Washington Post Columnist
Wednesday, October 28, 2009 11:00 AM
Washington Post business columnist Steven Pearlstein was online Wednesday, October 28 at 11:00 a.m. ET to discuss health-care reform.
Read today's column: Path to health reform paved with trade-offs.
A transcript follows.
Bowie, Md.: Can I pick on the theme of your column a month ago that health insurance should be like fire insurance? Although this sounds reasonable, fires aren't chronic or pre-existing conditions. (You can't call your insurance agent DURING a fire and cover yourself for it.)
This is one big part about health insurance I don't understand. Suppose due to family history I'm concerned about developing kidney problems, so I select a plan with good benefits for dialysis. Now, if people can't be turned down for pre-existing conditions, can the people who already need dialysis choose to join my plan? (If this is not a good example from a medical perspective, please choose an appropriate one.)
In other words, how do you create an appropriate risk pool if people whose risk is 100% can self-select into any generous plan?
Steven Pearlstein: You have hit upon the key challenge in designing insurance systems, the problem of what the experts call adverse selection. An insurer tries to do the right thing and offers superior disease management for people with diabetes, and his reward is to get all the expensive customers who have diabetes, forcing him to drive up rates until he is no longer competitive or has to cut back on the service. So that is why so much time and energy in the bill, and the ensuing regulations, will go toward making competition as level as possible so you don't get these kinds of distortions. There are a number of tricks, like having similar benefit packages and risk adjustment. That latter is a method by which, say, the insurance exchanges will actually take money from a company that winds up (or tries to game the system by) attracting only good risks, and giving it to companies that wind up with a disproportionate number of bad risks. What is good or bad? Well, before the fact it is people with certain age and health conditions. You can also risk adjust at the end of the year, when you see what happened to each insurance plan.
As you can see, it gets very complicated. But you've touched on a most important part of the puzzle that needs to be solved.
You also, by the way, hit on why you need an individual mandate, which is to prevent people from going without insurance until they get sick, and then complaining about insurers who won't cover them when they do and suddenly demand coverage.
Mt. Laurel, NJ.: Re: your comment that a new tax on gold-plated policies would almost surely encourage insurers and employees to reduce benefits packages to avoid having to pay the tax, most likely by increasing co-payments and deductibles. My question is, while this should in theory allow employers to increase wages (allowing the latter to pay the increased co-pays and deductibles), will they? Employers have not passed on in wages the increased productivity that the American worker has realized over the past decade. Doesn't it make more sense to pay for health reform by taxing the super-rich, who actually have seen a huge increase in their income, due to cuts in taxes?
I'm just trying to figure out the factors in this whole debate.
Steven Pearlstein: Labor economists say that, over time, the foregone, tax-free health benefits will be replaced by higher taxable wages. You have to believe in the efficiency of labor markets to believe it will be dollar for dollar, and while I think sometimes the efficiency of labor markets is overstated, it's probably somewhere between 75 cents and a dollar. On an after tax basis, of course, the replacement value will be less.
Central Virginia: Reform health care by requiring it to be NON-PROFIT.
It is immoral for shareholders to make money off premiums that are causing the unfortunate policy holders extreme financial pain. It is also immoral for big fat bonuses and juicy perks -- jets, skyboxes, etc. -- to come out of these ever-rising premiums. People are bleeding from the ears trying to make these payments, and those executives who are living fat-n-happy off of that are repugnant.
If cars are too expensive, take the bus. If steak is too expensive, buy chicken or tuna. If health care is too expensive, get sick and suffer, or get sick and die.
Steven Pearlstein: Blue Cross and Blue Shield is non-profit. The Inova hospital chain in non-profit. Both act like profit-making enterprises. We're so far down the road of the Sisters of Mercy running the health care system that I don't think its realistic to expect we're going to go back to that. Administrators of big hospitals now expect to earn $1 million a year with all the perks. Its hard to put that genie back in the bottle. And it is also possible that the profit motive has led to some important innovations in both health technology and health care management. I agree that the profit motive is now too much a part of the incentive system, particularly at the delivery level. I also agree that we should be able to cap the profits/administrative costs that are taken out of each premium dollar. But these are adjustments to a market system, not the elimination of it, which is probably impossible politically.
Dallas, Tex.: The President said this would have to be done with out any increases to cost, do you think this is still possible? Thanks.
Steven Pearlstein: No, that's not exactly what the President said. He said that the increases in costs to the taxpayers from things like the new subsidies and the expansion of Medicaid could be paid for by additional tax revenues and reductions in future growth in spending in Medicare. That's not just a subtle difference. And it could be that the plan also entails increased health spending on the part of employers as a group (primarily those that don't now contribute to health care that would be required to in the future) and even by households as a group (although within that group, lots of winners and losers).
Manhattan, Kan.: Hi Steve-- Great column today. However, my question concerns the proposed $250 check every senior would receive to make up for the absence of a COLA in their Social Security checks. Is this the group most in need of $14 billion? Or could this money have a greater stimulative effect on the economy if spent in other ways?
Steven Pearlstein: No. Yes.
Richmond, Va.: Please help me understand what I don't understand: 1. For-profit insurance companies exist nowhere on the planet but here. (for all practical purposes) 2. Our companies already cost us about 20% more than non-profit insurers AND deny care willfully and for profit. (I have fought with them for 40 years in defense of my patients) 3. Obama and Congress are promising them about 40 million NEW PAYING customers.
They are making BAGS of money at our expense now, and we are going to give them more, and they are complaining?
The Swiss told their insurance companies to shut-up, sit down and do what the citizens said a few years ago.
Why not here? Why are we such wimps? Why are we "worrying" the insurer issue to death?
Steven Pearlstein: To some extent, I just answered this question. The Swiss have come up with some ideas that we could well emulate, and I'm surely in favor of regulating the industry nationally with more intensity than it has been regulated before. But remember, the essential deal here in the exchange markets is that insurers give up underwriting and accept some measure of community rating in exchange for mandated coverage. Those are the cornerstones of a universal system based on private market insurance competition. If we also limit the administrative-profit ratio, then we've gone a long way to having a better system.
Now as to denying coverage, let me say that there are good reasons to deny coverage and bad reasons, but you shouldn't start with the presumption that this is always a bad thing. As we know from countless studies, a lot of medical care is wasteful or not optimal, and there is no reason why the insurance system can't be used to require or at least encourage best practices.
Bethesda, Md.: I don't understand two issues in the health-care debate. Why do insurers care if health-care premiums are taxable or not, if everyone has to have a policy? I understand it is valuable to pay with untaxed dollars as an insured, but why do the insurers care? It's not coming out of their pockets at all.
Second, no one is focusing on the limit on flexible spending accounts that is tucked into the Senate bill. I pay all my copays and other medical expenses with pretax dollars using a Flexible Spending Account. Most employers offer these. The senate bill will reduce the amount you can put in your plan to $2500. That may work for some families, but not mine. So people who have a lot of medical expenses get taxed on the money they spend on medical care. Is there a policy reason for this that makes sense?
Steven Pearlstein: Good questions.
The insurers care about the tax not because they will have to pay it -- they will pass it on. They care because it means people will reduce benefits so that the premiums come in under the tax cap. And what that means, in effect, is that there will be more co-pays and deductibles and services that are not covered, and that people essentially "self-insure" a greater portion of their medical expenses. To the degree people self-insure, that is the degree to which insurers have a smaller pool of money from which they can skim off their "take." In other words, it lowers revenues and profits.
I'm not up on all the details of all the plans on the flexible savings accounts, but just think about it: In order to have an effective cap on tax-free health benefits, the cap has to apply both to the premium and the amount of money that can go into the flexible saving account. If you just cap the premium, then insurers will offer an insurance policy whose premium goes up to the cap, supplemented by a tax free account that would, in effect, allow you to get around the cap.
Ellicott City, Md.: Your article mentioned uninsured people who show up at the emergency room and receive "free" care.
Which got me wondering. Wouldn't those people receive large bills from the hospital? Do hospitals lose a lot of money on people who can't or simply don't pay up? (Do you have dollar figures?)
Steven Pearlstein: Not sure I mentioned that, actually. But yes they get billed for their services, at rates two and three times what insurers pay, by the way, which is very unfair and economically distortive. And then they either pay it, don't pay it, or work out a payment plan with the hospital.
Blue Cross and Blue Shield is non-profit: Almost entirely false. True long ago, but now WellPoint owns most of them.
Steven Pearlstein: That's a recent development. Pre-Well Point, they were non profit and in many respects (not all) behaved just as badly as any other insurer.
Princeton, N.J.: "For two years, the health insurance industry has generally made good on its promise to be a supporter of health reform rather than an obstacle."
Come on Steve, you're a smart guy. The insurance industry only supports those "reforms" that let them keep their scam going. They have spent hundreds of millions to successfully keep the basic facts from the people. Why have you never written a column which examined the huge overhead and compliance costs of the private insurers as compared to those of the Federal part of Medicare, or, indeed, of any other industrialized country? Why is it that all these other countries can see that the free market, that competition simply does not work for an item that you want everyone to have like fire protection or health care? We tried private competitive fire departments and private competitive health insurance, and it is clear to any responsible observer that they did not work.
The private insurers have prevented not only consideration of a universal government run plan like HR676, improved Medicare for All, they have even prevented discussion of any efficient plan. When the Post's own poll in 2003 showed that 62% of the people preferred the government to give "something like Medicare" to everyone and 33% preferred private insurance through employers, it must be clear to you that something is actively suppressing the will of the people when such plans are never even discussed.
In 1995 the Swiss had a system similar to ours. When they realized that 5% of their people lacked health insurance, they held a referendum and voted for government control. The government writes the basic policy, sets the price and allows no profit on it.
Uwe Reinhardt has told me that he does not believe the American people are mature enough to learn how to have an efficient health-care system. When I read your statement above, I have to agree with him.
Steven Pearlstein: It may be, in the end, we have to eliminate the private, for profit insurers competing in an open market. I'm not ready to give up on it yet. That's a judgment call, not a matter of scientific inquiry. And I hope Uwe is wrong, although he rarely is.
Dallas, Tex.: Mr. Pearlstein, After watching CNN, it looks like the latest attack on insurance reform is to downplay insurance company profits, and make insurance companies the victim of the government reform. Perhaps the message needs to include the excessive individual pay for insurance company executives, and more facts about insurance company profits vs. other industries, or the individuals cancelled by insurance companies. What tactics would you suggest proponents of the public option and insurance reform should use?
Steven Pearlstein: Health insurance companies aren't ridiculously profitable over time. There is something called an insurance cycle where their profits get big, and then they get small, and then big again. Right now they are big. But you are wasting too much time worrying about the difference between their excessive profits and what you would consider a normal profit level. If you want to understand why health care costs more here than anywhere else in the world, it is the cost (not the utilization) of health care procedures and drugs, the unit cost. And what that translates into is the incomes of doctors, nurses, hospital administrators, drug company employees and investors in hospitals, labs, drug companies. The insurers are the middle men here -- they collect a fee, which some people feel is excessive, but the fee isn't the big driver of costs or cost growth. It is the providers, what they are paid, how they organize themselves, what incentives they have, etc.
Washington, D.C.: Some questions: Whatever the compromise that is finally reached, to what degree, if any, will insurance policies be standardized? I recently shopped for health insurance, and I was overwhelmed not just by the range of prices but also by what's covered and excluded, even among different policies offered by the same company. To a large degree, automobile and home owners' insurance are standardized products, and companies compete on the basis of price and service. But every hospital and doctor's office has staffers who do nothing but haggle with insurance companies over whether particular treatments for particular patients are covered by particular policies. How would it affect the overall system if everyone could buy a standard basic policy and then select standard options based on his particular needs? (A single man or an older woman probably wouldn't need pregnancy and well-baby care, but they might want to boost coverage for heart issues.) Also, is there any chance that a "public option" could simply be open access to Medicare or Medicaid, with premiums based on income? Ideally, I'd like to see a single-payer system, but if the best we can hope for is a public option, I'm not sure it makes much sense to create another whole new national insurance program.
Steven Pearlstein: One of the purposes of the exchange is to require all participating insurers to offer three basic packages (low, middle, high)so consumers can compare apples to apples. You want them to be standard enough so that the comparison is possible. But you also want them to have the flexibility to provide innovations and distinct services. That's a balancing act that the exchanges will have to wrestle with all the time.
Ashland, M.: Would it be too cynical to conclude that health payment change will not pass because Democrats want the issue to run on and so do Republicans?
Steven Pearlstein: Yes, it would be too cynical.
Washington, D.C.: Steven,
In your column you said "a new tax on gold-plated policies." Everyone seems to say this. But isn't a better description of the plan "capping tax exemption for gold-plated policies?" I've never understood why I get tax-free benefits if I choose to go under my employer's gold plated insurance. By me paying a slightly higher premium, I'm getting a couple of thousand dollars worth of benefits without any tax obligation. I think that all health-care benefits should be taxable with everyone getting a tax credit, fixed per person.
Steven Pearlstein: So do I. So did John McCain. So do most health and tax economists. But try explaining that to the American voter when labor unions and insurance companies are telling them the government is raising their taxes and taking away their tax free health benefits.
Alexandria, Va.: Steven -- Thanks for the great article today and the chat. Do you think there is any plan that can get sixty votes in the Senate? Would the Democratic leadership really use budget reconciliation because they can't get everyone in their own caucus to agree? And, as it relates to your article, do you think this would be the result of President Obama not leveling with the American people about the trade-offs required to make health reform work? Or is this just politics, and would be happening no matter how truthful and frank the President's message?
Steven Pearlstein: I think the Democratic leadership can get 60 votes to proceed to consideration of the bill. I don't think they have 60 votes to break a filibuster and get final passage of a bill that has a public option. So I believe the outcome is that we will get final passage without what its supporters call a strong public option.
Arlington, Va.: OK, Steve, once and for all: Is the current version of the bill in the Senate better with the public option or not? Is it worth the Dems going to the mat on it?
Steven Pearlstein: I've said before the importance of the public option is overstated. If you are worried about competition in the health care area, I'd focus more on getting more price competition within the exchanges, making sure the exchanges are open to more workers and more companies and launching an aggressive antitrust enforcement campaign against the hospitals. I'd also do more to limit the anticompetitive behavior of drug companies and generics. That is where the real money is to be found. The public option is more an ideological totem for liberals at this point.
Boston: In your heart of hearts, do you really think whatever health-care reform package that is passed will actually come close to "bending the curve" and controlling costs? What does our nation look like economically and politically in five and ten years down the road if it does not? What options would we have and what options would we likely take (given 60 votes needed in Senate no matter what)?
Steven Pearlstein: Yes, with a strong provision requiring the Medicare Advisory Committee to propose ways to meet the cost growth targets, it can be done with good leadership. It is, in effect, the very blue ribbon commission that entitlement reformers have been calling for all these years.
Denver, Colo.: If insurers can't refuse to write you a policy, but they can charge you whatever they choose, how is the status quo really going to change? Subsidies only go so far.
Steven Pearlstein: If they try to charge you too much, you'll have lots of other choices on the exchanges. If you don't believe in competition, there's not much I can say to convince you. The whole idea here is to enhance competition in markets that now have too little price and quality compeition.
Washington, D.C.: Steven,
Do you agree with George Will when he argues that the rush in "support" for the public option over the past week or so is partly a creation of the media? I think that while it's no secret that the public option is preferred by a slight majority of Americans, the media has turned a very shiny spotlight on a few recent polls showing support. And all of a sudden, Harry Reid is now including the public option in the final Senate bill. I'm wondering how much the public option has been "brought back to life," or if this is just a bunch of hype brought on by the media and Mr. Reid. Realistically, it seems like Mr. Reid would be lucky to get 55 votes for the bill, never mind 60.
Steven Pearlstein: I don't often agree with my fellow Trinity College graduate, but in this case I think he has a point. There may well have been a shift in public sentiment at the margin, and the polls may have picked this up. But you can get very different answers to questions on a poll by how you frame them. I don't really think Americans are really so keen on the government running things that private companies can do.
Vienna, Va.: Isn't the central promise of reform--holding down costs will allow more people to be covered, and covering more people will hold down costs--an example of circular logic?
Even if you accept the above, I just doubt that the methods, including a public plan, that the reformers want government to use to hold down costs will ever work. For that matter, I am suspicious that many reformers are even serious about cost control at all. They never have been before--witness Medicare's problems, and the absurd physician SGR situation. What think you?
Steven Pearlstein: People have to be shown that there are ways to hold down costs without seriously impacting their health, their choice, their convenience. It can obviously be done -- we know that. It is a matter of showing them in a non-threatening way that it is possible.
Take the case of docs. If a clerk at an insurance companies tells a doc he can't do a procedure because it's not covered, he and the patient go ballistic. If a doc working for an insurance company makes the call, the response is only a bit more positive. But if a doc who is a friend shows him an article in a medical journal saying that he's probably doing too many unnecessary procedures, the doc usually takes the advice and changes his behavior, and patients go along. Insurance companies have found this out through painful trial and error. But it means that people can be weened off inefficient, ineffective medicine with the right approach, the right incentives, etc.
Bonifay, Fla.: As a retiree with an employer paid supplemental plan, I expect that the combination of higher premiums (due to lower Medicare reimbursements) and additional taxes will probably cost me less than $250 per month unless I become sick. However, I'm more concerned that Health Savings Accounts (along with high deductible plans, which provide less income to the insurance companies) may be abolished. Once an unmarried young buck (or doe) gets a year's deductible and co-pays stashed, s/he only needs to replenish the amount used, plus pay the insurance premium. This combination should be significantly less than the annual premium for a young single person, which might be $3,000 per year. Such a premium would tempt many of these to say "I'm healthy, I'd rather pay a $1,000 fine and gamble."
Steven Pearlstein: It might. So structuring these things must be done carefully.
Anonymous: Four decades ago the Washington Post made that phrase famous. Today, it goes unspoken. Lieberman announces he is against health-care reform. Follow the money and you see a man who has collected millions of dollars from health insurers, and you see that after decades at home, Hadassah Lieberman became a health and pharmaceutical lobbyist last year. A very similar story could be written about Senators that are instead being euphemized with wishy-washy words like "moderate" or "centrist". The most cost effective health-care reform would have been single payer. The cost of reform rises the further away from single payer we get.
I have no problem with the dozens of compromises made to get to "Opt-Out Public Option", but I do wish more media time and coverage would be spent on "following the money" and showing readers and voters just how beholden to the industry these Senators who wish to weaken health-care reform and increase its costs are.
Steven Pearlstein: I think we follow the money very well here at the Post. Not sure, however, I ever read that about Hadassah. That said, we all know that senators from states with lots of insurance companies like Conn., but also Nebraska are very beholden to the companies back home. That would include Ben Nelson, D-Mutual of Omaha.
Raleigh, N.C.: Your excellent analysis is appreciated, but why is the health-care industry not willing to accept a reduction in their mega-profits so most Americans can enjoy the peace of mind of having a health insurance? Because they look at health as a commodity for profit making rather service for common good.
As a health-care expert, I know that most health-care institutions claim to be non-profit and receive tax breaks for free services. Why is that not enough?
By the way, I always enjoy your work, including the recent On Leadership videos. They are super. Where can I purchase them at Washingtonpost for teaching purposes only?.
washingtonpost.com: Hi Rufai, No need to purchase those OnLeadership videos. The archive is available here and can be viewed anytime. OnLeadership Archive
Steven Pearlstein: Why can't a profit-making industry accept less profits for the good of the country? I think your question answers itself. They'll accept it if it is the law, but don't ask them to go quietly into that night.
Thanks for your comments about the On Leadership site. I don't know if we've gotten around to packaging and selling the videos, although we've talked about it. I'll bring it up at the next meeting.
Medicare Advisory Committee to propose ways to meet the cost growth targets: How would this affect anything other than Medicare?
Steven Pearlstein: Because of its size, what Medicare does often is generally accepted by health care providers and copied by other private insurers. Its the industry leader and standard setter.
Profit Motive and Innovation: Steve,
Couldn't it also be argued that Profit Motive is stifling innovation in health care? If I am a pharmaceutical company, what's the motive to develop a cure for, let's say diabetes? Currently, I can sell people insulin that they will need every day for the rest of their life. If I develop a cure for diabetes, all I've done is eliminated a revenue stream.
There's no money in cures, there's money in treatments.
Steven Pearlstein: Depends on what you charge for the cure, doesn't it?
McLean, Va.: I haven't heard a good answer yet on this question, maybe you know it. Why aren't the Democrats including as part of their bill something that allows insurance to be sold across state lines as a means of increasing competition, and decreasing the rates which we can purchase insurance at?
Steven Pearlstein: They are. Most of the exchange proposals make it possible and easier for national companies to market into them on roughly the same rules.
New York, N.Y.: Steven, Before you take me to task for my impudent question, I just want to say (on the record) that I realize that if you're poor in this country, then everything is your fault. If you're hit by a stray bullet, you were probably in a gang. If you're sick, it's because you smoke and you're overweight. And whatever trouble you have getting a job, it's all because of your genetically-determined low IQ. And if you weren't poor, overweight, genetically deficient and so on you wouldn't have trouble getting disqualified because of preconditions and you'd never get scammed by bogus insurance outfits.
But still, even in a society that blindly accepts these ... um... ideas, shouldn't there be some concern about 45 million Americans without health insurance? Are these politicians and pundits who are standing by and watching millions of lives destroyed by our health-care system really any better than the people who watched that horrible gang rape in Richmond and did nothing?
Steven Pearlstein: Well, I think the reason we are having this conversation at all is because there are at least a lot of Democratic politicians, and some Republicans, too, that have some concern about 45 million people without insurance and, to some extent, without needed care.
Washington, D.C.: Steven:
You missed my point when you said "try explaining that to the American voter." My point was that why should the American voter pick up on the distinction when media experts can not call a duck a duck and a goose a goose? It is not a new/raised tax, it is closing a loophole enjoyed primarily by high wage earners and not available to the average voter. If the reporting is confused, why shouldn't the readers be confused?
Steven Pearlstein: I've written two columns myself saying just that. Not sure what more I should do. Write a third?
Which is true, Steven?: Joe Lieberman:
"the public option still creates a whole new government entitlement program for which taxpayers will be on the line."
CBO finds Dem bill with public option reduces deficit
Steven Pearlstein: The public option by itself does not create a new government entitlement program. Senator Lieberman doesn't know what he's talking about. That said, requiring all Americans to buy insurance but guaranteeing low income Americans a subsidy to pay for it -- yes, that is a new entitlement. It is also a new obligation on citizens.
Where's the GOP's Healthcare Plan?: Steven, isn't it true that, absent greater government involvement, there really is no way to deal with the uninsured or to reduce systemic costs? Why hasn't the GOP produced is own competitive plan? Based on this cross-state competition model and savings from tort reform? Would it actually do anything to address either problem? Or might their government-hands-off approach just make both problems worse?
Steven Pearlstein: Those two elements have always been the basis of the GOP "plan." It is a very weak solution to a big and complex problem. They would help, but do very little to solve the big problems of lack of coverage and rising costs.
Steven Pearlstein: Sorry folks. Got to run. Good chat. Hope to "see" you next week.
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