Generic Comprehensive SB 840 speech,
with integrated rebuttal to opposition positions.
(prepared by Nurse Judy Spelman, July 2005)

Good morning. Thank you for inviting me to talk with you about Senate Bill 840, the California Health Insurance Reliability Act introduced by Senator Sheila Kuehl. SB 840 is a comprehensive health care reform. It is the only reform before the state legislature that would provide health insurance, (hi), for all residents, call for no new spending, include meaningful cost controls and address problems with care quality.

This morning I'll talk about the problems facing the health care system, (hcs), and what's causing them. Then I'll discuss SB 840: how it would work and how it would solve the problems causing the health care crisis. (hcc).

The Problem

When you talk about the hcc, most people think first about the 7 million Californians who have no health insurance. But the problems go far beyond lack of insurance. The problems reach into every home, every business, every hospital, clinic and doctor's office, every state, city and county government office. The problems affect all of us. What are these problems that people are calling a "health care crisis"?

1. The first problem that affects all of us are problems with the quality of care we receive, regardless of whether or not we have health insurance.

• Four years ago the World Health Organization analyzed the health care systems of 191 countries and found that the US ranks 37th in the world on the gold standard of health care quality: population-based health outcomes, such as infant mortality and immunization rates and life expectancy. All other industrialized countries ranked above the US in this category.
• WHO also found that the US ranks 55th for equity of health care financing, a measure of whether people can afford the medical care they need and how the society supports those who cannot. All industrialized countries ranked above the US in this category.
• Last year, on top of the WHO findings, the National Coalition on Health Care, NCHC, which represents over 150 million Americans and whose honorary chairpersons are former presidents Carter, Bush and Ford, issued a landmark report on the state of the US health care system. NCHC concluded that the US is experiencing an "epidemic of substandard care".
• Let me read some of their conclusions directly from the report. (The source for each quote can be seen in parentheses after the quote where not included in the quote.)

"The dominant finding of our review is that for most care that has been studied, there are large gaps between care that people should receive and care that people do receive. This is true for all three types of care, preventive, acute and chronic. It is true whether one looks at over-use or under-use. It is true in different types of care facilities and for different types of health insurance. It is true for all age groups, from children to the elderly."(RAND), (fyi- Overuse is what typically occurs in the fee for service sector where money is made for each service offered. The more you do, the more money you make. Under-use is what typically occurs in the HMO capitated sector, where more money is made when fewer services are provided)

"Using 439 indicators of quality developed by multi-specialty expert panels, the analysts found that participants received only 54.9% of recommended care---a proportion that varied little across the categories of preventive, acute and chronic care." (RAND)

"The Institute of Medicine has estimated that between 44,000 and 98,000 Americans die each year from preventable medical errors in hospitals. "

"According to the CDC, 88,000 Americans die because of infections contracted during hospitalization."

"The IOM and CDC estimates do not include deaths due to preventable medical errors in settings other than hospitals."

"126,000 die annually from failure of physicians to use evidence-based standards of care for hypertension, heart attacks, pneumonia and colorectal cancer."(RAND)

"29,000 Americans with diabetes experience kidney failure each year and 2600 go blind each year because of physician failure to monitor blood sugar levels or to teach patients how to do it." (RAND)

"Mistakes in the use of medical technologies across all settings are calculated to account for at least 400,000 deaths annually, of which about two thirds can be attributed to preventable "health care accidents". These numbers do not include the impact of failing to treat what we know how to treat. They do not include the impact of overzealous use of the care. Were fatalities from these additional sources added to those from "health care accidents", the number of deaths would climb significantly." (Dr. David Lawrence, former chairman and CEO of Kaiser Permanente)

"Improvements in American health care are both feasible and can contribute to substantial, double-digit reductions in the total costs of care….of nearly 30% below current levels." (Dr. Don Berwick, President of Harvard University Institute for Healthcare Improvement)

"30% of all direct health care outlays today are the result of poor quality care consisting primarily of overuse, under-use and waste."(Juran Institute and Severyn Group for the Midwest Business Group on Health)

The lesson to be learned is that everyone is affected by these problems, everyone would benefit if we solved them and a lot of money would be saved too.

2. Another problem that affects everyone who has health insurance is "under-insurance", which refers to benefits your policy doesn't cover, co-pays and deductibles you pay and the total benefit limit on your policy.

• Under-insurance creates financial distress when you're sick.
• Last year nearly 2 million Americans went bankrupt because of under-insured illnesses and 3/4 of these people had health insurance when they became ill.
• Many others didn't declare personal bankruptcy, but used up all their savings and even sold their house to pay medical bills.
• As I'll explain shortly, there is no need for this kind of financial distress.

3. Another problem we all share is the effect of the hcc on the state budget.

• Health care costs are the second largest driver of the budget deficit. We will all be paying the debt service costs for years to come. So will our kids and probably also our grandkids.
• We pay through taxes and fees and in roads not re-paved, in libraries closed, in cutbacks in vital public health services, in decreased public support for nursing education, etc. etc.

4. The rise in the price of health insurance premiums affects everyone.

• Employee health insurance premiums increased 75% in the last 10 years.
• Premiums are projected to rise to over $15,000 per employee in 2006. Insurance in the individual market will be even more.
• And remember, the premium is just the start of what you'll pay if you get sick. You also have out of pocket costs for co-pays and deductibles, you pay for the services your policy doesn't cover and you pay for everything when you reach for policy limit.
• For employers who provide health insurance, the rise in the cost of premiums cut into funds that could have gone to wage increases. Wages have risen 1.7% over while premiums have risen in double digits.
• Rising premium costs have forced employers to eliminate retiree health care benefits, to cut back benefits for current employees, to hire part-time rather than full-time workers to avoid paying for health insurance and to pass hc costs on to employees by increasing co-payments and deductibles and the employee share of the premium.

5. Of course we cannot talk about the hcc without talking about the un-insured.

• 82 million Americans will be without health insurance at some time this year. 45 million will be uninsured all year.
• In California, nearly 7 million people are uninsured and 10 million have no pharmaceutical coverage. This has been true through good and bad economic times.
• People without hi are 25% more likely to die from an illness than someone with insurance.
• Lack of hi is the 7th leading cause of death in the US.
• 18,000 deaths each year are attributed directly to lack of hi..
• Estimated economic losses attributable to un-insurance range from $65 billion-$130 billion a year.
• Who is un-insured?
• The vast majority, over 80%, are in working families, but their jobs don't offer health benefits and don't pay well enough to make health insurance affordable.
• We're all affected by un-insurance even if we have insurance ourselves.
• Your emergency room may be overcrowded when you need it.
• Your emergency room or even your local hospital may be closed when you need it because it can no longer afford to take care of so many people without insurance. 15% of the states emergency rooms have closed since 1994.
• Your ambulance may be diverted from an over-crowded ER when you need it.
• Your health insurance premiums, hospital and doctor bills are all being padded to cover the costs of caring for the uninsured.
• Your highways may not be repaired, your library may not get new books, your local park may close because the money is going to pay for the care of the uninsured instead.
• Doctors are leaving medical practice and leaving California because they don't get paid for a lot of the care they provide…and that includes care to those with and without insurance…and because more often than not, what they are paid doesn't cover the costs of giving care, much less make them a fair profit.
• The dilemma of the uninsured is not just about cost. A core American belief is that all people are created equal. But Americans are not treated equally in the hcs, Perhaps one day the Supreme Court will outlaw discrimination in health care as they outlawed it in education
• The irony is that we could save money if everyone were insured. People without insurance put off getting care until they get sick. Sick care is much more expensive than preventive care. It is estimated we would save $3.5 billion if everyone got preventive care.

I'll talk now about what is causing…and what is NOT causing these problems.

• Many people think large malpractice claims are the problem. But analyses performed by the John's Hopkins School of Public Health show that "malpractice claims have only a marginal effect on overall health care spending and the US pays out less in malpractice claims than both Canada and England".
• Some say health care costs are high because Americans go to the doctor for every little problem and demand too many services. The John's Hopkins study found that Americans "actually have access to fewer health care resources compared with people in many other countries. Americans pay more for health care for the simple reason that prices for health services are significantly higher in the US than they are anywhere else."
• Some say it would simply cost too much for everyone to get the care they need and we can't afford it. Consider this: Other industrialized countries are able to insure everyone for half of what we're spending and get better or equal health outcomes. Their average per person spending for hc is $3,000 a year. Ours is $6,000 a year. Lack of money for hc is not our problem. How we're spending all that money is our problem. Which leads right into a discussion of the underlying causes of the hcc.

There are six underlying problems causing the health care crisis.

1. The first is excessive expenditures on administration.

• There are around 1500 private insurance companies, hundreds of government insurance programs, thousands of private health care funding sources and literally 10's of 1000's of different benefit plans.
• Administering all these plans uses up 31% of what we spend on health care. (Department of Medicine, Cambridge Hospital and Harvard Medical School and Canadian Institute for Health Information)
• No country or state can afford health care for everyone when they spend 30% on administration. We just don't have enough resources.

2. The second underlying or foundational problem is the absence of a comprehensive state or national purchasing policy that achieves fair pricing for consumers and manufacturers of medical goods.

• Because we lack a comprehensive purchasing policy, Americans pay up to twice as much for drugs and medical equipment as people in other industrialized countries.
• Prices are so high that we find Americans choosing between filling prescriptions and buying clothing or Christmas presents for their kids. We find Americans cutting pills in half to stretch out a prescription. We find Americans not filling prescriptions at all. We find Americans going to Canada to take advantage of discounts negotiated by the Canadian health care system.
• Pharmaceutical industry says we can't lower the price of drugs in US because US prices support research. Excessive US prices primarily support marketing and advertising, shareholder dividends and generous corporate manager reimbursement packages, not research.
• What further undermines their argument about research is that 40% of the drug company research is "copy cat" research. It involves waiting for someone else's patent to expire, producing the same drug and trying to get a share of the market. It involves no improvements in the drugs. It involves no medical advances. It involves a lot of new spending on advertising.
• If the government used its purchasing power, we could cut drug prices by 30%-50% without hurting drug company profits. Why? Simple economics: The increase in the sales of drugs to the 10 million who now have no drug coverage would offset the price cuts under universal health insurance.
• Also missing from the US non-purchasing policy are systematic cost-benefit analyses of new medical technology and drugs. These analyses should guide purchasing of new products. Instead, the driving force behind the sales of new products is advertising, often directly to consumers who are not in a position to evaluate the advertising claims. This kind of advertising is restricted or prohibited in other countries.
• Unlike the US, the governments of other industrialized countries use their purchasing power to negotiate fair price structures. As a result, people can afford these products, the market for them is enormous and profits are substantial. Fair prices structures are a "win-win" situation for consumers and manufacturers.

3. The third foundational problem is the absence of system wide planning and budgeting for the health care needs of the population.

• The US has no system wide health care budget and does no system wide planning. Neither does California. We plan for our defense and have a defense budget, we plan space exploration and have NASA budget, we plan our highway systems and have a transportation budget, we have a school budget and a national parks budget. But hc budget. And no health care planning.
• Lack of planning unnecessarily increases health care costs. Once you build or buy something, like a new MRI machine or a new wing on a hospital, you have to staff it and maintain it and pay the debt service on it and you want people to use it whether they need to or not. This leads to inappropriate use of the health care services and you and I are paying for it.
• No health care system can control costs if it doesn't plan and budget its expenditures.

4. The fourth foundational problem is excessive and preventable loss of life and limb because of the absence of system-wide oversight of care quality.

• We talked about this earlier. The US is suffering from an "epidemic of sub standard care". This is true for two main reasons.
• One, no one has the authority to monitor and improve care quality and two, a large majority of our doctors do not use evidence-based standards of care to guide their decision making. All those frightening statistics about deaths I gave you earlier are the direct result of the failure to oversee care quality and to use standards.
• The best performing health care system in the US today on 100's of quality of care indicators is the Veteran's Health System. In the VA, doctors are supported by standards of care, care quality is monitored on a system-wide basis, doctors are rewarded for delivering high quality care, and someone is responsible for care quality.
• Some argue that the "market" will correct quality of care problems and that the government shouldn't "interfere". But the market has not corrected quality problems in spite of the fact that the tools to do so already exist.
• Americans accept a government role in airline safety and the National Transportation Safety Board has saved many lives by overseeing the airline industry. Doesn't it make sense to have the same oversight for health care?

5. The fifth structural problem is the linkage of health insurance to employment. Why is this a problem? The linkage of health insurance to employment ties the financial fate of businesses to the financial fate of the health care system. It hasn't worked well.

• The linkage means that employers who offer health insurance find themselves in the expensive business of negotiating and re-negotiating health benefit contracts. This has become an enormous financial burden.
• Health benefit disputes are the main cause of labor strife in the US.
• High hc costs are driving jobs overseas.
• Wages are depressed as employers pay for health benefits.
• Employers are increasing the employee share of health care costs and decreasing employee benefits.
• Job mobility is distorted as people stay at a jobs they don't like to protect health benefits.
• Employment is depressed as investment dollars that might have created jobs, go instead to health care.
• People lose health insurance if they lose their job.
• Linking a constant need like health care to a constantly changing benchmark like employment is a problem for employers and employees alike.

6. The sixth foundational problem is the structure of the health insurance market. The market for hi is characterized by three features that are the cause of un-insurance and under-insurance.

• First, health insurance is a product. Those who can afford it can buy it. Those that can't afford it, can't buy it. Health insurance companies have priced millions of Americans and their employers out of the market for health insurance, driving up the ranks of the uninsured. It's one thing to price people out of the market for a Mercedes Benz or a diamond ring. It's quite another to price people out of the market for health care.
• Second, the health insurance market creates un-insurance by refusing to sell insurance at any price to people who are sick or who have ever been sick, or whose family history suggests they might get sick. This is the so called "pre-existing condition" exclusion and it drives up the ranks of the uninsured.
• Third, the health insurance market creates "under-insurance" by offering "catastrophic" policies to healthy people and to those who cannot afford comprehensive coverage and by including hidden costs and complicated benefit definitions and limitations in so-called comprehensive policies. The health insurance market increases profits by systematically and intentionally under-insuring illnesses.
• Under-insurance of illnesses is the single greatest cause of personal bankruptcy in the US. Nearly two million Americans were forced to declare bankruptcy last year because of medical bills.
• It's fair to say that the structure of the health insurance market creates a crisis of values, not just costs. Americans believe in the market system but also believe that everyone has an equal right to life, liberty and the pursuit of happiness. No one can pursue life and happiness when they're sick and they can't get medical care or have to spend all their savings or sell their house to pay medical bills. Surely we can find a better balance of beliefs, a better balance of the rights of the market and the rights of man, like every other industrialized country has.

We've talked about the nature of the hcc and its underlying causes. Now let's talk about a reform that can solve the underlying problems, because if we don't solve the underlying problems, we will just continue to throw good money at a broken system.

SB 840

1. Under SB 840, the state of California would establish a health insurance plan that covers all residents and a HC Fund into which all money to be spent on hc would be deposited and from which all hc payments would be made. Analyses show that these two changes could save around $20 billion dollars in the first year, more than enough to insure everyone who is now un-insured.

• These steps solve two of the six problems. They decrease administrative costs and complexity and re-adjust the hi market by eliminating cost and pre-existing condition exclusions.

2. Under 840, California would use its purchasing power to negotiate a fair price structure for drugs and medical equipment and would conduct cost-benefit analyses of new technology and drugs. Analyses show this would save $5 billion a year.

3. The system would be administered by an elected health Commissioner who would establish a statewide hc budget and to plan for the health needs of the population.

There would be an Office of hc Planning, headed by a planning director, and up to 10 regions would be established to plan for the health needs of the population on a local basis. Local, rather than centralized planning, is extremely important. No one is going to be comfortable if day-to-day decisions about their care are made by the state government. SB 840 strongly supports local planning and decision making.

• There would be an Office of hc Quality headed by the Chief Medical Officer to establish standards of care, monitor care quality and solve quality of care problems.
• There would be a consumer advocate to protect consumer rights.
• There would be a health policy board chaired by the commissioner to guide overall health policy. There would be a public advisory board with a voting member on the health policy board to advise on all policy matters.
• This governance structure resolves problems related to lack of a budget and planning and gives the commissioner the structural tools needed to control health care costs.

4. Eligibility for the plan is based on residency rather than employment.

• This de-links health insurance and employment.
• If too many people come to the state to get medical care, we would implement strict eligibility requirements, including higher charges for newcomers, as the state university system does.

5. The benefits under SB 840 are comprehensive. They include dental and vision care, prescription drugs and DME, hospitalization, outpatient and home care and a lot more. This is the first step in solving the problem of under-insurance.

6. There are no co-pays or deductibles for at least the first two years. This is the second step in solving the problem of under-insurance.

7. Everyone can choose their own primary doctor.

8. All licensed providers and accredited facilities would be part of the hc system.

9. Doctors would decide how they want to practice medicine: privately, in clinics or in HMO's and would negotiate their reimbursement through their chosen representatives. 10. Doctors would be paid for all covered services they provide. If a patient turned out not to be eligible for the California health plan, the hcs, not the doctor, would assume the costs of care.

11. Hospitals, clinics and integrated health care organizations would get their operating funds from the state health fund, rather than having to file claims with 1000's of insurance companies. They would negotiate a budget and receive predictable funds on a regular basis.

12. The plan is paid for with money we already spend on hc. No new spending is required to fund this program.

13. What each person pays would be in proportion to their income. What each business pays would be in proportion to the wages they pay. This would make the premiums affordable for everyone.

• 1/3 of the funding comes from federal and state dollars that are now spent on health care.
• 2/3 comes from a hi premium that everyone pays except the very poor, who would be subsidized, as required by law.
• If your employer pays for your hi now under an employer-employee contract, they must pay your hi premium under 840.
• Senator Kuehl will announce the premiums in January.
• These California premium completely replaces the premiums you or your employer currently pay. They completely replace co-pays and deductibles you currently pay as well.
• And most important: once your premium is paid, your hc costs do not go up if you get sick.
• And this is another step in solving the problem of under-insurance.
• Analysis of the plan show that all businesses that currently insure 80% or more of their employees, would save money, a large majority of California families would save money and the state and counties would save $44 billion in the first decade. Overall the savings are predicts to be over $300 billion in the first decade.

I'll conclude with these thoughts:

It is estimated that the current hc system wastes 50% of the money that's put into it. Most of the waste is on administration, excess drug prices and poor quality care. SB 840, as a single-insurer system would solves the underlying mis-spending problems of the current system and would get 90%-95% of every dollar we spend into hc.

• By increasing the share of the our hc spending that goes to health care, and by decreasing the share that goes to administration, drugs and poor quality care, we could not only insure everyone, we could increase spending on research, we could increase benefits, we could pay doctors bonuses for providing high quality care, we could train more nurses and a lot more.
• By putting a Chief Medical Officer in charge of care quality, by having a statewide office for quality and by supporting doctors in providing high quality care, we could decrease or even eliminate deaths from medical errors and solve other important care quality problems…And save a lot of money, perhaps as much as 30%. That money could go to benefits, salaries, research, innovation and medical education
• 840 solves problems of the hcs without spending more money.
• 840 increases choice for patients and doctors.
• 840 takes a tremendous financial burden off the backs of our businesses.
• And 840 gives us the opportunity to bring our core American beliefs to life in the health care system.