Representation – A Story not Told Enough

In Arizona voters chose to vote for Republican congressmen over Democratic congressmen by over 200,000 votes.  Yet in Arizona the election results are 5 Democratic congressmen and 4 Republican congressmen.  In California, nearly 60% of votes for congressional representative went to Democratic candidates; the congressional delegation for California is 12% points higher than those results at 72%.  Connecticut’s delegation is 100% Democrats, even though they garnered as a whole 65% of the vote in that state. 

That is not the intention as laid down in the Constitution.  The idea behind the House of Representatives is that they should represent proportionally the people of their state, make each representative respond approximately to the same amount of people nationwide[1], and to be frequently held accountable by its diverse constituency, in order to listen to them better.  The Framers did not take into account the practice of gerrymandering. 

With a wink and a nod, both parties have allowed this practice that serves their self interest, disenfranchising voters right and left by making “secure” districts for either side.  It is also a practice that distorts the message that voters give with their ballot.  In another one of his great misleading whoppers, Paul Ryan stated that the results for the house of representatives validates the republican’s message, that in fact it gives the House Republicans a mandate to implement the so called “Ryan Budget,” and that president Obama has no mandate:

Asked whether President Obama has a mandate on taxes, Ryan told ABC News' senior political correspondent Jonathan Karl that the House Republican majority is proof that the president does not.

"I don't think so, because they also reelected the House Republicans.”[2]

Ryan, the wonk, does not really expect anyone to look at numbers beyond the results.  His statement is equivalent to saying that in Arizona the democratic house delegation has a mandate to implement Obamacare.

Nationally, the total vote for congressional candidates was nearly 166.6 million.  Of this total the breakdown was 48.86% Democrats and 48.58% Republicans (the rest is third parties).  So in absolute numbers Democrats won the vote for congressional representation.  In an ideal representative world, the nationwide breakdown for the 113^th Congress would be 218 Democrat, 217 Republican; definitely not a major win for either side.  But because of gerrymandering, the actual election results makes the 113^th Congress be 54% Republican and 46% Democrat (234 R, 201 D), a difference of 33 delegates, and numbers which qualify as a mandate under any analysis.  This gerrymandered distortion is wrong, and that wink and a nod gives a black eye to democracy.  A perversion of the intention of the Framers of the constitution, perpetrated in the name of creating mutually acceptable “safe districts” for each party.

The effect of gerrymandering state by state:

	Proportioned		Elected		Difference		G-Index
	Rep	Dem	Rep	Dem	Rep	Dem
Hawaii	1	1	0	2	-1	+1	50.00%
Idaho	1	1	2	0	+1	-1	50.00%
Maine	1	1	0	2	-1	+1	50.00%
New Hampshire	1	1	0	2	-1	+1	50.00%
Rhode Island	1	1	0	2	-1	+1	50.00%
Connecticut	2	3	0	5	-2	+2	40.00%
Oklahoma	3	2	5	0	+2	-2	40.00%
Nebraska	2	1	3	0	+1	-1	33.33%
South Carolina	4	3	6	1	+2	-2	28.57%
Arkansas	3	1	4	0	+1	-1	25.00%
Kansas	3	1	4	0	+1	-1	25.00%
Maryland	3	5	1	7	-2	+2	25.00%
Ohio	8	8	12	4	+4	-4	25.00%
North Carolina	6	7	9	4	+3	-3	23.08%
Indiana	5	4	7	2	+2	-2	22.22%
Massachusetts	2	7	0	9	-2	+2	22.22%
Pennsylvania	9	9	13	5	+4	-4	22.22%
Oregon	2	3	1	4	-1	+1	20.00%
Virginia	6	5	8	3	+2	-2	18.18%
Kentucky	4	2	5	1	+1	-1	16.67%
Alabama	5	2	6	1	+1	-1	14.29%
Michigan	7	7	9	5	+2	-2	14.29%
New York	10	17	6	21	-4	+4	13.10%
Minnesota	4	4	3	5	-1	+1	12.50%
Missouri	5	3	6	2	+1	-1	12.50%
Wisconsin	4	4	5	3	+1	-1	12.50%
Arizona	5	4	4	5	-1	+1	11.49%
California	21	32	15	38	-6	+6	11.32%
Florida	14	13	17	10	+3	-3	11.11%
Illinois	8	10	6	12	-2	+2	11.11%
Tennessee	6	3	7	2	+1	-1	11.11%
Washington	5	5	4	6	-1	+1	10.00%
New Jersey	5	7	6	6	+1	-1	8.33%
Georgia	8	6	9	5	+1	-1	7.14%
Texas	22	14	24	12	+2	-2	5.56%
Alaska	1	0	1	0	0	0	0.00%
Colorado	4	3	4	3	0	0	0.00%
Delaware	0	1	0	1	0	0	0.00%
Iowa	2	2	2	2	0	0	0.00%
Louisiana	5	1	5	1	0	0	0.00%
Mississippi	3	1	3	1	0	0	0.00%
Montana	1	0	1	0	0	0	0.00%
Nevada	2	2	2	2	0	0	0.00%
New Mexico	1	2	1	2	0	0	0.00%
North Dakota	1	0	1	0	0	0	0.00%
South Dakota	1	0	1	0	0	0	0.00%
Utah	3	1	3	1	0	0	0.00%
Vermont	0	1	0	1	0	0	0.00%
West Virginia	2	1	2	1	0	0	0.00%
Wyoming	1	0	1	0	0	0	0.00%

Gerrymandering allows for a gain of 14 representatives for the Republican party and a corresponding loss of 14 to the Democrats, a gap of 28.  The actual difference in the 113th Congress is 33, the other five won fair and square by quirks in districting and state allocation, not gerrymandering.

Taking away those quirks, if proportional representation is applied state by state as opposed to nationwide, congress would have 220 Republican congressmen and 216 Democratic congressmen, a total difference of 4.  Still not the nationally calculated breakdown indicated above (218D/217R), but closer to representation than what we have now in Congress, and quite definetely not a mandate.

The highest index level (>25%)[3] of gerrymandering for democratic districts occur in the states of Hawaii (which may be an outlier on account of geography), Maine, New Hampshire, Rhode Island, Connecticut and Maryland, favoring the democrats by 6 representatives.  As for the republicans, with the same factor of 25% or more, the most gerrymandered states were Idaho, Oklahoma, Nebraska, South Carolina, Arkansas, Kansas and Ohio, awarding republicans 12 more congressmen than they would have in better proportioned districts.  Of the 50 states, only 15 have delegations that reflect the proportional vote of their electorate.[4]

Those Framers had an idea of what they were doing.  The idea that your congressman is your closest representative in the federal government is a good one.  The amount of representatives in Congress is almost unwieldy, but still manageable –despite the seeming aimlessness of the last few years; and the apportionment after the last census was fair.  It is the redistricting that distorts the system. 

Other countries use total votes for each party and assign congressional seats according to a party roster, ensuring that the percentage of votes received by each party is reflected in the make up of the representative body.  Representatives-at-large, based upon one per average size of district, ensure that minority parties get a voice in the assembly.  If that were the case in the US, the Libertarian party and the Green party would have at least one representative in the House.  But such a system beholds the representative to the party bosses that made the list instead of to the voters who actually vote for them. 

As it has been said, our democracy may not be perfect, but it is better than many.  It is the gerrymandering perpetrated by both parties that corrupts the constitutional ideal.  It may be up to that third branch, the Judicial, to look into the abuse by the Legislative.  Because of the national scope of the issue, it would be the Federal Executive, through the Justice department and applying voter laws such as the Civil Rights act, that takes the case to the courts.  Wishful thinking, but what American ideals are all about.  Complacency on this matter will only make Congress and its dysfunctional nature worse, by creating more secure seats that silence and disenfranchise voters.  The clock is ticking.  On 2020 new apportionments and redistricting will redraw the map.  It should be a better map.

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[1] That current number is approximately 650,000 inhabitants and 280,000 voters per congressional district.

[2] Paul Ryan: Obama Has No Tax Mandate – ABC NEWS

[3] Calculated as a percentage of the favored difference of the respective party over the total number of congressional districts in the state.  For example, if a party should have received 5 representatives in proportional allocation and it received 7 it has a favored difference of 2.  If the total number of districts is 10, then the gerrymandered index level is 20%.

[4] The numbers do not consider turnout for effects of representation.  California, for example, has an extremely low turnout.  Its average total vote per congressional district was 181,957, almost two standard deviations below the national average of 267,793.  In addition to turnout there is the down the ballot vote.  The vote for president was 121.8M, while the vote for representatives was 116.5M, more than 4.3% less.  But representatives are beholden to those who vote, so turnout is a factor that should be discounted for this analysis.  Every vote does count.

The Affordable Care Act Upheld - A Loss for Society

A Conservative Victory.

In what was widely perceived as a victory for progressive social legislation, the Affordable Care Act (ACA) has been upheld by the Supreme Court as constitutional.  Yet, conservative thinkers such as George Will (a “substantial victory” for conservatives) and Charles Krauthammer (“draws the line against the … expansion of congressional power”) are extremely happy with the embedded rationale in the decision that upheld ACA because, they argue, it limits the scope, reach and activity of the federal governement; and they commend and defend the thinking of Justice Roberts in this matter.  So, when joining the “liberal” wing of the court, how does Justice Roberts’ interpretation actually limit federal law to the delight of conservatives with a brain? (Not Rush Limbaugh, for example).

In the concurring opinion, Justice Ginsburg facetiously questions the way Justice Roberts upholds the ACA, as Roberts writes more about his reason not to uphold the statute than about his reason to uphold it.  Justice Roberts dedicates the better part of thirty pages primarily on the improper use of the Commerce Clause,  in support of his view that Congress over regulates commerce.  He uses eight pages to uphold the ACA statute on the basis of Congress’ power to tax.  Justice Roberts has clearly used his ruling on the ACA to weaken the use by Congress of the constitutional power that enables it to regulate commerce “among the several States”.  Justice Ginsburg’s concern of Justice Roberts exposition is understated:  “I see no reason to undertake a Commerce Clause analysis that is not outcome determinative.”  That is, of course, unless you want to set precedents for further rulings.[1]

The Commerce Clause in Question – What Does it Mean?

Justice Roberts strikes down the notion that the Commerce Clause empowers Congress to enact the “Individual Mandate” arguing Congress invokes the clause to regulate an activity that does not in fact exist.  This activity, he states, only exists by its creation within the ACA and as such, in the view of the court, it is a convoluted argument by Congress, that which creates an activity first to then regulate it under the Commerce Clause.  Furthermore Justice Roberts, by framing and upholding the Individual Mandate as allowable under Congress’ Tax powers, is telling the country that to overturn ACA they need to go through Congress—electing representatives that will change the law.  He clearly states that it is not the role of the Supreme Court to overturn a law that is constitutionally sound.  He writes: “The Court does not express any opinion on the wisdom of the Affordable Care Act.  Under the Constitution, that judgment is reserved to the people.”

The overall dissent opinion, led by Justice Scalia and joined by Justices Kennedy, Alito and Thomas, agrees that the individual mandate is not valid, alleging once again that it forces someone not engaged in an activity to do so.  This, argued appropriately, would be an overreach by the federal government into the private life of its citizens.  But in fact, the argument is not correct in its foundation and the majority of the majority opinion (Justices Ginsburg, Breyer, Sotomayor, and Kagan) do in fact argue for the application of the Commerce Clause under this instance. 

The issue at stake here is the legislation and regulation of public goods, goods that affect each individual as a member of a society.   By striking down the Commerce Clause rationale behind the individual mandate the court sets precedent that erodes the thinking that has allowed for such things as environmental protections, public education, infrastructure, even police and armies, not to mention Social Security and Medicaid itself. 

So, while the ACA as such is upheld, this ruling is in fact a setback for those of us who think that the essence of government’s role in society is the regulation and management of public goods.  For those of us who think that by participating in a society, its members engage in the activity benefited by the public goods of that society.  And that it is more efficient and productive when you don’t have competing highway systems and duplicate bridges, multiple military and law enforcement authorities, an ignorant labor pool and an unhealthy society. 

Striking Down the Individual Mandate as Based on the Commerce Clause.

What is the “individual mandate”?  The decision as written by Justice Roberts defines it (some editing for length) as follows:

“The individual mandate requires most Americans to maintain “minimum essential” health insurance coverage. The mandate does not apply to some individuals, (religious objectors, prisoners, undocumented aliens, Indian tribes, and low income persons) but, for individuals who are not exempt and do not receive health insurance through a third party (their employer, Medicaid or Medicare), the means of satisfying the requirement is to purchase insurance from a private company.  Beginning in 2014, those who do not comply with the mandate must make a “[s]hared responsibility payment” to the Federal Government.  That payment, which the Act describes as a “penalty,” is calculated as a percentage of household income, subject to a floor based on a specified dollar amount and a ceiling based on the aver­age annual premium the individual would have to pay for qualifying private health insurance.  The Act provides that the penalty will be paid to the Internal Revenue Service with an individual’s taxes, and “shall be assessed and collected in the same manner as tax penalties, such as the penalty for claiming too large an income tax refund.”

In writing this, Justice Roberts foreshadows his argument that Congress is creating a tax from which anyone with coverage or exempted from coverage by the ACA statute is exempted.  The argument is: if you are not insured you owe IRS penalties collected trough your tax returns.  Thus, because the penalties are collected through the IRS and calculated on the basis of income, marital status and dependency, these penalties are not in fact penalties but taxes, which you would not pay if you were insured.  It is the "Quacks like a Duck" test.

The core of the issue, and the reason for the individual mandate is the current, existing now, situation of cost shifting, which increased annual premiums an average of $1,000 annually in 2010, by Congress’ estimates (approximately 8%).  Cost shifting is what occurs when individuals with no insurance need urgent care and cannot afford it.  Because by law these individuals cannot be denied care, their price tag gets shifted to those with insurance.   As Justices Roberts and Scalia point out, the ACA exacerbates the problem when it requires insurers to not deny coverage for pre-existing conditions and not to charge different, higher, premiums to people who get sick. [2]   Without the mandate the logical economic incentive is not to buy insurance until you get sick. 

In the dissenting opinion to the majority, Justice Scalia writes, concurring with Roberts, that failure to participate in commerce cannot be penalized. [3]  But, as explained, health care does not fall under the traditional rules of commerce as an isolated transaction between two parties.  To view the health care market from that point of view is extremely narrow.  If failure to participate in public goods were a reasonable test of exclusion in a government sponsored initiative, program or guarantee, then it would follow that, for example, childless individuals should not pay taxes towards schools, or people who chose to not drive on highways should not pay gas taxes, or people who live in safe gated neighborhoods should not pay municipal taxes to support local police. 

The Individual Mandate is different than the government requiring the purchase and consumption of broccoli—to use the sardonic reference (“broccoli horrible”).   When an individual does not buy broccoli, it does not affect negatively another individual’s purchase and consumption of broccoli.  Quite the contrary, if demand goes down for a discretionary product, its price will go down.   When a person decides not to buy insurance, however, it does affect negatively all insurance buyers because, as Justice Ginsburg says (edited for length):

The health-care market’s size is not its only distinctive feature. Unlike the market for almost any other product or service, the market for medical care is one in which all individuals inevitably participate. Virtually every person residing in the United States, sooner or later, will visit a doctor or other health-care professional. (Over 99.5% of adults above 65 have visited a health-care professional.). Most people will do so repeatedly. (In 2009 alone, 64% of adults made two or more visits to a doctor’s office.).

You cannot say the same about eating broccoli (or brussel sprouts).  Justice Scalia’s contentious (and almost ranting) ironic argument segue that failure to buy a car can be called “partici­pation in the non-private-car transportation market” if the Commerce Clause argument were upheld misses the larger point and is a wrong example.  It is a broad transportation market, one which includes cars, buses, pedestrians, bicycles, etc.  If one chooses to walk instead of taking the bus, you are still transporting yourself from one place to another, and as long as your choice does not affect me negatively, I don’t care how you got there.  Likewise, the health care market as regulated under the ACA is not about buying an aspirin or not.  But if some person has a psychotic breakdown and shoots down twenty two people, and that person under a reasonable system could have been diagnosed and treated preventatively, yes, it is part of the intrinsic act of living in society to figure out rules to avoid such societal breakdowns.

Failure to understand health care as a public good leads to this narrow interpretation of the commerce clause.   Congress is not directing the creation of commerce by forcing people to participate in the health insurance market.  As Justice Ginsburg wrote, 99.5% of people participate in the market already.  And, it can be reasonably argued, that those who do not purchase insurance from an established, institutional provider are in effect self-insured, i.e., they are estimating the risks involved given their lifestyle, behavior and health history, and paying themselves a “premium” for coverage that they calculate as fair: zero.  Just because their actuarial math is flawed it does not mean society should subsidize them. 

In citing Hamilton (Federalist 33), Justice Scalia conveniently glosses over the purpose of the paper: Congress has the authority to impose a uniform law to all states and individuals living in the United States and that “if individuals enter into a state of society, the laws of that society must be the supreme regulator of their conduct.”  It is clear from Hamilton’s argument that society precedes laws, and that laws are passed by the members of society to regulate the conduct of its members as a whole entity.  It is clear that, for Hamilton, society is not a simple aggregation of individuals but a unit in and of itself.  So, by being in a “state of society” an individual’s responsibility towards society is created; by virtue of participating in society the individual partakes in the public goods that society creates; and that society has a right to regulate conduct as it relates to the goods of its own creation.  Thus the argument that “(Congress) has never before used the Com­merce Clause to compel entry into commerce” is incorrect, not because any act that Congress may or may not have done so in any express manner, but because in fact even through omission, and because health care is defined as a public good, every member of society engages, participates and affects the health care market.

Justice Roberts’ well argued point about regulating future possible activities also fall under this category of rhetorical distortion.  He dismisses the self-insured argument out of hand, yet recognizes that “almost all who are uninsured will, at some unknown point in the future, engage in a health care transaction.”  His argument originates from severing the insurance market from the health care market, distinguishing them as separate activities.  However it is not “metaphysical philosophy”, as he characterizes economic thought, to bundle (“inherently integrate” in his words) the insurance market with the health care provider market, because the first would not exist without the latter.  If no health care were ever needed (in either an immediate or distant future), the insurance industry would not exist.   So the act of deciding not to buy insurance is an actuarial decision by the individual and as such this individual is participating in the economic activity intended to be regulated by the ACA under the Commerce Clause.  It is not a “proposition that Congress may dictate the conduct of an individual today because of prophesied future activity”.  It is a present and real activity.

The Dissent on the Commerce Clause – A Hint for Single Payer?

Justice Ginsburg and Justices Sotomayor, Breyer and Kagan, uphold the Commerce Clause argument.  Justice Ginsburg in her writing makes strong arguments as to the unique nature of the health care market.  On comparing vegetable or automobile markets, for example:

“The analogy is inapt. The inevitable yet unpredictable need for medical care and the guarantee that emergency care will be provided when required are conditions nonexistent in other markets. That is so of the market for cars, and of the market for broccoli as well. Although an individual might buy a car or a crown of broccoli one day, there is no certainty she will ever do so. And if she eventually wants a car or has a craving for broccoli, she will be obliged to pay at the counter before receiving the vehicle or nourishment. She will get no free ride or food, at the expense of another consumer forced to pay an inflated price.”

On insurance being an optional purchase with variable demand she states the obvious: “If unwanted today, medical service secured by insurance may be desperately needed tomorrow.”  She also counter argues Justice Roberts’ assertion of distant future need, as the nature of a health need is absolutely unpredictable.  Furthermore, she writes:

“Health insurance is a means of paying for this care, nothing more. In requiring individuals to obtain insurance, Congress is therefore not mandating the purchase of a discrete, unwanted product.  Rather, Congress is merely defining the terms on which individuals pay for an interstate good they consume: Persons subject to the mandate must now pay for medical care in advance (instead of at the point of service) and through insurance (instead of out of pocket). Establishing payment terms for goods in or affecting interstate commerce is quintessential economic regulation well within Congress’ domain.

Clearly, this is the “bundling” of insurance and health providers that Justice Roberts was arguing against.  But Justice Ginsburg does seem to misstate somewhat (perhaps intentionally) the case when she equates insurance to paying in advance.  By its own nature, insurance payments should exceed the expected financial needs of a covered incident.  Perhaps not on an individual basis, but certainly in the aggregate this has to be the case.  Otherwise the insurance industry would not exist.   In the case of home insurance, for example, a total loss is more than the sum of all monthly payments made by an individual homeowner.  But as the insurance company has many other properties covered that never incur in such a loss, there is a profit to be made.  So each individual insurance holder is not in fact “paying in advance” for a future need.  They participate in a risk pool, in full knowledge that they may pay more than they will ever need.

So how do health insurance companies make a profit if all they are receiving is advance payments for a future need that will probably exceed anyway the sum of all previous payments?  The answer is simple: cost shifting.  The highest percentage of health care needs occur at end of life.  The ACA does deal with this partially by ending the practice of lifetime limits to coverage—a practice by the insurance industry that led to many a personal bankruptcy.   But the greatest proportion of cost shifting is covered by the government through Medicare, taking care of adults when their needs for health care increase. 

The health insurance companies could not survive if they were forced to maintain coverage of the population pool that currently enjoys Medicare.   The insurance companies will be extremely profitable with ACA, enlarging the pool risk to include healthy younger individuals, yet maintaining “expensive” older individuals out of their pool.  In essence, they shift the cost of the more expensive care over to the taxpayers with a program that conservatives always rant about having spiraling out of control upward costs.  That is why, upon upholding as constitutional the ACA, health care stocks shot up; and that is why health insurance companies will fight tooth and nail against the raising of age eligibility for Medicare.

If there is a solution to this conundrum to the taxpayer, Justice Ginsburg hints at it with her phrasing, suggesting that insurance is a form of prepay to an eventual need.  This is the basis of an argument for single payer/private service.  A true way to control health care costs.

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 Links of interest:

The SCOTUS decision

A quick overview of the ACA

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    [1] In an interesting and also seemingly out of the blue comment, Justice Roberts writes “The Consti­tution may restrict state governments—as it does, for example, by forbidding them to deny any person the equal protection of the laws.”  This could indicate his thinking on a future decision that may rile conservatives even more than the one on ACA: the constitutionality of Gay Marriage.

[2] From the decision: "The community-rating provision requires insurers to calculate an individual’s insurance premium based on only four factors: (i) whether the individual’s plan covers just the individual or his family also, (ii) the “rating area” in which the individual lives, (iii) the individual’s age, and (iv) whether the individual uses tobacco."

[3] This is also the basis of the dissent - that the payment is a penalty, not a tax.

The Cost of Healtcare (Part 3) - The Political Case for Healthcare Reform

It is important to understand when talking about the 1/6th of the economy (almost 16% - or $2.28 Trillion a year) dedicated to healthcare that this number is substantially greater in the U.S. than in other countries. The healthcare sector includes medical and healthcare goods and services, pharmaceutical, biotechnology and other products and technologies, as well as health management organizations, hospitals, and healthcare insurance. The U.S. spends more overall and more per capita on healthcare than any other nation, but this number does not say it all. In an analysis by the previously cited Dr. Reinhardt, a regression curve analysis (his graph is shown) is applied to different per capita spending in comparable countries, and the result is that per capita spending on healthcare is directly correlated to GDP per capita. In other words, if you have more money to spend, you will spend more money. The richer a country is the more each citizen of that country spends on the country’s healthcare sector. Yet, despite that the over $16,000 a year spent more than in the comparable economies and systems can be compared to a substantial “healthcare tax” on the average American family, no accountability or better results seems to come from that money spent.

Dr. Reinhardt argues that this regression curve also predicts what the per capita spending should be, given the GDP per capita of a country. The U.S.’ in 2006 should have been around $4,819, but was actually $6,714, approximately 40% more than what would be the norm for other economies and countries, according to the curve. It begs the question, is that almost 16% of the economy dedicated to the healthcare sector a sign of its strength or of its inefficiency?

The Political Case for Health Care Reform: We Can Do better

When comparing five capitalist democracies approaches to healthcare, the size of the healthcare sector in the U.S. is 32% greater than it’s closest comparable, Switzerland. Switzerland is home to some of the largest pharmaceutical and insurance companies in the world, so this sector is sizable for its economy. In the U.S. there are other large components of the healthcare sector, each of which has a role in contributing to or reducing costs as a whole. Let us examine further.

Medical Technologies and Research

The largest number of medical innovations worldwide is commercially developed in the U.S., due to greater spending in research in America. In 2006 it was reported that out of the 22 most recent Nobel prizes in medicine, 15 had gone to Americans or researchers in American universities, while 7 had gone to researchers in other countries. The U.S. government spends over 7 times as much as European governments on medical research, and private companies spend over four times as much in America as they do in Europe. Out of the six major medical innovations of the last 25 years, one is from Switzerland (angioplasty), one that was developed in Germany (mammography) one in Japan (statins) and one in the UK (CT Scans/MRI) were improved in the U.S., and two are considered American (coronary bypass, and ACE inhibitors). While whether medicine is "socialized" as it is in Germany, Switzerland, Japan, the UK or Canada (where recently a non invasive technique for confirming breast cancer has been developed) does not in and of itself promote or hinder technological development in the field, investment does. Investment in medical technology research is proportionally greater in the U.S. than in the rest of the world, and that drives up that healthcare dollar per capita number. These innovations and developments create worldwide benefits, so in effect there is some “free riding” occurring, where the rest of the world benefits from the investments made within America. The total spent in research and innovation, however, amounts to less than 3% of the whole healthcare sector GDP, i.e. much less than 0.5% of U.S. GDP. The savings are not to be found by cutting spending here, quite the contrary. By encouraging more investment in this sector to make medical prevention and care more effective, by expanding immigration policies to encourage more intellectual capital to come and remain in the U.S., and by improving the educational baseline at elementary and high school levels—especially in math and science—more effective healthcare may develop.

Medical Drug Use and Development

Pharmaceutical research and development has given us a cornucopia of medications and drugs that have improved and prolonged the life of many throughout the world. This has been done riding on the back of a patent protection framework which allows funding and long development pipelines; but it is possible that there are excessive costs generated by this sub sector because profit margins, as reflected by the financial statements, are very much above the average corporate profit margin. It is not the role of the government to determine when a particular industry is “making too much money”, as there are many different factors that make any particular industry more profitable than another. In the case of the pharmaceutical industry, the risk of a particular investment is high, as product development pipelines can be very expensive and lead to negative outcomes after years of funding. This financial risk is partially protected by the government in the form of patents. A successful product will be allowed to be monopolized by a company so it can get greater than normal returns for its investment in this product to cover investments in other, failed product lines. Patent protection should allow major pharmaceutical companies to have profit margins in line with the profit margins of major corporations of other sectors, so why are the margins so much higher?

It is said that Americans are overmedicated. There is a pill and a supplement for everything that ails us, as in a type of “Jetson” cartoonish mentality. The public and the medical providers are constantly bombarded with marketing campaigns for over the counter or prescription drugs that will help us defeat the problems caused by our lifestyles—as well as for problems we did no know we had. As Americans we are willing to buy large amounts of products from the pharmaceutical companies and from the unregulated health supplement manufacturers to compensate for our unhealthy lifestyles. Ineffective or redundant overmedication is part of the “excess” spending in health care, an excess driven by the market and lifestyle choices of our society. Other drivers of these costs however should be looked at.

While the development of new drugs is to be encouraged, there is no mechanism that allows establishing true comparables between new drugs, drugs they replace (as the patents run out), and existing alternate remedies. That is, there does not seem to be a clear channel between the patent office, the FDA and independent testing researchers to determine if a new expensive drug has the same effect as an existing one, a health supplement or perhaps even a traditional home remedy—the analyses are narrow. The current regulatory structure is skewed towards the development and patent protection of new drugs, leading thus to the creation and marketing of new drugs—and a pill for everything that ails us. Likewise the unregulated nature of the health and natural supplement market makes Americans spend inordinate amounts of money in little more than compacted dirt and pulverized herbs with great claims but no proven effectiveness. The under funding of the FDA has not allowed it to address these two areas (broad analyses and supplements) where savings by the way of effective and cheaper medication and improved wellness for the American consumer may exist. The political deal to push healthcare included a hands-off arrangement to the current structure of the pharmaceutical industry. It is in this industry’s interest that the incentives as they exist are kept for the development of new drugs over existing ones and remedies, that food, diet and health supplements not be regulated or certified for medical and wellness use, and that the pool of people buying medicine increase. There is a discussion to be had on this point down the road; but pharmaceutical lobbyists have been very effective in postponing it.

Medical and Health Administration

As we go down the list of healthcare sub sectors, the administration systems for providing health care seem to be one where true savings can be found. Particularly the area of medical records is ripe for this streamlining and even the insurance companies would garner substantial savings if this relatively simple step, in conceptual terms, could be enacted. The idea is straightforward: every time you go to a new doctor you have to fill out you medical history, which then is placed in a folder, which goes into that holder in front of the examination room and later into a filing cabinet in the back room of the doctor’s office. The amount of time spent by you and countless other Americans just filling out and handling these forms, and the potential errors and omissions in doing so, represent billions of dollars of inefficiency; a clear opportunity for savings exists here. A networked information system, sharing information in a centralized database, and accessible by the patients through passwords, PINs or even biometrics could streamline medical histories and avoid many costly mistakes. The privacy concerns in constructing such information repository are as great as those of the existing centralized record keeping of Americans’ financial records used for determining credit scores i.e., surmountable. Secure access to this information by a patient authorized provider can be guaranteed, and record checking and updating by the patient can be done from his or her home.

There is a significant business opportunity here, a business that by eliminating all the man-hours wasted in duplicate and faulty recordkeeping can accrue great value. The technology and the data exist; they just need to be put together by the software and minor hardware technologies. This process can also flag fraudulent claims within Medicare, for example, with the consequent savings that have already been projected. The possibilities for streamlining costs, reducing fraud, and producing real substantial savings while providing better care make this area one in which special interests may interfere to appropriate these savings. It is critical that special care be taken to ensure that in fact this sector truly generates its potential for better care, efficiently delivered in a cost effective way to reduce that per capita healthcare dollar number.

The Medical Insurance Sector

The pressure is currently on insurers to become more efficient and reduce costs, so great portion of the debate has been on reforming this sector. However, the insurance sector as a whole does not have excessive profit margins when compared cross-industry to other corporations of similar size. It has already been demonstrated that it is the administrative and overhead costs that are excessive when compared with similar companies in similar countries, and this may be attributed in part to the underwriting component of the administration. This is the part dedicated to examining particular cases and individuals to ensure that coverage is allowed, either before issuing the policy or when presenting the claim. It is sadly ironic that the resources dedicated to excluding and denying claims are what bring down the profit margin of the insurance industry to cross-industry comparable levels, when the cost to the consumer is up to 40% higher than in other comparable countries.

But another major component of this sector requires a close look. Cost savings can be achieved by examining the use of defensive medicine in order to shield practitioners and administrators. This practice raises costs both by increasing the amount of interventions and by forcing up malpractice insurance rates. Different interests are involved in this quandary that balances treatment, responsibility, liability, fairness and justice tugging at each other within a complex issue. In the pursuit of better care, the practice of defensive medicine can do harm, but doctors and medical administrators may feel forced to engage in it to protect themselves from future liability.

We Can Do Better

In reviewing the political issues related to health care we can see that action resulting in bringing down the costs should focus mostly on administrative practices of the medical field and of the insurance companies. There can be substantial savings in the pharmaceutical sector as well, and a clear drive to encourage healthy lifestyle choices should be part of public health policy. In medical administration, incentives to encourage the pooling and sharing of records and histories could make the delivery of medical services more effective at the same time as saving billions of dollars. It is also a way to decrease fraud within the existing Medicare and Medicaid programs.

The insurance companies have no economic incentive but to cater evermore and increasingly to the healthier and the wealthier, despite that the increased marginal cost of doing this has brought down their profit margins. This is why they want to increase the pool of the insured to include individuals that are healthy and do not believe they need to buy insurance, so they do not buy any. It would be a political mistake to mandate insurance to all without including a control mechanism that made sure that “cherry picking” by the companies still left out those in need of medical treatment and created more "free riding" on emergency and public services (as it occurred with the “health co-ops”). The insurance sector is in need of an additional player that can bring some sanity to the existing perverse incentives within it that give us an expensive system with inadequate coverage.

The public option is that player, a new part in that structure that will help adjust the shortcomings of the present system, not perpetuate them, and an effective correction to the bloated and inefficient healthcare sector that crowds out resources for wage growth and new investment, while delivering mediocre results for the money spent. Opponents to such an option argue that in the UK or Canada, for example, when the sector has such a direct intervention by the government the standard of care decreases, including preposterous arguments such as shortages of medical services and supplies—as if the market would not compensate for that. While this is a lie brought out to light by the fact that the wellness factor is greater in these countries as measured by such things as average lifespan, heart disease rates, obesity, chronic disease treatment, and the like, it begs the question to these opponents when they say no to reform: do you really think the U.S. cannot do better?

• Link to  NPR "Five Capitalist Democracies Countries" healthcare comparison.
• Link to Dr. Reinhardt's Article on Health Care and Insurance costs: "Why Does Healthcare Cost So Much?"
• Link to health sector in the U.S. and Medical Nobel prizes
• Link to underperforming wellness in the U.S.

The Cost of Healthcare (Part 2) - The Moral Case for Healthcare Reform

True healthcare reform will be less expensive for the nation as a whole than the system we have now, unless there are Americans that truly do not get covered at all and are refused any treatment whatsoever. That would be the only way to keep the system as is and lower the cost of healthcare overall, and it should be consensus that this is a morally unacceptable option: the “death panel”. To lower the cost in a morally acceptable way there are two issues to tackle: the inefficiencies of the system and the structure of the system. Regarding efficiency, the questions that must be answered include: has the quality of healthcare overall improved at a rate that justifies increasing its cost at a greater rate than the rate of inflation? Are we paying for a healthier nation than we were one, two, ten years ago? What does drive the cost of healthcare?
The Moral Case for Health Care Reform: A Better Life for All

In evaluating the financial statements of insurance companies, the economist Uwe E. Reinhardt reports that McKinsey has compared the administrative costs of similar insurance companies in OECD countries with different healthcare market structures. The excess cost is estimated to be $150B in 2008. These administrative costs come primarily from product design (new insurance products/types of policies), underwriting (vetting for pre-existing conditions, among other tasks), and marketing. A pair of additional studies cited by Dr. Reinhardt compares administrative costs in Germany and Canada with those in the U.S. In the first case Americans pay $380 more per capita ($1,520 for a family of four in 1990, the year of the study), and in the second $752 more per capita ($3,008 for that family in 1999). These are amounts paid for the administrative costs of the insurance companies as part of their overhead, not for providing health care services, products or development. According to Dr. Reinhardt, the overall estimated overpayment in administration costs to the insurance companies would have covered this year’s cost for true universal health care. Within the health care industry this is just a portion of the excessive costs that add up to make it a bloated and inefficient way to deliver medical care to Americans.
The excessive costs borne by the American healthcare consumer are reflected in the day to day lives. Health care costs are absorbing the production capacity of individuals and businesses alike. According to a recent survey from the Kaiser Family Foundation reports that in 2009 the average cost of job-based family health insurance climbed 5%, making it the 10th year in a row that it has grown faster than inflation and wages. The average cost of this type of insurance was $13,375, of which 73% was paid by the employers. When faced with unemployment, the COBRA payments would average more than $1,200 monthly and when self-insured, and without the leverage of large pools of group insurance, families face an ever increasing financial burden, just to keep insurance. The moment a claim is filed, premiums go up, exclusions are triggered and payments are denied, following the economic logic of the current market structure. When need in health care, individuals then face the decision tree of getting the service, hence risking a rise in premiums and future exclusions, or not seeking treatment, risking further complications and definitely lowering the quality of life. When providing healthcare to their employees, businesses forego money for wage increases, new hires and expansion. A recent report from The Business Roundtable (an association of the largest U.S. company CEOs) estimates that, if nothing is done, by 2019, the average annual cost of providing insurance under our present system will be $28,530. The costs have increased and are increasing faster than inflation, but the quality of life and wellbeing of our nation as a whole has not increased by any measurable statistic.
The average family facing catastrophic needs, chronic or major illnesses is likely to get limited care, lose health care coverage, and face bankruptcy. In 2005, a Harvard study found that approximately 700,000 bankruptcies annually or 50% of the total, were directly caused by medical bills affecting nearly 2 million Americans, that more than 75% of those bankrupted by illness had insurance at the start of the illness, and that 38% had lost coverage at the time of filing for bankruptcy. In 2007, according to the American Journal of Medicine, the percentage of bankruptcies attributed to medical costs had increased to over 62%, still with 75% insured at the start of the illness. The rate of broken families and suicide associated with financial distress and home foreclosures adds to the impact of health care bankruptcies. Added to the stress of acute healthcare needs, these additional financial burdens directly strike to the heart of the American family and the American dream.

This is the system that we have now to provide for a public good, a formula that leads to the consequence of inadequate coverage and financial insecurity as a natural outcome. When combined with the waste of a bloated administrative overhead, this is morally wrong; as it is morally wrong to allow our fellow citizens to suffer a condition that can be demonstrably alleviated in a reform that is beneficial to all the members of society.

• Link to Why Does U.S. Health Care Cost So Much? (Part II: Indefensible Administrative Costs)
• Link to Business Roundtable Report Shows Health Care Costs Will Skyrocket to Nearly $29,000 per Employee in the Next Decade Without Effective Reform
• Link to Medical Bankruptcy in the U.S. - American Journal of Medicine
• Link to Medical Bills Leading Cause of Bankruptcy, Harvard Study Finds

The Cost of Healthcare (Part 1) - The Economic Case for Healthcare Reform

By the time you have finished reading this, more than one person under age 65 and over 18 will have died in the U.S. due to lack of health insurance. Every 12 minutes someone else becomes a number in that statistic. It is entirely possible that the best care in the world may not have saved that someone, but that family member, neighbor, friend, acquaintance, or six-degree-separated addition to that statistic was unable to know if it could have been the case. Ensuring the best possible healthcare is provided to members of our society who need it is an issue that has dogged the nation for over 100 years. Tinkering and baby steps have created institutions and programs such as the CDC, The VA Hospitals, Medicare and Medicaid, smallpox eradication, polio, rickets measles and other common disease minimization, flu immunization, and the End-Stage Renal Disease (ESRD) program among others; programs that sometimes work, and sometimes are bogged down by rules that contradict the objective of the program. Yet, over 160 million Americans every year have claims denied, problems with their claim or are outright uninsured, facing deteriorating health, bankruptcy and death. The cost of not reforming health care is greater than otherwise, and this case can be made in economic, moral and political terms. This is the first of a three part essay addressing healthcare reform on these terms.

The Economic Case for Health Care Reform: The Doctor’s Bill

In a free and unregulated market, public goods are monopolized by private providers that are driven to serve the most profitable segment with the lowest risk. Government has generally understood this “market failure” principle, as in the case of public education, an example of private, public, as well as non-profits mixing together in an effort to make education accessible to everyone. If no possibility of a publicly funded basic education existed, natural oligopoly forces would drive the price of education ever higher, while the same schools would try to lower their cost by being increasingly selective in their admission policies. Having a public option, makes private schools more affordable for those who want it, and guarantees access for all to an education that improves the intellectual and skill pool of the labor market: a productivity bonus for everyone.

The notorious “death panels” are alive and well, and get paid bonuses when health care is denied to those in need. Repeated cases of insurance companies engaging in this practice in order to increase profits are well documented. There is no control mechanism or regulation to make these private companies behave differently in their natural drive for profits, and it is entirely within the rights of these companies to seek to maximize their profits. In a free, unregulated market, their actions are perfectly understandable. It is the mission of these companies within our free enterprise system to seek to decrease costs and increase profits. It is logical then that they will try to increase the rates as much as they can, and drop as many expense creating liabilities (people in need of health care) as they can. If Big Company A is not as effective diminishing liabilities and increasing profits as Big Company B, the shareholders of A will not be happy, sell Big Company A stock, and buy stock in B. The end result of this market structure is that it skews to the healthier and the wealthier, a diminishing pool that eventually has limited growth for A as well as B. As people are dropped either actively, by coverage denial, or passively by the unaffordability of the premiums, they may get bombarded by Little Company C, D, E and others, with seemingly affordable rates and coverage; except that when they actually need the service, exclusions, limitations and deductibles are even more pervasive than in A and B.

The 46 million or so Americans with no insurance includes a great number that can afford it but do not get it because they think they do not need it; and to a certain extent that may be true. They are young and healthy, and live a healthy lifestyle. Insurance companies would very much like to mandate these people to buy policies to increase their market pool of healthy customers, especially when not competing with a player that focuses on healthcare as a public good, not as a profit market. The market structure as it exists drives the insurance companies to cater to the healthier and the wealthier. It is in society’s best interest to alter this structure so as to change the incentives.

The costs of the healthcare plans being discussed in Congress are astounding, in the trillions of dollars. But, let us be clear, that money will be spent, regardless whether it is by the government or by private individuals, unless nobody goes to the doctor anymore. This is the doctor’s bill for the nation, as charged by the whole of health services provided. The essence of health care reform is cost driven, in order to get the inefficiencies out of the system and so that we can all spend less in this essential public service, whether through the private market or as part of a public option. To focus on the great amount of money allocated by the government on healthcare for all Americans is to focus on the wrong issue. This is money that is simply shifting from one pool to another, and its sheer size just amazes us when we see it in one big number. The cost of health care, those trillions of dollars, is already being borne by all Americans by:

1. Paying private insurance. Sometimes paid from the insured’s own pocket or as an employee benefit; moneys which come from the stagnant wages of the employee and the company’s customer’s purse;
2. Subsidizing local, state and federal taxes health services for the uninsured, typically emergency and critical care, shifting from wellness management, chronic and preventive treatment to acute treatment, the most expensive of all treatment, and
3. Lost productivity in the economy, e.g., sick days and underperforming employees.

This is a short overview of the economic structure problems in the healthcare industry, a structure that requires an extra player to at least balance somewhat its shortcomings in servicing the public good. The market structure as described favors the private sector profit motive, but ignores the character of public good (in the economics definition of the term) that is implicit in healthcare. Undoubtedly even relatively mild illnesses such as the flu cost our economy billions in lost productivity and therefore output. More catastrophic illnesses or medical needs, and death have also a direct economic impact. The loss to our economy of five lives per hour is not just in output lost, but in the increase of costs due to greater use of emergency and high cost procedures instead of preventive medicine. When our society is healthy, productivity is higher and there is an economic benefit for all.

• Link to Harvard study on deaths caused by lack of insurance.
• Link to Commonwealth Fund report "Losing Ground: How the Loss of Adequate Health Insurance is Burdening Working Families"