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.
Democrats’ Plan B For Medicare: Medicare For All
By Sally Pipes
Forbes, September 6, 2011
Democrats know the individual mandate might go up in smoke. So they’ve started strategizing a constitutionally sound means of achieving the ever-elusive goal of “universal coverage.”
Their preferred remedy? “Medicare-for-All,” a term popularized by the late Senator Edward Kennedy (D-Mass.) who supported a single-payer, government run healthcare system.
Former Clinton labor secretary Robert Reich laid out the basic idea in a recent op-ed for the San Francisco Chronicle. “So what do Obama and the Democrats do if the individual mandate in the new health care law gets struck down by the Supreme Court?” Reich asked. “Immediately propose what they should have proposed right from the start — universal health care based on Medicare-for-All, financed by payroll taxes.”
This notion has been floated in progressive policy circles in the past. It’s a pure distillation of their government-heavy approach to health care reform. Typically, though, the idea’s been shelved out of fears of political blowback.
Today, when the government extracts Medicare taxes from people’s paychecks, it’s forcing them to assent to this deal: Hand over a slice of your paycheck now, and get government-sponsored health insurance in old age.
Of course, Americans are not allowed to opt out of that deal — just like they won’t be able to opt out of the individual mandate. But unlike the mandate, the taxes that finance Medicare are not in danger of being deemed unconstitutional.
If the individual mandate is actually struck down, Medicare-for-All may become the new rallying cry for progressive luminaries. And if President Obama wins a second term, he may look to heed that cry.
As a Canadian libertarian now serving as President and CEO of the Pacific Research Institute, an organization advocating for free market solutions to America’s problems, Sally Pipes is issuing a warning that “Medicare-for-All may become the new rallying cry for progressive luminaries.” Further, “if President Obama wins a second term, he may look to heed that cry.” Don’t we wish!
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.
Private exchanges offer yet another alternative to group health plans
By Emily Berry
American Medical News, September 5, 2011
With potentially more than 50 state-based versions of a public health insurance exchange set to emerge by 2014, another version of a post-health reform insurance market is emerging: the private exchange.
A private exchange is an existing concept taking on a new name. The idea also has been pitched as a “defined benefit” plan and has been part of a package with a health reimbursement account. Simply put, a private exchange is an alternative to a group health benefit plan. Rather than paying a portion or all of a premium, an employer pays each of its workers a flat amount and sends each to choose his or her plan.
Here’s how a private health exchange works:
An employer decides what it can afford to pay for health benefits — for example, $1,000 per employee per month. Rather than enrolling every employee in the same plan and using the $1,000 to pay for a portion of a premium, the employer puts $1,000 in an account for each worker.
Then one of two things happens: One, the employee works with a third party that acts as a clearinghouse. The worker chooses from any plan available in the individual market, with the clearinghouse administering the employee’s HRA, and helping connect brokers and health plans with the employees who want to buy coverage.
Under the second scenario, the employer sends the worker to a third party that gives him or her a limited set of choices, for instance a range of plans offered by the state’s Blues plan.
A private exchange would be a better deal for the employer than not offering health benefits, because the company can still reap the tax advantage of offering health benefits and avoid the penalty that would apply to companies with 50 or more employees if they decided not to offer benefits, analysts said.
Employers who want to reduce their roles in providing health insurance for their employees, yet do not want to turn their employees over to the state insurance exchanges and pay penalties for doing so, seem to have another option – private exchanges.
One of the greatest benefits for the employer is that they can convert their health benefit programs from a defined benefit to a defined contribution. This shifts the burden of future health care cost increases onto their employees.
In the next couple of years we can anticipate seeing many other similar efforts to skirt the provisions of the Affordable Care Act. It is really tragic that we are going to have to wait until far too many more people are destitute and suffer and die before we are ready to enact the reform we really need – an improved Medicare for all.
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.
Breaking Point: How the Primary Care Crisis Endangers the Lives of Americans
By John Geyman, M.D.
What are the dimensions of the crisis in primary care? How did we get here? How and why have past efforts to resolve it failed? And how can we succeed in rebuilding our crumbling foundation of health care in this country? In Part I, we will outline the dimensions of this crisis; its impacts on our system, patients and their families; and consider what we can learn from failed attempts to rebuild primary care. In Part II, we will look at various policy alternatives, summarize what can be learned from other countries, and propose a comprehensive agenda for rebuilding primary care.
This is admittedly a challenging problem that requires a long view, most likely over one or two generations. Present trends are very unfavorable, and a complete re-orientation of the goals of health care, the roles of physicians and other health care professionals, and fundamental changes in the way we finance health care will be required if we are to deal effectively with the primary care problem.
Both the book and the Kindle ebook are available at Amazon.com:
In “Breaking Point,” John Geyman explains why it is crucial for us to rebuild our primary care infrastructure, and how we can do it. Highly recommended!
By Josh Freeman, M.D.
Originally posted on Medicine and Social Justice blog, Aug. 31, 2011
During the health reform debate, one option we were assured was never seriously “on the table” was “single payer,” or Medicare for All. President Obama, who as a senator had indicated his support for this solution, backed away from it as fast as he could. In this he was undoubtedly encouraged by his many advisors, who have also encouraged bank bailouts, “compromise” on the debt ceiling, etc. (see June 18, 2009,“No Single Payer”: Sebelius – making policy for the powerful). This is not to say that there were not supporters of single payer within government; there were and are. HR 676, “The Improved and Expanded Medicare for All” act, principally sponsored by Rep. John Conyers of Michigan, had nearly 100 co-sponsors in the House. Sen. Bernard Sanders of Vermont introduced a single-payer bill in the Senate. Vermont, in fact, has become the first state to move toward a form of single payer on a statewide basis.
As anyone who has been reading this blog for any amount of time knows, I am a strong advocate of single payer. (A few of the many MSJ references: April 28, 2011 Perception and reality of economic inequality; July 22, 2010, Improving quality and access still requires coverage for all; April 10, 2009, Does the nation need a clear policy on a right to basic health care?).
My reasons for support of single payer are several:
In 1964, President Johnson signed the Medicare Bill in Independence, MO, giving cards #1 and #2 to former President Harry Truman, who had fought for national health insurance in the late 1940s and lost, and his wife Bess.Forty-seven years later, Medicare has proven its importance in providing a single-payer program for seniors. It is the largest payer in the country, and the rates that it pays for services determine those paid by other insurers. While expanding Medicare to everyone should be the centerpiece of health policy, it has instead become the target of proposals to cut coverage to those who already receive it, particularly from the right. This has led to a lot of bad ideas from politicians such as Rep. Paul Ryan and Sen. Joseph Lieberman (see Medicare: We need to expand it, not cut it!, July 1, 2011).
The “poster child” for a single-payer system is Canada, which has had it since the early 1970s. Based on the principle of social solidarity, not often apparent in the US, the Canadian federal government set the criteria for the program (which is also called “Medicare”) and the individual provinces set the specific terms and fund it. There is local (provincial) autonomy within the boundaries established by the federal government (see December 14, 2009, Tommy Douglas and the Canadian Health System; May 27, 2010, Universal Coverage and Primary Care: The US needs both). Several recent articles have addressed the degree to which changes in the primary care system to create “medical homes” in Ontario, Canada’s largest province, have enhanced the quality of patient care, access of patients, lowered cost, and increased the income of primary care physicians (see Rosser et al, “Progress of Ontario’s Family Health Team model: a patient-centered medical home”  ). It is critical to note that this Family Health Team program was really only possible on such a scale because Ontario, like the rest of the country, has a single-payer system.
The importance of increasing, or at least not decreasing, the income of primary care physicians relative to other specialist, has been addressed in several other posts. What about all physicians, as a group? The AMA and other physician groups were, after all, largely responsible for the defeat of Truman’s national health insurance program and were major opponents of the US Medicare and Medicaid programs. Surveys by Physicians for a National Health Program (PNHP, see especially “Single Payer National Health Insurance”) have shown increasing support for single payer among the physician community, with universal health coverage being supported by a majority of US doctors in 20 (Support for national health insurance among US physicians: 5 years later).
A new study may help to persuade physicians that single-payer systems are actually in their financial interest. Writing in August 2011 in Health Affairs, Morra and colleagues report that “US Physician Practices Versus Canadians: Spending Nearly Four Times As Much Money Interacting With Payers” (hyperlink to abstract). The title basically says it all. While both Canadian and US physicians spent time (translated into money!) interacting with insurers, the single payer in Canada and hundreds of payers in the US, about patient benefits and payment, the staff of US physicians spent 10 times the amount of time in such activities as did their Canadian counterparts. The authors estimate the cost to US physicians at $82,975 per physician per year, nearly 4 times the $22,205 cost to Ontario physicians. In addition, these costs fall disproportionately highly on small physician practices, which are more likely to be primary care. They conclude that “If US physicians had administrative costs similar to those of Ontario physicians, the total savings would be approximately $27.6 billion per year.”
From a financial point of view, we have an apparent dilemma in the US. The cost of Medicare is very high and creates financial threats to the economy. The reimbursement from Medicare to providers is often too low to make them a desirable payer. But there is a solution. It involves getting control over costs. First, do not pay for harmful or questionable interventions, do not pay major markups to generate excessive profit for private companies, and use the large scale of government purchasing to get good prices for drugs, unlike the boondoggle of Medicare Part D, the prescription drug program in which Medicare pays retail prices to pharmaceutical companies.
The solution is also to emphasize more primary care and prevention (October 18, 2010 Lower Costs in Grand Junction: More Primary Care, Less High Tech). The next steps will be harder, for they will involve making difficult decisions about the cost/benefit ratios of different types of care, particularly as the availability of new, expensive, high-tech interventions provide allure, if not always results.
The way not to do this is for policies restricting access for a part of the population (working and poor people) to be made by another part of the population (big businesses, politicians, and lobbyists) who will not be affected by those decisions. A single-payer system in which we are all covered by the same benefits does not automatically save money, but at least makes it possible.
 Rosser WW et al, “Progress of Ontario’s Family Health Team model: a patient-centered medical home”, Ann Fam Med. 2011 Mar-Apr;9(2):165-71.
 Carroll A, Ackerman R “Support for national health insurance among US physicians: 5 years later” Ann Int Med 1Apr2008;148(7):566-7.
 Morra D, et al, “US Physician Practices Versus Canadians: Spending Nearly Four Times As Much Money Interacting With Payers”,Health Affairs August 2011 vol. 30 no. 8 1443-1450.
UnitedHealth Buys California Group of 2,300 Doctors
By Anna Wilde Mathews
The Wall Street Journal, September 1, 2011
UnitedHealth Group Inc. will acquire the operations of a major southern California physician group, in the latest example of how lines are blurring between insurance companies and health-care providers.
The purchase of the management arm of Monarch HealthCare, an Irvine, Calif., association that includes approximately 2,300 physicians in a range of specialties, establishes United’s Optum health-services unit as a formidable presence in the region. Optum had previously taken over the management arms of two smaller southern California groups, AppleCare Medical Group and Memorial HealthCare Independent Practice Association.
In California, deals involving control of medical groups are structured to comply with rules that block most entities from directly employing practicing physicians. Typically, a company like Optum might buy non-clinical assets and sign a long-term management agreement with an independent practice association of physicians such as Monarch.
United has said in the past that providers acquired by Optum will not work exclusively with United’s health plan, and will continue to contract with an array of insurers. But in one sign of the potential complications that might ensue, Monarch is currently in an arrangement with United competitor WellPoint Inc. to create a cooperative “accountable-care organization” aimed at bringing down health-care costs and improving quality.
Consolidation is accelerating, and the largest insurers are positioning themselves to be at the top of the heap.
Excuse a personal note, but this particular merger is difficult for me to observe. Having practiced in Orange County, I watched the founding and expansion of Monarch HealthCare until they dominated health care in our region. As an early opponent of managed care as it was playing out, I certainly had no interest in joining them. Probably because my practice included large numbers of Medicaid, uninsured, and undocumented patients (so many that they crowded out my privately insured patients even though I worked extended hours), Monarch also never communicated an interest in including me in their panel.
What defines a successful health care system? It always seemed to me that success would be when everyone could receive quality health care that was appropriate and without financial barriers that would impair access. Yet The Wall Street Journal implies that success is when you can organize and control the delivery system and corner the portion of the market that has the highest monetary resources.
Although I was far busier than other primary care physicians in our region, I ended up retiring earlier than I intended because the composition of my practice eventually resulted in an unsustainable negative cash flow.
By most standards, at least by the dominant standards of today, I was unsuccessful, and Monarch HealthCare was highly successful. I’m not sure that my patients who couldn’t get past the appointment desks of Monarch physicians would agree when they had success in negotiating past my appointment desk.
Not to be defeated, I made a decision to devote my remaining productive years to promoting a concept of success that serves patients – all patients – without the intrusion of intermediaries such as UnitedHealth and Monarch HealthCare that glom onto the money and try to keep all that they can. Haven’t we had enough of Wall Street’s version of success?
Changes To Medigap Plans Meet Resistance
By Susan Jaffe
Kaiser Health News, August 30, 2011
A provision of the 2010 federal health law seeking to increase Medicare beneficiaries’ share of health care costs is meeting resistance from an unlikely group of 33 state insurance regulators, health insurers and consumer advocates charged with revising Medigap insurance policies that cover most out-of-pocket expenses.
The National Association of Insurance Commissioners assembled the group to come up with ways to raise the beneficiaries’ cost for the most popular and generous Medigap policies, a task Congress assigned to the association in the health law. Since then, the idea of shifting some costs to beneficiaries in Medigap policies has emerged as one of several proposals to reduce the federal deficit.
The proposals suggest that if Medigap policies cover less of beneficiaries’ costs, some seniors will be less likely to overuse Medicare-covered health care services.
“Some of those proposals are fairly dramatic in the cost shifting effect onto seniors,” said Mary Beth Senkewicz, Florida’s deputy insurance commissioner, who chairs the NAIC’s senior issues committee, which includes the Medigap group.
Bonnie Burns, a policy specialist at California Health Advocates and another member of the Medigap group, questioned whether patients need incentives to reduce their use of medical services.
“Beneficiaries don’t order services, providers do,” she said. “To suggest that Medicare beneficiaries overutilize services on a whim because they don’t have ‘skin in the game,’ is pretty disturbing.”
Although some studies have found that seniors with Medigap policies use more Medicare services, Burns said they may be sicker than the average Medicare beneficiary, which is why they bought Medigap coverage.
Several members have suggested that Medigap policies aren’t responsible for Medicare’s growing costs.
William Schiffbauer, a member of the group and an independent health care attorney who has represented insurers, said the health law requires the group to suggest raising beneficiary cost-sharing in Medigap plans in order to encourage more appropriate use of physicians services, based on evidence published in medical journals. Schiffbauer said that the medical literature reviewed so far does not identify which services are inappropriate and should be discouraged by making them more expensive for patients.
The group is being asked to decide what’s medically necessary — an impossible task, he said.
A review of proposed Medigap changes by the Kaiser Family Foundation in July found that one in five Medigap beneficiaries would face higher out-of-pocket expenses, primarily those with health problems and low incomes. The study also noted that the savings to the Medicare program and Medigap members depend on patients seeking less medical care, including treatment they may really need.
Reducing Medicare spending for the wrong reason – by making it inaccessible – also worries members of the Medigap group, including Ruch.
“There may be seniors who would forego medically necessary care because they can’t afford it – even though they have a Medigap policy,” he said.
The Medigap working group established by the National Association of Insurance Commissioners (NAIC) has reinforced the view presented in yesterday’s message that we should be very concerned about forcing out-of-pocket cost sharing onto patients.
Sec. 3210 of the Affordable Care Act (ACA) states, “The Secretary shall request the National Association of Insurance Commissioners to review and revise the standards for benefit packages (in Medigap plans) to otherwise update standards to include requirements for nominal cost sharing to encourage the use of appropriate physicians’ services under Part B (of Medicare).”
As stated yesterday, the alleged need for cost sharing is a concept so deeply entrenched within the political and policy communities that a requirement was placed in ACA to mandate the introduction of cost sharing to Medigap plans – plans which have been designed to cover the patients’ exposure to cost sharing. There is something really weird about requiring co-payments for a plan that insures co-payments.
Again, as stated yesterday, cost sharing has only a nominal impact on controlling total health care spending, but it clearly impairs access and imposes financial burdens on those who need care.
As today’s article demonstrates, members of the NAIC working group are appropriately alarmed at the prospect of making recommendations that would impair the ability of Medigap plans to improve access and reduce financial risk. They should be.
Instead of protecting Medigap plans, think what would happen if we were to eliminate the need for Medigap plans by eliminating cost sharing from Medicare – providing first dollar coverage as is commonplace in other nations which spend far less on health care.
Remember that Medigap plans are private health plans with low actuarial values that burn up too much of the premiums for their own administrative purposes and profits. Also they place an additional administrative burden on the providers who must deal with two payers – Medicare and the private Medigap plans.
When we speak of an improved Medicare-for-all, one of the improvements would be to eliminate cost sharing. We would have better access, less burden on people who need care, and at a negligible cost for this particular benefit alone. These costs would be more than offset with the multitude of other savings that would be made possible by a single payer Medicare-for-all program.
Of course, we’d have to go back to Congress… (It seems like there’s a flaw in every plan… in this case depending on Congress to do the right thing.)
For those who didn’t read yesterdays’ crucial message on moral hazard and welfare gain which explains the concerns expressed here, you have another chance by clicking on this link (or at least save it for weekend reading):
As the last three posts have shown, the primary care infrastructure of the U.S. health care system is crumbling, overrun by specialization, sub-specialization and market forces. As a result, access to primary care is not available to a growing part of our population, costs go up as value, quality and outcomes of care go down, and any accountability within the market-based system remains out of reach. The “reform” legislation of 2009 cannot be expected to alleviate these fundamental problems, “building” as they do on our present flawed system of financing and delivering health care. Since all incremental efforts to reverse these trends have failed, we need more fundamental approaches.
Space here does not permit fleshing out the necessary steps to real system reform that would also facilitate the rebuilding of primary care. Briefly, however, most if not all of these approaches will inevitably be required. In their approximate order of priority, they are:
1. Adopt universal health care coverage through single-payer national health
insurance (NHI). This is the only way we will ever get universal coverage so essential for optimal care of individuals as well as our population. It will help to enable the other elements of needed reforms by forcing new approaches to financing care. Exploitive profiteering can be eliminated while simplification of administration can bring greater efficiencies.
2.Rethink the goals of medicine and the paradigm of health care. We have developed a health care system that overemphasizes the reductionist biomedical model, gives short shrift to behavioral and social aspects of illness, and all too often, continues high technology interventions to the point of futility. These are some of the steps that could help to improve the health of individuals as well as our population: closer collaboration between medicine and public health; increased emphasis on health promotion and disease prevention; improvement of chronic illness care; increased emphasis on mental health services; and earlier shift to palliative care when cure is not possible.
3. Change how physicians are paid. Payment systems for physicians are complicated and are subject to being gamed for maximal profit by many physicians and their employers. Managed care of the 1990s placed many restrictions on care in an effort to increase the profits of HMO plans. Overvalued reimbursement of many specialized and procedural services is a major factor in the decline of primary care. By contrast, its services are time-consuming, require broad clinical competence, are more cognitive and less procedural, and are under-reimbursed. While there is room for various reimbursement methods, essential primary care services are best offered without cost-sharing with patients, and the wide gap between compensation of specialists and generalists must be narrowed.
4. Shift to evidence-based coverage decisions. We can no longer afford to offer services that don’t work, are not cost-effective, or are even harmful. But our present methods of deciding on coverage and reimbursement are heavily influenced by politics, lobbying, and the interests of industry and vested medical organizations. Many new technologies are brought to market without objective assessment of their benefits and value by disinterested experts. Other industrialized countries around the world have developed effective ways to apply the best available clinical evidence to this decision-making process, but market forces have resisted such approaches in this country.
5. Re-design primary care based on generalism and interdisciplinary team practice. Past ways of organizing primary care practice no longer work for a variety of reasons. Given the pressures of time and the complexities of practice today, many primary care physicians are burning out and not being replaced. The delivery of primary care services needs to be re-engineered, with primary care physicians seeing a smaller number of patients with more complex problems, working with other team members in their areas of expertise, and coordinating care being provided by consulting specialists.
6. Re-establish a generalist orientation in medical education. Despite the development of new education programs in medical schools and hospitals over the last three decades, the aura of specialization has dominated medical education. Medical school graduates have opted in droves for the increased compensation and more attractive life styles of non-primary care specialties. A physician workforce goal needs to be established for a 50:50 balance of generalists and specialists, together with financing changes that favor institutional change, changes in medical school admissions policies, and expanded scholarship and loan repayment programs for students and residents bound for primary care careers.
7. Create a new ethical environment of accountability in medical practice, education and research. We have a medical-industrial complex, wherein the higher the volume of services that is delivered to patients, the higher the revenues to the providers and suppliers. About one-third of health care services are either inappropriate or unnecessary, some even harmful. (Wennberg, JB, Fisher, ES, Skinner, JS. Geography and the debate over health care reform. Health Affairs Web Exclusive W- 103, February 13, 2002) This problem is driven by widespread conflicts-of-interest among physicians, industry, and others, as described in my 2008 book Corrosion of Medicine: Can the Profession Reclaim Its Moral Legacy? All past efforts to rein in these conflicts-of-interest have been ineffective, and the patient is at a disadvantage in evaluating what services are, or are not, worthwhile.
8. Expand primary care and systems-oriented research. The annual budget for the National Institutes of Health (NIH), with its focus on biomedical and disease-oriented research, is about 75 times that of the Agency for Healthcare Research and Quality (AHRQ), the principal source of federal funding for primary care and systems-oriented research. Given the urgency of building a better delivery system based on primary care, we need a far greater investment toward that goal.
9. Tighten regulatory processes and policies. Our regulatory apparatus is too industry-friendly, is understaffed, and needs more federal funding and independence from industry. Right now, the fox is in the hen house. One of many examples: an artificial hip manufactured by a subsidiary of Johnson & Johnson was designed to last about 15 years, but has been failing worldwide at unusually high rates after just a few years. It had been approved through a loophole with lax testing requirements. The company continued marketing its defective product even after whistle-blowing efforts by orthopedic surgeons, and the U.S. still has no tracking system to monitor the experience of artificial hips. (Meier, B. The implants loophole. New York Times, December 17, 2010: B1))
10. Increase protections for patients and physicians against medical malpractice liability. Patients need protection from medical injuries due to negligence while physicians need protection from frivolous lawsuits. But this issue is typically exaggerated (especially by conservatives) as a major cause of health care inflation. That is not the case. Though “defensive medicine” is common, the annual costs of the medical liability system make up only 2.4 percent of total health spending. (Mello, MM, Chandra, A, Gawande, A, Studdert, CM. National costs of the medical liability system. Health Affairs 29 (9): 1569-77, 2010) While this whole issue is immensely complicated, useful steps that will help to protect patients from injury and physicians from unwarranted liability for malpractice include: increased emphasis on patient safety in medical education and clinical practice; increased use of evidence-based practice guidelines as “safe harbors” for physicians; and increased use of arbitration.
Although the current political landscape is unfavorable for this kind of forward thinking, time will probably tell that what seems utopian now is absolutely required not too far down the road.
Adapted in part from my latest book Breaking Point: How the Primary Care Crisis Endangers the Lives of Americans. Copernicus Healthcare, 2011)
John Geyman, M.D.
Professor Emeritus of Family Medicine, University of Washington
Past President of Physicians for a National Health Program
NOTE: It is likely that few Quote of the Day subscribers read this 2007 message on John Nyman’s new theory of moral hazard and welfare gain because it is long and terribly wonkish. It is being reprised here because current trends in health care payment reform violate these important concepts, thereby resulting in further impairment of access to care while creating greater financial hardships for patients. Following are excerpts from Nyman’s 2007 article along with the original and an updated comment by Don McCanne.
PNHP – Quote of the Day
Posted on: Monday, September 24, 2007
Cracks in the moral hazard foundation
American Health Policy: Cracks in the Foundation
By John A. Nyman
Journal of Health Policy, Politics and Law
Much American health policy over the past thirty-five years has focused on reducing the additional health care that is consumed when a person becomes insured, that is, reducing moral hazard. According to conventional theory, all of moral hazard represents a welfare loss to society because its cost exceeds its value. Empirical support for this theory has been provided by the RAND Health Insurance Experiment, which found that moral hazard — even moral hazard in the form of effective and appropriate hospital procedures — could be reduced substantially using cost-sharing policies with little or no measurable effect on health.
This article critically analyzes these two cornerstones of American health policy. It holds that a large portion of moral hazard actually represents health care that ill consumers would not otherwise have access to without the income that is transferred to them through insurance. This portion of moral hazard is efficient and generates a welfare gain. Further, it holds that the RAND experiment’s finding (that health care could be reduced substantially with little or no effect on health) may actually be caused by the large number of participants who voluntarily dropped out of the cost-sharing arms of the experiment. Indeed, almost all of the reduction in hospital use in the cost-sharing plans could be attributed to this voluntary attrition. If so, the RAND finding that cost sharing could reduce health care utilization, especially utilization in the form of effective and appropriate hospital procedures, with no appreciable effect on health is spurious.
The article concludes by observing that the preoccupation with moral hazard is misplaced and has worked to obscure policies that would better reduce health care expenditures. It has also led us away from policies that would extend insurance coverage to the uninsured.
The direction of health policy in the United States over the past thirty-five years is well known: increased cost sharing in the form of higher deductibles and coinsurance rates; the “management” of care by utilization reviews, exclusive contracting with certain providers, capitation, and bundling of services; and most recently health savings accounts (HSAs) and “consumer-driven” health care. Less well understood, however, are the foundations of these policies, especially among those who see such policies as mainly restricting access to care.
Two of these foundational studies are (1) the theoretical analysis of the welfare implications of moral hazard (Pauly 1968; Feldstein 1973) and (2) the RAND Health Insurance Experiment (HIE) findings concerning the health consequences of reducing moral hazard (Manning et al. 1987; Newhouse and the Insurance Experiment Group 1993).
This article presents a critical view of these two foundational studies. First, it suggests that much of the additional health care that consumers purchase when they are insured — that is, much of moral hazard — is actually efficient and welfare increasing: its value to patients exceeds (and often far exceeds, in the case of expensive, life-saving, hospital procedures that patients would not be able to afford without insurance) the cost of providing that care. Second, it suggests that the RAND HIE did not really capture consumers’ willingness to substitute other goods and services for medical care in response to increases in the price of medical care, but instead the study largely captured participants who became ill, dropped out of the experiment, and received the needed medical care under their original insurance policies outside the experiment. Because these participants received treatment outside the RAND experiment, their health care utilization was not recorded. Thus, the finding that moral hazard, especially the portion of moral hazard represented by additional hospital procedures, could be reduced dramatically by cost sharing with only a negligible health effect is spurious.
The fundamental error in conventional theory is that it did not recognize that, while the price of medical care might drop to zero for all those who are insured, for most medical care — especially the expensive, hospital-based procedures and associated care that comprise the bulk of medical care expenditures in the United States — it is really only those who are ill who respond to that price reduction. For example, what healthy person would purchase a coronary bypass procedure, a leg amputation, or a liver transplant just because the price has fallen to zero? This means that only those who become ill are responsive to the insurance price reduction. If so, the price reduction becomes the vehicle by which income is transferred from those who purchase insurance and remain healthy to those who purchase insurance and become ill. This is an important distinction because it changes the welfare implications of moral hazard dramatically and implies that much, if not most, of moral hazard is efficient and generates a welfare gain (Nyman 1999, 2003).
Of the various responses to cost sharing that were observed in the participants of the RAND HIE, by far the strongest and most dramatic was in the relative number of RAND participants who voluntarily dropped out of the study over the course of the experiment. Of the 1,294 adult participants who were randomly assigned to the free plan, 5 participants (0.4 percent) left the experiment voluntarily during the observation period, while of the 2,664 who were assigned to any of the cost-sharing plans, 179 participants (6.7 percent) voluntarily left the experiment. This represented a greater than sixteenfold increase in the percentage of dropouts, a difference that was highly significant and a magnitude of response that was nowhere else duplicated in the experiment.
The explanation that makes the most sense is that the dropouts were participants who had just been diagnosed with an illness that would require a costly hospital procedure. If they dropped out, their coverage would automatically revert to their original insurance policies, which were likely to cover major medical expenses (such as hospitalizations) with no co-payments. This is because HIE participants had agreed to relinquish their existing policies to RAND as a condition of participation, but they could revert back to their existing policies whenever they wanted if they dropped out of the experiment. Thus, when faced with a large hospital expense, the participants could have simply dropped out of the experiment but received the inpatient care outside the experiment.
As a result of dropping out, these participants’ inpatient stays (and associated health care spending) did not register in the experiment, and it appeared as if participants in the cost-sharing group had a lower rate of inpatient use. In reality, however, this finding would have been because participants who remained in the cost-sharing group simply had fewer diagnoses that required hospitalization.
The conventional theory of the moral-hazard welfare loss and the conventional interpretation of the RAND HIE results have created a policy environment in which health insurance is viewed as more of a problem than a solution (Gladwell 2005). We must recognize, however, that much of moral hazard generates a welfare gain that society should encourage rather than discourage. Because of this reevaluation of moral hazard, we must also realize that health insurance is much more valuable than has been recognized. Indeed, there is probably no other investment that we can make as a society that would generate as great a net return on welfare as finding a politically acceptable mechanism for insuring the large portion of U.S. citizens who are currently uninsured.
Full article (25 pages):
Comment (September 24, 2007):
By Don McCanne, MD
This landmark report turns upside down the policy basis of moral hazard. The entire article should be downloaded so that it can be used to refute those who insist that patients who decline health care when they have to pay for it out-of-pocket will not adversely affect their own health because they will decline only that care that has no measurable benefit on their health outcomes.
These two cornerstones of American health policy, the moral hazard theory and the RAND Health Insurance Experiment, have crumbled, taking down with them the rationale of the cost-sharing basis of the consumer-directed health care movement.
Professor Nyman has shown us that the new interpretation of the moral hazard of insurance insulation against health care costs does not produce a welfare loss, but, in fact, produces a welfare gain. That is why we need a national health program that covers all of us and that eliminates financial barriers to beneficial services.
We really don’t have to worry, after all, about unleashing a stampede for free leg amputations or free liver transplants.
Current trends demonstrate an escalation in the use of the tools of cost sharing to control health care spending. High deductibles are becoming the standard. Co-payments (a dollar amount per service) are being transitioned to coinsurance (a percentage of the fees) which shifts even more of the costs to patients. Standard or basic plans are now being assigned lower actuarial values, leaving a greater percentage of the costs to be paid out-of-pocket by the patient.
Allegedly the theory behind these trends is to reduce health care spending by empowering patients to become better health care shoppers, choosing only the care that they believe is worth paying for directly. This concept is so thoroughly entrenched within the health policy and political communities that it has become standard to include policies that ensure that patients feel the pain by having “skin in the game” (repulsive rhetoric that unfortunately has been effective in helping to perpetuate this concept).
Our health care system is very unstable. The Patient Protection and Affordable Care Act will not stabilize health care because 1) it leaves too many uninsured, 2) it creates inadequate low-actuarial value plans as the new standard, leaving too many potentially exposed to medical debt should they need care, and 3) it is the most expensive model of reform, destined to drive total health care costs ever upward.
According to Herbert Stein, if something can’t go on forever, it won’t. So a single payer system or social insurance system very similar to single payer is inevitable. Many nations with such systems provide first dollar coverage, and do so with a much lower level of total health care spending. They have proven that deductibles, co-payments, and coinsurance are not only unnecessary to control costs, but they, in themselves, also create financial barriers to health care and add to the already-excessive administrative burden.
So can we assume that once we adopt a single payer system we will be able to remove these financial barriers to care? The answer is an emphatic NO! This is why John Nyman’s work must be reprised and disseminated widely.
THE CONCEPT THAT COSTS MUST BE CONTROLLED BY HIGH DEDUCTIBLES AND OTHER FORMS OF COST SHARING IS SO THOROUGHLY ENTRENCHED IN THE POLICY AND POLITICAL COMMUNITIES THAT THEY WILL INEVITABLY BE INCLUDED IN ANY SINGLE PAYER LEGISLATION THAT STANDS EVEN A REMOTE CHANCE OF CLEARING THE LEGISLATIVE HURDLES. That is, unless we do something about it.
We have a gigantic education task before us. Experts cite the health policy literature for their support of the concept that cost sharing reduces spending. They have greatly overstated the savings and extrapolated it into spending that is not sensitive to consumer price decisions (most health care spending). More importantly, they have marginalized or even ignored the significant negative impact that this can have on health care access and on personal financial security.
How can we convert the majority of Americans into health policy wonks? It’s going to be tough.
The Effects of Medicaid Coverage — Learning from the Oregon Experiment
By Katherine Baicker, Ph.D., and Amy Finkelstein, Ph.D.
The New England Journal of Medicine, July 20, 2011
Working with a team of researchers, we have taken advantage of an unprecedented opportunity to gauge the effects of Medicaid coverage on low-income, previously uninsured adults, using the gold standard of medical and scientific research: a randomized, controlled trial. In 2008, Oregon used a lottery to allocate a limited number of Medicaid spots for low-income adults (19 to 64 years of age) to people on a waiting list for Medicaid. Those selected by random lottery draw won the opportunity to apply for Medicaid. In total, about 30,000 people were selected from the 90,000 on the waiting list. Approximately 10,000 of those selected ended up being enrolled in Medicaid; not everyone who was selected successfully filled out the required application and met the eligibility criteria.
The lottery provides an opportunity to estimate the causal effects of being allowed to apply for Medicaid (intention to treat). It also allows us to estimate the causal effects of being enrolled in Medicaid relative to being uninsured (the effects of “treatment on the treated,” which we focus on below), under the assumption that selection by the lottery to be able to apply for Medicaid affects the outcomes we studied only through its role in increasing insurance coverage.
We now have evidence of the effects of the first year of Medicaid coverage after the lottery. These results are based on administrative data from hospital discharges, credit reports, and death records, in addition to mail surveys we conducted. We found that Medicaid coverage increases the use of health care.
Responses by Johnathon Ross and Don McCanne, former presidents of Physicians for a National Health Program:
Johnathon Ross MD, MPH
Toledo Ohio, USA
August 25, 2011
This is interesting “experiment” and useful policy data but it reminds me of Tuskegee. What a sad commentary on our country that we question whether access to care is good for patients and that it might cost us something to provide it. We need a national health insurance program that is nondiscriminatory, fairly financed, effective, and efficient. An improved and expanded Medicare for all would be the easiest to implement since the administrative savings would be adequate to cover all the uninsured and improve coverage and financial security for everyone. Instead we will muddle along with the half baked reforms that have been passed and continue to waste hundreds of billions of dollars on the billing and insurance bureaucracy. Cost control will be the natural outcome of setting a national budget for health care. This will lead to better emphasis on those services which are most beneficial and reduce future costs and disability. ACO’s, bundled payments, managed care will never accomplish what a budget will. What are we doing? Caring citizens should protect and empower each other.
Don McCanne MD
San Juan Capistrano California, USA
August 25, 2011
With our current level of knowledge about the favorable impact of insurance coverage, obviously it would have been unethical to design a study in which the control group – the uninsured – was exposed to both the financial hardship and impaired health outcomes of being uninsured. It is ironic that this would represent an intolerable violation in ethics within the health policy community, yet at the same time represents an acceptable standard for politicians.
The Affordable Care Act, as a political document, includes policies that seem to violate fundamental health policy ethics. It was enacted knowing that tens of millions will remain uninsured, under-insurance will become the new standard (60 to 70 percent actuarial values), and that it is the most expensive model of reform, providing little relief from the financial burden placed upon all of us.
Ethical policies and sterile politics could have been melded into a process that would have brought us truly universal coverage, with comprehensive benefits, financial security for everyone, and cost containment through the power of an efficient public monopsony. That, of course, would describe a single payer national health program – an improved and expanded Medicare for all.
Instead, the policy community compromised their ethics by cooperating with politicians who were catering to interests much more powerful than patients. But the greater ethical transgression was committed by the politicians themselves who ruled out in advance of the reform process the single payer model. They knew that if it were seriously considered, the superiority would have been obvious when compared to the fragmented, dysfunctional, inequitable, administratively overburdened, overpriced system that the politicians dumped on us.
We can still go back to the drawing boards and do it right.
Copays Break Law
By Mary K. Reinhart
The Arizona Republic, August 25, 2011
The three-judge panel of the 9th U.S. Circuit Court of Appeals said federal health officials failed to show how the copays, imposed in November after a seven-year court battle, served any purpose besides cutting the state’s Medicaid budget.
Raising copayments for more than 200,000 of Arizona’s poorest residents and making them mandatory, the judges said, helped balance the state budget but didn’t meet that federal standard.
“The administrative record reveals that the purpose of Arizona’s waiver application was to save money,” wrote Judge Richard Paez. “There is little, if any, evidence that the secretary considered the factors (federal law) requires her to consider before granting Arizona’s waiver. Thus, the secretary’s decision was arbitrary and capricious.”
The copays, which range from $4 to $30, were first approved by lawmakers in 2003 and were in place for about four months before a class-action suit was filed and a federal judge put them on hold. That stay was lifted in November by a separate appeals-court panel, which upheld a March 2010 ruling by U.S. District Judge Earl Carroll.
Since November, childless adults covered under the Arizona Health Care Cost Containment System, the state’s Medicaid program, and those who spend down their savings to become AHCCCS eligible can be turned down for medical care and medications if they can’t afford the copayment.
These are patients with incomes below the federal poverty level. Requiring a co-payment before access to care is permitted causes many of these individuals to go without medical care. It is appropriate that the Court of Appeals panel ruled that the HHS Secretary was “arbitrary and capricious” in approving the waiver that authorized the imposition of co-payments.
What is the purpose of co-payments? Some say that it is to prevent people from obtaining medical care that they don’t really need. Really? If a person has decided that she should see a physician, and she can afford the co-payment, would that really stop her from obtaining care? Highly unlikely.
Then is the co-payment for the purpose of raising revenues to help fund health care? The administrative hassle of processing co-payments offsets much of the gain that the co-payment revenues would bring.
Yet co-payments for low-income individuals clearly impair access to beneficial health care services. Thus co-payments provide little good and cause real harm.
Deductibles and coinsurance are another matter. For the very wealthy, they have no impact on health care access. But for middle-income individuals they are enough of a financial burden that they do cause patients to forego beneficial health care – obviously an undesirable policy.
How effective are deductibles and coinsurance in raising revenues to pay for health care? About 80 percent of health care is consumed by individuals who are no longer sensitive to the costs because they have already met their cost-sharing requirements. Thus they play a negligible role in funding our total national health expenditures.
The primary role that cost sharing plays in reducing health care spending is to prevent individuals from receiving care that they should have. (The value of reductions in non-essential services that result from cost sharing has been overstated since consultations with reassurance are still very beneficial health care services.)
So how much does foregoing beneficial care really save? Estimates based on the RAND HIE have suggested that the amount saved is about 30 percent. But 30 percent of what? It is 30 percent of the care consumed by healthy workers and their young healthy families, most of whom do not have major health expenses. Once you factor in the entire population, including all major medical disorders, the percentage of care that would be avoided is negligible.
Many other countries that spend far less while covering everyone do not have deductibles, co-payments, nor coinsurance. They have found them to be unnecessary in controlling costs. They are an insignificant revenue source, and they can cause harm, especially in vulnerable groups such as Arizona’s adult Medicaid population, and now in middle-income Americans who must live with the new standard of under-insurance.
It didn’t have to be this way.
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