Funding for primary care panel blocked

Posted by on Monday, May 16, 2011

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.

Partisan fights in Congress stall panel on primary-health-care shortage

By Amy Goldstein
The Washington Post, May 13, 2011

When the government set out to help 32 million more Americans gain health insurance, Congress and the Obama administration acknowledged that steering more people into coverage had a dark underside: If it works, it will aggravate a shortage of family doctors, internists and other kinds of primary care.

So Page 519 of the sprawling 2010 law to overhaul the health-care system creates an influential commission to guide the country in matching the supply of health-care workers with the need. But in the eight months since its members were named, the commission has been unable to start any work.

The group cannot convene, converse or hire staff because $3 million that it needs for its initial year has been blocked by two partisan wars on Capitol Hill — strife over the federal budget and Republicans’ disdain for the health-care changes that Democrats muscled into law 14 months ago.

“We’ve been sort of hamstrung,” said Fitzhugh Mullan, a professor of medicine and health policy at George Washington University who is one of the 15 commission members appointed by the Government Accountability Office. The panel’s only activity so far, Mullan said, was a single conference call during which members were told they could not lobby members of Congress for funds or accept money to operate from foundations or anywhere else.

The National Health Care Workforce Commission is intended as an ongoing brain trust to focus new energy on solving an old problem that will become increasingly severe. The law says the new commission will analyze primary-care shortages and propose innovations for the government — and medical schools — to help produce the doctors and other health workers the nation needs.

Proponents of the workforce commission say they were surprised that Republicans have balked, because there has, in the past, been little ideological schism over the need to bolster the supply of primary care — doctors, nurses, physicians assistants and others.

Republicans and Democrats agree with the health policy community that we desperately need to reinforce our primary care infrastructure. The National Health Care Workforce Commission that would propose innovations to help build primary care requires a mere $3 million to establish operations, but the Republicans have blocked this authorization. Do they expect us to simply rely on the private sector to meet this need? How is that working for us so far?

Insurers charge more, spend less

Posted by on Saturday, May 14, 2011

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 Insurers Making Record Profits as Many Postpone Care

By Reed Abelson
The New York Times, May 13, 2011

The headline says it all. Under the Affordable Car Act we’re getting more of the same, except worse (higher costs, skimpier coverage). It doesn’t have to be this way.

Uwe Reinhardt explains the Milliman Medical Index

Posted by on Friday, May 13, 2011

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.

Would Privatizing Medicare Lead to Better Cost Controls?

By Uwe E. Reinhardt
The New York Times, May 13, 2011

The annual Milliman Medical Index, released earlier this week by Milliman Inc., the Seattle-based employee-benefit consulting and actuarial company, is illuminating, and I highly recommend it. The index is particularly timely as the nation considers proposals to reduce sharply the role of the federal government in financing health care, along the lines proposed by Paul D. Ryan, Republican of Wisconsin and chairman of the House Budget Committee.

The index measures the total cost of health care for a typical American family of four covered by a preferred provider plan, widely known as a P.P.O. The index’s great virtue is that it includes not only the employer’s and employee’s contributions to the premium for P.P.O. coverage but also the out-of-pocket expenses the family has under the plan.

Employers can control the growth of health insurance premiums by shifting more and more of the cost from the insurance policy to the family’s budget, through higher deductibles and coinsurance or by excluding benefits from coverage that had previously been covered.

Thus, the index provides a more accurate picture of the actual burden of health spending for a typical American family than does just the premium for P.P.O. coverage.

The estimated average cost of health spending from all sources for a typical privately insured American family more than doubled in the last decade, to $19,393 in 2011 from $8,414 in 2001. Over the decade, the index exhibited an average compound annual growth rate — widely known in the trade as C.A.G.R. — of 8.8 percent, although, in recent years, that rate has ranged between 7 and 8 percent.

Despite that recent abatement, the growth rate is still more than twice the rate at which total average employee compensation has grown, for all but the top executives among private employers. In recent years, the growth in employee compensation has hovered beneath 3 percent.

In other words, health care is chewing up employees’ paychecks like Pac-Man in the famous arcade game. And there is considerable empirical evidence that the employer’s ostensible contribution to the employee’s health-insurance premiums actually comes out of the employee’s take-home pay.

As noted above, it is not a stretch to argue that the Milliman Medical Index bears directly on the hypothesis that private health insurers are able to control the growth in per-capita health spending better than Medicare can.

At the theoretical level, one might be persuaded to subscribe to that theory, because private nonprofit and commercial health-insurance plans have at their disposal cost-control mechanisms that traditional Medicare has been denied by statute — for example, selective contracting with preferred providers that offer the insurer lower prices, or various direct interventions to control the volume of health services.

In addition, private nonprofit or commercial health insurers can offer other advantages that traditional Medicare has not, like disease management, wellness programs and better coordinated care — advantages that, in principle, are empirically demonstrable if they exist.

But the Milliman data do not suggest that superior control over total health spending — as opposed to controlling premium growth through cost-shifting to private household budgets — is among the industry’s strengths. To argue that the industry can do so is, at this point, faith-based analysis.

It is widely assumed, among both health insurers and the hospital industry, that the more rapidly rising prices paid by private insurers reflect a cost shift from government to the private sector. The theory is that private insurers must compensate with higher prices for the shortfall from actual cost imposed on providers of care by unduly low Medicaid and Medicare payment rates.

With a few exceptions, economists remain skeptical on the validity of the cost-shift theory, although it may operate in some market environments.

But suppose one accepted the cost-shift theory at face value. It implies that in many markets with highly consolidated hospital systems and large physicians’ groups, private insurers simply lack the market power to resist price increases from the more powerful providers of health care for whatever reason — cost shift or otherwise.

For the full article:

Milliman Medical Index:

Each year we look at the Milliman Medical Index and realize that our current system is still not working. The Affordable Care Act (ACA) provides no realistic hope of slowing costs in the privately insured sector. ACA’s only effective mechanism is the establishment of the Independent Payment Advisory Board, but that would leave private plans alone while risking converting Medicare into an underfunded welfare program.

Looking at the Milliman numbers, it seems so obvious. Instead of privatizing Medicare, we should improve it and then provide it as a public program that covers everyone. Cost escalation would be slowed to sustainable levels while preserving free choice of physicians and hospitals (which would be lost in a privatized Medicare program).

Single payer legislation has already been introduced that would allow us to take a serious look at this concept. In the House, Rep. John Conyers has introduced The Expanded and Improved Medicare for All Act (H.R.676), and Rep. Jim McDermott has introduced the American Health Security Act of 2011 (H.R.1200), which also has been introduced in the Senate by Sen. Bernie Sanders as S.915.

It is no wonder that conservatives often say that if we don’t adopt their less regulated privatization schemes we are going to end up with single payer. They understand the numbers, and they realize that single payer would actually work. It’s time that we look at single payer not as a threat, but as a hope – a hope that we could finally provide affordable health care for everyone.

Comment originally published on The New York Times website

The Milliman Medical Index ($19, 393) in perspective

Posted by on Thursday, May 12, 2011

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.

2011 Milliman Medical Index

May 2011

The annual Milliman Medical Index (MMI) measures the total cost of healthcare for a typical family of four covered by a preferred provider plan (PPO).

2011 cost is $19,393 (an increase of $1,319, or 7.3% over 2010)

83.1% – Actuarial value of an employer-sponsored PPO

Relative proportions of medical costs

59% ($11,385) – Employer contribution
24% – ($4,728) – Employee contribution
17% – ($3,280) – Employee out-of-pocket

Under the Affordable Care Act (ACA) the largest sector of health care coverage – employer-sponsored plans – remains relatively unchanged. The Milliman Medical Index is a measure of health care costs in the employer-sponsored plan sector, so it is important to understand what the number – $19,393 – really means.

In 2011, $19,393 is the average amount paid for health care for a family of four insured by an employer-sponsored preferred provider organization (PPO). Keep in mind that this large sector is composed of members of the relatively healthy workforce and their young healthy families. It represents what we are paying for health care in the best of circumstances.

It is important to understand that the $19,393 is only the amount paid for actual health care and does not include the administrative costs of the insurers or the employers. It does not include the 15 or 20 percent of the premium that the insurer would consume under the ACA guidelines. However, the $19,393 does reflect the discounts that the PPO receives by contracting with the various providers, so list prices are not taken into consideration.

Milliman does split the costs into 1) the employer contribution to costs paid through insurance (which is not the same as the premium, as explained above), 2) the employee contribution to costs paid through insurance (ditto), and 3) the employee contribution to costs paid out-of-pocket (including deductibles, coinsurance, and co-payments).

Thus the employees’ average payment for actual health care costs is about $8000 or 40 percent of total average health care spending for a family of four. Yet these plans are better than the gold plans under ACA since they have an actuarial value of 83 percent (the insurance pays an average of 83 percent of the costs). Under ACA, most will purchase plans with actuarial values of 60 or 70 percent, so the patient will be responsible for even more of the costs (albeit with inadequate subsidies).

When you consider that the median household income is $50,221 (2009), $8000 is quite a bite out of the household budget, but most economists don’t buy this number. They calculate the employer contribution as having been paid by the employee in forgone wage increases. So it is the employee who is actually paying the full $19,393 in health care costs, plus the expenses consumed by the insurers that don’t appear in this number. Though an apples to oranges comparison, $20,000 in family health care costs and $50,000 median household income are not a dire prediction for the future. Those are today’s numbers!

In a society in which we have expanded the ongoing transfer of wealth up to the top of the chain, the only way we are going to be able to pay this staggering bill is through progressive financing. Middle-income individuals and families are no longer able to pay for their proportionate share of health care. We can do this simply, equitably, efficiently and transparently through the tax system (a tax-financed single payer system), or we can attempt to do it through a fragmented, inequitable, expensive, opaque, complex maze of private and public plans (ACA), acknowledging that we’ll fall far short of covering everyone while threatening hard working, middle-income Americans with financial hardship should they need health care.

So why isn’t this in the forefront of the national dialogue on health care spending? Do we really want the debate to be over slashing Medicare? That framing of the problem is getting us nowhere. Do we continue to let them control the framing as we stand on the sidelines taking potshots? Or do we finally take over the framing and debate the real issues that concern all of us? It’s our choice.


In today’s message on the Milliman Medical Index, I stated, “Though an apples to oranges comparison, $20,000 in family health care costs and $50,000 median household income are not a dire prediction for the future. Those are today’s numbers!”

The “apples to oranges” referred especially to two issues: 1) the family of four with an employer-sponsored PPO is not necessarily the same as a median household, and 2) $11,385 in health care paid by the employer, according to the view of most economists, should be added to the household income, but to the household income of the family of four with an employer-sponsored PPO (a number that I don’t have) and not to the median household with an income of $50,221.

The numbers are still valid.

The average costs of health care, with insurance administrative costs added, is about $20,000 for a four person family in the workforce.

Median household income is about $50,000.

You can adjust these numbers all you want to try to align them better (sort apples from oranges), but you will still end up with the fact that middle-income Americans need more help with their health care costs.

Risk adjustment

Posted by on Wednesday, May 11, 2011

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 Under the Affordable Care Act: A Guide for Federal and State Regulators

By Mark A. Hall
The Commonwealth Fund, May 2011


To achieve the aims of the Affordable Care Act, state and federal regulators must construct an effective system of risk adjustment, one that protects health insurers that attract a disproportionate share of patients with poor health risks. This brief, which summarizes a Commonwealth Fund–supported conference of leading risk adjustment experts, explores the challenges regulators will face, considers the consequences of the law’s risk adjustment provisions, and analyzes the merits of different risk adjustment strategies. Among other recommendations, the brief suggests that regulators use diagnostic rather than only demographic risk measures, that they allow states some but limited flexibility to tailor risk adjustment methods to local circumstances, and that they phase in the use of risk transfer payments to give insurers more time to predict and understand the full effects of risk adjustment.


The Affordable Care Act presents an opportunity to make the health care system more accessible and affordable, especially for patients with preexisting or chronic health conditions. But accomplishing health reform’s goals requires effective risk adjustment to ensure that the highly skewed distribution of medical costs across any population does not destabilize insurance markets by favoring some insurers over others. Although risk adjustment may be the thickest of technocratic regulatory weeds, wading into this thicket is critical if insurance reforms are to succeed.

Private health insurers, as businesses competing in the marketplace, have a responsibility to maximize profits and to maintain a competitive edge by offering insurance products with lower premiums. The surest way to do both is to enroll as many healthy individuals as possible while avoiding patients who have or may develop expensive health problems.

In a fragmented system of financing health care dependent on a multitude of private insurers, such as we have under the Patient Protection and Affordable Care Act, it is essential that policies be established to prevent insurers from basing their success on their ability to defeat the very purpose of insurance, which is to equitably shift the costs of health care from the few with greater health care needs to the many with fewer needs.

For an equitable, multi-payer health care financing system that theoretically covers everyone, not only must each insurer pool risks within their respective insurance pools, but regulators must have tools to redistribute funds from those pools comprised of mostly healthy individuals to those pools that have enrolled sicker patients who require more expensive care. This process of transferring funds from healthier pools to sicker pools is known as risk adjustment.

This twelve page Commonwealth Fund brief by Mark Hall is an excellent primer for trying to understand the processes and deficiencies of risk adjustment. Without going into any of the details, on reading this primer the conclusion can be reached that there are a multitude of opportunities for private insurers to game the system, and game it they will. We’re not talking about crooks. We’re talking about private businesses that have a duty to gain a competitive edge by exercising whatever innovations will give them that edge.

Although an inventory of gaming opportunities cannot possibly be provided in this comparatively brief message, a single example can demonstrate this problem.

One tool for adjusting risk is to use the diagnostic codes of the patients in the insurance pool. As the Commonwealth brief states, “Using diagnostic information will likely lead to some degree of upcoding (i.e., increased identification of higher-cost conditions), but some degree of increased diagnostic coding is desirable in order to correct for inaccurate or undercoding.”

Because of both patient confidentiality and the need to protect proprietary information, the coding is done by the insurer. Upcoding is a given since it rewards the insurer with transfers from pools with healthier diagnostic codes, but can you believe that the insurer would ever allow its employees to undercode?

Risk adjustment is important when risk is borne by third parties in multiple, fragmented pools. What would happen in a single payer system? Risk would be borne solely by the government, obviating the need for risk adjustment between pools.

That was the way Medicare worked until private Medicare Advantage plans were introduced. Although risk adjustment mechanisms have been introduced for these private plans, the insurers undoubtedly find ways to enroll the healthy while reporting them as being sick so that they benefit from risk adjustment.

Why have we not been apprised of this scandal? It is difficult for CMS to audit confidential, proprietary information that may have been manipulated in a manner that covers the trails that lead to results benefiting the insurers, especially when CMS is swamped with other work and is funded by austere budgets.

So this is one more reason to switch to an improved Medicare that covers everyone. It eliminates the need to attempt to accomplish the nearly impossible task of accurately adjusting for risk – a totally unnecessary task simply because the single government payer would bear all of the risk.

Sanders/McDermott single payer American Health Security Act of 2011

Posted by on Tuesday, May 10, 2011

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, Medicare-for-All Legislation Introduced

Senator Bernie Sanders
May 10, 2011

Sen. Bernie Sanders (I-Vt.) announced today that he introduced legislation to provide health care for every American through a Medicare-for-all type single-payer system.

Rep. Jim McDermott (D-Wash.) filed a companion bill in the House to provide better care for more patients at less cost by eliminating the middle-man role played by private insurance companies that rake off billions of dollars in profits.

The twin measures, both called the American Health Security Act of 2011, would provide federal guidelines and strong minimum standards for states to administer single-payer health care programs.

“The United States is the only major nation in the industrialized world that does not guarantee health care as right to its people,” Sanders said at a press conference on Capitol Hill. “Meanwhile, we spend about twice as much per capita on health care with worse results than others that spend far less. It is time that we bring about a fundamental transformation of the American health care system. It is time for us to end private, for-profit participation in delivering basic coverage. It is time for the United States to provide a Medicare-for-all single-payer health coverage program.”

McDermott said, “The new health care law made big progress towards covering many more people and finding ways to lower cost. However, I think the best way to reduce costs and guarantee coverage for all is through a single-payer system like Medicare. This bill does just that – it builds on the new health care law by giving states the flexibility they need to go to a single-payer system of their own. It will also reduce costs, and Americans will be healthier.”

American Health Security Act of 2011: (select bill number and insert S.915 or H.R.1200)


Doctors’ group greets single-payer health bill in Senate

Physicians for a National Health Program
May 10, 2011

Physicians for a National Health Program says Sen. Bernie Sanders’ American Health Security Act would go far beyond federal health law, slash bureaucracy and lay the basis for universal, high-quality care.

The single payer concept has not gone away. We really don’t have to accept the deficiencies of the Patient Protection and Affordable Care Act (PPACA): tens of millions uninsured, and under-insurance as the new standard. The low actuarial value plans being established by PPACA will create financial hardships for middle-income Americans who have significant health care needs.

What we do need is an America that understands what we can have in health care for everyone, but what we won’t be receiving if we simply sit back and let PPACA play out. It’s our job to get the word out.

Private insurers turn to “captives”

Posted by on Monday, May 9, 2011

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.

Richard Klumpp’s Captive Insurance Brief

Wilmington Trust

March 24, 2011

A captive insurance company is a wholly-owned subsidiary created to provide insurance to its parent company (or companies).

Once established, it operates like any commercial insurer, i.e., it assumes the risk of its parent/owner in exchange for a pre-determined premium payment.

April 27, 2011

While captives are real insurance companies, they are essentially a form of self insurance, especially for single parent captives. Unexpected losses, if they occur, will negatively impact the profits of the parent firm.


Seeking Business, States Loosen Insurance Rules

By Mary Williams Walsh and Louise Story
The New York Times, May 8, 2011

Companies looking to do business in secret once had to travel to places like the Cayman Islands or Bermuda.

Vermont, and a handful of other states including Utah, South Carolina, Delaware and Hawaii, are aggressively remaking themselves as destinations of choice for the kind of complex private insurance transactions once done almost exclusively offshore. Roughly 30 states have passed some type of law to allow companies to set up special insurance subsidiaries called captives, which can conduct Bermuda-style financial wizardry right in a policyholder’s own backyard.

Captives provide insurance to their parent companies, and the term originally referred to subsidiaries set up by any large company to insure the company’s own risks. Oil companies, for example, used them for years to gird for environmental claims related to infrequent but potentially high-cost events. They did so in overseas locations that offered light regulation amid little concern since the parent company was the only one at risk.

Now some states make it just as easy. And they have broadened the definition of captives so that even insurance companies can create them. This has given rise to concern that a shadow insurance industry is emerging, with less regulation and more potential debt than policyholders know, raising the possibility that some companies will find themselves without enough money to pay future claims. Critics say this is much like the shadow banking system that contributed to the financial crisis.

Aetna recently used a subsidiary in Vermont to refinance a block of health insurance policies, reaping $150 million in savings, according to its chief financial officer, Joseph M. Zubretsky. The main reason is that the insurer did not need to maintain conventional reserves at the same level as would have been required by insurance regulators in Aetna’s home state of Connecticut.

For insurers, these subsidiaries offer ways to unlock some of the money tied up in reserves, making millions available for dividends, acquisitions, bonuses and other projects. Three weeks after Aetna’s deal closed, the company announced it was increasing its dividend fifteenfold.

Another issue is public oversight. State regulators normally require insurance companies to make available reams of detailed information. A policyholder can find every asset in an insurer’s investment portfolio, for instance, or the company the carrier turns to for reinsurance. But not if the insurer relies on a captive. The new state laws make the audited financial statements of the captives confidential.

“We are concerned about systems that usher in less robust financial security and oversight,” said Dave Jones, the California insurance commissioner.

While saying that he wanted to remain open to innovation, Mr. Jones added, “We need to ensure that innovative transactions are not a strategy to drain value away from policyholders only to provide short-term enrichment to shareholders and investment bankers.”

Aetna has established a “captive” which has enabled it to refinance a block of health insurance policies for the purpose allowing it to maintain a lower level of reserves, under the cloak of confidentiality. Unlocking that money by removing it from reserves has enabled it to increase its dividends fifteen fold.

This is the industry that Congress has insisted must remain in charge of our health care financing. They create insurance products we can’t afford with benefits that won’t adequately protect us. They waste tremendous resources in their administrative excesses. And for what? To enrich shareholders and investment bankers by draining value away from policyholders?

Why is there no outrage? Why do Americans remain silent as our public stewards force us into giving control of our health care dollars to these crooks? Americans have made it clear that they don’t want our Medicare dollars to be placed in the hands of these thieves. Why can’t Americans make the connect that we could throw these jerks out and place all of our health care dollars into our own Medicare program?

Part D private insurers actually raise Medicare costs

Posted by on Friday, May 6, 2011

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.

Lower-Than-Expected Medicare Drug Costs Reflect Decline in Overall Drug Spending and Lower Enrollment, Not Private Plans

Evidence Shows Reliance on Private Insurers Actually Raised Medicare Costs

By Edwin Park
Center on Budget and Policy Priorities, May 6, 2011

Some supporters of the House budget plan’s proposal to replace Medicare with a voucher to purchase private health insurance claim that reliance on private insurers can lower costs. They cite the fact that the costs of Medicare Part D, which took effect in 2006, have been lower than the Congressional Budget Office predicted when Congress enacted the drug benefit. They attribute this lower spending to efficiencies produced by competition among the private insurers that deliver the benefit.

This claim does not withstand scrutiny. The two primary factors driving the reduction in Medicare Part D spending were:

* The sharp decline in growth in spending for prescription drugs throughout the U.S. health care system.

* Lower-than-expected enrollment in Medicare Part D.

Moreover, there is evidence that, far from reducing costs, the use of private plans to deliver the Medicare drug benefit has increased costs.

Edwin Park has dispelled the myth that private insurers were to be credited for Medicare Part D drug spending that fell below prior projections of the Congressional Budget Office. The lower than anticipated spending had nothing to do with the interventions of the private insurers, but were due primarily to two factors: 1) lower prices due to greater use of generics, more drugs losing patent protection, and a lack of new blockbuster drugs, and 2) fewer Medicare beneficiaries than anticipated enrolled in these lousy Part D drug plans.

Not only can these plans not take credit for the lower than expected program spending, they, in fact, actually increased costs to Medicare. The reasons are explained in the technical but easy-to-read, three page report available at the link above.

Not mentioned in the report are the facts that these plans also reduced choices in drugs by having limited formularies, and they reduced choices in pharmacies by having restricted pharmacy networks.

This is yet one more example of how private insurance intermediaries increase our costs while reducing our choices of both providers and their products and services. Yet the Patient Protection and Affordable Care Act is based on this model that brings us fewer choices at higher costs.

Let’s oust these expensive, wasteful, intrusive intermediaries and replace them with our own public financing program that would offer all of us free choice and greater value.

Futurist Ian Morrison on being “bronzed” in the exchanges

Posted by on Thursday, May 5, 2011

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.

The Four Americas

By Ian Morrison
Hospitals and Health Networks, May 3, 2011

Health insurance exchanges could have a major impact on the health care marketplace.

Here are some things to watch for.

* We are all turning bronze. There is a growing body of evidence — from actuaries, academics, consultants and researchers — that when consumers in the exchange select insurance options, they will pick the bronze plan (a 60 percent actuarial value). By definition, these plans will have high out-of-pocket costs and may not cover as wide a range of benefits as the health reform enthusiasts intended.

Some in the health care delivery business see exchanges as a new source of patients with commercial insurance similar to the benefits that schoolteachers and firefighters enjoy. Not so fast. Not only will those schoolteachers and firefighters get their benefits rolled back as part of the global backlash against public employees, but those of us in the exchanges will be operating with skinny network, high-deductible plans.

* Exchanges could be a non-event or become the exchange that ate Manhattan. Depending on how exchanges are structured at the state level, they could have limited pickup. The proposed insurance exchanges have two huge advantages over some of the failed insurance exchanges across the country, such as California’s PacAdvantage program for small business. First, the proposed exchanges have subsidies. Second, they have enabling rules. However, there is still a huge opportunity for states to make exchanges highly dysfunctional by not regulating the behavior in the nonsubsidized individual and small group market.

What killed PacAdvantage was brokers taking good risks outside the exchange and dumping bad risks into the exchange. Unless state legislation prevents this, it is highly possible that exchanges get selected against and spiral downward. Conversely, if exchanges are up and functioning and acceptable, there could be massive growth over time as employers see the benefit of giving their employees incentives to move to the exchange. This won’t happen initially in 2014, but in a Cadillac tax world and with high-functioning exchanges, there could be massive growth. (And remember, we would all be pretty bronzed.)

If the stewards of the ACA-mandated state insurance exchanges are diligent, they may be able to avoid problems such as the death spiral of adverse selection. With careful design, they should be able to establish a functioning market of private health plans. What can we expect of this market?

The overwhelming majority of insurance shoppers will be purchasing their plans based on price, whether or not they qualify for subsidies. Since most will be relatively healthy, it will be the price of the insurance plans that will drive their purchasing decisions, rather than the unanticipated but potential out-of-pocket expenses that they would face only if they were unfortunate enough to develop significant medical  problems. For the price discount, most purchasers will take a chance, gambling that they will stay healthy.

What plans in the exchanges will offer the lowest prices? The bronze plans. These plans cover an average of 60 percent of the medical costs and the patient is responsible for the remaining 40 percent. Although many would be eligible for subsidies, a recent Commonwealth Fund analysis (Gruber and Perry) demonstrated that one-fourth of middle-income individuals with medical needs would not be able to afford the out-of-pocket medical costs after meeting other necessary expenditures in their budgets. Thus choosing these plans is definitely a gamble, but one they must take since they cannot afford the higher costs plans – especially the gold and platinum plans (which are not Cadillac plans since about all they do is reduce out-of-pocket spending for relatively standard benefits).

What innovations will insurers use to keep their premiums competitive within the exchanges? Although they will have to provide a basic set of regulated benefits, they will be able to keep premiums priced at the lower end of the market by requiring large deductible and coinsurance payments, and by limiting provider contracting to a narrow network of the cheapest physicians and hospitals. This is what Ian Morrison is referring to when he says, “those of us in the exchanges will be operating with skinny network, high-deductible plans.”

If the stewards do their job well and the exchanges are very successful in achieving massive growth – “the exchanges that ate Manhattan” – then, as Ian Morrison states, “we would all be pretty bronzed.”

So if the exchanges work like they’re designed to, what will we get, at best? Unaffordable deductible and coinsurance payments, with skinny networks which take away our choices of physicians, hospitals, and other health care providers, unless we’re eligible for Medicare by being over 65 or permanently disabled.

Say, did anyone ever think that maybe it would be better to improve Medicare and provide it to everyone? That way we would have our choices of our health care professionals and health facilities, and we wouldn’t have to face unaffordable out-of-pocket costs. This seems like an idea that maybe we should work on.

Eric Cantor: “We’re not for everyone having the same outcome guaranteed.”

Posted by on Wednesday, May 4, 2011

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.

Cantor: Private healthcare rationing better than government’s

By Julian Pecquet
The Hill, May 3, 2011

House Majority Leader Eric Cantor (R-Va.) said Tuesday that private healthcare plans ration care for profit but that consumers should be free to buy whatever coverage they can afford rather than depend on government rationing.

In remarks to the College of American Pathologists, Cantor warned that Democrats’ healthcare reform law mandates benefits that are too generous and will bankrupt the country as the government ends up having to offer ever increasing subsidies. That can only lead to government rationing, he said.

“That doesn’t mean those kinds of decisions aren’t being made now by the private sector,” Cantor added, “because they are.”

Cantor appeared to go further than Republicans have in the past by acknowledging that not all patients are certain to get optimal healthcare under a system of private insurance.

“I think that the fundamental nature of our system of third-party payer is the problem,” he said. Patients, he added, too often are left with “no decision about what they want and what they can afford.”

Later, Cantor said Republicans want a safety net for people who can’t afford care but that “we’re not for everyone having the same outcome guaranteed.”

It is somewhat refreshing to hear such a frank discussion of rationing by House Majority Leader Eric Cantor. He does not pretend that only government programs might lead to rationing, but concedes that the private sector already makes rationing decisions.

Cantor not only acknowledges that not all patients are certain to get optimal healthcare under a system of private insurance, but Republicans are “not for everyone having the same outcome guaranteed.”

Democrats appear to be in agreement. Under the Affordable Care Act, many will be left without coverage, and many more of those who have coverage through private health plans will not be able to afford the out-of-pocket expenses required for accessing health care, in spite of the subsidies. These financial barriers to access result in not everyone having the same outcome guaranteed, but the Democrats remain silent when confronted with this unacceptable deficiency in their version of health care reform.

There is already enough money in the health care system to ensure that everyone receives all essential health care services in a timely manner, with the same high quality outcomes guaranteed for all. The government rationing that Eric Cantor claims is inevitable occurs only if politicians are unwilling to budget through a single government program (single payer) the amount comparable to that we are already spending, publicly and privately.

Now if only the Democrats would admit that they have made a mistake in choosing a model of rationing that does not guarantee the same quality outcome for everyone, then maybe we could have a discussion of a model that would work. If so, then we could have the frank debate that Eric Cantor has initiated. Cantor says, “we’re not for everyone having the same outcome guaranteed,” but are the Democrats? Let’s ask them.

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