Whole Foods' CEO John Mackey toured the country talking to employees about health benefits options. Afterward, employees voted to switch to new account-based health plans with higher-deductible insurance coverage. Whole Foods puts up to $1,800 a year into a spending account for each employee, with Mackey pointing out that this is not charity but part of the employee's compensation package. If they don't spend the money on medical care, it rolls over and the company adds more the next year. Some workers have as much as $8,000 in their accounts.12 Whole Foods saves money and still covers 100 percent of its employees' health insurance premiums.

These companies and many others have worked extraordinarily hard to find the delicate balance between getting health benefit costs under control and continuing to provide coverage that satisfies their workers. There simply is no way that a benefit or cost structure dictated by Washington could achieve these same results. Maintaining ERISA protection is crucial to allowing companies to continue to innovate.

Much more here

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