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An Interview with Kaiser Permanente CEO George Halvorson: Part I

George_Halvorson2.jpgOn Friday, I sat down with George Halvorson, CEO of Kaiser Permanente, the largest managed-care organization in the United States. The interview is long, so I'm transcribing it in parts. The first piece focuses on the role of private insurers, why America pays so much more for health care than any other country, and what we can do about it.

Why do we need private insurance at all? Other countries have national health-care systems. What value do private insurers add to the equation?

All of the European countries, just about, use private insurance. The Netherlands is all private insurance. There’s no government health care. The exceptions are the Swedes, Danes and Norwegians.

But the French have public insurance as the base in their model, for instance.

Still, 92 percent of their people have private insurance. The French public system pays only half the cost of specialty care. But Germany, Netherlands, Switzerland, Austria, Belgium, all those countries are all private coverage. The companies compete based on service, satisfaction, health programs all of that. There’s not one single person in Switzerland who has any government coverage at all. Not poor people, no one. They do a very good job subsidizing coverage. If you look at the ad campaigns in Switzerland, they look just like American ad campaigns for health plans.

Only Canada has a single-payer system that outlaws private coverage. And even in Canada they actually have health plans, because Canada doesn’t cover prescription drugs. What Canada does, instead, is a really good job negotiating drug prices, so drugs are very affordable. But everybody else, every other country has fairly robust private insurance. Some are not for profit, some are for profit.

But on the philosophical level, why should we have our system or the Swedish system as opposed to a single-payer system?

Because, if you have a private insurance system, you’re likely to have competition in a number of areas you won’t have in a single-payer system. Countries with more insurance companies have more CT scanners, more MRIs, more tests. Countries that are a single source of funds for everything tend to have a less robust care infrastructure. There are more CT scans in St. Paul than in all of Canada, or at least there were a couple years ago.

Do we have a competitive insurance market in the US?

We need to do three things. Cover everyone. Fix care, focusing on the patients with chronic care. But the third thing is we have the highest prices in the world. The unit prices here are a multiple of any other country. Look at this. (pdf)

For someone who loves graphs as much as I do. This is beautiful.

It shows you why the public plan is so attractive. When you look at other countries, you can also see what Medicare pays. On bypass surgery, all these other countries under $15,000. The United States is $50,000 and up. And Medicare is $22,000.

Why is this? What people say is that you want a single-payer system because you need a large, central buyer to secure these prices. But in these other countries, as you say, you still have competing insurers, and they’re still getting better prices.

One of the reasons is that in the Netherlands, in Germany, the government sets the fee. In Canada, the government sets the fee. Each of those countries has basically said we’ll have a single fee schedule.

So these private insurers don’t set the prices?

Right. If you’re in Paris, there’s a fee schedule for doctor’s offices.

That’s why the U.S. has a much larger range of prices among different insurance plans for the same services?

Yes. This is the difference in price between us and them. If you take U.S. care delivery and price it to the Canadian model – same care, same drug, same office treatment, same duration of stay – but price it at the Canadian fee schedule, we go from spending 17.6 percent of GDP on health care to 11.5. If you just put us in a single-payer system, we go from 17.6 to 16.9.

You’re saying as compared to when the difference isn’t price, but administrative costs?

Right. But this is complicated. There are more office visits in Europe. The length of stay in Europe is longer. Every country in Europe has a hospital day cost of $1,000 or less. Every state in the U.S. has an average cost that’s $3,000 or more. So you’re charging three times as much, care outcomes are about the same, length of stay is a little more in Europe, and half the hospitals in America lost money last year. There’s no gouging going on. Literally half lost money.

So when you say that we should have a public plan with Medicare rates, Karen Ignagni, who represents an organization you’re part of, says no, the only reason Medicare can pay so little is because we pay so much. But Europe doesn’t pay that much.

All the hospitals believe firmly that they lose money on Medicare and Medicaid. And I’ve run enough hospitals to know that’s probably true. And there will be some cost-shift. The other thing that’s happening is we have the lowest hospital days in the world, but we have increases the rate of spending per day.

We can’t jump from here to Europe. If they’re charging this much and we make them take that much, they all go out of business. But what I recommend we do is reduce the rate of increase in fees for a number of years.

The other argument you hear is that America’s overspending is subsidizing worldwide innovation. The only reason Europe can have the modern health care they enjoy, critics say, is because we’re putting up the money for research and development.

I just did a talk in Portland and a drug company executive made that argument. I said, ‘give me a formula that identifies with a lot of transparency what your research costs are, and it may be appropriate to add that explicitly to your American price structure. But there hasn’t been the transparency we might like. They’re making money in each of those other countries. They’re selling drugs below cost in some countries in Africa, but when you look at Europe, there’s no way in the world they’re selling that drug at that price and losing money on it. So when you take that price and add research, does that triple the price? Let’s do the math. Let’s do the accounting. Let’s figure out the real numbers and factor that into the equation instead of having a debate that’s entirely rhetorical.

By Ezra Klein  |  November 5, 2009; 4:09 PM ET
Categories:  Health Reform , Interviews  
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Ezra, great stuff, keep it coming. I felt I learned more from reading that interview than anything I've seen in the last several months.

Posted by: truth5 | November 5, 2009 4:52 PM | Report abuse

That's a good, detailed interview, though I'm going to quibble on one point at the outset:

"The Netherlands is all private insurance. There’s no government health care. "

Well, that's a bit of a stretch.

The AWBZ, funded from a payroll tax and administered by the various sickness funds on a no-risk basis, is significant because it creates a sandbox in which insurers in the relatively new premium-based private system can operate. Outside of that sandbox, the Dutch government puts over €20bn of AWBZ revenues into the system each year to cover chronic illness, mental health, long-term care -- and yes, abortions. These are generally areas where private insurance in the US works especially poorly.

Posted by: pseudonymousinnc | November 5, 2009 5:02 PM | Report abuse

Am I to understand that he is advocating that we set fixed rates for medical care, mandate coverage purchases and subsidize those who can't afford it?

I'd actually be willing to go along with that.

Posted by: adamiani | November 5, 2009 5:10 PM | Report abuse

Summary of Part I: Only administrated rates will work.

(Incidentally Canada does half as many CT scans as the US, but still more than the average for developed countries. In the US excessive CT scanning has been blamed for a 2% increase in cancer rates.)

Posted by: bmull | November 5, 2009 5:11 PM | Report abuse

Halvorson is a being a bit disingenuous when he says that 92% of French residents have private health insurance and Ezra's refusal to distinguish between single-payer and all-payer helped mask some essentials.

Most Frenchmen are covered by one of several private national funds that are financed primarily through payroll taxes on employers with some employee and government contribution. Those funds pay for services specified in the the national plan. Everyone -- employed, unemployed, young or old -- is covered by these funds. Most Frenchmen also *supplement* that coverage with for-profit policies.

In Germany, which is far more privatized than in the US, employer + employee deductions are funnelled into over 200 large private, non-profit funds that pay for care according to nationally set charges. Again, everyone has private insurance but is in the national same plan. The government pays the premiums for children (similar to the Netherlands where children are automatically included in their parent's coverage).

Although private insurance is an integral part of most universal health care systems, no sucessful system depends upon competition among insurers to control costs or equates the health of the citizenry with a financial product -- that's not the role of insurers. In every other industrialized country, the insurers' role is to complement a defined national health policy.

In the US though, the situation is reversed: the national health policy is essentially nothing more than a patchwork of unsustainable insurance programs. Public plans -- Medicare, Medicaid, SCHIP, and now exchanges -- are supposed to fill in the gap but are carefully designed to reflect and preserve the dysfunctional model. The result is that we keep paying more and getting less for it than any other country.

Posted by: Athena_news | November 5, 2009 5:36 PM | Report abuse

United States Prices and Fee Sources:
– Scans and Imaging : USA charges include physician and facility fees. Non-Medicare US data reflect
the average and maximum quotes provided by an online price comparison site
– Physician Fees : Non-Medicare US low- and high-end charges reflect an estimate of the 25th and
95th percentile of charges
– Hospital Charges / Total Hospital and Physician Costs : Non-Medicare US average to high-end
range reflect an estimate of the average and 95th percentile of charges
– Tests and Cultures : Non-Medicare US charges low- and high-end reflect an estimate of 25th and
95th percentile of charges. Medicare US charges reflect the nation wide average
– Drug Prices : Non-Medicare charges, the low-end reflects the lowest prices based on a sample of
several online US-based internet retail sites while the high-end reflects the maximum price across 61
counties based on a state-wide survey of New York retail pharmacies

This is sort of what I expected. The source of the US price data are "charges" and retail prices-- neither of which are the actual prices paid by those with health insurance. It would be good to see an actual fair comparison-- real negotiated prices vs. Medicare vs. other countries. I'm honestly surprised Halvorson would quote data based on charge information. He may not be aware of this flaw-- I'd be really curious in that follow-up.

PS Great questions. Look forward to part 2.

Posted by: wisewon | November 5, 2009 6:58 PM | Report abuse

"So these private insurers don’t set the prices?"

The question reflects Ezra's misguided belief that insurers in the US set prices. Insurers in the US try, with varying degrees of success, to control their own costs by negotiating discounts with providers but they always start from prices set by *providers*. That's why a given insurer pays more for identical services from the same provider than a competitor with a bigger market share and why they both pay 10 times the "price" for identical services in different markets.

Insurance premiums reflect the insurer's costs (including the ability to negotiate a better price from providers), they do not determine the price of care. That's why focusing on "affordable" premiums does nothing about ensuring affordable care.

Also, notice what Halvorson said about just switching from what we have to single-payer: without fundamental reform, we save a whole 0.7% of GDP. In other words, "Medicare For All" would get coverage for more people but it wouldn't really be any more sustainable than our current model.

Posted by: Athena_news | November 5, 2009 7:27 PM | Report abuse

--"All the hospitals believe firmly that they lose money on Medicare and Medicaid. And I’ve run enough hospitals to know that’s probably true. And there will be some cost-shift."--

And Klein didn't mewl about that? Tut tut.

Posted by: msoja | November 5, 2009 7:49 PM | Report abuse

I agree, what a great interview, and insightful as hell.

Wisewon's assessment, if correct, adds a serious wrinkle. Please follow up and address, as the underpinnings of Halvorson's claims rests heavily on these costs comparisons/assumptions.

I also would like a better explanation of the administrative cost differential. If the costs/charges are wrong, then the delta for administrative expense alters significantly.


Posted by: BradF1 | November 5, 2009 9:20 PM | Report abuse

It’s important to remember that the dollar figures shown on the graph for the US represent the fees, not the reimbursement. The amount providers will be paid from Medicare, as well as many private plans, is much less than the lowest number shown on the “USA Fee Range” scale. I don’t have the numbers right in front of me, but the amount for a routine visit is probably right in the range shown for the other countries (about $35). And I’m quite certain Medicare pays a lot less than $629 for an appendectomy.

Posted by: rlplant | November 5, 2009 10:29 PM | Report abuse

Details, details:
What this biased interviewee fails to note regarding single payer is that while it would only drop our National health care expenditures to from 17.6 to 16.9% of GDP, it would do so while covering ALL.
Furthermore, I fail to see how competition between private insurers (presumably by promising more benefits with lower premiums) leads to more CT scanners. I also fail to see how competition between insurers is possible, given that free market "magic" only works with informed consumers (are you going to run out and try to catch meningitis to evaluate the quality of your insurer?). Be that as it may, for whatever reason (profit maybe? Duh) we do have an an overcapacity of CT scanners and whatnot, and it is exactly for this reason that paradoxically the price of a CT scan is bloated in the US, for this is the only way for investors in the "diagnostic center" to recoup their expensive outlay for the equipment. Single payer would save 20-30% in administrative costs and those $400 billion dollars could cover everyone even without price controls. The fact is that single payer would also have the bargaining strength to negotiate sane prices.

Posted by: notalone | November 5, 2009 11:29 PM | Report abuse

Thanks Ezra, please keep doing this.

Commentator 'bmull' is right - only administrative prices work.

My little brain keeps coming to Public Utilities Commission Model in this country.

I sense that is the model which can give us the 'controlled prices' (very similar to Paris Fee Schedule). Everything else, matters less.

When you have primarily controlled prices here; whether there is PO or private insurance, whether Government is subsidizing or employer; all those are secondary issues.

Ezra - where do we stand with Price Control in proposed bills? When House is throwing our MedPAC also, what hope do we have?

Your incremental-ism - I had to loose one job, I had to shell out part of whatever meager money I get to Obama campaign, I had to endure countless blame of my spouse when I followed 'wonkery'; all that to get this Obama elected and this Dem Congress. And you want to tell me - oh come on, we can come back and visit these legislations again and go for the next iteration.

I am getting old every day and tired of waiting for the right bill. So I am not sure about your incremental approach. Let us just say this old and tired soul does not buy that magic.

As they say - let us get it right first time itself, first time in Obama reign. (Sh! do not say names like Hillary, Clinton....)

Posted by: umesh409 | November 6, 2009 1:28 AM | Report abuse

Price controls lead to shortages. Government moderated shortages equal death panels. (Of course, the government moderators are masters at finger pointing. It'll always be someone else's fault for the failure to produce or deliver. See swine flu vaccine availability, for instance. The government has destroyed the free market manufacturing base for vaccines, but still the bureaucrats are tumbling all over themselves of late blaming the few players left in the game for manufacturing snafus of one sort or another. Well, it's government's fault all those precious little eggs are in such a tiny, tiny basket; and that's how people die at the hand of well intentioned but ill-advised collectivist endeavors.

--"I am getting old every day and tired of waiting for the right bill."--

You can wait a long time for a bureaucracy to grind around to having your particular best interests at heart. The behemoth tends to serve itself, first, and then ordinary chumps get the crumbs.

You might want to revisit the notions of liberty, individual responsibility, and self-reliance and reacquaint yourself with the knowledge that having the freedom to be responsible for yourself is also the freedom not be dependent upon the whims of others, especially others whose ethics and morals are suspect the second they claim any sort of right to dispose of the trappings of others' lives.

Posted by: msoja | November 6, 2009 8:17 AM | Report abuse

For all his focus on prices (charges), Halvorson inadvertently points us at overutilization when he says, "countries with more insurance companies have more CT scanners, more MRIs, more tests. Countries that are a single source of funds for everything tend to have a less robust care infrastructure. There are more CT scans in St. Paul than in all of Canada..." It's likely that at least 1/3 of those tests are medically unnecessary, with no evidence of better outcomes, without even worrying about the increased incidence of cancer that results. Never forget the lessons of the Dartmouth Atlas about unwarranted variation in units of care.

Posted by: bill0465 | November 6, 2009 8:48 AM | Report abuse

We get it, soggy: you have nothing to contribute other than abstract glibertarian agitprop.

Posted by: pseudonymousinnc | November 6, 2009 1:41 PM | Report abuse

-"You can wait a long time for a bureaucracy to grind around to having your particular best interests at heart. The behemoth tends to serve itself, first, and then ordinary chumps get the crumbs."-
Quite true, given that the behemoth is owned by your treasured free market plutocracy, and not by the ordinary chumps.

Posted by: notalone | November 6, 2009 2:20 PM | Report abuse

yes pseudonymousinnc, I agree it's a waste of time trying to talk to msoja, or hope that he'll show any inclination to listen. He won't go away, and he won't open his mind, and he's best simply ignored.

Posted by: rosshunter | November 6, 2009 2:40 PM | Report abuse

--"[T]he behemoth is owned by your treasured free market plutocracy, and not by the ordinary chumps."--

The "behemoth" we are talking about is the federal bureaucracy, the one that Klein and cohorts hope to expand to unprecedented levels, all on the backs of the hard working American people. Please try to stay unconfused.

Posted by: msoja | November 6, 2009 3:50 PM | Report abuse

"Price controls lead to shortages."

According to the prevailing neoliberal ideology that seemed so vindicated at the end of the cold war, this ought to be true; however, we have irrefutable evidence from the rest of the world that this is not the case for Health Care.

We usually deny it, of course, because of the cognitive dissonance it causes, but remains true.

Posted by: adamiani | November 6, 2009 4:22 PM | Report abuse

--"this is not the case for Health Care"--

What do you think waiting lines are, then?

Posted by: msoja | November 6, 2009 5:02 PM | Report abuse

"What do you think waiting lines are, then?"

msoja, poor soul, if you want to see waiting lines, the best place to go is a free health care event in some poor corner of the U S of A ( You will never see anything remotely coming close in any other developed country.

Posted by: carbonneutral | November 6, 2009 7:27 PM | Report abuse

--"[I]f you want to see waiting lines, the best place to go is a free health care event"--

It's the old "free" thing again. You give stuff away, people show up to take it. Cash for Clunkers was termed a huge success solely on the basis of people in droves taking free (stolen) money. $8K house write offs are a big success because people flood in for their free (stolen) money. None of it proves anything other than you can create a stir by giving other people's crap away.

I daresay you put a few dentists on a soccer pitch in the U.K. for an afternoon advertising free dental work and you'll fill the place up. Otherwise the yobs are too genteel to make a fuss. They quietly wait for their appointments a year and a quarter off.

Posted by: msoja | November 6, 2009 8:20 PM | Report abuse

FACT: Remote Area Medicine was started to take care to remote, third world areas with insufficient medical access. More than half of its current "expeditions" are in the US.

When was the last time you heard of a Médecins Sans Frontières(Doctors without Boarders) expedition to anywhere in France?

French residents don't wait for treatment and Germans have shorter waits than here in the US.

Posted by: Athena_news | November 6, 2009 8:41 PM | Report abuse

--"When was the last time you heard of a Médecins Sans Frontières(Doctors without Boarders) expedition to anywhere in France?"--

quote - MSF has worked in France since 1987. - unquote. At their website.

--"French residents don't wait for treatment and Germans have shorter waits than here in the US."--

So? We are not going to become France or Germany, no matter how many laws Pelosi dreams up, and no matter how irrelevant it is.

Posted by: msoja | November 6, 2009 9:46 PM | Report abuse

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