Health Care Reform: What is the 'Make or Break' Issue? It's the COST of Health Care.

Op Ed - Health Care Reform: What is the 'Make or Break' Issue? It's the COST of Health Care. - Cornelius Hogan, Plainfield, VT

The uncontrolled rising cost of health care is a virulent cancer that is infecting all aspects of our economic and family lives. It has metastasized well beyond what it has done to our ability to obtain access to health care. It is having deep and serious impacts on the economies of our families, businesses, our communities and states, our economy in general. It impacts the capacity of health care providers, hospitals, physicians, and services for the elderly, to provide care.

Extraordinary rising cost is driving: an increased lack of access in the form of a rapidly rising rate of uninsured; an uncountable rise in the underinsured highlighted by a shift toward catastrophic and partial insurances; a movement toward less comprehensive care as business and individuals are being priced out of more desirable and preventative coverage; and rising 'taxes' in the broadest sense.

It is the grossly out of proportion rising costs of health care that is preventing us from making progress on access and quality. But it is the gross and excess cost of current health care that gives us an opportunity to finance reform, by reducing these costs significantly. If health care costs are not dealt with firmly now, any major reform adopted will fail.

. Health care reform will be illusory, and the nation and our people will be worse off, no matter what we do, unless costs are curbed. Looking at the cost side of single payer vs. public option is a worthy exercise.

First, A Little Vermont Health Care History

Over the decades, little socially responsible Vermont has wrestled with the health care issue on the average of once every ten years, beginning in the 70's with Democratic Governor, Thomas Salmon. He created the Daniel's Commission, which resulted in the building of government's capacity to better understand the problem. That was followed in the 80's by the efforts of Republican governor, Richard Snelling and his Kitchel Commission. This commission recommended a 'maxi-cap' on hospital budgets, only to be defeated by the substantial efforts of the then Hospital Association in Vermont. Next came Governor Snelling's second effort in the early 90's with the Gibb Commission. Snelling died in office and was followed by Democratic governor Howard Dean. In the mid 90's he advanced a set of proposals, including a single payer option, which collapsed about the same time that the national effort was collapsing.

In 2001 Dean created the Hogan Commission which concluded that 'single payer' was not politically viable, even though the Lewin group had clearly demonstrated the savings that would accrue by adopting single payer financing.

The final big effort in Vermont was in 2005 when the Vermont House of Representatives passed a broad ranging universal access and financing bill that was then softened by the Senate in order to get gubernatorial support. It was, however, vetoed by the then and current governor, Republican Jim Douglas.

Further efforts have been ones of increments and repairs. They include subsidized care, called Catamount Care, longer range efforts at chronic disease management, and information technology improvements, and physician pay for performance plans.

In the meantime, total health care costs in Vermont over the cycle have tripled (as elsewhere) and Vermont has seen a temporary dip the number of uninsured. (Note: published calculations to date were done before the effects of the current economic problems.)

Lessons Taken From This History

Up to the time of the current initiatives of Catamount subsidized care, chronic disease management, and a current nascent initiative of a version of 'pay for performance', efforts at change started as broad based comprehensive change (similar to federal rhetoric in the current reform cycle), but good starts were inevitably defeated by the special health care interests. Current 'repair' initiatives were recognition that the current political landscape in Vermont would not allow comprehensive change

Back to Cost

How serious and how widespread is the cost problem?


For an increasing number of our families the stark choice is becoming health care or food...or education...or heat. How much more of family income is being taken up by health care costs? In many families, the cost of health care is now exceeding mortgage costs. Families are experiencing unnecessarily higher costs of goods on the shelf as a result of business having to pass on its rising health care costs. How many families can constantly afford an average premium increase of 11% or so a year, particularly after experiencing a tripling of costs over the last years. In a state where family health care costs are now reaching up to 25% of basic household expenses.how many families have extra resources, particularly in this recessionary period, to deal with ever rising health care costs? The answers are known and obvious.


Multiple studies are showing that the ability for business to increase wages has been dampened as a result of chronic health care cost increases to the business. The ability of small business to attract employees for periods of time long enough to develop needed productivity and skill is compromised.

On the other side of the coin, employees that should be growing, developing and moving to new business sectors are staying put in their jobs, in great fear of losing their health care if they move to another job. Overall, the lack of portability of health care is serving as an overall depressant on our business climate.

The Wall Street Journal recently reported that "about 10% of small businesses are considering eliminating coverage over the next year, up from 3% in 2005, according to a recent survey by National Small Business Association. That follows earlier declines in coverage, with just 38% of small businesses providing health insurance last year compared to 61% in 1993, according to the trade group. A Hewitt Associates survey found that 19% of all companies plan to stop providing health-care benefits in the next three to five years."

Communities and States

For communities and states, the economic stakes are huge. Health care costs are now resulting in ever higher property taxes as a result of the cost of health care provided to employees of local communities. School taxes are rising as a result of higher health care costs for teachers. This has multiple dynamics. Put yourself into the shoes of a hard working Vermonter who works for a small business that does not provide health care, as he or she shells out ever higher school taxes to pay for teachers in their own town who have most of their health care paid for by taxpayers.

At the state level, the cost of Medicaid is playing an ever increasing part of the state budget as the expense of other worthy and important programs. In Vermont, the health care portion of workman's compensation costs represents a full 50% of fund costs. And in this recession those funds are under increasing pressure.

In Massachusetts, the entire mandate program, although reaching the highest levels of coverage in the nation is now at risk because of the unsustainable cost increases. If it were not for the largesse of the federal government, the program there would now be on life support. The Urban Institute recently warned that because of ballooning costs "At stake ...is whether the Massachusetts reforms can survive." For example, the "state's bill for providing healthcare to employees and their families who work for large companies increased 24.6% in the last fiscal year..."

In Vermont, our self ballyhooed Catamount subsidy program has been seriously hampered by state budget woes, as has a faltering chronic disease management initiative because our little state's budget cannot nearly support the efforts.

Further, a recent VPIRG report projects that "premiums and deductibles for Vermonters with employer provided insurance will nearly double by 2016", which will leave many thousands more Vermonters in desperate straits, a mere seven years from now.

Hospitals and Physicians

Hospitals and physicians are not immune to the effects of rampant cost increases. Over half the hospitals in the nation are now losing money. In Vermont, we're seeing the early stages of this problem in some of our community hospitals. Services are being cut both in Vermont and elsewhere. Out of self defense, hospitals are increasing their cost shifts to private payers. Capital growth is under severe constraint, which, over time, will have an impact on quality.

Further, studies are showing us that for profit hospitals are spending 10% more than non profit hospitals on administrative costs.

And hospitals, in some parts of the country, are in tong wars with other hospitals

Ever more physician practices, particularly primary care physicians, which are the backbone of any health care system, are devoting their scarce resources to 'chasing the money'. For example, estimates of overhead in physician offices are as high as 35%. Physicians are leaving service and shortages are now common.

For example, at Duke University they are dealing with 700 distinct managed care contracts with different rates, and authorizations. .It can take 90 days just to settle one bill. Just multiply that kind of waste throughout the country. The unnecessary and costly paper work is staggering.

Our Economy

In the biggest sense the unyielding cost increases of health care is hurting our international competitiveness. In the auto industry, for example, each car produced in the U.S. costs $1500 more than those produced by our international competitors. That plus the company burdens of health benefits for retirees has contributed greatly to our overall non-competitiveness.

Our health care costs are also influencing where our multinational companies locate. It is no secret that IBM for example puts a lot of its facilities in places like Ireland and France. Those nations (and all other westernized nations) have found national solutions to health care costs, where their citizens pay on average about one half of what we pay per capita.

The accumulated ability of families and individuals to pay for health care is now resulting in an ever more obvious drag on our economy. Half the bankruptcies in this country can be traced to a medical event. A serious question to ponder is 'Can the per cent of gross national product dedicated to health care reach 20% and not clearly harm our economy?' We're now at 16% and rising rapidly. Vermont is now at 17%.

The President's Council of Economic Advisors just issued a report on health reform. They said clearly that health reform can give us a stronger economy...but if we keep doing more of the same, we will all pay a heavy price. They specifically said that if health care costs can be controlled that gross domestic product could increase by more than 2% in 2020 and by nearly 8% by 2030.

The Federal Reserve Bank of Boston now reports that, 'Escalating medical costs are threatening the nation's financial well-being and its health with insurance premiums increasing 78% between 2001 and 2007 and wages by only 19 %...'

In sum, what began as an 'affordability' problem 20 years ago has grown to the point where health care costs are marbled through out overall economy. A tree cannot grow to the sky, as an old saying goes. But health care has gotten at least to the cloud level.

Final Thoughts About Vermont and Cost

The Vermont experiments are only 4 years old. They are being applied to only a tiny fraction of Vermont's 640,000 population. But even at this early date we do know the following:

  • Prior to the onset of Vermont's reforms in 2005, Vermont's uninsured rate was 9.8% with the children's' uninsured rate at 4.9%. By April of 2009, the rate of uninsured had dropped to just 7.6% and the children's rate to 2.9%. However, these calculations were derived from a survey in October of 2008, prior to the economic travails. The results are similar to efforts in others states, such as Maine, Tennessee, and Oregon, where subsidized plans initially resulted in fewer uninsured, only to lose ground as the price tag became an ever greater problem. In that same light, the planned expansion of Catamount subsidized care has been dampened because of State of Vermont budget woes.
  • Total costs of health care in Vermont have increased from 4.2 billion in FY 07, the year Catamount and the disease management programs were launched operationally, and now stand at an estimated almost 5 billion as we reach the end of FY 09, a 19% increase in Vermont health care costs over the last two years.
  • The Chronic Disease Management and concomitant information technology improvement plans were designed to pilot the effort in several Vermont communities. These are in the early stages of implementation. . It will take many years before savings are identified, if any. The literature is not terrifically encouraging on the savings front.
  • Vermont has received regular and constant credit at the national level for its 'comprehensive reforms'.
In sum, making progress on health care is all about controlling cost. With controlled cost access to care can be achieved and sustained and quality can continue to improve. Without controlling cost neither of these essential goals is obtainable.

Please ponder this question. Do any of the proposals you have seen or are under development deal strongly, openly, concretely and in a timely manner with the cost of health care? Do the untested theories of chronic disease management, public option, cost variance, or 'pay for performance' meet this test? Will they reduce cost in a major way?

At this point, we need more than hopes and speculations. A proven Medicare for All type of approach can control costs, but it is not seriously being considered in Washington.

The primary way we can pay for health care reform is to spend less by wasting less.


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