Beliefs, Values, and Health
in the United States
Ira B. Wilson
January 27, 2014
Sensipar Story
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Sensipar Story
• Medicare pays for kidney dialysis: very costly
• Erythropoietin story: anemia drug
– Fee-for-service payment mechanism
– Some is good, too much is harmful
– Bundling effectively reversed overuse
• Sensipar: combats bone disease
– Excluded from bundling in 2010
– Now again in 2013
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Sensipar Story
• Inserted into “fiscal cliff” legislation by Senate
finance committee
– Max Baucus (Democrat, Montana)
– Orrin Hatch (Republican, Utah)
• Increases Medicare costs ($500M)
• Lobbying by interest groups: 74 Amgen
lobbyists
• Campaign financing
• Bipartisan
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What is your opinion of this story?
A. This is OK; lobbying protected by the 1st
amendment (freedom of speech)
B. It makes me a little uncomfortable
C. It makes me very uncomfortable
D. This is a complete corruption of the
democratic process by money and influence
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Themes from Sensipar Case
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Science and drug development
Payment mechanisms: FFS and bundling
Role of interest groups, $, and lobbying
Politics and health care
Every dollar cut = a dollar of income lost for
someone
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Overview
• Start to put health care in the US in a larger
cultural context
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Goals
• US: big, complex, divided nation
• Markets
• Some relevant history
– BCBS
– Employer based health insurance
– AMA and Medicare/Medicaid
• Fragmented US politics
• Interest groups and their influence
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Size and Diversity
• US is large and very diverse
• Diverse in almost every dimension
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2012 Election Map by County
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2012 Pennsylvania County Map
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Where are you from?
A. Suburban or rural area
B. Urban area
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Size and Complexity
• Complexity not surprising … but rather
inevitable
• Has always been true (e.g., Civil War) and will
always be true
• Our democracy is complicated and messy, and
our health care system is firmly planted within
it
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Markets
Markets in general, and markets in
health care in specific
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Markets
• Market justice vs. social justice framework:
chapter 2, page 38
• Why is health unlike other consumer goods
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Table 2.4: Comparison of Market Justice and Social Justice
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Market Justice vs. Social justice
Brief discussion question: which of these
approaches feels most right to you? Don’t
analyze, just go with your gut feeling, and talk
to the person setting next to you about it for 1
minute, then switch.
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Vote
Which do you tend to favor?
A. Market justice
B. Social justice
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Market Justice vs. Social justice
• Market justice: what is really meant is market
efficiency
• Social Justice: another word for this might be
fairness
• Natural tension between efficiency and
fairness, but most of us value both of them
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Markets in Health Care
• Krugman article (NYT, July, 2009), which is a
summary of Arrow article (1963)
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Markets in Health Care
• Krugman article (NYT, July, 2009), which is a
summary of Arrow article (1963)
• Markets don’t work well in healthcare because
– You can’t know (in general) if or when you will need
care, and when you do it is very expensive
– Therefore you need insurance, but insurance
companies make money by NOT paying for health
care, so their interests may not be aligned with yours
(principal-agent problem)*
– The gamesmanship of trying to cover people who
won’t need care, and denying claims is expensive
*John Grisham novel/movie, The Rainmaker …
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Markets in Health Care
• Krugman: markets don’t work well in
healthcare because
– Health care is complicated, and you can’t
comparison shop or rely on your experience
– Even doctors have conflicts of interest because
they can get paid for “selling” you services that
may not help, or may hurt, and that you may not
have the knowledge to refuse
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Markets in Health Care
• Mackey article (WSJ), markets would work IF:
– Remove the legal obstacles that slow the creation of
high-deductible health insurance plans and health
savings accounts (HSAs)
– Equalize the tax laws so that employer-provided
health insurance and individually owned health
insurance have the same tax benefits
– Repeal all state laws which prevent insurance
companies from competing across state lines
– Repeal government mandates regarding what
insurance companies must cover
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Markets in Health Care
• Mackey article Summary: move “toward less
government control and more individual
empowerment”
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Market Failure: Examples
• Theory of externalities*
– Nashua River in Fitchburg MA
– Erin Brockovitch
– Carbon taxes
• Orphan drugs: no company will ever develop
drugs with small markets if there is no chance
of recovering their investment
• Drug safety: why we have the FDA
*Externality: cost or benefit not reflected in price, but rather paid by a third party
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Market Failure: Examples
• Health plan choice?
– First section assignment
– After doing this, think about how it compares to
the process of buying a computer or shopping for
classes
– Can you have too much choice?
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http://www.ted.com/talks/lang/en/sheena_iyengar_on_the_art_of_choosing.html
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Regulatory Failure
• Markets are imperfect … but so is the
alternative: governments and regulation
• Extreme case: central planning in the former
USSR*
– Built Sputnik and ICBMs
– But, shortages of consumer goods and food
– No contraceptives
• “Government run health care”
* Charles Wheelan, Naked Economics, 2010, page 85.
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Regulatory Failure
• “… a government staffed by angels could
undoubtedly do a better job than markets run
by humans…”*
• But … few governments are staffed by angels
• US tends to favor market based solutions, but
all countries rely on a combination of market
and government solutions in health care
* Pauley MV. J Health Politics Policy and Law 1977;22:467-73.
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Take Home Messages
• Try not to think about markets in moral/ethical
terms; don’t ask about if they work, think about
when they work, and why
• Try not to think about government regulation in
moral/ethical terms; think about when regulation
is necessary, and how it can be done smartly
• Real issue is how to intelligently combine market
and government approaches, which virtually all
countries must do
• Globalization
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Some relevant history
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History (Book, Chapter 3)
• Private insurance
– Blue Cross
– Blue Shield
– Employer-based private insurance
• The AMA and Medicare/Medicaid
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Private Insurance
• 19th century Europe
– Voluntary benefit funds
– Set up by guilds and industries
– Pay monthly premium and get assistance when ill
• Metropolitan Life and Prudential
– 10-25 cents/wk along with life insurance
– Paid for funeral and final illness expenses
– Premiums collected weekly; administrative
expense great
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Blue Cross (Hospitals)
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In 1929 Baylor University Hospital
Arrangement with Dallas school teachers
21 days of hospital care for $6 per year
Prepayment idea spread during Great Depression
because of low occupancy rates
Next: plans sponsored by groups of hospitals
American Hospital Association (founded 1898)
supported and the coordinated these groups
Plans united into Blue Cross network
By 1946, 43 Blue Cross plans with 20M enrollees
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Blue Shield (Physicians)
• Great Depression reduced patients’ ability to
pay MD fees out of pocket
• In 1939 the California Medical Association set
up first Blue Shield plan to cover MD expenses
• Idea spread nationwide
• Controlled by state medical societies
• Starting in 1974 Blue Cross and Blue Shield
plans began to merge
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BCBS: Provider Driven
• Health insurance in Europe consumer driven
• In US, provider driven
• Thesis: control of this major source of
insurance guaranteed that payments would
remain high and that cost control would have
a less important role*
*Paul Starr, The Social Transformation of American Medicine, 1982
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Employer-Based Private Insurance
• WWII price and wage controls (National War
Labor Board)
• Competition for workers on the basis of fringe
benefits (health insurance)
• Post-war, unions continued this strategy,
negotiating for health benefits as part of
compensation strategies
• Enrollment in group hospital insurance plans
grew from 12M (1940) to 142M (1988)
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Tax Subsidy for Health Insurance
• National War Labor Board ruled in 1943 that
employer and employee contributions to
insurance did not count as wages, and that
workers’ health benefits were not taxable
• This is an enormous public subsidy of private,
employer-based insurance; estimated
currently at over $260B annually*
* Gruber J, NBER Working Paper 15766, 2010.
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AMA and Medicare/Medicaid
• In 1920 stated its opposition “to the institution of
any plan embodying the system of compulsory
[medical] insurance … controlled or regulated by
any state or the federal government.”*
• Social Security Act (1935) contained a single
sentence about studying health insurance …
which because of an AMA letter writing campaign
had to be dropped for fear that it would
endanger the entire bill
* From Hirshfield DS. The Lost Reform, 1970, quoted in Oberlander, The Political Life
of Medicare, 2003.
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AMA and Medicare/Medicaid
• 1948 Truman health insurance program
– AMA said that supporters of the plan included “all
who seriously believe in a Socialistic State. Every leftwing organization in America … [and] the Communist
Party.”
– PR campaign warning that it would erode the quality
of medical care, overcrowd hospitals, and reduce
incentives for physicians to provide quality care
– Pushed voluntary (not compulsory) insurance as the
“American way”
Oberlander J. The Political Life of Medicare, 2003.
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AMA and Medicare/Medicaid
• 1958 House Ways and Means Committee
consideration of Medicare
• AMA response
– Unwarranted intrusion of the government into
medical practice
– “the aged as a group are substantially better off
on average than younger Americans”
– Warning in the midst of the cold war that health
insurance for the aged was the first step to
national socialism
Oberlander J. The Political Life of Medicare, 2003.
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AMA and Medicare/Medicaid
• Medicare/Medicaid did finally pass in 1965
• Physicians are professionals who have a social
contract with patients
• BUT, the AMA in the US also behaves as an
interest group with its own agenda
• Long history as a powerful player in health
care politics even though only 29% of
physicians are members
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Take Home Messages
• Private insurance has a 80 year history and
deep roots in American health culture
• Employer-based insurance has a history that
reaches back to WWII and is deeply
embedded in our tax code and in
management-union relationships
• AMA is a powerful and savvy interest group
(but only one of many)
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Fragmented politics, American
values, and interest groups
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Fragmented Politics
• Theory of fragmented political power
– Checks and balances
– Separation of powers
– Federalism
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President’s agenda may not be adopted
States can pursue their own agendas
Many opportunities to block legislation
Parties weak by international standards
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Fragmented Politics
• “The American system is designed to default
to inaction. A decentralized Congress, an
overrated and weakened presidency, budget
deficits, distrust of bureaucracies, erosion of
state budgets, and federal preemption of state
regulation … dictate policy gridlock.”*
Weissert and Weissert, Governing Health: The Politics of Health Policy, 1996, p 3.
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American Values
• Rugged individualism and individual freedom
• Suspicion and distrust of government in
general, and more specifically of national
government’s power and authority
• Faith in markets not in governments
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Role of Interest Groups
• Politicians alleged incapable of acting
decisively in public interest
• Interest groups and private interests fill void
to advance private agendas
• Policy making responds to financial resources
of interest groups and re-election needs of
politicians not to objective public and social
needs
Oberlander J. The Political Life of Medicare, 2003.
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Interest Group Politics
• Our system encourages self-interested groups
of every conceivable type to play in the free
market of ideas related to health care
– Media set up to accentuate conflict
– Internet, 24-hour news shows, blogs
• “This process poses a challenge for health
specialists: Groups pushing their own
interests will stand up and oppose even the
most unambiguous scientific findings.”*
*Morone et al. (Eds), Health Politics and Policy, 2008, p 49
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Take Home Messages
• The US is a large and disparate county with
tremendous regional, state, and local differences
• Individualism, freedom, and markets are deeply
held values
• Ambivalence about government control
• Payers and providers: long histories and traditions
• Piecemeal, fragmented, complex “system” in
which interest groups play a critical role
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Take Home Messages
• “Culture eats strategy for lunch” (allegedly
from management guru Peter Drucker)
• Understand the role of history and the culture
it creates when you try to analyzed health
issues and problems
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