Contrasting the rollout of Medicare and Obamacare

Posted by on Thursday, Jan 2, 2014

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.

Medicare’s Rollout vs. Obamacare’s Glitches Brew

By David Himmelstein and Steffie Woolhandler
Health Affairs Blog, January 2, 2014

The smooth and inexpensive rollout of Medicare on July 1, 1966 provides a sharp contrast to the costly chaos of Obamacare.

We won’t rehearse the chaos part here, just the costs.

As of March, 2013, federal grants for Obamacare’s state exchanges totaled $3.8 billion.  Spending for the federal exchange is harder to pin down because funding has come from multiple accounts, including: the $1 billion Health Insurance Implementation Fund; DHHS’ General Departmental Management Account and General Departmental Management Account; CMS’s Program Management Account and the Prevention and Public Health Fund.  CMS estimates fiscal 2014 spending for the federally-operated exchanges at $2 billion.  So it’s safe to say that the costs of getting the exchanges up and running, and (hopefully) enrolling 7 million people in the program’s first year will exceed $6 billion.

Bear in mind that the exchanges won’t actually pay any medical bills, just sign people up for coverage.  So billions more in overhead costs will show up on the books of the private insurers and state Medicaid programs that will actually process medical claims.

Back in 1966, Medicare started paying bills for 18.9 million seniors (99 percent of those eligible for coverage) just 11 months after Pres. Johnson signed it into law.  Overhead costs for the first year totaled $120 million (equivalent to $867 million in 2013).  But that figure includes the cost of processing medical bills, not just the enrollment costs

Moreover, Medicare and Medicaid (which was passed at the same time) displaced several smaller federal health assistance programs, saving about $376 million on their overhead costs (2013 dollars).

Signing up most of the elderly for Medicare was simple; they were already known to Social Security Administration, which handled enrollment.  To find the rest, the feds sent out mailings to seniors, held local meetings, and asked postal workers, forest rangers and agricultural representatives to help contact people in remote areas.  The Office for Economic Opportunity spent $14.5 million to hire 5,000 low income seniors who went door-to-door in their neighborhoods.

Despite predictions of chaos, and worries that the newly-insured seniors would flood the health care system, there were few bottlenecks.  Hospitals continued to operate smoothly and no waiting lists materialized.  The only real “glitch” was that many hospitals in the Deep South initially refused to integrate their facilities – which Medicare required for certification and payment.  But by the end of the first month, 99.5 percent of hospitals had signed on.

Obamacare’s start-up has been rocky because complexity is “baked in” to the design, just as simplicity was “baked in” to Medicare.  Obamacare’s exchanges must coordinate thousands of different plans, with premiums, co-payments, deductibles and provider networks that vary county-by-county; Medicare offered a single, uniform plan.  The exchanges must calculate subsidies for each applicant after first verifying income, family size and immigration status; Medicare offered free hospital coverage, with a minimal ($22) uniform premium for doctor coverage.  Instead of setting up a new bureaucracy to collect premiums from millions of enrollees and funnel them to private insurers, Medicare relied on the existing payroll and income tax system to garner funds.

Obamacare’s byzantine complexity reflects the contortions required to simultaneously expand coverage and appease private insurers.  And private insurers will exact a steep ongoing toll.  Medicare’s overhead is just 2 percent, vs. an average of 13 percent for private plans (on top of the Exchanges’ costs, roughly 3 percent of premiums).  A single payer plan that excluded private insurers could save hundreds of billions in transaction costs.

Medical quality improvement experts often advise hospitals to “avoid workarounds”; fix system defects rather than force doctors and nurses to sidestep problems like faulty equipment, understaffing, or illegible handwritings.  This advice is equally valid for health reform.  To avoid glitches and wasteful expense, design the system right; eliminate private insurers and cover everyone under a single payer program.…

PNHP’s press release:…

“Obamacare is a giant workaround crafted to keep private insurers at the center of the health care system,” said co-author Dr. David Himmelstein, a primary care physician, professor of public health at the City University of New York and lecturer in medicine at Harvard Medical School.

“The simple single-payer, Medicare-for-all approach would save more than $400 billion annually on bureaucracy, enough to give every American first-dollar coverage. But to get those savings you have to break private insurers’ stranglehold on health care and on Washington,” he said, adding, “The glitches in Obamacare’s rollout don’t come from government incompetence, but from political cowardice.”

4,832,000 of the most vulnerable remain in the coverage gap

Posted by on Tuesday, Dec 31, 2013

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 Impact of the Coverage Gap in States not Expanding Medicaid by Race and Ethnicity

Kaiser Family Foundation, December 17, 2013

Medicaid eligibility for adults is very limited. Many states limit Medicaid eligibility for parents to below poverty, and adults without dependent children have historically been excluded from the program. The ACA’s Medicaid expansion to adults with incomes at or below 138% FPL would significantly increase eligibility for parents in many states and end the exclusion of adults without dependent children from the program. The expansion was intended to occur nationwide as of January 2014 and serve as the base of coverage for low-income individuals, with premium tax credits available to moderate-income individuals above Medicaid limits to purchase Marketplace coverage. However, as a result of the Supreme Court decision on the ACA, implementation of the Medicaid expansion is now effectively a state choice. As of December 11, 2013, 26 states, including DC, are moving forward with the Medicaid expansion in 2014, while 25 states are not moving forward at this time.

In states that do not expand Medicaid, nearly five million poor uninsured adults will fall into a “coverage gap.” These individuals would have been eligible for Medicaid if their state had chosen to expand coverage. In the absence of the expansion, they remain ineligible for Medicaid and do not earn enough to qualify for premium tax credits to purchase Marketplace coverage, which begin at 100% FPL. Most of these individuals have very limited coverage options and are likely to remain uninsured.

These continued coverage gaps will likely lead to widening racial and ethnic as well as geographic disparities in coverage and access.

Table 1: Nonelderly Poor Uninsured Adults in the Coverage Gap in States Not Expanding Medicaid by Race/Ethnicity

Total, United States

4,832,000  –  All races/Ethnicities
2,248,000  –  White
1,327,000  –  Black
992,000  –  Hispanic
265,000  –  Other
2,584,000  –  People of Color…

Since it was decided to reject reform that would have been truly universal, you would think that at least we would be covering the most vulnerable segments of our population. But no, half of our states rejected federal funding for Medicaid expansion, leaving almost 5 million otherwise qualified individuals out of the Medicaid program, even though their incomes ironically are too low to qualify them for subsidies to purchase plans in the state insurance exchanges.

Over half of these people left out are people of color, resulting in a widening of the unjust disparities in care already plaguing our nation.

What a terrible way to start the first year of what is essentially the full implementation of the Affordable Care Act. It seems pretty obvious what our New Year’s resolution should be: Let’s bring health care to everyone through an improved and expanded Medicare for all.

Mayo Clinic’s Eric Matteson endorses tax-supported universal healthcare

Posted by on Monday, Dec 30, 2013

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.

10 Questions: Eric Matteson, MD

By Nancy Walsh
MedPage Today, December 27, 2013

Eric L. Matteson, MD, of the Mayo Clinic, is the chair of rheumatology and professor of medicine.

1. What’s the biggest barrier to your practicing medicine today?

Without a doubt, it is lack of access for many patients, especially the un- and underinsured.

2. What is your most vivid memory involving a patient who could not afford to pay for healthcare (or meds, tests, etc.) and how did you respond?

I have a young woman with severe erosive RA who has limited mental ability who works 20 hours a week in a rural recycling center at a minimum wage job sorting recyclables. I see her in another state at a small clinic that’s 80 miles away. She has only Medicaid. She is able to afford methotrexate and hydroxychloroquine. We accept losses with the cost of monitoring, and also for the orthopedic surgeries she has required and she cannot afford. I have sought drug and assistance from every company with biologics on the market, some on more than one occasion, and to date have been turned down by all of them. She is not able to even afford gas, or the time off, to come to our center to participate in drug studies.

4. If you could change or eliminate something about the healthcare system, what would it be?

I would have a tax-supported universal healthcare for at least minimum services.

Mayo Clinic’s Eric Matteson is yet another prominent physician who supports “tax-supported universal healthcare,” though he qualifies that with “for at least minimum services.” From his example, it seems that he would include most of his field of rheumatology as “minimal services,” though others might say “all essential services.” Nevertheless, there continues to be an increase in those who now are willing to speak out on the need for a publicly-financed health care system that covers everyone. There is a growing consensus that financial barriers to care need to be removed.

Incrementalism predicted for 2014

Posted by on Friday, Dec 27, 2013

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.

With Health Law Cemented, G.O.P. Debates Next Move

By Jonathan Weisman
The New York Times, December 26, 2013

Senator Kelly Ayotte, Republican of New Hampshire, said she was teaming up with Democrats on a host of incremental changes to the law, such as expanding health savings accounts and repealing a tax on medical devices. And other Republicans are wondering aloud how long they can keep up the single-minded tactic of highlighting what is wrong with the law without saying what they would do about the problems it was supposed to address.…

Democrats want to repair some of the defects in the Affordable Care Act. Republicans want to include some of their favorite proposals such as expansions of health savings accounts and catastrophic plans, and loosening restrictions on sale of insurance products across state lines. Members of both parties wish to curry the favor of the voters before the November elections. This is a setup for mediocre incrementalism when what we really need is… well, the most popular NYT reader response (out of 475 at moment) says it well:

Atikin – North Carolina
The only logical solution: single-payer.

Don’t forget New York

Posted by on Thursday, Dec 26, 2013

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 for New York

The New York Times, December 23, 2013

To the Editor:

Re “Under Health Law, Independent Practitioners in City Face Canceled Policies” (news article, Dec. 14):

The Affordable Care Act makes important repairs to our broken health care system. The problem is that it leaves insurance companies in charge — with high premiums, high deductibles and co-pays; too much control over which doctors or hospitals we can go to and what care they can provide; and high administrative costs.

The exchanges are complicated because the system requires means-testing to see who is eligible for Medicaid or subsidies, and then requires people to select from multiple plans.

We could cover everyone, provide better coverage and save billions through publicly sponsored, single-payer health coverage, like an improved version of Medicare for everyone — and no insurance companies.

Washington might not be ready to act, but individual states have long been the “laboratories of democracy.” New York can do better.

Richard N. Gottfried

New York, Dec. 14, 2013

(The writer, chairman of the New York State Assembly Health Committee, is the author of a bill in the New York Legislature to establish a state single-payer health plan.)…

A.5389/S.2078, New York Health – an act to establish a single payer health program:

As the Affordable Care Act unfolds it becomes all too obvious that the repairs in our system of financing health care are falling far too short of the goals of universality, affordability, administrative simplicity, and accessibility with free choice of hospitals and health care professionals. Clearly we need a single payer system that would easily achieve these goals. New York, with the leadership of Assemblyman Richard Gottfried, has joined other states in attempting to enact a state-based single payer system.

What we desperately need is a federal government that partners with states – all states – in enacting legislation that will bring single payer to all of us. With the surge in a renewed interest in single payer, we need grassroots and coalition efforts to be sure that people understand the single payer approach and then will demand it when they go to vote. Let’s pull out all stops between now and next November.

Commodification harms not only our health care

Posted by on Thursday, Dec 26, 2013

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.

Do bigger governments lead to happier people?

An interview by Dylan Matthews
The Washington Post, December 23, 2013

Benjamin Radcliff is a professor of political science at the University of Notre Dame. His current research focuses on how public policy affects human happiness.

Dylan Matthews: You argue that social democratic or left-leaning policies are more conducive to happiness. What sorts of things are you talking about? Government spending? Regulations? Both?

Benjamin Radcliff: I have organized my research around two dimensions of policy. The first is the size of government, i.e. of what it is government does, from the tax burden to the generosity of the welfare state to the total impact of the government in terms of its overall consumption on GDP. The second involve institutions that protect people in labor markets, which means labor unions and economic regulations (the minimum wage, mandated vacation time, etc.), which provide a degree of sovereignty and power for workers in their employment relationships. Two sides of the coin: the general scope of what government does to make life more secure for people and the stuff that works specifically in terms of peoples’ work conditions.

Both types of policies contribute to what social theorists call “decommodification,” meaning limiting the degree to which in a capitalist economy people have to act as commodities in order to survive. You have to sell your labor power on the market. Decommodification measures how much people can opt out of the labor market, whatever the reason, and provides a way of judging to what extent have we made them free of market commodification.

More decommodification makes people happier, and it does so for rich and poor people, men and women, and controlling for just about any other thing. Similar empirical results obtain when considering total social spending on education, health care, total government consumption, the tax burden, a well-known OECD measure of employee protection legislation, even indices on the size of government and labor market regulation from the conservative Fraser Institute. The smaller the government, the less happy people are.

Another variable I find of interest is labor union membership and density, i.e. do you belong, and the percentage of all workers who belong the unions. People who belong to unions are happier, and, more importantly, union density is strongly related to levels of happiness for union members and non-members.

Dylan Matthews: How does that compare to the effects on happiness of non-policy things like, say, the effect of being married or unemployed?

Benjamin Radcliff: The literature would tell you that being married has a huge positive impact on wellbeing, while unemployment has an equally powerful negative effect. They thus make nice benchmarks for comparing the effect of other variables. My results suggest that the effect of the political variables is much larger by orders of magnitude.

Dylan Matthews: Can you talk a bit more about what you mean by “decommodification”? Do you mean not being reliant on work to live — not being a commodity yourself — or the carving out of certain things (human organs, say) that just aren’t commodities you can buy and sell?

Benjamin Radcliff: A society is decommodified to the degree to which people are not entirely dependent on labor market participation in order to survive — principally because they are aged, because they are ill, or simply because jobs are scarce, but also, potentially, so that they can take time to care for a new child or an ailing family member, etc. My research suggests people lead better lives in those societies that are the most decommodified. The reasons are easy enough to understand: There’s a famous quotation observing that a capitalist economy, whatever its many positive aspects, creates a situation in which people have to behave as commodities in order to survive. It doesn’t take great insight to realize that people do not enjoy being reduced to commodities, so a society that limits that necessity is likely to be a better one in which to live.

Now, to be sure, the market economy absolutely contributes to human well-being in other ways — no one can deny that — but we have a macro- vs. micro-problem. At the macro level, capitalism works well. I would agree that the market society is one of humanity’s greatest achievements. But at the micro level it depends at the very core of its logic, as even Adam Smith was at pains to point out, on the idea of using other people (employees) as a means to making profits for oneself. The people we hire to do work are just mere commodities in the profit-loss calculations, no more worthy of special concern than barrels of oil or bushels of grain. The last chapter of my book (“The Political Economy of Human Happiness”) discusses these moral tensions that capitalism creates. My conclusion is that the social safety net, labor market regulations and labor unions all limit the degree to which people become mere commodities, and thus are more likely to lead fulfilling lives.…

On a positive note just in time for the Holiday Season, we can be assured that we have it within our power to increase happiness throughout the nation by joining together, as a government, in decommodifying ourselves within our own society, but that means that we cannot leave power in the hands of those who would commodify us.


Uwe Reindardt on the U.S. path to three-tiered health care

Posted by on Thursday, Dec 26, 2013

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 Economics of Being Kinder and Gentler in Health Care

By Uwe E. Reinhardt
The New York Times, December 20, 2013

In the late 1980s, about 35 million respondents to large nationwide surveys declared that they lacked health insurance of any kind. The comparable number now is close to 50 million.

Then, as now, the endless “national conversation” went on and on, pondering ways to achieve truly universal health insurance coverage, a feat most other developed nations accomplished long ago.

Then, as now, news organizations and the health services research community reported on the financial and physical hardship that many low-income, uninsured Americans face when they fall ill.

And then, as now, the prices for identical health care goods and services were more than twice as high in the United States as they were – and still are – in the member nations of the Organization for Economic Cooperation and Development.

For all the wonderful things the United States health system has done for the American people, then, as now, it has also helped price some degree of kindness out of our souls, a side effect of their treatments that the leaders of American health care at some point must begin to contemplate.

My interpretation is that opposition to the Affordable Care Act largely reflects the age-old reluctance among many of the nation’s haves and the healthy to help purchase for America’s lower-income families and the chronically ill the super-expensive health care that the haves enjoy themselves. That attitude is all the more striking because of the generous federal indirect subsidies enjoyed by many of the haves, especially high-income Americans. (I am thinking specifically of the generous tax preference accorded employment-based health insurance, the largest tax expenditure in the federal budget.)

Some people on both the extreme left and right seem to believe that the current travails of implementing the Affordable Care Act and the possibility of a so-called “death spiral” in the market for individual health insurance may usher in single-payer health insurance in the United States – say, Medicare for all.

I do not find that a likely prospect. Rather than embracing a single-payer system, the United States is more likely to stumble, in fits and starts, toward something resembling officially sanctioned tiering of the American health care experience by income class, as follows:

FOR MEDICAID BENEFICIARIES AND THE UNINSURED, a budget-constrained system of public hospitals and public clinics. It would allow politicians to ration health care (through tight budgets) without ever having to acknowledge that they were doing so. In other words, it would reduce the price of being kind.

FOR THE EMPLOYED MIDDLE CLASS, a mixed system with defined contributions by employers, private health insurance exchanges and reference pricing by insurers. Under a restructured Medicare program also based on a defined contribution model, reference pricing would be likely to apply to Medicare beneficiaries as well. Depending on how it is operated – e.g., if it were solely based on cost, in abstraction of quality – reference pricing also permits tiering of the health care experience by income class, without anyone having to say so openly.

FOR THE UPPER-INCOME GROUPS, boutique medicine, which is already growing in the United States. Here the sky will be the limit.

And what do readers think?…

Uwe Reinhardt, an astute observer of the U.S. health care system, does not see single payer in our future, but rather sees an “officially sanctioned tiering of the American health care experience by income class.” We already have the three tiers that he describes, but the middle tier is rapidly evolving in a way that may provoke a renewed and more intense interest in single payer.

The lowest tier – Medicaid beneficiaries and the uninsured – have never had much of a political voice. Nevertheless, even the most heartless of politicians recognize that we must provide care for indigent pregnant women and children. Thus we have the chronically underfunded Medicaid program plus safety net hospitals and community health centers. Some states also have included other low-income adults, though they still make up the largest percentage of the uninsured. Except for the most basic of primary care services and care for events that threaten life or limb, access to health care for this sector is limited, especially for specialized services. As Professor Reinhardt indicates, politicians are able to ration health care for Medicaid beneficiaries and the uninsured without admitting that they are doing it, merely by placing restraints on the budget. Since it is unAmerican to ration health care, they would never do that, but rather they merely refuse to budget spending that we can’t afford. (Of course, inadequate funding of health care is rationing, and we actually can afford to pay for health care for all, though we do need more efficiency in our financing system.)

The highest tier – the upper-income groups – have never had problems with gaining access to the best care available. That is true now, and will be true no matter what health care financing system we will have. Some have expressed concerns that in a truly egalitarian system, such as a single payer system, the wealthy would have to give up some of the finer amenities of health care and stand in line with the rest of us, but that will never happen. The wealthy are not hampered by noblesse oblige when it comes to moving to the front of the line for health care. Besides, a well designed system should not have an excessive queue anyway.

The middle tier – the employed middle class – will see greater changes in health care access and affordability, changes that have already begun. Although the plans to be offered in the state exchanges will include many of these changes, employers are already following by modifying their plans to reduce their own exposure to costs. Higher deductibles and other forms of cost sharing are shifting more costs to the pockets of those who need health care. Although ten categories of benefits will be required under the plans, the insurers have considerable flexibility in the composition of benefits within each category and will leave out selected benefits that some individuals will need, especially some of the more expensive benefits. Insurers are reducing their networks of physicians and hospitals, further limiting patient choice of their health care providers, unlike the traditional Medicare program, which allows free choice. Patents may still face catastrophic losses since the maximum out-of-pocket expenditures apply only to covered benefits provided within the networks. Care unavoidably obtained out of network and health care services not included as a plan benefit can result in costs that threaten personal bankruptcy. Even the allowed maximums would create a hardship for many. Employers are beginning to switch to defined benefit contributions to health plans that would be selected from private (not state) health exchanges. This voucher approach allows employers to shift the future increases in health care costs disproportionately to the employees. Reference pricing is the process of setting a low price for given health care services and requiring the patient to pay the full difference in prices if the patient selects a more expensive provider. This is another method of shifting more costs to the patient, not to mention that it further limits choice of providers since these extra costs may be truly unaffordable. A shift in control of Congress and the White House to conservatives may well result in premium support of Medicare (vouchers – a defined contribution), thereby allowing Medicare to adopt some of these same policies that shift more costs to patients in need.

The obvious point is that the exchange plans and now even employer-sponsored plans will cause the employed middle class to become quite dissatisfied with our health care financing system. Once they or their families and friends have enough negative experiences with our health care financing, and once they understand single payer – an improved Medicare for all – it will be the middle class workers that will be the loudest in demanding change.

In the meantime, under our present three-tiered system, we will be able to obtain a basic level of care for Tiny Tim, just not the specialized services that he really needs. And Ebenezer Scrooge will be able to access his boutique providers, with the sky as the limit. But what about the people of the village? Once Scrooge gains control of the insurance industry, will he further advance the current agenda of making health care more expensive to increase profits, and less accessible to reduce costs? Will another visit from the Ghost Of Christmas Yet To Come be adequate? Or will he be hardened enough to carry on, as Reinhardt writes, “the age-old reluctance among many of the nation’s haves and the healthy to help purchase for America’s lower-income families and the chronically ill the super-expensive health care that the haves enjoy themselves.”

Though should we really expect a different outcome? We now have a society that when Bob Cratchit pulls himself up by his bootstraps and runs for mayor, we elect Ebenezer Scrooge instead.

Expanding eligibility for catastrophic plans

Posted by on Friday, Dec 20, 2013

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.

What if my individual health insurance plan is changing or being cancelled?, Accessed December 20, 2013

If your insurance company cancels your plan, you have several options:

*  Buy one of the plans the company offers in its place.

*  Buy a new plan in the Marketplace.

*  Buy a plan outside the Marketplace.

Additional option if your plan is cancelled: A catastrophic plan

If your plan has been cancelled and you can’t afford a Marketplace plan to replace it, you can apply for a hardship exemption. This will allow you to buy a catastrophic plan. A catastrophic plan generally requires you to pay all of your medical costs up to a certain amount, usually several thousand dollars. These policies usually have lower premiums than a comprehensive plan, but cover you only if you need a lot of care. They basically protect you from worst-case scenarios.…

As the numerous reports in the media indicate, the insurance industry is not particularly pleased with the prospect of a large influx of older and sicker individuals enrolling in the catastrophic plans designed and priced for healthy individuals under age 30. Instability is an inherent characteristic of such a dysfunctional financing system.

This rule modification is simply one more reason why we need to enact a simplified, more affordable, and more effective health care financing system – an improved Medicare for all.

The Effect of Patient Cost Sharing on Utilization, Health, and Risk Protection

Posted by on Thursday, Dec 19, 2013

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 Effect of Patient Cost Sharing on Utilization, Health, and Risk Protection

By Hitoshi Shigeoka

National Bureau of Economic Research, Working Paper 19726, December 2013


This paper exploits a sharp reduction in patient cost sharing at age 70 in Japan, using a regression discontinuity (RD) design to examine its effect on utilization, health, and financial risk arising from out-of-pocket expenditures. Due to the national policy, cost sharing is 60-80 percent lower at age 70 than at age 69. I find that both outpatient and inpatient care are price sensitive among the elderly. While I find little impact on mortality and other health outcomes, the results show that reduced cost sharing is associated with lower out-of-pocket expenditures, especially at the right tail of the distribution.

1. Introduction

I reach three conclusions. First, I find that reduced cost sharing at age 70 discontinuously increases health care utilization. The corresponding elasticity is modest, at around -0.2 for both outpatient visits and inpatient admissions. Examining patterns of utilization in more detail, I also find that lower patient cost sharing is associated with increases in the number of patients presenting both serious and nonserious diagnoses. For example, I find large increases in outpatient visits for diagnoses that are defined as Ambulatory Care Sensitive Conditions (ACSCs), for which proper and early treatment reduces subsequent avoidable admissions.

Second, in terms of benefits, I do not find that lower patient cost sharing improves any of the health measures I examine, such as mortality and self-reported physical and mental health. Since health is a stock, it may take some time for the most observable health effects to be realized. Therefore, it is challenging to address it using the RD approach unless the causes of death are acute. Nonetheless, I do not find any change even in acute cause-specific mortality. The lack of differences in health in spite of utilization changes implies that patient cost sharing can reduce health care utilization without adversely affecting health, at least in the short run.

Finally, I do find that lower cost sharing at 70 yields reductions in out-of-pocket expenditure, especially at the right tail of the distribution, because the reduction in price at age 70 overwhelms offsetting increases in utilization. This finding suggests that patients with high medical spending benefit substantially from financial protection against risk due to lower cost sharing.

6. Discussion

6.3 Cost—benefit Analysis

Finally, I conduct a simple cost—benefit analysis associated with the change in the price of health care services at age 70. Since I needed to make a number of assumptions, the results from this exercise are mostly speculative. The social cost is the combination of the deadweight loss of program financing and the moral hazard, while the benefit is risk protection against unexpected out-of-pocket medical spending. My estimates suggest that the welfare gain of risk protection from lower patient cost sharing is comparable to the total social cost, indicating that the welfare gain from risk protection may fully cover the total social cost in this setting. One limitation of this welfare analysis is that it does not incorporate welfare gains from health improvements. While I do not find any short-term reduction in mortality or improvement in any self-reported health measures, it is possible that preventive care induced by lower cost sharing at age 70 may prevent severe future health events, thus improving health in the long run. It is infeasible to estimate long-run effects in this framework, because individuals eventually age into treatment.…

Although this paper is challenging to read because of its technical nature, nevertheless it is an important contribution to our understanding of patient cost sharing for health care services and what that means for the individual and society.

Cost sharing has permeated health care financing in the United States, and it is intensifying. Why? It is commonly thought to be one of the most important tools to control health care spending. By requiring the patient to pay a significant portion of the health care that they actually utilize, it is thought that patients will select only the health care that they really need and will decline care that is of little value. But is the care that they would decline of so little value that it is not worth what would be spent on it? Let’s look at that.

A unique feature of health insurance in Japan provides some insight. When a patient turns 70, cost sharing is reduced 60 to 80 percent. In this paper, Hitoshi Shigeoka of Simon Fraser University in British Columbia does confirm what other studies have shown – reducing cost sharing does modestly increase utilization of outpatient and inpatient services. As with other studies, he did not find that lowering cost sharing improved, on a short time basis, either mortality or self-reported physical or mental health. However, he points out that conclusions cannot be drawn for long-term outcomes, which is also true of other studies such as the RAND HIE and the Oregon Medicaid lottery. A study of limited duration that is not powered to find adverse outcomes should not be used to conclude that there are no adverse outcomes of forgoing care due to cost sharing, yet that is exactly what the policy community is doing when they say that such forgone care does not adversely effect health.

Shigeoka notes that reducing cost sharing resulted in “large increases in outpatient visits for diagnoses that are defined as Ambulatory Care Sensitive Conditions (ACSCs), for which proper and early treatment reduces subsequent avoidable admissions.” This is really important. Even though these studies are not powered to detect adverse outcomes, he has shown that cost sharing does reduce use of services for conditions that are serious enough to result in hospitalizations and other adverse outcomes should the patients not receive appropriate earlier interventions. Bad conditions which cause bad outcomes for which earlier intervention has been shown to be effective are conditions which should be managed regardless of whether or not there exists a study which is powered enough to be conclusive that there is benefit.

Another important point that he makes is that the increased spending because of lower cost sharing should be compared to the social cost of receiving that care. The social cost includes the deadweight loss of program financing (a loss of economic efficiency – less than optimal use of those funds) and moral hazard (accepting greater risk without bearing the consequences – obtaining more health care when insurance provides protection against the costs). Shigeoka estimates that “the welfare gain of risk protection from lower patient cost sharing is comparable to the total social cost, indicating that the welfare gain from risk protection may fully cover the total social cost in this setting.”

It would be a tradeoff except that there are other gains that favor reduced cost sharing. Although he did not demonstrate short-term health gain from lower cost sharing, he did show that improved management of Ambulatory Care Sensitive Conditions does occur which should certainly produce long-term health gains. Another benefit that is never measured is the reassurance that patients receive when they are informed that their presenting complaints do not represent serious disorders, and are further satisfied when they receive medical interventions that can relieve their symptoms. These interventions may never show up in a list of measured processes and outcomes, but they are still fundamental benefits of health care.

Another problem is that these cost sharing studies tend to evaluate patients’ decisions on whether or not to access care. If there were zero cost sharing, these clinical scenarios would still represent a relatively small part of our total health care utilization. The 80 percent of health care that is utilized by the 20 percent of individuals who have more serious problems is care that is quite insensitive to cost sharing, having already exceeded the deductibles. Yet the policy community tends to extrapolate the percentage of savings from forgone care in these largely outpatient situations to our entire health care spending, resulting in preposterous estimates of potential savings.

Further, he reminds us of one on the most fundamental principles of all: “Patients with high medical spending benefit substantially from financial protection against risk due to lower cost sharing.” And isn’t this really about the patient?

Does your estate belong to Medicaid?

Posted by on Wednesday, Dec 18, 2013

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.

Estate Recovery and Liens (CMS)

State Medicaid programs must recover certain Medicaid benefits paid on behalf of a Medicaid enrollee. For individuals age 55 or older, states are required to seek recovery of payments from the individual’s estate for nursing facility services, home and community-based services, and related hospital and prescription drug services. States have the option to recover payments for all other Medicaid services provided to these individuals, except Medicare cost-sharing paid on behalf of Medicare Savings Program beneficiaries.…

Expanded Medicaid’s fine print holds surprise: ‘payback’ from estate after death

By Carol M. Ostrom
The Seattle Times, December 15, 2013

With an estimated 223,000 adults seeking health insurance headed toward Washington’s expanded Medicaid program over the next three years, the state’s estate-recovery rules, which allow collection of nearly all medical expenses, have come under fire.

Medicaid, in keeping with federal policy, has long tapped into estates. But because most low-income adults without disabilities could not qualify for typical medical coverage through Medicaid, recovery primarily involved expenses for nursing homes and other long-term care.

The federal Affordable Care Act (ACA) changed that. Now many more low-income residents will qualify for Medicaid, called Apple Health in Washington state.

But if they qualify for Medicaid, they’re not eligible for tax credits to subsidize a private health plan under the ACA, which requires all adults to have health insurance by March 31.

Some 55- to 64-year-olds, who may have taken early retirement or who were laid off during the recession, have found themselves plunged into a low-income bracket. Unlike Medicaid recipients in the past — who were required to reduce their assets to qualify — they’re more likely to have a home or other assets.

For health coverage through Medicaid, income is now the only financial requirement.

Around the country, the issue has sizzled away in blogs and commentaries from both right and left.

Medi-Cal Recovery Frequently Asked Questions (FAQ)

California Advocates for Nursing Home Reform (a nonprofit 501(c)(3) advocacy organization)

California’s Medi-Cal applicants and beneficiaries are often confused about their rights regarding Medi-Cal and are particularly concerned that the state will “take” their homes after they die if they received Medi-Cal benefits.

I. Can the State Take my Home If I Go on Medi-Cal?

The State of California does not take away anyone’s home per se. Your home can, however, be subject to an estate claim after your death. For example, your home may be an exempt asset while you are alive and is not counted for Medi-Cal eligibility purposes. However, if the home is still in your name when you die, the State can make a claim against your estate for the amount of the Medi-Cal benefits paid or the value of the estate, whichever is less. Thus, if your home or any part of it is still in your name when you die, it is part of your “estate” and can be subject to an estate claim.

III. What Happens After I Die If I Received Medi-Cal?

After the Medi-Cal beneficiary’s death, the State can make a claim against the estate of an individual who was 55 years of age or older at the time he or she received Medi-Cal benefits or who (at any age) received benefits in a nursing home, unless there is a surviving spouse or a minor, blind or disabled child. Thus, if there are any assets left in the estate of the deceased beneficiary, Medi-Cal will seek to be reimbursed for benefits paid. It is important to note that, even if you received Medi-Cal at home, any benefits paid while you were 55 years of age or older will be subject to Medi-Cal recovery.

IV. How Much Can the State Recover?

Managed Care: Estate claims can be much higher if the beneficiary is enrolled in managed care. When a managed care beneficiary dies, the estate will receive a claim for the total amount paid by Medi-Cal to the managed care plan, regardless of how much the actual services cost the managed care plan.

IX. How Do I Avoid an Estate Claim?

The best way to avoid an estate claim is to leave nothing in the estate. Most Medi-Cal beneficiaries leave nothing but a home. If the property is transferred out of the beneficiary’s name during life, the state cannot place a claim. Any transfer of real property can have tax consequences that may outweigh a Medi-Cal estate claim. Currently, there are a number of legal options (irrevocable life estates, occupancy agreements, certain types of trusts) available to avoid probate, avoid tax consequences and avoid estate claims. Anyone considering a transfer of real property should consult an attorney experienced in the Medi-Cal rules and regulations.

States are required to recover the costs of certain benefits from the estates of Medicaid beneficiaries who received them. That is not new. What is new is that the Affordable Care Act requires everyone to be insured (with exemptions for hardship, immigration status, etc.), and, if individuals are eligible for Medicaid based on income, they are not allowed to use subsidies to purchase plans in the exchanges. Since plans outside of the exchanges are unaffordable for individuals with low incomes that qualify them for Medicaid, they are pretty much stuck with enrolling in Medicaid.

Since Medicaid eligibility is determined by income and not by assets, those who were able to purchase a home and build other assets, but have retired at 55 or reduced their incomes for other reasons, are now becoming part of a large pool that states can tap to recover Medicaid expenditures. The states will be taking over estates that the deceased had intended would go to their heirs.

The rules are complicated enough such that individuals concerned about this potential transference to the state are advised to consult with an attorney. Just what we need. More excessive administrative costs tacked onto our wasteful system of health care financing.

Another annoyance is that many states are now forcing their Medicaid patients into managed care organizations. Even though the individuals may not have utilized much health care, the rules require that the entire capitated payments made to the managed care organizations be recovered from the estate. How ironic. The individual doesn’t want managed care but is forced into it, doesn’t use it, and then his heirs must pay through reduced value of the estate the full managed care premiums of a program the deceased would have avoided by remaining in the fee-for-service Medicaid program.

As with so much in the Affordable Care Act, these issues are not simple. Let’s look just at how we finance health care, and how we tax estates.

If we had a single payer national health program, it would be financed equitably based on ability to pay. You would not have the situation we have now in which Medicaid spending is reimbursed by the estate whereas Medicare spending is not. Everyone would contribute through progressive financing of the universal risk pool, and everyone would receive benefits based on medical need.

With the highly inequitable distribution of income and wealth that has taken place within the past few decades, we have an imperative to establish fairness in providing the government with the necessary revenues to fulfill its functions. We have largely agreed that income taxes need to be progressive, though many believe that we need tax policies that would have very high income individuals contribute more than is their current obligation.

But the issue of the Medicaid Estate Recovery Program should make us look at how we tax wealth. Although most believe that very wealthy individuals should pay higher estate taxes, we have here a situation in which individuals with very small estates are having to pay what is, in essence, an estate tax in the form of recovered Medicaid expenses. How is that fair?

This is one more example of why we need to totally separate the funding of our health care system from the delivery of health care services. A single payer national health program – an improved Medicare for all – would do precisely that.

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