2012 health care spending, including administration

Posted by on Wednesday, Jun 13, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

National Health Expenditure Projections: Modest Annual Growth Until Coverage Expands And Economic Growth Accelerates

By Sean P. Keehan, Gigi A. Cuckler, Andrea M. Sisko, Andrew J. Madison, Sheila D. Smith, Joseph M. Lizonitz, John A. Poisal and Christian J. Wolfe
Health Affairs, June 2012

2012

$2,809.0 billion – NHE (National Health Expenditures)
$8,952.8 – NHE per capita
17.9% – NHE as percent of GDP
$37.5 billion – Government administration (Note d)
$162.6 billion – Net cost of health insurance (Note e)

d  Includes all administrative costs (federal, state, and local employees’ salaries; contracted employees, including fiscal intermediaries; rent and building costs; computer systems and programs; other materials and supplies; and other miscellaneous expenses) associated with insuring individuals enrolled in the following public health insurance programs: Medicare, Medicaid, Children’s Health Insurance Program, Department of Defense, Department of Veterans Affairs, Indian Health Service, workers’ compensation, maternal and child health, vocational rehabilitation, Substance Abuse and Mental Health Services Administration, and other federal programs.

e  Net cost of health insurance is calculated as the difference between calendar year premiums earned and benefits paid for private health insurance. This includes administrative costs and, in some cases, additions to reserves; rate credits and dividends; premium taxes; and plan profits or losses. Also included in this category is the difference between premiums earned and benefits paid for the private health insurance companies that insure the enrollees of the following public programs: Medicare, Medicaid, Children’s Health Insurance Program, and workers’ compensation (health portion only).

Conclusion

For 2011 through 2013, the lingering effects of the economic recession and modest recovery, mostly in the form of limited growth in incomes, are expected to continue to constrain health spending growth. In 2014 the coverage expansions laid out in the Affordable Care Act for Medicaid and for private health insurance are expected to increase the growth rate for health spending to 7.4 percent, with notable increases expected in spending on physician services and prescription drugs for newly insured patients. By the end of the projection period, higher income growth and the continuing shift of baby boomers into Medicare are expected to cause health spending to grow roughly two percentage points faster than overall economic growth, which is about the same differential experienced over the past thirty years.

http://content.healthaffairs.org/content/early/2012/06/11/hlthaff.2012.0404.abstract

This is the annual report that is used most often as a resource for our health care spending.

The numbers to remember for 2012:

National Health Expenditures:  about $2.8 trillion
Health spending per capita:  about $9000
Spending as a percent of GDP:  about 18%

After the transitions of the next decade, health care spending is expected to continue to grow two percentage points faster than overall economic growth – the same differential experienced over the past thirty years. It makes you wonder when Herbert Stein’s principle will kick in (essentially, if it can’t go on, it won’t).

Since we are seeing an increase in the political rhetoric divided over whether the government or markets should be the dominant force in health care financing, it is worthwhile looking at the total administrative costs of these two approaches to financing health care. Although government spending accounts for about half of all health care spending, we are paying private insurers more than four times as much in administrative costs and profits as we are spending on government administration of health insurance programs.

It is true that the net cost of private health insurance includes the administrative costs of private Medicare Advantage plans and private Medicaid and CHIP managed care plans, but this does not begin to account for the four fold differences in total administrative costs between public and private insurance.

Keep this in mind during the national debate over the Affordable Care Act this political season, which will continue to take place regardless of the Supreme Court decision. One side will argue that we need to encourage free markets of private plans plus private options for Medicare. The other side will argue that we need exchanges to provide choices of private plans, while continuing to offer private Medicare Advantage plans. The one side will talk about private markets while condemning the government, whereas the other side simply will avoid rhetoric referencing the government while touting the virtues of nominal ACA reforms of the private insurers. Both sides are wrong!

We need to get rid of the private insurers and switch to a publicly administered single payer national health program. Besides, then we can address more effectively our health care costs that continue to increase at a rate two percent above the growth in our economy – a rate that is intolerable when compounded year after year.

Center for American Progress report on illusive administrative savings

Posted by on Tuesday, Jun 12, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Paper Cut – Reducing Health Care Administrative Costs

By Elizabeth Wikler, Peter Basch, and David Cutler
Center for American Progress, June 2012

This paper outlines the nature of administrative costs affecting both health care payers and providers, and considers ways to contain these costs. Many such efforts are underway, including the ongoing implementation of the Health Insurance Portability and Accountability Act alongside several different elements of the Affordable Care Act. Continued progress in these areas is thus a central step to lower administrative spending.

Even still, many additional actions will be needed. In the pages that follow, we outline a three-pronged strategy for addressing administrative costs:

* Integration: embedding administrative simplification rules and systems into existing reform efforts

* Coordination: bringing together similar administrative processes by different health care participants to maximize efficiency

* Leadership: creating a new federal office dedicated to simplifying health care administrative plans

Tackling wasteful administrative costs in our health care system in these three ways would result in savings we estimate at $40 billion per year.

These savings are eminently achievable. By integrating new performance standards to promote adoption of electronic transactions such as requiring that electronic health records include utilization metrics for electronic billing and other administrative transactions, we can achieve roughly $26.1 billion in annual savings. By coordinating similar processes by different health care participants—such as physician credentialing and enrollment, quality and safety reporting, and enrollment and retention systems for public programs—we can save $7.7 billion each year. And by ensuring leadership at the federal government level through a new senior-level office dedicated to ensuring that administrative simplification plans are carried through and that innovative results are achieved, we can save potentially much more.

Tackling excessive administrative costs offers a promising opportunity for reducing health care costs while improving the quality of care for all Americans.

report
http://www.americanprogress.org/issues/2012/06/pdf/papercuts_final.pdf

column
http://www.americanprogress.org/issues/2012/06/healthcare_admincost.html

About the Center for American Progress

The Center for American Progress is an independent nonpartisan educational institute dedicated to improving the lives of Americans through progressive ideas and action.

We develop new policy ideas, critique the policy that stems from conservative values, challenge the media to cover the issues that truly matter, and shape the national debate.

Founded in 2003 by John Podesta to provide long-term leadership and support to the progressive movement, CAP is headed by Neera Tanden and based in Washington, D.C.

http://www.americanprogress.org/aboutus

The Center for American Progress is dedicated to “improving the lives of Americans through progressive ideas and action.” Yet they were involved in bringing us the Affordable Care Act (ACA) while working with others to keep single payer off the table. They understand that one of the more important features of single payer is administrative efficiency. Let’s see how they would address that under ACA.

Basically, they have three proposals. They would move administrative functions such as billing into the patients’ electronic medical records; they would coordinate processes such as physician credentialing and patient enrollment through information technology systems, and they would add a new governmental bureaucratic agency to provide oversight of these additional administrative functions.

They contend that this would save about $40 billion annually, though $34 billion of that is already projected through the provisions of ACA and HITECH implementation. They contend that their proposal would add another $6.21 billion to the savings.

Can you imagine the expense of these complex computer systems and the nightmare of trying to coordinate and integrate the various systems amongst aggressive competitors, each of whom would attempt to position themselves in a effort to dominate the market? And obsolescence? That’s built in, both through efforts to perpetuate revenue flows to this industry, and through disruptive innovation designed to capture competitors’ markets. This won’t save costs. Costs will dramatically increase.

And adding another governmental administrative bureaucracy to our dysfunctional system is going to reduce administrative costs? In their effort to continue to suppress single payer they seem to have rejected the obvious concept that they need to REPLACE our current fragmented system of private plans and programs that wastes so much in administration. Instead, they would pile more onto the system.

It’s not as if they didn’t understand. They even cited a paper by David Himmelstein and Steffie Woolhandler, well known in the policy community as authors of landmark papers on administrative excesses in health care. But they didn’t include one of the obligatory Woolhandler/Himmelstein papers that showed that the United States could recover hundreds of billions of dollars in administrative waste by switching to a single payer system. Instead, they pushed their own proposal purportedly showing a highly dubious savings of a mere $6 billion, even though it is much more likely that their proposal would increase costs instead.

Neera Tanden, president of the Center for American Progress has been deeply involved with the current administration in formulating and advocating for the Affordable Care Act. This article seems to be a dishonest vehicle for continuing to dismiss single payer, with the excuse that they are taking care of the administrative inefficiencies, and supposedly saving us money in so doing.

This article coincides with the pending release of the Supreme Court decision on the constitutionality of the Affordable Care Act. It seems to be a preemptive maneuver in anticipation of the imminent surge in demand for a single payer national health program when the decision is announced. They may think that, with this paper as a distraction, they’re ready for us, but we’ve got their number. Let’s lead the surge.

UnitedHealth’s spurious generosity

Posted by on Monday, Jun 11, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

UnitedHealthcare Voluntarily Extends Important Health Reform Protections Regardless of Upcoming Rulings by Supreme Court

UnitedHealth Group
June 11, 2012

UnitedHealthcare, a UnitedHealth Group (NYSE: UNH) company, will continue to offer important health care insurance protections that were included in the 2010 health care reform law, no matter how the U.S. Supreme Court rules in cases currently pending before the Court.

UnitedHealthcare will continue provisions related to coverage of preventive health care services, coverage of dependents up to age 26, lifetime policy limits, rescissions and appeals.

“The protections we are voluntarily extending are good for people’s health, promote broader access to quality care and contribute to helping control rising health care costs. These provisions make sense for the people we serve, and it is important to ensure they know these provisions will continue,” said Stephen J. Hemsley, president and CEO of UnitedHealth Group. “These provisions are compatible with our mission and continue our operating practices.”

These protections are effective immediately, and will remain available to current and future customers and members. The company is not establishing any sunset provisions.

UnitedHealthcare recognizes the value of coverage for children up to age 19 with pre-existing conditions. One company acting alone cannot take that step, so UnitedHealthcare is committed to working with all other participants in the health care system to sustain that coverage.

The specific provisions being extended by UnitedHealthcare are:

Preventive Health Care Services without Co-Pays

Providing Dependent Coverage Up to Age 26

Eliminating Lifetime Limits

No Rescissions, Except for Fraud

Providing Clear and Timely Options for Appeals

http://www.unitedhealthgroup.com/newsroom/news.aspx?id=59c64ad7-908b-4806-931f-aed3beff7ba0

You have to hand it to UnitedHealth’s public relations department. No matter how the Supreme Court rules on the Affordable Care Act (ACA), this press release establishes UnitedHealth as a leader in patient advocacy, or at least it would seem so.

If ACA is upheld, this press release means nothing since these are already requirements of the Act. If ACA is struck down, these are very popular measures that are quite inexpensive and thus will not drive up premiums to non-competitive levels. The most expensive measure is the coverage of dependents up to age 26, but that adds only about one percent to the premiums. Besides, other insurers will likely follow suit in order to more effectively market to a greater number of young, healthy families. So no matter what happens, UnitedHealth takes credit for taking the lead.

UnitedHealth used one example of a policy that they will not follow, indicating that they will not unilaterally provide patients with some of the more important protections required in ACA. They are correct when they say that they cannot cover children with preexisting conditions unless the entire industry cooperates in distributing those higher cost risks. If one insurer generously accepts those risks, then their costs would skyrocket and they would be forced out of the market by the death spiral of insurance premiums.

UnitedHealth has remained silent on some of the more important requirements not yet in effect that could be overturned by the Supreme Court decision. Insuring preexisting conditions for adults in addition to children, guaranteeing issue of coverage to all individuals regardless of projected costs, and setting premiums based on community rating – driving up premiums for lower-cost, healthier patients – are more significant measures that could impair their competitiveness if they acted unilaterally. We won’t see these policy changes unless ACA is upheld and all insurers are required to comply.

Also they are silent on keeping administrative costs and profits down to a level that complies with the medical loss ratios dictated by ACA. Turn ACA over then there would be no federal requirement to comply, though that would still be the prerogative of the states. States under the political control of anti-government, free-market advocates would likely leave medical loss ratios to the insurers and their Wall Street promoters (where low medical loss ratios – spending less on patients-  is a business activity that is rewarded with higher stock valuations).

UnitedHealth’s “generosity” in conceding the very modest positions they listed in their release applies only to the individual and small group markets – a relatively small proportion of their business. Most plans for large employers will be grandfathered, and most of the ACA provisions will not apply – certainly not the requirements specific to the exchanges since large employer plans will not be included in the state exchanges. Also, many large employers are self-insured, and for them UnitedHealth provides only administrative functions, while specific benefits are determined by the employers.

We can’t blame UnitedHealth for trying to protect its market position, but we can blame our elected representatives for adopting policies that perpetuate and expand an industry which must comply with market demands for lower prices – a demand that can be met only by strategic decisions to avoid market segments such as children who are ill.

Is that what America is about? Let’s take care of the kids, even up to age 26, but not the sick ones? What other country does that?

FEHBP as a model for exchanges

Posted by on Friday, Jun 8, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Federal Employees Health Program Experiences Lack Of Competition In Some Areas, Raising Cost Concerns For Exchange Plans

By Timothy D. McBride, Abigail R. Barker, Lisa M. Pollack, Leah M. Kemper and Keith J. Mueller
Health Affairs, June 2012

The Affordable Care Act calls for creation of health insurance exchanges designed to provide private health insurance plan choices. The Federal Employees Health Benefits Program is a national model that to some extent resembles the planned exchanges. Both offer plans at the state level but are also overseen by the federal government. We examined the availability of plans and enrollment levels in the Federal Employees Health Benefits Program throughout the United States in 2010. We found that although plans were widely available, enrollment was concentrated in plans owned by just a few organizations, typically Blue Cross/Blue Shield plans. Enrollment was more concentrated in rural areas, which may reflect historical patterns of enrollment or lack of provider networks.

http://content.healthaffairs.org/content/31/6/1321.abstract

Supporters of the Affordable Care Act claim that the the state insurance exchanges would provide a robust market of private plans. One need look only as far as the Federal Employees Health Benefits Program (FEHBP) – the largest employer-sponsored private health insurance program in the nation – to see that such markets tend to concentrate dominant players. Instead of the magic of market competition, we can anticipate only more pain characteristic of dysfunctional or non-existent markets.

Single payer, anyone?

Comment from QotD reader Joel Segal

I have been on FEHBP plan for the past 12 years, and therefore can credibly speak about the positive and negative aspects of the program.

With the FEHBP plan, I have been able to receive medically necessary care, and the program has covered a good percentage of the costs of my CPAP and bi-pap machines that I use for my severe obstructive sleep apnea. Before I was on the FEHBP plan, I could not receive medically necessary health care services for my sleep apnea and other chronic health conditions. I was forced to become a “health care beggar,” borrowing money from friends, family members, and people of good will just to pay for some of my most serious health care needs. However, despite my charitable friends, for years, I went without the needed care, and remained sick, disabled, and often unable to work a full time job or work at all.

Without the FEHBP plan, I would have become permanently disabled, or developed other serious life-threatening health complications such as heart problems, which often result from untreated sleep apnea. The worst aspect of the FEHBP plan are the steep out-of-pocket costs for hospital visits, doctor’s visits, and other treatment that I need to live a healthy life. Having a chronic illness such as sleep apnea, means high out-of-pocket costs for CPAP masks, sleep studies, and new machines — which are often several hundreds of dollars per year, and sometimes a few thousand dollars per year. My co-pays are often very steep, and there have been many times where providers tried to deny me care that I truly needed, because I could not afford to pay prior balanced billing charges. But, because I demanded that I be treated in their offices (or begged for care!) they let me get the care. Most people are very fearful of their health care providers, and often leave doctor’s offices having been denied medically necessary care due to unpaid bills. This is just a reality of our current for-profit health care system.

I owe approximately $8,000 in co-pays over the last 5 years under the FEHBP, and have paid out-of-pocket approximately $15,000 for medically necessary care over the last 12 years. The problem with the FEHBP plan is that it typically covers 70-80 percent of the bill, leaving the patient who uses the health care system the most with enormous co-pays and medical bills. For young and healthy persons who get sick with the flu or a cold, and see a doctor perhaps twice a year, the program works fine. The people who suffer the most under the FEHBP plan are government employees who have chronic illnesses, or have an emergency surgery or procedure, and must pay the 20 percent of the bill that the plan does not cover.

We need a universal single-payer program like H.R. 676 or H.R. 1200, which will contain rising health care costs, while providing the highest standard of universal health care to all Americans.

Sincerely,

Joel Segal
Universal Single Payer Advocate

OIG catches PacifiCare red-handed

Posted by on Thursday, Jun 7, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Risk Adjustment Data Validation of Payments Made to PacifiCare of Texas for Calendar Year 2007

Office of Inspector General
Department of Health and Human Services, May 2012

Executive Summary

Background

Under the Medicare Advantage (MA) program, the Centers for Medicare & Medicaid Services (CMS), makes monthly capitated payments to MA organizations for beneficiaries enrolled in the organizations’ health care plans (beneficiaries). Subsections 1853(a)(1)(C) and (a)(3) of the Social Security Act require that these payments be adjusted based on the health status of each beneficiary. CMS uses the Hierarchical Condition Category (HCC) model (the CMS model) to calculate these risk-adjusted payments.

Under the CMS model, MA organizations collect risk adjustment data, including beneficiary diagnoses, from hospital inpatient facilities, hospital outpatient facilities, and physicians during a data collection period. MA organizations identify the diagnoses relevant to the CMS model and submit these diagnoses to CMS. CMS categorizes the diagnoses into groups of clinically related diseases called HCCs and uses the HCCs and demographic characteristics to calculate a risk score for each beneficiary. CMS then uses the risk scores to adjust the monthly capitated payments to MA organizations for the next payment period.

PacifiCare of Texas (PacifiCare) is an MA organization owned by UnitedHealth Group. For calendar year (CY) 2007, PacifiCare had multiple contracts with CMS, including contract H4590, which we refer to as “the contract.” Under the contract, CMS paid PacifiCare approximately $1.3 billion to administer health care plans for approximately 118,000 beneficiaries.

Objective

Our objective was to determine whether the diagnoses that PacifiCare submitted to CMS for use in CMS’s risk score calculations complied with Federal requirements.

Summary of Findings

The diagnoses that PacifiCare submitted to CMS for use in CMS’s risk score calculations did not always comply with Federal requirements. The risk scores calculated using the diagnoses that PacifiCare submitted for 57 of the 100 beneficiaries in our sample were valid. The risk scores for the remaining 43 were invalid because the diagnoses were not supported for one or both of the following reasons:

* The documentation did not support the associated diagnosis.

* The diagnosis was unconfirmed.

PacifiCare did not have written policies and procedures for obtaining, processing, and submitting diagnoses to CMS. Furthermore, PacifiCare’s practices were not effective in ensuring that the diagnoses it submitted to CMS complied with the requirements of the 2006 Risk Adjustment Data Basic Training for Medicare Advantage Organizations Participant Guide (the 2006 Participant Guide) and the 2007 Risk Adjustment Data Training for Medicare Advantage Organizations Participant Guide (the 2007 Participant Guide). UnitedHealth Group officials stated that the providers were responsible for the accuracy of the diagnoses that PacifiCare submitted to CMS.

As a result of these unsupported and unconfirmed diagnoses, PacifiCare received $183,247 in overpayments from CMS. Based on our sample results, we estimated that PacifiCare was overpaid approximately $115,422,084 in CY 2007.

http://www.oig.hhs.gov/oas/reports/region6/60900012.pdf

As you know, Medicare beneficiaries have the option of leaving the traditional Medicare program and obtaining their care through private insurers offering Medicare Advantage plans. These private plans receive from the government monthly capitation payments (a set dollar amount for each beneficiary enrolled). To protect the private insurers from the higher spending required for sicker patients, the capitation payments are adjusted upward based on how ill the patients are. This is known as risk adjustment. Sounds reasonable. So what’s the deal here?

Keep in mind that the traditional Medicare program is designed to serve patients whereas the private Medicare Advantage plans are private businesses designed primarily to make money. So how can these private plans meet their business obligation of keeping their spending down while increasing their revenues?

Quite simple. Game risk adjustment. Report many of the patients as having more serious disorders than they really do in order to increase the capitation payments. Although the insurers have denied that they do this, the Office of the Inspector General has caught them red-handed.

Based on this chicanery, UnitedHealth’s PacifiCare was overpaid about $115 million for this one contract alone. That is almost $1000 excess for each of the 118,000 beneficiaries enrolled!

The Affordable Care Act is perpetuating and expanding our fragmented health care financing system which is dependent to a great extent on private insurers. To avoid the problems of favorable selection (insurers enrolling only healthy patients and keeping the extra profits) and adverse selection (the government being stuck with the losses of high cost patients after the healthier are siphoned off), the Act calls for risk selection.

The problem is that we do not know how to detect and correct for all of the games that the insurers play to work risk adjustment to their own advantage. It has been estimated that risk adjustment captures only about 10 percent of the overpayments that the private insurers gain through this gaming. As further adjustments are added, the insurers simply find new ways around the system. These are not necessarily illegal maneuvers but are rather simply “good business practices.”

Our own government stewards from the OIG, working for us, have exposed this scheme that is being used to skim off our tax dollars. So what are we going to do about it? Don’t you think it’s time to get rid of the amoral business ethic in health care financing and instead place in charge people dedicated to a service ethic?  We can do this by establishing our own single payer national health program. But first we have to elect people who place public service above all. Supporting the 1 percent isn’t working.

John Geyman’s “Health Care Wars”

Posted by on Wednesday, Jun 6, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Copernicus Healthcare

Health Care Wars: How Market Ideology and Corporate Power Are Killing Americans

By John Geyman, M.D.

From the Preface

We have been told from time immemorial in this country that free markets, unfettered by government interference, are the fix for any of our problems. The notion that a competitive private marketplace gives us more information, choice, efficiency and value has been repeated so often for so long that it has become a meme (a self-replicating idea that is perpetuated regardless of its merits). Although this idea has become as American as apple pie and might work in some sectors of the economy, it does not work that way in health care.

The shared prosperity that followed World War II gave rise to the American dream that brought new hope and opportunities for much of our population. But over the last 30 years, under a relentless attack by conservatives and willing Democrats, this dream is disappearing.

This book takes an evidence-based approach to assess and describe the track record of health care markets as they actually work. As you will see, it is a story of profiteering, greed and waste with very little accountability. I hope that this book is useful in informing the public, policymakers and politicians of the real problems with markets. We will need a strong and powerful unified grassroots movement to push our leaders toward real reform.

http://www.copernicus-healthcare.org/

It has long been recognized that health care does not follow the rules of free markets, yet the United States continues to rely on a fragmented, dysfunctional financing system that fails to adequately correct for these market deficiencies. In Health Care Wars, John Geyman shows us how this has been a disaster, while providing us with hope through the prospect of our empowerment as both patients and taxpayers.

Jonathan Gruber: “We don’t know how to fix it.”

Posted by on Tuesday, Jun 5, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Health reform gets messy in Massachusetts

By Kyle Cheney and Jason Millman
Politico, June 3, 2012

Jonathan Gruber, an MIT economist who advised the Legislature and Romney on the 2006 Massachusetts law, pleaded with stakeholders to accept that curbing health costs takes time.

“We don’t know the answer. We don’t know how to fix it now, and we have to experiment and be more patient,” Gruber told a health care conference in Boston in late May.

http://www.politico.com/news/stories/0612/76991.html

And…

Hardball with Chris Matthews
MSNBC, March 27, 2012

Chris Matthews:  Single payer. Is that a better economic deal, with no profit motive?

Jonathan Gruber:  I think that single payer, if you could start over, I think that single payer has a lot to recommend it, but we can’t…

http://www.msnbc.msn.com/id/3036697/#46873470

MIT economist Jonathan Gruber, speaking on curbing health care costs, told a Boston conference late last month, “We don’t know how to fix it.”

Why do we keep quoting MIT economist Jonathan Gruber? Because he was an authority upon whom both Governor Romney and President Obama relied for advice on comprehensive health reform. Yet his utterances seem to vitiate his previous advice.

He does concede that “single payer has a lot to recommend it,” but, he, like many others who know better, dismisses it simply on the basis of a lack of political feasibility. But in continuing to support a system that “we don’t know how to fix,” does that really represent critical thinking?

Conceding that “single payer has a lot to recommend it” is quite a concession coming from such a noted economist who has so strongly advocated for a system that we don’t know how to fix. If only President Obama and Presidential-candidate Romney would listen to him now – that is when Gruber speaks about the economics of single payer, not the politics.

Suppose the politics changed and we had a President, a Congress and an informed public fully in support of single payer. Do you think that Jonathan Gruber would insist that we continue with a system that we don’t know how to fix? After all, he does understand fundamental economics.

Himmelstein and Woolhandler explain savings from single payer

Posted by on Friday, Jun 1, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Single-payer health care would save billions for Massachusetts

By David U. Himmelstein and Steffie Woolhandler
The Boston Globe, May 30, 2012

The House and Senate health care proposals would set imaginary limits for spending growth enforced by secret “improvement plans” and wrist slaps for hospitals that overcharge; establish tiered payment schemes to consign the poor and middle class to second-tier hospitals and doctors; push most residents of the Commonwealth into HMOs (oops, we forgot, now they’re called “accountable care organizations,” or ACOs); and wipe out small doctor’s offices by “bundling” their pay into ACO payments. Apparently the legislators’ theory is that forcing health care providers to consolidate cuts costs. Oligopoly saves money?

Here are six alternative steps the Legislature could take that would actually save money while still preserving care.

*  Cut out the middlemen. Why exactly do we pay private insurers 10 cents of every premium dollar? The plan that covers all 13 million residents of the Canadian province of Ontario has overhead of only 1 percent. Adopting that single-payer approach in Massachusetts would save about $2 billion in insurance overhead in 2013 alone.

*  Pay hospitals the way we pay fire departments: real global budgets that cover all operating costs, not the per-patient schemes that are masquerading as global payments. Billing, collections, and paperwork consume nearly one quarter of hospitals’ revenues. Eliminate billing for individual patients and you’d cut that nearly in half. The savings: about $3 billion in 2013.

*  End the medical arms race and enforce real health planning. Hospitals and clinics vie for affluent patients needing lucrative high-tech care. They reap surpluses, a.k.a. profit, which they use to buy fancy machines and superluxe buildings – usually situated where there’s already a surplus of such facilities. Inevitably, the surplus facilities induce unnecessary, even harmful overcare. Meanwhile, underserved communities and under-provided services like mental health and substance abuse are starved of investment. Hospital payments should go for patient care, not new buildings. Money for new buildings and technology should flow to a separate fund, and be allocated according to need, not profitability, through a transparent public process. Investing in what’s needed instead of what’s profitable would save billions and improve care for both the poor and the affluent.

*  Right-size the physician work force: more primary care, fewer specialists. Massachusetts hospitals take pride in training super-specialists who go on to provide profitable but often unneeded care (see above). Meanwhile, the primary care shortage persists. The public, through Medicare, already pays for residency training and should use the power of the purse to make hospitals train the doctors that the public needs. And physicians’ fee schedules should be altered to assure that best students are attracted to the most needed, important, and difficult fields – primary care – and that doctors make as much for talking to patients as for putting them through a scanner.

*  Negotiate drug prices statewide. Canadians pay 40 percent less for drugs than we do because they use single-payer buying power to drive down prices from pharmaceutical companies. Why can’t we?

*  Cap health executives’ incomes. Why should a hospital CEO make more than the president of the United States?

(David U. Himmelstein, M.D. and Steffie Woolhandler, M.D., M.P.H. co-founded Physicians for a National Health Program. They are professors at the City University School of New York School Public Health and visiting professors at Harvard Medical School. They worked as primary care doctors in Massachusetts from 1982-2010.)

http://www.bostonglobe.com/opinion/2012/06/01/single-payer-health-care-would-save-billions-for-massachusetts/yNTLRlKucgdJCUCU3P5arM/story.html

To explain simply what is meant by “single payer,” we often allude to an “Improved Medicare for All.” That seems to suggest that we merely need to tweak Medicare and then provide it to everyone – that simply eliminating private insurers is all we need to do. This article by PNHP co-founders David Himmelstein and Steffie Woolhandler briefly describes how the single payer model is much more than that, especially pointing out how it would be tremendously effective in slowing the nearly intolerable increases in health care spending, while dramatically improving the functioning of our health care delivery system.

First, a little background. When the Massachusetts health reform legislation was ready to be enacted, it was criticized for failing to address one of the most important reasons for reform – it did not include effective measures to contain costs, a flaw challenged by single payer supporters. Rather than taking another look at single payer, Gov. Romney’s advisor, MIT economist Jonathan Gruber, famously said that first we should get everyone covered by passing this, and then we’ll work on controlling spending.

Of course not everyone is covered in Massachusetts, while cost increases continue out of control. In response, the Massachusetts House and Senate have prepared separate but similar bills to control spending, while ignoring the remaining uninsured. Instead of adopting structural changes that would reduce waste – as Himmelstein and Woolhandler recommend – they would apply spending restrictions that could threaten solvency of components of the health care delivery system, while compounding the problems of patient access already evident in the inadequacies of the primary care infrastructure.

As everyone knows, the Affordable Care Act (ACA) was patterned on the same model as used in Massachusetts. Single payer advocates were vehemently proclaiming that ACA would leave too many out of the system, and that it would fail to address rising health care costs – the two primary problems that motivated reform. But we were excluded from the process.

As our members of Congress toiled over the markup of the legislation, measures were included that nominally would control costs. However, with the possible exception of the Independent Payment Advisory Board (IPAB), none of the included measures would have a significant impact on health care costs. Even the IPAB would have the serious flaw of cutting solely Medicare and not private insurer payments to the health care delivery system, threatening underfunding and likely impairing access due to the exodus of physicians from the Medicare program.

The primary reason that the meager measures to contain spending are inadequate is that ACA left in place and built upon our existing dysfunctional financing system with its profound waste. What we needed instead was a complete overhaul of the financing infrastructure, including not only changing to an administratively simplified single payer but also measures such as those listed by Himmelstein and Woolhandler.

Eliminating private insurers and switching to a single public insurer is the most important and effective measure of single payer, but the other measures are essential if we want to join the other wealthy nations that provide quality care to everyone at an average of half of what we are currently spending.

When you advocate for single payer by pushing an “Improved Medicare for All,” be sure in the same breath to let your listeners know the extent of our recommendations: “An Improved Medicare for All that would totally overhaul our dysfunctional financing system so that it works best for patients.”

In this age of sound bites, if you have another breath, you can point out that single payer would also have a highly favorable impact on the health care delivery system, by enhancing primary care, and by efficiently expanding facilities and high-tech capacity based on medical need instead of profit and extravagance.

Above all, it’s crucially important to communicate that single payer is not just your mother’s Medicare.

PwC predicts medical cost increases

Posted by on Thursday, May 31, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Medical Cost Trend: Behind the Numbers 2013

PwC (PricewaterhouseCoopers)
Health Research Institute, May 2012

Healthcare spending growth in the United States has slowed considerably over the past three years. And despite expectations that the trend would bounce back up in 2012, it did not. In fact, we see no major change on the horizon for 2013.

Medical cost trend measures spending growth on health services and products—a critical factor in calculating insurance premiums for employers and consumers. For 2013 PwC’s Health Research Institute projects a medical cost trend of 7.5%. Perhaps most notably, the historically large gap between healthcare growth and overall inflation has closed slightly.

As a result, the United States finds itself at a crossroads with respect to medical inflation. History suggests that the current slowdown is merely a dip mirroring broader economic trends and that medical cost growth will return to “normal” when the rest of the economy recovers fully. Looking even further out, if the Affordable Care Act is fully implemented, tens of millions of newly-insured Americans receiving care for the first time in years could cause a spike in spending in 2014 and beyond.

But across the healthcare landscape behaviors are beginning to change. Employers are pushing wellness programs with real enforcement muscle. Healthcare providers and drug makers are embracing the quest for value. And patients are becoming more cost-conscious medical consumers.

It is always dangerous to predict that medical cost trend could be approaching a more sustainable level. Yet if the structural forces in the industry take hold, the U.S. health system may be entering a “new normal.”

Executive summary

The focus on medical cost containment strategies is continuing, aided by the sluggish economy, reforms in the healthcare industry, and efforts by employers to hold down costs.

More than half of the employers surveyed by HRI are considering increasing employees’ share of health benefit cost and expanding health and wellness programs in 2013.

In estimating the medical cost trend growth for 2013, HRI relied on multiple sources including interviews with health plan actuaries and industry leaders, a review of available surveys and analyst reports, and PwC’s own 2012 Health and Well-Being Touchstone Survey of 1,400 employers from more than 30 industries. In this year’s report, we identified:

Four factors that will deflate medical cost trend in 2013:

* Medical supply and equipment costs abate under market pressure. Supplies can account for more than 40% of the cost of certain procedures. Recent hospital consolidation and physician employment are enabling administrators to move away from “physician preference” purchasing and negotiate for significant savings. In addition, insurers are pressuring hospitals to hold down these expenses.

* New methods to deliver primary care gain popularity. One of the slowest areas of cost growth has been in physician services, and this trend is expected to continue in 2013 as consumers choose alternatives to the traditional doctor’s office visit. Lower-cost options such as workplace and retail health clinics, telemedicine, and mobile health tools continue to gain market share because employers and consumers view them as cost effective and convenient.

* Price transparency exerts pressure. As comparative cost information becomes more readily available, purchasers such as employers and individual patients can shop for non-emergency services such as tests and elective procedures. Providers meanwhile are under pressure to justify prices. More than 30 states require some reporting of hospital charges and reimbursement rates. Congress is considering legislation that would prohibit cost confidentiality clauses in insurance and hospital contracting.

* The pharmaceutical patent cliff continues to foster the use of cost-saving generics. Many blockbuster drugs have recently gone off patent, which will have a major effect on lowering drug spending in 2013.

Two factors that will inflate medical cost trend in 2013:

* Uptick in utilization trend is expected in 2013. The recession of 2007–2009 contributed to a significant slowing in healthcare consumption, as many people who lost jobs or were afraid of losing employment delayed care. As the economy continues to strengthen, utilization is expected to rebound.

* Medical and technological advances accelerate growth of higher-cost care. Remarkable new discoveries and technological advances let many in society live much longer—but often at a significantly higher cost. New technologies, such as robotic surgery and positron emission tomography services, have grown rapidly, with 36% of hospitals performing robotic surgery in 2010. Several health plans reported an uptick in high-cost cases, many surpassing the million-dollar mark.

What this means for your business

Employers and insurers will want to capitalize on the recent slowdown, while doctors, hospitals, and pharmaceutical companies will need to retool their business models to succeed in the new environment.

http://www.pwc.com/us/en/health-industries/behind-the-numbers/key-findings.jhtml

This annual PwC projection of medical cost trends with employer-sponsored health programs seems to celebrate the slowing of cost trends at the 7.5 percent level for 2013. Yet that is well in excess of the rate of inflation. Our nation’s employers and their private insurer partners have remained ineffective in controlling health care cost escalation.

PwC discusses four factors that they say should deflate the medical cost trend, but when you look closer at them, they would barely tweak costs.

* Hospital consolidation may place administrators in a better negotiating position for purchasing supplies and equipment, but since these are not services but rather products with relatively fixed production costs, negotiable margins will be quite narrow. Very little savings will be reflected in the bottom line of total costs.

* Retail health clinics might charge lower fees than primary care practices, but not much lower. Also, most health care still needs to be delivered within the traditional system of primary care professionals, specialists, and hospital and outpatient services. A discount on flu shots and exams for common colds in a convenience clinic will not make much of a dent in spending on the 80 percent who are relatively healthy, yet still receive most of their care through traditional health care professionals and facilities. It won’t have any impact at all on the 80 percent of health care that is consumed by those with more significant health care problems.

* There is much discussion of price transparency, as if patient/consumers are going to drive down prices through health care shopping. Most prices paid are determined not by price checks but by administered rates of government programs or negotiated rates through third party payers, including private insurers and employers with self-insured programs. Ubiquitous price shopping is merely a dream of ideologues.

* It is true that many blockbuster drugs are coming off of patent and will be much less expensive as generics. But when you look at some of the newer agents and the research that is down the line, the quest of the pharmaceutical and biotech industry is for drugs and biologicals with five and six digit prices, or maybe four digits for products with low production costs and higher utilization. The PwC report mentions $300,000 and $400,000 drugs that are already on the market. The industry has no interest in producing new $20 drugs.

The report also mentions factors that will inflate health care costs, including increased utilization as the economy recovers, and increased spending on newer expensive technology. Also spending increases will occur if the states are successful in enrolling significant numbers of previously uninsured individuals in their insurance exchanges, and if employers increase coverage to avoid penalties should the Affordable Care Act survive its challenges.

Until we are ready to change to a much more efficient single payer national health program, we can anticipate that intolerable health care inflation rates will stay with us. As more of us suffer from the results – impaired access and financial hardship – we may finally reach a threshold wherein we are ready to act. Until then, don’t get sick.

Tradeoff between risk protection and moral hazard

Posted by on Wednesday, May 30, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Estimating the Tradeoff Between Risk Protection and Moral Hazard with a Nonlinear Budget Set Model of Health Insurance

By Amanda E. Kowalski
The National Bureau of Economic Research, May 2012

Abstract

Insurance induces a well-known tradeoff between the welfare gains from risk protection and the welfare losses from moral hazard. Empirical work traditionally estimates each side of the tradeoff separately, potentially yielding mutually inconsistent results. I develop a nonlinear budget set model of health insurance that allows for the calculation of both sides of the tradeoff simultaneously, allowing for a relationship between moral hazard and risk protection. An important feature of this model is that it considers nonlinearities in the consumer budget set that arise from deductibles, coinsurance rates, and stoplosses that alter moral hazard as well as risk protection relative to no insurance. I illustrate the properties of my model by estimating it using data on employer sponsored health insurance from a large firm. Within my empirical context, the average deadweight losses from moral hazard substantially outweigh the average welfare gains from risk protection. However, the welfare impact of moral hazard and risk protection are both small relative to transfers from the government through the tax preference for employer sponsored health insurance and transfers from some agents to other agents through a common premium.

4.3 The Estimated Tradeoff Between Moral Hazard and Risk Protection

The third panel of Table 10 gives the tradeoff between the welfare gain from risk protection and the deadweight loss from moral hazard. The distribution of the tradeoff at any quantile generally is not equal to the difference between DWL (deadweight loss) and RPP (risk protection premium) at those quantiles. However, as shown in the penultimate column, the mean tradeoff is equal to the mean DWL minus the mean RPP. For all offered and hypothetical plans considered, the results show that the average deadweight loss exceeds the gain from risk protection. The average net welfare loss in each of the offered plans is around $5, or 0.25% of money at stake.

We see that the welfare gains that we estimate from insurance in Table 11 are very similar to predicted insurer spending reported in Table 8; demographic groups with higher predicted insurer spending derive a larger welfare gain from insurance than demographic groups with lower predicted insurer spending. As we see in Table 12, demographic groups with larger predicted insurer spending also have larger deadweight losses. Risk protection does not appear to vary with predicted insurer spending because the magnitudes of the risk protection premium are so small, but there is also some variation in the risk protection premium across demographic groups.

NBER:
http://papers.nber.org/papers/w18108

Full paper (highly technical):
http://www.econ.yale.edu/~ak669/kowalski05_17_12submit.pdf

The mainstream policy community likely will take from this study the fact that it supports the prevailing notion that losses from insured patients using more health care than they otherwise would have (moral hazard) are greater than the gains in protecting personal finances in the face of medical need (risk protection). Such an interpretation would be unfortunate simply because it is inadequate and therefore misleading.

Most importantly, the net welfare loss of using more care when there is risk protection is so small that it is almost negligible. In fact, the population studied (employees of a large retail trade firm) did not have high health expenditures and therefore would be the most likely to respond to direct costs incurred below their deductibles. Yet the data show that mean value of the extra care obtained above the value of the risk protection premium was almost negligible.

Most of health care spending is incurred by those with greater health care needs, a group that was not represented in this study of healthier individuals. People with greater health care needs exceed their deductibles and consequently do not experience consumer sensitivity to most of their health care prices.

Another important issue is that the extra health care accessed as a result of moral hazard should not be automatically dismissed as excess care. Half of it is not since it includes beneficial services, even though these services risk being dismissed merely because they are not reflected in improved mortality data. Even the care that might not seem to be beneficial still provides reassurance to concerned patients that their presenting complaints do not warrant further diagnostic or therapeutic intervention. Reassurance provided by health care professionals should not be considered to be a moral hazard.

The lesson to take home from this study is that the cost of trading up for more risk protection is almost negligible when the price paid is a very small increment in additional spending on largely beneficial health care that might otherwise have been foregone.

This is crucial in the continued debate over health care reform. There is considerable political pressure to shift price sensitivity to health care consumer/patients through consumer-directed high-deductible plans, health savings accounts, vouchers for Medicare plans, lower-tier plans in insurance exchanges, and other devious innovations that insurers will no doubt introduce in the future. These concepts are to deter the false bogeyman of moral hazard, but at the profound cost of threatening financial security for those of us with health care needs.

Regular readers already know how we can circumvent this nonsense – simply enact a single payer national health program that eliminates cost sharing. Countries that spend on average only half of what we do have shown that it can be done. The moral hazard is in not doing it.

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