Chapter XI CONCLUSION:…

                               Chapter XI



            CONCLUSION: LIFE IN A
        REFORMED HEALTH CARE SYSTEM

    What would life be like in the U.S. health care system with the reforms
we have proposed? Remember, ours is a bottom up approach. We don't
tell people what to do. We change incentives and let people pursue their
own interests. So we can only speculate on what would happen. What
follows are some reasonable speculations.
                                 *********
   Cheryl Green is a diabetic. Dealing with her diabetes is not easy. Her
daily routine consists of testing her blood glucose four times and taking
appropriate action when needed. For hard to control blood sugar spikes,
she has to inject herself with a combination of two different formulations
of insulin, usually four times a day. In addition, she takes oral doses of
Actos and Metformin twice a day to control Type-2 diabetes, daily aspirin,
in addition to Lipitor, to control cholesterol and a beta blocker to control



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blood pressure. In the old days Cheryl made many trips to see her endocri-
nologist, Dr. Chris Reeder, and when he was not available, to the hospital
emergency room. These days, trips to either place are rare.
   If Cheryl wants to ask Dr. Reeder a question today, she picks up the
telephone or sends an e-mail. She almost always gets a prompt response.
Even if she didn't care about the time involved, Cheryl has financial rea-
sons to guide her use of the health care system. She pays for doctor visits,
emergency room visits, phone calls and e-mails from her Health Savings
Account (HSA), and phone calls and e-mails are the cheapest alternatives.
   Cheryl didn't exactly find Dr. Reeder. He found her, in a diabetic patient
chat room on the Internet. In the past, most endocrinologists avoided
patients like Cheryl (too many problems, too little money), but Reeder
actively solicited her business. Although she was skeptical at first, she took
a chance. It was the best decision she ever made.
   At the outset, Dr. Reeder encouraged Cheryl to buy a device to moni-
tor her own blood glucose level. She bought it with her HSA funds, and
Reeder showed her how to use it. (If her condition worsens, her blood
glucose readings can be transmitted to a monitor in Reeder's office.) Dr.
Reeder also taught her how to shop for drugs on the Internet and cut her
medication costs in half. Since drugs are also paid from her HSA, she was
delighted with the savings.
   Cheryl learned early on that none of Dr. Reeder's services are free. She
pays for his time. But he has saved her more money than she has paid
him by teaching her how to manage her own diabetic care and lower her
prescription drug costs. Other doctors are also soliciting Cheryl's business.
In fact, she's never been more popular with doctors. But she's happy where
she is with Dr. Reeder.
   Dr. Reeder wasn't always able to treat diabetic patients the way he treats
Cheryl. Everything changed when he made an offer to Medicaid and the
agency accepted it. In a nutshell, Reeder receives a monthly fixed fee from
Medicaid; plus, Cheryl and patients like her pay him based on his time.


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But the only way to make the arrangement profitable is for Dr. Reeder to
teach patients how to manage their own care.
   As part of the overall arrangement, Reeder acts as a care coordinator for
Cheryl -- a sort of a personal guide to the rest of the health care system.
If she experiences high blood pressure, develops heart disease or experi-
ences vision problems, it is Reeder's job to help Cheryl find the appropriate
specialists and get the appropriate treatment. Reeder is the one individual
responsible for all diabetic care and all collateral services for Cheryl Green.
He is also responsible for the overall results. The initial arrangement with
Medicaid required Reeder to show that the state was saving money and
that the quality of care (as measured by objective criteria) had improved.
Further, the burden of proof was on him, not on the state.
   One of the biggest problems with chronic care (in fact, it is probably
the single biggest problem) is patient compliance with treatment protocols.
AIDS patients, cancer patients, heart patients, diabetics, asthmatics -- all
have persistent compliance issues. It is not hard to understand why. Com-
plying with a treatment regime is expensive, time consuming and no fun.
   So Reeder does a number of things that encourage patients like Cheryl
to do what they are supposed to do. For one thing, he carefully monitors
their prescription drug use, blood glucose levels and other indicators of
care. He uses moral suasion. He also helps patients understand that com-
pliance saves them money. Reeder knows he hasn't found all the answers,
and every day he experiments with new techniques. But he also under-
stands that the more successful he is, the more patients he will attract and
the more money he will make.
   Under the old system, a patient like Cheryl would have been on Medic-
aid only temporarily. If she found a new job or got a raise, her new income
level would disqualify her. So it would not have been worthwhile for a
doctor like Reeder to form a long-term relationship with her. However,
under the new system, Medicaid provides Cheryl with "premium support."
As her income rises, Medicaid's support diminishes but it doesn't abruptly


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vanish. Also, Cheryl is able to apply her "premium support" to any private
plan. She chose Blue Cross.
   These days, Cheryl makes so much money that she no longer gets assis-
tance from Medicaid. But she is still enrolled in her Blue Cross plan. Under
the state's small group reform system, Cheryl can take her Blue Cross plan
with her to any new employer. During a job interview, she learns not only
what salary is being offered, but also how much the prospective employer
pays toward health insurance premiums. If the amount isn't enough, she
knows she will have to pay the balance from her paycheck.
   Of course, even under the new system, Reeder was taking a risk invest-
ing in a long term relationship with Cheryl. And even though Medicaid
liked the arrangement, there was no guarantee that Blue Cross would. But
Reeder has found that private insurers are far more receptive than they
once were. The reason: If Medicaid has determined that Reeder's arrange-
ment lowers cost and raises quality, the relationship is likely to benefit Blue
Cross as well.
                                  *********
   Cheryl's daughter, Karen, has asthma. Back in the days when Cheryl
was uninsured, severe asthma attacks prompted many trips to hospital
emergency rooms. Then Cheryl discovered S-CHIP, which was supposed
to be better than Medicaid. But very few specialists in her neighborhood
wanted to see patients like Karen because of the low payment rates. So
Karen continued to go to an emergency room for most of her care.
   All of this changed when Cheryl met Dr. David Brooks. Like Chris
Reeder, Brooks has a relationship with S-CHIP that is different from other
doctors. He gets paid more money in return for providing higher quality
care that costs the state less money. Instead of the mountain of paperwork
most doctors deal with, Brooks doesn't ask for payment from anyone. Nor
does he have to shuffle any papers. In Karen's case, he receives a money
payment from S-CHIP that is automatically deposited to his bank account,


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and he receives payments from Karen's HSA (managed by Cheryl) in the
form of automatic debits, based on his time.
   Like Chris Reeder, David Brooks knows he can't make money seeing
patients like Karen unless he can get better results for less money. So he
persuaded Cheryl to use Karen's HSA money to buy a device that moni-
tors Karen's peak air flow. He also showed Cheryl how to use the device,
how to change Karen's drug regime when needed, and how to distinguish
symptoms that are serious and really require an emergency room visit from
those that are not.
   Like Dr. Reeder, Dr. Brooks accepts phone calls and email messages
from Cheryl and answers her questions promptly. He charges her for the
time, and Cheryl is glad to pay -- knowing that she is saving both time
and money by relying on telephone and email consultations rather than
the alternatives.
   Under the old system, doctors feared greater malpractice liability if they
consulted with patients by telephone or e-mail. But Reeder and Brooks
solved that problem by signing a state-approved contract with Cheryl.
Under the new arrangement, (a) a lower (liability) standard of care is
applied to telephone and email consultations, (b) special computer soft-
ware is employed to reduce the chance of error and (c) the parties have
agreed in advance on how to compensate for unexpected adverse medical
events -- without the need of lawyers, judge, juries or courtrooms. Reeder
and Brooks both have insurance in case patient compensation has to be
paid, but the premiums are a fraction of what they used to be under the
old malpractice system.
   Under the old system, Karen would lose her S-CHIP coverage (and
possibly also her relationship with Dr. Brooks) once her mother's income
reaches a threshold level. But the state's S-CHIP program has been con-
verted to a premium support system. Karen is now able to join any health
plan, and she will enroll under her mother's Blue Cross policy. As Cheryl's
income grows, the state subsidy will ebb -- until eventually the Greens will


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be on their own. Karen's relationship with Dr. Brooks will continue how-
ever. The reason: Blue Cross has decided that if Brook's style of practice
saves money for Medicaid, it will also save money for Blue Cross.
                                 *********
   Bob Crosby, Cheryl's brother, is partially disabled. Bob was working as
a sales manager in a department store when he fell off of a ladder and tore
some ligaments in his knee. Bob is still able to do many things, but he can't
endure the eight hours of standing required of most department store sales
jobs. Under the old system, if Bob found a different type of employment,
he would risk losing some or all of his monthly disability check. Under the
new reformed Workers' Compensation system, however, once Bob's dis-
ability was verified, he began receiving checks from an insurance company.
He will continue receiving them regardless of any future employment.
    In the immediate aftermath of his accident, Bob was unemployed. He
had self-insured to cover the first few months of his disability -- paying
living expenses from his personal Workers' Compensation Account. Even
so, he was without a paycheck and uninsured. And like so many other
uninsured people, Bob began using the hospital emergency room for free
medical care for health matters unrelated to his disability. Medical cost for
the disability continued to be paid by a Workers' Compensation private
insurer.
   All that was before Bob had a life-changing conversation with his ortho-
pedist, Dr. Steve Shulkin. First, Shulkin pointed out that Bob's temporary
unemployment and low income qualified him for a health insurance sub-
sidy from the government. Money that used to be spent giving free care to
the uninsured (usually in hospital emergency rooms) was now available to
subsidize private insurance instead. Bob could use it to choose any private
plan.
   But that is not all. Shulkin then recommended a health insurer who
would cover both Bob's leg injury and his other health care needs. Bob's
initial reaction was disbelief. He had a great deal of experience with the


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old insurance system, where no insurer wanted to cover someone with a
preexisting illness, and where the treatment of those conditions was often
excluded from coverage. Now Shulkin was telling him about an insurance
company that actually wanted people just like Bob.
    The arrangement works like this. The Orthopedic Insurance Company
specializes in people with orthopedic injuries. It has learned through expe-
rience to produce high-quality, low-cost orthopedic care by contracting
with doctors like Steve Shulkin. So Orthopedic Insurance offered to take
Bob off the hands of the Workers' Comp insurer for a price well below the
expected cost of conventional care. Yet because Orthopedic Insurance is so
efficient at what it does, it finds that the payment from the Workers' Comp
insurer plus the premium support from the state is more than enough to
generate a handsome profit. The package deal is a win-win for all parties.
   Shulkin, by the way, was not acting out of purely altruistic motives. In
fact, he received a fee for helping put the arrangement together. Not only
does the state consider Shulkin's fee ethical, it encourages and even subsi-
dizes such fees.
   While Bob is out of work, the premium subsidies may continue. When
he gets a job, he will probably no longer qualify for a government subsidy.
But under the state's new portable insurance system, he can stay in his new
Orthopedic Insurance plan and apply the new employer's premium contri-
butions to that plan.
                                 *********
   Cheryl's parents, Charles and Irene, are in their sixties. They have paid
off the mortgage on their home and have $200,000 in liquid assets -- in
addition to the pension Charles expects to receive, plus Social Security.
One would think that a couple like Charles and Irene would have little to
worry about. But until recently they were worried that incapacity could
land one or both in a nursing home and wipe out their entire life savings.
   Their concerns have recently subsided, however, thanks to a new state
law that allows them to protect their assets and have access to nursing


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home care if they need it. Specifically, the Greens have purchased a long-
term care insurance plan with $300,000 worth of coverage. If either of
them enters a nursing home, insurance starts paying the bills. Should their
private insurance coverage run out, they can turn to Medicaid.
   They are relieved because they don't have to "spend down" all their
assets. In fact, $300,000 of their assets will be completely ignored by the
state in determining eligibility for Medicaid. The Greens can have access to
affordable long-term care and still leave something to their kids.
                                  *********
   These are only a few of the changes we can imagine in a reformed health
care system. Fortunately, the full extent of the potential change is not
limited by our imagination. Rather, it is limited only by the range and
scope of the ingenuity of 300 million Americans -- all of whom would be
free to use their creativity and their innovative ability to solve health care
problems -- unshackled by the dysfunctional, bureaucratic and regulatory
obstacles of the current system.




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                       About the Authors
    John C. Goodman is the founder and president of the National Center
for Policy Analysis. The National Journal, the Wall Street Journal and other
publications have called him the "Father of Health Savings Accounts," and
he has pioneered research in consumer-driven health care. Dr. Goodman
is the author/coauthor of eight books including Patient Power, Lives at Risk
and more than 50 published studies on health care policy and other topics.
He received a Doctor of Philosophy degree in economics from Columbia
University. He has taught and done research at several colleges and uni-
versities including Columbia University, Stanford University, Dartmouth
University, Southern Methodist University and the University of Dallas.

   Michael Bond is a senior fellow with the National Center for Policy
Analysis and professor of finance at Cleveland State University. His work
on health care policy reform has received national attention and appeared
in a wide range of professional and popular publications. Dr. Bond has
also authored reports on Medicaid Reform in Texas, Kansas, New York,
South Dakota and Pennsylvania and Florida, and has advised South Caro-
lina Gov. Mark Sanford on Medicaid. He earned his Doctor of Philosophy
degree and Master of Arts degree in economics from Case Western Reserve
University.

   Devon M. Herrick is a senior fellow with the National Center for Policy
Analysis. He is a coauthor of Lives at Risk. He concentrates on such health
care issues as Internet-based medicine, health insurance and the uninsured,
and pharmaceutical drug issues. He is chairman of the Health Econom-
ics Roundtable of the National Association for Business Economics. Dr.
Herrick received a Doctor of Philosophy degree in Political Economy and
a Master of Public Affairs degree from the University of Texas at Dallas
with a concentration in economic development. He also holds a Master
of Business Administration degree with a concentration in finance from


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              HANDBOOK ON STATE HEALTH CARE REFORM


Oklahoma City University and a Master of Business Administration degree
from Amber University, as well as a Bachelor of Science degree in Account-
ing from the University of Central Oklahoma.

    Gerald L. Musgrave is a senior fellow with the National Center for
Policy Analysis and president of Economics America, Inc., in Ann Arbor,
Michigan. He has taught and conducted research at California State Uni-
versity, Michigan State University, the U.S. Naval Postgraduate School,
Stanford University and the University of Michigan. Dr. Musgrave has
written widely on health care and other issues. He is the author or coauthor
of more than 60 publications including Patient Power and Lives at Risk,
books he coauthored with NCPA President John Goodman. He founded
the Health Economics Roundtable and is a National Association for Busi-
ness Economics Fellow -- the organization's highest honor. He served as
a presidential appointee to the National Institutes of Health Recombinant
DNA Advisory Committee. He is book review editor for Business Econom-
ics. He received his doctorate from Michigan State University.

   Pamela Villarreal is a policy analyst at the National Center for Policy
Analysis. She received a Bachelor of Science in Economics degree from the
University of Texas at Dallas in 2003, and a Master of Science in Applied
Economics degree in the summer of 2006. Ms. Villarreal has authored or
coauthored a number of NCPA publications on such diverse topics as the
estate tax, big-box retailers, Medicaid and medical malpractice.

   Joe Barnett is Director of Publications at the National Center for Policy
Analysis. As an NCPA analyst and editor, he has conducted research, and
written and edited studies covering economic, education, welfare, tax and
regulatory policies. Mr. Barnett has held various positions with Ernst &
Young and McGraw-Hill. He was also a legislative assistant to U.S. Rep-
resentative Ron Paul (R-Texas). He received a Bachelor of Arts degree in
English from the University of Texas at Arlington.



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About the National Center for Policy Analysis

    The NCPA is a nonprofit, nonpartisan organization established in 1983.
Its goal is to examine the nation's most important public policy and to pro-
pose innovative, market-driven solutions.
   The NCPA is probably best known for developing the concept of
Health Savings Accounts (HSAs). NCPA President John C. Goodman is
widely acknowledged (Wall Street Journal, WebMD and the National Jour-
nal) as the "Father of HSAs." In addition, a package of tax cuts designed
by the NCPA and the U.S. Chamber of Commerce became the core of the
Contract with America in 1994. Three of the five proposals (capital gains
tax cut, Roth IRA and eliminating the Social Security earnings penalty)
became law.
   With a grant from the NCPA, economists at Texas A&M University
developed a model to evaluate the future of Social Security and Medicare,
working under the direction of Thomas R. Saving, who for years was one
of two private-sector trustees of Social Security and Medicare. Pension
reforms signed into law include ideas to improve 401(k)s developed and
proposed by the NCPA and the Brookings Institution.
   Among other initiatives, the NCPA's E-Team is one of the largest collec-
tions of energy and environmental policy experts and scientists who believe
that sound science, economic prosperity and protecting the environment
are compatible. Furthermore, the NCPA's Debate Central online site is
the most comprehensive site for free information for 400,000 U.S. high
school debaters. Debate Central received the prestigious Templeton Free-
dom Prize for Student Outreach.




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