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-Care Law Spurs a Shift to Part-Time Workers
By Julie Jargon, Louise Radnofsky and Alexandra Berzon
The Wall Street Journal, November 4, 2012
Some low-wage employers are moving toward hiring part-time workers instead of full-time ones to mitigate the health-care overhaul’s requirement that large companies provide health insurance for full-time workers or pay a fee.
Several restaurants, hotels and retailers have started or are preparing to limit schedules of hourly workers to below 30 hours a week. That is the threshold at which large employers in 2014 would have to offer workers a minimum level of insurance or pay a penalty starting at $2,000 for each worker.
If a company offers health insurance but the coverage is deemed sparse or unaffordable, the company must pay $3,000 for every worker who gets a federal tax subsidy to purchase coverage as an individual.
Pillar Hotels & Resorts this summer began to focus more on hiring part-time workers among its 5,500 employees. The company has 210 franchise hotels, under the Sheraton, Fairfield Inns, Hampton Inns and Holiday Inns brands.
CKE Restaurants Inc., parent of the Carl’s Jr. and Hardee’s burger chains, began two months ago to hire part-time workers to replace full-time employees who left.
Home retailer Anna’s Linens Inc. is considering cutting hours for some full-time employees to avoid the insurance mandate if the health-care law isn’t repealed.
Darden Restaurants Inc. was among the first companies to say it was changing hiring in response to the health-care law. The Orlando, Fla., parent of Red Lobster and Olive Garden in February began testing hiring part-time workers in four markets to replace some full-time employees who had left, a spokesman said.
Jobs Without Benefits: The Health Insurance Crisis Faced by Small Businesses and Their Workers
By Ruth Robertson, Kristof Stremikis, Sara R. Collins, Michelle M. Doty, and Karen Davis
The Commonwealth Fund, November 2012
The share of U.S. workers in small firms who were offered, eligible for, and covered by health insurance through their jobs has declined over the past decade. Less than half of workers in companies with fewer than 50 employees were both offered and eligible for health insurance through their jobs in 2010, down from 58 percent in 2003.
Employers Expected To Keep Some Of Health Law’s Popular Provisions, Even If Obama Loses
By Julie Appleby
Kaiser Health News, November 5, 2012
No matter who wins the presidential election…
Employers will continue looking for ways to cap expenses, moving toward higher deductible policies, or placing limits on how much they pay toward their workers’ premiums — both trends that predate the federal health law, analysts say.
As we have stated several times before, the Affordable Care Act (ACA) was designed to encourage the perpetuation of employer-sponsored health plans which currently provide the majority of the population with coverage. Current trends do not look favorable. More than half of workers in small companies do not even receive health care coverage, and some larger employers are beginning to shift to part-time employment in order to escape the insurance requirements of ACA. Those that continue coverage are shifting more costs to employees through higher deductibles and through a shift to defined contribution programs.
A health care financing system should provide full coverage for everyone automatically. Obviously, ACA does not do that. The CBO predicts that 30 million will remain without coverage, but based on the fact that employers are beginning to bail out, it is likely that the numbers of uninsured will be even greater. We have to do something different.
How could we achieve automatic enrollment for everyone? Simple. Just as with Medicare Part A, enroll every qualified individual automatically. In a properly designed single payer system, absolutely everyone would be qualified, and therefore everyone would be enrolled.
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.
Conflict-of-interest concerns raised as Obama races to implement health reform
By Alexander Bolton
The Hill, November 3, 2012
The Obama administration is relying heavily on outside contractors to implement a core component of healthcare reform as it races to set up a federal health insurance marketplace before 2014.
The fast-approaching deadline gives the administration little time to scrutinize private-sector partners for conflicts of interest.
The purchase of one of these contractors, Quality Software Services, Inc. (QSSI), by UnitedHealth Group, a major healthcare conglomerate, has sparked concerns about a potentially uneven playing field.
QSSI, a Maryland-based contractor, in January won a large contract to build a federal data services hub to help run the complex federal health insurance exchange.
It will be working with several other contractors, including CGI Federal, Inc., to create the technological architecture for the exchange.
The quiet nature of the transaction, which was not disclosed to the Securities and Exchange Commission (SEC), has fueled suspicion among industry insiders that UnitedHealth Group may be gaining an advantage for its subsidiary, UnitedHealthcare.
It is difficult to know QSSI’s precise role because its contract is not publicly available and the department of health and human services did not provide a copy. A draft statement of work issued by HHS and used for the bidding process offers a glimpse of what the contract requires.
It reveals QSSI will finalize technical and systems requirements to develop and deliver plan management services, which includes the certifying and decertifying of health plans offered on the exchange. Plan management services also entails monitoring agreements with health plans to ensure compliance.
The technology will wield massive flows of socio-economic and health information for populations around the country that an insurance company, if privy to, could use as valuable business intelligence to determine what markets to play in.
If an insurance company had influence over the information technology architecture used to run the exchange, it could interpret federal standards in a way to exclude competitors or make it more difficult for them to win approval, say some insurance experts. Or it could have an inside track on knowing how to design plans that meet the standards.
The contractors working on the exchange will also have responsibility over payment calculation for risk adjustment.
This program is intended to redistribute funding from plans that attract younger and healthier participants, and thus have lower costs, to plans that attract people with more chronic diseases.
The draft statement of work for the contract shows QSSI will also work on technical requirements to deliver financial management services, such as payment calculation for risk adjustment.
The prospect that a subsidiary of UnitedHealth Group could have a role in calculating the reallocation of federal funds among rival health plans has unnerved some industry insiders.
“Financial management services include the services necessary to spread risk among issuers and to accomplish financial interactions with issuers,” the document states. “The risk spreading services include but are not limited to: payment calculation for reinsurance, risk adjustment and risk corridors, along with required data collection to support these services.”
The contract, which underwent a full and open competition, was initially awarded to QSSI in September of 2011 and finalized in January.
A senior executive with Optum, the subsidiary of UnitedHealth Group which bought QSSI at the end of September, said his firm and UnitedHealthcare are entirely separate businesses despite belonging to the same parent company.
“UnitedHealthcare is a client of Optum, an arms-length client, separately reported financially and separately managed,” said Andy Slavitt, group executive vice president at Optum.
“Optum has a very simple mission and that is to engage in activities to make sure the healthcare system works better for all participants,” he said, citing services such as helping an employer or union manage pharmacy benefits or helping a health company implement technologies.”
One of the many reasons that we don’t want private health insurers to manage our health care funds is that they have mastered gaming health care risks.
In the Medicare program, private insurers have selectively marketed their Medicare Advantage products to healthier individuals, yet have been paid at higher rates based on the average health care needs of this older and sicker population. The Medicare administration attempted to correct for this by risk adjustment. That is, they increased payments for patients diagnosed with more significant disorders, while reducing payments for patients with minimal disorders. The insurers responded by coding not very sick patients as if they had more serious disorders – not frank fraud, but taking liberties with diagnoses. Instead of correcting the overpayment problem this actually further increased the amount of overpayments to the private insurers.
With the Affordable Care Act, do you believe that the private insurers have had an epiphany and now want to give patients and taxpayers the best health care value possible? If you think so, you don’t understand this industry.
Follow this timetable:
* The Obama administration decided to use outside contractors to build a federal data services hub to help run the federal health insurance exchange.
* One of the more important functions of that hub is to have responsibility over payment calculation for risk adjustment. “This program is intended to redistribute funding from plans that attract younger and healthier participants, and thus have lower costs, to plans that attract people with more chronic diseases.”
* Under a competitive process, the contract was awarded to Quality Software Services, Inc. (QSSI) in September 2011, and finalized in January 2012.
* Steve Larsen, a senior official at HHS “left the Center for Consumer Information and Insurance Oversight, the office tasked with crafting rules for the national exchange, in July to take a job with Optum.”
* In September 2012, QSSI was purchased by Optum, a subsidiary of UnitedHealth Group, the parent company of UnitedHealthcare, the largest insurer in the nation.
Lest anyone might suggest that Steve Larsen may have been involved in a nefarious plot to benefit UnitedHealth, former Rep. Earl Pomeroy, a registered lobbyist with Alston & Bird, which represents Aetna, “dismissed the notion that Larsen may have given Optum an unfair advantage.”
UnitedHeathcare’s stealth takeover of the administrative entity that will allow their subsidiary to supervise risk adjustment for the plans in the federal health insurance exchange should have us all concerned. Considering their prior bad behavior, should we trust them now that they have even greater control over risk adjustment? Think not.
Okay, it’s clear that the problem is that we have turned control of health care financing over to an industry that must place its own interests over those of patients. So what is the solution? Do we further increase regulatory oversight? History has shown that they will always meet their fundamental business obligations by finding other ways to skirt regulatory interventions, just as they found a way improve their return when risk adjustment was applied as a solution to their practice of favorable selection (selectively marketing the healthy).
No, it is not that they need more government oversight, because that clearly is an inadequate solution. Rather, the solution is that this industry needs to be replaced with a public program owned by the people of this nation. We need a public service model instead of a private business model of health care financing. We need a single payer national health program – an improved Medicare that covers everyone.
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.
It’s Time for Single-Payer
By James C. Mitchiner, MD, MPH, American College of Emergency Physicians
ACEP News, August 7, 2012
“You can always trust the Americans to do the right thing, once they’ve tried everything else.”
Winston Churchill’s iconic remark, reportedly issued at the dawn of America’s entry into World War II, is equally applicable to the present American health care debate and the crisis that spawned it. Regardless of whether you are elated or disappointed with June’s historic Supreme Court decision upholding the constitutionality of the Affordable Care Act, it is certainly no panacea for the problems facing U.S. health care. Even with the law intact, and despite its best intentions, it will still leave some 25 million uninsured, underinsure millions more, expand the corporatization of health care, and do little to control the escalating costs of care over the long term. So it’s clear we need to do the right thing: the creation of a national, universal, publicly funded health care system, free of the corrupting power of profit-oriented health insurance, and at the same time capable of passing constitutional muster. In short, the right thing is an expanded and improved Medicare-for-All program, otherwise known as single-payer.
Don’t be so shocked. For the last 30 years, we have tried all the alternatives, and none of them have worked. We have experimented with HMOs, PPOs, high-deductible health plans, health savings accounts, pay-for-performance, capitation, and disease management. These ideas have been promoted in various iterations, often with great fanfare, by public and private payers alike, yet none of them have shown long-term success at bending the cost curve. And the promise of the latest reforms du jour, such as Accountable Care Organizations and Patient-Centered Medical Homes, is speculative at best. American health care is unique among the world’s democracies in that it was never planned in terms of enabling legislation or explicit constitutional authority. As others have stated, our employer-based insurance system, which now covers about 160 million Americans, was an accident of history. Its lineage can be traced to FDR’s wage and price control policies during World War II, where employers were permitted to offer workers health insurance in lieu of higher wages as a job inducement. This benefit has evolved piecemeal into the Rube Goldberg complexity that is contemporary employer-sponsored health insurance, with some 1,200 private plans each doing the same things – medical underwriting, coordination of benefits, claims adjudication and denial, marketing, public relations, lobbying, litigating, and paying shareholder dividends and inflated CEO salaries while forcing individuals to pay a higher share of premiums, increased deductibles, expanded copays, or a combination of all three. Taken as a whole, private insurers’ activities are duplicative, inefficient, wasteful of scarce health care resources, conducive of job lock, and completely misdirected in supporting the 21st-century health care agenda that America needs and deserves.
The objective of the ACA’s individual mandate was to remedy a flaw in the market for health insurance: the expectation by the uninsured that the costs of their inevitable illnesses would be benignly transferred to those fortunate to have coverage. If you believe that guaranteed issue and community-rating requires 100% participation in the health insurance market to sustain financial viability, clearly the most efficient mechanism to achieve this is not through an individual mandate, in which the heavy hand of government coerces people to do what they otherwise would not. If the federal government has a professed welfare interest in controlling health care costs, it can – and should – accomplish that goal through a more economically efficient single-payer mechanism.
Given that the primary business objective of a for-profit insurer is to make a profit, the fundamental question we should be asking is this: What is the marginal value of private health insurance? That is, what advantage vis-à-vis a single-payer model like Medicare does our system of private, profit-oriented health insurance convey to patients, providers, and employers? What exactly do private insurers do, above and beyond what Medicare does, that is deserving of their inflated premiums? To my knowledge, there is no evidence that commercial insurance provides easier access or less hassle-free care, is more cost effective, produces care of higher quality, or has better consumer satisfaction ratings than Medicare (if anyone has evidence to the contrary, from the peer-reviewed health policy literature, please advise). And according to a recent poll, most Americans prefer to keep Medicare as it is, rather than switching to a premium-support financing mechanism as advocated by Rep. Paul Ryan (R-Wis.). Whatever bad things you can say about our government, at least the Feds are not required to make a profit but are required to answer to all taxpayers, rather than private shareholders who are concerned only with the bottom line.
Under a single-payer system, every American would receive a basic package that would include inpatient and outpatient care, primary care and specialty physician services, emergency care, preventive and restorative care, mental health and substance abuse services, dental care, prescription drugs, home health care, and long-term care. Doctors and other providers would be paid based on a fee-for-service schedule, as negotiated with state governments, with funding coming from progressive payroll taxes paid by both individuals and employers. Quality would be monitored and publicly reported, with financial incentives awarded to providers who followed clinical guidelines endorsed by their medical specialty societies. All services provided would be publicly accountable. Medical decision making at the bedside would be left to the physician.
Conceptually, single-payer is imbued with many myths and misconceptions.
Myth #1: Single-Payer Is One-Size-Fits-All
The No. 1 myth – the alpha myth – is that single-payer represents a choiceless, one-size-fits-all, government-run health care monopsony. This is a blatant falsehood. Single-payer is simply a more efficient and more equitable way of financing health care – and nothing more. By consolidating the administrative functions of insurance, it eliminates bureaucratic duplication and reduces administrative waste, saving time and money for employers, providers, state governments, and consumers alike. It would remove the profit motive from financing care, but not from delivering it. Single-payer would efficiently provide for all Americans – regardless of age, health condition, income, or employment status – universal health care that is portable, affordable, equitable, nonterminating, publicly accountable, and funded through progressive taxation, which for the average family would imply a small additional payroll tax that is much less than its current outlay for insurance premiums. A single-payer system would not supplant the private practice of medicine; you could go to a primary care doctor, specialist, hospital, pharmacist, and lab of your choice.
Myth #2: Canadian Health Care Would Be Bad for America
Americans love to repeat anecdotes about the supposedly lousy medical care our northern neighbors receive from their single-payer system, by demoralized and overworked doctors who work at ill-equipped hospitals with out-of-date technology. This is rubbish. Do Canadians often wait for weeks to see a specialist? Yes. Do Americans also wait? Yes. There is no evidence that Canadians are dropping dead in the streets while waiting for their emergency bypasses or appendectomies, nor is there any evidence that Canadian physicians are emigrating to the U.S. or other countries en masse. Further, there is no evidence that the quality of care in Canada, across the board, is inferior to that practiced in the U.S. Despite comparable rates of smoking and alcoholism, Canadians on average live longer than Americans by more than 2 years, and their infant mortality rate is less than ours. Finally, consider this: Canadians spend much less than we do for health care, both in per-capita dollars and as a percent of GDP, so I have no doubt that if we were to adopt a Canadian-style system and fund it to the tune of $2.6 trillion annually, we would not have 9-month waits for MRIs, even if every one of them was clinically indicated.
Myth #3: Market-Based Medicine Trumps Single-Payer
Some argue that our private, market-based system is fundamentally sound, that it should be freed of government regulation and tweaked to promote greater competition based on price, and thus choice of health insurance plans. Really? Does anyone seriously believe that purchasing health care services is fundamentally no different from buying a new car or a flat-screen TV? (If so, I suggest he or she take a course in health economics.) And would anyone seriously believe that Americans want a choice of health insurance, when what they really desire is a choice of doctors and hospitals? What could be more American, more consumer-friendly, and more constitutional than the ability to choose your health care provider based on whatever criteria you deem important? So why not cut out the middleman and let doctors, hospitals, and other providers compete on such things as quality, service, reputation, convenience, and other personal preferences, rather than having private insurers make these choices for us?
Just consider what “The Market” has done for health care in the last 30 years: a steady increase in the number of uninsured; a decrease in the choice of providers; diversion of resources into more profitable hospitals and services; consolidation of HMOs into health care oligopolies; underfunding of less profitable endeavors, such as public health, trauma centers, and mental health services; unaffordable prescription drugs; dissatisfied patients; frustrated physicians; and of course, an inexorably increasing trajectory of health care costs.
Myth #4: Single-Payer Would Stop Medical Innovation
To my knowledge, there is no correlation between innovation and a country’s method of health care financing. Many technologies and medical advances we now take for granted originated in nations with national health insurance, for example, CT scans and MRIs (Great Britain), laparoscopic cholecystectomy (Canada), percutaneous coronary angioplasty (Germany), and H. pylori treatment (Australia). The largest single source of funding for medical research in the U.S. is a government agency – the National Institutes of Health – which provided almost $31 billion in funding for medical research in fiscal year 2012. And in terms of per-capita drug R&D costs, the U.S. lags behind Britain and Sweden.
Myth #5: Single-Payer Is Impossible to Enact Politically
Perhaps this is true – for now. But if social change depended solely on what was politically pragmatic, women would not have achieved the right to vote in 1920, civil rights legislation would not have been enacted in 1964, and Medicare would have failed in 1965. We should always be careful to distinguish between what’s desirable and what’s doable. The fact that tort reform is certainly desirable, but not politically doable at the present time, has not stopped ACEP from investing significant time and financial resources to advocate for change. Public opinion polls have consistently shown that the level of public support for single-payer is 60% plus. A survey of physicians published 4 years ago showed that single-payer garnered 59% support among the 2,193 physicians polled (support among emergency physicians was even higher, at 69%). Despite this, there is no question that moving to a single-payer system will face enormous obstacles. What is needed, as columnist David Lazarus of the Los Angeles Times pointed out, is a “massive infusion of political courage and the willingness to forsake political purity.”
Myth #6: We Can’t Afford Single-Payer
Given our current system, perhaps the better statement would be “we can’t afford not to have single-payer.” The most recent financial projections portend no overall decrease in the cost trajectory for health care over the next 8 years, even if the ACA remains intact. Under a single-payer model, a modest increase in taxes would be overshadowed by savings from elimination of insurance premiums, offsets from economies of scale, decreased out-of-pocket payments, and the disappearance of cost-shifting. The annual savings from transforming to a single-payer system are estimated to be $400 billion. If you look at the cost curves for U.S. and Canadian health care, they were identical until the mid-1970s, when Canada’s health system was fully implemented. From then on, the curves diverged, with America’s climbing much faster than Canada’s. When Taiwan converted to single-payer in 1995, the costs went up in the first year, as expected, and then leveled off to a reasonable increase of about 3% per year.
What Does This Mean for Emergency Medicine?
Well, consider the ED as a de facto single-payer environment. Patients come to us by choice without needing to first check with their health plan (assuming they have one) to see if their ED visit is covered. We see them without asking them to pay in advance for their ED services, and their care is not predicated on their job, income, or insurance coverage. As emergency physicians, we have more autonomy than our primary care colleagues in terms of making diagnostic and therapeutic decisions without the nonsense of “pre-authorization” or other interference from an insurer who is interested only in the bottom line. While it’s nice to be able to make medical decisions without checking on insurance status, it would be even nicer if we actually got paid for every ED patient treated. Private insurance companies simply have no incentive – in fact, it’s not at all consistent with their business model – to pay for EMTALA-mandated services provided by out-of-network emergency physicians.
Looking again to Medicare as a single-payer model, consider how we emergency physicians interact with Medicare vs. private insurers. In 29 years of practice, I have never had to seek permission from a CMS official to admit a fee-for-service Medicare patient, have never had a consultant refuse a referral for a Medicare beneficiary, and have never had a pharmacist call me to say the prescription for my Medicare patient was not covered by the formulary. This is not true for some of my patients in managed care plans, including those who were sick enough to be admitted but had to be transferred because my hospital (which the patients self-selected) did not participate in their plan.
Single-payer is the only remaining option to simultaneously and synergistically expand access, control costs, preserve choice, and reduce disparities. There is simply no other efficient and constitutionally safe way to do this. Any other proposals are nothing more than tinkering around the edges and based on blind faith that some kind of future financial salvation will somehow save us from the impending health care meltdown. A single-payer, improved Medicare-for-All program would overhaul our dysfunctional health care financing system so that it works best for patients – and for physicians.
Dr. Mitchiner is an emergency physician in Ann Arbor, Mich., a former president of the Washtenaw County (Mich.) Medical Society, and a member of Physicians for a National Health Program.
Single payer is not on the table in next week’s presidential election. It should be. This article explains why.
Dr. Mitchiner’s explanation of single payer, addressed to his emergency medicine colleagues, is so clear, concise and compelling that it should be widely distributed so others can understand the imperative of a single payer system – an improved Medicare for all.
It should be downloaded from the ACEP link above, or from the PNHP link below. Both can be converted into printer friendly formats by clicking “Printer friendly” (ACEP) or “Print page” (PNHP). Then be sure that as many people as possible read it and then share it with others. And on the Internet, this needs to go viral!
The Insurance Value of Medicare
By Katherine Baicker, Ph.D., and Helen Levy, Ph.D.
The New England Journal of Medicine, October 31, 2012
Medicare is an insurance program. The reason we have health insurance at all is not that health care is expensive, but rather that there is great uncertainty about who will need very expensive and potentially lifesaving care and when they will need it. Medicare should give beneficiaries not just access to medical care, but also protection from the risk of catastrophic spending. At the same time, Medicare — like any good insurance — should not cover so much care so generously that beneficiaries end up consuming too much care of questionable value and driving up costs for everyone. Thus, setting cost sharing for Medicare beneficiaries is a balancing act: too little cost sharing means patients have no incentive to spend Medicare dollars wisely; too much means Medicare fails to perform its insurance function.
How well does Medicare do at this balancing act? Not very. Medicare by itself offers only limited protection against economic ruin. The basic benefit lacks a cap on out-of-pocket spending, so beneficiaries are exposed to the risk of open-ended cost sharing that can generate substantial financial strain (or deplete assets for surviving spouses). Moreover, the odds of facing a catastrophic expense mount over time.
Beneficiaries without any supplemental coverage thus do not have enough insurance and face too much risk. This risk is one reason that 90% of beneficiaries obtain some other type of insurance (e.g., retiree health benefits, Medigap, Medicare Advantage, or Medicaid). But beneficiaries with generous supplemental coverage probably have too much insurance. “Too much insurance” may seem like a nonsensical concept, but there is ample evidence that when copayments are lower, patients consume more care, much of which is of questionable benefit to health. The systemwide effects are considerable: the increasing prevalence of health insurance in the United States is estimated to be responsible for about half the increase in per capita health care spending between 1950 and 1990. Having little or no cost sharing may lead enrollees to consume low-value care and drive up the cost of Medicare for everyone.
Nonpartisan and bipartisan groups such as the Congressional Budget Office, the National Commission on Fiscal Responsibility and Reform (also known as the Bowles–Simpson Commission), and the Medicare Payment Advisory Commission have advanced proposals that would address the imbalance in risk facing beneficiaries in the current Medicare program. Although these groups do not propose exactly the same fixes, some of the basic ideas are the same: First, put a cap on the out-of-pocket spending that beneficiaries are responsible for — as most private plans already do — so that those with no other coverage are protected from catastrophic costs. Second, restrict “first-dollar coverage” (coverage with no cost sharing by beneficiaries) in Medicare supplemental insurance, either by banning it or by imposing a surcharge on plans that provide it.
These proposals are controversial. Placing a cap on beneficiary cost sharing would increase program spending at a time when there is intense pressure to cut spending. Restricting first-dollar supplemental coverage would cut program spending but is politically unpopular because it requires lawmakers to tell most beneficiaries that they cannot have the insurance (often private insurance) they are used to having. Furthermore, crude cost sharing that ignores the differences in health benefits produced by different types of care could reduce consumption of highly effective care as much as it reduces consumption of low-value care, especially for low-income populations. Nonetheless, striking a better balance between spreading risk and promoting efficiency would make Medicare a better insurance program.
Medicare was always intended not just to increase access to care but to protect the elderly from financial ruin. As President Lyndon Johnson said when signing Medicare into law in 1965, “No longer will illness crush and destroy the savings that [older Americans] have so carefully put away over a lifetime so that they might enjoy dignity in their later years.”
Although cost sharing is a topic that we have covered before, Katherine Baicker, coauthor of this NEJM article, is very influential in the policy arena, and the issue is sure to be addressed further as politicians look for cost savings in health care, especially as they seek bipartisan solutions to reduce government spending on the Medicare “entitlement.” Both Barack Obama and Mitt Romney have indicated that Medicare entitlement reform will be on the agenda regardless of who is elected as president.
So what is the purpose of a public insurance program such as Medicare? That’s easy. It is or should be designed to ensure that beneficiaries receive the health care that they need when they need it, without having to face a financial hardship. The most effective design to accomplish this would be to cover all necessary medical costs with no cost sharing whatsoever. Financial barriers to health care would be eliminated.
But some say that the purpose of insurance is to protect against catastrophic losses only, and that it is not intended to protect against routine expenses. The problem with this definition is that far too many individuals do not have enough disposable income to pay those routine expenses, so high-deductible coverage often defeats the goals of ensuring access and preventing financial hardship in the face of medical need.
What about a lower deductible and other forms of cost sharing such as copayments and coinsurance? Same thing. There are still too many who do not have enough disposable income to pay their share plus their other bills.
Let’s go back to what the purpose of a public health insurance program should be. It should remove financial barriers to care. Does cost sharing enhance this function? No, just the opposite. Cost sharing deliberately introduces financial barriers to care. Why? As Baicker and Levy state in this article, “Medicare — like any good insurance — should not cover so much care so generously that beneficiaries end up consuming too much care of questionable value and driving up costs for everyone.” This disregards the fact that it is almost impossible for patients and even doctors to segregate out which care is “questionable.”
Thus the intent of cost sharing is to control spending, not to improve access nor to protect personal finances, both of which it can worsen. The question then arises, is there any better way of controlling spending, especially by methods that would be even more effective? Of course. Simplify administration, establish global budgets, use regional planning to budget capital improvements, reinforce the primary care infrastructure, and switch to administered pricing to ensure fairness. In other words, change to a single payer financing system. Other nations have proven that you do not need cost sharing to control spending.
Though Medicare pays only about half of health care costs on average for seniors, many soften the blow through the use supplemental plans such as Medigap, retiree health benefit programs, or Medicare Advantage. These authors and many others contend that patients must be exposed to first dollar coverage (remember: to control spending, not to improve access nor financial security), and this should be done by either banning supplemental coverage or by penalizing it with surcharges, presumably to be paid by the beneficiaries.
This concept is now so prevalent that we can fully anticipate that it will be part of the entitlement reform that our politicians are clamoring for. Medicare coverage is already inadequate, and they want patients to have even greater exposure to health care costs. Instead, we need to eliminate deductibles and coinsurance from Medicare to ensure both access and financial security. Switching to a single payer improved Medicare that covers everyone is the Medicare entitlement reform that we really need, not just for our seniors but for the rest of us as well.
Fury as first privately run NHS hospital racks up £4.1m loss
By Nick Dorman
People.co.uk, October 28, 2012
Bosses at Britain’s first privately-run NHS hospital have asked for a bailout just six months after taking over.
In a major blow to Tory plans to privatise the health service further, contractor Circle racked up losses of £4.1million at Hinchingbrooke.
Now the firm, which is run by a former Goldman Sachs banker and has expressed an interest in running other hospitals, has been forced to ask the local NHS trust for a cash advance.
The hospital has fallen 19 places from the top of a Government league table of patient satisfaction since it was taken over by Circle.
Last night Unison health union said this raises big questions over Tory privatisation plans for the NHS.
Spokesman Anne Mitchell added: “This should force a rethink. Right from the start our view was a private company would not have the experience to run a large hospital like Hinch-ingbrooke.
“They made many claims which they are now failing miserably to deliver.”
Shadow health minister Jamie Reed said: “Patients are paying the price for David Cameron’s eagerness to hand the NHS to private companies.”
Hinchingbrooke losses double Circle Health estimate
BBC News, October 25, 2012
The first NHS hospital to be run by a private company has revealed losses in the firm’s first six months in charge were almost double those forecast.
Circle Health took over management of Hinchingbrooke Hospital in Cambridgeshire in February.
The board reported that 46 nursing posts had been cut so far at the Huntingdon hospital under Circle’s management.
Karen Webb, regional director for the Royal College of Nursing (RCN) union, said: “The RCN doesn’t see how [quality care] can be achieved by removing nurses from the system.
Ali Parsa: Government should not be running hospitals
By Andrew Cave
The Telegraph, August 4, 2012
“It’s all about bringing entrepreneurialism, ownership and a sense of engagement into health care,” says Parsa, pointing out that the company subsidiary delivering the health care is 49.9pc owned by hospital staff.
So, how big can Circle become? Parsa, who came to the UK by himself from Iran at the age of 16 a few years after the 1979 Islamic revolution and built up and sold a media promotions company before moving into investment banking with Credit Suisse, Merrill Lynch and Goldman Sachs, apparently sees no limit.
“I’m an entrepreneur with ambition,” he says. “And I didn’t come to run a small company in Circle. We came to create a very large organisation.
“On a 10 to 20-year view, I think the scale of private companies running NHS health care in Britain could be huge. I honestly cannot see why we should not be running many, many hospitals in the UK.
“And if we are doing a great job in the UK 10 or 20 years from now, there’s no reason why we should not be doing the same thing all over the world.”
Britain’s Conservative Prime Minister David Cameron has been eager to privatize their National Health Service. What a great start. Hinchingbrooke, now privately managed by former Goldman Sachs banker Ali Parsa, has racked up losses of £4.1 million and has plummeted on the Government’s new patient satisfaction league table. Apparently Cameron and his Conservatives are blind as to what has happened across the Atlantic.
Of significance is that the tendering process for this arrangement began under the Labour government. Just as the Democrats here have supported an expansion of privatization through private insurers and private managed care organizations, Labour seems to be complicit in Britain’s move toward privatization. Taking care of the one percenters seems to be an international phenomenon. Sad.
Cost Control in a Parallel Universe: Medicare Spending in the United States and Canada
By David U. Himmelstein, MD; Steffie Woolhandler, MD, MPH
Archives of Internal Medicine, October 29, 2012 (Online First)
As the United States was implementing Medicare in 1966, Canada was phasing in its own Medicare program, which covered all Canadians under provincially administered plans. While these provincial plans varied, all incorporated significant payment reforms—global budgeting of hospitals and stringent capital expenditure controls—and banned copayments and deductibles.
Before the mid-1960s, the 2 nations’ health care financing systems were similar, and health care costs were comparable. Since then, overall US costs have grown more rapidly, but no study has compared spending for the elderly—the populations covered by Medicare in both nations.
US Medicare spending per elderly enrollee rose from $1215 in 1980 to $9446 in 2009 (an inflation-adjusted 198.7% increase). The comparable increase for Canada was 73.0% (from $2141 to $9292). Canada’s higher base-year spending reflects its more comprehensive benefits, covering about 80% of seniors’ total health costs, vs about 50% in US Medicare.
The Table lists actual US Medicare spending from 1980 through 2009 and projected spending and savings had US costs risen at the lower Canadian rate. Projected savings totaled $154.2 billion in 2009 and $2.156 trillion for 1980 through 2009.
For the 1971-2009 period, US costs rose 374.1% vs 126.3% for Canada, and estimated foregone savings were $2.9024 trillion.
Medicare spending has grown nearly 3 times faster in the United States than in Canada since 1980. Had US Medicare costs risen at Canadian rates, rather than a deficit of $17.1 billion in 2009, the Medicare Hospital Trust Fund would have realized a $32.3 billion surplus. Savings on Medicare Part B would have been even larger. By 2009, the $2.156 trillion in excess spending attributable to US Medicare’s faster growth was equivalent to more than one-sixth of the national debt.
Several features of Canada’s program help constrain costs. First, the single-payer system has simplified administration, holding administrative costs to 16.7% of overall spending vs 31.0% in the United States. Although US Medicare’s internal overhead costs are low, it remains one among many payers. Hence providers’ administrative costs are inflated by having to deal with a multitude of payers and track eligibility, attribute costs, and bill for individual patients and services.
Second, Canadian hospitals receive prospectively determined global operating budgets, removing incentives to provide unnecessary care while simplifying billing and administration. However, unlike accountable care organization payment schemes in the United States, capital costs are not folded into the global budgets but distributed separately through an explicit health-planning process. Canadian hospitals cannot use operating surpluses to fund new buildings or equipment but must request separate capital appropriations. Hence, they cannot expand by overproviding lucrative services, gaming the payment system through upcoding, avoiding unprofitable patients, or cost shifting.
Third, 51% of Canada’s physicians are primary care practitioners vs 32% in the United States. Primary care–centered health systems are generally thriftier. Canada’s outpatient fee schedules are also less technology skewed than in the United States.
Fourth, Canada’s provincial plans have used their concentrated purchasing power to limit drug and device prices.
Finally, litigation and malpractice costs have remained relatively low in Canada.
Life expectancy at age 65 years is longer and has grown faster in Canada than in the United States since 1980 (and 1971), offering reassurance that cost control has not compromised quality. A meta-analysis suggests that clinical outcomes are, if anything, better for Canadians than for insured Americans.
To some, US Medicare’s grim financial health suggests an even grimmer conclusion: it can no longer keep its promise of all needed care for the elderly population. Some would replace it with vouchers that seniors could use to purchase private coverage. Others suggest upending the current payment system by inverting volume-based incentives, offering instead profits to organizations that limit utilization. Yet the efficacy of these drastic solutions remains unproven. Canada’s road-tested cost-containment methods offer an alternative.
PNHP Press Release:
This study is particularly important because it compares spending in our Medicare program for beneficiaries 65 and older with Canadian Medicare spending for the same age population during the same decades studied. This apples to apples comparison reveals that there is no contest. Since 1971, we’ve spent almost $3 trillion more than we would have had we used Canada’s payment reforms. The Medicare Hospital Trust Fund would have had a huge surplus by now, and nobody would be claiming that Medicare is “going broke.”
The difference is due to economic policies that really do work. Single payer advocates already know what these are, but for those who need a reminder, they are listed in the Comment in the original article above.
Not only did Canadians more effectively control their health care cost increases, their life expectancy grew more rapidly during the same time period. They benefited more under their cost efficient Medicare model.
We have enough understanding of health policy science to predict that the current proposals to control spending in the United States will either have very little impact, or, much worse, will reduce spending by making health care access even more unaffordable.
Comparing the two Medicare programs, the Canadian system pays about 80 percent of health care costs, whereas our Medicare program pays only about half. Also, Canada has banned copayments and deductibles for physician and hospital services – a mainstay of the perverse, misguided efforts to control health spending in the United States. We can control spending without imposing financial penalties on people accessing health care that we want them to have.
It is time for all of us to express our OUTRAGE! We can no longer accept inaction by our politicians because they fear the political consequences. We have to make them understand that they face dire political consequences if they don’t act. As FDR said, “Make me do it.” It’s time to get in their faces!
U.S. Set to Sponsor Health Insurance
By Robert Pear
The New York Times, October 27, 2012
The Obama administration will soon take on a new role as the sponsor of at least two nationwide health insurance plans to be operated under contract with the federal government and offered to consumers in every state.
These multistate plans were included in President Obama’s health care law as a substitute for a pure government-run health insurance program — the public option sought by many liberal Democrats and reviled by Republicans. Supporters of the national plans say they will increase competition in state health insurance markets, many of which are dominated by a handful of companies.
The national plans will compete directly with other private insurers and may have some significant advantages, including a federal seal of approval. Premiums and benefits for the multistate insurance plans will be negotiated by the United States Office of Personnel Management, the agency that arranges health benefits for federal employees.
John J. O’Brien, the director of health care and insurance at the agency, said the new plans would be offered to individuals and small employers through the insurance exchanges being set up in every state under the 2010 health care law.
Under the Affordable Care Act, at least one of the nationwide plans must be offered by a nonprofit entity. Insurance experts see an obvious candidate for that role: the Government Employees Health Association, a nonprofit group that covers more than 900,000 federal employees, retirees and dependents, making it the second-largest plan for federal workers, after the Blue Cross and Blue Shield program.
Richard G. Miles, the association’s president, expressed interest in offering a multistate plan to the general public through insurance exchanges, but said no decision had been made.
“Our expertise in the Federal Employees Health Benefits Program would be useful in the private marketplace,” Mr. Miles said in an interview. “But we are concerned about the underwriting risk in providing insurance to an unknown group of customers.”
To be eligible to participate in the multistate program, insurers must be licensed in every state. The Government Employees Health Association recently bought a company that has the licenses it would need.
National insurance plans will be subject to regulation by the federal government, state insurance commissioners and state insurance exchanges. That mix could cause confusion for some consumers who have questions or complaints about their coverage.
The federal standards will pre-empt state rules in at least one respect: the national health plans will automatically be eligible to compete against other private insurers in the new exchanges, regardless of whether they have been certified as meeting the standards of those exchanges.
The administration has promised to “work cooperatively with states.” But it is unclear whether the government-sponsored plans will have to comply with all state laws and consumer protection standards; whether they will have to comply with state benefit mandates; and whether they will have to pay state fees and taxes levied on other insurers to finance exchange operations.
Robert E. Moffit, a senior fellow at the conservative Heritage Foundation, said he worried that “the nationwide health plans, operating under terms and conditions set by the federal government, will become the robust public option that liberals always wanted.”
Rules for the new program have been under review by the White House for three months, and officials said they would be issued soon.
H.R.3590, Patient Protection and Affordable Care Act (P.L.111-148)
SEC. 1323. COMMUNITY HEALTH INSURANCE OPTION.
(b) ESTABLISHMENT OF COMMUNITY HEALTH INSURANCE OPTION.—
(1) ESTABLISHMENT.—The Secretary shall establish a community health insurance option to offer, through the Exchanges established under this title (other than Exchanges in States that elect to opt out as provided for in subsection (a)(3)), health care coverage that provides value, choice, competition, and stability of affordable, high quality coverage throughout the United States.
Although the White House has not yet released the rules for federally-sponsored national health plans, we really don’t need those rules to know that this program is not an incremental step towards a single payer national health program.
At this point, consideration is being given to using the Government Employees Health Association as a national plan to be offered to individuals and small businesses through the state insurance exchanges. This plan is one already offered to government employees through the Federal Employees Health Benefits Program (FEHBP) administered by the United States Office of Personnel Management (OPM).
This is still a private plan, even if it is non-profit serving government employees. It is not and never will be a publicly-owned plan such as the traditional Medicare program. Currently it is being proposed for a rather limited market – the state insurance exchanges which will be offering coverage for only the relatively small proportion of our population that qualifies for the exchanges. It will be competing on a private market basis with other private plans within the exchanges. There is concern that it would be exposed to adverse selection – insuring more expensive patients such as those with preexisting disorders, many of whom are currently amongst the ranks of the uninsured. So it may not even be able to compete on an equal basis with the other private plans that have proven themselves quite capable of dodging adverse selection. So it still will be just another cog in our fragmented, dysfunctional system of financing health care.
It will be offered nationally, in some ways meeting the expressed desire of Republicans to offer insurance across state lines. It is unclear if this would satisfy their intent to allow the plans to escape state regulation since it is not yet known how the state and federal governments will share regulatory oversight. This aspect of the national plan could be a step backward.
Thus this national private plan currently offered to government employees will still be nothing more than a private plan in a market of other plans within the state exchanges. The single payer community should not waste its time trying to make this plan something that it is not and never can be. We cannot let up in our advocacy for a bona fide national single payer program – an improved Medicare for all.
Seven Factors Driving Up Your Health Care Costs
By Julie Appleby
PBS NewsHour/Kaiser Health News, October 24, 2012
There is no one villain in the battle against rising health care costs. Currently, the United States spends more on health care services than any other country, exceeding $2.6 trillion, or about 18 percent of gross domestic product. Most years, medical spending rises faster than inflation and the economy as a whole. Many factors — and nearly everyone — contributes to those increases.
Here are seven ways you or your medical providers play a role, based on a recent report from the Bipartisan Policy Center, a think tank in Washington, D.C.
1. We pay our doctors, hospitals and other medical providers in ways that reward doing more, rather than being efficient.
2. We’re growing older, sicker and fatter.
3. We want new drugs, technologies, services and procedures.
4. We get tax breaks on buying health insurance — and the cost to patients of seeking care is often low.
5. We don’t have enough information to make decisions on which medical care is best for us.
6. Our hospitals and other providers are increasingly gaining market share and are better able to demand higher prices.
7. We have supply and demand problems, and legal issues that complicate efforts to slow spending.
The Bipartisan Policy Center report on which this article was based:
What Is Driving U.S. Health Care Spending?
America’s Unsustainable Health Care Cost Growth
Julie Appleby is a highly credible health care reporter who has done an excellent job of reporting the views expressed in this report released by the Bipartisan Policy Center, an organization founded by Bob Dole, George Mitchell, Howard Baker and Tom Daschle. As we shall see, when we look at these seven health care cost factors, “bipartisan” has now come to mean a right-wing position between the extreme conservative views held by most of today’s elected Republicans, and a moderate-right view held by the majority of Democrats. This corruption of bipartisanship has had a devastating impact on our efforts to achieve health care justice for all.
Let’s look at each of the seven factors supposedly driving up our health care costs, keeping in mind the fact that other industrialized nations have much more effective health care financing systems which are able to deliver care to everyone at an average of half what we spend. The numbers here refer to each item in the article.
1. It seems that almost everyone in the policy community believes the meme that our health care costs are too high because we pay for care based on fee-for-service – a system that rewards doctors and hospitals for providing a greater volume of more complex health care services and products. The primary flaw in this explanation is that many other nations also use fee-for-service yet are still able to control their total health care costs. The primary defect is not in the way we determine what health care is worth, but in the fundamental dysfunction of our health care financing system.
2. We are getting older, obesity is increasing, and more chronic conditions are diagnosed. However, with minor variations, the same supposed changes are happening in other nations as well, yet without the need to drive health care costs up as rapidly as we do. We still fall short on life expectancy when compared to other nations, so living more years has not been the problem. Obesity is a problem, as it is in other nations, but the answers lie more in public health measures encouraging better nutrition and more exercise, and less on care provided within our health care delivery system, except for preventive programs. Much of the reported increase in chronic disease is related to the emphasis on recording in more detail diagnoses which then permits higher billing for more complex conditions and also provides a basis for greater rewards under pay-for-performance and other so-called quality schemes. Refined diagnoses are possible for example when using much more inclusive laboratory criteria for the defining diabetes or hypercholesterolemia (just a touch of disease), or also by including osteoarthritis as a diagnosis in the elderly – a condition that has always been there but frequently not reported unless it was the primary presenting complaint. Our disease epidemic is more in augmented documentation than it is in exploding pathophysiology.
3. Almost everyone says that our newer expensive technologies and our plethora of expensive new drugs are major reasons for our high health care costs. Guess what. Other nations use the same technology and the same drugs, yet do not spend nearly as much as we do on health care. Some of the new technologies replace older technologies, and the actual costs (not prices) are often not higher. Also the breakthrough drugs of prior decades become the low-cost generics of today. Yes, advances do add to medical spending in all nations, but not nearly to the extent suggested by the policy community and politicians.
4. Many blame the tax benefits provided for employer-sponsored health plans as an incentive to purchase “Cadillac plans” that provide far more coverage than most people need. Yet actually our private plans have been shifting more costs to patients through higher deductibles and other cost sharing, while paring back on benefits and restricting access through measures such as limited provider networks and tiering of products and services. Again, other nations have not adopted these perverse barriers to care to the same extent that we have, yet they still provide care at a much lower level of spending. Contrary to popular lore, patient insensitivity to costs is not the primary reason why our health care spending is so high.
5. The lack of transparency is often blamed for our high costs. If patients only understood better all of their options and were better informed on the potential adverse consequences of their decisions, then they wouldn’t be demanding all of this unnecessary care. Those who make this claim are ignoring the fact that it now has been decades since we recognized that patients must provide their informed consent for health care. Doctors do explain the options and the potential problems of various diagnostic and therapeutic interventions. Paternalistic medicine has been largely replaced by the patients’ need to know. Better information is already resulting in greater value in our health care spending.
6. Consolidation amongst hospitals and physician groups has provided them with greater market leverage that results in higher prices. But where is this occurring? It is the private insurers that have been far less effective in negotiating savings with the providers. If you look up the S&P health care indices, commercial carriers (private insurers) have continued to increase health care spending at intolerable escalating rates, while the Medicare index has demonstrated that public agencies are much more effective than the private sector in keeping the rate increases down to more tolerable levels (bending the cost curve). Administrators of public health care financing programs are able to override the unfair advantage that market consolidation permits.
7. It is often said that our supply-side excesses result in excessive spending. Actually, as far as hospital beds and health care professionals, we do not have excesses when compared to other nations, except perhaps in certain resources such as imaging. We do have a maldistribution of resources, the worst being a disproportion between primary care professionals and specialist physicians. We need to reinforce our primary care infrastructure and reduce the overemphasis on some, but not all, of the specialized fields. The malpractice problem does need to be addressed through measures such as alternative dispute resolution, but the savings expected by reducing CYA medical management has often been overstated since we will always have low-yield testing, even if the malpractice threat goes away, since those tests potentially can result in important beneficial outcomes, even if less frequent. It’s just that the emphasis will be on protecting the patient rather than on protecting the doctor.
Following is the “Conclusion and Next Steps” from the report of the Bipartisan Policy Center (link above):
“The drivers of health care cost growth are complex and multi-faceted. Just as no single driver is responsible for our high and rising health care costs, no single policy solution will be adequate to meet this challenge. For this reason, the BPC Health Care Cost Containment Initiative plans to produce a comprehensive, bipartisan package of health care cost containment options that, if implemented together, could reduce system-wide health care costs, slow cost growth and improve the efficiency and quality of care in the United States.”
The Bipartisan Policy Center is politically influential and may well be a major player as Congress begins to embark on these right-wing “bipartisan” solutions to health care costs. The primary reason that this framing of the problems is considered right-wing is that it diverts our attention away from the real solutions as it attacks these problems in a way that will perpetuate our perverse, dysfunctional health care financing system – further reinforcing the private insurance industry that has been a major source of our problems, while using the underfunded and therefore inadequate Medicaid program as a safety net.
What we really need is no secret. We need an administratively efficient financing system that will reduce one of the largest sources of excess health care costs in the United States – the administrative waste of the fragmented multi-payer system which is heavily dependent on the inefficient private insurers, and the waste of the administrative burden that this system places on our hospitals and health care professionals. We need a public administration which would improve the allocation of our health care resources through regional planning, including improving and expanding our primary care infrastructure. Our public administrators can also use their power as a beneficent monopsony to get pricing right – improving cost effectiveness while promoting high quality, evidence-based medicine.
Julie Appleby has done a great job in distilling the contents of this Bipartisan Policy Center report. Now it’s our job to provide the proper perspective. She reports. We decide.
Amid Cutbacks, Greek Doctors Offer Message to Poor: You Are Not Alone
By Liz Alderman
The New York Times, October 24, 2012
Life in Greece has been turned on its head since the debt crisis took hold. But in few areas has the change been more striking than in health care. Until recently, Greece had a typical European health system, with employers and individuals contributing to a fund that with government assistance financed universal care. People who lost their jobs still received unlimited benefits.
That changed in July 2011, when Greece signed a loan agreement with international lenders to ward off financial collapse. Now, as stipulated in the deal, Greeks who lose their jobs receive benefits for a maximum of a year. After that, if they are unable to foot the bill, they are on their own, paying all costs out of pocket.
About half of Greece’s 1.2 million long-term unemployed lack health insurance, a number that is expected to rise sharply in a country with an unemployment rate of 25 percent and a moribund economy, said Savas Robolis, director of the Labor Institute of the General Confederation of Greek Workers. A new $17.5 billion austerity package of budget cuts and tax increases, agreed upon Wednesday with Greece’s international lenders, will make matters only worse, most economists say.
“In Greece right now, to be unemployed means death,” said Dr. Kostas Syrigos, (the chief of oncology at Sotiria General Hospital in central Athens).
“We are moving to the same situation that the United States has been in, where when you lose your job and you are uninsured, you aren’t covered,” Dr. Syrigos said.
Greece’s austerity program has been devastating. Greece’s lenders have imposed on them the requirement that individuals lose their health insurance after one year of unemployment. As Dr. Kostas Syrigos states, “We are moving to the same situation that the United States has been in, where when you lose your job and you are uninsured, you aren’t covered.”
So the European nation that is suffering most from the current financial crisis has had to drop its health care coverage standards to that of the United States. Isn’t there a lesson here for us?
But you say that the Affordable Care Act has fixed that. If you lose your employer-sponsored coverage you can always buy insurance in the exchanges (but not if you can’t pay your share of the subsidized premium). If you lose most or all of your income, you can always sign up for Medicaid (but not if your state declined to participate in the expanded program).
Greece is right to hold us up as the example of the worst health care coverage standards of all industrialized nations. The irony is that we are wealthy enough and are already spending enough money to do something about it, but we don’t. We still can, by enacting an improved Medicare that covers everyone. Can’t we learn from Greece’s experience?
Cost Effectiveness Analysis and the Design of Cost-Sharing in Insurance: Solving a Puzzle
By Mark Pauly
National Bureau of Economic Research, October 2012
The conventional model for the use of cost effectiveness analysis for health programs involves determining whether the cost per unit of effectiveness of the program is better than some socially determined maximum acceptable cost per unit of effectiveness. If a program is better, the policy implication is that it should be implemented by full coverage of its cost by insurance; if not, no coverage should be provided and the program should not be implemented. This paper examines the unanswered question of how cost effectiveness analysis should be performed and interpreted when insurance coverage can involve non-negligible cost sharing. It explores both the question of how cost effectiveness is affected by the presence of cost sharing, and the more fundamental question of cost effectiveness when cost sharing is itself set at the cost effective level. Both a benchmark model where only “societal” preferences (embodied in a threshold value of dollars per unit of health) matter and a model where individual willingness to pay can be combined with societal values are considered. A common view that cost sharing should vary inversely with program cost effectiveness is shown to be incorrect. A key issue in correct analysis is whether there is heterogeneity either in marginal effectiveness of care or marginal values of care that cannot be perceived by the social planner but is known by the demander. The cost effectiveness of a program is shown to depend upon the level of cost sharing; it is possible that some programs that would fail the social test at both zero coverage and full coverage will be acceptable with positive cost sharing. Combining individual and social preferences affects both the choice of programs and the extent of cost sharing.
From the Introduction
Of course, the answer to the question of the relationship between cost effectiveness values and cost sharing depends both on the perspective taken and the empirical facts. So I first outline the simple and correct application of a decision rule to treatment choices based on cost effectiveness in the “binary coverage” setting, when insurance either covers 100 percent of the cost of a given type of care or leaves it entirely uncovered, and the extra welfarist approach is taken. I show that this approach usually is based on two assumptions: a single value for expected improvement in health outcomes is to be applied to all patients, and a single monetary value for those expected marginal benefits prevails. This is the approach, avowedly “extra-welfarist,” much favored at present in the United Kingdom by the NICE advisory body.
However, I then show that opening the door to consideration of cost sharing means that many things, including this perspective, might appropriately be modified. Modifications are needed if there is heterogeneity in either effectiveness of the treatment across patients or in the values citizens place on health outcomes, and that heterogeneity is determined to be relevant to policy. I show that the ideal level of “interior” cost sharing depends on whether consumer values are assumed to be relevant, on how much consumer values really vary, and most especially on whether the extent of variation in expected effectiveness across patients is perceived by patients but cannot be known by the insurer. I briefly consider as well the possibility that social values are variable or uncertain.
These are somewhat discouraging conclusions. They definitely imply that there is no simple but correct way to move from findings of a typical cost effectiveness study to saying what the coinsurance rate should be for a non-poor population. The most one could hope for would be a binary decision of whether or not a particular treatment should or should not be covered by insurance with a particular predetermined cost sharing rate (usually but not necessarily zero). They also imply that the cost effectiveness of a treatment cannot be properly determined unless coinsurance is set at the optimal level. So, unless there is perfect information to identify heterogeneity of benefits, considerations of consumer demand (in the classic economic sense of the shape of the demand curve) need to be added, regardless of the normative model.
The fundamental problem is the assumption of a uniform benefit of uniform value which is central to the societal cost effectiveness model. This assumption is presumably made for administrative and expository reasons, not because anyone believes that marginal health benefits are uniform, or that the marginal value of a health benefit (to a consumer or society) is independent of the current level of health or allocation of resources. It was hard enough to get policymakers to accept the need for considering costs and the need to establish a money value for health outcomes, however arbitrary, and in the United States neither of these concepts is as yet effective. But paradoxically it might be more feasible to get political acceptance if more attention to reasonable variation in effectiveness and value were explicit rather than suppressed in the analysis. As always, there is a case to prefer approximating the perfect rather than precisely hitting the imperfect as a method of policy analysis.
Mark Pauly has contributed extensively to the policy literature on the moral hazard of health insurance (the hazard that individuals will obtain care that they do not need if they do not have to pay for it), a concept which has been used to support cost sharing (deductibles, co-payments and coinsurance) as a means to create consumer price sensitivity. Pauly now expands on the concept by applying it to cost effectiveness analysis.
With our very high health care costs, it is inevitable that more attention will be paid to cost effectiveness. Although most cost effectiveness analyses are aimed at whether or not a particular health care service or product provides adequate societal value (measured benefit per unit cost, especially costs that society pays through public programs or private insurance), Pauly now suggests that the value to the individual, as expressed by the level of cost sharing tolerated, should also be introduced in determining cost effectiveness.
First, a few words about cost effectiveness. Most health care professionals do attempt to provide cost effective care. If a very expensive procedure likely would provide no health care value, the practitioner would advise against its use. Likewise, low cost but high volume interventions that are eventually shown to be ineffective also would be abandoned by the practitioner.
Sometimes we simply don’t know whether the benefit is worth the cost. This is where cost effectiveness analysis can be helpful. If a cancer drug regimen that costs $300,000 results in maybe three months of poorer quality life due to side effects, but prolongs life by only three days, most reasonable individuals would decide that this is not cost effective and should not be paid for through our collective funds, whether government taxes or private insurance funds. Three months of hospice is better than three months and three days of therapeutic misery.
An example of a low cost, high volume intervention might be the use of an anti-hypertensive drug that in long term studies showed absolutely no benefit in reducing morbidity or mortality. Obviously that would not be cost effective, and its use would be abandoned.
Okay. So we determine that most medical interventions fall somewhere between 100 percent cost effective and not cost effective at all. Then we are supposed to determine a level of cost sharing for each intervention that would motivate the patient to make a correct decision on whether or not to accept the care based on consumer-directed cost effectiveness decisions that still provide adequate societal value? Come on!
Forget moral hazard. Through cost effectiveness analyses we can determine whether or not medical interventions should be available to patients, and we don’t need to have patients making spending decisions to determine health care value. Even if the benefit may not be uniform between patients, the decisions should be made at the clinical level based strictly on medical benefit and not on cost. Cost decisions should be made at the societal level.
The purpose of cost sharing is to reduce health care spending. Our message earlier this week demonstrated that controlling moral hazard through cost sharing introduces behavioral hazard; that is, decisions that patents make when exposed to out-of-pocket costs as a consequence of accessing health care can be detrimental. Policies that promote detrimental medical decisions are bad policies.
Keep in mind that we spend almost twice as much per capita on health care as the United Kingdom, yet we have ever-increasing cost sharing whereas their system pays 100 percent of the cost of covered services. There are many features of their national health services that result in lower costs, but one that applies to today’s discussion is their application of cost effectiveness and evidence-based analyses through their National Institute for Health and Clinical Effectiveness (NICE). Eliminating ineffective and detrimental care reduces costs, with a net gain in quality.
Just think of what we could have if we established a single payer financing system. We could reduce administrative and clinical waste while eliminating financial barriers to care so that everyone would have access to cost effective and evidence-based, high quality care – care that is really NICE.
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