As we approach 2014, few of the financial details are emerging, but some background factors are becoming clear.  Total spending on health care grew at 3.5% during 2009-2011, much slower than the 5.9% annual increase over the prior ten years.  This slowdown is welcomed and the CBO quickly seized upon a $382 billion reduction in estimated 10-year federal spending on Medicare and Medicaid.  Causes for the spending slowdown are:

• Belt-tightening due to the 2009-2011 recession (1/3^rd of the  2.4% drop);
• Some employers restructured plans to shunt more cost onto employees (accounts for 1/5^th of the 2.4% drop);
• Fewer medical imaging devices and newfangled drug introductions; and,
• Unspecified other factors.

ACA does not always encourage health coverage.  Employers are expected to reduce scheduled work hours to levels that are exempt from the obligation to offer health coverage, or to discontinue offering health coverage and pay the federally mandated fine.  The employees who lose health benefits might independently buy health insurance, or not.  Just 8% of people will be eligible for federal subsidies.  Some will elect to pay a fine and remain uninsured – knowing they will not be refused care at a local emergency room.

The amount of premiums paid, the total of subsidies, payments for uninsured care, patient morbidity and average charges by providers will determine the premium and out of pocket costs that consumers face under ACA.  These amounts are not revealed publicly yet.  Perhaps politicians are waiting for “the right budget moment” or studying the implications of Oregon.

Many of the Americans receiving subsidies for health coverage will be placed in Medicaid.  Oregon randomly assigned Medicaid or “no coverage” (the control group) to a large number of patients.  After two years, Medicaid patients did slightly better on two measures – hypertension and diabetes but not at a level considered statistically significant. The Medicaid patients were somewhat less depressed, an outcome ascribed to the reduction in financial stress.  There are health interventions that can reduce chronic illness and improve health status, but Oregon’s Medicaid patients either did not find them or did not need them.  Overall, the Medicaid patients did not achieve improvement in physical health.

The Oregon study reveals that “peace of mind” was the main yield from its Medicaid spending spree.  This must be distressing to those who stridently demand Medicaid-like plans for all.  The Oregon study is a strong argument for changing from a fee-for-service model to a fee-for-results model.  Under a fee-for-results model, the lack of any net improvement in physical health would have tightly constrained payments to providers – without limiting the medical interventions needed by those with illness.  Perhaps it is not too late to insist on fee-for-results in federal health care spending – and it is definitely not be too late to do something about “no improvement” designs that cost us hideous amounts.

Alan Daley is a retired businessman who lives in Florida and who writes for The American Consumer Institute Center for Citizen Research

The House has also been concerned with this looming tax on medical devices. Last week, The House Energy and Commerce Committee held hearings on the impact that these taxes and regulations will have on mobile apps and its role in the medical community. The committee found a great deal of concern with classifying mobile phones as medical devices under the regulation and control of Obamacare, as Chairman Fred Upton said:

“Arbitrarily applying the definition of ‘medical device’ and the medical device tax to the wireless world could prove disastrous and grind this innovation cycle to a halt. We certainly want to ensure patient safety, but the approach we take must be a smart one.”

There are hundreds of new apps in the marketplace that are doing incredible things within the medical community. Entrepreneurs are creating apps that can detect skin cancer, conduct ultrasounds, and can even convert smartphones into an electrocardiogram recorder. These innovations are extremely important to the economy. Not only do they spur job growth and contribute revenue to the economy, but they are helping to drive innovation in the medical field, hoping to drive healthcare costs down through cheap yet safe, effective devices.

Undoubtedly, like most new taxes, the medical device tax would be a disaster for the economy.  As any student who’s taken an even remedial course in economics can tell you, taxation only discourages the use of the item being taxed, which in turn discourages companies from working to improve and innovate. The medical device sector is a growing sector of the economy. It’s estimated that the market will grow to $440 billion by 2018, growing at a rate of 4.4% per year. Of course, the market will only continue to grow as baby boomers continue to age. The medical device industry currently accounts for 474,000 jobs. Alternatively, if the tax is allowed to remain in place, it’s estimated that over 47,000 jobs could be lost as a result of the tax. Slapping a penalty on such a valuable market seems shortsighted.

The tax is also a huge burden on small businesses. According to a report from the American Action Forum, small to medium sized businesses account for over 91% of all medical device companies. As we talk about often at the American Consumer Institute, across the board taxes hurt smaller businesses the most. Large companies can often hire lawyers and accountants to side-step taxes, or else they’re large enough to take the hit that comes with a new tax. For many small businesses, with profit margins razor thin, that’s simply not an option. When these new taxes and regulations are imposed, business is hurt and investment dries up. According the same report from American Action Forum, venture capital investment in medical device companies is down 50% since 2011—right about the time the new tax was passed.

The Senate vote was a non-binding agreement, meaning we’re far from out of the woods. Democrats are currently looking for an alternative source of funding, meaning a tax somewhere else. The House has yet to take up any measures. If Congress is at all concerned about small businesses, jobs and innovation, they should resist any new forms of taxation, and work to repeal this tax before it has a chance of being implemented.

Zack Christenson writes on digital tech issues for the American Consumer Institute

The costs that CVS faces for health coverage depend on existing conditions such as; diseases and infirmities already evident; or genetic conditions that may be evident in parents and siblings but which are not yet expressed in the employee; and the employee’s own medical history, including risky behaviors such smoking, inappropriate diet, excess alcohol, or high risk pursuits such as skydiving, motorcycling without a helmet, and recreational drug use.  Beyond those factors are the usual, somewhat evenly spread risks of injuries and diseases.

Life insurance underwriters gauge risk from the existing conditions and risky behaviors revealed the applicant’s statements and in a physician’s assessment.  The prices charged for life insurance are a direct result of risk that the covered party represents.  When people reduce the risk factors, prices decline.  People of who buy life insurance understand that.  Obamacare’s impact on employers means that many private sector employees will have to find their own healthcare coverage.  They will soon learn that some behaviors and conditions make a noticeable difference in premium.  Obesity is the new bête noir alongside smoking, and it is likely to command a higher premium for employees in the private coverage market.

For programs such as Medicare, it’s in the public’s interest to charge premiums that cover the additional expected cost for health endangered by smoking, obesity, recreational narcotics use, and helmetless motorcycle riding.  Smoking cessation, diet guidance, and chemical dependency treatment will be available as they are under health plans today.  To the extent that these risky behaviors are free-will pursuits, the public should not be forced to subsidize them.

Alan Daley is a retired business man who lives in Florida and who writes for The American Consumer Institute Center for Citizen Research

Doctors don’t understand medicine perfectly and they cannot predict all the physiological interactions.  Sometimes patients have unexpected poor outcomes and sometimes doctors err.  Regardless of the path to injury, doctors are acutely aware of punitive lawsuits and insurance costs ($3,000 to $201,000 per year).  The AMA says 93% of physicians practice defensive medicine to lower the chance of being sued.  Doctors avoid “risky” treatments such as trauma surgery or traditional childbirth, thus withholding appropriate medical treatment.  They avoid patients who are likely to be litigious.  They conduct extra, unneeded tests and seek unneeded second opinions to build a thicker defense in case they are sued.  They also hospitalize patients to reduce liability risk.  

Defensive medicine costs were estimated at $70 billion per year in 2000 and $191 billion to $239 billion in 2008, but the direct cost of liability insurance and jury awards is in the tens of billions of dollars.  Patients and taxpayers ultimately pay for both defensive medicine and liability costs.  Contrary to popular ignorance, the costs don’t disappear into the insurance cloud. 

Despite sanctimonious claims that they care for injured parties, medical malpractice lawyers in Florida typically refuse contingency representation for the 80% of injured patients whose case is expected to be worth less than $600,000.  In 2008, the average malpractice award was $4.7 million.  Only the soon-to-be-wealthy patients need apply for a lawyer’s help.  In the juicy cases considered worthy of litigation, 33% of awards go to lawyers and more go to “other costs,“ including the pay-for-play experts hired to win tort cases.  About half goes to injured patients.

The malpractice representation system is a high cost, rationed justice.  It magnifies the costs of inherently imprecise medical care, dissuades doctors from pursuing the best treatments and imposes costs on innocent bystanders.  It is designed without the patient or taxpayer in mind.  

So what’s to be done?  We can start with a clear target.  Our first aim in righting patient injury must be to heal the injury as much as medically possible.  The second aim is to reduce total costs of this healing to all patients, taxpayers, and physicians.  The third aim is to reduce the incidence of misdiagnosis and inappropriate treatment.  The fourth aim should be to provide tort-insulation for physicians who prescribe inherently risky treatments (e.g. natural childbirth or trauma surgery) if they adequately inform their patient or surrogate of the risks.  

These goals are being achieved by use of a Patient Compensation System (PCS) in Sweden.  The physician is insulated from pain and suffering claims, but not from medical damages.  There, the emphasis is on helping the injured patient, not on treasure for attorneys and their pay-for-play “expert witnesses.”  PCS avoids a medically inept jury responding to a lawyer’s sob story and entreaties to “send a message” via a huge award.  A PCS similar to that in Sweden is being proposed in Florida as a “no fault” system similar to Workman’s Compensation.  It would remove the incentive for defensive medicine, potentially saving $16 billion per year in Florida alone.  PCS may not be the best system, but we currently have the worst and we deserve better.

Alan Daley is a retired businessman living in Florida and following public policy issues from a consumer’s perspective.

Almost 80% of those who spoke with a physician had their diagnosis affirmed (41% out of 51%), but, 18% (of 51%) said the physician at least partly disagreed.  Thus the resulting “error rate” for online self-diagnosis is 20% to 35% – as judged by physicians.  It’s not very accurate.  On the other hand, neither are the diagnoses done by physicians.

The incidence of misdiagnosis by physicians varies by context.  In Emergency Room situations misdiagnosis runs 20% to 40%.  In Intensive Care Units, the rate is 20%, and in general hospital wards it’s 15.5%.  Consumers’ self-diagnosis accuracy needs improvement, but it’s comparable to these physicians’ results.  The potential value from a professional “consult” is evident:  if the physicians are independent, then the risk of both producing the same misdiagnosis is just 15% of 15% or 2.25%.  When the diagnoses disagree, the attending physician has to reconcile the disagreement – producing a better diagnosis in many cases.

The consequences of misdiagnosis can be large.  If 15% of physician-conducted diagnoses are inappropriate then a matching 15% of treatment plans are based on faulty diagnoses.  A misdiagnosis that calls for “no treatment” may produce a short-run cost savings, but patient health and lives may be at risk, and it may add to the 98,000 preventable deaths each year due to medical errors.  Misdiagnoses and the derived inappropriate treatment plans may waste as much as 15% of the 2 trillion per year spent on healthcare.  Misdiagnosis errors could cost $1,000 per US citizen per year and patient health and lives would be put at risk.

Advances in diagnostic accuracy are needed.  Many US states have enacted legislation on continuing medical education (CME) to include courses on error prevention.  These courses tend to focus on improving diagnosis for the most commonly misdiagnosed maladies.  Unfortunately the courses make little impact on physician practices.  Perhaps a consumer’s online self-diagnosis can play a homespun version of the consult’s role by providing a perspective that the physician must work to dismiss or confirm.  Consumers’ self-diagnoses are clearly worth something.

Alan Daley is a retired businessman living in Florida and following public policy issues from a consumer’s perspective.

For about a decade, tech companies pointed to the emergence of telemedicine services that allow hospitals and doctors to remotely monitor of patient vital signs (heart rate, temperature and glucose).  These early applications are having success in reducing medical costs and saving lives.  More recently, however, there has been an explosion of wireless applications specifically for consumer use.  These applications allow consumers to track vital signs and manage their health and fitness.  Here is a brief description of some of the new applications exhibited in the 2013 International Consumer Electronics Show.

HAPILABS makes devices – resembling buttons and watches – that provide various health measurements, including tracking and managing applications for exercising, eating and sleeping.  The tracking helps motivate consumers and the tracking reinforces progress toward personal goals.  Consumers can track their results online or on their smart phone.  BodyMedia produces an arm strap that measures activity and caloric burn, and it tracks the quality of the user’s sleep.  However, this bluetooth device (priced $149) requires a subscription (around $5 a month) to a cloud-based service for tracking.  Alternatively, Basis offers a watch-like sensor that measures motion, heart rate, perspiration and skin temperature.  It is a little more upfront ($199) but it includes free lifetime access to its cloud service.

Tanita sells a whole line of scales that measure body fat and water, weight, bone and muscle mass, and some include health models that calculate metabolic age and other features – including some that providing data directly to electronic devices via Wi-Fi and Bluetooth.  Another body monitoring scale is offered by Withings that tracks your weight, body fat, heart rate, as well as the indoor air quality, and it is also accessible through Wi-Fi or Bluetooth.  Withings also offers a small device that tracks your steps, distance, calories, heart rate and sleep quality for wireless access.  Another small device, with much of the same functionality is available from fitbit, which offers the fibit flex for $100 and it syncs to wireless devices, including PCs and the Mac.

Athletes, trainers and just fitness-wise consumers can benefit from many of these devices, but a few focused on strength, training and performance.  In particular, Polar offers a wide range of products that provide wireless monitoring for athletes as well as recreational exercisers.  The small clip-on Vert device by Mayfonk measures the vertical jump of athletes and allows real time tracking sent to PCs, tablets and smart phones.  A headband by Spree provides heartbeat, motion and body temperature monitoring that is streamed wirelessly to your smart phone.  Ibitz provides simple wireless monitoring of activity for the whole family with units as low as $35.  Skechers also offers affordable devices (starting from $39 with a free app) that monitors heart rate and more, and it is compatible with the iPhone or Droid.

The abundance of devices makes it easier to keep your New Year’s resolutions.  But there are three observations worth noting:

• Not all of these devices have a proven track record and like many of the newer upstarts in this field, they may be here today and gone tomorrow.  We recommend that you follow consumer reviews before committing to anything too expensive.
• Not all devices are not ready for primetime, and that is why we do not see all of these products in area stores.  For example, we watched a representative struggle to open a pill box on a “fool-proof” electronic device designed to remind seniors take their medicine.  If a representative can’t open it, neither can seniors.
• Some products have a higher upfront cost, while others include a subscription fee.  Consider the expected life of the product before making a decision.  For now, we believe that streaming directly to your PC, tablet or smart phone is the best option, since privacy of the health data is important.
• Remember that most devices only compare your statistics to yourself, and most do not compare your results to the population.

Overall, we were very impressed by the sheer number of wireless health monitoring devices at the International Consumer Electronics Show.  From the looks of it, consumers will have new ways to collect, track, manage and improving their health, and that will be a clear benefit for maintaining a health lifestyle.

Steve Pociask is president of the American Consumer Institute Center for Citizen Research

We can start with the treatment of health care providers.   At just 1.5% increase per year, physicians are not the cause of galloping cost increases in health care.  Nevertheless, physicians caring for Medicare patients are likely to face a 27% reimbursement cut starting January 1.  Legislation suppressing the 27% is called a “doc fix,” but Congress is incapable of passing that due to fiscal cliff ill-will.  The need for a “doc fix” is caused by the arrogance of a class-warfare Congress that thought annual across the board 5% cuts in physician pay would be justified.  Rightly, more and more physicians are refusing to add new Medicare patients because with reimbursement already too low, a 27% cut pushes reimbursement down to a level that will impoverish them.

Hospitals account for 36% of medical spending.  However, 60% of admitted patients are under Medicare or Medicaid reimbursement, which is far below cost.  Under law, hospitals must provide unreimbursed care for the 6% of hospital admissions that are indigent.  Aggressive government-related cost shifting by 66% of admissions is forcing the remaining 34% of private-pay admissions to carry an outrageously high share of hospital costs. 

Consumer treatment will worsen starting in 2014.  Consumers who lack either a government health care plan or a private insurance plan will face fines.  The expected family fine is 1% of annual income, rising to 2.5% of family income in 2016 and beyond.   Paying the fine doesn’t obviate the need to pay for medical care needed.  On the flip side, consumers with incomes up to $88,000 are eligible for subsidies (at tax-payer cost) inducing them to join a government health plan.

Government treats employers as a nuisance.  Employers of 50 or more full-time-equivalents can be liable for penalties: either if they don’t offer health benefits to full-time employees and their dependents; or if they offer benefits that are unaffordable or that are below minimum standards.  Those penalties are expected to be $2,000/yr for each employee beyond the first 30. At the other extreme, employers who offer employees comprehensive or “Cadillac” health plans will be taxed $215 billion over the next 10 years.  

Taxed if you do and taxed if you don’t.  Large, financially sane companies such as Wal-Mart have “done the math” and concluded that paying a fine for not providing health care coverage in some cases is the right financial strategy.  It is consistent with Washington’s intention to remove employers from the shining pathway to “single payer.”

Alan Daley is a retired businessman living in Florida and following public policy issues from a consumer’s perspective.

Recently, long term interest rates are so low and that they undermine the yields available for growing pension funds.  This factor thwarts fund managers of both private and public-sector pensions.  But ordinary employees who allocate contributions within sponsored savings plans, 401(k)s and IRAs face the same challenge.  Employees check the level in their retirement accounts, and can gauge how far away they are from their target.  But gauging the funding level behind their expected “pension” is tougher. 

Public sector state employees’ pension funds total about $3 trillion.  Estimates of their funding shortfall run between one-half trillion and $2 trillion.  Underfunding varies by state with a few states that are 95% or better funded and 12% are funded at less than 60%.   Those with large funding gaps generally behave badly on a regular basis, e.g.; failing to make required contributions or picking a too-low discount rate.  Making good on their pension obligations will be painful for state taxpayers.  Illinois is a basket-case example.  Assuming it can earn 6% on assets, Illinois will need to raise pension contributions from 8% of total state budget to 14% of budget for 30 years.  Delaware would need hike to its contribution by only 2% of state budget.  

Horrors of this magnitude will awaken political factions who want everyone to be equally miserable, even though the pain was self-inflicted.  We can expect to hear calls for socializing this problem over the next few years as state and local governments struggle to balance their budget.  We may hear calls even sooner to compensate for lower block grants stemming from a fiscal cliff dive. 

In the private sector, employee pension account funding totals $2.2 trillion and the funding gap is $388 billion.  Low interest rates will continue to confound private sector pension fund managers looking for growth.  

Those responsible for underfunding of defined benefit pensions can be forced into compliance unless they are bankrupt.  If they are bankrupt, the Pension Benefit Guaranty Corporation (PBGC) tries to protect beneficiaries from the worst of outcomes.  PBGC assures they receive at least some pension, albeit lower than they may have planned.  As pension plans migrate to the defined contribution format, a cost squeeze on those that remain a defined benefit plan is likely.   PBGC is funded through premiums on defined benefit plans that cover 34 million workers.  Despite being private, if it fails, we can expect it to join the “too big to fail” club.  Hopefully, that is a problem for another decade.

Alan Daley is a retired businessman living in Florida and following public policy from a consumer’s perspective.

When underground water near the surface is depleted, sink holes can develop.   Sinkholes occur naturally although they may be hastened by unusually aggressive pumping of underground water.  State laws can compound the community’s problem by encouraging lawyers to troll for potential sinkhole claimants, passing cash award and litigation costs onto insurance companies and in turn onto the rest of the community – in effect increasing sinkhole costs by 50%.

The main groundwater challenges before us are twofold:  we need to balance withdrawal and replacement; and we need to control contamination.   Ideally we would assign the burden of corrective measures onto those who cause the problem.  

Man-made contamination of surface and groundwater by industry is sometimes monitored and corrected by agencies such as the EPA.  Reasonable standards for effluent water quality and for enforcement of remedies should become widespread.  Residential wastewater contamination should be monitored and corrected with equal vigor to that exerted on industry.  There seems to be widespread public support for actions that crack down on water “pollution.”  If motivation is needed it should be as consequential costs levied on the problem causers.  Those costs should not be absorbed into the public purse as another “entitlement.” 

The more difficult problem pertains to balancing the withdrawal and replacement of groundwater (at least equal in purity).  Perhaps the goal should include both groundwater and surface water, although surface water is subject to very substantial evaporation losses diffusing the benefits into rain and snow elsewhere.  Making agricultural water use more efficient is a likely candidate for improvements.   Perhaps we need to make a more careful study of Pembrooke Pines’ sewage infusion ideas.  Perhaps there really is a way to capture and “mine” the fresh water from an iceberg.   Perhaps deepening lakes would cut back on percentage evaporation losses.   Perhaps there is a cost-efficient infrastructure for agricultural, industrial, and landscape uses of “gray water.”  Perhaps ideas like Coca Cola’s “the water project” can be expanded.  Doubtless, other creative ideas are worth exploring.

We probably don’t yet have technologies that alleviate our need for massive quantities of fresh water, so we don’t have the freedom to ignore these challenges.  The US has the technical talent to address these challenges and we have some time for the solutions to bear fruit.  What we don’t need are single-issue harpies who hijack our attention into their blame game.

Alan Daley is a retired businessman living in Florida who follows public policy from a consumer’s perspective. 

Surface water in streams, rivers, and lakes supplies the other half of water we use.  Surface water and ground water interact in several ways.  Groundwater usually seeps into streams to supplement flowing surface water, and surface water often trickles down to the water table top of groundwater.  When water is pumped from groundwater, three things happen: the water table lowers, stream flows are reduced or eliminated, and in coastal areas, saline groundwater can move inland.

Aquifers are massive groundwater storage formations composed of permeable rock and materials such as sand or gravel.  The Ogallala aquifer serves eight western states (CO, KS, NE, NM, OK, SD and WY).  Other aquifers include the Edwards (in TX), the Floridian (in parts of AL, FL, GA and SC) and the Great Artesian Basin (in Australia).  The crops that aquifers support supply food for many across the world. Drawing from the aquifer makes possible the gigantic circular sprinkler patterns visible from airline flights.

The Ogallala contains mostly ancient water and today’s replenishment into the Ogallala is at half the rate of withdrawal.  Rain and snow are the main replenishment sources and they can take years to settle into the aquifer.  Today’s water “mining” (extraction minus replenishment) is 5.5 centimeters per year of which 94% is used for irrigation. The Ogallala will be exhausted in less than 100 years.   

Aquifer water comes in varying grades of purity.  Saltwater can infiltrate making it brackish (as is the Floridian aquifer).  Some aquifers contain contaminants that are even more noxious.  The main man-made contamination sources are: bacteria from septic tanks, oils from underground storage tanks, and chemicals from residential and commercial landfills.  Other industries can contaminate surface and underground water, most notably the pesticides and fertilizers used in agriculture.  Careless handling of wastewater can contaminate groundwater.  Discarded consumer and animal drugs also end up in groundwater.  Some contaminants in groundwater can be difficult or prohibitively expensive to remove making that ground water unusable.   

Gas and crude oil “fracking” injects a water and chemical cocktail underground.  When fracking concludes, the cocktail is pumped up into holding ponds or tanks.  No doubt traces of the cocktail remain underground and might trickle toward the aquifer, but the EPA seems to monitor this closely. 

In Aquifer Depletion:  Part 2, Pragmatic Approaches, suggestions are offered on how to address depletion and contamination.

Alan Daley is a retired businessman living in Florida who follows public policy from a consumer’s perspective