Tuesday, June 16, 2009

Following the Money in the Health Care Debate


Congress appears ready to confront one of the nation’s most contentious issues — health care reform — and arguments will fill the air in the coming months.

Much of the discussion so far has focused on President Obama’s proposal for a government-sponsored health plan that he says will reduce costs. Insurers and doctors argue it will limit patient choice. Drug companies warn that the quality of care could be compromised.

But Mr. Obama’s proposal is only one of many that await Congress as it wrestles with how to rein in exploding health care costs while taking care of the country’s nearly 50 million uninsured. The size and complexity of the issue are daunting. To help understand what’s going on, you need to follow the money.

Roughly $2.5 trillion is at stake, the amount the nation spends each year on health care, nearly a fifth of the American economy. How that money is divided up — or prevented from rising at its current pace — is at the center of the debate. Many doctors, insurance companies and drug companies say they fear that their revenues could shrink significantly and patient care could be threatened.

Their arguments may prove to have merit. But “people are voting with their own economic interests,” said Les Funtleyder, a Wall Street analyst who is following the debate closely for Miller Tabak & Co. in New York.

When you hear nothing from one of the interest groups on an issue that is part of the larger debate, you can assume the silence means it has no financial stake in the outcome, he said. “You wouldn’t probably weigh in if you don’t have any skin in the game because if you weigh in, it makes you more of a target,” Mr. Funtleyder said.

What all of the interest groups reliably support is any new program that would expand coverage to the uninsured. Such a program would translate into tens of millions of new, paying customers for hospitals, doctors, insurers and drug makers.

But what worries those groups is the accompanying talk in Washington about how to address the skyrocketing cost of health care, since any decline in spending would correspond to a reduction in revenues. The discussion has become particularly heated over exactly how the government will find the savings necessary to help generate the $1 trillion or so that the government will need over the next decade to pay for universal coverage. The nation’s doctors, for example, say they wholeheartedly support health care reform. But the American Medical Association has a long history of being opposed to legislation that threatens the status quo. It opposed the creation of Medicare more than 30 years ago.

What concerns doctors about a government-run insurance program that looks like Medicare is the possibility that it will pay like Medicare, said Robert Laszewski, a health policy consultant in Alexandria, Va. “Medicare pays doctors 80 percent of what an insurance company pays,” he said. “If you get a public plan, the doctors are going to get a 20 percent pay cut.”

But doctors are also likely to disagree among themselves over how different types of physicians should be compensated. Congress is thinking about raising the pay of primary-care doctors — general practitioners, family physicians and the like — as a way to encourage them to more actively oversee the care of patients and reduce expensive visits to specialists and hospitals.

The specialists — the cardiologists, neurologists, surgeons and others — may have a different take on the discussion, Mr. Laszewski noted, especially if Congress cannot raise salaries of primary-care doctors without taking money from the highly paid specialists. “The question is, how are you going to help the primary-care doctors without cutting the cardiologist and the other specialists?” he asked.

But even the family physicians, who stand to benefit the most, say they are opposed to a government-run plan if it reimburses them at the Medicare rate.

Another group with a lot to win or lose is the nation’s private health insurers. With the number of people who are privately insured through their employer or their own policy not increasing, insurers are eager to find a new source of business. Health reform promises them at least some new customers who cannot afford insurance now but who might receive government help to pay for coverage.

But the trade association, America’s Health Insurance Plans, has clearly staked out its opposition to any kind of government-run health plan, which it says would have an unfair advantage. The trade group fears its members would be driven out of business as the government uses its purchasing power to demand much lower prices from doctors and hospitals.

Karen Ignagni, the chief executive of the association, has criticized the government’s track record in running Medicare as a good reason not to expand government health insurance beyond the elderly and disabled. She says the program has done a poor job in taking care of people when they are very sick. “Medicare has not effectively coordinated care, addressed chronic illness, or encouraged high performance,” she recently told Congress.

As one way of finding savings to pay for health reform, Congress is also discussing lowering payments to private insurers who are now being compensated to cover some Medicare patients. The A.M.A., perhaps mindful that such savings would not come from doctors if it comes from insurers, says it supports such cuts.

The hospitals have also voiced concerns about a government-run plan. They, too, are paid much less by Medicare than they are by private insurers.

The nation’s drug makers are also lining up against a public plan, predicting that it would ultimately lead to a government takeover of the entire system. “I don’t think that American patients would — or should — accommodate themselves to the long waits for care, limited options and other forms of rationing that inevitably accompany government health care monopolies,” John C. Lechleiter, the chief executive of the drug maker Eli Lilly & Co., recently told a meeting of business leaders. “American doctors and patients need to retain the ability to make choices based on the real value of treatment options.”

But drug companies are also wary of the government’s pull in demanding lower prices for their products than the insurers they deal with today. “The more government intervention you have, the less payment you have,” said Mr. Funtleyder, the analyst.

These companies are also concerned that the government will play a greater role in determining the effectiveness of different drugs and medical devices and use that information to decide which should be covered and how much the government will pay for those products. Insurers, not surprisingly, support the government’s taking a harder line against drug and medical device makers so they don’t have to.

As Congress gets closer to finalizing any legislation, the opinions of the many stakeholders are likely to become more strident and self-interested, Mr. Laszewski predicted. As in watching the last lap of the Daytona 500, he said, there will be attempts by some of these groups to break out of the pack. “When you get the last lap, there are no friends — it’s me, me, me,” he said.

Credit Bailout: Issuers Slashing Card Balances


The banks were bailed out last fall, the automobile companies last winter. For Edward McClelland, a writer in Chicago, deliverance finally arrived a few days ago.

Mr. McClelland’s credit card company was calling yet again, wondering when it could expect the next installment on his delinquent account. He proposed paying half of his $5,486 balance and calling the matter even.

It’s a deal, the account representative immediately said, not even bothering to check with a supervisor.

As they confront unprecedented numbers of troubled customers, credit card companies are increasingly doing something they have historically scorned: settling delinquent accounts for substantially less than the amount owed.

The practice started last fall as the economy worsened. But in recent months, with unemployment topping 9 percent and more people having trouble paying their bills, experts say this approach has risen drastically.

They say many credit card issuers have revised internal guidelines to give front-line employees the power to cut deals with consumers. The workers do not even have to wait for customers to call and ask for a break.

“Now it’s the card company calling you and saying, ‘Let’s talk turkey,’ ” said David Robertson, publisher of the credit industry journal The Nilson Report.

Only a few creditors are willing to confirm the practice. Bank of America and American Express say they decide on a case-by-case basis whether to accept less than the full balance. Other card companies refuse to discuss the subject, but their trade group, the American Bankers Association, acknowledges that settlements are becoming more common.

The shift comes as the financial services industry finds itself losing some of its legendary power. A credit card reform bill that makes it harder to raise rates on existing balances and prevents certain automatic fees flew through Congress and was signed by President Obama in late May.

Borrowers still have a crushing amount of debt to deal with, however.

Revolving credit, a close approximation of credit card debt, totaled $939.6 billion in March. The Federal Reserve reported that 6.5 percent of credit card debt was at least 30 days past due in the first quarter, the highest percentage since it began tracking the number in 1991. The amount being written off was also at peak levels.

After a balance has been delinquent for six months, regulations require the card company to reduce the value of the debt on its books to zero. If a borrower has not paid by this point, chances are he never will.

“The creditors would rather have a piece of something now instead of absolutely nothing down the road,” said Adam K. Levin, the founder of the consumer education Web site Credit.com.

Banks and credit card companies are discussing new programs that would, for the first time, allow credit counselors to invoke reductions of principal as a routine part of their strategy, said Jeffrey S. Tenenbaum, a lawyer for many counseling agencies. In the past, counselors could persuade card issuers to adjust interest rates and modify late fees, but the balance was untouchable.

An example of how quickly the card companies are shifting their approach is in the behavior of HSBC, a major issuer, toward Mr. McClelland.

He was paying fitfully on his card, which was canceled for delinquency. In April, HSBC offered him full settlement at 20 percent off. He declined. A few weeks later, it agreed to let him pay half.

Traditionally, the creditors could play tough with any accounts that became delinquent because the cardholders had assets. The creditors could sue or place a lien on a cardholder’s house.

As the recession grinds on, though, many cardholders have less to lose. Mr. McClelland, 42, is a renter. Since he is self-employed, he has no wages to garnish. But he did not want to feel like a deadbeat.

“Having this over and done with was appealing,” he said. He raised the agreed-upon $2,743 and sent it off electronically last week. He has spared himself the prospect of years of collection calls.

HSBC said it did not comment on individual cardholders and would not discuss its policy toward settlements. “Every customer situation is unique,” said a spokeswoman, Cindy Savio.

The card companies, perhaps understandably, do not want to promote the idea that settlements have become merely a matter of asking nicely. The creditors also point out that a delinquency, like a foreclosure, destroys a credit record.

And there can be a Catch-22: those with the fewest assets are the likeliest to receive a settlement offer, but they are also the least able to come up with the cash for that final negotiated payment. Some creditors, though, are helpfully letting people stretch this out over months.

Still, a line has been crossed, credit experts say.

“Even in the early stages of delinquency, settlements can be dramatic,” said Carmine Dorio, a longtime industry executive who ran collection departments for Citibank, Bank of America and Washington Mutual.

During the boom, nonpayers were treated more harshly because, paradoxically, their debt was more valuable. Collection agencies were eager to buy bundles of old debt from the card companies for as much as 15 cents on the dollar. In a healthy economy, even the hopelessly indebted can pay something.

In this recession, where collection agencies have little hope of collecting from the unemployed, that business model is suffering. Experts say 5 cents on the dollar is now the most a card company can hope to get for its past-due accounts.

Another factor undermining the card companies is the rise of debt settlement firms. These are profit-making companies that charge fees, nearly always in advance, to bargain with creditors on a consumer’s behalf.

Settlement companies are under fire from regulators, who say they promise much and deliver little. But their ubiquitous ads, which make a settlement seem not only easy but also a moral victory over shamelessly gouging card companies, have done much to spread the idea.

Although there are few independent statistics on the settlement industry, there is no doubt that some generous deals are being done.

Consider Bedros Alikcioglu, a gas station owner in Newport Beach, Calif. He owed $112,000 on four cards and was paying $3,000 a month in interest and late fees. “It was so hard to earn that money, and paying it to nowhere didn’t make sense anymore,” said Mr. Alikcioglu, 75.

He signed up with a debt settlement company named Hope Financial, which negotiated deals with his creditors to settle for about 35 percent of his balance. Hope Financial is charging Mr. Alikcioglu about 12 percent of his original debt.

“I did not want to leave the legacy of bankruptcy,” Mr. Alikcioglu said. “I am now at peace.”

Hart -- President Barack Obama

Hart --

Last year, millions of Americans came together for a great purpose.

Folks like you assembled a grassroots movement that shocked the political establishment and changed the course of our nation. When Washington insiders counted us out, we put it all on the line and changed our democracy from the bottom up. But that's not why we did it.

The pundits told us it was impossible -- that the donations working people could afford and the hours volunteers could give would never loosen the vise grip of big money and powerful special interests. We proved them wrong. But as important as that was, that's not why we did it.

Today, spiraling health care costs are pushing our families and businesses to the brink of ruin, while millions of Americans go without the care they desperately need. Fixing this broken system will be enormously difficult. But we can succeed. The chance to make fundamental change like this in people's daily lives -- that is why we did it.

The campaign to pass real health care reform in 2009 is the biggest test of our movement since the election. Once again, victory is far from certain. Our opposition will be fierce, and they have been down this road before. To prevail, we must once more build a coast-to-coast operation ready to knock on doors, deploy volunteers, get out the facts, and show the world how real change happens in America.

And just like before, I cannot do it without your support.

So I'm asking you to remember all that you gave over the last two years to get us here -- all the time, resources, and faith you invested as a down payment to earn us our place at this crossroads in history. All that you've done has led up to this -- and whether or not our country takes the next crucial step depends on what you do right now.

I know we can deliver.

Thank you, so much, for getting us this far. And thank you for standing up once again to take us the rest of the way.


President Barack Obama