Employer Coverage Dumping - A Prediction Coming True

In May of 2010 I wrote this about the impact of the then-new health reform law on employer-sponsored coverage:

More employers, already at or near the break point of providing health insurance coverage as an employment benefit, will elect not to

Today, there's this from Avik Roy at Forbes:

there’s a new study that suggests that employer dumping under Obamacare could be significant, leading to an explosion of the law’s costs and thereby the federal debt. A working paper by economists Richard Burkhauser and Sean Lyons of Cornell and Kosali Simon of Indiana, published by the National Bureau for Economic Research, examined various reasonable assumptions regarding the behavior of employers under the law.

Burkhauser and colleagues found that, in a worst-case scenario, the number of people covered by Obamacare’s subsidized exchanges could be more than double the estimates of the Congressional Budget Office and the Joint Committee on Taxation. “In the most dynamic case (broad affordability and maximum change in premiums)…Exchange coverage increases from 10.23…to 22.89 percent” of the privately-insured workforce. This would lead to worst-case of $48 billion a year in additional federal spending, according to a version of the study published by the Employment Policies Institute.

Well, hey. When your budget is $1.3 trillion in the hole, what's another measly $48 billion on top? Read the rest of Avik's post at Forbes here.

The Problem Isn't the Other Party - - It's Any Party

If the debt limit crisis pointed out anything at all, it's this: political parties are bad for the nation.

I'm aware that it borders on heresy to say such a thing out loud, let alone write it, but it's becoming increasingly apparent to me. Watching the bickering over the debt limit, though, I began to wonder if the solution was more about getting to say who won than about what would be best for the country.

The fallout from Standard & Poor's downgrading of the US credit rating has served only to underscore the point. The Obama administration has had nothing to say about the downgrade for days now, other than some mumbling about how it's all the Tea Party's fault. No plan to solve the problem; not even an acknowledgment that the problem exists.

The tea party phenomenon illustrates two things: first, the power of the swing vote. In a narrowly divided house, the last to get on board one way or the other decide the issue. Tea party adherents were able to hold sway because they were able to hold out, and this latter point is in fact the second illustration: the power of the party-less.

The tea party is not a party. It has no formal organization. It has no nominating process. You cannot register to vote as a "Tea Partier." It is, rather, a simple philosophy to which a number of representatives and senators have adhered.

When it comes time to vote, you cannot leverage a "tea partier." You cannnot call the party whip and have him (or her) lean on the representative. In contrast, if a Democrat wants to cross "party lines" on a vote, you can always have the President (if necessary) call up and tell the representative that if he doesn't vote a certain way his future in "the party" is finished. That worked for Representative Scott Murphy to get Obamacare passed. First Murphy voted against it; then the President called, and then he voted for it. What do you think the President told him? He told him to toe the line, that's what.

Every four years people start talking about our presidential primary system and what odd results it creates. A lot of people -- including me -- think we have had a poor slate of presidential candidates for the last five or six general elections. One year I wrote in "Mickey Mouse" as my vote for president because I couldn't bring myself to vote for either the Republican or the Democrat candidate. Or Ralph Nader. I understand that Mickey Mouse gets a couple ten-thousand write-in votes each election.

Some use this sentiment to indict the primary system. Usually those folks are trying to sell their own revamping of the primary system. Others will go so far as to say that it's a problem of a "two-party system." Those folks are usually trying to sell a third party. I think it is a deeper problem than either of these. I think it's a result of the party system in general.

The conventional wisdom is that presidential candidates have to go "ultra" (in whatever direction) in the primaries to get the nomination and then jog back towards the center in the general. This results in an interesting waltz. I think this is the reason why so many presidential candidates end up talking alot without saying anything. They really don't want to say anything, because whatever they say at the beginning of their campaign they'll have to disavow in just a few months. And if there's one thing you can skewer a candidate on, it's inconsistency. John Kerry: "I was for it, but that was before I was against it." Or something like that. Remember Clinton's (Bill's) "waffles"?

As an aside, I also think this is why most successful presidential candidates were governors and not senators. If you are a legislator, your philosophy is writ large in your voting record, and it's too easy to pull out votes and use them to make a candidate look inconsistent or, worse, duplicitous. Think McCain on that one.

So to get the party nomination, you have to fly the party colors in a big way, to please the party bosses. A party primary in this way amplifies the power of the fringe by eliminating countervailing votes. Imagine a room of 100 people attempting to elect a president. There are 5 insanely liberal people and 5 insanely conservative people. In a one-vote election, the whacknuts would cancel each other out. Candidates would therefore be wise to ignore the fringe, and concentrate on the middle.

But with a primary, the candidate must look only at his own half of the room. The 5 insanely liberal liberals are no longer a fringe cancelled out by the 5 insanely conservative conservatives. They are now 10% of the votes -- too big to ignore -- and their ultra-views are only partially moderated by those in the center.

This sort of phenomenon is not a function of a two-party system. It pertains whenever and wherever there is a "party" that needs to be pleased in order to get to the general.

Once in office, the elected party member has to consider the impact of his or her vote on the party. Hence, there is a means of leveraging votes to achieve party-satsifying results. There are so many examples of party votes that party influence on voting outcomes should be considered axiomatic.

And that is what scares the bejezus out of true "partiers" (of either stripe) about the tea party. There is no tea party. You can't get tea partiers to toe the line in any way other than selling them your idea. And if your idea stinks, it's not selling.

Should political parties be banned? Of course not. Not everything that is a stupid idea should be illegal. In this country, the right to freedom of association and freedom of speech is sacrosanct. But it would be nice to see the beginning of a public sentiment that political parties have caused more problems than they have solved, and that on the whole we'd be better off without them. It would be nice to see candidates for Congress abandon the party idea all together, and big dollar donations to boot, and instead campaign entirely on their ideas, using freely available social media tools to distribute them and engage constituents in dialogue.

Imagine what a class of unaffiliated representatives, who got into office purely on the strength of their ideas--not some arcane sense of party loyalty--could do for the idea of democracy. Could it possibly restore the sense that one's elected representatives are truly representing their constituents?

Maybe. Just, maybe.

TeaParty 2.0: Where To Now?

As the dust settles from the midterm elections it's a good time to pause and take stock of what the Tea Party has accomplished, and where it should go from here. Specifically, the Tea Party movement should begin to find and promote the next generation of politicians that are unaffiliated with any organized political party.

There can be little doubt that Democrats in general and Obama in particular got their comeuppance in this election. For my own part, my votes were cast in direct repudiation of the Obama health care reform effort and more broadly against the expansion of federal jurisdiction far beyond its original intent.

That Republicans were the benefactor of my votes was largely incidental. For most of the contests, the Republican-endorsed candidates I voted for were the only credible alternative to the incumbents. That does not mean I favor the Republican party.

I remember quite vividly that Republicans, after all, are responsible for the single largest expansion of federal entitlements since the 60's. (I speak of Medicare Part D.) I also remember the famed "Contract With America" of the 104th Congress and how most of it was conveniently ignored once the Republicans were in control. They are as slimy as Democrats, just about different things.

For a long time I believed that what American democracy needed was a third party. I no longer believe that. I now believe that what American democracy needs is no parties.

I believe this because any representative that belongs to an organized political party must take into consideration the effect of his or her vote on both the party as a whole as well as his or her place within the party. In many cases, such considerations will be consonant with the representative's view of what's best for his constituents - - but not always.

For example, when my Democrat Congressman was considering the health care reform bill in its final form, he was singled out as one of maybe a dozen representatives that were critical to the bill's passage. He received visits from Democratic party leadership. He received a personal call from President Obama. The message, whether ever spoken directly, but no doubt understood, was this: if you don't vote for this bill, your future in the Democratic party is O-V-E-R.

That he should ever have faced such a dilemma is the tragedy of our current party-dominated system. The structure of an organized party is, in fact, leverage over the vote. Leverage over the vote that is supposed to be cast for me and the folks that live around me.

I reject that leverage as a perversion of democracy. I believe that my representative should represent the interests of my community and those that live in it and nothing else.

I suspect that the rise of Tea Party sentiment shows that many others feel this way as well. For a long time it was assumed that people who were sick of party politics were really just sick of the *other* party. Not true: I am sick of both - - and all - - parties.

So now that its voice is being heard and listened to, the best thing Tea Partiers could do is to begin to demand - - collectively, immediately - - that future aspirants to public office (including those just elected that wish to retain their seats) run unaffiliated. Tea Partiers wishing to genuinely improve the health of our democracy should direct their efforts towards promoting and supporting such unaffiliated candidates.

The election of unaffiliated representatives is the best assurance that issues will be decided on the substance of the issues themselves, and not on the competing and in some cases subverting interests of the party to which the representative belongs.

Tea Party . . . Not Dominated By Racist Extremists After All

Or, at least, a quantitative analysis of signs displayed at Tea Party gatherings does not support such a conclusion.

Ekins's analysis showed that only about a quarter of all signs reflected direct anger with Obama. Only 5 percent of the total mentioned the president's race or religion, and slightly more than 1 percent questioned his American citizenship.

Ekins's conclusion is not that the racially charged messages are unimportant but that media coverage of tea party rallies over the past year have focused so heavily on the more controversial signs that it has contributed to the perception that such content dominates the tea party movement more than it actually does. (Emphasis mine.)

The article covering Ekins' study, by the way, appears in the Washington Post, which given its liberal leanings would have every reason to discredit the findings.

Who Owns Your Money? Paul Krugman Does

In Sunday's New York Times editorial section Paul Krugman ponders the "white-hot rage" sweeping America. Not that of Tea Partiers, he notes, that of "the rich."

If you want to find real political rage - - the kind of rage that makes people compare President Obama to Hitler . . . [y]ou'll find it among the very privileged, people who don't have to worry about losing their jobs, their homes, or their health insurance, but who are outraged, outraged, at the though of paying modestly higher taxes.

I have a steady job, and I work hard at it. I don't worry too much about losing my job, my home, or my health insurance, though I suppose any or all of those are possibilities. And I'm not anyone who will benefit from the extension of the Bush tax breaks.

But I can tell you that I am indeed outraged. Outraged that progressives like Krugman feel as if they have the ability to judge how much income is "too much" for any one person.

Krugman cites Oliver Wendell Holmes for the prospect that "Taxes are what we pay for civilized society." Holmes did indeed say that, in a case called Compania General De Tabacos De Filipinas v. Collector of the Internal Revenue (275 US 87 (1927)). "But that was a long time ago," says Krugman, as if to suggest that those disgusted by contemporary taxation are merely boorish descendants from an earlier, more genteel and clearly more elightened era.

Indeed 1927 was a long time ago. In Holmes' lifetime, for example, income tax was held by the Supreme Court to be unconstitutional. (Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429 (1895)). An amendment was required to clarify Congress' power.

In 1913, the tax rate paid by the top income earners was a whopping 7%. To merit paying that much in taxes it was necessary to earn more than $500,000 in 1913 dollars - - more than $10 million today.

Holmes' statement also pre-dated Social Security, which came along in the '30s and results in an additional subtraction from your income before you even touch it. And it predated Medicare and Medicaid, which came along in the '60s, with similar result.

Of the "undeniably rich," Krugman observes that "a belligerent sense of entitlement has taken hold: it's their money, and they have the right to keep it." In Krugman's eyes, the belief that one's income is one's own is audacious and unjustifiable. There comes a point of being "too rich," he thinks, therefore any income above a certain level belongs not to the individual but to the people to spend, through Congress, as they see fit.

Krugman's position makes a fallacy of the word "earn." My high school dictionary suggests that to "earn" means "to gain or deserve for one's service, labor, or performance." Krugman eviscerates this sense of the word, and would rather have us think of earned income - - at least above certain amounts - - as merely "temporarily borrowed," certainly not "deserved." How anyone, who has had the assiduity, intelligence, or just enough blind dumb luck to make more than what Krugman thinks is "appropriate", dare to the belligerent prospect that he has "earned" his income and is "entitled" to keep it.

Well, I do. I dare, even though my hope of ever earning enough to be truly "outraged" by top margin taxes is a dim one. I dare, because if you let Congress believe that all of a rich man's income is a public good, there is nothing to prevent it from believing that all of an ordinary man's income is public good as well. And all of a poor man's income - - such as it is - - for that matter as well. The idea that all income belongs to the people is a communist notion. It is a foreign notion - - foreign to the capitalist principles that - - for better or worse - - this country is founded upon.

There is another striking difference between the world that Holmes lived in when he wrote "Taxes are what we pay for civilized society," and it is this: Holmes figured that if the state can demand, through draft and war, the life of its citizens, then it could also demand sacrifices far less than that, such as state-ordered involuntary sterilization:

We have seen more than once that the public welfare may call upon the best citizens for their lives. It would be strange if it could not call upon those who already sap the strength of the State for these lesser sacrifices, often not felt to be such by those concerned, in order to prevent our being swamped with incompetence. It is better for all the world, if instead of waiting to execute degenerate offspring for crime, or to let them starve for their imbecility, society can prevent those who are manifestly unfit from continuing their kind. The principle that sustains compulsory vaccination is broad enough to cover cutting the Fallopian tubes. ... three generations of imbeciles are enough. (Buck v. Bell, 274 US 200 (1927).)

Read that carefully. I underlined the best part. I should think a Nobel laureate economist such as Krugman should think twice before alluding to the "happier times" of the Holmes-ian era. One might suspect he is in favor of cutting the marginal tax rate to 7% and involuntarily sterilizing the poor.

Of course Krugman is probably not in favor of sterilizing the poor (although who knows, economists think some nutty things sometimes), but here is what distinguishes thinking of "then" versus thinking of "now": Holmes recognized the obligation of the "haves" to pay for a civilized society, and he also recognized an obligation of society to prune itself of the "have-nots." Since Holmes' time, the latter obligation is no longer recognized, while the former has continuously expanded - - by several orders of magnitude.

Krugman believes that the wards of the state have an entitlement to the income of the rich, while the rich themselves have no entitlement to their own income. Needless to say, that makes them angry.

I'd be too.

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Why Wait For a Convention, New York?

Every year when the budget deadline passes without a budget, or whenever there is a stalemate between the Governor and the only two legislators that actually wield legislative power (I speak of the Assembly Speaker and Senate President), someone asks, "Why don't we amend the state Constitution to fix this?"

And then the news stations dig up a softspoken constitutional scholar from a SUNY basement somewhere and he explains, with great solemnity, why amending the Constitution now is just not possible. According to the state Constitution itself (Art. XIX Sec. 1), he says, amending the document first requires legislative approval in two consecutive legislative sessions, then approbation by popular ballot, and then a delayed effective date. Figure three years minimum, likely more. The most we can do right now, he says in so many words, is wring our hands and hope for the best.

And then someone says, "well then let's have a convention and write a new constitution," and the constitutional scholar goes even grayer as he explains that under the Constitution (Art. XIX Sec. 2) this is something the legislature must first consent to be put on the ballot, or else we must wait up to 20 years for the question of a convention to be put on the ballot automatically, and we should then hope everyone's paying attention and still angry enough about the legislature's antics from 10 or 12 or 18 years ago to vote for a convention.

And through all of this the newscaster will nod in understanding until it's time to go back to the anchor desk for the weather or a reel of the latest fire, and that is that.

Now in my mind, that approach puts the relationship entirely backwards.

That approach has so-called "experts" looking no further than the state Constitution for the origin and definition of their powers of self-governance.

In my mind, it is the citizens' powers of self-governance that give rise to the Constitution, not the other way around.  It is the citizens' ability to say for themselves how they wish to be governed that gives birth to a constitution of government.  It is not for the constitution of government to define that ability, or to so limit it as to the point of virtual extinguishment.

If the document by which we govern ourselves can provide no genuine redress for the ineffectiveness of our elected officials, is it truly a democratic document?  No.  Is a document that so severely limits our ability to exercise the powers of self-governance that we cannot act even in the face of impasses that threaten to close down our government truly a democratic document?  No.

If the legislature has the power to cancel, for the span of 20 years, any initiative that would alter its composition or powers, then where is its incentive to act appropriately? If the ridiculous antics of the legislature of late are any indication, there is no such incentive.

We should not be so quick as to assume that our form of government has not become a perverted form of democracy. What we have in New York is at least this:

• inequitable ballot access laws that protect entrenched political parties
• a campaign finance process that obscures the public's view
• a budget process that all but guarantees a late and irresponsible budget
• a partisan legislative districting process that protects incumbents
• most egregiously, a manner of amending the Constitution to more accurately reflect the will of the people that, in operation, sets itself against the will of the people.

And this is only a small list.  Are we truly only left to line up behind our constitutional scholars and wring our hands mightily for the next dozen years, as they suggest? Or can we not conceive of a different path?

Do we not have the right, arising from our own powers of self-governance, to collectively rip up the current Constitution and begin anew?

Of course we do. Of course we can.

It is a bold idea, yes, to abolish a government by replacing it with a new one. But it is certainly not a new idea. Each year on the Fourth of July we celebrate and pay homage to the men and women who were brave enough to carry out that idea even in the face of armed resistance from the old government. Are we less brave?

Adherents to the current government will poo-hoo the idea, claim that it is too radical, too disruptive, would never work, isn't possible, etc. Look carefully and you will see in all instances that they speak either out of a vested interest in the current government or else out of pure fear.

And before you poo-hoo the idea yourself, ask whether the current government is working for you, or for some other interest?

A convention of the people to form a government is indeed a radical concept, but it is the very mechanism on which our state and our federal governments were born.  Could anyone legitimately challenge such a mechanism?  We have so many examples in our national history that we need not question the validity of the process.  And we can look to the process by which those conventions were held for guidance on how to compose the convention and ratify its product, if the product is indeed worth ratifying.

We have only to find the bravery to do it.

How To Cut Health Care Costs By 64%: Let The Patient Ask

For some months now I have been suggesting on this blog (and everywhere else I can) that the best mechanism for exerting downward pressure on health care costs (meaning, the price of care) is to have the ultimate consumer (meaning, the patient) pay for the services.

Republicans and Democrats alike seem to be bent on ignoring such a tactic in favor of other approaches that cater to their pet constituencies.

In today's Kaiser Health News columnist Lisa Zamosky relates a real-life example of what happens when you force health care providers to justify their prices in the harsh light of day. The story involves a patient who has a high-deductible health plan, requiring her to pay on her own for the first $5,000 of care she gets in any year. When the patient went for an annual checkup and was handed a $350 bill (which she described as "ridiculous"), she asked for a discount. Removing a few routine tests from the bill brought it down to $125, which the patient then paid.

That's a discount of 64%.

Detractors from the market approach would likely suggest that a 64% discount is not a result that could be achieved on a large scale. The primary care industry would evaporate if it were forced to take a pay cut of approximately 2/3 of their income.

Which is true to this extent: the primary care industry as we currently know it would evaporate. In its place, I have no doubt at all, some enterprising individuals would figure out how to package primary care services in a way that deliver value to the patient and still allow physicians and nurses to eat. I don't think for a moment that the system will look anything like what we currently have. But why should it? The current system is both overpriced and inefficient; why should we continue to prop it up?

Health care reform proponents squawk about "access" and how free market solutions will fail to provide universal access to care. I wonder at that. It did not require massive government spending programs to make cellphone ubiquitous; it did not require impinging on personal liberties to put televisions in every home; it did not require nationalizing an industry to make personal computers affordable.

Imagine a sprawling government system whose purpose was to extend the life of the recording industry at a given point in time, say, the year 2000. We would be stuck with regulations forcing us to buy overpriced CDs and CD players, perhaps even cassette tapes, in order to keep the music stores open, while foreclosing the development of the iPod and other forms of music content delivery yet to be thought of. Why would we agree to such a thing? Why did we agree to such a thing?--because that's exactly what we have now.

Reform advocates posed this question may cough nervously and suggest that health care is different. But they can't quite say how.

I saw pshaw.

By the millions, Americans have concluded that the current third party payor system does not deliver the care they need at the price they can pay. The reformer's response: buy it anyway.

That's the definition of a command market.

Why would we agree to such a thing. Why did we?

A City of Two Tales - - Which One Prevails?

BOSTON - - In yesterday's Kaiser Daily Health Policy Report two columnists offered conflicting assessments of the state of Massachusetts.

In the first, Austin Frakt of Boston University's School of Public Health trumpeted the happy news that "the individual mandate requiring state residents to buy health insurance is working." He hopes that will give national reform advocates some confidence.

In the second, Grace-Marie Turner of the Galen Institute says "[i]f Massachusetts is a harbinger - - and all evidence indicates it is - - the new federal health overhaul legislation is headed for serious trouble."

You might be inclined to say, as if to children, "You can't both be right." But I think they are, though not to the same end.

Frakt's argument is quickly exposed as a farcical case of bootstrapping. He first asks "what does it mean for the mandate to 'work'?" He points out that the purpose of the individual mandate is to prevent adverse selection (which is true). And then answers his initial question by saying "the individual mandate is working because it is preventing a destabilizing level of adverse selection."

Adverse selection is when someone waits to buy insurance until they need it, and then drops it when they don't. When the government orders health insurers to issue policies to all buyers whenever and wherever they appear, people will stop buying insurance when they don't need it. (Which is, by the way, an entirely rational economic decision.) Frakt's solution, therefore, is for the government to further order people to buy health insurance even when they don't need it, thereby "solving" the problem which the government itself created to begin with.

That's a twisted definition of a "working" law if ever I saw one.

Turner, in stark contrast, looks at the big picture. Adverse selection is indeed occurring, she says (and as even Frakt admits), and it adds a point or so to premiums. Increased coverage has fueled increased demand for care, she points out, which is pushing up costs. Decreased availability of primary care has led to subsequent increased use of emergency facilities as a substitute, she says, pushing up costs even further. Because of the purchase mandate, providers have found their bargaining positions with insurers much improved, pushing up costs.

All of these cost increases translate (rather predictably, actually) into higher premiums. She sites a study from Stanford which found that since Massachusett's health insurance reforms were initiated, "premiums for private employer-sponsored health insurance in Massachusetts increased by an additional six percent in aggregate compared to the nation as a whole." And, she adds, "[i]t's even worse for smaller firms: Their health insurance costs grew 14 percent more than in the country as a whole from 2006 to 2008." Smaller firms have begun dropping coverage, relying instead on publicly-funded insurance for their employees.

I've seen no analysis that explains how or why federal reform should be different.

So yes, Frakt is right that a purchase mandate "works" to prevent adverse selection from completely destabilizing the market. Imagine for a moment you are on a plane, plummeting to the ground. As the oxygen masks deploy you put yours on and find that indeed it is "working." Take such "confidence" from that as you will.

Health Reform: Banking on Telekinetics - Part I

Now that the shock of having actually passed a health reform bill (if you want to call it "passing," it was really just "deemed passed") is wearing off, conversations seem to be turning more towards costs. The problem of uncontrolled costs persists, and threatens to break the bank if not the very back of the United States.

Happily, some very smart people are sporting their opinions about costs. One of them is David Cutler, the Otto Eckstein Professor of Applied Economics at Harvard University, who spoke recently at a symposium organized by the prominent journal "Health Affairs."

Cutler's take is this: health reform will bend the cost curve, "because it has to." So there. Take that, all you doubters and haters.

"Health reform will only be successful," he says in his symposium remarks, "if it can successfully bend the cost curve."

"If it can," he continues, "then we will be able to afford the commitments we've made under the legislation as well as the committments that were already in place through Medicare and Medicaid. And if we cannot bend the cost curve, then not only will the new commitments we made fail, but the older commitments to Medicare and Medicaid and a variety of other programs will fail as well. And we know that from look - - any cursory look at the federal budget will tell you that. So the success or failure of health care, and health reform, will be determined to a great extent by what this legislation does about cost issues." (Emphasis is mine.)

Agreed.

But if you were wishing Cutler would then proceed to explain why he thinks health reform will actually bend the curve, well, keep on wishing. Instead of talking specifics, Cutler jumps ahead to explain how you will know if health reform is in fact bending the curve: "I think the right way to view this now is not as a kind of, he-said . . . she-said or, or this-team-said . .. that-team-said in the sense of what is likely to happen," he said, "but what I want to do is leave you with the sense of 'how will you know when reform is actually working.'"

He then looks to industries outside of health care, and points out what makes those industries successful. If you see those things happening inside of health care, the theory goes, it means (one supposes) that health care is also becoming a successful industry - - one with "high value, low production costs."

Point one: Information Technology.
"Very successful industries use information technology a lot," Dr. Cutler says, "so they know what they're doing, who's doing it, why they're doing it, who's the right person to do it, how long it's taking, how much it costs . . . everything about the nature of production. Of course in health care the most interesting thing is that we know essentially none of that. And when we do observe it, we observe that it's bad."

Now one hopes it doesn't take a doctoral degree from Harvard to understand that IT can be a useful tool to manage production. Which leads one to wonder, why hasn't the production side of the health care industry already adopted IT solutions to reduce production costs? Especially technologies that have been around for a while and are proven value-adds?

One reason might be because they have no incentive to do so. In other industries, production costs translate directly into retail costs, and retail costs need to be justified in the harsh light of day both against consumer expectations (I'm paying $100 for THAT?) as well as against competitor prices (But I can get it at Joe's for $80!)

Unfortunately, neither of those two factors appear in the health care industry. Either the consumer/patient remains blissfully unaware of the actual retail price of the good or service they are obtaining, or the price is obfuscated by byzantine policies, procedures, and billing practices. "The system" usually shows you nothing, and when it does show you something what you see is a Gordian knot. To top it off, if there is a third party payor involved (private insurance, Medicare, etc.) there is no need for either the hospital or the patient to rationalize the price, because it's someone else's money being spent.

In that basic environment, "cost-cutting" means only reducing your revenue and "productivity gains" means only staff-cutting. Neither of those things would make a hospital CEO very popular, especially the latter, especially in smaller communities where the hospital is likely one of the very few stable employers left in the area.

Take, for example, bar codes. Reading, for example, McKesson's summary of the "glacial" progression of bar code technology in the health care industry (see Appendix B of the target document) is downright depressing. Following adoption of the "uniform product code" in 1972, US grocers began adopting point-of-sale bar code systems "en masse." Throught the 80s, other industries "began leveraging bar codes for unprecedented efficiency gains." Not so health care. Come 2003, there is still more foot-dragging than progress despite proven benefits of bar-coding in terms of efficiency and patient safety.

So what is changing about that basic environment to provide an incentive for health care producers to adopt IT solutions? Nothing, so far as I can tell. And as any IT consultant can tell you, American businesses are full of IT products that were purchased and never implemented, or implemented and later abandoned. If there's no good reason to use the product, it won't be used.

Under Dr. Cutler's theory, if we look at the health industry and we see that it has finally gone mainstream on bar-coding, does that mean health-reform is working? Well, if your employer told you he was getting your computer up-to-par by mid-80s standards, would you be pleased about that? TRS-80, anyone? I didn't think so.

Once the incentive money to buy electronic health records, for example, runs out, nothing about the health care industry's basic environment will draw its major players either to spend the money to upgrade the current technology, or to adopt the NEXT technology - - the technologies that other industries are developing and adopting NOW to boost their productivity and cut costs. The result: a health care industry that is perpetually 20 years behind the times and experiences technology adoption if and only when massive government spending and perhaps a mandate or two is involved.

How successful do YOU think such an industry will be at controlling health care costs?