Monday, October 27, 2008

A Case To Keep an Eye On

So there is a small obscure legal case that is in the works that has potential to set precedent moving forward that could have an important role in shaping our health care system into the future. Three retired men whom have saved money for private health care coverage for their retirement wish to opt out of the Medicare system. For a second article, you can read here. The crazy part about the system currently however, is that if one opts out of Medicare, that person must also opt out of Social Security. Furthermore, if you are enrolled in Medicare, you are forbidden to purchase additional private insurance outside of a few restricted MediGap programs, which must work in conjunction with the normal medicare system. In addition you can not participate in Health Savings Accounts. Apparently the government won't let you save them money even if you want to.

Anyway, these men wish to opt out of the prior, because they prefer to seek superior, unrationed private care as well as desiring to keep their private information out of the hands of a government bureaucracy. They wish to stay enrolled in Social Security however. The result is that a suit is being taken up.

Now beyond the lunacy of this policy, this struck me as having potential consequences moving forward that are much more profound then the condition of these few men. If the courts indeed rule that the government is within its right to force participation in Medicare if one wishes to participate in Social Security, then this greatly strengthens the ability of the government to ration health care in general through statute. The baby boomers are nearing retirement and therefore they will soon be enrolled in Medicare. Furthermore, it is very likely that there will be an expansion of government run health care programs in the next Congress, so between the two a much larger percent of the population, perhaps even the majority will be enrolled in government run health programs in the near future.

As costs continue to escalate through the entire system, and Medicare and Medicaid move into insolvency, the government will be forced to increase its rationing efforts, restricting access to patients. We are already beginning to see this in Medicare where doctors are not reimbursed 100%, so that they are forced to squeeze more patients into a short period of time, or in some cases doctors are just refusing to participate in Medicare or are limiting the amount of new patients. If the courts rule in favor of the current government policy, this will allow it to enact in the future a rationing method long employed by the Canadian system, that being that it is illegal to purchase privately funded health care even if done so with your own money. Though I doubt it would be explicitly made illegal here, for all practical purposes is would be so if it were tied to other programs, just as Social Security and Medicare currently are, so that if you do go ahead and purchase private care, you lose access to all other programs or see various tax credits and deductions nullified. This is how the Federal Government currently gets away with mandating that states comply with the drinking age; they threaten to take away hiway funding if they don't cooperate.

The argument for such a policy in Canada has been that it is unfair to purchase health care privately that uses resources that can not be used by the public system. So as a means of rationing to reduce costs, this action is prohibited. This forces everyone to utilize the rationed public system where certain procedures are restricted. The result is that many Canadians who have money often come to Boston, Cleveland or Seattle for superior treatment. Canada's argument is very similar to the rationale used in the 90's when Social Security and Medicare were linked, where the argument at the time was to prevent a "two tiered system." It was unfair that some individuals would be able to have higher quality treatment, even if they could afford it without burden to the tax payer.

So keep an eye on this. I will likely comment on it when a decision is reached. It may be an indicator of to what degree you will have options and choice in your health care moving forward into the future.



Interesting case, EJB. It sounds like an issue that, no matter what the trial outcome, will be appealed to the Circuit and eventually Supreme Court. Let's just hope they feel that the issue is ripe for certiorari, or else the question may never be fully answered. I too recognize the bizarre nature of this policy. It seems difficult to argue that the connection between Social Security and Medicare is so strong that one cannot subscribe to the former without participating in the latter. This will come in handy later, but first, a few clarifications.

Contrary to EJB's assertion, Canada's health care system does not prohibit individuals from buying private health care. It leaves this decision up to the individual provinces, most of which have simply enacted legislation that has disincentivized private health care. Dr. Robert Steinbrook wrote this article, published in the New England Journal of Medicine, calling for the Canadian government to let private health care providers increase the types of services they can provide. He points out that while much of Canada's total health care spending comes from the public sector, there is still room, even under the current system, for private providers:

As explained in a 2003 report, the Canadian health care system is "unique in the world in that it bans coverage of . . . [physician and hospital] core services by private insurance companies, allowing supplemental insurance only for perquisites such as private hospital rooms. This ban constrains the emergence of a parallel private medical or hospital sector and puts pressure on the provinces to meet the expectations of middle-class Canadians."1 That only 70 percent of total health care funding in Canada comes from the public sector — less than in many European countries but considerably more than in the United States — reflects the fact that private payments are common for other expenditures, including drugs, dental services, optometry, and home care. Private insurance and private care are also common in niche areas, such as work-related injuries and cosmetic surgery.

I also have the feeling that the US government is in no rush to duplicate the Canadian system because of its notorious "wait lists." And I agree with EJB that these wait lists are deplorable. However, this one negative consequence of the Canadian system should not end the conversation regarding the efficacy of universal health care. Dr. Robert Bell, in a letter to the WSJ, writes that Canadians spend about 55% of what Americans do on health care and enjoy longer life-expectancies and lower infant mortality rates. He also details a plan to target and eliminate long waiting times. Let's not short shrift the Canadian system.

Similarly, the Canadian Supreme Court recently ruled in Chaoulli v. Quebec that the 1984 Health Insurance Act cannot be read to prohibit the purchase of private health insurance. The Health Insurance Act actually left it up to each province to decide for itself whether it wanted to allow or prohibit private health care providers. This case marks the end of that reading - at least in Quebec - because such an interpretation would violate Canadian citizens' right to life (something we could really use down here in the States).

The case EJB briefly refers to when he mentions Congress conditioning highway funds on state drinking laws is South Dakota v. Dole. There, a 7-2 Supreme Court majority, headed by Chief Justice William Rehnquist, held that Congress has the power, as provided by the Taxing and Spending Clause, to attach reasonable conditions to funds it disburses to the States. EJB claims that the Federal Government "gets away" with doing this; but actually it is a perfectly legitimate power that has always been assumed as part of the Taxing and Spending power. It is important to notice, I think, just who supported this decision. Both Justice Scalia and Justice Marshall joined with the majority opinion. This startling fact (startling because Scalia is probably the most conservative Justice in recent memory and Marshall was quite possibly the most liberal) reveals that the decision was not political. Justices with drastically differing political views were able to overcome those differences and decide that a proper interpretation of the Constitution called for this holding.

Two ideas follow from this. First, the power of Congress to attach reasonable conditions to disbursements is not unlimited. Dole sets up four restrictions for Congressional conditioned spending: 1) it must promote the "general welfare"; 2) the condition must be explicit and clear; 3) there must be a reasonable relation to some legitimate federal interest; 4) other Constitutional provisions may supersede the conditional grants.

Thus, we would have to ask if tying Medicare to Social Security meets these four conditions. To me, that seems a very difficult task. However, it may not even get to that stage. For, it is important to note that the Dole case involved the Federal Government disbursing money to the States in exchange for their cooperation in certain federal mandates/programs. Dole has nothing to say about individuals accepting Federal money. There may be significant distinguishing characteristics here that make Dole inapposite - for instance, the idea that the Taxing and Spending Clause does not extend its reach to private citizens, but only applies to the States. It is also important to consider that while Medicare is considered a privilege, Social Security payments (once established) are considered to be a property right, the removal of which would be subject to the the due process provision of the Fourteenth Amendment, and actionable via 42 U.S.C. 1983.

So, like I said earlier, there are many legal issues here that I hope the higher courts decide to deal with. Will Dole apply, thus shifting the burden onto the Government to defend its conditioning one program on another? Will Goldberg apply, thus forcing the Court to deal with Due Process concerns in the event that social security entitlements are lost? I would add one more thing, in response to EJB's concerns that any decision would be a catalyzing precedent for further liberalization. I think that, no matter what the outcome, the District Judge will likely attempt to limit her holding to the specific facts of the case. Courts do this when dealing with matters where they are likely to be walking a fine line between interpreting laws and violating the separation of powers. I would be surprised to find a decision written in broad terms. Thus the decision might not have has many negative or even positive consequences as might be imagined.



JSK brings up a lot of points here; I am going to try to hit all of them.

1. "Canada's health care system does not prohibit individuals from buying private health care." So yes, this is not a complete ban as JSK has said, and in some cases it it not actually a banned, but rather an implicit one by creating legislation that highly disincentivizes the development of private methods of delivering care. Even though people buy many "extras" through private means, even JSK admits though his quote that, " bans coverage of . . . [physician and hospital] core services by private insurance companies." My point still stands, that even if this is not universal through the entire system, banning or severely limiting private access is still a heavily employed method of rationing in Canada.

2. [Canadians] enjoy longer life-expectancies and lower infant mortality rates.
This is a classic example of the expression "there are lies, bigger lies, and statistics." When you actually look at what constitutes the data behind this often repeated "fact" that government run health care proponents often use, you see the truth is quite different.

Infant mortality rates are relatively high in the US compared to other developed nations for two reasons. First, the definition of infant mortality that is used by different nations differs greatly and the US definition is one of the most highly inclusive ones, so that many new born children who die in other nations are not reported in the statistic as they are in the US. As Economist John Goodman concludes in his study:
"Taking into account such data-reporting differences, the rates of low-birth-weight babies born in America are about the same as other developed countries in the OECD [Organization for Economic Cooperation and Development]. Likewise, infant mortality rates, adjusted for the distribution of newborns by weight, are about the same."
The second reason, and to me what makes the fact that we are not lower then most nations more impressive, is that in the US, when prebirth conditions become threatening, we often attempt to save the unborn children via C-Section, and at a rate much higher then in most countries. Many are indeed saved that would have died (myself included; I was two months premature); however, the mortality rates of these sickened early born children are higher the average. In other less developed countries they would have never been born in the first place and therefore would have not been included in the mortality statistic t begin with.

Similarly, life expectancy statistics have to be taken with a grain of sale, because they include factors outside that of the heath care system. So for instance because we drive more then most nations, we have a higher rate of death by car accidents. We also for whatever reasons, have a relatively high homicide rate. Both of these are not reflective of the health care system. As Economist Mark Perry points out, if life expectancy data is adjusted for car fatalities and homicide, the US has the highest life expectancy rate in the world. Now whether these calculations are correct or not
, doesn't change the point that there are many factors that go into life expectancy other then the quality of heath care. I would argue that the American propensity for obesity (our eating and exercise habits) has a lot to do with dragging down our life expectancy, and not the health care system.

This is why when actually trying to analyze the merits of a health care system compared to another, we should not be primarily looking at statistics that have a multitude of factors, but rather look at metrics that actually measure how well a heath care system works once it is employed. When you look at things like cancer survival rates, the US has the highest in the world. So for instance, "Women who get breast cancer in Europe are four times more likely to be diagnosed when the tumor has spread and are less likely to survive the disease than women in the United States." Or another is, "For leukemia, for example, the American survival rate is almost 50%. The European rate is significantly lower, at just 35%. Esophaegeal carcinoma is often deadly - but American patients far much better than those across the Atlantic. 5 year rates in the U.S. are 12%; European, just 6%." The chart to the left from the Economist shows US 5 year prostate cancer survival rates. Both avove quoted stats and others found here.

I think my point is made.

3. Canadians spend about 55% of what Americans do on health care (Presumably at no lost benefit, which I talked about in my previous point). But why do Canadians and other nations with government health care spend less? Well there are many reasons but I will address two of the major ones, if not the primary reasons.

Other nations give you less health care, essentially you get what you pay for. Through rationing techniques, government restrict access to health care in various ways in order to reduce costs. The result is a much lower "quantity" of health care. So for instance:

Canada lags badly behind the United States in terms of basic diagnostic machinery. Indeed, Canada lags behind most Western countries. The OECD analyses the availability of such machinery and ranks the various countries. Canada's results are striking: it ranks 21st of 28 OECD nations for CAT scanners, 19th of 22 in availability of lithotriptors (used to treat kidney stones and gallstones), and 19th of 27 in availability of MRIs. Canada ranks 6th of 17 in availability of radiation equipment.
This would be the reason why the wait times are so notoriously long in Canada; there simply isn't enough "health care" available due to rationing. And despite this being an election year issue every cycle and more and more money promises have been made to lessen lines, they continuously get worse. And as I pointed out in my previous point, this IS done at the expense of quality, which can even be anecdotaly confirmed by the fact that so many Canadians come to the US for health treatment. Another example:

Antipsychotics, the main treatment for schizophrenia, have been revolutionized in the past decade. Newer drugs are linked with fewer and more benign side effects. In the United States, 60% are on the newer drugs. In Spain, only 20% are, while in Germany, fewer still at just 10%. Some patients, of course, may opt for the older medications but studies suggest most prefer (and do better on) the new so-called atypical antipsychotics. Thus, when it comes to the treatment of mental illness, Europeans get the best the 1970s provided.
The second major reason for why heath care costs so much here is that through our tax subsidy system, we incentivize over consumption. Because insurance paid for by your employer is tax free, but expenditures paid out of pocket have to be done so with after tax income, there is an invective for the both the employer and the employee to structure compensation packages with larger amounts of insurance and less cash. The result is the evolution of heath insurance in this country to something that is less like insurance and more like prepaid care via low deductibles and co payments. As is a problem with any type of third party payer system, private or public, when the cost of a transaction is paid for up front and not at the point of sale, there is an incetive to purchase excessive amount because the marginal cost of doing so is nothing or very little. So for instance, instead of waiting to go to your doctor on Monday for a minor ill, you go to the more expensive emergency room on Sunday because it only costs you at that point of transaction a small copay. Without this tax subsidy, health insurance would have likely developed more in line with auto insurance, where regularly occurring payments are done out of pocket, and the insurance only kicks in when you have catastrophic damage. This would reduce the moral hazard of over consumption and reduce prices as demand falls. A more detailed discussion can be found here. A survey illustrating this moral hazard can be read here. What we have seen is that the US pays a very low percentage of its expenses out of pocket even compared to most western nations, and this trend has only increased over time as the chart shows.

I would also mention as a side note, that Canada has lower drug cost because of price controls. US firms continue to sell drugs to Canadians at these lower prices because the marginal cost of producing more pills is less then the price received; however, in the absence of the American market, the more costly fixed cost of research and development could not be covered. In essence US consumers are subsidizing low cost Canadian drugs. So we are partially paying for their health system and though I am not familiar with the legal technicalities of it, I am surprised the US had not brought suit to Canada in the WTO over this for unfair trade practices.

4. Regarding the Highway Funding Analogy, States don't "get away" Perhaps I was unclear, but I am not calling into question the legality of the Federal government withholding funding to states. My analogy was simply that like in the case where the Federal government is not allowed to explicitly force the states into the drinking age laws, so that it "gets away" with this by implicitly doing so via essentially extorting the states, a similar technique could be used in the case of restricting private health care by extorting you through the loss of other programs such as Social Security.

5. The conditions that the government has to comply with to withhold entitlements and Goldberg v. Kelly and Social Security as a property right.
I agree that the current link between SS and Medicare seems iffy, but the whole premise of my post was watch this case. IF the courts uphold the move, then that would imply that the 4 criteria that JSK outlines have indeed been interpreted to have been upheld. If this is the case, it follows that this rationale could be used to ration health care moving forward.

Furthermore, I can't say I was aware of Goldberg v Kelly, but I was aware of Helvering v. Davis, which stated that, "The proceeds of both [employee and employer] taxes are to be paid into the Treasury like internal-revenue taxes generally, and are not earmarked in any way." This essentially means that you have no right to any benefit simply because you have paid into the system your whole life. FICA payments are simply taxes like any other. I am not going to comment further, not knowing the technicalities that differentiate these two cased. Perhaps it is simply because of my lack of knowledge in the subject, but barring that I wouldn't be surprised that to say that at a minimum there is some fuzziness between these two cases and further precedent will have to be written in order to clarify exactly if the government can deny SS. But either way, it is mute because as JSK states, Medicare is a "privilege" legally and other heath care would likely fall under this same notion.

So If you've made it this far, I applaud you. At least it will justify the greatly above average time it took me to write this response. :)