After Streak of Strong Profits,
Health Insurers May See Decline
Aetna, Others Face Dilemma:
Hold Back Price Increases
Or Watch Customers Walk?
Mr. Johnson Drops Coverage
By VANESSA FUHRMANS
July 31, 2006; Wall Street Journal, Page A1
Last year, the top seven U.S. health insurers earned a combined $10 billion -- nearly triple their profits of five years earlier. The windfall came as insurers raised their prices faster than underlying health costs.
Now the good times may be rolling to a halt. Health insurance has become so expensive that many smaller employers are dumping insurance altogether. If insurers don't do something, they may find their business shriveling. Yet if they restrain price increases, or appear to, they get hammered by Wall Street.
Aetna Inc. has found that out twice this year, after each of its quarterly earnings announcements showed medical costs were taking a bigger bite of premium revenue. The first time, in April, Aetna's shares fell 20%. Last week came another 17% plunge as investors expressed fear that the company is restraining premium increases too aggressively.
Aetna Chief Executive Ronald Williams denies that. "We have continued to exhibit strong pricing discipline," he says. "Sometimes that's more than what an employer can afford" but it's necessary to maintain Aetna's financial health, he adds.
Other insurance executives have also suggested they would rather miss their targets for membership than succumb to a price war. David Colby, WellPoint's chief financial officer, says that if the company's profit margin fell by just 0.2 percentage point, "We'd have to gain two million lives to make it up. It doesn't take much analysis to ask, 'From where?' "
Earlier this month UnitedHealth Group Inc. reported a 26% increase in second-quarter net income but said it expects to add only 850,000 new members this year instead of the one million to 1.2 million it originally forecast. WellPoint Inc., which had projected around one million new members, now expects about 700,000, with many coming from Medicaid and other public contracts.
With insurers trying to protect their profit margins, some consumers -- especially those who work for small or midsize businesses -- could be losers as employers trim health benefits or cancel them altogether. Insurers' resolve to price every account at a profitable level means a smaller company with several chronically ill employees or a few premature births can quickly be priced out of the market.
Robert Laszewski, a Washington-based health-care consultant and former insurance executive, says the insurers' strategy can work for only so long before their employer customer base dwindles dangerously. "Where is this industry in four, five years if it can't control health-care costs?" he asks. "It's on a long walk off of a short pier."
Stagnation "is a very real scenario," agrees Jon Rubin, chief financial officer of Cigna Corp.'s health-care business. Cigna, which reports second-quarter earnings Wednesday, saw its share price fall 15% after its first-quarter results.
Yet Mr. Rubin is optimistic about growth, simply because the U.S. has so many uninsured and underinsured people. "It has the appearance of a mature market because we have employers who can no longer afford coverage," he says. "But underneath you still have a growing employee population that needs coverage."
Others say the troubles of employer-based health insurance point to the need for a "single-payer" system in which the government would guarantee or mandate health care for everyone. However, the potential cost of such a system and opposition from those who favor a free-market approach make it an unlikely prospect anytime soon.
Big employers typically pay employees' health costs out of their own coffers and hire an insurer to administer the benefit -- negotiating with doctors over prices and handling the paperwork. At smaller employers, health insurance is truly insurance: The employer pays a premium at the beginning of the year, and the insurer takes on the risk of covering employees' medical bills.
The latter business offers a potential for big profits if covered employees rack up fewer medical costs than expected. That is precisely what was happening until recently. The "risk business" accounts for more than half of most of the big insurers' profits. A typical member in a risk plan currently yields six times the profit that a beneficiary in an employer-paid plan does, according to Goldman Sachs analyst Matthew Borsch. The only problem is that these small-business customers are the least able to absorb fast-rising medical costs and the most likely to be priced out of the insurance market.
Insurers have enjoyed their rising profits without the public vilification they suffered a decade ago. In the 1980s and early 1990s, many believed that insurers could play a leading role in containing costs by rounding up people in tightly controlled health-maintenance organizations. The HMOs cracked down on supposedly unnecessary care by limiting choices of doctors and procedures.
The so-called managed-care revolution collapsed amid a public outcry. HMOs were accused of denying lifesaving treatments. State legislatures rushed to pass bills forcing insurers to pay for various kinds of care. After costs briefly stalled in the mid-1990s, they surged again and forced many HMOs into the red amid a bruising price war.
Insurers found that, instead of playing the bad guy, it was easier to treat surging health costs as an inescapable force of nature -- and to make sure price increases stayed ahead of costs as much as possible. Today, operating margins, once 4% to 5% in a good year, average 8% at the country's biggest insurers.
Aetna's turnaround effort after heavy losses symbolized the strategy shift. Once the country's biggest insurer with 21 million members, it abandoned its growth strategy in 2000 and replaced its management. It sharply raised premiums, especially on unprofitable accounts, and lost eight million members in a few years. In 2002, premiums went up nearly 19%.
The industry's price rises outpaced the increase in health-care costs, especially after 2001 as the rise of cheap generic drugs and higher co-payments for employees curbed spending. Mr. Laszewski, the consultant, says employers tended to accept the increases because they didn't realize health-care inflation was decelerating. "Every year the insurer charges what the benefits manager thought was last year's trend," he says.
Randy Perkinson, chief executive of Advertising Props Inc. in Atlanta, felt the blow from the industry's tougher pricing. His 30-employee company makes packaging prototypes for advertising. For several years insurers told Mr. Perkinson he would have to pay double-digit increases in health-insurance premiums unless he introduced additional plans that spread more costs to employees. His medical costs were roughly half of the premiums he paid between 2002 and 2004, according to his insurance data. But last year, after an employee was severely injured in a highway accident, WellPoint's Blue Cross Blue Shield of Georgia boosted premiums by 30%. It had asked for a 41% increase but came down after Mr. Perkinson agreed to make employees pay even more of their bills out of pocket.
"I'm paying a lot more than I did three years ago and getting a lot less insurance for it," says Mr. Perkinson, who shopped around for a better deal but couldn't find one. "How can they come back to you year after year with 10%, 20%, 30%? The system is broken." The WellPoint unit says it had to increase AdProp's premiums so much to cover the big claims it incurred after the employee's accident.
Health-insurance executives say their business still has lower margins than drug makers and some hospitals. They say they have improved efficiency and used their profits to invest in innovations that keep the cost of health care from rising even faster than it has. Aetna points to its MedQuery system, which uses software to uncover gaps in care, unfilled prescriptions and medical errors. Customers in its risk business get the system for no extra charge.
Nonetheless, high health costs have forced many smaller employers to drop coverage. Today only 59% of employers with fewer than 200 workers provide health benefits, compared with 68% in 2000, according to the Kaiser Family Foundation, a policy-research group in Menlo Park, Calif. Last year, premiums at small firms rose more than 11% while the increase at larger firms averaged 8.9%, according to the foundation.
Two years ago David Johnson opened ImageFreeway Document Solutions LLC, a suburban Atlanta document imaging business. Soon he had to stave off a 22% increase in health premiums by raising employee deductibles -- the out-of-pocket cost before insurance kicks in -- to $1,000 per year from $250. Last fall, after Mr. Johnson and his partner reincorporated their business, Aetna re-evaluated his health plan from scratch because it was technically a new company. With a couple of his staff suffering from chronic ailments, the insurer told him it needed to roughly double his premium. No one else would offer a better price.
Mr. Johnson dropped coverage. "I can't open my doors with that financial burden," he says. Already three of his most experienced employees have left for a bigger company that could offer benefits, he says.
His receptionist, Nirvani Zurzolo, stayed and remains uninsured. She and her husband quickly bought their 10-year-old daughter an individual policy. But as a 47-year-old with previous episodes of high blood pressure, Ms. Zurzolo couldn't afford one for herself. She plans to skip her annual physical. "Bottom line, no health care for me now," she says.
Georgia law offers employers some protection from sharp rate increases. The state requires insurers to price premiums for small employers within 25% of a reference rate, which insurers file with regulators each month. But the reference rates have been surging by 12% to 18% a year since 2002, according to brokers.
George DuMouchel, a benefits consultant and insurance broker who advised Mr. Johnson, says in the late 1990s the market was more fragmented and insurers were eager to grab market share. "I'd take something into the marketplace and come back with 10, 11 bids," says Mr. DuMouchel.
WellPoint, which operates the for-profit Blue Cross Blue Shield of Georgia, has about 40% of the state's market, while UnitedHealth and Aetna hold another 25% between them. The 10 largest health insurers control about half of the U.S. market today, up from a quarter a decade ago. The industry has seen a handful of megamergers, such as UnitedHealth Group's purchase of PacifiCare Health Systems last year, and dozens of smaller ones.
Mr. Williams, the Aetna chief executive, says some regional competitors in a few markets are offering cut-rate deals for small employers. Aetna lost some customers with generally healthy workers, leaving it with a slightly more expensive pool of members.
"Some plans become very competitive and enter at price points that we don't believe are appropriate for us to sell at," he says. Because the competitors tend to pick off employers with healthy work forces, he says Aetna has lost some "very attractive business."
Mr. Williams cautions that this wasn't the only reason for Aetna's disappointing medical-cost results in the second quarter. He cites other factors including one-time spikes in medical costs on one big government account.
The challenge for Aetna and other insurers is keeping prices up without losing members. Aetna says it will fall 17% to 30% short of its original target of one million new members this year.
Jay Gellert, chief executive of insurer Health Net Inc., says the industry can still enjoy plenty of growth if it finds low-cost alternatives to attract uninsured customers. Over the longer term, Mr. Gellert and other executives believe the recent trend toward giving consumers more data on price and quality, with the goal of steering them to cost-effective care, will help bring health-care expenditures under control.
Says Mr. Rubin of Cigna: "We need to drive new solutions because, ultimately, the trends that are reflected in the premium simply are not sustainable. The only viable alternative is the advance of consumerism."
To cut its insurance costs, a US papermaker plans to let workers seek medical care abroad in 2007.
By Patrik Jonsson | Staff writer of The Christian Science Monitor
Carl Garrett, a paper-mill technician in Leicester, N.C., is scheduled to travel Sept. 2 to New Delhi, where he will undergo two operations. Though American individuals have gone abroad for cheaper operations, Mr. Garrett is a pioneer of sorts.
He is a test case for his company, Blue Ridge Paper Products, Inc., in North Carolina, which is set to provide a health benefit plan that allows its employees and their dependents to obtain medical care overseas beginning in 2007.
"It's brand-new and nobody's ever heard of going to India or even South Carolina for an operation, so it's all pretty foreign to people here," says Garrett. "It's a frontier."
Garrett's medical care alone may save the company $50,000. And instead of winding up $20,000 in debt to have the operations in the US, he may now get up to $10,000 back as a share of the savings. He'll also get to see the Taj Mahal as part of a two-day tour before the surgery.
His two operations could cost $100,000 in the US; they'll run about $20,000 in India.
With US health insurance costs soaring, cash-squeezed companies such as Blue Ridge and poor states such as West Virginia are considering affordable plans that may require their employees to travel to India, Thailand, or Indonesia.
Critics say that limited malpractice laws in foreign countries makes such travel risky as well as the prospect of spending 20 hours on an airplane after invasive surgery. Despite the concerns, "medical tourism" is morphing into "global healthcare."
"Global healthcare is coming and American healthcare, which is pricing itself out of reach, needs to know there are alternatives" in order to improve, says Alain Enthoven, senior fellow at the Center for Health Policy in Stanford, Calif.
The average American hospital bill was $6,280 in 2004, twice that of other Western countries, according to the National Coalition on Health Care (NCHC) in Washington.
The cost savings have prompted a few hundred Americans this year to fly to India, Jakarta, or Bangkok for serious medical conditions, receiving heart stints and hip replacements. But most of the some 150,000 "medical tourists" nationwide go for a tooth filling or plastic surgery and a week at a sunny beach resort where the dollar stretches like lycra.
More companies - especially those with smaller company-run plans - are investigating people's claims of good overseas hospital care. The International Standards Organization in Geneva accredits these hospitals and audits American hospitals, too.
Companies are also attracted to the relatively inexpensive price tag for care at foreign hospitals, which have been reported to be up to 80 percent less than in the US. In New Delhi, for example, the Apollo chain of hospitals gives resort-style convalescence care for $87 a night.
• Insurers Health Net of California already contracts with medical clinics on the Mexico side of the US border.
• A West Virginia state legislator introduced a bill this year that would encourage state workers to seek treatment overseas using incentives such as cash bonuses and family travel.
• United Group Programs in Florida, which administers self-insurance programs for small companies, has contracted with a Thailand hospital for its employer clients.
• Inquiries from self-insured employers are brisk at IndUShealth in Raleigh, N.C., which specializes in offshoring serious medical cases such as rotator cuff surgery and gall bladder removal to India.
"We're dealing mostly with companies that are self-funded and have essentially run out of options," says IndUShealth president Tom Keesling.
"It's an amazing trend, and it speaks to the tremendous frustration people feel with how to provide healthcare services in our current environment."
Blue Ridge Paper Products, which makes the DairyPak milk carton, pleaded unsuccessfully with providers for discounts for its 5,000 covered workers.
In the past five years, the company established its own clinic and pharmacy. Blue Ridge decided to try overseas healthcare after it heard that hospitals "rolled out the red carpet" to American patients based on news reports and personal accounts from a North Carolina medical traveler brought in by IndUShealth.
"We want to help our company but also help to drive healthcare reform," says Darrell Douglas, vice president of human resources. "We're very much homebodies ... and the idea of going abroad for fun, let alone healthcare, is foreign to some people. But we do have some adventuresome people, and [Mr. Garrett] is one."
For critics, Americans heading overseas for care shows the severity of the country's healthcare crisis - especially as employers' health insurance premiums have risen 73 percent while average employee contributions have risen 143 percent since 2000, according to the NCHC. Rising costs stem from poor management, inefficiences, waste, fraud, and lack of competition, critics say.
"We're seeing some employers who are seriously beginning to think about doing [global healthcare] and not giving employees an option," says Joel Miller, vice president of operations at the NCHC. "And that has implications for quality of care, and what recourse people have if something goes wrong overseas."
Hospital officials say only a sliver of business will be lost to overseas providers. Yet going overseas for expensive medical services, such as heart bypass surgery, cut into US hospitals profit centers - such as heart units - that are used to underwrite emergency rooms and indigent care.
"[Global healthcare] will limit the amount of money that's available for everybody else to have access to the system and starts to jeopardize access to healthcare for everybody in the community," says Don Dalton, a spokesman for the North Carolina Hospital Association.
Garrett, meanwhile, anticipates movie-star treatment in India. Doctors will operate on his gall bladder and left shoulder, he says, and he will have a 24-hour nurse working only for him while he's recovering. Garrett's experience could affect whether Blue Ridge will proceed with its plan to give its workers the option of going overseas for medical care, the company says.
"Everyone can see this thing could really become a big thing, so they're going to go out of their way to make sure everything is above and beyond the average in the United States," Garrett says.
From the August 16, 2006 edition - http://www.csmonitor.com/2006/0816/p03s03-usec.html
The following individuals were elected by their respective constituencies to serve on the SPAN State Council for a one-year term ending in April, 2006:
Michael Anderson — Boilermakers Local 900
Tim Burga — Ohio AFL-CIO
Bernie Burkett — Transport Workers Union
Chris Farrand — Graphic Communications Union (GCU) Local 546M
Linda Hinton — Communications Workers of America (CWA) District 4
Harold Mitchell — AFSCME Ohio Council 8
Dave Pavlick — United Auto Workers (UAW) Region 2B
Bob Park — American Federation of Government Employees
Dallas Sells — UNITEHERE, Ohio District Council
Health Care Community
Joseph Daprano, M.D.
Alice Faryna, M.D.
Martha Grodrian, R.D., L.D., C.D.E.
Kristopher Keller, DC, DABCO
David Lewis, Medical Student
Hassan Mehbod, M.D.
Johnathon Ross, M.D.
Donald L. Rucknagel, M.D.
Orhan Sancaktar, Medical Student
Michael Seidman, M.D.
David Berenson — Joining Forces
Kathleen Geathers — Women for Racial and Economic Equality
Karen Hansen — Ohio Conference on Fair Trade
Suzette Henderson — Ohio NOW (National Organization for Women)
Vicky Knight — Women Speak Out for Peace and Justice
Mickie Maccabee — Rural Action
Nathan Ruggles — Northeast Ohio American Friends Service Committee
Heather West — Deaf and Deaf-Blind Committee on Human Rights
Barbara Baylor, Minister for Health and Wellness, United Church of Christ
Pam Cobb, M.D., Social Justice Committee, First Unitarian Universalist Church of Columbus
Rev. Bryan Gillooly, Assistant to Bishop for Peace and Justice Ministries, Episcopal Diocese of Ohio
Rev. Leslie E. Stansbery, President, Interfaith Association of Central Ohio
Tony Bourne — Manager, Workforce Development - Dayton Area Chamber of Commerce
Mark Gaskill — Consultant to Business
Tim Kettler — Action Septic
Logan Martinez — Painter
Bob Smiddie — Potter
Other Organizations / Individuals
Tim Bruce — Green Party
Martha Grodrian — Dayton Area Organizer
Robert F. Hagan — State Senator
Sevim McCutcheon — Noble County Organizer
Dale Miller — State Representative
Carolyn Park — Ohio State Labor Party
Michael Skindell — State Representative
Nick Teti — Zanesville/Coshocton Area Organizer
Cincinnati — Bob Park
Cleveland — Bob Parker
Columbus — Mary Lou Shaw, M.D.
Cuyahoga-West — Ron McCutcheon
Greater Miami Valley — Darlene Mehbod
Mahoning Valley — Leonard Grbinick
Southeast Ohio — Warren Haydon
Toledo — Bob Masters
Tri-County — Herman Oden
Region 1 — Dave Pavlick
Region 2 — Bob Masters
Region 3 — Arlene Sheak
Region 4 — Don Rucknagel (Acting)
Region 5 — Alice Faryna
Region 6 — Leonard Grbinick (Acting)
Region 7 — Sheilah Conard
Jerry Gordon — SPAN Ohio Secretary
Barbara Walden — SPAN Ohio Treasurer
By George H. Lesser
Published August 16, 2006
The Washington Times
I have problems with our health insurance "provider," as I suppose some of you reading this do as well.
I had a minor test done in my doctor's office. He injected a little pain killer, did the test, and I was gone in about half an hour. The insurance company refuses to pay half the costs, because the doctor anesthetized me, rather than having an anesthesiologist come. Of course, that would have dramatically increased the cost, but that's what the insurance company demands.
Not too long ago, another doctor sent me to a hospital to have two routine tests performed, which required a general anesthetic in an operating room. My wife went through the same thing a few months before, and the insurance company paid only half because the two tests were performed simultaneously. So I scheduled two visits, on separate days, in the full operating room with the doctor, anesthesiologists, nurses, and who knows what else. I missed two days of work. The insurance company paid twice as much, plus twice the administrative costs for processing two claims. And, of course, I had to run twice the risks of two procedures under general anesthetic. The insurance tail wags the medical dog.
The last time I sought medical help in Italy, I suffered from gastrointestinal distress to such an extent I wasn't eating. If I can't eat in Italy, that is serious. The night before I was due to fly to Washington, I was in a hotel near the Milan airport. I wanted to see my doctor in Washington as soon as possible, so I telephoned him to make an appointment. He questioned me about my symptoms and told me I was too sick to fly. We argued, and then he said I could fly, but only if I got a doctor to prescribe ciprofloxacin ("Cipro") and metronidazole ("Flagyl") for me to start taking that evening.
I asked the hotel for a doctor. They said it would be faster to go to the clinic at the airport. I followed their advice and found a doctor. He wrote out two prescriptions for me, but said the airport pharmacy had just closed. He directed me to the nearest town with an open pharmacy.
I couldn't find the drug store. I did find a hospital. I parked in the parking lot, walked in, and asked if I could get the prescriptions filled. The lady got testy and informed me this was a hospital not a pharmacy. I asked for her advice. She told me: "This is a hospital. We practice medicine. If you would like us to treat you, take a seat in the waiting room." Unable to think of a better course, I went out to my car, grabbed my book, went back into the hospital and settled in for a nice, long read.
After at most five minutes, a male nurse interrupted me. I assumed it was to wrestle with insurance forms in Italian. Instead, the fellow escorted me into a hospital room, where we were joined immediately by a doctor. He spoke English about as well as I speak Italian, so we spoke my language until he ran into problems, then switched to his language until I couldn't find a word. He questioned me closely about my symptoms. He had me lie down on the bed and started poking and asking me how it felt. He had the male nurse draw some blood, and he ran some other tests. He took a medical history and inspected parts of my anatomy that seemed to have nothing to do with the problem.
I was there six hours. The nurse was in the room with me for all but a few minutes. The doctor was there almost all the time. After a while, he got the test results, which showed I did not have food poisoning, but he wanted to observe me a while longer. Eventually, he concluded I had contracted some kind of intestinal bug, and he gave me a couple of days supply of Cipro and Flagyl.
I checked in with the waspish lady at the front desk to ask how much I owed. She asked me if I had parked in the hospital parking lot. I said yes. She said I owed one euro and 50 pence ($2). I asked how much for the medical care and the medicine. She said that was free. When I got back to Washington, I saw my doctor. He had a few tests run in the office, gave me full prescriptions for Cipro and Flagyl, and billed me $1,000.
Most Americans I talk to have a lot of screwy ideas about medical care. They think Americans have "The Best Health-Care System in the World." They think "socialized medicine" doesn't work, because people have to wait too long to get care, and the care isn't very good and they don't have any choices.
We have many wonderful doctors, hospitals and pieces of equipment in the U.S. However, statistically, we don't do so well. Life expectancy, infant mortality, how long people live with a disease after it is diagnosed: You name the criterion, and we don't compare well with any of the countries that have national health care. And we spend a whole lot more for a lot less health care.
Here are a few comparisons between the U.S. and France. According to the Organization for Economic Cooperation and Development: French women live 3-1/2 years longer than American women; French men live just over three years longer than American men. Our infant mortality rate is 72-1/2 percent higher than theirs. And 30 percent more Frenchmen smoke than we do, and they consume almost twice as much alcohol. Who knows how much more butter, cheese and fois gras?
Worried about waiting for a doctor? Or a hospital bed? The French have 37-1/2 percent more doctors than we, and way over twice as many hospital beds, per capita. Worried about choice? French hospitals are 65 percent government run and 35 percent privately run. Take your pick. The health-care system pays. You also get to choose your doctor.
The difference in the quality of service is difficult for Americans to comprehend. In France, doctors routinely make house-calls. Patients aren't thrown out of hospitals because the insurance companies decide when it is time to go. They stay until doctors decide it is time to go. The French government pays 75 percent of all health care costs. Most of the rest is paid by private insurance. If somebody can't afford private insurance, the government makes up the difference.
The bottom line: We pay 43 percent more for health care than the French do, and we get a whole lot less for our money.
George H. Lesser has reported for more than 30 years on international political and economic developments for both U.S. and European publications. He has been based in Washington, New York, London and Brussels, and lives in Washington D.C. and Florence, Italy.
Passage of bill seen as election-year test for Schwarzenegger
Tuesday, August 29, 2006
The Democratic-controlled Legislature is on the verge of sending Gov. Arnold Schwarzenegger a bill that would create a state-run universal health care system, testing him on an issue that voters rate as one of their top concerns in this election year.
On a largely party-line 43-30 vote, the Assembly approved a bill by state Sen. Sheila Kuehl, D-Santa Monica, that would eliminate private medical insurance plans and establish a statewide health insurance system that would provide coverage to all Californians. The state Senate has already approved the plan once and is expected this week to approve changes that the Assembly made to the bill.
Schwarzenegger has said he opposes a single-payer plan like the one Kuehl's bill would create, but the governor has not offered his own alternatives for fixing the state's health care system. As many as 7 million people are uninsured in the state, and spiraling costs have put pressure on business and consumers.
"We know the health care in place today is teetering on collapse," said Assembly Speaker Fabian Núñez, D-Los Angeles. "We need to do something to improve it, to reform it, and this is what we are bringing to the table."
Schwarzenegger's office said it had no official position on the bill. The governor has said he would propose solutions to the state's health care crisis in his State of the State address next January if he is re-elected.
"I don't believe that government should be getting in there and should start running a health care system that is kind of done and worked on by government," Schwarzenegger said in July at a speech at the Commonwealth Club. "I think that what we should do is be a facilitator, to make the health care costs come down. The sad story in America is that our health care costs are too high, that everyone cannot afford health care."
The governor hosted a health care summit earlier this year, but no concrete proposals came from the meeting.
If he vetoes SB840, the governor will be reminded of his decision come election day in November, Kuehl said.
"I hope that the people of California will hang the albatross of bad health care around the governor's neck," she said.
Núñez said that while the governor has worked with Democrats on many issues this year, he is on the wrong side of this one.
"The biggest issue facing California today is health care," Núñez said. "This legislation represents yet another and the most important opportunity we have to say to the governor that he needs to embrace the Democratic agenda, just as he has done on prescription drugs and minimum wage."
Labor unions and Democrats will take part in a rally on Wednesday to urge Schwarzenegger to sign the bill.
Democratic gubernatorial candidate Phil Angelides is not supporting the Kuehl bill.
"He supports moving toward universal health care by first covering all children and then requiring businesses to cover their employees," said Angelides spokesman Nick Pappas.
Kuehl called the passage of the bill historic because it was the first time both houses of the Legislature have passed a universal health care bill. SB840 must return to the Senate, which approved it once, 25-13, for concurrence before going to Schwarzenegger's desk.
"Every advance you can make for any cause is important," Kuehl said. "Most important, it gives hope for the people of California that this can be done."
SB840 would provide comprehensive medical, dental, vision, hospitalization and prescription drug coverage to every California resident. Anyone could see any doctor or go to any hospital.
"SB840 creates a system of comprehensive health insurance benefits for all Californians that guarantees free choice of doctors and hospitals," Kuehl said. "It creates access for all Californians by steeply reducing administrative overhead and emphasizing preventative and primary care instead of endlessly cutting coverage and access to care or increasing consumer spending."
Republicans and insurance groups oppose the bill, saying it will create an inefficient government bureaucracy.
"This takes us in the wrong direction," said Assemblyman Greg Aghazarian, R-Stockton. "This creates a government-run system akin to the Department of Motor Vehicles. Do we want health care taken care of by another bloated bureaucracy?"
The bill does not account for the costs of the program since it would take several years before any plan was up and running. The plan would create a commissioner and a blue-ribbon commission to examine how the structure would work. An analysis by the Lewin Group, an independent health care consulting firm, said the plan could be paid for with all of the money now being spent on health care.
That would mean combining all state and federal funds, along with business contributions and participant payments and co-payments. The report suggests that funding could come through an 8 percent payroll tax and a 3 percent individual income tax.
SB840 allows California to use its purchasing power to negotiate bulk rates for prescription drugs and durable medical equipment, such as wheelchairs, thus realizing an additional $2 billion in savings, Kuehl's office said.
But eliminating health care insurance plans would eradicate the groups that have the most experience with getting people insured and to doctors, said Chris Ohman, president and CEO of the California Association of Health Plans.
Ohman said other places that are trying universal health care -- such as Massachusetts and San Francisco -- are using health care plans to help facilitate the implementation. He said the insurance companies are in the best position to manage costs.
"If there isn't the focus and drive for advancing preventative programs, the sky's the limit in terms of what the costs will be," he said. "That's what health plans do."
A Public Policy Institute poll from September 2004 showed that 71 percent of likely voters said they are at least somewhat concerned about being able to afford health care. A slim majority of Californians, 53 percent, said they would be willing to pay more -- either through higher health insurance premiums or higher taxes -- to increase the number of people who have health insurance.
The health care measure would:
-- Eliminate private health insurance plans and create the California Health Insurance System.
-- Provide health care insurance for all Californians.
-- Guarantee patients the ability to choose their own doctors and hospitals.
-- Pool funds now being spent on health insurance and save money by reducing overhead and using leveraged buying power for things like prescription drugs.
-- Require separate legislation to establish financing of the system.
Page A - 1
What’s behind Ireland’s economic miracle—and G.M.’s financial crisis?
by MALCOLM GLADWELL
Issue of 2006-08-28
The years just after the Second World War were a time of great industrial upheaval in the United States. Strikes were commonplace. Workers moved from one company to another. Runaway inflation was eroding the value of wages. In the uncertain nineteen-forties, in the wake of the Depression and the war, workers wanted security, and in 1949 the head of the Toledo, Ohio, local of the United Auto Workers, Richard Gosser, came up with a proposal. The workers of Toledo needed pensions. But, he said, the pension plan should be regional, spread across the many small auto-parts makers, electrical-appliance manufacturers, and plastics shops in the Toledo area. That way, if workers switched jobs they could take their pension credits with them, and if a company went bankrupt its workers’ retirement would be safe. Every company in the area, Gosser proposed, should pay ten cents an hour, per worker, into a centralized fund.
The business owners of Toledo reacted immediately. “They were terrified,” says Jennifer Klein, a labor historian at Yale University, who has written about the Toledo case. “They organized a trade association to stop the plan. In the business press, they actually said, ‘This idea might be efficient and rational. But it’s too dangerous.’ Some of the larger employers stepped forward and said, ‘We’ll offer you a company pension. Forget about that whole other idea.’ They took on the costs of setting up an individual company pension, at great expense, in order to head off what they saw as too much organized power for workers in the region.”
A year later, the same issue came up in Detroit. The president of General Motors at the time was Charles E. Wilson, known as Engine Charlie. Wilson was one of the highest-paid corporate executives in America, earning $586,100 (and paying, incidentally, $430,350 in taxes). He was in contract talks with Walter Reuther, the national president of the U.A.W. The two men had already agreed on a cost-of-living allowance. Now Wilson went one step further, and, for the first time, offered every G.M. employee health-care benefits and a pension.
Reuther had his doubts. He lived in a northwest Detroit bungalow, and drove a 1940 Chevrolet. His salary was ten thousand dollars a year. He was the son of a Debsian Socialist, worked for the Socialist Party during his college days, and went to the Soviet Union in the nineteen-thirties to teach peasants how to be auto machinists. His inclination was to fight for changes that benefitted every worker, not just those lucky enough to be employed by General Motors. In the nineteen-thirties, unions had launched a number of health-care plans, many of which cut across individual company and industry lines. In the nineteen-forties, they argued for expanding Social Security. In 1945, when President Truman first proposed national health insurance, they cheered. In 1947, when Ford offered its workers a pension, the union voted it down. The labor movement believed that the safest and most efficient way to provide insurance against ill health or old age was to spread the costs and risks of benefits over the biggest and most diverse group possible. Walter Reuther, as Nelson Lichtenstein argues in his definitive biography, believed that risk ought to be broadly collectivized. Charlie Wilson, on the other hand, felt the way the business leaders of Toledo did: that collectivization was a threat to the free market and to the autonomy of business owners. In his view, companies themselves ought to assume the risks of providing insurance.
America’s private pension system is now in crisis. Over the past few years, American taxpayers have been put at risk of assuming tens of billions of dollars of pension liabilities from once profitable companies. Hundreds of thousands of retired steelworkers and airline employees have seen health-care benefits that were promised to them by their employers vanish. General Motors, the country’s largest automaker, is between forty and fifty billion dollars behind in the money it needs to fulfill its health-care and pension promises. This crisis is sometimes portrayed as the result of corporate America’s excessive generosity in making promises to its workers. But when it comes to retirement, health, disability, and unemployment benefits there is nothing exceptional about the United States: it is average among industrialized countries—more generous than Australia, Canada, Ireland, and Italy, just behind Finland and the United Kingdom, and on a par with the Netherlands and Denmark. The difference is that in most countries the government, or large groups of companies, provides pensions and health insurance. The United States, by contrast, has over the past fifty years followed the lead of Charlie Wilson and the bosses of Toledo and made individual companies responsible for the care of their retirees. It is this fact, as much as any other, that explains the current crisis. In 1950, Charlie Wilson was wrong, and Walter Reuther was right.
The key to understanding the pension business is something called the “dependency ratio,” and dependency ratios are best understood in the context of countries. In the past two decades, for instance, Ireland has gone from being one of the most economically backward countries in Western Europe to being one of the strongest: its growth rate has been roughly double that of the rest of Europe. There is no shortage of conventional explanations. Ireland joined the European Union. It opened up its markets. It invested well in education and economic infrastructure. It’s a politically stable country with a sophisticated, mobile workforce.
But, as the Harvard economists David Bloom and David Canning suggest in their study of the “Celtic Tiger,” of greater importance may have been a singular demographic fact. In 1979, restrictions on contraception that had been in place since Ireland’s founding were lifted, and the birth rate began to fall. In 1970, the average Irishwoman had 3.9 children. By the mid-nineteen-nineties, that number was less than two. As a result, when the Irish children born in the nineteen-sixties hit the workforce, there weren’t a lot of children in the generation just behind them. Ireland was suddenly free of the enormous social cost of supporting and educating and caring for a large dependent population. It was like a family of four in which, all of a sudden, the elder child is old enough to take care of her little brother and the mother can rejoin the workforce. Overnight, that family doubles its number of breadwinners and becomes much better off.
This relation between the number of people who aren’t of working age and the number of people who are is captured in the dependency ratio. In Ireland during the sixties, when contraception was illegal, there were ten people who were too old or too young to work for every fourteen people in a position to earn a paycheck. That meant that the country was spending a large percentage of its resources on caring for the young and the old. Last year, Ireland’s dependency ratio hit an all-time low: for every ten dependents, it had twenty-two people of working age. That change coincides precisely with the country’s extraordinary economic surge.
Demographers estimate that declines in dependency ratios are responsible for about a third of the East Asian economic miracle of the postwar era; this is a part of the world that, in the course of twenty-five years, saw its dependency ratio decline thirty-five per cent. Dependency ratios may also help answer the much-debated question of whether India or China has a brighter economic future. Right now, China is in the midst of what Joseph Chamie, the former director of the United Nations’ population division, calls the “sweet spot.” In the nineteen-sixties, China brought down its birth rate dramatically; those children are now grown up and in the workforce, and there is no similarly sized class of dependents behind them. India, on the other hand, reduced its birth rate much more slowly and has yet to hit the sweet spot. Its best years are ahead.
The logic of dependency ratios, of course, works equally powerfully in reverse. If your economy benefits by having a big bulge of working-age people, then your economy will have a harder time of it when that bulge generation retires, and there are relatively few workers to take their place. For China, the next few decades will be more difficult. “China will peak with a 1-to-2.6 dependency ratio between 2010 and 2015,” Bloom says. “But then it’s back to a little over 1-to-1.5 by 2050. That’s a pretty dramatic change. Thirty per cent of the Chinese population will be over sixty by 2050. That’s four hundred and thirty-two million people.” Demographers sometimes say that China is in a race to get rich before it gets old.
Economists have long paid attention to population growth, making the argument that the number of people in a country is either a good thing (spurring innovation) or a bad thing (depleting scarce resources). But an analysis of dependency ratios tells us that what’s critical is not just the growth of a population but its structure. “The introduction of demographics has reduced the need for the argument that there was something exceptional about East Asia or idiosyncratic to Africa,” Bloom and Canning write, in their study of the Irish economic miracle. “Once age-structure dynamics are introduced into an economic growth model, these regions are much closer to obeying common principles of economic growth.”
This is an important point. People have talked endlessly of Africa’s political and social and economic shortcomings and simultaneously of some magical cultural ingredient possessed by South Korea and Japan and Taiwan that has brought them success. But the truth is that sub-Saharan Africa has been mired in a debilitating 1-to-1 ratio for decades, and that proportion of dependency would frustrate and complicate economic development anywhere. Asia, meanwhile, has seen its demographic load lighten overwhelmingly in the past thirty years. Getting to a 1-to-2.5 ratio doesn’t make economic success inevitable. But, given a reasonably functional economic and political infrastructure, it certainly makes it a lot easier.
This demographic logic also applies to companies, since any employer that offers pensions and benefits to its employees has to deal with the consequences of itsnonworker-to-worker ratio, just as a country does. An employer that promised, back in the nineteen-fifties, to pay for its employees’ health care when they were retired didn’t set aside the money for that while they were working. It just paid the bills as they came in: money generated by current workers was used to pay for the costs of taking care of past workers. Pensions worked roughly the same way. On the day a company set up a pension plan, it was immediately on the hook for all the years of service accumulated by employees up to that point: the worker who was sixty-four when the pension was started got a pension when he retired at sixty-five, even though he had been in the system only a year. That debt is called a “past service” obligation, and in some cases in the nineteen-forties and fifties the past-service obligations facing employers were huge. At Ford, the amount reportedly came to two hundred million dollars, or just under three thousand dollars per employee. At Bethlehem Steel, it came to four thousand dollars per worker.
Companies were required to put aside a little extra money every year to make up for that debt, with the hope of someday—twenty or thirty years down the line—becoming fully funded. In practice, though, that was difficult. Suppose that a company agrees to give its workers a pension of fifty dollars a month for every year of service. Several years later, after a round of contract negotiations, that multiple is raised to sixty dollars a month. That increase applies retroactively: now that company has a brand-new past-service obligation equal to another ten dollars for every month served by its wage employees. Or suppose the stock market goes into decline or interest rates fall, and the company discovers that its pension plan has less money than it had expected. Now it’s behind again: it has to go back to using the money generated by current workers in order to take care of the costs of past workers. “You start off in the hole,” Steven Sass, a pension expert at Boston College, says. “And the problem in these plans is that it’s very difficult to dig your way out.”
Charlie Wilson’s promise to his workers, then, contained an audacious assumption about G.M.’s dependency ratio: that the company would always have enough active workers to cover the costs of its retired workers—that it would always be like Ireland, and never like sub-Saharan Africa. Wilson’s promise, in other words, was actually a gamble. Is it any wonder that the prospect of private pensions made people like Walter Reuther so nervous?
The most influential management theorist of the twentieth century was Peter Drucker, who, in 1950, wrote an extraordinarily prescient article for Harper’s entitled “The Mirage of Pensions.” It ought to be reprinted for every steelworker, airline mechanic, and autoworker who is worried about his retirement. Drucker simply couldn’t see how the pension plans on the table at companies like G.M. could ever work. “For such a plan to give real security, the financial strength of the company and its economic success must be reasonably secure for the next forty years,” Drucker wrote. “But is there any one company or any one industry whose future can be predicted with certainty for even ten years ahead?” He concluded, “The recent pension plans thus offer no more security against the big bad wolf of old age than the little piggy’s house of straw.”
In the mid-nineteen-fifties, the largest steel mill in the world was at Sparrows Point, just east of Baltimore, on the Chesapeake Bay. It was owned by Bethlehem Steel, one of the nation’s grandest industrial enterprises. The steel for the Golden Gate Bridge came from Sparrows Point, as did the cables for the George Washington Bridge, and the materials for countless guns and planes and ships that helped win both world wars. Sparrows Point, a so-called integrated mill, used a method of making steel that dated back to the nineteenth century. Coke and iron, the raw materials, were combined in a blast furnace to make liquid pig iron. The pig iron was poured into a vast oven, known as an open-hearth furnace, to make molten steel. The steel was poured into pots to make ingots. The ingots were cooled, reheated, and fed into a half-mile-long rolling mill and turned into semi-finished shapes, which eventually became girders for the construction industry or wafer-thin sheets for beer cans or galvanized panels for the automobile industry. Open-hearth steelmaking was expensive and time-consuming. It required great amounts of energy, water, and space. Sparrows Point stretched four miles from one end to the other. Most important, it required lots and lots of people. Sparrows Point, at its height, employed tens of thousands of them. As Mark Reutter demonstrates in “Making Steel,” his comprehensive history of Sparrows Point, it was not just a steel mill. It was a city.
In 1956, Eugene Grace, the head of Bethlehem Steel, was the country’s best- paid executive. Eleven of the country’s eighteen top-earning executives that year, in fact, worked for Bethlehem Steel. In 1955, when the American Iron and Steel Institute had its annual meeting, at the Waldorf-Astoria, in New York, the No. 2 at Bethlehem Steel, Arthur Homer, made a bold forecast: domestic demand for steel, he said, would increase by fifty per cent over the next fifteen years. “As someone has said, the American people are wanters,” he told the audience of twelve hundred industry executives. “Their wants are going to require a great deal of steel.”
But Big Steel didn’t get bigger. It got smaller. Imports began to take a larger and larger share of the American steel market. The growing use of aluminum, concrete, and plastic cut deeply into the demand for steel. And the steelmaking process changed. Instead of laboriously making steel from scratch, with coke and iron ore, factories increasingly just melted down scrap metal. The open-hearth furnace was replaced with the basic oxygen furnace, which could make the same amount of steel in about a tenth of the time. Steelmakers switched to continuous casting, which meant that you skipped the ingot phase altogether and poured your steel products directly out of the furnace. As a result, steelmakers like Bethlehem were no longer hiring young workers to replace the people who retired. They were laying people off by the thousands. But every time they laid off another employee they turned a money-making steelworker into a money-losing retiree—and their dependency ratio got a little worse. According to Reutter, Bethlehem had a hundred and sixty-four thousand workers in 1957. By the mid-to-late-nineteen-eighties, it was down to thirty-five thousand workers, and employment at Sparrows Point had fallen to seventy-nine hundred. In 2001, Bethlehem, just shy of its hundredth birthday, declared bankruptcy. It had twelve thousand active employees and ninety thousand retirees and their spouses drawing benefits. It had reached what might be a record-setting dependency ratio of 7.5 pensioners for every worker.
What happened to Bethlehem, of course, is what happened throughout American industry in the postwar period. Technology led to great advances in productivity, so that when the bulge of workers hired in the middle of the century retired and began drawing pensions, there was no one replacing them in the workforce. General Motors today makes more cars and trucks than it did in the early nineteen-sixties, but it does so with about a third of the employees. In 1962, G.M. had four hundred and sixty-four thousand U.S. employees and was paying benefits to forty thousand retirees and their spouses, for a dependency ratio of one pensioner to 11.6 employees. Last year, it had a hundred and forty-one thousand workers and paid benefits to four hundred and fifty-three thousand retirees, for a dependency ratio of 3.2 to 1.
Looking at General Motors and the old-line steel companies in demographic terms substantially changes the way we understand their problems. It is a commonplace assumption, for instance, that they were undone by overly generous union contracts. But, when dependency ratios start getting up into the 3-to-1 to 7-to-1 range, the issue is not so much what you are paying each dependent as how many dependents you are paying. “There is this notion that there is a Cadillac being provided to all these retirees,” Ron Bloom, a senior official at the United Steelworkers, says. “It’s not true. The truth is seventy-five-year-old widows living on less than three hundred dollars to four hundred dollars a month. It’s just that there’s a lot of them.”
A second common assumption is that fading industrial giants like G.M. and Bethlehem are victims of their own managerial incompetence. In various ways, they undoubtedly are. But, with respect to the staggering burden of benefit obligations, what got them in trouble isn’t what they did wrong; it is what they did right. They got in trouble in the nineteen-nineties because they were around in the nineteen-fifties—and survived to pay for the retirement of the workers they hired forty years ago. They got in trouble because they innovated, and became more efficient in their use of labor.
“We are making as much steel as we made thirty years ago with twenty-five per cent of the workforce,” Michael Locker, a steel-industry consultant, says. “And it is a much higher quality of steel, too. There is simply no comparison. That change recasts the industry and it recasts the workforce. You get this enormous bulge. It’s abnormal. It’s not predicted, and it’s not funded. Is that the fault of the steelworkers? Is that the fault of the companies?”
Here, surely, is the absurdity of a system in which individual employers are responsible for providing their own employee benefits. It penalizes companies for doing what they ought to do. General Motors, by American standards, has an old workforce: its average worker is much older than, say, the average worker at Google. That has an immediate effect: health-care costs are a linear function of age. The average cost of health insurance for an employee between the ages of thirty-five and thirty-nine is $3,759 a year, and for someone between the ages of sixty and sixty-four it is $7,622. This goes a long way toward explaining why G.M. has an estimated sixty-two billion dollars in health-care liabilities. The current arrangement discourages employers from hiring or retaining older workers. But don’t we want companies to retain older workers—to hire on the basis of ability and not age? In fact, a system in which companies shoulder their own benefits is ultimately a system that penalizes companies for offering any benefits at all. Many employers have simply decided to let their workers fend for themselves. Given what has so publicly and disastrously happened to companies like General Motors, can you blame them?
Or consider the continuous round of discounts and rebates that General Motors—a company that lost $8.6 billion last year—has been offering to customers. If you bought a Chevy Tahoe this summer, G.M. would give you zero-per-cent financing, or six thousand dollars cash back. Surely, if you are losing money on every car you sell, as G.M. is, cutting car prices still further in order to boost sales doesn’t make any sense. It’s like the old Borsht-belt joke about the haberdasher who lost money on every hat he made but figured he’d make up the difference on volume. The economically rational thing for G.M. to do would be to restructure, and sell fewer cars at a higher profit margin—and that’s what G.M. tried to do this summer, announcing plans to shutter plants and buy out the contracts of thirty-five thousand workers. But buyouts, which turn active workers into pensioners, only worsen the company’s dependency ratio. Last year, G.M. covered the costs of its four hundred and fifty-three thousand retirees and their dependents with the revenue from 4.5 million cars and trucks. How is G.M. better off covering the costs of four hundred and eighty-eighty thousand dependents with the revenue from, say, 4.2 million cars and trucks? This is the impossible predicament facing the company’s C.E.O., Rick Wagoner. Demographic logic requires him to sell more cars and hire more workers; financial logic requires him to sell fewer cars and hire fewer workers.
Under the circumstances, one of the great mysteries of contemporary American politics is why Wagoner isn’t the nation’s leading proponent of universal health care and expanded social welfare. That’s the only way out of G.M.’s dilemma. But, from Wagoner’s reticence on the issue, you’d think that it was still 1950, or that Wagoner believes he’s the Prime Minister of Ireland. “One thing I’ve learned is that corporate America has got much more class solidarity than we do—meaning union people,” the U.S.W.’s Ron Bloom says. “They really are afraid of getting thrown out of their country clubs, even though their objective ought to be maximizing value for their shareholders.”
David Bloom, the Harvard economist, once did a calculation in which he combined the dependency ratios of Africa and Western Europe. He found that they fit together almost perfectly; that is, Africa has plenty of young people and not a lot of older people and Western Europe has plenty of old people and not a lot of young people, and if you combine the two you have an even distribution of old and young. “It makes you think that if there is more international migration, that could smooth things out,” Bloom said.
Of course, you can’t take the populations of different countries and different cultures and simply merge them, no matter how much demographic sense that might make. But you can do that with companies within an economy. If the retiree obligations of Bethlehem Steel had been pooled with those of the much younger industries that supplanted steel—aluminum, say, or plastic—Bethlehem Steel might have made it. If you combined the obligations of G.M., with its four hundred and fifty-three thousand retirees, and the American manufacturing operations of Toyota, with a mere two hundred and fifty-eight retirees, Toyota could help G.M. shoulder its burden, and thirty or forty years from now—when those G.M. retirees are dead and Toyota’s now youthful workforce has turned gray—G.M. could return the favor. For that matter, if you pooled the obligations of every employer in the country, no company would go bankrupt just because it happened to employ older people, or it happened to have been around for a while, or it happened to have made the transformation from open-hearth furnaces and ingot-making to basic oxygen furnaces and continuous casting. This is what Walter Reuther and the other union heads understood more than fifty years ago: that in the free-market system it makes little sense for the burdens of insurance to be borne by one company. If the risks of providing for health care and old-age pensions are shared by all of us, then companies can succeed or fail based on what they do and not on the number of their retirees.
When Bethlehem Steel filed for bankruptcy, it owed about four billion dollars to its pension plan, and had another three billion dollars in unmet health-care obligations. Two years later, in 2003, the pension fund was terminated and handed over to the federal government’s Pension Benefit Guaranty Corporation. The assets of the company—Sparrows Point and a handful of other steel mills in the Midwest—were sold to the New York-based investor Wilbur Ross.
Ross acted quickly. He set up a small trust fund to help defray Bethlehem’s unmet retiree health-care costs, cut a deal with the union to streamline work rules, put in place a new 401(k) savings plan—and then started over. The new Bethlehem Steel had a dependency ratio of 0 to 1. Within about six months, it was profitable. The main problem with the American steel business wasn’t the steel business, Ross showed. It was all the things that had nothing to do with the steel business.
Not long ago, Ross sat in his sparse midtown office and explained what he had learned from his rescue of Bethlehem. Ross is in his sixties, a Yale- and Harvard-educated patrician with small rectangular glasses and impeccable manners. Outside his office, by the elevator, was a large sculpture of a bull, papered over from head to hoof with stock tables.
“When we showed up to the Bethlehem board to approve the deal, they had an army of people there,” Ross said. “The whole board was there, the whole senior management was there, people from Credit Suisse and Greenhill were there. They must have had about fifty or sixty people there for a deal that was already done. So my partner and I—just the two of us—show up, and they say, ‘Well, we should wait for the rest of your team.’ And we said, ‘There is no rest of the team, there is just the two of us.’ It said the whole thing right there.”
Ross isn’t a fan of old-style pensions, because they make it impossible to run a company efficiently. “When a company gets in trouble and restructures,” he said, those underfunded pension funds “will eat it alive.” And how much sense does employer-provided health insurance make? Bethlehem made promises to its employees, years ago, to give them medical insurance in exchange for their labor, and when the company ran into trouble those promises simply evaporated. “Every country against which we compete has universal health care,” he said. “That means we probably face a fifteen-per-cent cost disadvantage versus foreigners for no other reason than historical accident. . . . The randomness of our system is just not going to work.”
This is what Walter Reuther believed. He went along with Wilson’s scheme in 1950 because he thought that agreeing with Wilson was the surest way of getting Wilson and the other captains of industry to agree with him. “Reuther and his brain trust had a theory of capitalism,” Nelson Lichtenstein, the Reuther biographer, says. “It was: If we force G.M. to pay extra, we can create an incentive for G.M. to join our side.” Reuther believed, in other words, that when American corporations reached the point where they couldn’t make their business more efficient without making it less profitable, when their dependency ratios soared to unimaginable heights, when they got tens of billions behind in their health-care obligations, when the cost of carrying thou-sands of retirees forced them to stare bankruptcy in the face, they would come around to the idea that the markets work best when the burdens of benefits are broadly shared. It has taken half a century, but the world may finally be catching up with Walter Reuther.
by TRUDY LIEBERMAN
[from the September 18, 2006 issue of The Nation]
Senator Ted Kennedy, Governor Mitt Romney, the medical establishment of Massachusetts and the state's consumer advocacy groups could hardly resist congratulating themselves on passing a new health insurance law this past spring--a so-called individual mandate requiring the uninsured to buy coverage from private carriers under penalty of paying higher income taxes if they don't. The media called the law a model for states to replicate and praised such diverse groups for coming together to solve a seemingly intractable problem. A headline in the New York Times proclaimed, A Health Fix That Is Not A Fantasy.
A close look, however, reveals that the new law may well be a fantasy and a triumph for special interest politics after all. "It's absolutely worthless," says Dr. Marcia Angell, former editor in chief of The New England Journal of Medicine and author of The Truth About the Drug Companies. "There is no magic in Massachusetts."
The law is yet another patchwork attempt to dodge the main obstacle to reform--a fundamental lack of agreement about equity in healthcare. Americans still don't share equity as a universal value, so every endeavor to cover more people results in a complicated, contorted and underfinanced scheme. Massachusetts's latest move is no exception. It pushes the country further away from national health insurance--with its essential ingredients of universal access, low administrative costs and limits on what medical providers can charge. Instead the law embodies much of the right's approach to health reform, which continues to make the world safe for big insurance, big hospitals, and Big Pharma while palming off on the working poor the task of covering themselves. Indeed, a document distributed by Romney's staff says the organizing principles of the new law are "a culture of insurance" and "personal responsibility"--exactly the opposite of what's needed if the United States is ever to join the rest of the world in providing medical coverage for all its people.
The law, on a speedy track for implementation next March, leaves the current dysfunctional system intact, tinkering around the edges with insurance market reform. In Massachusetts that means, among other things, no new coverage mandates for two years, merging the individual and small-group markets to enlarge the risk pool and encouraging more policies with health savings accounts--not what people need for really good coverage. The core of American health insurance--the principle of letting private carriers select those they will insure--is firmly in place. Advocacy groups signed on believing that more people would be covered, that the state would make sure insurance was affordable and that compromise would move the debate forward.
Hospitals and employers emerged in fine shape too. Hospitals will receive about $500 million in higher Medicaid payments and a new revenue stream--in effect, they will be freed from the burden of offering charity care to the poor, who will now have insurance to pay their bills. Employers escaped without swallowing an employer mandate; that is, a requirement to cover all their workers. Those with eleven or more employees who fail to offer insurance will be assessed $295 per worker per year--a pittance compared with what they would have had to pay for real insurance, estimated by Hewitt Associates, a benefits consulting firm, to be about $9,000 per worker in 2006. For employers, the puny assessment was a far better deal than a real mandate, which had been headed for a ballot initiative this fall.
Rather than force employers who have deeper pockets to pay for coverage, the law requires the state's 550,000 uninsured to come up with the money. Recognizing that Massachusetts has the costliest medical care in the country--spending $9,200 per person, compared with the national average of $7,250--the legislature created an elaborate mechanism of subsidies to help the poorest folks, an arrangement the governor's press materials call a "glide-path to self sufficiency." For individuals with incomes at the poverty level, about $10,000 ($20,000 for a family of four), the state subsidy will cover all the cost; for single people with incomes between $10,000 and $30,000, it will cover some of the cost, more for those at the low end. Those with incomes greater than $30,000 will be on their own and subject to tax penalties if they don't spring for a policy.
It will be up to a new, $25 million quasi-state agency, the Commonwealth Health Insurance Connector, a concept born at the Heritage Foundation, to certify whether new policies--likely with very high deductibles, high cost sharing and less comprehensive benefits--will be affordable and who can afford them. Determining affordability will be a difficult, politically charged job in a climate where there are more doctors per person than the national average and the state's hospitals spend 44 percent more on care than the national average. "The affordability standard is the most fragile part of the legislation. We don't know to whom it will apply," admits Nancy Turnbull, president of the Blue Cross Blue Shield of Massachusetts Foundation. (Blue Cross Blue Shield of Massachusetts and Partners HealthCare, a big hospital system, paid for a report by the Urban Institute, a Washington, DC, think tank, which became the road map for the new law.)
Imagine the shock to a worker at a Rockport clam shack when he realizes that his taxes are going up because he can't afford the state's "affordable" policy. The law does provide for appeal rights and a waiver of the penalty if people can prove that buying a policy is a financial burden. (Imagine the new bureaucracy and costs that will entail.)
Money for the estimated $725 million in subsidies needed by the third year comes mostly from federal funds available through the state's Medicaid waiver. These waivers, available to all states, allow them to expand coverage by leveraging Medicaid dollars. Besides the federal dollars, Massachusetts expects to cover the subsidies with money redirected from the state's uncompensated care fund, which pays hospitals for serving the uninsured; $125 million in new funds from general revenues; and the new assessment on employers. That may not be enough. A House-Senate conference committee report projects a deficit of $162 million by the third year. Even John McDonough, executive director of Health Care For All, a strong supporter of the new law, worries about future funding. "At some point the program will require additional infusions of money to meet its promise," he says.
Where that money will come from is unclear. Relying on Medicaid is dicey; the state's Medicaid waiver expires in two years. The employer assessment may not stick. Romney vetoed the provision once, but the legislature overturned the veto. And there's virtually nothing in the law that will stem the rising cost of care, the greatest threat to the program. A new report by health policy researchers at Boston University shows that the state's healthcare costs will exceed $62 billion this year, one-third above the national average. "Without cost control, they are bringing the uninsured into the same mess that the rest of us are in," says Dr. Mark Chassin, executive vice president at Mount Sinai Medical Center in New York.
Instead of strong cost controls, which would have kept the hospitals and insurance companies from agreeing to the bill, the law bets on market competition to bring down the price of medical care and thus the cost of insurance. It sets up a plan for collecting price information and data about quality of services so patients can become wise shoppers, and it contemplates that the new affordable policies with their higher deductibles and co-insurance will make people think twice about using medical services--approaches that don't touch the use of unproven technology, a major culprit in healthcare inflation. The law also envisions electronic medical records and computerized physician order systems in hospitals to address the cost problem. These may make healthcare safer, but the payoff on the cost side is a long way off, if it comes at all.
Massachusetts led the way in healthcare reform once before, by passing a reasonable employer mandate in 1988 during the Dukakis Administration. The plan, which would have required employers to pay nearly $2,000 per worker each year for coverage, went nowhere in the state but later became a model for Clinton's pay-or-play plan. The state's individual mandate may suffer the same fate. If it becomes a national model, American healthcare, already on life support, will take a turn for the worse.
November 02, 2006 4:47 PM ESTNEW DELHI, India - Businesses and insurance companies are starting to eye the potential savings of outsourcing health care from the world's richest country to the developing world.
"It's just one of the many ways in which our world is flattening," said Arnold Milstein, chief physician at New York-based Mercer Health & Benefits, who's researching the feasibility of outsourcing medical care for three Fortune 500 corporations. "Many companies see it as a natural extension of the competition they've faced in other aspects of their business."
With an estimated 45 million uninsured Americans, some 500,000 trekked overseas last year for medical treatment, according to the National Coalition on Health Care. Asian hospitals in Thailand, India and Singapore have long been swarmed by medical tourists looking for tummy tucks and face lifts, but many glitzy, marble-floored facilities are now gaining reputations for big-ticket procedures including heart surgery, knee and back operations.
Some American hospitals already rely on places like India for X-ray readings and other diagnostics, while also importing foreign doctors and nurses. But the U.S. health care industry has been largely immune to overseas competition - just one reason behind soaring costs.
Premiums for employer-sponsored health coverage have surged 87 percent over the past six years, according to the Kaiser Family Foundation, putting a huge burden on both companies and employees. Family health coverage now runs about $11,500 annually, with workers themselves forking out nearly $3,000.
But just as shipping U.S. manufacturing to China and call centers to India initially created loud opposition, some critics are already preparing to fight any possible mass exodus of Americans packing their bags to go under the knife overseas.
In September, Canton, N.C.-based Blue Ridge Paper Products Inc., was set to send one of its employees to India for a gall bladder operation. Carl Garrett would have been the first U.S. employee sent abroad for medical care through an employer-sponsored pilot program, which would have allowed him to share the company's savings.
Shortly before Garrett was set to leave, the United Steelworkers, America's largest union, pulled the plug.
"We don't want to expose our members to the risks associated with providing health care in the Third World," said Stan Johnson, a union spokesman. "This is perceived to be voluntary, but voluntary programs tend to lead to mandatory programs."
Blue Ridge ultimately scrapped its plan for union members, but several other U.S. businesses and insurance companies are starting to explore the option of exporting patients.
"I get the impression that they're all waiting for someone else to take the first step," said Jason Yap, director of health care service for the Tourism Board in Singapore, another major medical tourism destination. "They're all interested in doing the homework now so they can move ahead when the time comes."
United Group Programs, a Boca Raton, Fla.-based company that sells self-insurance policies to small businesses, is already offering a plan that sends patients to Bumrungrad International hospital in Bangkok, Thailand. UGP says the plan will save employers more than 50 percent on major medical costs and slash employees' out-of-pocket expenses to zero.
Blue Shield of California and Health Net of California also both offer lower-cost policies allowing members to seek medical care in Mexico.
In June, David Boucher, an assistant vice president at BlueCross BlueShield of South Carolina, traveled to Bangkok for a close-up look at Bumrungrad. The Thai hospital began heavily recruiting overseas patients after the 1997 Asian financial crisis. It drew 400,000 foreigners last year - including 55,000 Americans.
"I was thoroughly impressed," Boucher said. "We're taking a serious look at this as an alternative" for the health plan's 1.5 million members.
In addition, West Virginia lawmaker Ray Canterbury plans to propose legislation next year that would give government employees the option of traveling abroad for necessary procedures, which could save the state up to $2 million annually. He wants to offer incentives, including extra sick leave and 20 percent of the cash saved by going abroad - allowing workers to actually make money on the deal.
Dodie Gilmore is a rodeo barrel-racing champion who runs a 180-acre ranch in Oklahoma when she's not bouncing across back roads selling farms. Gilmore is a spry 60-year-old who loves the outdoors, but when she could no longer straddle her faithful horse, River, she knew it was time for a new hip.
But how could she afford it? As an independent contractor for a small Coldwell Banker real estate franchise in Durant, Okla., she knew her privately purchased health plan would never pay up to $40,000 for the operation.
So she asked her boss about traveling to India where hip resurfacing alone would cost just $7,000. He not only gave her his blessing but offered to foot the bill, minus travel and hotels - making Gilmore one of the very first Americans sent overseas for surgery by an employer.
"The doctors were wonderful," Gilmore said days after being discharged, sipping coffee at a New Delhi roadside cafe with her sister, Carol, who was along for whole trip. "The overall care was pretty darn good."
More and more patients like Gilmore - who had never held a passport or even tasted Indian food before her trip - are returning home and spreading the word about an alternative to America's ailing health system.
Gilmore's boss, Martin VanMeter, who owns a Coldwell Banker office with about 24 workers, wasn't obligated to pay anything toward the hip surgery. But he sees his employees as family, and if they're too hurt or sick to work, no one benefits.
"I've invested so much money in them," he said by telephone. "All she's got to do is make one transaction for us, and we've got our money back."
But even with the growing momentum, big questions must be asked by anyone considering treatment abroad.
Despite the five-star facades of some hospitals - fountains, white marble floors, even a Starbucks and McDonald's inside Bumrungrad's lobby - the comfort of having a major surgery near home with family at the bedside is a far cry from the experience in the developing world, where culture shock alone can be stressful.
Pollution, poverty and insane traffic are all part of the experience when visiting hospitals like the Indian-owned Max Healthcare facilities in New Delhi, where it's not uncommon to see people urinating along roadsides. Jet lag, traveler's diarrhea and strange foods also can be coupled with the unpredictable, such as September's bloodless military coup in Thailand, which ultimately had little impact on daily life.
Language and cultural barriers also can make communication with doctors and nurses frustrating for some Americans, who are used to being direct with their physicians, often peppering them with tough questions and expecting straightforward answers.
Some Asian cultures also rely more on hints and subtleties to communicate, and doctors in some countries are regarded as authority figures who often aren't questioned. Follow-up care back in the U.S. also can be an issue for some patients.
"There are a lot of risks," said Rick Wade, a senior vice president at the American Hospital Association. "What happens if something goes wrong?"
In countries like Thailand and India, medical malpractice claims are rare and multimillion dollar awards are nonexistent.
"If there's a mistake, we fix it," said Curtis Schroeder, an American who is group CEO of Bumrungrad hospital, which requires all doctors to carry malpractice insurance. "But the idea of suing for multimillions of dollars for damages is not going to be something you can do outside the U.S."
In February, Joshua Goldberg, a 23-year-old American who was traveling in Thailand, died at Bumrungrad after seeking care for a leg injury. His father, James Goldberg, has set up a Web site alleging the hospital administered a deadly drug cocktail to a patient with a history of substance abuse.
Bumrungrad insists the care given was appropriate. Thai authorities are investigating the case, as is standard with all unexpected hospital deaths. No conclusions have been reached.
"What I'm dedicated to doing is to try to alert people to at least do their homework and consider very carefully what they're getting into. Why is this such a good deal?" Goldberg said by telephone. "You might not walk away. That's what happened to my son."
It's ultimately up to patients themselves to investigate hospitals and physicians before considering surgery abroad. The Internet is loaded with resources that range from doctor bios to patient blogs, detailing the positives and negatives.
As the phenomenon grows, more countries are trying to get in on the action. The Philippines began a campaign this year aimed at attracting Filipinos living abroad and Asians within the region. Packages offering city tours, day spas and even golf have been combined with health checkups and cosmetic surgery.
Some experts predict greater access to options like these will eventually drive more people to take control of their own health care.
Medical tourism facilitators like California-based PlanetHospital are banking on it, already working to make the journey less stressful for patients traveling abroad by arranging everything from visas and airport pickup to sightseeing.
Many doctors working in facilities catering to medical tourists are trained abroad, often in the U.S. or Europe. About 100 foreign hospitals have been approved by the international arm of the Chicago-based Joint Commission on Accreditation of Healthcare Organizations, which also accredits American hospitals.
Six countries in Asia have accredited facilities, including Bangkok's Bumrungrad; five in India, with three belonging to the Apollo Hospital group; and 11 in Singapore.
The Max Super Speciality Hospital where Gilmore had her surgery on Oct. 10, is working to become accredited, but she said she felt comfortable from the very beginning. Even if her boss had refused to pay for the surgery, she said she likely would have made the two-day flight on her own because her insurance would never have paid to fix the pre-existing condition.
"It's either that, or do it in the States for $28,000 to $40,000," she said. In the U.S. do you not sign forms? They're not responsible. The risk of it didn't really weigh on me."
In addition to saving thousands - the three-week trip totaled about $12,000, including the surgery, travel and lodging for two and a tour of the Taj Mahal - she also underwent a new technique just approved this year in the U.S.
Instead of total hip replacement, which limits mobility and requires the top of the femur to be cut off and a long shaft inserted, hip resurfacing uses only a small ball-and-socket device that enables patients to maintain their flexibility for activities like yoga, praying or even racing horses.
Gilmore's Indian physician, Dr. S.K.S. Marya, chief surgeon at the Max Institute of Orthopedics & Joint Replacement, has performed some 150 hip resurfacing operations over the past two years. About one American comes to him for the surgery each week, and Gilmore is just the latest in a growing number of satisfied patients who plan to keep their passports renewed.
"Every day I feel better. I can get around on one crutch now," said Gilmore, who plans to be back in the saddle within six months and out selling ranches soon after returning home. "I don't have near the pain. I can already move my leg a lot more than I could before. I can actually go up the stairs without pain, that's something I couldn't do before."
AP Business Writer Malcolm Foster reported from Bangkok, and AP Medical Writer Margie Mason reported from New Delhi. AP writers Tom Breen in Charleston, W.Va., and Teresa Cerojano in Manila contributed to this report.
In a plan revealed November 13th, less than a week after the historic election of a new Congress, America’s Health Insurance Plans (AHIP) called for more hundreds of billions of dollars to be provided by the federal government to pay for the uninsured – and to pay for them in ways that would continue to line their own pockets. They call it “Hope for Millions.”
Here are some of the questions that were not addressed. Why would the insurance companies who are raking in hundreds of billions of dollars in excess profits and basically standing in the way of a national non-profit healthcare program for all create a new plan to cover the uninsured? Why haven’t they done it before? What do they stand to gain? What do they stand to lose?
The follow-up story should explore the fact that a national healthcare program is the number one domestic priority of the voters. According to some statistics, 83% of the people want such a program and recognize that we are the only industrialized country in the world that doesn’t have such a program. People expect Congress to take decisive action to provide a national healthcare system.
Most of the people want such a program because the healthcare crisis isn’t primarily about the uninsured. We are all close to being uninsured, and even when we are insured we face the growing costs of insurance policies, the co-pays and deductibles, the potential of losing our job, and worst of all, the fact that insurance companies cancel insurance policies when people get really sick.
It doesn’t have to be that way.
Reporters ought to talk with Congressman John Conyers whose bill, the United States National Health Insurance Act, H.R. 676, was introduced during the last Congress and has 78 co-sponsors on it. There is a growing constituency of millions of people who understand and support this bill. It would provide comprehensive, quality healthcare for all residents of the United States including payment for all physicians and hospital costs, dental, optical, mental health, prescription drugs for all and long-term care, among other benefits. You would never receive another healthcare bill. There would be no co-pays, deductibles, or denials. There would never be any more bankruptcies caused by healthcare costs.
Congressman Conyers has jurisdiction over bankruptcy as a part of his Judiciary Committee duties. About 50% of the bankruptcies in the U.S. are caused by healthcare crises. People are losing their homes and their jobs and their livelihood, children are missing a college education, and businesses are going bankrupt and/or cutting out healthcare coverage entirely because of the rising cost of insurance.
It would be good for reporters to check out Conyers’ bill and see how it would be financed by all of us, employers and employees, paying a small premium based on our income, and that all of us except 5%, the ultra rich, would be spending less money than we are now paying for healthcare.
The cost of high-priced insurance companies would be eliminated because we wouldn’t need them. They don’t provide any healthcare at all. This would save almost $300 billion each year. Insurance companies just take the money, make a huge profit, and pay out a reduced amount, too little for the healthcare of the people. They are money-managers, not healthcare professionals. They even invest our money in tobacco and other detrimental corporations. They control the doctors, the Congress, and our healthcare at the moment. They want to keep that control. So they are scurrying about to try to get their own survival plan firmly entrenched in Congress.
President Bush’s Health Savings Accounts and ownership plans are also promoted in the AHIP plan. These would provide money to managers and put more money into Wall Street. The affluent who would then get tax breaks for saving money for future healthcare needs. Because of their tax-breaks, government money sorely needed for a healthy society would be used to further enrich the money managers. People would be urged to pay as much as possible out of pocket into the system before accessing their Health Savings Accounts.
Healthcare-NOW is a national movement made up of hundreds of organizations challenging this kind of continuing government subsidy for the health insurance industry. We need healthcare – not insurance companies. AHIP represents those 1300 insurance companies that would be replaced by a single payer such as an improved Medicare for All. At present, they benefit from the increasing privatization of Medicare Part D and Medicaid and Medicare reimbursements for their management costs. That’s why they are proposing to “help the uninsured” by providing more tax money to Medicare and Medicaid.
The uninsured must be covered. It is a mandate. But the rest of us need a good healthcare system too. It could be so simple and so beneficial if we went for a single payer national non-profit healthcare system instead of more money to the insurance companies.
If you would like more information, please check our website, www.healthcare-now.org. Marilyn Clement, National Coordinator, Healthcare-NOW
Co-Chairs: Leo Gerard, President of the United Steelworkers (largest industrial union in North America); Jim Winkler, General Secretary of the United Methodist Board of Church and Society; Dr. Quentin Young, National Coordinator of Physicians for a National Health Program
COMPREHENSIVE LIFETIME HEALTH CARE FOR ALL OHIOANS
WHEREAS every person who lives or works in Ohio is entitled to quality health care as a fundamental human right; and
WHEREAS there is an escalating crisis in access to health care in the State of Ohio as massive layoffs and plant shutdowns cause alarmingly high numbers of workers and retirees to lose health care benefits; and
WHEREAS existing for-profit insurance plans often fail to deliver adequate, timely coverage to the insured and fail to provide any coverage at all to more and more Ohioans; and
WHEREAS inefficiency and unnecessary overhead and profits inherent in the existing failed system divert hundreds of millions of dollars from the taxpayers of Ohio, from Ohio businesses attempting to provide employees with health benefits, and from state and local government entities and taxpayers, and impede the efforts of health care providers to deliver quality health care to their patients; and
WHEREAS individual Ohioans and Ohio businesses continue to be subjected to large, unchecked increases in insurance premiums, prescription drug prices and other medical costs, imposing hardships on millions of individual Ohioans and driving many businesses and individuals to eliminate or curtail desperately needed coverage and benefits; and
WHEREAS a comprehensive, publicly-funded not-for-profit program will provide higher quality care for all Ohioans at much lower cost (as is the case in all of the nine largest industrialized countries except for the United States, according to the World Health Organization); now, therefore, be it
1. That the Ohio General Assembly enact without delay the Health Care For All Ohioans Act (HCFAOA), which is HB 186 and SB 168, and which provides comprehensive lifetime coverage for all Ohioans;
2. That pursuant to the HCFAOA, every person covered by it would have the same uniform schedule of benefits, including inpatient and outpatient hospital care, preventive care, doctors' visits, prescription drugs, vision, hearing, mental health, dental, home care, emergency care, medical devices, and all other necessary medical services determined by any state licensed medical provider;
3. That pursuant to the HCFAOA, an independent elected agency of State government be created to implement and administer the HCFAOA;
4. That pursuant to the HCFAOA, any person displaced from employment as a result of implementation of the Act shall be eligible to receive up to $60,000 for two years for subsistence and training, with the understanding that many of such displaced persons will find alternative employment administering the HCFAOA;
5. That pursuant to the HCFAOA, funding will be provided by the mechanisms specified by the Act, with the understanding that any claimed inequities will be subject to change by the Ohio General Assembly.