Will the Affordable Care Act obviate the need for employer-sponsored insurance?

Posted by on Tuesday, Sep 10, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Will Employers Drop Health Insurance Coverage Because Of The Affordable Care Act?

By Thomas Buchmueller, Colleen Carey and Helen G. Levy
Health Affairs, September 2013


Since the passage of the Affordable Care Act, there has been much speculation about how many employers will stop offering health insurance once the act’s major coverage provisions take effect. Some observers predict little aggregate effect, but others believe that 2014 will mark the beginning of the end for our current system of employer-sponsored insurance. We use theoretical and empirical evidence to address the question, “How will employers’ offerings of health insurance change under health reform?” First, we describe the economic reasons why employers offer insurance. Second, we recap the relevant provisions of health reform and use our economic framework to consider how they may affect employers’ offerings. Third, we review the various predictions that have been made about those offerings under health reform. Finally, we offer some observations on interpreting early data from 2014.

Summing Up And Looking Ahead

For an employer, deciding whether or not to offer health insurance already requires a complex calculus that takes into account a host of factors—including employees’ preferences, wages, taxes, and regulations. The Affordable Care Act throws new taxes, subsidies, requirements, and insurance markets into the mix. But it does not fundamentally change the economics of the firm’s decision. Microsimulation models built on sound economic principles have for the most part predicted relatively small declines in employer-sponsored coverage as a result of health reform, and we believe that these predictions are likely to be correct.

If we are wrong, though, how will we know? Inevitably, reports will come in that some employers are dropping coverage. Although it will be tempting to attribute such reported changes to the Affordable Care Act, it is important to interpret new data on employer-sponsored coverage in the context of the basic economics of firms’ behavior and preexisting trends. The combination of rising health care costs and stagnant earnings for middle-income workers has for decades led to a gradual but steady decline in employer-sponsored insurance. This trend is the appropriate baseline against which to measure the impact of health reform.

It is, perhaps, stating the obvious to add a caution against reading too much into anecdotal reports. But for reasons described above, even surveys with large samples can produce results that are difficult to interpret. Fortunately, there are several high-quality data sources that will be useful for monitoring changes in employer-sponsored insurance and drawing inferences about the effect of health reform.

We expect that the earliest data on rates of coverage will come in September 2014, when both the National Health Interview Survey and the Current Population Survey should report on individuals’ sources of coverage in early 2014. If historical patterns hold, the Kaiser Family Foundation/Health Research and Educational Trust Employer Health Benefits Survey will be published the same month. In September 2015 the American Community Survey will provide state and metropolitan-area estimates of individual-level coverage patterns, and in July 2015 the Medical Expenditure Panel Survey will provide further information on employer offerings.

Of course, effects in early 2014 will not be the last word, as individuals and employers may take a wait-and-see approach. And since the employer penalty for not offering coverage will not take effect until 2015, it may be several years before the true effects of health reform on employer-sponsored insurance become evident.

However, these data will begin to answer the question posed in the title of our article. Given the historical importance of employer-sponsored insurance, the attention that is paid to this question is understandable. However, it is not a question of great economic significance. There is no efficiency argument for preferring private insurance facilitated by employers to private insurance facilitated by the state or any other mechanism that could be used to pool risk and achieve administrative economies of scale.

It is also important to remember that relying on firms as a mechanism for pooling insurance risk generates efficiency costs because it distorts the labor market. A better-functioning individual health insurance market has the potential to improve labor-market efficiency by reducing job lock, and thus eliminating a barrier to entrepreneurship and making it easier for workers to find a job and an insurance plan that matches their preferences. If the shift from employer-sponsored insurance to individual coverage is greater than projected, these labor-market gains may be substantial.



Small Increases To Employer Premiums Could Shift Millions Of People To The Exchanges And Add Billions To Federal Outlays

By Daniel R. Austin, Anna Luan, Louise L. Wang and Jay Bhattacharya
Health Affairs, September 2013


The Affordable Care Act will expand insurance coverage to more than twenty-five million Americans, partly through subsidized private insurance available from newly created health insurance exchanges for people with incomes of 133–400 percent of the federal poverty level. The act will alter the financial incentive structure for employers and influence their decisions on whether or not to offer their employees coverage. These decisions, in turn, will affect federal outlays and revenues through several mechanisms. We model the sensitivity of federal costs for the insurance exchange coverage provision of the Affordable Care Act using the nationally representative Medical Expenditure Panel Survey data set. We assess revenues and subsidy outlays for premiums and cost sharing for individuals purchasing private insurance through exchanges. Our findings show that changing theoretical premium contribution levels by just $100 could induce 2.25 million individuals to transition to exchanges and increase federal outlays by $6.7 billion. Policy makers and analysts should pay especially careful attention to participation rates as the act’s implementation continues.


There has been considerable speculation as to whether or not employers will discontinue their health benefit programs and shift their employees to the state insurance exchanges established by the Affordable Care Act (ACA). What is the likely outcome, and, more importantly, does it even matter?

The majority of studies suggest that the impact of ACA on employers’ decisions regarding the continuation of their employee health benefit programs will be relatively modest initially.

Examples that predict more extreme shifts, such as that above by Austin et al – three Stanford medical students and their faculty advisor – are often based on narrow assumptions. In this case the assumption is that quite modest differences in net costs of plans offered through the exchanges compared with employer-sponsored plans could cause large shifts from employers to the exchanges.That ignores a great many other considerations that enter the employers’ action plans. Another infamous study by Douglas Holtz-Eakin made questionable assumptions that resulted in the spurious claim that employers would drop up to 35 million employees from coverage simply because of the provisions of ACA.

The Health Affairs article by Thomas Buchmueller and his colleagues provides a much more objective, if nuanced, analysis of the probability of a shift from employer-sponsored plans to the exchanges. Based on several more credible microsimulations and based on employer surveys, they conclude that the more immediate impact of ACA will be quite modest. They suggest resources that we can follow which should provide us with better evidence of developing trends in the employer provision of health benefits.

While much attention is being directed to employer responses, Buchmueller et al state that employer-sponsored insurance “is not a question of great economic significance.” There is “no efficiency argument for preferring private insurance facilitated by employers to private insurance facilitated by the state or any other mechanism that could be used to pool risk and achieve administrative economies of scale.”

Although this study compared employer-sponsored private insurance with private insurance offered by the state exchanges, the subtle comment above on the efficiency argument perhaps should be refined: “…no efficiency argument for preferring… private insurance facilitated by the state or any other mechanism that could be used to pool risk and achieve administrative economies of scale.” There is, in fact, a very strong efficiency argument for the state to use another mechanism to pool all risks and achieve administrative economies of scale; that is, of course, single payer reform – an improved Medicare for all.

Large employers moving retirees to private exchanges

Posted by on Monday, Sep 9, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Time Warner Joins IBM in Health Shift for Retirees

By Spencer E. Ante
The Wall Street Journal, September 8, 2013

Media-company Time Warner Inc. plans to move its U.S. retirees from company-administered health plans to private exchanges, according to a person familiar with the matter. The company will allocate funds in special accounts that retirees can use to go shop for coverage, the person said.

The news comes as International Business Machines Corp. also plans to move about 110,000 of its own retirees off its company-sponsored health plan to a Medicare insurance exchange.

President Barack Obama’s health-care overhaul calls for such exchanges, which will go live next month, and employers are looking at similar, privately administered exchanges as an alternative to offering their own health plans.

Yet while these efforts are just ramping up—and creating a good deal of anxiety in the process—hundreds of thousands of retirees are already using exchanges to pick Medicare plans, and many more are likely to do so in the months ahead as companies look for ways to fix their health-care costs by moving to the “defined contribution” model they adopted for pensions years ago.

Extend Health, the Utah-based exchange owned by Towers Watson & Co. that IBM picked for its retirees, was founded in 2004 but has grown quickly recently as more employers have signed up.

Extend Health has signed up around 300 companies, and the pace is quickening. It had just three corporate customers at the end of 2007 and just 76 at the end of 2010. About a third have joined in this year alone.

Bryce Williams, managing director of Towers Watson Exchange Solutions, which runs Extend Health, said the exchange has moved more than 500,000 retirees over to its service. IBM will add to that total when it starts moving retirees over next year.

Instead of subsidizing retiree health premiums directly, IBM will give retirees an annual contribution through a health-retirement account that they can use to buy Medicare Advantage plans and supplemental Medicare policies on the exchange, as well as to pay for other medical expenses.

IBM retirees have a big incentive to pick insurance through plans offered by Extend Health: Retirees who are eligible but don’t enroll in a plan through Extend Health won’t receive the company contribution.

Extend Health said nearly 50 companies in the Fortune 500 have become clients, including Caterpillar Inc. and DuPont Co.

The approach was adopted for active employees last year by Sears Holdings Corp. and Darden Restaurants Inc.


We already knew that employers were canceling retiree coverage in their company-administered health plans and switching to defined contribution approaches which place the risk of future health care increases onto the backs of their retirees. What is new is the acceleration of this shift by large employers who are taking the easy way out by using private insurance exchanges – a new intermediary that adds to the profound administrative waste already inherent in our health care system.

What is next? Sears Holdings and Darden have already adopted these defined contribution approaches for their active employees. When IBM, Time Warner, Caterpillar, DuPont, and the others that are sure to follow find that these new retiree programs are so successful in controlling the employers’ costs, how soon will it take them to shift their active employees into these plans? Even the union-negotiated plans are at risk since unions have lost much of their negotiating clout.

Middle-income Americans are already feeling the crunch. They realize that juggling cost-of-living, education expenses, defined contribution retirement funds, housing and transportation, and other costs is becoming much more difficult as the American Dream is being slowly chiseled away. They know that it is happening, but their lack of taking an activist stance seems to suggest that they don’t know what to blame it on.

Well, it’s pretty obvious. We have a government of, by and for the one percent. Unless the ninety-nine percent wake up, we’ll soon see virtual moats around their castles. In fact, just try to get close enough to knock on their doors today, and you’ll see what a private police state for the one percent is like.

IRS reporting requirements for managing ACA subsidies and penalties

Posted by on Friday, Sep 6, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Treasury Issues Proposed Rules for Information Reporting by Employers and Insurers Under the Affordable Care Act

U.S. Department of the Treasury
September 5, 2013

The ACA provides for information reporting (under Internal Revenue Code section 6055) by insurers, self-insuring employers, and other parties that provide health coverage.  It also provides for information reporting (under Code section 6056) by employers that are large enough to be subject to the employer shared responsibility provisions regarding the health coverage they offer their full-time employees. These proposed regulations reflect comments received and an ongoing dialogue with stakeholders, including plan sponsors, many of whom already offer their full-time workforce coverage far exceeding the minimum employer shared responsibility requirements. Nearly 95 percent of employers with more than 50 full-time employees already offer coverage to their employees.

The proposed rules issued today describe a variety of options to potentially reduce or streamline information reporting, such as:

* Replacing section 6056 employee statements with Form W-2 reporting on offers of employer-sponsored coverage to employees, spouses, and dependents.

* Eliminating the need to determine whether particular employees are full-time if adequate coverage is offered to all potentially full-time employees.

* Allowing employers to report the specific cost to an employee of purchasing employer-sponsored coverage only if the cost is above a specified dollar amount.

* Allowing self-insured group health plans to avoid furnishing employee statements under both section 6055 and section 6056 by furnishing a single substitute statement.

* Limited reporting for certain self-insured employers offering no-cost coverage to employees and their families.

* Permitting health insurance issuers to forgo reporting under section 6055 on individual coverage offered through a Marketplace because that information will be provided by the Marketplace.

* Permitting health insurance issuers, employers, and other reporting entities under section 6055 to forgo reporting the specific dates of coverage (instead reporting only the months of coverage), the amount of any cost-sharing reductions, or the portion of the premium paid by an employer.

The statute calls for employers, insurers, and other reporting entities to report, among other things:

For section 6055:

* Information about the entity providing coverage, including contact information.

* A list of individuals with identifying information and the months they were covered.

For section 6056:

* Information about the applicable large employer offering coverage (including contact information for the employer and the number of full-time employees).

* A list of full-time employees and information about the coverage offered to each, by month, including the cost of self-only coverage.

Once the final rules have been published, reporting entities will be encouraged to voluntarily implement information reporting in 2014 (when reporting will be optional), in preparation for the full application of the reporting provisions in 2015.  Real-world testing of reporting systems in 2014 will contribute to a smoother transition to full implementation in 2015.

Press Release:

Information Reporting by Applicable Large Employers on Health Insurance Coverage Offered Under Employer-Sponsored Plans:

Information Reporting of Minimum Essential Coverage:

Here it is folks. These are the proposed ACA rules on reports that insurers and employers must file with the IRS – rules that proved to be so complex that the Obama administration deferred for a year the requirement that these reports be filed. Without these reports, the employer mandate could not be enforced. Though this announcement is about the simplification of the rules, that’s not the real story here.

When the Act was crafted, it was recognized that health insurance and health care was now so expensive that a majority would require subsidies for insurance premiums and out-of-pocket expenses. It was also recognized that plans would have to provide a defined set of minimal “essential health benefits.” It was also recognized that many individuals would not buy health plans for themselves unless they were threatened with a financial penalty for failing to do so.

It was decided that the Internal Revenue Service was best suited to administer these subsidies and penalties since they already had income information that would establish eligibility for the income-indexed subsidies. They were also in a position to use the tax system to assess penalties for non-compliance. But there are so many variables that the rule making process was overwhelmed. Even these new rules issued yesterday are not yet final and are open to public comment.

If you just glance at the few changes to simplify the rules (listed above), you will see that even they are quite complex. By the time that the multitude of variables for each individual are taken into consideration, you will see that the bureaucracy is living up to its reputation for complexity that induces intolerable frustrations. This isn’t even necessary. This system is yet another administrative nightmare in a health care system that is unique in all the world for its profound administrative waste.

If you are masochistic and want to research this yourself, here are some resources. Sec. 1502 of the Affordable Care Act amends Part III of Subchapter A of Chapter 61 of the Internal Revenue Code of 1986 by adding Subpart D – Sec. 6055 on the reporting of health insurance coverage. Sec. 1514 of the Affordable Care Act amends Subpart D that was just added by Sec. 1502, by inserting after Sec. 6055 the new section – Sec. 6056. So look up Sec. 1502 and Sec. 1514 in the Affordable Care Act. The newest proposed rules, which are the subject of the Department of the Treasury release on simplification of the rules (reported above), are available now online and will be formally published in the Federal Register on September 9, 2013. The proposed rules, “Information Reporting by Applicable Large Employers on Health Insurance Coverage Offered Under Employer-Sponsored Plans,” are 72 pages (link above). The proposed rules, “Information Reporting of Minimum Essential Coverage,” are 42 pages (link above).

Think of how much simpler it would be if we established a single national fund to pay for all reasonable health care for everyone and then funded it with progressive taxes. The tax system is already in place. We could tweak it so that it is even more equitable. Just think of the administrative simplification that we could have, as opposed to the exceedingly meager changes announced yesterday in the highly complex system established by ACA.

Yes, the more we see of the implementation of the Affordable Care Act, the more we realize that a single payer national health program is an imperative. All we have to do is fix Medicare so it works better, and then include everyone.

Private insurers allow hospitals too much market power

Posted by on Thursday, Sep 5, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

High and Varying Prices for Privately Insured Patients Underscore Hospital Market Power

By Chapin White, Amelia M. Bond, James D. Reschovsky
Center for Studying Health System Change, HSC Research Brief No. 27, September 2013

Across 13 selected U.S. metropolitan areas, hospital prices for privately insured patients are much higher than Medicare payment rates and vary widely across and within markets, according to a study by the Center for Studying Health System Change (HSC) based on claims data for about 590,000 active and retired nonelderly autoworkers and their dependents. Across the 13 communities, average hospital prices for privately insured patients are about one-and-a-half times Medicare rates for inpatient care and two times what Medicare pays for outpatient care. Within individual communities, prices vary widely, with the highest-priced hospital typically paid 60 percent more for inpatient services than the lowest-priced hospital. The price gap within markets is even greater for hospital outpatient care, with the highest-priced hospital typically paid nearly double the lowest-priced hospital. In contrast to the wide variation in hospital prices for privately insured patients across and within markets, prices for primary care physician services generally are close to Medicare rates and vary little within markets. Prices for specialist physician services, however, are higher relative to Medicare and vary more across and within markets.

Making Sense of Price Variation Within Markets

Several factors can be ruled out as explanations for the wide price variation within markets, including:

* the costs of doing business—labor costs within each market are about the same;

* the complexity of the services being provided—differences in service complexity are taken into account by benchmarking to Medicare prices, which are adjusted for complexity; and

* the type of coverage—all enrollees are in private plans with similar benefits.

What, then, can explain the price variation? The hospital industry has argued that higher-priced hospitals treat the most complex patients and have higher costs because of their teaching programs and capital investments. While this may explain some variation within a market as riskier patients seek care at tertiary hospitals, benchmarking to Medicare should mitigate this influence. Indeed, many analysts believe that Medicare’s additional payments to hospitals for medical education exceed the additional costs.

The more likely culprit is variation among providers and private insurers in negotiating leverage. Negotiating leverage depends on the ability to walk away if an agreement cannot be reached. In terms of negotiating leverage, primary care practices fall at the bottom of the heap. Primary care physicians tend to practice solo or in smaller groups, and they are more numerous than specialists and more substitutable, making them the least able to dictate prices to health plans. Primary care physicians are, in economics jargon, price-takers. A private insurer does not need the participation of all primary care physicians in a market. Instead, an insurer needs only enough primary care physicians to provide access to enrollees, and no single primary care practice is needed to reach that threshold. As a result, few, if any, primary care practices can command prices that significantly exceed their competitors’.

The specialty physician market is generally more concentrated, with fewer specialist practices in each specialty than primary care physicians. Moreover, specialty practices tend to be larger. Studies have found that many specialty practices have become larger in recent years to gain negotiating clout, among other reasons. Many of these practices are large enough that insurers would be unable to offer adequate local access to the specialty without them, giving them substantial leverage with insurers.

Hospitals are in an even stronger negotiating position than specialist physicians. Hospitals typically are large entities that provide a high volume of patient care, giving a hospital or hospital system leverage that physician practices rarely, if ever, have. At the top of the negotiating heap are the must-have hospitals that offer some unique combination of reputation, location and services. Private insurers understand that employers will not continue to offer their products if must-have hospitals are excluded from the provider network. Even in metropolitan areas with many competing hospitals and hospital systems, these must-have hospitals can command unusually high prices. Also, hospitals increasingly have merged into systems, which may allow affiliated hospitals in a market to negotiate collectively with insurers. And, many hospitals are employing physicians and purchasing physician practices and then including physicians in their negotiations with insurers, which may result in more leverage for both the hospitals and the physicians.

Potential Savings

Given the growing evidence of significant intramarket price variation, especially for hospitals, purchasing strategies designed to guide patients to high-value providers clearly offer potential savings. Approaches such as reference pricing, where the payer sets a maximum allowed amount for a specific procedure in a specific market, have produced savings and put downward pressure on prices of outlier providers in some markets. Other innovations in benefit design, when accompanied by information to enrollees about differences in what they will have to pay when using different providers, clearly have roles to play in such approaches.

To get a very rough sense of the magnitude of potential savings from such purchasing strategies, actual plan spending was compared with hypothetical spending with a price ceiling equal to the 50th percentile of the current price distribution in each market. The 50th percentile price, or median, for a given market represents the price at which half of the services in that market were provided by higher-priced providers and half were provided by lower-priced providers. The second set of hypothetical price ceilings are multiples of Medicare prices: 1.0 and 1.5.

The potential savings from capping prices at the 50th percentile scenarios only represent 5.5 percent of physician and hospital spending in the plans. To put the savings in perspective, the average annual growth in per capita spending for employer-sponsored health insurance has been between 7 percent and 8 percent per year. So, the savings from rolling out an aggressive program of active purchasing might only slow trend by less than a year. However, even small percentage gains can make a significant difference given the enormous amount many large employers spend on health care. Additionally, active purchasing may begin to give large purchasers a more direct role in health care payment and delivery decisions. Active purchasing strategies will face challenges, including resistance to change from providers, insurers and enrollees.

More significant savings are possible if prices are limited to a level below what is now considered normal. By far the biggest opportunity for savings appears in the hospital outpatient setting, where setting a ceiling on prices equal to Medicare would reduce spending by 48 percent and a ceiling equal to 1.5 times Medicare would reduce spending by 26 percent. But, such a dramatic change might require governmental rate setting and force hospitals and specialist physician practices to cope with significantly constrained revenue.

Looking Ahead

Even though overall U.S. health spending has grown more slowly in recent years, premiums for employer-sponsored health insurance have continued to rise at an unsustainable rate. And, increases in provider prices explain most if not all of the increase in premiums. If this trend continues, employers will face increasing pressure to restrain spending growth, either reducing benefits, shifting costs to employees, or using some form of active purchasing to mitigate price increases. Insurers are consolidating and becoming more adept and experienced in implementing active purchasing. But, at the same time, consolidation continues apace on the provider side, recently including the employment of many physicians by hospitals. As a result, health plans may face only stiffening resistance to attempts to rein in high prices.


This study confirms once again that health care prices for privately insured patients vary widely across and within health care markets. This study is particularly helpful because it shows where most of the problem is.

It is not with the primary care physicians. They are “price-takers.” They have very little negotiating clout with the insurers. They are forced to accept the insurers rates if they want to be in the insurers’ networks. Thus prices for primary care physicians tend to be uniformly low.

Specialists tend to be more concentrated and thus have greater clout with the insurers. In the more concentrated markets, specialists can command higher prices, resulting in regional variations in pricing depending on their market power.

But the biggest problem is with the hospitals and their outpatient services. They have an even stronger negotiating position than the specialists. This is especially true of the “must-have” hospitals that are in great demand. With increasing merger activity, ever more hospitals are becoming must-have.

Suppose the insurers insisted that hospital prices were capped at the 50th percentile of current spending, bringing down the high prices commanded by the must-have hospitals. This study shows that would still not be enough to meet the average annual growth in per capita spending.

With the pressure to slow the increase in insurance premiums insurers are likely to find other ways to shift more of the costs to patients when costs are already intolerable.

What can we do? We can put the hospitals and their outpatient services on global budgets, just as we do with our police and fire departments. This is what a well designed single payer system would do. Fair rates would be negotiated with physicians which would include correcting the the primary care underpayments and specialist overpayments that result from our current flawed approach of allowing market concentration to artificially move rates away from optimum value.

Note that the reference standards for this study are the much lower Medicare rates – rates that private insurers pay only for primary care physicians. Instead of market power, we should be using people power through our representative government by enacting a publicly-financed and publicly-administered national health program – an improved Medicare for everyone – ensuring payment of legitimate costs and fair margins for the health care delivery system.

Some big insurers leery of exchanges

Posted by on Wednesday, Sep 4, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Big US health insurers wary of ‘Obamacare’ exchanges

By Stephanie Kirchgaessner
Financial Times, September 3, 2013

Some big US health insurers, including Cigna, Aetna and UnitedHealthcare, are steering clear of most of the new state healthcare exchanges amid uncertainty about the kinds of customers they might attract: namely sick ones.

The three companies have said they are taking a cautious approach because they need to evaluate how the markets – set up under the “Obamacare” reforms – will work. They add that they are specialised in providing insurance to big employers, not the individuals and small businesses that will be served by the exchanges.

An Obama administration official said risk adjustment and reinsurance programmes under the law were designed to offer incentives to health insurers to make sure they do not avoid enrolling customers with the greatest needs.

A spokesman for Cigna, which is participating in five of 50 new exchanges, agreed that the provisions would help the company manage risk.

UnitedHealthcare said it would participate in about 12 exchanges initially, but said the exchanges had the “potential to be a growth market” over time.

A spokesman for Aetna said it would participate in up to 14 exchanges. It emphasised that it planned to position itself “for the future”.


UnitedHealthcare, Aetna, and Cigna – three of the largest private insurers in the nation – have decided to not participate in most of the state exchanges being established under Obamacare. Obama and his health care architects had told us that it was better to build on the system we had, expanding the prevalence of private insurance. With this gift of a ready-made market for the private insurers, why are they sneaking away?

America’s private insurers have always welcomed the healthy and shunned the sick. The greatest example is the largest insurance market of all – America’s workers and their families – not only the largest market in the nation but also the healthiest.

In contrast, the individual and small group markets exposed insurers to greater risks, so they countered by using underwriting to select only the healthy while rejecting those who needed health care. In turn, Obamacare now prohibits selective enrollment – cherry picking and lemon dropping. Insurers rightfully fear that those with greater health care needs will rush into the exchanges, creating high cost risk pools that would price premiums out of the market.

About 31 million people will remain uninsured. They are healthier than average since they will include young invincibles who would rather take a chance, hard working immigrants and their families, many of whom are prohibited from participating, lower-income workers who are exempt because of lack of affordable plans for them, and families with incomes high enough to disqualify them from subsidies yet low enough that they will find the premiums to be unaffordable, especially for plans that still leave them exposed to the out-of-pocket expenses of high deductibles and other cost sharing.

These big insurers aren’t dumb. If they are going to sell plans in the exchanges, they want most of these low-cost individuals included in order to dilute the high costs of the sick who will enroll, thereby allowing the insurers to offer competitive premiums. Quite clearly, they are not convinced that will happen.

Will delaying a year result in an influx of some of these healthy individuals into the plans? Look at the list again. Likely some of the previously healthy who develop medical problems will want in. But that will increase the costs of the pools even more, causing the healthier to disenroll because the premiums are driven up further – the classic problem of the death spiral of skyrocketing health insurance premiums.

We should listen to UnitedHealthcare, Aetna, and Cigna. This is a highly flawed method of financing health care. It just doesn’t make sense from a business perspective. But also we should give some thought to this ourselves. Does it really make sense to to insert an administratively wasteful insurance intermediary that has found great success in manipulating the markets so that they can welcome the healthy and shun the sick? Medicare Advantage has already proven to us that private insurers will always find a way around risk adjustment and other regulations in order to shift costs away from them and onto taxpayers.

Obama and friends crafted this program to take good care of the insurers while depriving us of a less costly, more efficient and more effective social insurance program – an improved Medicare for all – and yet the insurers are still not satisfied. It’s too bad that we are going to have to wait until 2015 and 2016 to see premiums skyrocket and insurers bail out.

What will be our response then? Will we let the insurers continue to cover the healthy while accepting for the rest of us the fact that financial hardship is simply an inevitable consequence of facing serious illness? Based on the lack of public engagement to this date, it seems like that is where we are headed.

Uwe Reinhardt on household income and health care costs

Posted by on Tuesday, Sep 3, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

The Central Challenge in U.S. Health Policy

By Uwe E. Reinhardt
The New York Times, Economix, August 30, 2013

“Health Care Costs Climb Moderately, Survey Says” read the headline in The New York Times last week. It appears that health insurance premiums for job-based family coverage rose “only” 4 percent between 2012 and 2013, although still twice as fast as did wages.

The survey in question is the Kaiser Family Foundation’s annual survey of employment-based health insurance, widely viewed as a gold mine for anyone seeking information on that part of the American health system.

For example, 21 percent of the companies in the Kaiser survey paid premiums in excess of $19,387 for families and in excess of $7,062 for singles in 2013 — a hefty amount. At the other end, about a fifth of the companies in the sample paid less than $13,225 for family coverage and less than $4,708 for single coverage.

The benefit consulting firm Milliman annually publishes its Milliman Medical Index on the average total cost of health care for a typical American family of four under age 65, covered by a preferred provider plan, or P.P.O. That index includes not only the employment-based health insurance premium paid by employer and employee but also an estimate of the family’s out-of-pocket spending. In other words, if estimates total annual health spending for the hypothetical family.

According to Milliman’s report, the total cost of $22,030 in 2013 is composed of a total premium for insurance coverage of $18,430, of which the employer is estimated to contribute $12,886 and the employee $5,544. The rest represents out-of-pocket spending of $3,600.

Although not directly comparable, taken together these two data series raise the question of how many American families could afford this kind of health spending strictly with their own financial resources, if one took the extreme position that health care is a private consumption good for which American households themselves should be financially responsible. I hasten to add that I do not know anyone who actually holds that extreme position; the argument is and always has been only over how extensive such support should be.

But the numbers are daunting just the same, if one contrasts them with data on the distribution of household money income (after taxes and transfers) by income group.

It is seen that in 2011, 20 percent of American households had incomes below $20,262. Although the figure includes households of various sizes, including singles, it is nevertheless a small sum to absorb even Kaiser’s premium numbers for single coverage. Median household income in 2011 was $50,054, meaning that close to 50 percent of households had an income below that number.

While the nominal median household income (in current dollars, not adjusted for inflation) in the United States has increased substantially since 1975, in constant-dollar terms of 2011 it has been remarkably and disappointingly flat.

Most of the growth in real gross domestic product in the last several decades has actually accrued to households in the top quintile of the income distribution and, within that quintile, to the top 1 percent.

The gist of the preceding array of data is that even under what we now call “moderate” growth in health care costs, stagnating incomes for millions of American households will put American health care as we have come to know it out of their financial reach, unless they receive substantial help from households in the upper third or so of the household income distribution.

This central political dilemma in American health policy — leave health care to those who can afford it or increase tax revenues to broaden coverage — will continue as far as the eye can see. A good part of the current shouting match over the Affordable Care Act expresses anger over this dilemma, and it will not subside even after the act has been fully put in place.

NYT Reader Comments:

Don McCanne, San Juan Capistrano, CA

With typical family health costs at $22,000 and median household income at $50,000, clearly there must be a transfer from wealthier, higher-income individuals if everyone is to have the health care that they should have.

Although the Affordable Care Act moves in that direction by providing income based subsidies for exchange plans and expands Medicaid for low-income individuals, most people still obtain their health coverage through their employment. Since employer-sponsored insurance is paid for through forgone wage increases, health care costs contribute to the failure of most of us to share in the gains that the very wealthy have made.

The easiest solution is to end individual plans with their premiums based on average pooled costs and set up a single pool for our entire health care system that is funded based on ability to pay – automatically resulting in that transfer that we need.

That’s easiest except for one thing. Those who have fared so well in our economy must decide that a transfer that improves the health of the nation is worth pursuing. So far, we haven’t heard much from them.

Virginia, Boston

The ‘Medicare for all’ proposed by Physicians for National Health Program at pnhp.org has been in place for twenty years. The program is reflected in a current bill in the House, HR 676, brought by D-MI Rep. John Conyers. How likely is it that our corrupt and paid-for-by-lobbyist congress will honor that attempt to right the wrong of for-profit health “care”, and pass such a bill. Please take a look.


The reports cited and the conclusions drawn by Uwe Reinhardt have been covered in our prior messages, but they bear repeating because, as Professor Reinhardt writes, this represents the “central political dilemma in American health policy — leave health care to those who can afford it or increase tax revenues to broaden coverage.”

Typical health care costs for a worker with a family of four – a relatively healthy subset of our society – are now about $22,000, when median household income (not identical to the worker’s family, but still instructive) is now about $50,000. Try pooling that. The numbers don’t work.

Use the link to Reinhardt’s article and check out Figure 4. The bottom one-fifth of households (bottom quintile) has incomes below $20,000. That doesn’t even pay for health care, much less all other essential living expenses. So we have Medicaid for some of them.

Then look at the three middle quintiles – the bulk of working American families. Household income ranges from $20,000 to $100,000, with the median at $50,000. Even at the high end, reducing income from $100,000 to $78,000 because of health care costs puts a strain on budgets that hopefully include retirement plans, tuition expenses, ensuring housing and transportation expenses, perhaps modest vacations, plus the living expenses that would be reasonable for a middle-income family. Even this family needs help with their share of evenly allocated health care costs.

The Affordable Care Act did include a few measures to facilitate a transfer from the wealthy, including income-indexed subsidies for mediocre, low-actuarial-value exchange plans, an expansion of the tax-payer financed, underfunded Medicaid program, and some modest tax increases on higher incomes. But there isn’t really much new help for most middle-income Americans who pay for employer-sponsored plans through forgone wage increases (and at that using inequitable regressive tax expenditures). The Affordable Care Act falls far short of the transfer that will be needed if everyone is to have the health care that they should have.

Single payer advocates already understand the obvious solution. Do not allocate costs to individuals based on the average costs of their risk categories, which is what individual and group insurance does. Instead, eliminate the insurance plan vehicle of funding and replace it with a universal health care funding pool that is financed based on ability to pay – that is, financed through progressive taxes (and not simply through payroll taxes alone that would hit middle-income workers too heavily).

Single payer calls for not equal but equitable financing, and progressive taxes are the epitome of equitable. Now if only we can get the magnates to agree that improving the health of the nation would be worth their equitable contributions.

The tycoons seem to care less about our health care

Posted by on Thursday, Aug 29, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Large U.S. Employers Project a 7% Increase in Health Care Benefit Costs in 2014, National Business Group on Health Survey Finds

National Business Group on Health, August 28, 2013

The cost of providing employee health care benefits at the nation’s largest employers is projected to increase 7% in 2014 – the third consecutive year employers have budgeted this amount, according to a new survey by the National Business Group on Health, a non-profit association of more than 365 large U.S. employers. The survey – one of the industry’s first look at costs and plan design changes for 2014 – also found that some employers believe health insurance exchanges could be a viable option for certain populations. Additionally, more companies plan to offer workers a consumer-directed health plan as their only health benefits option in 2014.

While large employers will not be eligible to participate in state health exchanges until 2017 at the earliest, employers expect that certain populations may find exchanges to be a viable option on an individual basis in 2014. Roughly four in ten (41%) employers believe COBRA plan participants might find public health exchanges to be the most cost effective option. Additionally, more than one-fourth (26%) felt that some pre-65 retirees might opt to join exchanges, while 20% believe that some part-time employees will do the same.

“Private exchanges are another option some employers are considering. In the last year, there has been an increase in the number of private exchanges that are being launched. And while some employers are considering private exchanges for active employees sometime in the future, very few (3%) are considering eliminating health care coverage entirely,” said Darling.

More Employers Embracing Total Replacement CDHPs

The survey found that implementing a consumer-directed health plan (CDHP) was considered the most effective tactic to control rising costs, cited by more than one-third of respondents (36%). In fact, nearly three-quarters of employers (72%) now offer at least one CDHP. This number has remained relatively steady over the last couple of years. However, the number of employers that are offering only a CDHP to employees continues to rise, with 22% planning to implement a total replacement CDHP next year, up from 19% this year.

(The National Business Group on Health members are primarily Fortune 500 companies and large public sector employers — including the nation’s most innovative health care purchasers — who provide health coverage for more than 55 million U.S. workers, retirees, and their families.)


The National Business Group on Health survey is important because it represents the views of the nation’s largest employers who provide coverage for over 55 million workers and their families – supposedly the best health benefit programs available. Three findings in this survey should have us concerned.

1)  The costs of providing health care benefits have increased at the rate of 7 percent for each of the past three years, considerably higher than the rate of inflation. This indicates that health care costs continue to increase at unsustainable rates, regardless of the implementation of several programs supposedly designed to slow spending increases.

2)  Although large employers cannot use the state health exchanges until 2017, interest in both private exchanges and state exchanges is increasing. A major attraction of the exchanges is that employees are most likely to select plans with actuarial values of only 60 to 70 percent because of their lower premiums. This offers employers the opportunity to shift from defined health benefits to defined contributions for the exchange plans. This shifts more of the health care costs to employees.

3)  About three-fourths of employers now offer consumer-directed health plans (CDHPs), and next year 22 percent will offer CDHPs as the only option. CDHPs are high deductible plans that shift more costs to employees and their families. Some may be associated with a health spending account, but that is little more than a tax gimmick that favors higher income employees. Whether these accounts are funded by direct employee contributions or by employer contributions representing forgone wage increases makes little difference as far as whether or not health care is more affordable. It is ultimately the employee that is responsible for the increases in out-of-pocket costs.

The National Business Group on Health represents two-thirds of the Fortune 100 companies – the biggest of the biggest. They should be offering the very best. But instead, these trends should make us want to accelerate our movement away from employer control of individual health plans and toward enactment of a single, publicly-financed national health program that would include everyone and treat all of us fairly. The tycoons seem to be losing interest in the welfare of their employees, so what chance would the rest of us have without converting to an improved Medicare that covered everyone?

The Des Moines Register is back on message

Posted by on Wednesday, Aug 28, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

The Register’s Editorial: Why tie insurance to jobs?

By the Editorial Board
The Des Moines Register, August 27, 2013

In many households, one spouse buys health insurance through a job for the entire family. Now United Parcel Service Inc. has announced it intends to cut this coverage for working spouses of nonunion employees next year.

A UPS spokesman said the change is necessary to keep costs down.

Denying insurance to workers’ spouses will certainly create a financial burden for families, particularly if companies don’t reduce the premiums for workers when they implement such a change. Now the family needs to purchase two policies to cover both adults in the home. Also, the health insurance offered by the spouse’s employer may not cover needed services or may impose higher co-payments and deductibles.

Unfortunately, this is how things work in a country that has tied health insurance to employment. We have long recognized that is a bad idea. Your employer doesn’t select and subsidize your homeowner’s insurance or your car insurance.

The practice burdens U.S. businesses and puts them at a disadvantage in a global economy. In other countries, the government facilitates coverage for everyone.

Employer-based health insurance creates problems for workers. They are at the mercy of their company when it comes to which plans are available.

In some ways, the health reform law addresses some of these problems.

Yet the Affordable Care Act is built on a broken system. As the Register’s editorial board wrote for years prior to the passage of the health law in 2010, this country needs a single-payer health care system with coverage facilitated by the government. Similar to Medicare, everyone could contribute through taxation and everyone would be covered. Instead of such a change, Congress cemented in place the practice of tying health insurance to jobs by requiring many companies to offer it.

The long term result will likely be more companies doing exactly what UPS is doing.


We already knew that The Des Moines Register held an editorial position in favor of single payer reform, but this reiteration of their position is highly significant.

Much of the activity in support of single payer has faded as attention has turned to implementation of the Affordable Care Act. The prevailing attitude is that, well, we tried and this is the best that we could get. We can work on trying to patch this system, but forget trying to negotiate the major barriers erected by obdurate politicians. Even if current laws and regulations have locked up much of the nation’s health care funds, we’ll just try to muddle our way through with incremental steps using some future form of magical waivers which we will need since the currently available waivers, including those in the Affordable Care Act, cannot change the basics of the fundamentally flawed, fragmented infrastructure of multiple public programs and private plans, or no plans at all for far too many of us.

What is so important about today’s message is that the Register’s editorial board sees through this nonsense. “The Affordable Care Act is built on a broken system.” Congress has “cemented” into place this highly dysfunctional infrastructure. Incremental steps cannot work when we are heading down the wrong pathway.

As the Register states, “This country needs a single-payer health care system with coverage facilitated by the government – similar to Medicare, everyone could contribute through taxation and everyone would be covered.”

The Des Moines Register is back on message. We have to get back on message as well.

High-deductibles cause men to avoid emergency department use for high-severity conditions

Posted by on Tuesday, Aug 27, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

The Impact of High-deductible Health Plans on Men and Women: An Analysis of Emergency Department Care

By Kozhimannil, Katy B. PhD, MPA; Law, Michael R. PhD, MSc; Blauer-Peterson, Cori MPH; Zhang, Fang PhD; Wharam, James Frank MB, BCh, BAO, MPH
Medical Care (APHA), August 2013


Background: Prior studies show that men are more likely than women to defer essential care. Enrollment in high-deductible health plans (HDHPs) could exacerbate this tendency, but sex-specific responses to HDHPs have not been assessed. We measured the impact of an HDHP separately for men and women.

Methods: Controlled longitudinal difference-in-differences analysis of low, intermediate, and high severity emergency department (ED) visits and hospitalizations among 6007 men and 6530 women for 1 year before and up to 2 years after their employers mandated a switch from a traditional health maintenance organization plan to an HDHP, compared with contemporaneous controls (18,433 men and 19,178 women) who remained in an health maintenance organization plan.

Results: In the year following transition to an HDHP, men substantially reduced ED visits at all severity levels relative to controls (changes in low, intermediate, and high severity visits of −21.5% [−37.9 to −5.2], −21.6% [−37.4 to −5.7], and −34.4% [−62.1 to −6.7], respectively). Female HDHP members selectively reduced low severity emergency visits (−26.9% [−40.8 to −13.0]) while preserving intermediate and high severity visits. Male HDHP members also experienced a 24.2% [−45.3 to −3.1] relative decline in hospitalizations in year 1, followed by a 30.1% [2.1 to 58.1] relative increase in hospitalizations between years 1 and 2.

Conclusions: Initial across-the-board reductions in ED and hospital care followed by increased hospitalizations imply that men may have foregone needed care following an HDHP transition. Clinicians caring for patients with HDHPs should be aware of sex differences in response to benefit design.


One of the most important changes in health care financing taking place today is the tremendous surge in the use of high-deductible health plans. This is yet one more study that shows that we should question the wisdom of this policy intervention.

Males whose employers switched them from a traditional HMO to a high-deductible health plan reduced their use of emergency department high-severity visits by 34 percent. That is, they did not go to the emergency department when the severity of their condition clearly warranted it. That was followed a year later by a 30 percent increase in hospitalizations. Lead author Katy Kozhimannil stated, “The trends suggest that men might have put off needed care after their deductible went up, leading to more severe illness requiring hospital care later on” (American Medical News, Aug. 26).

High-deductible health plans not only cause financial hardship, they also maim and kill people. And they aren’t even necessary as a means to control spending. We can control costs more effectively and far more humanely through a publicly-administered single payer program that provides first-dollar coverage.

Obamacare architects reap windfall as lobbyists

Posted by on Monday, Aug 26, 2013

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

ObamaCare’s architects reap windfall as Washington lobbyists

By Megan R. Wilson
The Hill, August 25, 2013

ObamaCare has become big business for an elite network of Washington lobbyists and consultants who helped shape the law from the inside.

More than 30 former administration officials, lawmakers and congressional staffers who worked on the healthcare law have set up shop on K Street since 2010.

Veterans of the healthcare push are now lobbying for corporate giants such as Delta Air Lines, UPS, BP America and Coca-Cola, and for healthcare companies including GlaxoSmithKline, UnitedHealth Group and the Blue Cross Blue Shield Association.

Ultimately, the clients are after one thing: expert help in dealing with the most sweeping overhaul of the country’s healthcare system in decades.

Experts say that those able to fetch the highest salaries have come from the Department of Health and Human Services (HHS) or committees with oversight power over healthcare.

“After passage of major legislation, those who have networks on Capitol Hill take exceedingly lucrative jobs with the same industries subject to the legislation,” said Craig Holman, a lobbyist for Public Citizen. “It raises questions about the [bill’s] integrity.”


We need lobbyists, that is lobbyists such as Craig Holman of Public Citizen. But what about administration officials, lawmakers and congressional staffers who helped to create a profoundly wasteful health care financing system that falls tragically short of reform goals, and then left government employment to accept windfalls as private lobbyists representing clients who must deal with Obamacare? As Holman says, it raises questions about the bill’s integrity

Lobbying integrity that makes the difference? “Public Citizen serves as the people’s voice in the nation’s capital.” Public Citizen is already on record as supporting a single payer system:


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