Physicians For a National Health Care Plan
By Steffie Woolhandler and David U. Himmelstein
Philadelphia Inquirer, February 5, 2016
In our “read my lips/over my dead body” political culture, the threat of tax increases usually shuts down proposals for single-payer national health insurance. Lately, conservative pundits – and even liberals like Hillary Clinton – have been repeating the mantra that single-payer insurance would break the bank.
Never mind that Canadians, Australians, and Western Europeans spend about half what we do on health care, enjoy universal coverage, and are healthier. Their health-care taxes are higher.
Or are they? According to our study in the current issue of the American Journal of Public Health, American taxpayers picked up 65 percent of the total health-care tab last year – a figure that will soon rise to 67 percent.
We paid $2.1 trillion in taxes to fund health care – $6,560 per person. That’s more per capita than Canadians or people in any other nation pay. Indeed, our tax-financed health-care bill is higher than total health spending (private as well as public) in any other nation except Switzerland.
Official accounts from agencies like the Department of Health and Human Services peg taxpayers’ share of U.S. health spending at about 45 percent, a figure that includes Medicare, Medicaid, the Centers for Disease Control and Prevention, and Veterans Affairs. However, this kind of tally omits two important items.
First, it leaves out government spending to buy private health coverage for public employees like teachers, firefighters, and members of Congress. Indeed, government employers account for 28 percent of all employer health spending.
Second, it excludes tax subsidies for private employer-paid plans and other privately paid care – $326 billion last year – that mainly benefit affluent families.
Omitting these government expenditures from the official health-spending tabulations obscures the fact that our health-care system is already about two-thirds publicly funded. In contrast, the Office of Management and Budget, not to mention most health-policy experts, considers tax subsidies for private insurance to be tax expenditures.
Even many uninsured families pay thousands of dollars in taxes for the health care of others.
More than one-third of these tax dollars meander through private insurers on the way to the bedside. These private insurers siphon off 12 percent for their overhead and profits (vs. 2 percent in the Medicare program) and also inflict huge paperwork costs on doctors and hospitals. A shift to single-payer national health insurance would save at least $400 billion annually on paperwork alone, enough to cover all of the uninsured and eliminate co-payments and deductibles for the rest of us.
That means a national single-payer plan wouldn’t cost Americans any more than we’re currently spending. Moreover, the taxes to pay for it would be fully offset by the savings from eliminating private insurance premiums.
Moving from our current level of tax financing, 65 percent, to Canada’s 70.7 percent would mean a tax increase of about $185 billion per year. But Americans would save at least that much on premiums. The vast majority of American households would come out ahead financially, and everyone would be covered.
Drug and insurance firms that would lose billions under single-payer health coverage generously fund its detractors (including Clinton, who has gotten more health-industry dollars than any other presidential candidate). These naysayers suggest that a single-payer plan (or “Medicare for all,” as Bernie Sanders likes to call it) would downgrade Americans’ coverage, and they also raise the specter of big tax increases.
But a national single-payer plan would give all Americans the first-dollar coverage enjoyed by Canadians and Brits, and guarantee them a free choice of doctors and hospitals – a choice that private insurers currently deny to many of us.
Surprisingly, American taxpayers already pay enough to fund national health insurance. We just don’t get it.
Steffie Woolhandler, M.D. and David U. Himmelstein, M.D. are professors of health policy and management at the City University of New York School of Public Health and lecturers in medicine at Harvard Medical School.
There are two important reasons for distributing this update on how much we spend in taxes for the health system. One is that most people do not realize how much they are already spending for health care through mostly opaque tax policies – approaching two-thirds of our national health expenditures! Right now the more important reason is that people are bashing single payer reform with reports and articles based on selected taxes drawn from single payer financing proposals – particularly countering the brief single payer proposal from a leading candidate for the Democratic nomination for President. Misinformation is rampant.
A big part of the problem is that most people have no idea what they are currently spending on health care, especially since most of it is hidden in our taxes. So when people “analyze” the single payer proposals by pulling out the various taxes, adding them up, along with recalculating upward what the expenditures would be under single payer, ignoring the savings that are already firmly established in the policy literature, then calculating the deficits in the federal budget that would result, and then projecting that out over ten years – the cumulative total is in the trillions – an almost incomprehensible number. Scary.
When individuals compare those enormous numbers with what they know they are currently spending – employee share of the premium for employer-sponsored plans, deductibles and copayments, and Medicare payroll taxes – they do not realize that this is only a small part of what they are actually paying, so the single payer taxes appear to be horrendous to them. Little do they realize that, with our current system, we will be spending about 43 trillion dollars on health care over the next decade, and much of the spending will be opaque to individuals and their families (since, again, two-thirds is paid through the tax system).
We now have claims on one side that the costs of single payer are egregiously high, and on the other that the savings for individuals and families will be phenomenal – conclusions that are reached by playing with these numbers. In fact, well designed single payer models save typical individuals and families an average of about 5 percent from their current total spending (including the hidden costs). Only very high income individuals would pay more.
By losing people in the fog of these incomprehensible numbers, the opponents are able to suppress discussion of the more important reasons why we should enact a single payer system: absolutely everyone is covered, deductibles and other financial barriers to care are greatly reduced or eliminated, free choice of health care professionals and hospitals is returned to patients, central planning ensures adequate but not excessive capacity in the system, excessive prices are reduced to fair levels, and economic policies are put in place that slow health care inflation to sustainable levels.
Do not get hung up on the numbers, Just remember that most people will see better numbers, whether they recognize them or not, while everyone will see a superior health care system. And that is what single payer is all about.
Physicians for a National Health Program (PNHP) is a nonpartisan educational organization. It neither supports nor opposes any candidates for public office.
By Jay Hancock
Kaiser Health News, February 4, 2016
Stung by losses under the federal health law, major insurers are seeking to sharply limit how policies are sold to individuals in ways that consumer advocates say seem to discriminate against the sickest and could hold down future enrollment.
In recent days Anthem, Aetna and Cigna, all among the top five health insurers, told brokers they will stop paying them sales commissions to sign up most customers who qualify for new coverage outside the normal enrollment period, according to the companies and broker documents.
Last year, these “special enrollment” clients were much more expensive than expected because lax enforcement allowed many who didn’t qualify to sign up, insurers said. Nearly a million special-enrollment customers selected plans in the first half of 2015, half of them after losing previous coverage.
In addition, Cigna and Humana, another big health insurer, have ceased paying brokers to sell many higher-benefit “gold” marketplace plans for individuals and families while continuing to pay commissions on more-profitable, lower-benefit “bronze” plans, according to documents and interviews.
Gold plans typically enroll sicker members than do less comprehensive policies, say insurance experts. As of June, more than 695,000 people had enrolled in gold plans.
But the retreat from broker sales, which includes last year’s decision by No. 1 carrier UnitedHealthcare to suspend almost any commissions for such business, erodes a pillar of the health law: that insurers must sell to all customers no matter how sick, consumer advocates say.
By inducing brokers to avoid high-cost members — whether in gold plans or special enrollment — the moves limit access to coverage and discriminate against those with greater medical needs, said Timothy Jost, a law professor at Washington and Lee University and an authority on the health law.
“The only explanation I can see for them doing this is risk avoidance — and that is discriminatory marketing and not permitted,” he said. “When people wonder why we’re not getting millions more enrollees in Affordable Care Act health plans, one reason is, the carriers are discouraging it.”
The insurance industry says it is not discriminating but adjusting to market realities including higher-than-expected medical claims and the failure of a government risk-adjustment program called “risk corridors” to cover much of that cost.
“Without making necessary changes to coverage and benefits, there was no way for health plans to remain in the market or to offer the kind of coverage as they had in the past without sustaining huge losses,” said Clare Krusing, spokeswoman for America’s Health Insurance Plans, an industry lobby.
The nonpartisan Congressional Budget Office estimated as recently as last March that 21 million consumers would be enrolled by now in private health insurance plans sold through online marketplaces. Now CBO forecasts 13 million will sign up this year.
Brokers are critical to sign-ups and the success of the health law. For 2014, 44 percent of Kentucky enrollees bought through brokers. So did 39 percent of the California enrollees. No similar figures are available for the marketplace that serves most states, healthcare.gov.
With varying commissions, brokers will be tempted to promote only plans they make money on, even if those aren’t the best for some customers, said John Jaggi, an Illinois broker and consultant.
“Now they’re really forcing the agent to think only of the plan that he gets compensated for,” he said.
No matter what legislation, regulations, rules or advisories our government produces, the private insurance industry will always find ways to skirt the intent of this oversight in order to maximize their business goals, usually at a cost to patients and public and private payers. The current efforts of insurers to manipulate the brokers are a prime example of how they will continue to work the system to advance their own interests.
As the Affordable Care Act was being crafted and then implemented, there was a push to include brokers as intermediaries who would provide customer access to the exchange plans. The argument was that brokers were highly qualified to provide guidance on what the best plans would be for their clients. But little was said about how insurers might find ways to use the brokers to to their own advantage.
As this article shows, insurers can heavily influence broker behavior through the commissions they grant. The insurers found that people who were signed up during special enrollment periods had greater health care needs and also were more likely to drop out after their needs were met. That’s easy. The insurers stopped paying commissions for most of the plans sold during these special enrollment periods. Also, people enrolling in gold plans, with their higher actuarial values (covered more of the costs), were also using more health care. Again, no problem. Many insurers quit paying commissions for gold plans but continued to pay them for lower actuarial value plans that required patients to pick up more of the costs of health care. Will the broker sell plans without a commission, when an insurer offers a commission for selling their more profitable plans?
Discrimination in the offering of private insurance plans is prohibited, but AHIP – the insurance lobby – says that insurers are not discriminating but rather are merely adjusting to market realities. Clare Krusing – AHIP’s spokesperson – said that there was no way “to offer the kind of coverage as they had in the past (gold or platinum plans) without sustaining huge losses.” It really is about profits, not patients.
And now many politicians and progressive pundits are telling us to build on Obamacare. Forget about single payer because it will “never, ever come to pass.” Instead let’s control costs through higher deductibles and other cost sharing, narrower networks, greater administrative hassles through ACOs and EHRs that keep professionals from tending to their patients, more opaque obstructions that keep sicker patients out of the private plans, more managed care that reduces access, especially to specialized services, *** **** ****, ***** ** ****, and ** ****** *****.
And those asterisks? They are the hidden future policies of the insurers that will further enhance their business models – policies that we can’t even conceive of since they can only be conjured up by the nefarious minds that are currently in control of our health care financing system. Do we really have to have a health care future that will eventually reveal to us what is behind the magic asterisks? Or shall we tell them on their way out the door where to put their asterisks, as we take over and set up our own single payer national health program?
By Susan Jaffe
Kaiser Health News, February 3, 2016
Federal law requires companies to sell Medigap plans to any Medicare beneficiary aged 65 or older within six months of signing up for Part B, which covers doctor visits and other outpatient services. If they sign up during this guaranteed open enrollment, they cannot be charged higher premiums due to their medical conditions.
But Congress left it to states to determine whether Medigap plans are sold to the more than 9 million people younger than 65 years old who qualify for Medicare because of a disability.
In 20 states and the District of Columbia, home to more than 2 million disabled Medicare beneficiaries, insurers are not required to sell Medigap policies to customers under 65. In other states, insurers cannot reject applicants if they enroll when they first join Medicare. Companies in some states, including Virginia, can still charge higher premiums to younger beneficiaries or those with kidney disease, often making policies unaffordable.
In California, Massachusetts and Vermont, insurers are required to sell Medigap policies to anyone with Medicare, except to people… who are under 65 and have end stage renal disease.
The federal health law provides no relief for these younger Medicare beneficiaries. One of its most popular provisions prohibits discrimination by insurance companies in the non-Medicare market based on pre-existing conditions or age, but the law is silent on Medigap.
Prospects for a nationwide solution are dim because expanding Medigap coverage could lead to these beneficiaries with disabilities receiving more care and raising costs for the Medicare program. Congress is looking for strategies to curb Medicare spending, not increase it.
The health insurance industry’s trade association opposes expanding Medigap to include all Medicare beneficiaries younger than 65 with end stage renal kidney disease. Since treatment for those patients can be so expensive, adding them could increase Medigap premiums for everyone, said Cindy Goff, a vice president at America’s Health Insurance Plans.
Older adults are “super price-sensitive” and raising premiums “would basically price them out of being able to get the Medigap protection they want,” said Goff.
It has long been recognized that the benefits of the Medicare program are inadequate, leaving too many exposed to financial hardship and impaired access due to financial barriers. Some are protected with retiree health benefit plans or with backup by the Medicaid program, but for others, the private Medigap insurance plans were developed. This article shows that the rules for Medigap plan eligibility may still leave vulnerable those who quality for Medicare based on a disability – some of the most neediest of Medicare beneficiaries.
Medigap plans are a poor solution for the inadequacies of Medicare coverage. They are overpriced when considering the benefits received, and are usually unaffordable for those who do not quite qualify for dual Medicare/Medicaid coverage. They add significantly to the administrative complexity of administering Medicare, wasting funds that would be better spent on health care. It would be far more efficient to roll the Medigap benefits into the Medicare program. That would be an important component of the “Improved” in an “Improved Medicare for All” which could be the basis of a single payer national health program.
Congress has left to the states decisions on whether or not private insurers selling Medigap plans must do so on a guaranteed issue basis (plans must be sold to any applicant regardless of medical status), and also if the plans can be subject to medical underwriting (charging higher premiums for those with greater health needs). Just as we see with Medicaid, states under the rule of heartless politicians frequently decide to turn these disabled patients over to the marketplace – further exposing them to a life of physical suffering and financial hardship.
Generally, individuals must purchase their Medigap plans soon after enrolling in Medicare. This applies to both those over 65 and those under 65 with disabilities. The high premiums charged for these plans are one of the many reasons that individuals decide to forgo initial enrollment and then become ineligible later on when medical needs may be even greater. This is yet one more example of a policy that prevents individuals from having access to coverage when our national policies should be designed to achieve the opposite – ensuring enrollment of absolutely everyone, throughout life.
Medigap is another bad idea brought to us by the private insurance industry. It works well for insurers, but not so well for too many patients. We should dump it along with the rest of the private insurance industry and establish our own equitable, publicly-funded and publicly-administered single payer system. How can we leave so many of our disabled residents hanging like we do?
By News Staff
AAFP News, January 14, 2016
CMS Acting Administrator Andy Slavitt recently took center stage during the J.P. Morgan 34th Annual Healthcare Conference in San Francisco for what could have been a routine speech about upcoming health care policies aimed at an interested stakeholder audience.
However, a few minutes into his remarks, available in their entirety in a CMS blog (blog.cms.gov) posted on Jan. 12, Slavitt rocked the U.S. health care world with these words:
“We are now in the process of ending meaningful use and moving to a new regime culminating with the MACRA (Medicare Access and CHIP Reauthorization Act) implementation. The meaningful use program, as it has existed, will now be effectively over and replaced with something better.”
Judging from the immediate media interest, Slavitt’s announcement caught many people off guard.
On January 11, CMS’s acting administrator, Andy Slavitt, stated at a health care “investment symposium” sponsored by J.P. Morgan that the awful “meaningful use” program inflicted on doctors by the High Tech Act of 2009 is “over.” He was quoted in Family Medicine News saying, “The meaningful use program as it has existed will now be effectively over and replaced with something better.”
Slavitt went on to say, “We have to get the hearts and minds of physicians back. I think we have lost them.”
I give Slavitt, a former employee of UnitedHealth Group, credit for having the courage to state clearly that “meaningful use” has infuriated doctors. Better late than never.
But Slavitt has put himself in a box. He has admitted that Obama’s and Congress’s decision to force doctors to use the clumsy electronic health records (EHRs) sold by the American computer industry was bad policy, but he has no idea how to fix that problem. All he can do is talk like Donald Trump – he’ll come up with “something better.”
It sounds like Slavitt wasn’t prepared for the publicity his remark generated. The next day, January 12, he and Karen DeSalvo posted a comment on both the CMS blog and The Health Care Blog seeking to temper expectations among doctors that their days of torment will soon be over. Slavitt and DeSalvo claimed that the 2015 Medicare Access and Chip Reauthorization Act (MACRA) (the bill that repealed the Sustainable Growth Rate formula), authorized CMS to improve upon the “meaningful use” law and they intended to do that. I quote:
While MACRA also continues to require that physicians be measured on their meaningful use of certified EHR technology for purposes of determining their Medicare payments, it provides a significant opportunity to transition the Medicare EHR Incentive Program for physicians towards the reality of where we want to go next.
That sentence is a severe test of your ability to decipher gibberish. What does “the reality of where we want to go next” mean? That’s a rhetorical question. Please don’t try to answer it. To paraphrase Humpty Dumpty’s explanation to Alice, it means whatever CMS says it means.
I’m quite sure the reason Slavitt and DeSalvo selected such patently obvious weasel words is that they don’t have any idea how they’re going to “get back the hearts and minds of physicians.”
Slavitt’s problem is that he isn’t free to concoct his own solution. He has to enforce one of the craziest laws ever passed – MACRA. MACRA takes the “meaningful use” and “pay-for-checked-boxes” craze to new heights. MACRA is to “meaningful use” as Ebola is to the flu. MACRA forces doctors who treat Medicare patients to choose between two byzantine payment systems – the Merit-Based Incentive Payment System (MIPS) and the Alternative Payment Models (APMs) system. Both systems are insanely complex (see my description of the MIPS system here). Either system alone would infuriate doctors and frustrate CMS administrators. The two programs together will drive everyone around the bend.
If you read the Slavitt-DeSalvo essay on The Health Care Blog, be sure to read the comments by Dr. Maralit Gur-Arie. She posts frequently on that blog and others about health information technology. At the end of one of her comments she asks, “Just out of sheer curiosity, and I most certainly don’t expect answers, is there anybody up there [at CMS] who considered even for one fleeting moment that maybe, just maybe, we should gather some hard evidence to guide our next steps, if any?”
This is the MOST fundamental question one can ask of those who peddle the EHR and pay-for-performance fads. Can you provide evidence for your claim that these fads are worth their costs in money, damage to physician morale, damage to quality of care, and damage to patient privacy?
Kip Sullivan, J.D., is a member of the board of Minnesota Physicians for a National Health Program. His articles have appeared in The New York Times, The Nation, The New England Journal of Medicine, Health Affairs, the Journal of Health Politics, Policy and Law, and the Los Angeles Times.
By Chris Conover
Forbes, January 30, 2016
Blue Cross and Blue Shield of NC is expecting to lose more than $400 million on its first two years of Obamacare business. In response to its bleak experience with the Obamacare exchange, the company has decided to eliminate sales commissions for agents, terminate advertising of Obamacare policies, and stop accepting applications on-line through a web link that provides insurance price quotes–all moves calculated to limited Obamacare enrollment.
BCBSNC reported an operating loss of $50.6 million in 2014–the first such loss in 15 years. Why? Because its Obamacare policies lost $123 million despite $343 million in various insurer bailouts (the so-called “Three R’s“–risk adjustment, reinsurance, and risk corridors).
What makes this shocking is that BCBSNC is the state’s dominant insurer, covering 72% of the large group market. If a deep-pocketed insurer such as this cannot make a go of Obamacare, that does not bode well for many smaller carriers who do not have large profits on other lines of business with which to absorb whatever losses are generated by policies sold on the Obamacare exchanges.
The fact that one of the nation’s largest insurers, UnitedHealthcare also has raised doubts about its ability to carry plans on the healthcare law’s exchanges beyond 2016 makes clear that this problem is not unique to North Carolina.
The Problem is Getting Worse, Not Better
A large carrier such as BCBSNC can afford to absorb a temporary hit to its profits. But the evidence in NC is that Obamacare losses are growing over time rather than shrinking–a clearly unsustainable business model.
Because of its enormous losses, BCBSNC was able to convince the state’s insurance commissioner to allow a 32.5% average increase in its rates for the 2016 Obamacare policies now being sold.
Special Enrollment Period Enrollees Are a Problem
The special enrollment period is open to people whose circumstances have changed, such as getting married, having children, losing/changing jobs or similar situations. However, many such individuals evidently are staying insured only for several months, generating a lot of medical bills and then discontinuing their coverage.
People who buy their coverage during these special enrollment periods cost twice as much as Obamacare customers who secure their coverage during open enrollment.
Again, this is not unique to NC: earlier this month, in response to complaints by insurance companies, Obamacare administrators eliminated six additional conditions that allowed people to sign up for health coverage outside of the general enrollment period. According to UPI, these steps will ”make it more difficult for persons without health coverage to financially manipulate or abuse the Affordable Care Act.”
These steps presumably will be good news for the bottom line of insurers such as BCBSNC. But they by no means eliminate various ways in which people have figured out to game the system.
University of Minnesota economist Stephen Parente has calculated that the cost of the least expensive policies on the Obamacare exchanges will more than triple in NC between 2016 and 2017!
By Tom Murphy, AP
ABC News, February 1, 2016
Aetna has joined other major health insurers in sounding a warning about the Affordable Care Act’s public insurance exchanges.
The nation’s third-largest insurer said Monday that it has been struggling with customers who sign up for coverage outside the ACA’s annual enrollment window and then use a lot of care. This dumps claims on the insurer without providing enough premium revenue to counter those costs.
Both Aetna and UnitedHealth Group Inc. said the exchange customers they get outside the annual enrollment window use more health care than those who sign up within it. This includes some cases where it appears that a customer bought coverage, used it and then dropped it.
“Insurance systems tend to get stressed when people can buy coverage when they know they need it and then drop it when they know they don’t,” Chief Financial Officer Shawn Guertin told The Associated Press.
The Centers for Medicare and Medicaid Services recently outlined several changes it said it was making to help shore up exchange enrollment windows.
Blue Cross-Blue Shield insurer Anthem Inc. also is paying close attention to how the government deals with special enrollment periods as it judges how sustainable the exchange business will be in the future, CEO Joseph Swedish said recently.
UnitedHealth Group has said it will decide this year whether to participate in the public exchanges in 2017.
HealthCare.gov CEO Kevin Counihan said in a Jan. 19 blog post that special enrollment periods will not be available for “the vast majority of consumers.” HealthCare.Gov operates public insurance exchanges in 38 states.
“For example, special enrollment periods are not allowed for people who choose to remain uninsured and then decide they need health insurance when they get sick,” he wrote.
***Sustaining the marketplace for a healthier America
By former Sen. Tom Daschle (D-S.D.)
The Hill, January 29, 2016
To ensure the affordability of healthcare services, we must help individuals not only access health insurance coverage, but also stay covered.
Instead, our current regulatory framework seems to be having the opposite effect.
For example, there are over 30 “special enrollment periods” – more than that of any other federal government program, including Medicare Advantage. Rightfully so, these periods are intended to help individuals seek coverage outside of the normal enrollment period due to certain qualifying life events, such as relocating or losing prior coverage. However, there is little oversight in place to ensure that special enrollment period requirements are satisfied. The unintended consequence is that special enrollment periods enable individuals to only seek coverage when they need care the most – a more costly proposition for the patient and the health care system.
Fortunately, the Centers for Medicare & Medicaid Services (CMS) is already taking an important first step to help address these concerns. CMS is eliminating six special enrollment periods that are either no longer needed or subject to abuse.
The marketplace will also require greater opportunity for innovation.
The Affordable Care Act has demonstrated great potential for establishing a high quality, affordable health care market. Now is the time to leverage that progress and ensure its sustainability by removing barriers that discourage market participation and incentives that make it easier to not seek care.
The losses experienced by Blue Cross and Blue Shield of North Carolina represent a problem prevalent throughout the nation wherein patients, when they become ill, enter the system during special enrollment periods and then exit once their health care needs are met. The insurers along with CMS have diagnosed the problem. There is nothing wrong with our system of private insurers. It is the patients who are to blame because they are gaming the system.
The solution? Reduce special enrollment periods that were designed to assist patients who fell through the cracks. Instead, protect the insurers by preventing these people from getting coverage for the care that they need. Bankrupt them. That’ll show them.
Reducing special enrollment periods is being touted as one of the improvements that we need in the Affordable Care Act – the type of incrementalism that we should pursue as we reject overtures to establish a single payer national health program. We should pay no regard to the fact that this incremental tweak is designed to assist the private insurers and enhance their profits, at a cost of impairing access and affordability for far too many patients.
Wasn’t the Affordable Care Act designed to provide everyone with affordable access to health care? No. Single payer has such a design, but that was rejected to the benefit of the private insurers.
So now we are supposed to tweak the system to make it work better for patients? No. We are tweaking it to make it work better for private insurers. Damn those patients who try to cheat the insurers by gaming the system.
Oh wait. Under single payer the goal is to deliberately include absolutely everyone. The idea that someone is cheating by trying to sneak into the system is totally foreign to the stewards of egalitarian universal systems. How could anyone even think about devising methods of keeping people out? Perhaps it’s American Exceptionalism at work.
By Paul Y. Song, M.D.
HuffPost Politics, January 31, 2016
Recently, a fierce debate has been ignited within the Democratic Party regarding the merits and feasibility of a single-payer Medicare-for-All universal healthcare system. Some liberal commentators have summarily dismissed Senator Sanders’ proposal as politically unrealistic or as greatly lacking in details while championing a slightly improved status quo, and other political surrogates have spread GOP-like untruths that have no place in any honest discussion.
Regardless of ones’ individual beliefs on Medicare-for-All, it is crucial to note some indisputable facts regarding the Affordable Care Act (ACA) and the current status quo:
1. While the ACA did indeed do some very positive things like end lifetime caps on medical coverage and do away with discrimination for pre-existing conditions, it was never intended to cover every uninsured individual. In fact, after the ACA is fully implemented, the Congressional Budget Office estimates that up to 29 million residents will still remain uninsured.
2. The only area of the ACA that both Democrats and Republicans found mutual agreement on was to exclude our undocumented brothers and sisters.
3. The average insured family still pays an extra $1,017 in premiums (hidden tax) to cover the cost of care for the uninsured.
4. A recent Commonwealth Fund study revealed that 31 million people with insurance had such high out-of-pocket costs or deductibles relative to their incomes that they were UNDER-insured and that 51% of these adults reported problems with their medical bills, while 44% of all adults reported not getting care because of high co-pays and deductibles despite being insured.
5. Even after a significant decrease in the total number of uninsured, there were still 1.7 million medical related bankruptcies in 2014 of which 75% were actually insured, and this is only expected to get worse.
6. Most individuals in the U.S. cannot afford an annual deductible of $6,850 and most families of four cannot afford an annual deductible of $13,700.
7. Despite premiums increasing over 150% over the past 9 years, there is no federal insurance rate regulation.
8. Despite the fact that average branded drug prices have increased 127% during the past 8 years to the point that 73% of Americans now find the cost of drugs unreasonable, there was no mechanism to control drug prices.
9. Many states have huge underfunded retiree healthcare liabilities. California’s alone is $150 Billion.
10. Healthcare costs are currently 17.5% of GDP with over 1% of GDP spent on Prescription drugs alone, and will only continue to climb as mandatory federal health spending is projected to double in the next 10 Years.
11. Recent data from the American Journal of Public Health found that tax-funded expenditures accounted for 64.3% of all U.S. health spending. U.S. health spending for 2013 was $9,267 per capita, with government’s share being $5,960.
12. Prior to the bailout, GM spent more on healthcare for its employees than it did on steel. Rising healthcare costs are making U.S. companies less competitive and taking money away from wages and capital investments.
13. Most Americans continue to get employer-sponsored healthcare but worker’s contributions to premiums have increased 212% since 2000 while wages have only increased 54% during the same period.
14. Healthcare benefits have become the biggest source of labor negotiation strife.
So if anything, most health policy experts believe that our current healthcare system is unsustainable for individuals, businesses, states and our federal government, and to continue this status quo is what is really unrealistic.
The real debate Democrats should be having should not be about whether single payer, a highly successful proven system in so many industrialized nations, is the solution, but rather how we can collectively come together to overcome the corporate forces that derailed the ACA from providing a public option, drug price controls and insurance rate regulation, and how we get to the ultimate goal of Medicare for All.
Back in 2003, then Illinois State Senator Barack Obama said in a speech to the AFL-CIO, “I happen to be a proponent of a single payer universal healthcare plan…but first we need to take back the White House, then the Senate, then the house”.
Sadly, when Barack Obama became President and had a supermajority in the Senate and House, single payer was never even introduced as an option. In fact, well before the ACA was even written, the pharmaceutical industry under the guidance of former congressman and Medicare Part D architect, Billy Tauzin, negotiated a sweetheart deal that would provide industry support for the administration’s health reform agenda in exchange for no significant reform of the pharmaceutical industry.
At the same time there were over 3,300 registered healthcare lobbyists for the 535 members of congress who spent more in total than what was spent on the entire Bush-Kerry election to influence the legislation. Many of these lobbyists were former congressional staffers including two former chiefs of staff to then Finance Committee Chairman Senator Max Baucus. Many legislators from both sides of the aisle received lots of money, but it was Baucus who received over $1.4 million and held up the legislation in his committee for so long that Senator Ted Kennedy was not alive to vote for it.
In the end, despite some positive aspects, the ACA looks like it was essentially written by the pharmaceutical and insurance industry. It is not socialism, but rather a $475 billion corporate welfare program that mandated uninsured Americans buy a product from a for-profit industry that only makes money by denying care, and this is why we still have so many of the problems stated above.
Paul Krugman is correct when he says that Senator Sanders’ Medicare-or-All plan is not politically feasible today. As long as we have Democrats who are consistently beholden to the Insurance and Pharma cartels, we will definitely continue the status quo. As long as we do not fight to reverse the awful cloud of Citizens’ United and the grossly disproportionate influence of money in politics, we cannot achieve any meaningful progress in healthcare or any other critical challenge facing our country and world.
Far beyond any Medicare-For-All proposal, what the Senator is really calling for is a transformational movement, much larger than any one individual, which can come together to fight against the Super PACs and suffocating corporate influences. His campaign is the personification of this fight.
58 percent of Americans currently favor Medicare-for-All once they learn more about it, and 81% of Democrats already believe it is the best solution. So, rather than demonize it with lies and scare tactics, we should be educating more and more people who are disillusioned with their current healthcare so that more and more of us can demand something better from our representatives.
Sadly, the biggest major insurers also recognize the benefits and efficiencies of a single payer system and have begun to rapidly consolidate through huge mergers, which further eliminates what little competition consumers have. So the question is not whether we will have single payer, but whether it will be administered by one ruthless for-profit entity that will keep all realized savings for its shareholders while continuing to gauge, deny, and shortchange its patients. Or whether it will be a Medicare-for-all, which will use the cost savings of administrative efficiency and bulk purchasing power to increase coverage and benefits for everyone, to provide the humane and comprehensive health care system we as a society truly deserve and already pay for.
Above all, we need to remember that we ARE the party that rejected the status quo and created a very bold disruptive new program called Medicare at a time when 44% of seniors were uninsured and 1/3 were living in poverty. We are the party for the least among us and for those without a voice. We are the party of “Yes, we can”.
Paul Y. Song, is a board certified radiation oncologist and the Executive Chair of the Courage Campaign, Co-Chair for a Campaign for a Healthy California, and Board Member of Physicians for a National Health Program.
Currently the two leading candidates for the Democratic nomination for president are debating whether or not a single-payer Medicare-for-All universal healthcare system is politically feasible. Paul Song provides us with evidence that our current system is inadequate and unsustainable, so the real debate we should be having is whether we should leave our health care system under the control the industries and policies that are responsible for much of what is wrong, or if we should initiate a transformational movement that will include Medicare-for-All so that we can have “the humane and comprehensive health care system we as a society truly deserve and already pay for.”
This debate is not just for members of the Democratic Party. It is a debate that the entire nation should be having. It is important that the debate be informed with facts such as those presented here by Paul Song.
Physicians for a National Health Program (PNHP) is a nonprofit, nonpartisan, educational and policy research organization that neither supports nor opposes any candidate for public office nor any political party. Although Paul Song is a board member of PNHP, any partisan views expressed in this article are his own and not those of PNHP.
By David Himmelstein and Steffie Woolhandler
Huffpost Politics, January 29, 2016
Professor Kenneth Thorpe recently issued an analysis of Senator Bernie Sanders’ single-payer national health insurance proposal. Thorpe, an Emory University professor who served in the Clinton administration, claims the single-payer plan would break the bank.
Thorpe’s analysis rests on several incorrect, and occasionally outlandish, assumptions. Moreover, it is at odds with analyses of the costs of single-payer programs that he produced in the past, which projected large savings from such reform (see this study, for example, or this one).
We outline below the incorrect assumptions behind Thorpe’s current analysis:
1. He incorrectly assumes administrative savings of only 4.7 percent of expenditures, based on projections of administrative savings under Vermont’s proposed reform.
However, the Vermont reform did not contemplate a fully single-payer system. It would have allowed large employers to continue offering private coverage, and the continuation of the FEHBP and Medicare programs. Hence, hospitals, physicians’ offices, and nursing homes would still have had to contend with multiple payers, forcing them to maintain the complex cost-tracking and billing apparatus that drives up providers’ administrative costs. Vermont’s plan proposed continuing to pay hospitals and other institutional providers on a per-patient basis, rather than through global budgets, perpetuating the expensive hospital billing apparatus that siphons funds from care.
The correct way to estimate administrative savings is to use actual data from real world experience with single-payer systems such as that in Canada or Scotland, rather than using projections of costs in Vermont’s non-single-payer plan. In our study published in the New England Journal of Medicine we found that the administrative costs of insurers and providers accounted for 16.7 percent of total health care expenditures in Canada, versus. 31.0 percent in the U.S. – a difference of 14.3 percent. In subsequent studies, we have found that U.S. hospital administrative costs have continued to rise, while Canada’s have not. Moreover, hospital administrative costs in Scotland’s single-payer system were virtually identical those in Canada.
In sum, Thorpe’s assumptions understate the administrative savings of single-payer by 9.6 percent of total health spending. Hence he overestimates the program’s cost by 9.6 percent of health spending — $327 billion in 2016, and $3.742 trillion between 2016 and 2024. Notably, Thorpe’s earlier analyses projected much larger administrative savings from single-payer reform — closely in line with our estimates.
2. Thorpe assumes huge increases in the utilization of care, increases far beyond those that were seen when national health insurance was implemented in Canada, and much larger than is possible given the supply of doctors and hospital beds.
When Canada implemented universal coverage and abolished copayments and deductibles there was no change in the total number of doctor visits; doctors worked the same number of hours after the reform as before, and saw the same number of patients. However, they saw their healthy and wealthier patients slightly less often, and sicker and poorer patients somewhat more frequently. Moreover, the limited supply of hospital beds precluded the kind of big surge in hospitalizations that Thorpe predicts. In health policy parlance, “capacity constraints” precluded a big increase in system-wide utilization.
Thorpe bases his estimates on what has happened when a small percentage of people in a community have had copayments eliminated or added. But in those cases there are no capacity constraints, so it tells us little about what would happen under a system-wide reform like single-payer.
Thorpe does not give actual figures for how many additional doctor visits and hospital stays he predicts. However, his estimates that persons with private insurance would increase their utilization of care by 10 percent and that those with Medicare-only coverage would increase utilization by 10 to 25 percent suggest that he projects about 100 million additional doctor visits and several million more hospitalizations each year – something that’s impossible given real-world capacity constraints. There just aren’t enough doctors and hospital beds to deliver that much care.
Instead of a huge surge in utilization, more realistic projections would assume that doctors and hospitals would reduce the amount of unnecessary care they’re now delivering in order to deliver needed care to those who are currently not getting what they need. That’s what happened in Canada.
3. Thorpe assumes that the program would be a huge bonanza for state governments, projecting that the federal government would relieve them of 10 percent of their current spending for Medicaid and CHIP — equivalent to about $20 billion annually.
No one has suggested that a single-payer reform would or should do this.
4. Thorpe’s analysis also ignores the large savings that would accrue to state and local governments — and hence taxpayers — because they would be relieved of the costs of private coverage for public employees.
State and local government spent $177 billion last year on employee health benefits – about $120 billion more than state and local government would pay under the 6.2 percent payroll tax that Senator Sanders has proposed. The federal government could simply allow state and local governments to keep this windfall, but it seems far more likely that it would reduce other funding streams to compensate.
5. Thorpe’s analysis also apparently ignores the huge tax subsidies that currently support private insurance, which are listed as “Tax Expenditures” in the federal government’s official budget documents.
These subsidies totaled $326.2 billion last year, and are expected to increase to $538.9 billion in 2024. Shifting these current tax expenditures from subsidizing private coverage to funding for a single-payer program would greatly lessen the amount of new revenues that would be required. Thorpe’s analysis makes no mention of these current subsidies.
6. Thorpe assumes zero cost savings under single-payer on prescription drugs and devices.
Nations with single-payer systems have in every case used their clout as a huge purchaser to lower drug prices by about 50 percent. In fact, the U.S. Defense Department and VA system have also been able to realize such savings.
In summary, professor Thorpe grossly underestimates the administrative savings under single-payer; posits increases in the number of doctor visits and hospitalizations that exceed the capacity of doctors and hospitals to provide this added care; assumes that the federal government would provide state and local governments with huge windfalls rather than requiring full maintenance of effort; makes no mention of the vast current tax subsidies for private coverage whose elimination would provide hundreds of billions annually to fund a single-payer program; and ignores savings on drugs and medical equipment that every other single-payer program has reaped.
In the past, Thorpe estimated that single-payer reform would lower health spending while covering all of the uninsured and upgrading coverage for the tens of millions who are currently underinsured. The facts on which those conclusions were based have not changed.
Drs. David Himmelstein and Steffie Woolhandler are professors of health policy and management at the City University of New York School of Public Health and lecturers in medicine at Harvard Medical School. The opinions expressed here do not necessarily reflect the views of those institutions.
In the political battle over Bernie Sanders’ proposal for a single payer national health program, it is unfortunate that the perspective of just how much single payer would benefit Americans is being lost in all of the clamor.
This is not an issue with two opposing sets of facts. There is only one truth and that is that a well designed single payer system would bring comprehensive health care to everyone, while removing financial barriers to care and making our national health expenditures sustainable well into the future.
It is not at all clear why so many progressives have decided to attack Sanders’ single payer proposal. Most of them do understand the clear advantages in improving access while controlling costs, but they seem fixated on opposing it based on the alleged lack of political feasibility. It is fine to condemn the politics, but that should give us even more reason to advance a clearly superior model of health care financing reform.
The latest attack that is being circulated widely is that by Kenneth Thorpe, a highly respected Emory University professor. David Himmelstein and Steffie Woolhandler lay the record straight. It is crucial that we not be caught up in the numbers being bandied about – the trees – when we need to see the forest – the fundamental principles of the single payer model.
Physicians for a National Health Program (PNHP) is a nonpartisan educational organization. It neither supports nor opposes any candidates for public office.
By Jay Hancock
Kaiser Health News, January 25, 2016
Last year regulators blocked companies with millions of lower-wage workers from claiming that coverage with no inpatient hospital benefits met Obamacare’s strictest standard for large employers.
Now that those so-called “skinny plans” aren’t allowed, insurance administrators and many cost-conscious employers are purporting to meet the rules with a new version that excludes another major category: outpatient surgery. The new plans may not survive regulatory scrutiny any more than the old ones did, some experts believe.
For 2016, such insurance has been marketed primarily to staffing companies, home health agencies, hoteliers and other lower-wage employers that had historically never provided major medical coverage. Those are the same firms that were sponsoring skinny coverage a year ago, industry consultants say.
“I really wonder whether they can do that,” said Timothy Jost, a law professor at Washington and Lee University in Virginia who is an authority on the health law. “Refusing to cover any outpatient physician surgical services is arguably a violation.”
Unlike insurance sold to individuals and small businesses through online marketplaces, large employers are not required to offer a list of “essential health benefits.” Instead, they must offer minimum value — roughly comparable to that of a high-deductible, “bronze” marketplace plan — as determined by an online calculator and regulatory guidance, or face a penalty. There is also a lesser standard for large employers — “minimum essential coverage” — that triggers different fines for noncompliance. But nearly all workplace-based plans that offer some types of preventive care meet this requirement.
One of the arguments made for choosing the incremental policies of the Affordable Care Act (ACA) over a comprehensive single payer model of reform was that the politicians wanted to avoid disrupting the part of health care financing that was working well – particularly the employer-sponsored health plans. So are employees being assured of adequate health care coverage?
The onslaught of higher deductibles and narrower networks indicates that maybe these plans are not working so well after all. But you cannot underestimate the conniving behavior of some of the private sector employers in shirking their responsibilities for providing adequate coverage, as supposedly was intended by the architects of ACA.
Since the employers are allowed considerable flexibility in plan design, some thought that they could exclude inpatient hospital benefits. That, of course, would be disastrous for anyone requiring hospitalization. Fortunately that loophole was closed.
Now they claim that they can exclude outpatient surgery. Considering that now about two-thirds of surgeries are done on an outpatient basis, that too will lead to financial disaster for far too many patients. It is likely that our federal stewards will also disallow the exclusion of outpatient surgery. But then what scheme will they think up next?
Leaving the private sector in control inevitably leads to devious behavior designed to save money for the employers or insurers at a cost to the patients. That is the way the private sector and their markets work. In contrast, responsible public stewards act in the interests of patients, and part of that means ensuring an adequate health delivery infrastructure to take care of the patients.
We really do need to dismiss private managers of health care funds and replace them with our own public administrators. That’s precisely what a single payer national health program would do.
By Zachary Tracer
Bloomberg Business, January 25, 2016
Fidelity Investments is already the U.S.’s No. 2 mutual fund company. Now, it wants to get bigger in the health insurance business.
The financial services firm is introducing a shopping website for health insurance and other employee benefits called Fidelity Health Marketplace. Targeted at businesses with as many as 2,500 workers, the site, known as a private health exchange, complements Fidelity’s existing benefits products such as retirement accounts.
The private exchanges set up by companies like Fidelity are separate from the government-run websites created under the 2010 Patient Protection and Affordable Care Act. But they share some of the same features and goals, such as letting customers shop for the best deal by examining the cost and coverage offered by different health plans. They can also help limit the cost to employers, by giving workers a set amount to spend.
In a private exchange, when a worker enrolls in a more expensive plan, the added expense comes out of their paychecks. If a plan costs less, the employees can use the extra funds to buy life insurance or other benefits on the same platform.
It’s a change that echoes the shift from pensions to employee-funded retirement accounts that happened in the U.S. over the past decades, and helped give rise to investment management giants like Fidelity.
“What they’re trying to do is move to a model where employers are defining a contribution amount for employees to use on their benefits,” according to Mike Trilli, senior health-care analyst at Aite Group, a research and consulting firm.
Fidelity may also be able to use the health offerings to draw customers to its investing products, according to Amy Gurchensky, an analyst at consulting firm NelsonHall. When customers pick a high-deductible health plan — for example, one that pairs a $5,000 deductible with a tax-free savings and investment account — Fidelity will be able to offer its own investing services.
Although a majority of Americans favor a national health program, many in the policy and political communities express a preference for incrementally building on the existing multi-payer system, as modified by the Affordable Care Act (ACA). Although 64 percent of our heath system is already funded through our taxes, our government gives control of much of our total spending to the private sector, such as the private insurance companies. Thus the private sector is the source of much of the incremental changes that are taking place. Now that Fidelity Investments is entering the scene, what incremental change are they offering that will benefit patients?
* They are introducing Fidelity Health Marketplace – similar to the government insurance exchanges under ACA except that they are privately owned and operated. Since they are targeted at small businesses, they are an additional intermediary that increases administrative complexity and expenses. That adds to the cost of the insurance, so that does not benefit the patient.
* The plans will be purchased with a defined contribution from the employer. Because the contribution is fixed, more of the premium costs are shifted to the employee, especially over time. Either the employee must contribute more to the premium, or choose a plan with fewer benefits, which then increases financial exposure in the event of medical need. That does not benefit the patient.
* Fidelity already offers health savings accounts – savings accounts that are linked with high deductible health plans and can be used to pay the deductibles and other cost sharing. Since high deductible plans have lower premiums which are less likely to exceed the defined contribution, Fidelity will no doubt heavily market the plans which are linked to their own health savings accounts. Since employers would use the Fidelity Marketplace to reduce their own health benefit spending, by offering a defined contribution, it is likely that employees will have difficulties keeping their health savings accounts funded. Higher deductibles linked to an empty savings accounts certainly does not benefit the patient.
* If an employee or family member has an expensive chronic disorder then a more comprehensive plan should be selected to mitigate the higher costs. But with the smaller defined contribution, the portion of the premium that the employee must pay is significantly greater, and often unaffordable. That does not benefit the patient.
Private sector solutions in health care financing, including insurers and other fiscal intermediaries, are designed primarily to benefit the industry, usually at a cost to the patient, though often opaque and thus deceptive. Public sector solutions, such as Medicare and Medicaid, are designed to benefit the patient. But even there the private sector has moved in with their private Medicare Advantage plans and their private Medicaid managed care programs, to the detriment of patients and taxpayers.
How much more of this private incremental invasion of our already dysfunctional health care financing system can we take? The next time you hear a politician say that we need to build on the system we have through incremental steps, do not remain silent. Say something. Yell, if necessary. Scream, if that’s what it takes. But do not let them con us out of the national health program that a clear majority of us want.
By Alison Kodjak
NPR, January 26, 2016
Steve Miller… The chief medical officer at Express Scripts, the largest pharmacy benefit manager in the U.S., has been essentially auctioning off his 80 million customers to the drug companies that will give him the best deal.
Express Scripts and its rivals including CVS/Caremark and OptumRX manage prescription drug coverage for insurers and employers. They’re trying to spark price wars among drugmakers by refusing to pay for some brand-name medications unless they get a big discount.
The result is that average costs for many drugs are falling. At the same time, consumers are being forced to change medications, sometimes to brands that don’t work as well for them.
This year, more than half of all people with insurance will have some medications excluded from coverage, says Ronny Gal, a drug industry analyst at investment firm Alliance Bernstein in New York.
“Drug companies have been pricing their drugs largely along the lines of, you know, whatever you can get away with and still have the patient get the drug,” he says. “This year exclusion will become a standard feature of the industry, which is actually quite a shocker for a lot of patients.”
Express Scripts pioneered the strategy two years ago, when it announced it would no longer pay for 48 brand-name drugs.
Express Scripts isn’t alone. Caremark, Optum and Prime Therapeutics also refuse to pay for some name-brand medications. Dr. David Lassen, the chief medical officer at Prime, which is the pharmacy benefit manager for several Blue Cross and Blue Shield plans, says the company offers an exclusion option to its health plan customers.
Drug prices are a problem, so much so that many people will not fill their prescriptions unless they have a drug plan that will cover most of the costs. The United States relies largely on market solutions through pharmacy benefit managers (PBMs), rather than through government administered pricing. Markets and the government function quite differently.
Drug companies have been pricing their products at the maximum that the market will bear, which results frequently in truly unreasonable prices. As the market intermediaries, PBMs are now boycotting products that they believe are overpriced. The obvious problem is that patients are then denied coverage for some medications that may be much more preferable than other options, including doing without.
In contrast, government programs such as Medicaid and the VA have been able to negotiate even better prices while making the drugs more accessible to patients on those programs.
It is time for us to quit pretending that there is some magic in the market when it is our public programs that function far better. If we had a national single payer program that included a drug benefit, the intrusive obstruction of the pharmacy benefit managers would go away.
America’s Health Insurance Plans (AHIP), January 22, 2016
With 17 million seniors and individuals with disabilities depending on the Medicare Advantage program, a report from Avalere Health raises new concerns about CMS’ policies that undermine health plans’ efforts to care for beneficiaries managing multiple chronic conditions. After assessing the accuracy of CMS’ current risk adjustment model and the cost of care for chronic health conditions, the Avalere analysis found that the model under-predicts costs for individuals with multiple chronic conditions by $2.6 billion on an annual basis. These findings come just weeks before CMS releases its annual proposed payment notice and call letter for Medicare Advantage and Part D plans, which may include further changes to the program and seniors’ benefits.
In the spring of 2015, CMS finalized changes to the risk adjustment system, which directly targeted chronic disease prevention programs. This latest Avalere analysis demonstrates that these changes significantly limit health plans’ early intervention efforts and seniors’ benefits.
“Further cuts to Medicare Advantage and seniors’ benefits are fundamentally at odds with the goal of delivering better care and better value for beneficiaries,” AHIP President and CEO Marilyn Tavenner said. “Rather than relying on an antiquated fee-for-service approach as the model for care delivery, CMS should focus on strengthening Medicare Advantage and the innovative programs that improve seniors’ health.”
Last year, more than 340 members of Congress, lead by Sen. Chuck Schumer (D-NY), Sen. Mike Crapo (R-ID), Rep. Patrick Murphy (FL-18), and Rep. Brett Guthrie (KY-02), urged CMS to protect seniors’ coverage and provide stability to the program. Ahead of the upcoming February rate notice, more than 2 million seniors from AHIP’s Coalition for Medicare Choices have mobilized, urging Washington to defend the Medicare Advantage program from further payment cuts.
***Analysis of the Accuracy of the CMS-Hierarchical Condition Category Model
Avalere Health, January 2016
From the Executive Summary
Since 2000, the Centers for Medicare & Medicaid Services (CMS) has adjusted Medicare Advantage (MA) capitated payments for demographic characteristics and health status (also known as “risk adjustment”). In 2004 CMS adopted the Hierarchical Condition Category (HCC) risk adjustment model, which includes a series of patient diagnoses that impact healthcare spending. In 2014, CMS introduced a new version of the model that removed certain conditions, added others, and made additional modifications (hereafter referred to as the “2014 model”).
In this project, Avalere assessed the accuracy of the 2014 model for beneficiaries in the traditional Medicare program with certain common chronic conditions by using Medicare fee-for-service (FFS) claims data to compare predicted healthcare costs with actual healthcare costs.
In summary, we estimate that the 2014 model under-predicts costs for individuals with multiple chronic conditions by $2.6 billion on an annual basis (see Table 1). As a result, because the model is “zero sum”—that is, the values for each condition are relative to the average cost across all individuals—under-prediction for individuals with multiple chronic conditions is balanced by over-prediction of costs for individuals with no chronic conditions.
On October 28, 2015, CMS announced proposed changes to the MA risk adjustment model that the agency believes will improve its predictive power for low-income beneficiaries. Specifically, CMS intends to further refine the model by accounting for both dual eligible/low-income subsidy (LIS) eligible and disabled status.
(W)e intentionally used a different disease classification system from the HCC model groupings in order to independently assess how well the model predicts costs for specific chronic diseases.
Table 1. Predictive Accuracy for Beneficiaries with Multiple Chronic Conditions
Total Estimated MA Over/Under- Prediction of Expenditures ($ millions)
Multiple Chronic Conditions (All) $ (2,613.7)
Multiple Chronic Conditions (Dual/LIS-eligibles) $ (401.8)
The purpose of risk adjustment is to anticipate systematic differences in costs for groups of individuals so that plans are reasonably compensated for the financial risks they bear. If plans are not accurately compensated for taking on the risk associated with a particular group, it creates a misalignment between payments and costs for higher cost beneficiaries, and under-compensates plans that enroll many chronically ill members. For any particular individual, the model may over- or under-predict actual costs, in some cases by a wide margin; every dollar of under-predicted cost is balanced by a dollar of over-predicted cost.
From the Detailed Findings
Analysis for Multiple Chronic Conditions
We reviewed how well the model predicts expenditures for individuals with multiple chronic conditions in order to determine how well payments to MA plans would be risk adjusted for the clinical severity of their patient populations under the 2014 model. As shown in Table 3, we find that the model under-predicts costs by approximately $2.6 billion for individuals with three or more chronic conditions. We also find that the model over-predicts disease burden for individuals without chronic conditions.
Table 3. Predictive Accuracy for Members with Chronic Conditions; All Members and Dual/LIS-Eligibles
Total Estimated MA Over/Under- Predictions ($ millions)
Multiple (3+) Chronic Conditions $ (2,613.7)
Few (1-2) Chronic Conditions $ 936.2
No Chronic Conditions $ 1,677.50
Multiple (3+) Chronic Conditions $ (401.8)
Few (1-2) Chronic Conditions $ 599.8
No Chronic Conditions $ 582.9
From the Conclusion
We reviewed the accuracy of the new CMS-HCC model at predicting costs for individuals with multiple chronic conditions, and paid particular attention to how well the model predicts costs for high cost individuals. We find that the CMS-HCC model substantially under-predicts costs for individuals with multiple chronic conditions, under-predicts costs for several specific chronic conditions, and does not accurately predict costs for high cost individuals within each chronic condition.
These findings suggest the model may need improvements and modifications in order to appropriately pay for high cost members and individuals with multiple and certain single chronic conditions. In other words, the model may not be adequately compensating health plans for treating these individuals.
For the past four years, the private insurance industry, led by their lobby organization – AHIP, has been successful in offsetting the reductions in overpayments that have been made to the private Medicare Advantage plans – reductions that are required by the Affordable Care Act. AHIP has now commissioned Avalere to produce a study that purportedly shows that they will need higher capitation payments than the CMS’s risk adjustment program would allow. The release of this study is the first step in their campaign to, once again, offset the decreases required by ACA.
A program to authorize private Medicare Advantage plans (originally Medicare + Choice plans) was authorized by Congress as a move to eventually completely privatize Medicare once the private plans were able to show that they could deliver higher quality at lower costs. Early on the concept was proven a fraud when the plans successfully marketed their plans selectively to healthy Medicare beneficiaries, while being compensated at levels equivalent to the costs of those in the traditional fee-for-service (FFS) Medicare program who had greater health problems.
In response, CMS developed a risk adjustment program that would pay more when the Medicare Advantage plans enrolled beneficiaries with greater health care needs, based on their diagnoses. The private plans then responded by upcoding the diagnoses of their enrollees, making them appear much sicker than they were. They even went to the point of sending out teams to make detective house calls so that they could add more diagnoses that were not being itemized by the providers.
In 2004, CMS adopted the Hierarchical Condition Category (CMS-HCC) risk adjustment model, which does adjust payments upward for those with greater needs, but it still fails to prevent about four-fifths of the excessive payments.
With pressure from AHIP, and with the support of Congress, CMS used various innovative methods to boost the payment rates for these private plans. This year, they seem to be headed towards a claim that they are being paid much less for high cost patients than the actual costs entailed.
Look at Table 1 in the Executive Summary (the only part that legislators read). Based on current CMS risk adjustment methods, they predict that the calculated costs for beneficiaries with multiple chronic conditions will fall short of actual costs by $2,614 million. They are now campaigning to have those costs added to their reimbursement rates for 2017.
But look at Table 3 which is found in “Detailed Findings” (which most will not read). It is the same as Table 1, but expanded to include the predicted calculations for those who have few or no chronic conditions. It shows that the CMS calculations predict $2,614 million in excess estimates of costs.
For the dual eligible/low-income subsidy group (Dual/LIS), Table 1 shows that the costs for those with multiple chronic conditions would be underestimated by $402 million. But for the Dual/LIS with few or no conditions, Table 3 shows that the predicted costs would be calculated to be $1,183 million over the actual costs. The report indicates that Dual/LIS patients have greater costs, so they plead to be compensated for this $402 million underestimate. They remain silent on the $1,183 overestimate for the healthier sector.
Also the estimates are based on patients in the traditional FFS Medicare program, a less healthy population than those in the Medicare Advantage plans. Since the Medicare Advantage plans continue to be successful in recruiting healthier patients, the overestimates by which they would be reimbursed would be even greater.
The politics are ugly. Marilyn Tavenner, as head of CMS, participated in the conspiracy to use devious innovations to overpay the Medicare Advantage plans. She is now president and CEO of AHIP and will use her cozy relationship with members of Congress to be sure that they put more pressure on CMS to once again jack up the rates for Medicare Advantage plans, in conflict with the intent of the ACA legislation.
This is a nefarious effort that is part of the conspiracy to completely privatize Medicare. As Marilyn Tavenner said in the AHIP news release, “Rather than relying on an antiquated fee-for-service approach as the model for care delivery, CMS should focus on strengthening Medicare Advantage and the innovative programs that improve seniors’ health.” This statement is not ambiguous. It is a blatant call for total privatization of Medicare.
The last thing we want is a privatized Medicare Advantage for all who can afford it.
Here we go again. Hillary touting her long experience in government, claimed knowledge of health care, and ability to “get things done” as she affirms her support of the Affordable Care Act (ACA) and distorts Bernie Sanders’ single-payer plan for national health insurance, Medicare for all.
Yes, health care reform is again center stage as a hot issue during this election season, with rhetoric, disinformation, and false allegations filling the national media—so much smoke and mirrors. But before we give Hillary credit for her credentials in health care, recall how that worked out for her in the 1990s. After huddling with the main corporate stakeholders in our health care system—the private health insurance, drug and hospital industries—she brought us a byzantine plan that was poorly conceived, too expensive, too complex, and never got out of committee to a vote in the House. It would have served industry well, but not patients, as Joseph Califano, former Secretary of Health, Education, and Welfare in the Carter administration, said so clearly about its complexity:
Clinton’s plan rests on the belief that an army of policy wonks can predict what would happen under a program that would change one-seventh of the economy, which 30 years of experience tells us we can’t do. (1)
As described in my 2010 book, Hijacked: The Road to Single Payer in the Aftermath of Stolen Health Care Reform (2), the same approach was taken by President Obama in the lead-up to the ACA—make sure that these industries are well taken care of while accepting their claims that costs will be contained and patients will end up better off. Corporate stakeholders, not many millions of patients, however, have been better off. In 2013, three years after the ACA was enacted, health care stocks climbed by almost 40 percent, the highest of any sector in the S&P 500 (3), while a 2014 report found that 32 executives of the nation’s largest for-profit health insurers received a total of $548.4 million in cash and stock options in the previous three years. (4)
Fast forward to today, as Hillary and Bernie duke it out over health care. Bernie’s plan is solid, Medicare for all, national health insurance (NHI) as supported by many studies over the years, including the classic 2013 study by Jerry Friedman, Ph.D., professor of economics at the University of Massachusetts, of its costs and how it will be paid for. To briefly summarize—all Americans will be covered with comprehensive coverage, with full choice of doctor and hospital, anywhere in the country, with 95 percent of individuals, families and employers paying less than they do now. (5) Public financing would be far more efficient with less waste and bureaucracy than with today’s 1,300 private insurers in our multi-payer system. Health care would become based on need instead of ability to pay.
But here comes Hillary, claiming in recent days (as Bernie is climbing in the polls) that NHI would overwhelm the middle class with new taxes and that the ACA will work if we just tweak it around the edges, without offering any substantial reform and disregarding its many flaws nearly six years after its enactment in 2010:
- 29 million Americans still uninsured, with tens of millions underinsured.
- 20 states have opted out of Medicaid expansion, a cornerstone of the ACA’s way to improve access to care.
- No price controls with no cost containment in sight. (6)
- Decreasing value of health insurance under the ACA as costs are being shifted to patients, such as through benefit designs that limit access, higher premiums and deductibles, not covering out-of-network care, denial of services, restricted drug formularies, and narrow definitions of medical necessity, especially for mental health care. (7)
- Widespread profiteering as corporate stakeholders game the system.
- Increased bureaucracy and waste, as illustrated by privatized Medicaid (e.g. administration of the expanded Medicaid program takes up 22.5 percent of the federal government’s total expenditures for the program, more than 11 times the administrative overhead of traditional Medicare. (8)
- Increasing health care fraud, accelerated by electronic health records, with fraud now estimated to account for 10 percent of health care costs. (9)
My just-released book, The Human Face of ObamaCare: Promises vs. Reality and What Comes Next, compares the three basic reform alternatives facing us in this election year: (1) continuation of the ACA, with improvements as needed; (2) replacing the ACA with a Republican plan (which has yet to surface); and (3) single-payer NHI. Table 1 displays their comparative features: (10)
As Hillary will not acknowledge, the ACA is a subsidized bailout for a failing private health insurance industry. The ACA needs more than a few tweaks around the edges to meet its goals of ensuring access to affordable health care. It was never designed to provide universal access, and we need to recognize its failings. If we look at experience since the 1980s and facts on the ground, it becomes obvious that Bernie’s plan needs our full support.
As documented in Michael Corcoran’s excellent piece recently in Truthout, Hillary has received more money from the pharmaceutical industry than any other candidate in either party during the 2016 election cycle, while health care industries have paid her $2.8 million in speaking fees between 2013 and 2015. (11) She clearly has conflicts of interest and is posturing about her commitment to real health care reform. Enough of demagoguery, distortion, and misinformation about health care reform, as are offered by most Republicans, and now by Hillary, who should know better. Her health care “plan” went nowhere in the 1990s. Let’s not let it happen again.
Order a copy of The Human Face of Obamacare from Amazon.com
- Will, GF. Coming next, Clinton’s year one. Newsweek 123 (4), January 24, 1994.
- Geyman, JP. Hijacked: The Road to Single Payer in the Aftermath of Stolen Health Care Reform. Monroe, ME. Common Courage Press, 2010.
- Soltas, E. Nobody should get rich off Obamacare. Bloomberg View, December 3, 2013.
- UNITE HERE. The irony of Obamacare, March 2014.
- Friedman, J. Funding H. R. 676: The Expanded and Improved Medicare for All Act. How We Can Afford a National Single-Payer Health Plan. Physicians for a National Health Plan. Chicago, IL. July 31, 2013. Available at: htpp://www.pnhp.org/sites/default/files/Funding%20HR%20676_Friedman_final_7.31.13.pdf
- Geyman, JP. Can we ever achieve affordable health care in the U. S.? Huffington Post, November 23, 2015.
- Geyman, JP. The continued degradation of health insurance under the ACA. Huffington Post, December 3, 2015.
- Geyman, JP. Growing bureaucracy and fraud in U. S. health care. Huffington Post, December 8, 2015.
- Buchheit, P. Private health care as an act of terrorism. Common Dreams, July 20, 2015.
- Geyman, JP. The Human Face of ObamaCare: Promises vs. Reality and What Comes Next. Friday Harbor, WA. Copernicus Healthcare, 2016, p. 203.
- Corcoran, M. Hillary Clinton declares war on single-payer health care. Truthout, January 21, 2016.
Physicians for a National Health Program, a nonprofit, nonpartisan organization of 20,000 doctors who support single-payer national health insurance, released the following statement today by its president, Dr. Robert Zarr, a Washington, D.C., pediatrician.
The national debate on single-payer health reform, or “Medicare for All,” that has emerged in the course of the presidential primaries is a welcome development. But unfortunately a number of misrepresentations about single-payer national health insurance – and the prospects for its attainment – have crept into the dialogue and are potentially misleading the public.
Most of these misrepresentations, or myths, have been decisively refuted by peer-reviewed research. They include the following:
Myth: A single-payer system would impose an unacceptable financial burden on U.S. households. Reality: Single payer is the only health reform that pays for itself. By replacing hundreds of insurers and thousands of different private health plans, each with their own marketing, enrollment, billing, utilization review, actuary and other departments, with a single, streamlined, tax-financed nonprofit program, more than $400 billion in health spending would be freed up to guarantee coverage to all of the 30 million people who are currently uninsured and to upgrade the coverage of everyone else, including the tens of millions who are underinsured. Co-pays and deductibles, which have been rapidly rising under the Affordable Care Act, would be eliminated. Further, the single-payer system’s bargaining clout would rein in rising costs for drugs and medical supplies. Lump-sum budgets for hospitals and capital planning would control costs even more.
A recent study shows 95 percent of U.S. households would come out financially ahead under an improved version of Medicare for all. The graduated, progressively structured tax burden would be based on ability to pay, and the heavy cost to average U.S. households of private insurance premiums, co-pays, deductibles, and many currently uncovered services would be eliminated. Patients could go to the doctor or hospital of their choice, and would no longer be restricted to proprietary networks. Multiple studies over a period of several decades, including by the General Accountability Office and the Congressional Budget Office, show that a single-payer system would provide universal coverage at a much lower cost, per capita, than we are spending now. International experience confirms it. Even our traditional Medicare program, which falls short of a true single-payer system, has much lower overhead than private insurance, and shows that publicly financed programs can deliver affordable, reliable care.
A single-payer system would also greatly diminish the administrative burden on our nation’s physicians and hospitals, freeing up physicians, in particular, to concentrate on doing what they know best: caring for patients.
Covering everyone for all medically necessary care is affordable; keeping the current private-insurance-based system intact is not.
Myth: The U.S. has a privately financed health care system. Reality: About 64 percent of U.S. health spending is currently financed by taxpayers. (Estimates that are lower than this exclude two large sources of taxpayer-funded care: health insurance for government employees and tax subsidies to employers and individuals for purchasing private health plans.) On a per capita basis, the amount of government-funded health care in the U.S. exceeds the health spending of nations with universal health systems, e.g. Canada. We are paying for a national health program, but not getting it.
Myth: A single-payer system would overturn the gains won under the Affordable Care Act and provide inferior coverage to what people have today. Reality: A single-payer system would go far beyond the modest improvements that the ACA made around the edges of our current private-insurance-based system and ensure truly universal care, affordability and health security. For example, H.R. 676, the Expanded and Improved Medicare for All Act, would guarantee coverage for all necessary medical care, including prescription drugs, hospital, surgical, outpatient services, primary and preventive care, emergency services, dental, mental health, home health, physical therapy, rehabilitation (including for substance abuse), vision care and correction, hearing services including hearing aids, chiropractic, durable medical equipment, palliative care, podiatric care, and long-term care. It would eliminate financial barriers to care like co-pays and deductibles and eliminate restrictive networks. It would end the steady erosion of job-based coverage under our current arrangements and disconnect insurance coverage from employment. H.R. 676 currently has 61 sponsors.
Myth: The American people don’t support single payer. Reality: Surveys have repeatedly shown that an improved Medicare for All is the remedy preferred by about two-thirds of the population. A recent Kaiser Family Foundation survey yielded similar results, showing 58 percent of Americans support Medicare for All. A solid majority of the medical profession favors such an approach, as well, as do more than 600 labor organizations, and many civic and faith-based groups.
Myth: The goal of establishing a single-payer system in the U.S. is unrealistic, or “politically infeasible.” Reality: It’s true that single-payer health reform faces formidable opposition, especially from the private insurance industry, Big Pharma, and other for-profit interests in health care, along with their allies in government. This prompts some people to conclude that single payer is out of reach and therefore not worth fighting for. While such moneyed opposition should not be underestimated, there is no reason why a well-informed and organized public, including the medical profession, cannot prevail over these vested interests. We should not sell the American people short. At earlier points in U.S. history, the abolition of slavery and the attainment of women’s suffrage were considered unrealistic, and yet the movements to achieve these goals were ultimately victorious and we now wonder how those injustices were allowed to stand for so long.
What is truly “unrealistic” is believing that we can provide universal and affordable health care, and control costs, in a system dominated by private insurers and Big Pharma.
We call upon our nation’s lawmakers and the political leaders of all political parties to heed public opinion and to do the right thing by acting swiftly to bring about the only equitable, financially responsible and humane cure for our health care ills: single-payer national health insurance, an expanded and improved Medicare for all.
Physicians for a National Health Program (www.pnhp.org) has been advocating for single-payer national health insurance for three decades. It neither supports nor opposes any candidates for public office.
The concept of a single payer national health program – Medicare for all – has become part of the political debate leading up to the presidential primaries. To no surprise, the rhetoric has been driven by politics which characteristically reduces important concepts to sometimes meaningless or deceptive sound bites. The media, including liberal pundits who should know better, have made the debate a battle of words rather than ideas. We at PNHP believe that facts should guide the national debate, and thus this release.
By David U. Himmelstein, MD, and Steffie Woolhandler, MD, MPH
American Journal of Public Health, Published online ahead of print January 21, 2016
Objectives: We estimated taxpayers’ current and projected share of US health expenditures, including government payments for public employees’ health benefits as well as tax subsidies to private health spending.
Methods: We tabulated official Centers for Medicare and Medicaid Services figures on direct government spending for health programs and public employees’ health benefits for 2013, and projected figures through 2024. We calculated the value of tax subsidies for private spending from official federal budget documents and figures for state and local tax collections.
Results: Tax-funded health expenditures totaled $1.877 trillion in 2013 and are projected to increase to $3.642 trillion in 2024. Government’s share of overall health spending was 64.3% of national health expenditures in 2013 and will rise to 67.1% in 2024. Government health expenditures in the United States account for a larger share of gross domestic product (11.2% in 2013) than do total health expenditures in any other nation.
Conclusions: Contrary to public perceptions and official Centers for Medicare and Medicaid Services estimates, government funds most health care in the United States. Appreciation of government’s predominant role in health funding might encourage more appropriate and equitable targeting of health expenditures.
From the Discussion
Americans pay the world’s highest health-related taxes. Yet many perceive that US health care financing system is predominantly private, in contrast to the universal tax-funded health care systems in nations such as Canada, France, or the United Kingdom. By 2024, government expenditures in the United States are expected to account for more than two thirds of national health spending. This is nearly the same proportion as in Canada, where official figures put government’s share at 70.7% (although this figure excludes modest tax subsidies for supplemental private coverage).
Public funds help the vast majority of Americans pay for care, but these funds flow through many different spigots. The funding streams for the poor, the elderly, veterans, family planning, and public sector workers are visible and hotly debated. Meanwhile, the hundreds of billions in tax subsidies that disproportionately benefit wealthier Americans have drawn far less public attention.
Although taxpayers fund the vast majority of health spending, overall priorities for this funding are rarely discussed. Appreciation of the magnitude of government funding might encourage more explicit, appropriate, and equitable targeting of these expenditures as components of a total health budget.
We often hear that we cannot afford the taxes to pay for a single payer national health program – an improved Medicare for all. Yet we are already paying most of the taxes that would be required; it’s just that they are relatively obscure and thus not recognized by most taxpayers.
By 2024, government expenditures will pay for more than two-thirds of national health spending (up from 64.3% in 2013). “Government health expenditures in the United States account for a larger share of gross domestic product (11.2% in 2013) than do total health expenditures in any other nation,” according to this study. Our government health expenditures alone are more than both government and private health expenditures in any other nation. We are paying for a national health program, but we are not getting it.
Most people are aware of the insurance premiums and out of pocket expenses that they and their employers pay for health care, so they tend to think that most health care spending is private. They are aware of the payroll deduction for Medicare, but they do not tend to consciously connect other taxes, especially income taxes, with expenditures for Part B and Part D Medicare, Medicaid, CHIP, the VA system and other government health programs. Also, totally out of mind is the portion of personal and corporate income taxes that help pay for government health programs – taxes that are built into the pricing of consumer goods and services (not to mention that the cost of employee health benefit programs is also built into consumer prices). (This may be double counting for the tax tally, but higher health spending in the U.S. does pass on opaque employer plan health costs to the consumer.) And one of the largest silent taxes is the tax expenditure (tax subsidies) on the federal, state and local level that help pay for private, employer-sponsored health plans. Also, we are paying, through taxes, for most of the health benefits offered to federal, state and local government employees.
The roughly $300 billion we pay for tax expenditures for employer-sponsored health plans (will be over $500 billion by 2024) is a prime example of how dysfunctional our health care financing is. The subsidies are credited in direct proportion to income – the higher a person’s income, the greater the subsidy. That is really unfair to lower-income individuals and families who may be paying the same insurance premium, directly or indirectly through forgone wage increases, as the higher-income employees do, but at a greater dollar amount than those with higher incomes after the subsidy is applied, and at a much greater percentage of income. This is a highly regressive tax policy.
The point is, we are already spending our taxes on the health care system, and we can do it much more equitably through a well-designed single payer program. Not only would we increase transparency, we would also reduce inefficient spending by eliminating the private insurance industry, saving more in premiums than would be the increase in taxes. The next time someone says that we cannot afford the taxes for a single payer system – clue him or her in. Let everyone know that it is time to demand much greater value for the enormous amount of taxes that we are already paying for health care.
By Sonya Schwartz, Alisa Chester, Steven Lopez, and Samantha Vargas Poppe
Georgetown University Health Policy Institute & National Council of La Raza, January 2016
1. Uninsurance rates for Hispanic children reached a historic low in the first year that the Affordable Care Act’s (ACA) coverage provisions took effect. The number of uninsured Hispanic children dropped by approximately 300,000 children, from about 2 million uninsured Hispanic children in 2013 to 1.7 million in 2014. The uninsurance rate for Hispanic children declined by nearly 2 percentage points from 11.5 to 9.7 percent in the same one-year time period.
2. Hispanic children were much more likely to have health coverage in states that have taken multiple steps to expand coverage for children and parents. In 2014, 20 states had uninsurance rates for Hispanic children that were significantly below the national average. Of these, 16 states covered children in Medicaid and the Children’s Health Insurance Program (CHIP) above 255 percent of the Federal Poverty Level (FPL, the median eligibility level for children), 18 states provided Medicaid and/or CHIP coverage to lawfully residing children in the five-year waiting period, and 17 states extended Medicaid to low-income parents and other adults.
3. Despite these gains, health coverage inequities for Hispanic children remained. Hispanic children accounted for a much greater share of the uninsured child population (39.5 percent) than the child population at large (24.4 percent) in 2014. These inequities existed even though the vast majority of uninsured Hispanic children were eligible for Medicaid and CHIP, but unenrolled.
They say that the historic gains in health coverage for Hispanic children is one of the many accomplishments of the Affordable Care Act (ACA) that we can celebrate. From 2013 to 2014 the number uninsured Hispanic children declined from about 2 million to 1.7 million.
Of course, under a well-designed single payer system, that number would have dropped to zero, not only for Hispanic children, but for everyone. Yet, now that single payer has been thrust back into the political debate, the sides are lining up between those who say that we should try to build on ACA and those who say that we should move to single payer, improved Medicare for all.
Now be real. With ACA, we have reduced the number of uninsured Hispanic children by about 300,000. What kind of adjustments would we have to make in ACA to insure the other 1,700,000? With greater outreach to the eligible children, we might be able knock that number down a little bit more, but there is no mechanism under ACA, even if tweaked, that we could use to come anywhere near eliminating uninsurance.
The ongoing, highly publicized debate between two potential presidential candidates has produced a surge in interest in single payer, according to several polls. There is now a spate of opinion articles being written by progressives who have previously acknowledged the straightforward benefits of single payer. Ironically, many of these articles represent a retreat, taking the position that we have gained much with ACA and we should continue to build on it, that single payer is not politically feasible. Yet none of them have even hinted at the policies they would propose that would be truly effective in achieving the same goals as single payer, except maybe for the fantasy fix of the public option.
The public option would be only one more player in our dysfunctional, administratively complex, multi-payer system, and an expensive one at that. If it were a Medicare buy-in, would new enrollees be placed in the same risk pool as the elderly and people with long-term disabilities? That would require very high premiums because of the greater needs of these patients. Also Medicare covers only about one-half of health care costs and works only because almost everyone has some additional coverage such as Medigap, employer-based retiree coverage, Medicare Advantage, or Medicaid. So would people have to buy two plans – the Medicare buy-in plus some sort of Medigap plan? Too expensive and administratively wasteful. If the buy-in were a Medicare Advantage plan insurers would be reluctant to enter that market since it is subject to adverse selection and a death spiral because of the high premiums they would have to charge. Besides, Medicare Advantage plans are private plans and could hardly be categorized as a “public” option. Instead of using Medicare, could we start with a new government-run insurance plan? We would want to have reasonably comprehensive benefits, with a higher actuarial value to avoid excessive out-of-pocket costs, and we would want free choice of our health care professionals and institutions, all with no underwriting (subjecting it to adverse selection). Since the government would require that it be budget-neutral, the premiums of such a plan would be much higher than any plan currently on the market. Forget that. Okay, so let’s offer an affordable public option that has spartan benefits, low actuarial value (high deductibles, etc.), and limited choice of narrow networks. Wait a minute. Isn’t that where ACA is taking us? Do we really want the public option to be just another player on the ACA exchanges? How could that ever be considered an incremental step that would bring us closer to single payer?
Back to those 1,700,000 uninsured Hispanic children. Do we want all of them insured, along with everyone else? It will never happen under ACA since thousands of tweaks would not be enough to make it an effective financing system that would take care of everyone. The fundamental ACA infrastructure is irreparably flawed. We have to let these sheep in progressive clothes – the aforementioned opinion writers – know that they are flat-out wrong. Instead of whining about feasibility, we need to change the politics so that single payer becomes the only feasible choice.
Or shall we simply continue on the ACA path and adopt some more tweaks so that in the next decade or so we can get maybe another 300,000 Hispanic children insured? And the other 1,400,000 Hispanic children? Under single payer, we wouldn’t have to ask that.
(Note: While we are battling for single payer, we do need to continue tweaking ACA. California’s Health for All Kids law will allow about 170,000 of the state’s 497,000 uninsured children to quality for Medi-Cal, plus many others are already qualified but do not enroll. But we cannot allow ACA tweaking to in any way diminish our drive toward national single payer.)
By Anna D. Sinaiko, PhD; Ateev Mehrotra, MD; Neeraj Sood, PhD
JAMA Internal Medicine, January 19, 2016
The rapid growth of high-deductible health plans (HDHP) has been driven in part owing to a belief that cost-sharing obligations (ie, having skin in the game) will encourage health insurance enrollees to shop for health care. The wide variation in costs across physicians and hospitals implies considerable opportunity for enrollees to save money by switching to lower-cost providers. High-deductible health plan enrollment is associated with lower health care spending. However, prior studies using health insurance claims data indicate these savings are primarily owing to decreased use of care and not because HDHP enrollees are switching to lower-cost providers. Limited prior work has assessed attitudes toward price shopping among HDHP enrollees and whether they were more likely to consider costs when seeking care.
We surveyed a nationally representative sample of insured US adults between 18 and 64 years of age who used medical care in the last year and compared HDHP enrollees with people in traditional plans on rates of shopping for care. The definition of an HDHP was established as a health plan having an individual deductible greater than $1250 or a family deductible greater than $25006 or a health plan that included a health savings account.
During their last use of medical care, HDHP enrollees were no more likely than enrollees in traditional plans to consider going to another health care professional for their care (n?=?120 [10.9%] vs n?=?85 [10.0%]; P?=?.67), or to compare out-of-pocket cost differences across health care professionals (n?=?42 [3.8%] vs n?=?23 [2.7%]; P?=?.37).
Simply increasing a deductible, which gives enrollees skin in the game, appears insufficient to facilitate price shopping. Members of HDHP and traditional plans are equally likely to price shop for medical care, and they hold similar attitudes about health care prices and quality.
Editor’s NoteHigh-Deductible Health Plans and Higher-Value Decisions
By Joseph S. Ross, MD, MHS
High-deductible health plans — insurance plans that have lower premiums but higher deductibles than traditional health plans — have been increasingly promoted as a means to incentivize higher-value health care decision making. However, we have little information on how individuals take accessibility, cost, and quality information into account when making health care decisions. Moreover, there remains uncertainty about whether individuals will obtain recommended health care services while at risk for greater out-of-pocket costs.
In this issue of JAMA Internal Medicine, Sinaiko and colleagues conduct an internet-based survey of enrollees in high-deductible health plans and traditional health plans to better understand how they think about health care decisions. Individuals enrolled in plans with different financial incentives actually share many of the same beliefs about health care pricing and how to obtain high-quality care. Both rarely consider obtaining care from a different health care professional and even less often compare costs among health care professionals. Despite the limitations of an internet-based sample and few questions to disentangle the nuance of decision making, an interpretation of this study could be that high-deductible health plans are rationally designed for individuals who do not yet have access to sufficient information to make higher-value decisions in today’s market, suggesting that these plans have not yet succeeded at making cost and quality information more available and more actionable for their enrollees. However, a more likely interpretation is that getting enrollees to make higher-value decisions remains a mirage. High-deductible health plans take advantage of an irrationally designed health care system. In fact, information about our health care system is asymmetric in that it is better understood by physicians and less so by patients, which means patients obtaining care are not truly informed decision makers.
It is true that high-deductible health plan enrollees have “skin in the game.” However, these enrollees are exposed to substantial out-of-pocket cost risk with little evidence that this risk exposure will incentivize higher-value health care decisions, meaning they are essentially playing the game blindfolded with one hand tied behind their back.
This study shows that individuals with high-deductible health plans (HDHP) are no more likely to select their care based on their out-of-pocket costs than do individuals enrolled in traditional health plans without high deductibles. As the editorial states, it is likely that “getting enrollees to make higher-value decisions remains a mirage.”So high deductibles do not cause patients to be smart shoppers, but they do cause patients to decline beneficial health care services. They also create financial hardships for some patients. Thus high deductibles have a net negative impact. We should get rid of them. A single payer system is a much more efficient and patient-friendly method of controlling health care spending.
The New York Times, January 17, 2016
(The debate is sponsored by the Congressional Black Caucus Institute)
Hillary Clinton: We finally have a path to universal health care. We have accomplished so much already. I do not to want see the Republicans repeal it, and I don’t to want see us start over again with a contentious debate. I want us to defend and build on the Affordable Care Act and improve it.
Bernie Sanders: No one is tearing this up, we’re going to go forward. But with the secretary neglected to mention, not just the 29 million still have no health insurance, that even more are underinsured with huge copayments and deductibles. Tell me why we are spending almost three times more than the British, who guarantee health care to all of their people? Fifty percent more than the French, more than the Canadians. The vision from FDR and Harry Truman was health care for all people as a right in a cost-effective way.
Bernie Sanders: What this is really about is not the rational way to go forward — it’s Medicare for all — it is whether we have the guts to stand up to the private insurance companies and all of their money, and the pharmaceutical industry. That’s what this debate should be about.
Hillary Clinton: So, what I’m saying is really simple. This has been the fight of the Democratic Party for decades. We have the Affordable Care Act. Let’s make it work.
***Health Reform Realities
By Paul Krugman
The New York Times, January 18, 2016
Obamacare is … what engineers would call a kludge: a somewhat awkward, clumsy device with lots of moving parts. This makes it more expensive than it should be, and will probably always cause a significant number of people to fall through the cracks.
The question for progressives — a question that is now central to the Democratic primary — is whether these failings mean that they should re-litigate their own biggest political success in almost half a century, and try for something better.
My answer, as you might guess, is that they shouldn’t, that they should seek incremental change on health care (Bring back the public option!) and focus their main efforts on other issues — that is, that Bernie Sanders is wrong about this and Hillary Clinton is right.
… as the health policy expert Harold Pollack points out, is that a simple, straightforward single-payer system just isn’t going to happen.
***Here’s why creating single-payer health care in America is so hard
By Harold Pollack
Vox, January 16, 2016
The experience of peer industrial democracies suggests that a well-designed single-payer system would be more humane and markedly less expensive than what we have right now.
Passing a single-payer plan requires precisely the same interest-group bargaining and logrolling required to pass the ACA. The resulting policies will thus replicate some of the very same scars, defects, and kludge that bedevil the ACA.
Progressives should still push for basic reforms that improve our current system. I supported the public option in 2009. I still do. I hope it resurfaces in some form, particularly for older participants in the state marketplaces . It may open a pathway to a true single-payer. If it doesn’t — which I suspect it will not — it might still provide a valuable alternative and source of pricing discipline within our pathological health care market.
***Bernie Sanders’s single-payer plan isn’t a plan at all
By Ezra Klein
Vox, January 17, 2016
Sanders calls his plan Medicare-for-All. But it actually has nothing to do with Medicare. He’s not simply expanding Medicare coverage to the broader population — he makes that clear when he says his plan means “no more copays, no more deductibles”; Medicare includes copays and deductibles. The list of what Sanders’s plan would cover far exceeds what Medicare offers, suggesting, more or less, that pretty much everything will be covered, under all circumstances.
Behind Sanders’s calculations, both for how much his plan will cost and how much Americans will benefit, lurk extremely optimistic promises about how much money single-payer will save. And those promises can only come true if the government starts saying no quite a lot — in ways that will make people very, very angry.
This is what Republicans fear liberals truly believe: that they can deliver expansive, unlimited benefits to the vast majority of Americans by stacking increasingly implausible, and economically harmful, taxes on the rich. Sanders is proving them right.
By Martin Luther King, Jr.
“For years now, I have heard the word ‘Wait!’ It rings in the ear of every Negro with piercing familiarity. This ‘Wait’ has almost always meant ‘Never.’ We must come to see, with one of our distinguished jurists, that ‘justice too long delayed is justice denied.’”
Martin Luther King, Jr. already said it, and that was half a century ago.
[PNHP note: Physicians for a National Health Program is a nonpartisan educational organization. As a consequence, it neither supports nor opposes any candidate for public office.]
By Matthew Yglesias
Vox, January 15, 2016
Bernie Sanders’s argument in favor of single-payer health care is pretty simple.
“The United States is the only major nation in the industrialized world that does not guarantee health care as a right to its people,” Sanders said at a 2015 rally of the National Nurses Union, one of the leading advocacy groups in favor of moving to a Medicare-for-all approach. “Meanwhile, we spend far more per capita on health care with worse results than other countries. It is time that we bring about a fundamental transformation of the American health care system.”
Hillary Clinton’s campaign has sought to counter the appeal of this proposition with a questionable line of attack, arguing that the election of a Democratic president on a Medicare-for-all platform would somehow help Republicans unwind the existing Affordable Care Act and other aspects of insurance provision.
Alternately, she has (accurately) noted that a universal Medicare system would require higher taxes — only to be met with the counter that a universal Medicare system would involve less overall spending.
On this, too, Sanders is right. Medicare manages to finance patients’ health care at dramatically lower per-person rates — just as foreign countries do — so if Medicare covered everyone, total spending would decline even as some of it was shifted to the tax side of the ledger.
The real issue is something else entirely. Single-payer systems save money by squeezing health care providers — doctors, hospitals, and ultimately everyone who works for them — which would be very difficult to accomplish ex post facto. If the political consensus did exist for enacting large, across-the-board cuts in doctors’ fees and hospital charges, then there would be no need to shift to a single-payer system in order to accomplish the cuts. In the absence of such a consensus, the switch to single-payer actually wouldn’t save money, and the costs would become exorbitant.
Medicare works because it pays providers less
Why would a government-run system be more efficient?
Well, here’s the answer: Foreign single-payer systems pay doctors less. They also pay pharmaceutical companies less. They pay less for medical devices, too.
It turns out that Medicare uses this trick, too, offering doctors only about 80 percent of what private insurance plans pay them.
But to the average health care provider, the Medicare patient market is just too big to ditch. Doctors — and hospitals and everyone else — take what they get and are glad for it.
A single-payer structure is neither necessary nor sufficient
The thing about saving money by having a single health care payer squeeze providers on reimbursement rates is that adopting a single-payer structure is neither necessary nor sufficient to achieve the gains. In other words, if the American political system wanted to cut doctors’ payments, we could do that without moving to a single-payer system. Conversely, adopting a single-payer system does not on its own lead to low reimbursement rates — that’s a separate decision that the political system would have to make.
The truth is that there are two entirely separate questions: Who pays health insurance claims, and what prices does the government set? It’s true that shifting from a multi-payer to a single-payer system streamlines some elements of payment administration, but the overwhelming preponderance of the cost savings in a Medicare-for-all plan comes from the lower reimbursement rates.
To get single-payer, liberals have to be more honest with themselves
But if they ever want to get such a bill passed, liberals are going to have to start being more honest with themselves about what their vision entails — a sharp 20 percent cut in doctors’ pay rates, alongside comparable cuts for other kinds of health care providers.
Right now, Sanders and other single-payer proponents’ main strategy for dealing with this problem is to talk around it. Medicare is extremely popular, so “Medicare for all” is a popular slogan, and that’s what they talk about. But you can’t get major policy change enacted on this basis. At some point, to get the savings of their dreams liberals are going to need to win a straightforward argument over the merits of cutting doctors’ pay.
But in my experience, relatively few rank-and-file single-payer proponents are even aware that stingy reimbursements is how single-payer controls costs — in part because essentially none of the movement’s leaders ever say it publicly.
Matthew Yglesias tells us that “the overwhelming preponderance of the cost savings in a Medicare-for-all plan comes from the lower reimbursement rates,” thus “adopting a single-payer structure is neither necessary nor sufficient to achieve the gains.” He then criticizes single-payer proponents for not stating this publicly. What Matt does not seem to understand about PNHP is that we are meticulous with our facts, so we would never state something that is so misleading as to be untrue.
A well-designed single payer system includes multiple features that contain health care spending. The most important is the administrative efficiency. Under the Affordable Care Act, the private insurance industry is allowed to keep 15 to 20 percent of the premiums for administrative services and profits. The administrative costs for Medicare are about two percent, and that includes costs of other government programs that support Medicare. Adopting an improved Medicare for all would eliminate much of the excess administrative waste of the private insurers.
On the provider side, our highly inefficient multi-payer system also places a tremendous administrative burden on physicians, hospitals and other providers. In fact, administrative work consumes about one-sixth of U.S. physicians’ time (while eroding their morale, precipitating burnout). U.S. physician practices spend nearly four times as much money interacting with health plans and payers as do their Canadian counterparts.
Administrative costs consume about 31 percent of total U.S. health care spending. That is about twice that of Canada – 16.7 percent. Much of that difference is due to the financing systems – single payer in Canada and a dysfunctional multi-payer system in the U.S. – and thus most of that portion would be recoverable if we switched to single payer.
Yglesias says that we would have to reduce physician payments by 20 percent to achieve the spending goals of a single payer system. But when Canada changed to single payer, not only were physicians’ incomes not harmed, they remain among the top earners in the country.
There are several other policies of a single payer system that control spending. Hospitals are placed on global budgets – a process that works well as demonstrated by public services such as our fire departments. Excess capacity in the delivery system drives up spending, but that can be controlled by regional planning and capital budgets. The prices of pharmaceuticals and medical supplies can be negotiated just as the VA Health system already does so quite successfully. A single payer system incentivizes primary care which has been shown to spend health dollars more efficiently.
The United States and Canada followed the same trajectory in health care inflation until they adopted the Canada Health Act, providing a single payer system in each province. Since then health care inflation has been less in Canada than in the U.S. Likewise, adopting single payer in the U.S. would truly bend the cost curve, putting us on a more sustainable trajectory. Merely cutting prices 20 percent would continue us on a parallel inflationary trajectory.
Of course, there are some other advantages of single payer, besides the cost savings, which would not be achieved merely by cutting prices 20 percent – like truly universal coverage, free choice of physicians and hospitals, removal of financial barriers to care, and better access through capital planning.
We know what we know, but we don’t know what we don’t know. Although Hillary Clinton finds it politically expedient to leave out crucial facts in her critique of single payer, I would assume that Matt Yglesias, as a journalist of high integrity (and for whom I have great respect), would welcome a more thorough understanding of PNHP’s single payer model. We hope he reads this. Then we can have that debate that we should be having.
By Robert A. Berenson, MD
JAMA Forum, January 13, 2016
“If you can’t measure it, you can’t manage it” is an often-quoted admonition commonly attributed to the late W. Edwards Deming, a leader in the field of quality improvement. Some well-respected health policy experts have adopted as a truism a popular variation of the Deming quote — “if something cannot be measured, it cannot be improved” — and point to the recent enactment of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) as a confirmation of “the broadening societal embrace” of this concept.
The problem is that Deming actually wrote, “It is wrong to suppose that if you can’t measure it, you can’t manage it — a costly myth” — the exact opposite. Deming consistently cautioned against requiring measurement to guide management decisions, observing that the most important data needed to manage often are unknown and unknowable.
Many Routes to Improvement
The requirement for measurement as essential to management and improvement is a fallacy, not a self-evident truth and not supported by Deming, other management experts, or common sense. There are many routes to improvement, such as doing things better based on experience, example, as well as evidence from research studies.
Comparative public performance using meaningful and accurate measures has led to quality improvements, as clinicians and hospitals reflect on their own comparative performance and seek to improve their public standing. Examples include improved hospital care for patients experiencing heart attacks and improved renal dialysis. In most clinical areas, however, we lack readily available measures to use as valid benchmarks to assess performance.
Not deterred, however, last year a rarely bipartisan Congress passed the MACRA legislation. Its core element was repealing the unsustainable sustainable growth rate mechanism threatening huge payment cuts to physicians caring for Medicare patients. The law called for development of “value based” payment approaches that would pay for quality and cost outcomes, rather than just for the myriad services physicians provide or order, whether or not the services are needed or well performed. “Paying for value, not volume” has become the slogan du jour, itself assuming a mostly unchallenged position in health policy circles.
Now comes the hard part: actually achieving greater value, rather than fashioning an increasingly complex, intrusive, and likely doomed attempt to measure value.
After the MACRA’s Merit-Based Incentive Payment System (MIPS) is fully phased in early in the next decade, a physician caring for Medicare patients under MIPS stands to lose up to 9% of their Medicare payments or conceivably gain 27%, based on their performance on measures of quality, their use of health care resources, the extent to which they have implemented electronic health records, and their participation in quality improvement activities.
But performance on a few, random and often unreliable measures of performance can provide a highly misleading snapshot of any physician’s value.
A Bad Idea?
Practical challenges aside, pay for performance for health professionals may simply be a bad idea. Behavioral economists find that tangible rewards can undermine motivation for tasks that are intrinsically interesting or rewarding. Furthermore, such rewards have their strongest negative impact when they are perceived as being large, controlling, contingent on very specific task performance, or associated with surveillance, deadlines, or threats, as with MIPS.
Another major problem with the current preoccupation with measurement as the central route to improvement is the assumption that if a quality problem isn’t being measured, it basically doesn’t exist. A prime example is diagnosis errors. Recently, an Institute of Medicine (IOM) committee, on which I was a member, issued Improving Diagnosis in Health Care, documenting serious errors of diagnosis in 5% to 15% of interactions with the health care system.
As the report emphasizes, we cannot now measure the accuracy of diagnoses, which means MIPS scores will not include performance on this core physician competency. Still, the IOM committee proposed numerous improvement strategies. These include development of immediate feedback programs to erring clinicians from patients and other health professionals when a serious misdiagnosis occurs (making errors memorable if not measureable), greater attention in medical education to the cognitive bias that commonly clouds clinicians’ judgment, improved systems to ensure that abnormal test results are promptly communicated to patients and diagnostic team members, and giving patients direct access to their medical records so they can introduce relevant, missing information and correct the misinformation that is common in clinical records.
These and other IOM recommendations represent better practices that might dramatically improve diagnostic accuracy, relying not on performance measures but on adopting better work processes and focused education. Measures would help, but substantial progress can be made regardless.
The overarching concern is that under MIPS and similar programs, physicians will focus on the money while their intrinsic motivation to make accurate, timely diagnoses as a core responsibility will be crowded out. If so, the worthwhile recommendations in the IOM report will likely sit on the shelf, gathering dust, thanks to the misguided supposition that “if you can’t measure it, you can’t manage it.”
***CMS chief vows to replace meaningful use with better policy
AMA Wire, January 13, 2016
Centers for Medicare & Medicaid Services (CMS) Acting Administrator Andy Slavitt on Monday said that the agency is changing its culture to focus more on listening to physician needs and giving them the freedom they need to keep patients at the center of the practice of medicine.
Referring to execution of the electronic health record (EHR) meaningful use program, Slavitt noted that the agency’s previous regulatory approach created difficulties. “When in doubt, I think, do less and figure it out.”
“The meaningful use program as it has existed will now be effectively over and replaced with something better,” Slavitt said.
In its place will be the new Merit-Based Incentive Payment System (MIPS), called for in the Medicare Access and CHIP Reauthorization Act of 2015, which is intended to sunset the three existing reporting programs and streamline them into a single program.
“The stakes are high for this program,” Slavitt said. “As any physician will tell you, physician burden and frustration levels are real. Programs designed to improve often distract. Done poorly, measures are divorced from how physicians practice and add to the cynicism that the people who build these programs just don’t get it.”
As several prior Quote of the Day messages warned, MACRA’s Merit-Based Incentive Payment System (MIPS) is a horrendous trade-off for getting rid of the flawed SGR payment system. At least for the next decade, we are going to have to live with a system which supposedly will reward or penalize physicians based on measured performance when “the most important data needed to manage often are unknown and unknowable.”
Robert Berenson writes, “a few, random and often unreliable measures of performance can provide a highly misleading snapshot of any physician’s value.” Further, under MIPS, “physicians will focus on the money while their intrinsic motivation to make accurate, timely diagnoses as a core responsibility will be crowded out.”
CMS is responding to the great dissatisfaction with the administrative burden of the “meaningful use” program for electronic health records, which would have been the source of many of these performance measurements. But what is their response? Acting CMS Administrator Andy Slavitt says, “The meaningful use program as it has existed will now be effectively over and replaced with something better” – MIPS! He says, “Done poorly, measures are divorced from how physicians practice and add to the cynicism that the people who build these programs just don’t get it.”
Well, yes. They just don’t get it.
By David Powell and Dana Goldman
National Bureau of Economic Research, January 2016
NBER Working Paper 21858
Moral hazard and adverse selection create inefficiencies in private health insurance markets and understanding the relative importance of each factor is critical for policy. We use claims data from a large firm to isolate moral hazard from plan selection. Previous studies have attempted to estimate moral hazard in private health insurance by assuming that individuals respond only to the spot price, end-of-year price, expected price, or a related metric. The nonlinear budget constraints generated by health insurance plans make these assumptions especially poor and we statistically reject their appropriateness. We study the differential impact of the health insurance plans offered by the firm on the entire distribution of medical expenditures without assuming that individuals only respond to a parameterized price. Our empirical strategy exploits the introduction of new plans during the sample period as a shock to plan generosity, and we account for sample attrition over time. We use an instrumental variable quantile estimation technique that provides quantile treatment effects for each plan, while conditioning on a set of covariates for identification purposes. This technique allows us to map the resulting estimated medical expenditure distributions to the nonlinear budget sets generated by each plan. We estimate that 53% of the additional medical spending observed in the most generous plan in our data relative to the least generous is due to moral hazard. The remainder can be attributed to adverse selection. A policy which resulted in each person enrolling in the least generous plan would cause the annual premium of that plan to rise by $1,000.
From the Introduction
Moral hazard and adverse selection create inefficiencies in health insurance markets and result in a positive correlation between health insurance generosity and medical care consumption. The policy implications are very different, however, depending on the relative magnitudes of each source of distortion, though isolating the independent roles of both moral hazard and adverse selection is rare in the health insurance literature. This paper separates moral hazard and adverse selection for the health insurance plans offered by a large firm.
The average observed expenditures in the most generous plan are $3,969 more than the per person costs in the least generous plan. We estimate that if selection were random, that the most generous plan would lead to $2,117 in more spending than the least generous plan, implying that 53% of the differential can be attributed to moral hazard. We also estimate adverse selection without restrictive structural assumptions. We find that if everyone in the sample were enrolled in the least generous plan that the premium for that plan would increase by over $1,000.
2.1 Moral Hazard and Adverse Selection
Optimal policy depends on the relative important of adverse selection compared to moral hazard in explaining the correlation between plan generosity and medical care costs. The policy implications for moral hazard are different than those required to confront adverse selection. Adverse selection typically requires risk-pooling, while distortions driven by moral hazard would motivate additional cost-sharing.
If we define attrition as individuals enrolled in 2005 but enrolled for less than 365 days in 2007, the attrition rate in the MarketScan data (selecting on firms in the data in both 2005 and 2007) is 58.3%. Our sample has a 58.7% attrition rate.
Understanding moral hazard and adverse selection in private health insurance is widely- recognized as critical to policy. While the literature has frequently estimated the effect of price on medical care consumption, it has typically resorted to parameterizing the mechanism through which individuals respond to cost-sharing. We show that these assumptions typically contradict economic reasoning, and we provide empirical evidence that these specifications perform poorly. In this paper, we estimate the impact of different health insurance plans on the entire distribution of medical care consumption using a new instrumental variable quantile estimation method. These estimated distributions are the distributions caused by the plans in the absence of systematic selection into plans. We map these causal distributions to the parameters of the plans themselves. We can statistically reject that individuals only respond to the end-of-year price.
We also estimate the magnitude of adverse selection. We find favorable selection in the least generous plan and adverse selection in the most generous. We estimate that adverse selection is responsible for $773 of additional per-person costs in the most generous plan, implying that an individual considering this plan would pay over $60 per month in additional premium payments simply to cover the expected costs of the population selecting into the plan. Similarly, a policy which resulted in our entire sample enrolling in the least generous plan would cause annual premiums for that plan to rise by over $1,000.
We estimate that moral hazard is responsible for 53% of the differences in expenditures between the most and least generous plans. Adverse selection also plays an important role, accounting for the other 47%. In the absence of moral hazard, the difference in average medical expenditures across these plans would be $2,117 instead of $3,969. Finally, we find that using the previous year’s medical expenditures as a metric of selection greatly overstates the magnitude of selection.
PDF of full paper (53 pages):
In health insurance, moral hazard occurs when individuals obtain more health care than they would have if it were not paid for by the insurer. Adverse selection occurs when individuals with greater health care needs select plans that provide greater coverage. Both have an impact on health care spending. This paper estimates the relative impact of each of these in spending under private health insurance.
Each is responsible for roughly half of the differences of expenditures between the most and least generous health plans. So enrollees in the more generous plans pay higher premiums because of both moral hazard and adverse selection.
Today’s standard in insurance coverage is shifting towards lower actuarial value plans – plans that pay a lower percentage of the total health care costs. What does this study tell us about premiums for these less generous health plans? As more people enroll in them, which they are, the premiums increase to cover the additional expenditures for those who otherwise would have enrolled in the more comprehensive plans. The lower actuarial value plans are subject to favorable selection (the healthy buying less expensive plans in anticipation of not needing care), but that diminishes as higher cost patients move from the more comprehensive plans into these cheaper plans.
The insurance actuaries set premiums based partly on anticipated moral hazard and adverse selection. Though less comprehensive plans theoretically have less moral hazard and no adverse selection, the lower premiums are attractive even to those with higher health care needs. As Powell and Goldman have shown, increased enrollment in the least generous plans cause premiums for those plans to increase. This likely goes a long way toward explaining why premium increases this year were much higher than the overall rate of inflation, even though the rate of increase in total national health expenditures has slowed.
Under a single payer national health program, adverse selection doesn’t even exist since everyone is in the same plan. Efficiency is an important goal of health care reform, and wouldn’t it be much more efficient putting these health economists to work designing a simple single payer financing system, instead of laboring over the complexities of making a dysfunctional and inequitable market of private health plans somehow work for us, though not very well?