Sunday, August 23, 2009

The "Public Option" in the Health Care Reform House Bill

I did not realize the full impact of the "public option" being proposed in the House Bill 3200 until I heard Ben Taylor with the US Chamber of Commerce speak at last week's Town Hall Meeting held in Saline. It is being proposed as "just another option" to compete with the private insurance companies to force them to drive down costs.

Here is the truth to the situation. The Bill also will set requirements of what all health insurance plans must cover, so there can be no variation of contracts to meet specific situations - one size fits all. Consumer driven health care plans such as Health Reimbursement Arrangements or Health Savings Accounts (high deductible plans with employers paying into the employees' HSA's) will not be allowed. The insurance companies will need to compete with a subsidized plan with a "company" that has no costs of capital and which does not need to generate any profit. Further, like Medicare, the public option is expected to place limits on payments for specific procedures or services, thus shifting some of the cost of those procedures and services to others. Thus the government plan will be able to offer lower premiums (on its face a "good thing"). As a result, employers are expected to gravitate quickly to the government plan.

Currently, insurers are picking up the tab for "cost shifts" (and transfering the cost of the cost shifts to the insured). 2009 Vermont Health Care Cost Shift Analysis, February 2009 defined "cost shift" as,

“In its simplest form, one can think of the cost shift as a subsidy. The Cost Shift Task Force report stated that, from the perspective of a payer of health care costs, the cost shift is defined as: “The payment of higher prices (above cost) paid by one or more payer groups to offset lower prices (below cost) paid by other payers.” In layman’s terms, this is often referred to as “charging Peter to pay for Paul”. From the perspective of a hospital, it is a pricing mechanism used to achieve revenues to support services provided to all patients when payments from some payers do not cover the costs incurred by those patients.”

Hospitals shift costs of costs of services not paid by Medicare or Medicaid, "charity care" and "charge-offs" to those patients who can pay, primarily the insurance companies. In turn, the insurance companies increase their premiums to the buyers of insurance to cover those extra costs.

The problem with the "public option" is that as the numbers of people covered under the "public option" grows, the amount of the cost shift to private insurers will dramatically increase. At the same time, the numbers of people insured by private insurers will decrease. With fewer people picking up an ever growing volume of cost shifts, the premiums charged by the insurance companies will need to rise dramatically, making them even less competitive, driving away even more employers to opt for the "public option". In a very short time, the "public option" is likely to be the "only option".

In short, with a "public option", very quickly, the health "insurance" industry will be a single payor system run by the government. Maybe the House Bill 3200 does not immediately set up a "government takeover" of the health insurance industry, but that is likely to be the ultimate result.

Is that what we want?


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Thursday, August 13, 2009

Republicans Support Health Care Reform - Just not the President and the Democrat Congress's Proposals

Lest the Republicans be labeled the "Party of NO", let it be known throughout the land that Republicans do have a plan for health care reform that does address the problems of cost control, more access to health care and promoting healthy living and quality care for all Americans. See House GOP Solutions Group Outlines Health Care Plan to Increase Affordability, Accessibility, Availability

What is clear, however, is that the Republican proposal maintains a much higher level of individual choice, including protecting Americans from being forced into a new government-run health care plan "that would: a) eliminate the health care coverage that more than 100 million Americans currently receive through their job; b) limit your choice of doctors and medical treatment options; and c) result in the federal government taking control of your health care."

Although this is not yet a detailed plan (i.e., it does not run over 1000 pages, just 4), you may wish to take a look, to see if this is not more in line with what would be acceptable to you.


Another View on Controlling Health Care Costs

The American Thinker article How to 'bend the curve down' in healthcare costs, August 11, 2009, is another interesting look at the causes of the increases in health care costs.

The first point made is that the July 26 letter from the Congressional Budget Office which says,

"The net effect of the coverage specifications, which affect both spending and revenues would add an estimated $1,042 billion to cumulative deficits (over the 2010-2019 period).... The net cost of the coverage provisions would be growing at a rate of more than 8 percent per year in nominal terms between 2017 and 2019; we would anticipate a similar trend in the subsequent decade."

effectively sets aside the administration's claim -- "that we can simply increase the number of individuals covered by government insurance and decrease the growth rate of healthcare spending over time".

Simply put, providing complete medical care coverage to more people than currently have access to such care raises costs. Duh! I wish I could have figured that out on my own. Right!

They say, "Douglas Elmendorf, the director of the CBO has stated:

"Spending on health care has generally grown much faster than the economy as a whole, and that trend has continued for decades. In part, that growth reflects the improving capabilities of medical care -- which can confer tremendous benefits by extending and improving lives. Studies attribute the bulk of cost growth to the development of new treatments and other medical technologies."

This tracks the results of a comprehensive study cited in the article.

They also say, "Countries that utilize forms of socialized healthcare spend less than the United States because they ration care, to some degree or another, by restricting what services patients can have access to through a variety of mechanisms."

They also document that the U.S. leads the world in "disease specific outcomes" as a result of our access to advanced technology, despite the claims that we lag behind other countries in health services.

They support, "Expanding access for individual's to purchase health insurance outside their state would lead to a significant decrease in the number of uninsured individuals and increase quality and transparency in the medical marketplace. While not all individuals would be able to purchase plans that provide the same level of benefits, the goal should be for all individuals to have plans that cover major and unavoidable medical expenses. "

"The last piece of the equation to decrease healthcare inflation in a meaningful way is to pursue aggressive tort reform to decrease defensive medicine practices. Democratic lawmakers will avoid this issue at all costs because they are indebted to the trial lawyers who are among their largest contributors. . . . .

Defensive medicine is medical practice based on fear of legal liability rather than on patients' best interests. It has been driven to absurd levels in America by the threat of frivolous lawsuits which cost physicians and hospitals so much to contend that they end up settling in many cases where they have not acted negligibly just to save money. This has resulted in ballooning medical expenditures.

The Massachusetts Medical Society found that 83% of physicians surveyed reported practicing defensive medicine. One quarter of all CT scans, MRIs, Ultrasounds and specialty referrals were ordered for defensive reasons. This number is astounding, and if we extrapolate it to total healthcare spending we're looking at close to $ 500 billion annually! A more conservative estimate from The Pacific Research Institute puts the costs of defensive medicine at more than $ 200 billion annually.

Tort reform should focus on caps on damages and abolition of punitive or exemplary damages as well as restrictions on contingent and conditional fees. Although historically prohibited by common law, the USA now allows lawyers' fees to depend on the outcomes of their cases. Empirical research suggests that restrictions on contingent fees generally lead to the elimination of the weakest claims."

From this article, it appears that access to insurance policies from across state lines might be a good idea, as well as limiting medical malpractice suits.


Looking at France's Universal Care Program

The Wall Street Journal article France Fights Universal Care's High Cost, August 9, 2009, is worth reading, as it compares and contrasts France's system with the U.S., both as is and as proposed. Although the "fight" to control costs in France is ongoing, what is worth noting is they spend 11% of their GDP on health care services while the U.S. spends 16%. A notable difference is the level of compensation doctors get there, much lower than in the U.S.

A telling comment in the article summarizes the current debate in the U.S., "The French system's fragile solvency shows how tough it is to provide universal coverage while controlling costs, the professed twin goals of President Barack Obama's proposed overhaul."


Controlling Health Care Costs

When looking to solve a problem, it is recommended that you first identify the causes of the problem. PricewaterhouseCoopers did a study of the "waste" in our current health care systems, with the radical idea that if you could first identify the waste, perhaps you could then laser focus on those causes to reduce or eliminate the waste that is causing higher health care costs.

Now, the following list is not totally comprehensive, i.e., not exclusive, as there are other ways that costs can be controlled, but this is a good start, from an objective source.

Health care's big money wasters: More than $1.2 trillion spent on health care each year is a waste of money. Members of the medical community identify the leading causes., August 10, 2009. CNN publishes PricewaterhouseCoopers estimates of annual “waste”:

  • Risky behavior such as smoking, obesity and alcohol abuse - $493 billion
  • Too many tests - $210 billion
  • Those annoying claim forms - $210 billion
  • Going back to the hospital - $25 billion
  • Staffing turnover - $21 billion
  • Medical “oops” - $17 billion
  • Using the ER as a clinic - $14 billion
  • Prescriptions written on paper - $4 billion
  • You forgot to wash your hands - $3 billion
  • Over-prescribing of antibiotics - $1 billion


More from the White House on Health Care Reform

David Axelrod, Senior Adviser to the President, The White House [] in his e-mail today also said,

"8 common myths about health insurance reform:
  1. Reform will stop "rationing" - not increase it: It’s a myth that reform will mean a "government takeover" of health care or lead to "rationing." To the contrary, reform will forbid many forms of rationing that are currently being used by insurance companies.
  2. We can’t afford reform: It's the status quo we can't afford. It’s a myth that reform will bust the budget. To the contrary, the President has identified ways to pay for the vast majority of the up-front costs by cutting waste, fraud, and abuse within existing government health programs; ending big subsidies to insurance companies; and increasing efficiency with such steps as coordinating care and streamlining paperwork. In the long term, reform can help bring down costs that will otherwise lead to a fiscal crisis.
  3. Reform would encourage "euthanasia": It does not. It’s a malicious myth that reform would encourage or even require euthanasia for seniors. For seniors who want to consult with their family and physicians about end-of life decisions, reform will help to cover these voluntary, private consultations for those who want help with these personal and difficult family decisions.
  4. Vets' health care is safe and sound: It’s a myth that health insurance reform will affect veterans' access to the care they get now. To the contrary, the President's budget significantly expands coverage under the VA, extending care to 500,000 more veterans who were previously excluded. The VA Healthcare system will continue to be available for all eligible veterans.
  5. Reform will benefit small business - not burden it: It’s a myth that health insurance reform will hurt small businesses. To the contrary, reform will ease the burdens on small businesses, provide tax credits to help them pay for employee coverage and help level the playing field with big firms who pay much less to cover their employees on average.
  6. Your Medicare is safe, and stronger with reform: It’s myth that Health Insurance Reform would be financed by cutting Medicare benefits. To the contrary, reform will improve the long-term financial health of Medicare, ensure better coordination, eliminate waste and unnecessary subsidies to insurance companies, and help to close the Medicare "doughnut" hole to make prescription drugs more affordable for seniors.
  7. You can keep your own insurance: It’s myth that reform will force you out of your current insurance plan or force you to change doctors. To the contrary, reform will expand your choices, not eliminate them.
  8. No, government will not do anything with your bank account: It is an absurd myth that government will be in charge of your bank accounts. Health insurance reform will simplify administration, making it easier and more convenient for you to pay bills in a method that you choose. Just like paying a phone bill or a utility bill, you can pay by traditional check, or by a direct electronic payment. And forms will be standardized so they will be easier to understand. The choice is up to you – and the same rules of privacy will apply as they do for all other electronic payments that people make. "

You may wish to compare these statements to some of the provisions ofthe bill itself. To see a list of some of the provisions of the actual bill, see Who Can You Believe? Part 2. Some of the fears voiced by the opposition are probably overblown, but when you compare the statements above with the provisions of the bill, which do you choose to believe?


I received an e-mail today from David Axelrod, Senior Adviser to the President, The White House [] which says,

"P.S. We launched this week to knock down the rumors and lies that are floating around the internet. . . .

8 ways reform provides security and stability to those with or without coverage:
  • Ends Discrimination for Pre-Existing Conditions: Insurance companies will be prohibited from refusing you coverage because of your medical history.
  • Ends Exorbitant Out-of-Pocket Expenses, Deductibles or Co-Pays: Insurance companies will have to abide by yearly caps on how much they can charge for out-of-pocket expenses.
  • Ends Cost-Sharing for Preventive Care: Insurance companies must fully cover, without charge, regular checkups and tests that help you prevent illness, such as mammograms or eye and foot exams for diabetics.
  • Ends Dropping of Coverage for Seriously Ill: Insurance companies will be prohibited from dropping or watering down insurance coverage for those who become seriously ill.
  • Ends Gender Discrimination: Insurance companies will be prohibited from charging you more because of your gender.
  • Ends Annual or Lifetime Caps on Coverage: Insurance companies will be prevented from placing annual or lifetime caps on the coverage you receive.
  • Extends Coverage for Young Adults: Children would continue to be eligible for family coverage through the age of 26.
  • Guarantees Insurance Renewal: Insurance companies will be required to renew any policy as long as the policyholder pays their premium in full. Insurance companies won't be allowed to refuse renewal because someone became sick. "

Now, I don't see a single provision listed which is in any way aimed at controlling health care costs. They all extend coverage to someone, attempting to pander to someone's self interest.

But note, the administration is trying to change the discussion from "health care reform" to "health insurance reform", thinking that people may be more agreeable to "sticking it to the insurance companies".

Now, I am not saying that some of the changes mentioned might not be a good thing. All I am saying is that it is disingenuous to make this the thrust of health care reform to "keep from busting the budget" or to "revitalize small business" as the administration claims.


Who Can You Believe? Part 2

I am copying and pasting something I received in an e-mail. I have not checked the bill itself to verify the accuracy of the statements, so I can't vouch for it. However, it points out a problem.

We hear many statements from the administration saying that something the opposition to the health care reform bill says in the bill just is not there. The oppositon is being called mobsters and "un-American". Yet, when we look at the provisions of the bill itself, there they are.

Many of the provisions being objected to are pointed out in the document below. Perhaps you would want to look up the specific provisions so that you can be the judge of who is speaking the truth.

- - - - - - Start of document - - - - - -

"Highlights from the Obama Health Care Bill:

Aug. 1, 2009

The complete text of H.R. 3200 can be found on the internet. You will not read all 1017 pages. Neither has your Congressman. Neither have your Senators. Neither has the President.

This is why, on July 31, when the bill finally was voted out of committee, House Democrats were handed a card with the “good” highlights, so that they could memorize them. The Democrats who opposed the final bill were Reps. John Barrow of Georgia, Rick Boucher of Virginia, Jim Matheson of Utah, Charlie Melancon of Louisiana and Bart Stupak of Michigan.

Then they were asked by Nancy Pelosi to go back to their districts and persuade voters to support the bill. She told them: “The president of the United States will be out front as the drum major. We will be the drumbeat across America.”

Here are some of the bad highlights. After you read them, you will begin to see what you will be facing if this bill passes.

As you read each of them, ask yourself two questions: (1) What will be the effect on the supply of future physicians? (2) What will be the effect on the demand for medical services?
* * * * * * * * * * * * *
Pg 22 of the HC Bill mandates the Government will audit books of all employers that self insure.
Pg 30 Sec 123 of HC bill—a Government committee (good luck with that!) will decide what treatments/benefits a person may receive.
Pg 29 lines 4-16 in the HC bill—YOUR HEALTHCARE WILL BE RATIONED!
Pg 42 of HC Bill—The Health Choices Commissioner will choose your HC Benefits for you.
PG 50 Section 152 in HC bill—HC will be provided to ALL non US citizens, illegal or otherwise.
Pg 58 HC Bill—Government will have real-time access to individual’s finances and a National ID Healthcard will be issued!
Pg 59 HC Bill lines 21-24 -- Government will have direct access to your bank accts for election funds transfer.
PG 65 Sec 164 is a payoff subsidized plan for retirees and their families in Unions & community organizations (read: ACORN).
Pg 72 Lines 8-14 Government will create an HC Exchange to bring private HC plans under Government control.
PG 91 Lines 4-7 HC Bill—Government mandates linguistic appropriate services. Example—Translation for illegal aliens.
Pg 95 HC Bill Lines 8-18 -- The Government will use groups, i.e. ACORN & Americorps, to sign up individuals for Government HC plan.
PG 85 Line 7 HC Bill—Specifics of Benefit Levels for Plans. AARP members—your Health care WILL be rationed.
PG 102 Lines 12-18 HC Bill—Medicaid Eligible Individuals will be automatically enrolled in Medicaid. No choice.
pg 124 lines 24-25 HC—No company can sue Government on price fixing. No “judicial review” against Government Monopoly.
pg 127 Lines 1-16 HC Bill—Doctors/ AMA—The Government will tell YOU what you can earn.
Pg 145 Line 15-17 -- An Employer MUST auto enroll employees into public option plan. NO CHOICE.
Pg 126 Lines 22-25 -- Employers MUST pay for HC for part time employees AND their families.
Pg 170 Lines 1-3 HC Bill—Any NONRESIDENT Alien is exempt from individual taxes. (Americans will pay.)
Pg 195 HC Bill—officers & employees of HC Admin (the GOVERNMENT) will have access to ALL Americans’ finances and personal records.
PG 203 Line 14-15 HC—“The tax imposed under this section shall not be treated as tax” Yes, it says that.< /div>
Pg 239 Line 14-24 HC Bill—Government will reduce physician services for Medicaid. Seniors, low income, poor affected.
Pg 241 Line 6-8 HC Bill—Doctors (doesn’t matter what specialty) will all be paid the same.
PG 253 Line 10-18 -- Government sets value of Doctor’s time, professional judgment, etc. Literally, value of humans.
PG 265 Sec 1131 -- Government mandates & controls productivity for private HC industries.
Pg 317 L 13-20 -- PROHIBITION on ownership/investment. Government tells Doctors what/how much they can own.
Pg 317-318 lines 21-25,1-3 -- PROHIBITION on expansion—Government will mandate hospitals cannot expand.
Pg 354 Sec 1177 -- Government will RESTRICT enrollment of Special needs people!
PG 425 Lines 4-12 -- Government mandates Advance Care Planning Consultations. Think Senior Citizens end of life prodding.
PG 425 Lines 22-25, 426 Lines 1-3 -- Government provides approved list of end of life resources, guiding you in how to die.
PG 427 Lines 15-24 -- Government mandates program for orders for end of life. The Government has a say in how your life ends.
PG 429 Lines 10-12 -- “advanced care consultation” may include an ORDER for end of life plans. AN ORDER from the Government to end a life!
Page 472 Lines 14-17 -- PAYMENT TO COMMUNITY-BASED ORGANIZATION. 1 monthly payment to a community-based organization. (Like ACORN?)"

- - - - - - End of document - - - - - -

Comments? What do you see?

Monday, August 10, 2009

Who Can You Believe?

Today I got two posts, which contradict each other. This debate is getting nasty, and some are using ummmm, well, saying things that just aren't true to try to convince the masses that their side is right.

First, from the Obama camp (David Axelrod, The White House []:

"Anyone that's watched the news in the past few days knows that health insurance reform is a hot topic — and that rumors and scare tactics have only increased as more people engage with the issue. Given a lot of the outrageous claims floating around, it’s time to make sure everyone knows the facts about the security and stability you get with health insurance reform. That’s why we’ve launched a new online resource — — to help you separate fact from fiction and share the truth about health insurance reform. Here's a few of the reality check videos you can find on the site:

However, U.S. Congressman and House Republican Leader John Boehner says it just ain't so:


August 10, 2009 House Republican Leader John Boehner (R-OH) Permalink

Facing mounting criticism from the American people over President Obama’s proposed trillion-dollar government takeover of health care, the White House has responded this morning by launching a “reality check” website, featuring videos and preloaded messages that purportedly debunk “health care myths.” In reality, the website simply recycles the same false claims that the Administration and its allies in Congress have been pedaling for weeks.

After no fewer than five polls released at the end of July showed increasing, if not outright, opposition to government-run health care, and with Members of Congress taking heat from constituents during the August district work period, it’s understandable that the White House is getting nervous about the prospects for its health care experiment.

The following are some of the discredited claims the Administration’s new website repeats:

CLAIM: If You Like It, You Can Keep Your Health Care Plan. Kavita Patel, who works with Senior Adviser Valerie Jarrett, said “if you like your insurance, if you like the kind of health care you have right now and the plan you have, you can keep it.” She also stated that “the notion that the government will interfere with what you have…really is laughable.” Linda Douglass of the White House Office of Health Reform also played a clip of President Obama’s June 23, 2009 press conference where he stated that: “If you like your plan and you like your doctor, you won't have to do a thing. You keep your plan. You keep your doctor. If your employer is providing you good health insurance, terrific, we're not going to mess with it.”

FACT: That’s simply not true. Both the Associated Press and ABC News have already debunked this pledge, noting that White House officials have acknowledged the president’s rhetoric shouldn’t be taken “literally.” An independent study conducted by the Lewin Group predicted that 114 million Americans may be forced out of their current health care coverage, including more than 106 million Americans who currently have employer-provided health care. The point is, this White House cannot guarantee that Americans will be able to keep their plan – because they don’t know how many employers are going to drop their coverage altogether if their plan goes into effect.

Lastly, the Wall Street Journal noted in a July 20, 2009 editorial:“The House bill says that after a five-year grace period all Erisa [Employee Retirement Income Security Act] insurance offerings will have to win government approval—both by the Department of Labor and a new ‘health choices commissioner’ who will set federal standards for what is an acceptable health plan. This commissar—er, commissioner—can fine employers that don’t comply and even has ‘suspension of enrollment’ powers for plans that he or she has vetoed, until ‘satisfied that the basis for such determination has been corrected and is not likely to recur.’ In other words, the insurance coverage of 132 million people—the product of enormously complex business and health-care decisions—will now be subject to bureaucratic nanomanagement.”

CLAIM: Reform Will Benefit Small Business – Not Burden It. Christina Romer, Chair of the Council of Economic Advisers stated that, “The facts are very clear. The system doesn’t work for small businesses now, and reform is very much aimed at easing the burdens, making it easier for this crucial sector of our economy.”

FACT: A broad coalition of job-creating groups – representing small businesses to homebuilders and manufacturers – has come together to oppose the Democrats’ government takeover of health. In a letter to Congress, this coalition wrote: “We are specifically concerned with a proposal to mandate that employers either provide health insurance or pay a new eight percent payroll tax. The House ‘pay or play’ proposal is even more troublesome because employers are also mandated to pay the majority of employee premiums. Exempting some micro-businesses will not prevent this provision from killing many jobs.”

And the National Federation of Independent Business (NFIB), representing small businesses across the country, also weighed in, saying it would destroy jobs and reduce access to affordable health care: “NFIB opposes the [Democrats’ bill] because it threatens the viability of our nation’s job creators, fails to increase access and choice to all small businesses, destroys choice and competition for private insurance and fails to address the core challenge facing small businesses – cost.”

CLAIM: Medicare Will Not Face Cuts Under Democrats’ Plan. Robert Kocher of the National Economic Council repeated president Obama’s claim that “nobody is talking about reducing Medicare benefits.”

FACT: Today’s New York Times rebuts this claim: “To help finance coverage for the uninsured, Congress would squeeze huge savings out of Medicare, the program for older Americans and the disabled. These savings would pay nearly 40 percent of the bills’ cost. The legislation would trim Medicare payments for most services, as an incentive for hospitals and other health care providers to become more efficient. The providers make a plausible case that the cutbacks could inadvertently reduce beneficiaries’ access to some types of care.” An independent analysis of the House Democrats’ government-run plan shows the legislation slashes Medicare to the tune of $361.9 billion. That means fewer choices and lower health care quality for our nation’s seniors – exactly what then-Senator Obama blasted last fall, during the presidential campaign.

Republicans agree that Congress should pursue meaningful health care reform, but none of the legislation that Democratic leaders are pursuing at this time actually meet this description. Instead, their proposals will increase costs, lower quality, and cause millions of Americans to lose their current health coverage.

Americans want health care reform, but the Democrats’ go-it-alone, government takeover of health care isn’t the way to improve the best health care system in the world. House Republicans have a plan that will reduce costs, expand access and increase the quality of care in a way we can afford – without raising taxes on small businesses or middle class. To read more about the House Republicans’ plan, click HERE."

Wow! Now there are two widely different opinions. From what I have seen, I tend to trust Boehner more than the claims for the adminstration's proposal, especially when proponets begin to call the opposition "mobsters", "unAmerican", and other such character assassinations. These inappropriate tactics have no place in serious discussions about such an important topic, so critical to so many patriotic Americans.


Sunday, August 9, 2009

Funding for Public Employee Retirement Plans and Post-Retirement Benefits Under Pressure

Negative investment returns after September, 2007 have increased the challenges to proper funding of public employee retirement plans in Michigan, as well as the rest of the U.S. For a full analysis, see Michigan State and Local Government Retirement Systems, July 2009, Report 356 by the Citizens Research Council of Michigan

The report says:

“Michigan is one of nine states in which the constitution states that participants in a public retirement system have a guaranteed right to a benefit that has been promised, and that accrued financial benefits cannot be eliminated or diminished. . . .

In Michigan, state and local government pension plan benefits are protected by Article IX, Section 24 of the 1963 State Constitution, which provides that "The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby. Financial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities." Benefits that have been earned by covered employees for work performed are a contractual obligation of that unit of government. . . . Michigan public employers are required to set aside funds to pay pensions as those pensions are earned. Future pension benefits may be changed, both for new hires and for the future service of current employees, as long as benefits accrued are not impaired or diminished.”

However, an issue arises concerning the post-retirement benefits of health, dental and vision insurance.

“Health benefits are promised, but various courts have ruled that they are not obligations in the same sense as pension benefits. (That could change, though, as this spring the House of Representatives adopted legislation that would give state employees, including school employees, a contractual right to retiree health care.)

The health plan is a “pay-as-you-go” system. Instead of setting aside money in advance, it uses each year’s school contributions to pay each year’s bills. At this point, according to the MPSERS report, the state has promised the equivalent of about $25 billion in health care to current and future school retirees.” Retirement fund losses will cost schools, but how much?, April 20, 2009, from the Mackinac Center for Public Policy

The legislation mentioned is House Bill 4073, which would create a contractual right of state employees to post-retirement health benefits and which passed by the House with all Democrats voting for it against unanimous Republicans opposition on March 4, 2009 and sent to the Senate, where it has not moved due to the Republican majority in that chamber.

The Constitution rightly protects vested contractual rights in retirement plans. The bill would create additional vested rights. When state and local governments are pressed financially, this is no time to decrease the flexibility of the state to balance its budgets by guaranteeing post-retirement health benefits to state employees.


P.S. Michigan State and Local Government Retirement Systems, July 2009, Report 356 by the Citizens Research Council of Michigan is an excellent source of information on the various state and local public employee retirement plans. It contains options for cost control, but does not make any recommendations.

Saturday, August 8, 2009

The Mackinac Center Weighs in on the Idea of a Statewide Health Insurance Plan for Public Employees

On Balance, School Health Insurance Proposal an Improvement, By Mr. Jack P. McHugh, August 4, 2009

This article from the Mackinaw Center for Public Policy states that the idea is a good idea because creating a statewide health care plan for public employees would better match the bargaining power of the employees and the state than the current MEA/MESSA vs. local school district board faceoff. A con is that the political muscle of numerous MEA members in each legislative district might create extreme pressure on the state legislators to grant excessively generous benefits. On balance, the pros outweigh the cons. A well written piece.


Michigan House of Representatives Republican Caucus Plan

For a full version of the Michigan House of Representatives Republican Caucus Plan for balancing the state budget and not raising taxes, go to

Even if you might not agree with all of the specifics, at least here are some details for how we might avoid any tax increase.


Friday, August 7, 2009

The Michigan Legislature’s Balancing Act – or Not

"Job No. 1 is balancing the state budget," said Michigan Chamber of Commerce CEO Rich Studley. "Job No. 2 is balancing the state budget and Job No. 3 is balancing the state budget. We think it's important to get the right steps in the right order."

Studley was talking about efforts to pass the State of Michigan’s fiscal year 2010 budget starting October 1, with recent estimates putting the projected deficit as high as $2.7 billion. The longer run issue is to create a tax climate in Michigan that's fair and attractive to businesses while finally returning state government to stable financial footing – and ending the structural tax and spending problem that has bedeviled legislators for years.

House Republicans, in the minority (Democrats hold a 67-43 edge over Republicans in the 110-member House), unveiled a proposal last Wednesday to significantly cut state spending for the budget year, freeing up more federal stimulus money for road construction and job creation programs.

The proposal would freeze state hiring and employee pay, trim spending in several departments, privatize some prison services and make dozens of other changes to either cut or save nearly $1.4 billion. That would allow the state to take about $700 million from the federal Recovery Act, now expected to help fill general budget deficits, and spend it in other places. House Republican Leader Kevin Elsenheimer of Kewadin said the plan would balance Michigan's budget without tax or fee increases.

Meanwhile, Republicans who control the state Senate have voted for spending cuts of more than $1 billion, including the elimination of the $140 million scholarship program and a $110 per student funding reduction for Michigan's K-12 schools. But many of the Democrats who run the state House don't want to cut nearly that much.

Governor Granholm Democratic governor has proposed cuts to tax revenue sharing payments that help local governments pay for police, fire departments and other services. But she won't support even deeper cuts passed by the Republican-led Senate. She also has supported scaling back some tax incentives or closing what she calls "loopholes" for "special interests" as revenue enhancers. She has not, however, released her list of just which of the estimated $36 billion “tax expenditures”, also known as “silent spending”, she would eliminate or scale back.

Also, much of the upcoming budget hole could be filled with money from the federal stimulus package. But cuts still would have to be made in the next fiscal year, so avoiding the pain this year will again involve “kicking the can down the road” another year.

What is clear is that no one wants to touch tax increases or to address the long term structural budget deficit the state faces. Unless addressed this year, this will likely need to wait until 2011 with a new Governor and a new legislature, as few legislators will have the stomach for the fight in the 2010 election year. A good primer on the subject, however, can be found at SPECIAL REPORT: Michigan's tax reform playbook by The Center for Michigan, August 6, 2009.


Thursday, August 6, 2009

A Statewide Health Insurance Plan for Michigan's Public Employees?

Peter Luke’s article “Employee health costs a linchpin for broader Michigan change”, July 19, 2009, focuses on Michigan House of Representatives Speaker Andy

“Dillon's proposal to pull all government employees in Michigan under one health insurance benefit program, and to couple it with a tax overhaul, poses a direct challenge to risk-averse Democrats and Republicans who find it politically safer to defend the respective interests of the status quo.

A single health insurance standard for some 400,000 teachers, emergency responders, caseworkers and engineers save significant sums over time because it assumes employees would shoulder a greater share of their health benefits cost. A 15-percent assessment on a $12,000 policy for a government worker with dependents works out to $1,800 annually.”

Dillon’s announcement picks up the thrust of numerous previous Republican efforts to bring Michigan public employee health benefit costs under control. Coming from a Democrat, especially the Democrat Speaker of the House, controlled by a majority of Democrats, this gives the idea a better chance of being enacted than before. That’s a good thing. The bad thing is that this is still just an idea, with the details to be worked out.

The details will not be simple. Take the situation with public schools. Many public school districts are facing not only single year budget deficits, but chronic multi-year deficits resulting in negative “general fund balances”. Even those districts without budget deficits feel pressed by the current funding situation in Michigan. But the pressures amongst districts are not being felt equally.

Many districts under financial pressures for years have already taken significant steps towards controlling their employees’ health care costs. Some districts have gone from the earlier MESSA SuperCare 1 (a truly Cadillac plan) to MESSA Choices, then Choices 2 (comparable to BCBSM Flexible Blue). Drug co-pays have gone from $2/$2 to $10/$20 (co-pays for generic drugs/brand name drugs). Some districts have negotiated insurance premium “caps” paid by employers, shifting the cost of the premiums in excess of the maximums paid by the employer to the employees. Some districts have adopted high Deductible Plans and Health Savings Accounts, attempting to induce more informed consumerism into health care service purchases to reduce the long-term costs of health care. Other districts have gone to self-insured plans, purchasing a major medical plan to cover the big losses and self-insuring for the deductibles under those high deductible plans – usually for the employees not represented by the Michigan Education Association, the owner of MESSA.

Thus, any savings generated by a new statewide plan will affect different school districts differently. If the state were to simply impose upon school districts a new, lower cost plan, some districts might actually see a cost increase, rather than a cost decrease, while other districts that have not previously negotiated cost savings measure may save money. It would probably turn out that districts which have been most pressed financially in the past are those who have already made these changes and not realize the savings. Hmm, that does not seem to solve their problem.

Nonetheless, to the extent that savings throughout the system may be achieved, Michigan needs to consider new ways of doing business. Michigan is highly likely to lag the nation in economic recovery, so it may be awhile before we are singing, “Happy days are here again…” We must seize upon opportunities to be more frugal, despite the entrenched special interest groups that will oppose changes.


Will Health Care Reform Result in Rationing of Services? Of course…..

One of the concerns we hear is that the Health Care Reform proposals will result in a “rationing” of health care services. While out walking one day, I realized that we already have rationing in our health care system. What’s that you say? Well, here comes the result of some of the 27 courses in economics and/or econometrics:

All scarce resources are rationed. Mostly in our economy, this is done through pricing, through the dynamics of supply and demand. Everyone does not get all of what they want.

With access to health care for the elderly primarily paid by Medicare, services are rationed according to the rules of Medicare and the Medicare Supplement Insurance the elderly have. For youth covered by SCHIP, services are rationed according to that program’s rules. For the rest of U.S. residents, health care services are rationed according to the rules of the marketplace – i.e., supply and demand. People with health insurance with complete coverage are somewhat restricted in the services they can access paid by insurance by the insurance policy coverage provisions. Beyond that, health care services are rationed by people’s ability to pay, related to their varying levels of wealth.

It is readily understood that not all available medical services make sense in every circumstance. Let’s explore an end-of-life scenario to illustrate. Assume Mary is an 82 year old widow with no children. no grandchildren and no other close family. She is suffering from cancer and has been told she has 6 months to live.

  • Her hip causes here extreme pain when she walks, and is told that that could be relieved if she were to get a hip replacement, followed by a four month physical therapy program. Should she? Most would question whether that would make sense in this case.
  • She discovers she has some rare liver disease which causes her to slowly lose weight and is slowly wasting away. Surgery that costs $30,000 which would take a three week recovery period would solve the problem. Should she have this surgery?
  • She falls and breaks her leg. This requires that she have her leg in a cast, and be in traction for two weeks to allow the leg bone to heal properly. Should she be provided this service?
  • She suffers from high blood pressure. She is told that if she would take pills costing $400 per month her blood pressure would be controlled. Should she be provided the pills?

Some of the above health care services some would agree should be provided while others may say they should not be. This exercise shows that it probably does not make sense for all possible health care services to be provided in all cases.

The questions arise, “Where do you draw the line? What are the criteria for the decision?” For example, in the case of Mary described above, does it matter whether Mary has a huge loving family rather than being without? Would it matter if she also suffered from dementia? Would it matter if she were a popular, former state Governor? A famous singer? A Moslem? A black? A man? Should the decision be based on cost, such that the pills for the high blood pressure are OK, but invasive surgery is not? Does recovery period affect the decision? Does the accidental nature of the leg break affect the decision versus a chronic problem such as the high blood pressure?

Another question is, “Who decides?” Currently, those covered by insurance or who have sufficient wealth to have reasonably full access to services feel they have the choice, and are loath to give up that choice. This to some extent explains why polls show that about 80% of people are satisfied with the coverage they have. (Another reason is that they are not paying the costs of the insurance but receive the benefits – a “deal” that is perceived as much more advantageous than if they had to pay for the coverage.)

Under a government plan, the decisions of “who gets what services” are determined by the provisions of the plan, such as is currently done through Medicare and SCHIP. To the extent that savings in the system seek to be achieved by restricting access, then there must be a mechanism for doing so, either through a hard and fast written rule of some sort or some decision-making mechanism. Even a “hard and fast written rule” would require someone to administer the rule, thus still requiring some decision-making person or body. Leaving the decision up to the doctor-patient would not likely be perceived as any restriction at all, so that means that the decision would need to be shifted to some independent their party or “board”.

Arguments against that are that (1) the decision would then be made by someone not as familiar with the specific circumstances of each individual case (and therefore introduce the possibility of poor decisions made) and (2) the loss of choice by the individual.

People will line up for and against any Health Care Reform largely along lines based on their self-interest. If they are happy with their current situation, with health care services rationed in a manner which currently favors them, they will be more likely to oppose changes. If currently rationed out of access to health care services (such as people from the age of 19 – 65 and who are not covered by employer paid insurance), they will likely favor their increased access to health care services, even with restrictions on how much or what kind of service they can get. Anything would be better than nothing.

The position for the status quo was stated as follows:

"To me it seems that the industry is saying they will cut health care costs by rationing care," said Greg Scandlen, founder of Consumers for Health Care Choices. "That could mean they will pay only for services that have proven to be effective. . . . I think people can ration their own care and not spend on procedures that aren't worthwhile," Scandlen said. "Consumers don't need a government committee or insurers to make that decision for them."
How they'll save $2 trillion on health care, June 9, 2009,

It appears clear that increased access to health care services by those currently denied (or limited) access will increase total costs to the health care system. I can’t see how it cannot. Unless significant increases in the supply of these services simultaneously occurs, some shortages of supply (or capacity) is bound to occur. This alone will result in the necessity of some mechanism for deciding who has priority of access. If the mechanism is not price and current access to insurance, what mechanism would be acceptable to ration those services?

More Concerns about Health Care Reform

A July 24, 2009 report entitled "5 freedoms you'd lose in health care reform: If you read the fine print in the Congressional plans, you'll find that a lot of cherished aspects of the current system would disappear."
highlights a few key concerns of many in the U.S. today.

The entire article is worth reading, but here are the main points of what we would lose:
  1. Freedom to choose what's in your plan
  2. Freedom to be rewarded for healthy living, or pay your real costs
  3. Freedom to choose high-deductible coverage
  4. Freedom to keep your existing plan
  5. Freedom to choose your doctors

These are freedoms few of us wish to lose. Small wonder there is a growing outcry about the proposals included in the bills pushed by the Democrats in the majority in both houses of Congress. Despite the historic victory by President Obama in November, was this what the majority of the people in the country want? An electoral victory is not a mandate to do whatever one wishes once in office, even if you have the power through a majority of the votes in Congress.

Health Care Reform Forum Materials

The following was shared at the Health Care Reform Forum I moderated on Thursday, July 30 at the Ann Arbor District Library:

Health Care Issues/Problems Perceived

  • The nation’s 2009 annual health care bill: $2.5 trillion—$18 out of every $100 produced by the domestic economy (gross domestic product or GDP) - and is projected to go to one-third of GDP by 2030.
  • Projected health expenditures in 2018: $4.4 trillion—$1 out of every $5 produced domestically.
  • Health care cost for each man, woman and child: $8,050 in 2009; $12,104 in 2018 (adjusted for inflation).
  • Health‐related spending in the federal budget: $870 billion in 2009—21 percent of total spending—more than amounts projected for Social Security ($680 billion) or national defense ($645 billion, excluding defense health care costs).
  • The federal budget’s share of the national health care bill: 35 percent in 2009.
  • Health care’s rank within overall consumption: #1—Americans spend more for health care than for any other type of good or service including housing, food, or transportation. The health care industry is the third largest private employer after manufacturing and retail operations.
  • Compared with other industrialized nations, the United States spends the most per person but ranks at the bottom of health indicators including infant mortality rates and life expectancy at age 60.
  • 46 million people living in the United States did not have health insurance in 2007. Another 17 million may be underinsured. Those statistics point to inequities in access to and the affordability of health care. [Many of the uninsured use the emergency rooms which cannot turn them away and then don’t pay for the services, which results in the costs being shifted to those who can pay, or by the insurance companies which then tacks those costs onto the insurance premiums.]
  • The high rate of growth in annual health care spending strains public and private budgets. The excessive growth in costs also raises serious concerns about the efficiency and equity of the nation’s health care system. [The cost of health care to businesses creates a competitive disadvantage for domestic companies competing in the world market against companies in other countries where the such health care is unheard of or the government pays for it. The auto bailout relieves some of that disadvantage due to legacy costs from GM and Chrysler.]
  • According to opinion polls, more than four out of 10 Americans rate national health care quality as only “fair” or “poor,” and about twice as many— eight out of 10—are dissatisfied with the total cost of healthcare. Yet when it comes to their own health care experience, people are generally positive about its quality, and most report that they are satisfied with the amount they pay. [A major disconnect, due to the ones who pay for the services are not the ones who use the services, and it is a lot easier to spend someone else’s money than your own.]

Source: Health Care and the Federal Budget. This is a July 21, 2009 release from the Committee for a Responsible Federal Budget that is very informative (and sobering!). The content included in [ ]'s I added to the original work by the CRFB.

Conclusion: Most agree “something” must be done. The question is “what?”

Concerns About Proposed “Solutions”:

  • The plan enacted will not contain health care costs.
  • The costs of health care will increase, further increasing the federal budget deficit and national debt beyond what lenders (including foreign lenders) will be willing to finance, and if willing, only at interest rates that will stifle economic growth.
  • Taxes will have to increase.
  • I may not be able to see the doctor of my choice.
  • I will lose my current excellent insurance coverage.
  • A medical treatment needed to save the life of me, my loved ones or a friend may be denied through a rationing system.
  • People will be counseled near end of life to stop living.
  • Any public “option” will end up being the only option, limiting competition and innovation.
  • Access to personal medical records will be easier to access and be abused.
  • Illegal aliens will be covered.
  • Etc.

The forum was conducted using the National Issues Forum "deliberative dialogue" method. For more information, see