I have been asked by many people to comment on the health insurance legislation which was approved by both houses of Congress last night.  I waited until now, although the legislation filled 2,562 pages, so I cannot comment on all of its implications.

This legislation stopped being about health care reform, and eventually stopped being about constructive health insurance reform a while ago.  It essentially got enacted to prove that the Obama Administration could get something significant done.  As a political accomplishment, it is a landmark.  As a positive step toward fixing what is wrong with our health care system, I can only say that the President’s wish that he be the last President to have to address health care will not get fulfilled.  This legislation will require significant rework in most areas for a long time.

In every bad piece of legislation, there are good components, and this is no exception:

• There are specific areas of focus on prevention, and I commend leaders like Senator Harkin for being thoughtful in getting prevention on the agenda, and making meaningful progress on it.
• There are some small steps to improve the supply of doctors and nurses and other health professionals, and these are welcome.
• Closing the “doughnut hole” drug coverage for senior citizens was a good idea, because a deductible that kicks in at $3,400 was a great idea in theory, but a problem in practice.
• The legislation begins to address the long term care problem, which will become more significant as we all age.

What’s fundamentally wrong with the legislation?  It taxes many people to extend insurance coverage to 30 million Americans without addressing the fundamental flaws in the system that caused them and others to be without coverage in the first place.  The problems of uninsurance and underinsurance result from excessive costs which are passed on in higher insurance rates.  This legislation, by guaranteeing coverage and preventing insurers from terminating it when people get sick, will make the costs even higher and will create a vicious spiral in which in which rates go up, more people need subsidies, and taxes go up to cover those who cannot afford coverage.  In particular, the likely consequence of guaranteed coverage, regardless of current medical conditions, is that people who do not want insurance coverage will wait until they get sick to apply.  The penalty for that behavior, which undermines the financial model for this system, is far too low, and does not even go into effect until 2014.

The ways to break this spiral are also bad:

• The rate of cost increases can be reduced by reducing what insurance companies pay doctors and hospitals, but that will drive doctors out of the profession, and cause hospitals to charge more to those not securing government or state-regulated insurance, like self-insured employers and individual policyholders.
• The government and private insurance companies can start reducing what is covered and ration care, which is politically almost impossible to imagine.  This legislation is testimony to the government’s inability to deny coverage for everything every vocal interest group wants.
• The doctors will either cram more patients into an already crowded schedule, which reduces care quality for everyone, or they will delay seeing people longer, or they will simply drop service for patients who have Medicaid or other state insurance plans for low-income people.  Those individuals, who have insurance coverage, will get treated in emergency departments and drive significant cost escalation.

In effect, this legislation has the perverse effect of taxing many Americans to give more insurance coverage to people who will have inadequate access to the right kind of care.  We will be taxes heavily to enable more people who will have insurance cards to go to emergency departments.  The insurance will pay far more than if they had the right kind of care.

I would make one other prediction:  the very wealthy will drop out of the traditional insurance system altogether and access what will be a booming growth industry, concierge physician practices in which the patient pays a flat annual fee to be given a guaranteed high level of service.  Our health care system will end up having a gap between the service offered the rich and the poor far greater than what exists today.

What proponents of this legislation never understood is that health insurance access does not guarantee health care access.  In the 8^th Ward of Washington, DC, one of its poorest areas, there is one urologist serving a sizable population.  According to multiple studies done relative to that population, over 90% of the population has Medicaid or some other form of insurance coverage.

With the passage of this legislation, the percentage of the population with some form of insurance coverage increases to closer to 100%, but there will still only be one urologist, and, therefore, a large part of the population will end up going to the emergency department at the most convenient hospital to get care.  The legislation does nothing to improve health and, even if it improves the broad supply of doctors, will probably do nothing to get more doctors into the 8^th Ward.  The 8^th Ward problem is representative of a problem that exists in many parts of the country, and this legislation does little to address it.

Last year, Connecticut enacted a flawed piece of legislation over the Governor’s veto.  Like this legislation, the battle to pass it was really a political battle in which the Democratic majority won.  The good news is that the Democrats in Connecticut are earnestly working to try to do something good to improve health and health care, and work around the flaws in the legislation, and may eventually figure out how to rework this legislation to turn it into something good.  Let’s hope that the same process can play out in Washington.

There will be many more chapters to this story.

Although the health insurance legislation will not immediately attack employer-provided health benefits, I feel that there are many threats to their continuation.  Accordingly, I feel compelled to respond to ill-informed points of view of influential and otherwise justifiably highly-respected people.  In a column entltled ”In the Wilsonian Tradition,” columnist George Will refers to the need to “transition from the irrationality of employer-provided health insurance.”

There are a handful of arguments usually made against employer-provided health insurance, some coming from the political right and some coming from the political left.

Argument 1: Employer-provided health benefits are a vestige of political and economic conditions that no longer exist.

Opponents of employer-provided health benefits argue that, because such benefits began during World War II because employers were subject to wage controls, they must serve no useful purpose.

There are two flaws with this argument:

• If health benefits did not make business sense, employers would not have chosen to offer it at any time, or would have stopped offering it as soon as they were no longer subject to wage controls.  There were many other benefits they could have offered. Both the Conference Board and the Human Resources Policy Association, which have a majority of large businesses in their membership, have found in private surveys that the vast majority of their members want to offer health benefits.  They see it as a business imperative, not something they would prefer not to offer.
• The argument is irrelevant.  The merits of employer-provided health benefits need to be debated based on today’s conditions, not what triggered the decision by employers to offer them 65 years ago.

Argument 2: Employers do not belong as an intermediary between patients and doctors.  Patients do not trust their employers to provide health benefits, and would prefer to deal directly with the health care providers.

While I am sure that some employees distrust employers, the confidential surveys Pitney Bowes and other companies have done over a long period of time indicate that employees are highly satisfied with the way a first-rate health benefit is administered.

Employers who offer a stingy health benefit or who administer their health benefit program poorly or offer no choices among insurers, providers, or health plans will be rated poorly by employees.  However, judging health plans by the poorest offerings is liking saying that all elected officials should resign because some of them are crooks.  The best employer health benefit programs are far better in addressing patient needs than either Medicare or any private insurance program.

Argument 3: We are competitively disadvantaged because our employers absorb health benefits costs and our foreign competitors do not.

The comparison between GM and Toyota relative to the cost of health benefits, usually quoted at a $1,500 per car disadvantage for GM, is flawed at many levels:

• GM has a poorly designed health benefit largely because it made no effort to use the health benefit to drive healthy behaviors by its employees.  The Japanese have lower health care costs because they eat less, pay a lot more attention to infectious disease control, and are far more controlling than is the U.S. on health-related behaviors.  They also tightly control health care costs.
• The cost of health benefits is built into the Japanese tax system.  Everyone pays for health benefits, not just the employer and employee.  The real meaningful comparison is the portion of Japan’s corporate income taxes allocable to health care versus GM’s cost of health benefits.  It’s on the income statement, but as part of a corporate tax payment.

Argument 4: Employers have no reason to be delivering health benefits.

This argument is the most flawed.  Large self-insured employers can aggregate more economic and non-economic benefits when they invest in improving employee health than any kind of payer.  Besides reducing health care costs, employers investing in improved employee health get reduced absenteeism, disability, and workers compensation costs, improved productivity at work, improved quality of work, and increased loyalty and retention.

Some people who say that the VA system is a great health care system and want that to be the model for everyone.  If our goal was to produce the best broad-based health care system, they might be right, although employers have a significant advantage in being able to offer care on worksites, which produces much better use of the health care system.  However, if our goal is to maximize population health and give businesses incentives to invest in creating healthy environments, that would not be right.  The VA does nothing to make the environment in which people live every day healthier, whereas employers can make environments healthier.

In the UK and Canada, it has been difficult for national governments to get employers to invest in workplace health because employers gain no benefit from reducing health care costs.  The other benefits, standing alone or in aggregate, are insufficient to trigger investments in health benefits.  Put them together as the U.S. has done and some very good investments get made.

Another reason employers get big economic leverage from offering health benefits is that they alone, by controlling the work environment in which employees spend a majority of their waking hours, can provide an environment in which people eat nutritious foods, get sufficient exercise, do not smoke or drink alcohol on the job, and are safe from being victims of violence, accidents or injuries.

Finally, through a quirk of the 1974 Employee Retirement and Income Security Act (ERISA), self-insured employers have more freedom to innovate and to correct mistakes than either government payers or state-regulated private insurance plans. The best self-insured employer plans have lower costs, provide better health care, create a more productive environment, are more innovative in embracing good new treatments, and are faster to avoid popular, but bad, treatments like the high-dose chemotherapy that government mandated in the early 1990’s.

Argument 5: Employer provided health benefits only work for large self insured employers with stable populations, not for high-turnover large businesses or for small businesses.

This argument, which sounds superficially persuasive, is not borne out by experience.  Companies like Costco, Safeway, WalMart, Wegmans and Starbucks, all operating in businesses with traditionally high employee turnover, have managed to build strong business cases and to achieve success with employer provided health benefits.  They have reduced unwanted voluntary turnover because of their cultures of health and have improved work productivity.

The issue with small businesses is not their inherent inability to implement health benefit programs, but the rigid and misguided state insurance regulations that prohibit insurers from offering wellness incentives to the small business marketplace.  That is starting to change, and I am pleased that Connecticut now allows its insurers to offer wellness incentives.  Moreover, Quad Med and other large employers now offer health care to small businesses that share industrial and offer park space with them.  The UNITE Here Health Center in New York City offers a walk-in clinic for members of five labor unions in the Garment District.

I will continue to fight for employer-provided health benefits because they integrate health, health care, and insurance in the most productive way, and recognize that we have to create healthy environments for people to maximize their potential.



Harvard professor and author Louis Menand wrote a very insightful article in the March 1, 2010, issue of The New Yorker entitled “Head Case: Can Psychiatry be a Science?” In it, he describes the complexity of defining, diagnosing, and treating psychiatric disorders.  He quotes many experts in the field of mental and behavioral health disorders who, as he put it, in referring to the work done Professors Jerome Wakefield and Allan Horwitz

“…the increase in the number of people who are given a diagnosis of depression suggests that what has changed is not the number of people who are clinically depressed but the definition of depression, which has been defined in a way that includes normal sadness.”

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On Friday, February 26, 2010, Gerald F. Seib, the Wall Street Journal reporter for the Capital Journal column, wrote an insightful column entitled “Parties’ Differences Are Clear – and That’s a Start.”  In his column, he explained clearly the philosophical differences between Republicans and Democrats on health insurance reform.

He stated that there were three fundamental differences:

• Democrats favor comprehensive reform and transformation; Republicans favor a more incremental approach.
• Democrats believe that access is the priority, rather than cost reduction; Republicans believe that if health care costs are reduced, the access problem will get solved.
• Democrats believe strongly that the government needs to set standards for health insurance and health care; Republicans believe that the market, particularly consumers, need to decide what they want for health insurance and health care.

Where do I stand?

• I am somewhere between the two parties on the comprehensiveness issue, although I tend to believe that comprehensive reform opportunities come along infrequently and we should take advantage of this one.  On this issue, I would agree with the Democratic philosophy.
• On the other hand, I do not believe we can tackle the insurance access issue without understanding why access has been a problem in the past. Runaway health care costs cannot be deferred until later.  Business and global competitiveness depend on addressing cost before access.
• Relative to health care needs, I believe the government should create a safety net for those unable to get coverage from private insurance, although I do not believe that safety net should include either guaranteed issue or elimination of pre-existing condition requirements for private insurance policies.  The burden for the least healthy members of our society, and them alone, should be borne by all citizens, not in a way that burdens every private insurance policy.  Government is totally ill equipped to decide on minimum coverage for everyone else.  Over the years, elected officials have repeatedly added coverage mandates to all insurance policies because of the power of special interest groups, whether or not the mandates represented good medicine.  Think back to the excessive expansion of bone marrow transplants combined with high-dose chemotherapy in the early 1990’s because cancer advocacy groups mistakenly believed it could save lives.  In fact, after a Congressional mandate was also adopted in many states, the treatment was found to be worse, on average, than doing nothing.  It shortened lives.

Some very smart people have said to me: “Why don’t we solve the insurance problem now, since we can, and we’ll get to cost reduction later?”

Aside from the competitiveness issues to which I referred above, there are two other problems with expanding coverage and not dealing with upstream prevention and health care system issues:

• Giving someone access to health insurance is not only not the same as giving them access to health care, it often results in lower quality care for everyone because of increased demand, and, eventually, decisions by doctors to stop treating Medicaid patients because they get reimbursed less than they do through commercial insurance.  Having an insurance card, but no doctor to use it with, is useless. Massachusetts has had universal health insurance since 2006, but both the access to care and the quality of that care have suffered.  More non-elderly adults report difficulty in getting access to physicians in 2009 than they did in 2007.
• To the degree that there is universal insurance, but inadequate access to doctor care, there is even more strain on our emergency departments. Many studies have pointed out that a majority of the people who access the emergency department for non-urgent care, that is, inappropriately, have insurance coverage, but either do not have timely access to care or are too impatient to wait until they can get access.  The system gets stressed at its weakest point, emergency care.

I am most disappointed that the Democratic majority in Congress and the very capable White House staff could not establish a prevention and wellness agenda, and begin to take on the badly broken fee-for-service health care payment system.

People who argue the practical politics of tackling the insurance issue always point out to me that politicians are swayed by hard-luck stories, individuals who died or went bankrupt because they could not afford sufficient health insurance to cover catastrophic health problems like cancer, heart disease, or a serious injury.  Unfortunately, no health insurance system can eliminate these tragic stories.  Moreover, increasing demands on the health care system without increasing the supply of physicians and nurses creates other kinds of tragedies.

Politicians are very moved when an individual tells a story about being unable to afford a “life-saving” cancer treatment because of no or inadequate health insurance. What puzzles me about these stories is whether the patient has attempted to get relief directly from the pharmaceutical manufacturer.  Every pharmaceutical company has programs to provide life-saving drugs for individuals who cannot afford them, and they provide relief for many patients every year.

However, the tragedy of someone who had no primary care physician because doctors in his or her community did not accept Medicaid patients, and, who, as a result, has an undiagnosed heart or diabetic condition, is a harder one to portray on the evening news.  The patient generally does not understand that, but for a stingy government program, he or she might have had access to a doctor who could have diagnosed and treated the condition earlier.  A public health official from India described the explosive growth of undiagnosed chronic disease cases as a “health tragedy in slow motion”

Implementing universal and affordable health insurance without addressing the imbalance between supply and demand in the underlying system will simply swap one kind of tragedy for another, at a much higher cost to the taxpayer and to businesses that can create jobs to bring many more people out of poverty.  The Democratic majority seems hell-bent to do something, even if it is the wrong something, relative to health insurance.  That’s too bad, and we will all pay dearly for the mistake.

Not surprisingly, since this is the first anniversary of President Obama’s inauguration, and the special U.S. Senate election in Massachusetts has produced a result that seemed inconceivable six weeks ago, a Republican victory, many people have asked my opinion of President Obama’s performance.

I met the President four different times before he was elected, three of those times at National Urban League events. President Obama struck me as a person with virtually unlimited growth potential and tremendous intelligence and character, and I still believe he has those qualities.

At the same time, I remind myself that he had no executive experience of any significance before he secured his first executive job, being President of the United States.  I expected him to make some rookie mistakes because of his inexperience as a chief executive, and he has.

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Although I usually post a blog on a public policy issue, this end-of-the-year blog will be a combination of personal, public policy, and business observations. The one thing I can say with certainty is that 2009 evolved in a very different way from what I expected when I stepped down from the Executive Chairman position at Pitney Bowes a year ago.

The only thing that happened as I anticipated was that I would disengage emotionally from Pitney Bowes very rapidly, because that is who I am.  Once I leave an organization, I leave with fond memories, great friendships, and insights of lifelong value, but I leave the organizational responsibilities completely behind.  I am not a person who is nostalgic about what I once had or did, and this was no exception.  Other than that, everything that happened was either a surprise or a disappointment.

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Recently, the U.S. Preventive Services Task Force was the subject of a great deal of criticism for issuing revised guidelines that recommended that, except for women who have specific elevated risk factors, such as a family history of breast cancer, women not receive regular mammograms until age 50. These revised guidelines were roundly attacked.  As Blogger Helen Searles wrote in a December 1 posting:

“Within hours of announcing its findings, the Task Force faced a barrage of attacks from women, doctors, journalists and politicians across the U.S. The onslaught was swift, harsh, and emotionally charged.”

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During the course of determining whether I should invest in a documentary film about dogs, I gained some quite interesting insights into the potentially new role dogs can play in our health care system.  Because dogs have a sense of smell that is 40 times as acute and discriminating as that residing in humans, some researchers have explored whether dogs can detect diseases as accurately and reliability as much more expensive technologies, with no need for invasive and time-consuming diagnostic processes.

Two organizations, the Pine Street Foundation in California and the Sensory Research Institute at Florida State University, have each done reported studies which have concluded that dogs can reliably detect various kinds of cancers, such as prostate, breast and skin cancers, because tumor cells give off different odors from regular cells.  It will be quite interesting to determine whether their reliable detection is such that they can detect the presence of these diseases even earlier than more high-tech alternatives like 64-slice CT scans or MRI’s or nuclear magnetic resonance systems.  Dogs apparently have demonstrated as well that they can detect the imminence of an epileptic seizure minutes before the individual subject to the seizure has any symptoms.

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At the risk of weighing in on a highly controversial and emotional issue, I want to comment on the insurance industry report that the Senate Finance Committee proposal would add $4,000 in insurance policy costs per insurance policy holder per year by 2019.  Not surprisingly, many elected officials are extremely angry about what appears to be a last minute attempt to undermine support for the Committee proposal, which will be the subject of a vote on Tuesday, October 13.

One could question why the insurance industry waited until the eve of the vote to release these findings.  Their motivation appears to be solely that of defeating health reform legislation.  However, I have gone beyond the politics of their position, and have concluded that, based on what they said, their argument is a legitimate one, and elected officials will have to confront the problem they are presenting if the legislation gets enacted in its current form.

How could coverage expansion partially financed by an individual mandate result in higher costs?  If I were an elected official, I would find it hard to understand how it is possible that adding many policyholders into the system could increase costs, especially since the Joint Committee on Taxation has found otherwise.

The answer is actually relatively simple.  Imagine two populations that are currently uninsured, one of which is young and healthy and spends almost nothing each year on health-related costs, and  the other of which is older and less healthy and, with proper health care, would spend $5,000 per year per person.  If the insurance coverage specified in the proposed legislation costs $2,500 per year per person, the older person will want it, and the younger person will not.

If the legislation proposes an individual mandate, which is a requirement that the individual buy the $2,500 per year insurance or pay a penalty, the level of the penalty has to be very close to, or preferably, the same as the cost of the insurance policy, which would make it economically advantageous for a healthy young person to buy the insurance.  Under most calculations, adding most of the healthy young population, along with other taxes and fees, achieves the President’s stated goal of making health care reform cost-neutral for the federal budget.  I understand that the insurance industry did not look at all elements of the Senate Finance Committee proposal, and that the Committee attempted to address the problem in other ways, but I do believe that there is a significant risk of having more sick people enter the insurance system, and fewer young, healthy people.

The problem with the individual mandate is the penalty has been reduced from being very close in dollars to the cost of the insurance policy to a much lower number.  The Committee leaders reduced the mandate because of objections from Republicans, who criticized it as a disguised tax on the middle class, and from Democrats, who felt that it created real economic hardship for the middle class.  By reducing the penalty to a much lower number, the Committee almost guaranteed that most healthy and currently uninsured young people will opt for the penalty rather than the insurance.

On the contrary, the less healthy older uninsured people will always opt for the insurance, but they will cost the insurance plan far more than the premiums they pay.  Unfortunately, because of the low penalty, their incremental costs to the insurance plan will not be offset by premiums paid by healthy young people, because the young people will pay the penalty, which will be inadequate to offset the cost of the older people.

So what does the insurance company do?  Very simply, it has two options: first, raise the cost of the insurance plan for everyone currently participating in it; and second, try to reduce what it pays to health care providers.  The cost of insurance is likely to rise for everyone.  The burden of lower provider payments is most likely to fall unevenly on the provider universe.  Major academic medical centers, like Yale-New Haven in Southern Connecticut, have sufficient bargaining power, so insurance payments to them will not decline.  Specialists who have unique skills and market power will not see declines.

On the other hand, primary care providers and financially fragile community hospitals and outpatient centers will get squeezed, because insurance companies will have the power to do that.  By the way, the situation does not improve because government is the payer, because governments have annual budget challenges that have caused them to reduce Medicaid payments whenever they get into a financial crunch.

This legislation is a deeply flawed product, but I can empathize with elected officials who feel a need to expand coverage to people who do not have it today.  I can debate whether the uninsured are driving up health care costs, but elected officials hear a lot of horror stories from voters who are either uninsured or underinsured, and feel like they have to do something.

Why do I make these points when the Committee is very likely to pass the bill, and some form of legislation is increasingly likely to be enacted into law?  Very simply, I do so because, once the legislation passes, we will need to figure out how to contain the damage it has the potential of doing.  This legislation is the beginning of a long process of transforming our health care system, not the end of it.  Although President Obama would like to be the last President to have to address health care, I do not believe his goal will be achieved.  This is too complex a set of problems to be addressed with a single piece of legislation.

Many people sought my reaction to President Obama’s health care speech.  I had a mixed reaction.  It was reassuring to see him take a decisive position in staking out the case for reform, his priorities, and the common-sense proposals on which there appears already to be agreement.  I also think that he was more eloquent than I have ever seen him on any issue, and I felt inspired by his leadership skills, and his obviously sincere and deep moral values that drive his passion on health care.

While I believe that we should attack the health crisis first, then the health care delivery crisis, and then attack health insurance, rather than his obvious prioritization of health insurance, his decisiveness and strong leadership has value independent of how he prioritized the issues.

There are two fundamental problems with his plan:

• The proposed public option is a flawed solution to the problems he outlines; and
• The proposed methods for paying for expanding care to tens of millions of additional Americans are highly unlikely to yield the revenues he has projected for them.

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