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.
Financing the Maryland Health Security Act
By Gerald Friedman, Professor of Economics, The University of Massachusetts at Amherst
This policy memo explores the economic implications of enacting the Maryland Health Security Act (MHSA) and establishing the Maryland Health System Trust (MHST) a single-payer system to finance health care in Maryland. The proposed trust would finance virtually all necessary medical care including hospital care, doctor visits, dental care, mental health, prescribed occupational and physical therapy, prescription drugs, medical devices as well as medically necessary nursing home care and home health care. Medical care would be financed through the MHST without co-payments or deductibles.
The MHST will finance medical care with substantial savings compared with the existing multi-payer system of public and private insurers. Some of these savings would be used to extend coverage to the 15 percent of nonelderly adults in Maryland without insurance and to improve coverage for the growing number with inadequate coverage. In addition to improving access to health care, the MHST would reduce economic inequality by replacing the current regressive system of health insurance finance with progressive and proportional taxes. By reducing administrative and other waste, the MHST would increase real disposable income for most Maryland residents while reducing the burden of health care on Maryland businesses.
Financing the Maryland Health Security Act (31 pages):
House Bill 1035 – Maryland Health Security Act of 2011:
Many proposals have been advanced and bills introduced for single payer programs. Perhaps the most frequent question asked is, “How would you pay for it?” The general answer is easy. You simply use progressive tax policies to fund a universal risk pool that pays for all appropriate care for everyone. Most people want specifics. In this report, Professor Gerald Friedman describes a financing proposal for the Maryland Health Security Act of 2011, a single payer model of reform.
As with all other single payer proposals, he reaches the conclusion that the substantial savings of the single payer model could be used to extend coverage to the uninsured and to improve coverage for the growing number with inadequate coverage. This would increase disposable income for most residents and reduce the burden of health care costs on Maryland businesses.
Friedman also provides a graph projecting three scenarios for Maryland health expenditures for the next decade: 1) the existing health care finance system, which we all know is terribly inflationary, 2) growth under the Affordable Care Act, which is much worse (since this is the most expensive model of reform), and 3) growth under single payer, which is dramatically reduced – bringing cost escalation down to tolerable levels – truly “bending the curve.”
One important footnote in his report should be mentioned: “We assume that all necessary federal waivers are granted and legislation is enacted to allow the incorporation of existing federal programs into the MHST (Maryland Health System Trust), including Medicare, Medicaid, and the Veteran’s Administration.” We might add to that legislation addressing the preemption clause for self-insured, employer-sponsored plans under the federal Employee Retirement and Income Security Act of 1974 (mentioned in the fiscal and policy note for HB 1035).
Activists should continue to support state efforts for single payer reform while simultaneously supporting enabling federal legislation, for the reasons mentioned. The former is not possible without the latter. A far better option would be to enact a national single payer program, but until we can bring sanity to our political process, state single payer reform should be pursued.
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.
Insurer Battles Physician Group
By Anna Wilde Mathews
The Wall Street Journal, February 29, 2012
A clash between health insurer Blue Shield of California and a doctor group that sold its operations to UnitedHealth Group Inc. highlights emerging tensions as lines blur between health insurers and medical providers.
On Tuesday, the health insurer filed a demand for at least $10.5 million in damages from Monarch HealthCare, a 2,300-physician association based in Irvine, Calif., that last fall sold its management arm to UnitedHealth’s Optum health-services unit.
Among the allegations: that Monarch sought to steer Blue Shield members away from Blue Shield and toward competing health plans, and that its doctors started declining to see some Blue Shield members. The complaint says these moves violated Blue Shield’s contract with Monarch, which the insurer has previously said will end on May 1.
“It seems crazy to be contracted with someone who’s a direct competitor, and share everything you design with them,” said Juan Davila, senior vice president for network management at Blue Shield, which has 3.3 million members. Blue Shield felt its “worry was proved true” by Monarch’s alleged actions, he said.
At the root of the clash is the deal unveiled last fall for Monarch’s operations arm to be acquired by Optum, the unit of UnitedHealth Group, which is also the parent of UnitedHealthcare, the nation’s biggest insurer. Because California law bans most entities from directly employing practicing doctors, acquisitions involving independent-practice associations like Monarch often have complex structures.
The dispute raises issues for both sides. Blue Shield says in its complaint that it lost existing and prospective members. Also, its provider network will soon lack one of Orange County’s biggest doctor groups. Monarch risks losing some patients who are Blue Shield members.
In its complaint, Blue Shield said it had around 19,200 members in commercial and Medicare Advantage plans last September who used Monarch doctors. In May, Blue Shield’s members have to pay more to keep seeing Monarch doctors, who would become out-of-network providers.
Similar static is beginning to surface elsewhere as health plans have begun buying medical providers, and some providers have started making insurer-style moves, with some considering direct approaches to employers and even seeking to launch their own health plans.
WellPoint Inc.’s Anthem Blue Cross broke off a deal with Monarch to create a cooperative “accountable-care organization” and also said in a letter to doctors that it will discontinue its health-maintenance organization relationship with Monarch in the future. In the letter last October, an Anthem official said the ACO move came as “a result of the group’s pending transaction” with Optum.
These disputes between UnitedHealth’s Monarch HealthCare, Blue Shield of California, and WellPoint’s Anthem Blue Cross not only impose a great disservice on their patients, but also should outrage all of us over the fact that these health care intermediaries act as if they regard patients to be their chattel – jerking them around in order to fulfill their own business goals. How long are we going to continue to tolerate this reprehensible industry? They may need us, but we don’t need them.
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.
Actuarial Value: Why It Matters And How It Will Work
By Lynn Quincy
Health Affairs Blog, February 28, 2012
On February 24, 2012, the Department of Health and Human Services (HHS) released guidance describing a proposed method for estimating the actuarial value of health plan benefit designs in 2014. The actuarial value measures the percentage of expected medical costs that a health plan will cover. It can be considered a general summary measure of health plan generosity. As such, it can help consumers make sense of their health plan options by providing an overall measure of coverage in addition to discrete information on deductibles, copayments, and coinsurance, etc.
A Trade-Off Between Simplicity And Accuracy
The bulletin highlights — but doesn’t resolve — a tension between simplicity and accuracy in the estimation of actuarial value. HHS initially proposes to use a “practical and easy-to-use” calculator that would utilize the “handful” of cost-sharing features that have a large impact on a plan’s actuarial value, such as deductible, co-insurance, and maximum out-of-pocket. This approach may not take into account more subtle features of a plan, such as service specific deductions or exceptions to the out-of-pocket limit.
There are trade-offs, however, from taking this “practical” approach. First, cost-sharing features that may be only worth a few points of actuarial value can have a big impact on an individual consumer’s cost-sharing obligations. Second, high level plan features like the maximum out-of-pocket can vary in how reliably they reflect patient cost-sharing. One study found that plans with similar reported out-of-pocket maximums actually differed by thousands of dollars in the final cost to patients due to exceptions to the maximum.
Third, by opting for a simple calculator, HHS envisions insurers using supplementary methods to calculate actuarial value if their plan design doesn’t fit neatly into the calculator. This could greatly undermine the goal of using a common method of calculating actuarial value to ensure that plan comparisons are truly “apples to apples.” A recent study demonstrated that the same plan design can yield different actuarial value estimates, if different methods are used to calculate it.
Addressing A Tension Between Actuarial Value And Out-Of-Pocket Maximums
Depending on the actuarial model being used, some researchers have found it impossible to hit the required actuarial value targets and the lower out-of-pocket limit requirements simultaneously. While it may seem counter-intuitive, allowing for a higher out-of-pocket maximum means lower deductibles can be offered while still hitting the required actuarial value target. As many consumers will not hit their out-of-pocket maximum, flexibility to use higher out-of-pocket limits benefits a greater number of consumers.
In a nutshell, HHS proposes to let actuarial value targets trump maximum out-of-pocket rules if this conflict arises. HHS intends to publish an annual notice providing guidance as to the out-of-pocket levels that would be consistent with the actuarial value targets for households with incomes from 100 percent to 250 percent of FPL, presumably reflecting the types of estimates being produced by the federal calculator. For households with incomes of 250 percent to 400 percent of FPL – which are also entitled to lower out-of-pocket maximums under the ACA but remain tied to the standard actuarial value benchmark of 70 percent – HHS proposes to do away with the requirement for lower out-of-pocket maximums altogether.
CMS: Actuarial Value and Cost-Sharing Reductions Bulletin (16 pages):
The actuarial value of a health plan represents the average percentage of covered services that a plan is expected to pay for, the balance being paid by the patient. The Affordable Care Act calls for four levels of plans, ranging from 60 percent to 90 percent actuarial values. Cost sharing, such as deductibles, coinsurance, and maximum out-of-pocket amounts, is an important consideration in determining the actuarial value of the plan.
The excerpts above include only two of many complex considerations in trying to standardize rules for establishing actuarial values and associated cost sharing. For instance, in trading off simplicity and accuracy, “plans with similar reported out-of-pocket maximums actually differed by thousands of dollars in the final cost to patients due to exceptions to the maximum.” Also, “For households with incomes of 250 percent to 400 percent of FPL – which are also entitled to lower out-of-pocket maximums under the ACA but remain tied to the standard actuarial value benchmark of 70 percent – HHS proposes to do away with the requirement for lower out-of-pocket maximums altogether.”
By selecting this model of reform, not only do we compound the administrative excesses in health care financing, we also compound some of the inequities in our system. Policy wonks will want to read the full CMS Bulletin covering these complex issues (link above).
It is hoped that those who continue to push for implementation of ACA will finally realize the futility of their efforts and join us in advocating for equitable, efficient reform for all of us through a single payer national health program.
Key Facts on Health Coverage for Low-Income Immigrants Today and Under Health Reform
Kaiser Commission on Key Facts
As of 2010, there were 38 million immigrants residing in the United States, accounting for 12.5 percent of the total population. They include 16.7 million naturalized citizens and 21.4 million non-citizens, including both lawfully present and undocumented individuals. The Pew Hispanic Center estimates there were 11.2 million undocumented immigrants in the United States as of 2010, accounting for about 3.7 percent of the total population.
In 2010, the median annual household income for non-citizens was $25,000, roughly half the amount for citizen households.
Health coverage for naturalized citizens is very similar to that of U.S.-born citizens, with the majority covered through employer-sponsored or other private coverage. However, non-citizens are three times as likely as U.S.-born citizens to be uninsured due to lower rates of both public and private coverage.
Coverage Options for Immigrants Under Health Reform
Almost all uninsured non-citizens have household incomes that would qualify for Medicaid or tax credits for exchange coverage under reform, but many will continue to face immigrant eligibility restrictions.
The Medicaid expansion will make many lawfully present immigrants newly eligible for the program, particularly low-income adults who have very limited eligibility for Medicaid today. However, the five-year wait for coverage will remain in place, limiting eligibility for many lawfully present immigrants, although states will maintain the option to eliminate the waiting period for lawfully residing children and pregnant women.
Lawfully present immigrants without access to affordable employer based coverage will be able to purchase health coverage in the new exchanges, and those with incomes up to 400 percent of poverty will be eligible for tax credits. This will include lawfully present immigrants with incomes below 133 percent of poverty who are unable to enroll in Medicaid due to the five-year waiting period.
Undocumented immigrants will remain ineligible for Medicaid and will be ineligible for tax credits and prohibited from purchasing coverage through an exchange, even at full cost.
Safety-net providers will remain a major source of care for immigrants. Today, uninsured individuals, including many uninsured immigrants, often rely on community health centers and clinics for their care. Safety-net providers are seen as a trusted source for care and are able to offer culturally and linguistically appropriate services that meet the needs of diverse populations. Under reform, these providers will likely remain a primary source of care for millions of newly insured individuals, including lawfully present immigrants, as well as citizens and non-citizens who remain uninsured after 2014.
Everyone should have health care. How well will the Affordable Care Act (ACA) work for our immigrant population? It depends partly on immigration status.
The ACA provisions apply to naturalized citizens just as they would for native-born citizens. Thus their barriers will be the same as for most of the rest of us. They will face the same issues of whether or not the subsidies will be adequate to purchase private plans, and whether or not they will be exposed to excessive cost sharing with inadequate subsidies when accessing care.
Non-citizen immigrants are faced with the additional problem of having household incomes that average only half that of the U.S. median. Those who are lawfully present also must wait for five years before they are eligible for the Medicaid program. They will be eligible to purchase programs in the new exchanges, though the subsidies will likely be inadequate for those with incomes that already don’t cover other essential needs.
For immigrants who are undocumented, Congress decided to yield to the forces of anti-immigrant politics, and not only make them ineligible for tax credits for the exchange plans, but also to prohibit them from purchasing the plans with their own funds, even at full cost. It is very unfortunate that Congress co-mingled heath care justice with immigration policy. The sanctity of human life should always prevail over the politics of ideology.
Yes, some will receive excellent care from our safety-net providers, but many will not. Community health centers cannot possibly fill in the full void in coverage.
Most undocumented workers are productive individuals, just like our citizens, and there is no reason that they should not contribute to and participate in a single payer national health program that covers everyone – absolutely everyone.
Covering People with Pre-Exisiting Conditions: Report on the Implementation and Operation of the Pre-Existing Condition Insurance Plan Program
February 23, 2012
Before the Affordable Care Act, Americans with pre-existing conditions who did not receive health coverage through their employers had few affordable options to get the care they needed. In most States, insurance companies could refuse to sell them coverage, charge exorbitant premiums, or offer them coverage that excluded benefits for their health conditions.
The law ends discrimination against people with pre-existing conditions.
As a bridge to 2014, when these protections apply to all Americans, the law created a new program designed to help the tens of thousands of Americans who have been locked out of the insurance market due to their health conditions. The Pre-Existing Condition Insurance Plan or PCIP is a temporary high-risk health insurance program that makes health coverage available and more affordable immediately to individuals who are uninsured and have been denied health insurance by insurance companies because of a pre-existing condition. Twenty-seven States are operating their own program, often in coordination with existing State High Risk Pools, and 23 States and the District of Columbia have opted to have a Federally-operated program.
The PCIP program will continue to provide affordable coverage to consumers who are enrolled and will facilitate their transition to Affordable Insurance Exchanges in 2014.
Enrollment as of December 31, 2011: 48,879
Under the Affordable Care Act (ACA), 48,879 previously uninsurable people with serious medical problems are receiving essential health care services under the pre-exisiting condition insurance program. We can’t celebrate this gain because far too many people are still left out. It is a mere glimmer that doesn’t light our path to reform. But temporarily we should accept what limited benefits ACA does provide, instead of trying to repeal it, while we work on a program that actually is going to take care of everyone – an improved Medicare for all.
California health insurers to raise average rates 8% to 14%
By Chad Terhune
Los Angeles Times, February 23, 2012
California’s largest health insurers are raising average rates by about 8% to 14% for hundreds of thousands of consumers with individual coverage, outpacing the costs of overall medical care.
Anthem has proposed raising premiums 9.6% to 13.8% on average, effective May 1 or July 1, for about 700,000 individual policyholders and their family members.
Nonprofit Kaiser Permanente increased premiums 9% on average for nearly 300,000 customers last month.
Blue Shield of California, also a nonprofit, is boosting average rates by 7.9% for 265,000 members and by 8.9% for 56,000 members, both effective March 1.
The cost of goods and services associated with medical care grew just 3.6% over the last 12 months nationally, government figures show. But insurance premiums have kept climbing at a faster pace in California.
Insurers defended their rate hikes, saying they are based on their claims experience with the customers they insure and not just the broader rate of medical inflation. They also say that healthier members dropped out of the individual market as premiums rose and the economy worsened in recent years, leaving behind a group of policyholders who have higher average costs.
Why should individual health insurance premiums continue to increase at a rate much greater than the cost of goods and services associated with medical care?
One of the most important reasons is that health insurance is now so expensive that many individuals who consider themselves to be healthy are choosing to go without coverage. Those who have health care needs make greater efforts to retain their insurance, thereby concentrating high-cost individuals within the insurance risk pools. This is known as adverse selection.
As the insurance premiums continue to increase, a greater number of healthier individuals will find the premium costs to be intolerable and will drop out, driving premiums up even higher – a phenomenon known as the death spiral of insurance premiums.
One purpose of the Affordable Care Act (ACA) was to correct such dysfunctions of the private insurance industry. Can we really expect adverse selection with skyrocketing insurance premiums to go away once the Act is fully implemented?
Keep in mind that in the individual market insurers have been using one of the most effective tools to reduce adverse selection. They have refused to cover individuals with greater health care needs, filling their risk pools with healthier individuals – favorable selection. That is now going away. They are going to be required to insure all applicants. That will surely drive up the premiums for the populations expected to be served by the state insurance exchanges.
Under ACA, it is also predicted that 23 million individuals will remain uninsured. A very large percentage of these individuals, who otherwise likely would have participated in the insurance exchanges, will not because of the unaffordable premiums – unaffordable even with the subsidies. Some will remain uninsured based on affordability exemptions in ACA, but some will simply not comply and be subject to penalties which the government may or may not be able to collect. These will be healthier individuals since those with needs will make greater efforts to obtain coverage. More adverse selection.
So once we’ve established the state insurance exchanges, what can we expect? Very high premiums due to adverse selection. A mediocre benefit package based on state small group plans. Very low actuarial values which shift the costs of health care to the very individuals who have greater needs. In other words, UNAFFORDABLE UNDER-INSURANCE will be the new standard in America.
We’re a better country than that. Let’s fix Medicare and provide it for everyone.
Health-insurance Coverage for Low-wage Workers, 1979-2010 and Beyond
By John Schmitt
Center for Economic and Policy Research, February 2012
In 2010, over 38 percent of low-wage workers lacked health insurance from any source, up from 16 percent in 1979.
Coverage problems are particularly severe for Latino workers. Almost 40 percent of all Latino workers (not just low-wage workers) have no health insurance of any form. African American (about 22 percent) and Asian (about 17 percent) workers are also much less likely to have coverage than white workers (about 12 percent).
Affordable Care Act of 2010
For simplicity, if we assume that all adults – workers and non-workers – have the same coverage rate, then under CBO’s projections, workers as a group would have a 5.8 percent non-coverage rate after the ACA. By comparison, in 2010, the actual non-coverage rate for all workers was about 17.7 percent. The CBO gives no guidance about how the coverage improvements for workers would be divided across the wage distribution. If, at the extreme, we assume that all of the uncovered workers are low-wage workers by our definition – that is that all 5.8 percent of workers remaining without coverage are in the bottom quintile – then the non-coverage rate for low-wage workers would be about 29.0 percent. This would be a reduction of one-fourth in the share of low-wage workers without coverage relative to the actual non-coverage rate for low-wage workers in 2010 (38.5 percent). A less extreme assumption about the distribution of non-coverage rates by wage level after the ACA would produce larger gains for low-wage workers. For example, if instead we assume that the top 80 percent of workers have a frictional 3 percent non-coverage rate, then an overall non-coverage rate for workers of 5.8 percent implies a 17.0 percent non-coverage rate for low-wage workers, well short of universal coverage, but a non-coverage rate that is less than half of the current rate.
The ACA will not produce universal coverage for low-wage workers. But, if the ACA is not enacted – due to judicial or legislative action – every indication is that coverage rates will continue their three-decades-long decline.
Conservatives who oppose health care reform often argue that being uninsured is a consequence of the individual’s own personal irresponsibility. Those individuals merely need to shape up and go out and get a job, and then they would have health insurance. The conservatives lose their credibility on this point when the actual data show that 38 percent of low-wage workers, who do go out and get a job, lack health insurance from any source.
Because of such deficiencies in our system reform advocates were able to muster the political support to pass the Affordable Care Act – a half-glass reform. Those who view this as a glass half full celebrate the fact that over half of these uninsured workers will become insured under ACA.
The advocates of reform who view this as a glass half empty bemoan the fact that ACA will still leave about 17 percent of low-wage workers without insurance. The diversionary half full, half empty debate is particularly tragic when you consider that a single payer national health program would have brought us a full glass.
The addendum below is from this same report. It is added because it explains the roots of the decline in coverage rates – an important concept indicating that our battle for health care justice is only a part of the offensive that must take place to expedite social justice throughout the United States.
The decline in coverage rates has its roots in two long-standing economic processes. The first is the rising cost of health care, which has squeezed workers’ wages and made it less economical for firms to offer health insurance, especially to low-wage workers. In the absence of reforms to the existing health-care system, these costs – and implicitly the pressure on workers’ after-health-insurance compensation – are projected to continue rising indefinitely.
The other force behind falling coverage rates, especially for low-wage workers, is the decline over the last three decades in the bargaining power of most workers. Beginning in the late 1970s, a set of structural changes in the economy has significantly reduced the bargaining power of workers, especially those at the middle and the bottom of the wage distribution. These structural changes include: a steep decline in unionization; an erosion in the inflation-adjusted value of the minimum wage; the deregulation of many historically high-wage industries (trucking, airlines, telecommunications, and others); the privatization of many state and local government functions (from school cafeteria workers to public-assistance administrators); the opening up of the U.S. economy to much higher volumes of foreign trade; a sharp rise in the share of immigrant workers, who often lack basic legal rights and operate in an economy that provides few labor protections regardless of citizenship; and a macroeconomic policy environment that has typically maintained the unemployment rate well above levels consistent with full employment. All of these changes have acted to reduce the bargaining power of workers, especially those at the middle and bottom of the wage distribution. As a result, workers as a group have seen their relative (and even absolute) wages fall and the availability and quality of health-insurance and retirement plans decline.
Implementing Health Reform: Essential Health Benefits And Medical Loss Ratios
By Timothy Jost
Health Affairs Blog, February 18, 2012
On December 16, 2011, the Department of Health and Human Services issued a bulletin describing the approach that it intended to take to defining the essential health benefits (EHB) that individual (nongroup) and small group plans must cover under the Affordable Care Act.
The EHB bulletin raised a host of questions as to how this approach would work. On February 17, 2012, HHS issued guidance in the form of an FAQ (frequently asked questions) addressing some of these questions. This post will discuss this FAQ.
The FAQ do go some distance toward clarifying a number of the issues left open by the initial bulletin, in particular how plan flexibility will (and will not) work, that states will not establish a new EHB every year, and that a state’s commercial plan EHB need not apply to Medicaid. The approach selected by HHS will allow states to maintain their coverage mandates (or at least those that apply to the small group market) until 2016, but will preclude the addition of new mandates. It is still hard to imagine how this is all going to work out in practice, however, and more to the point how plan compliance will ever be monitored, given the ability of plans to substitute services within categories. One must wonder whether in the end it might not have been more straightforward simply to come up with a federal menu of services.
CMS – FAQs on essential health benefits:
Being the fine gentleman he is, Professor Jost politely states, “One must wonder whether in the end it might not have been more straightforward simply to come up with a federal menu of services.”
You don’t have to wonder. Not only should we have a national standard calling for comprehensive benefits for everyone, we also should have simplified the financing system to make it more equitable and much more efficient so that health care would be accessible and affordable for everyone.
Administrative Simplification: From compliance to competitive advantage
Administrative Simplification, part of the Patient Protection and Affordable Care Act of 2010 (ACA) signed into law on March 23, 2010, has an overarching goal of streamlining administrative interactions between health plans and providers to improve the patient experience and reduce costs throughout the health care system. Administrative Simplification provisions build on the electronic standards first defined in 1996 with HIPAA 4010 and accelerated in 2009 with passage of HIPAA 5010. While HIPAA addresses the technical structure of transactions, Administrative Simplification addresses how they are used.
• Standardized business and operating rules to eliminate variability in transaction implementation, moving the industry toward commoditization of “back-end” transaction processing
• Standardized benefit coverage information to drive consistency of eligibility content, enabling providers to better understand financial liability
• Provision of patient financial liability at or before the point of care, enabling providers to improve the collections process
• Real-time electronic auto-adjudication and claims status, providing for automated reconciliation
• Automation of health plan utilization management and care management decision processes required to support real-time referrals and pre-authorizations
Key dates and scope:
• Wave 1 (January 1, 2013): Automation of point-of-care eligibility and claims status
• Wave 2 (January 1, 2014): Automation of claims payment remittance advice and electronic funds transfer
• Wave 3 (January 1, 2016): Automation of claims and encounters, enrollment/disenrollment, referral authorization, premium payments, and claim attachments
Deloitte – Administrative Simplification:
CMS – Administrative Simplification Provisions in the Patient Protection and Affordable Care Act of 2010 (ACA) (6 page pdf):
It has long been recognized that profound administrative waste is a unique feature of the U.S. health care system – waste that contributes to our unparalleled, sky-high health care spending. During the reform process, the subject of administrative waste was brought up repeatedly. In response, Congress included in the Affordable Care Act “Sec. 1104 Administrative Simplification.” What is that?
You can read either Sec. 1104 in ACA, or, better, you can read the six page summary by CMS (link above). However, easiest would be to read the excerpts above from the Deloitte report on Administrative Simplification. There is enough there to let you know what it is.
It will not take long for people who understand the administrative advantages of the single payer model to realize that Sec. 1104 has nothing to do with the administrative waste that is a result of our highly fragmented, dysfunctional health care financing infrastructure. Sec. 1104 is primarily revising the information technology systems of the insurers and then requiring the providers to become compliant.
An idea of what Sec. 1104 is really about can be gleaned from Deloitte’s discussion of a revolutionary scenario for administrative simplification:
“This scenario assumes that all stakeholders adopt real-time, end-to-end transaction processing, and that product standardization emerges. Implementation costs would be significant for both health plans and providers. Commercial health plans, in particular, would face a new strategic reality as claims transactions become a commodity, and health plan differentiation shifts to other areas, such as provider network and member experience. Such revolutionary change is possible if existing industry players and/or new entrants look for innovative ways to capitalize on market opportunities to affect health care cost and quality and make meaningful improvements to our health care system.”
Do not be misled when ACA supporters talk about “administrative simplification.” That’s their code language for “commoditization” and “innovative ways to capitalize on market opportunities.”
“Administrative simplification” is another term that they have stolen from the single payer community, and then bastardized it. Don’t let them get away with it. That’s our policy science.
Medicare And Commercial Health Insurance: The Fundamental Difference
By Diane Archer and Theodore Marmor
Health Affairs Blog, February 15, 2012
As the debate over Medicare continues in connection to America’s fiscal problems, it is critical to understand how Medicare differs from commercial health insurance for working people. There is a fundamental difference between these two types of health insurance plans, one social and one commercial.
The basic difference between Medicare and commercial insurance is that Medicare is designed to absorb risk, serving individuals who have or may have costly and complex medical needs as well as the relatively healthy, whereas commercial insurance is required to protect its business interests by avoiding those most likely to use medical care.
But nothing can change the underlying reality that programs like Medicare are designed to absorb and broadly distribute risk, protecting everyone, while commercial insurers are designed to select and protect individuals with the fewest needs.
The belief that competition among private health insurance firms can produce cost savings or higher quality care represents the victory of illusion over evidence. We need to let the existing Medicare system do what it already does effectively: insulate Americans from risk, rather than shift risk to the most vulnerable citizens.
The fundamental difference between Medicare and commercial health insurance is very basic and easy to understand. Medicare is “designed to absorb and broadly distribute risk, protecting everyone, while commercial insurers are designed to select and protect individuals with the fewest needs.”
The explanation of this difference in this Health Affairs Blog entry by Diane Archer and Theodore Marmor should make us question once again why Congress and President Obama chose commercial insurers as the foundation for the Affordable Care Act when what we clearly needed was a universal public program based on improved version of Medicare.
You should read their fairly brief blog entry and then read the replies posted first by Vince Kuraitis and then by Don McCanne. They exemplify the differences between the commercial approach to insurance and the social function of Medicare.
It’s really an easy concept to grasp:
Commercial – “Of or relating to commerce, having profit as a chief aim”
Social – “Of, relating to, or occupied with matters affecting human welfare”
Addendum: Since the reply submitted by Don McCanne has not yet been posted on the blog website, both the Kuraitis reply and McCanne reply are reproduced here.
Vince Kuraitis says:
You (Archer and Marmor) make a sweeping statement: No matter what regulations are instituted in an attempt to guarantee their good behavior, commercial insurers will still have an incentive to avoid risk, and they will do so insofar as it is possible.
An equally sweeping rebuttal: this problem is entirely fixable by risk adjusting — paying higher premiums for members that are less healthy. Medicare has already started doing this with Medicare Advantage plans.
Of course, the devil is in the details…and in a debate we’d probably come out in the middle somewhere. Risk adjustment is easier to conceptualize than to do accurately.
…but I think your broad, blunt assertion needs to be challenged.
Don McCanne says:
Vince Kuraitis writes that the authors’ statement on incentives for commercial insurers needs to be challenged. It is Mr. Kuraitis’ challenge that needs to be challenged since the authors’ statement is quite correct.
Commercial insurers do have incentives to avoid risk, and, if subjected to risk adjustment, they have incentives to game the system. This is not suggesting illegal activity. It merely represents “appropriate” commercial activity – activities that are rewarded on Wall Street.
Risk adjustment already takes place in the Medicare Advantage program. An NBER study (Working Paper No. 16977, April 2011) revealed that the Medicare Advantage plans were able to further increase their own advantage and transfer more resources from the relatively sick in the traditional program to the relatively healthy within their plans.
Quoting from the NBER report, “With social insurance programs, however, imperfect pricing can induce private firms to cream-skim, exacerbating the utility consequences of the underlying inequality the program was initially intended to mitigate. At least in the case of Medicare, we find little evidence that risk adjustment has solved this problem.”
And from the NBER Digest, “Thus the authors conclude that the Medicare Advantage program both increased total Medicare spending and transferred Medicare resources from the relatively sick to the relatively healthy, and that risk-adjustment was not able to address either of these problems.”
Archer and Marmor are precisely correct: “No matter what regulations are instituted in an attempt to guarantee their good behavior, commercial insurers will still have an incentive to avoid risk, and they will do so insofar as it is possible.” That is the nature of the commercial approach to insurance, which is in sharp contrast to the social function of the traditional Medicare program.
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