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.
Treating A Scorpion Sting: $ 100 In Mexico Or $ 12,000 In U.S.
By Jenny Gold
Kaiser Health News, November 28, 2011
Say you’re trekking through the desert in Mexico, minding your own business, when all of a sudden a scorpion scrambles up your boot and stings your leg. You hobble over to a nearby clinic, where you’re given a dose of anti-venom that brings you fast relief. The charge for the serum is about $100.
Now imagine instead that you happen to be hiking in Arizona, and the same type of scorpion stings you. You make it to the emergency room, where the charge for a dose of the same anti-venom costs can cost as much as $12,000, according to a survey by The Arizona Republic. Since patients need three to five doses, the cost can reach about $50,000.
The drug, called Anascorp, has been available for years in Mexico, but was just given FDA approval in August for the U.S. market. Anascorp is designed to treat the sting of the Bark Scorpion, a particularly poisonous species.
Milton Ellis, president of Rare Disease Therapeutics, a Tennessee-based company that has the rights to Anascorp in the U.S., told The Arizona Republic that the cost of the drug is based on a number of factors, including the expensive clinical trial the company sponsored to get FDA approval and the expected demand for the serum. The company sells the drug for $3,500 to another firm that provides it to Arizona hospitals for about $3,780, The Republic found.
Hospitals mark up the drug to cover other costs, including the expenses of patients who are uninsured and the heavy discounts it gives to insurers.
Dr. Leslie Boyer, director of the Venom Immunochemistry, Pharmacology and Emergency Response (VIPER) Institute and the principal investigator of the Anascorp study published in the New England Journal of Medicine, says she was surprised and “a little saddened” by the high cost of the drug. “It’s priced at a level where we can only use it for the very sickest patients, when I know that people with more moderate symptom would also benefit but might not be able to afford it,” she explains.
If the drug were “priced for the walking miserable,” instead of only those patients with the most severe symptoms, more of the drug would be sold and the price could be lower, she explains. As it is, she worries that rural Arizona hospitals, which tend to be the least wealthy, will not be able to stock the anti-venom and will still have to send critically-ill patients on a long helicopter or ambulance ride instead.
The high prices, she says, are “a public health problem.”
Don McCanne says:
(Comment is awaiting moderation as of this posting.)
November 29, 2011 at 12:38 PM
Results of a quick Internet search:
Study posted yesterday at ClinicalTrials.gov:
Sponsor: Instituto Bioclon S.A. de C.V. (Mexico
Collaborator: University of Arizona
R&D at Instituto Bioclon:
“The Bioclon Institute’s technology plan has been implemented through a financing strategy that combines the Institute’s own investments with resources from governmental institutions through agreements with: The National Science and Technology Board (El Consejo Nacional de Ciencia y Tecnologia) (Mexico), The Commerce Secretary (La Secretaria de Economía) (Mexico), and The Food and Drug Administration (United States).”
The fact that government-supported research (United States and Mexico) can result in a product that sells for $100 in Mexico and $12,000 in the United States, says much more about how health care is financed in the United States than it does about government and private roles in research.
All other wealthy nations have controlled health care spending much more effectively, while covering everyone, by using financing systems that require considerable government oversight. We rely on a fragmented system of private plans, public programs (and no programs at all for far too many), that has allowed runaway spending without a commensurate improvement in quality and outcomes.
It really is time to dump the administratively wasteful but expensive private insurers which have been ineffective in slowing cost escalation. We should improve Medicare, and then provide it for everyone. We might not be able to get the price of Anascorp down to $100, but negotiations through our own public Medicare administrators would set pricing based on legitimate costs and fair profits – a price that would undoubtedly be a small fraction of the $12,000 being charged.
Antivenom for Critically Ill Children with Neurotoxicity from Scorpion Stings
By Leslie V. Boyer, M.D., et al
The New England Journal of Medicine, May 14, 2009
Among critically ill children with neurotoxic effects of scorpion envenomation, intravenous administration of scorpion-specific F(ab′)2 antivenom resolved the clinical syndrome within 4 hours, reduced the need for concomitant sedation with midazolam, and reduced the levels of circulating unbound venom. (ClinicalTrials.gov number, NCT00685230.)
Supported by grants from the Food and Drug Administration (FD-R-002385-01) and the Arizona Biomedical Research Commission (0001).
Instead of administered pricing, our government depends more heavily on the market for the pricing of our health care when payments are made through private insurers. Only the magic of the marketplace can price a $100 vial of antivenin at $12,000! Obviously we do not have nor ever will have a functioning free market in health care. It’s time to abandon this myth and move on with an effective method of controlling costs through fair pricing – a single payer national health program.
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.
New Evidence of the Association between Hospital Market Concentration and Higher Prices and Profits
By James C. Robinson, PhD, University of California, Berkeley
National Institute for Health Care Management, November 2011
After a swell of hospital mergers and acquisitions in the 1990s, the industry has again been experiencing significant consolidation as large hospital systems have bought up smaller systems and stand-alone hospitals left vulnerable by the recession. The local and regional chains resulting from consolidation typically wield greater bargaining leverage than do stand-alone facilities. The evidence from several decades of research on this topic shows higher hospital prices following consolidation and recent work documents how large hospital systems serving multiple markets are able to extract higher prices for all facilities in their chain, not just in markets where they are dominant.
Two provisions of the 2010 Affordable Care Act (ACA) have brought new attention to the issue of hospital market power. First, because the ACA coverage expansions will be financed in part by slowing the rate of increase in Medicare payment updates, there is concern that hospitals with as yet unexploited pricing leverage will attempt to recoup some of the lost Medicare revenue by raising prices to private insurers. Second, the integration of hospitals and physicians into the accountable care organizations (ACOs) encouraged by the health reform legislation is expected to accelerate provider consolidation in local markets. Indeed, hospitals are already consolidating with physicians at a fast clip, and many observers are asking whether this integration will give hospitals (and physicians) additional pricing power vis-à-vis private payers.
In this essay I present findings from a new study that adds another piece of evidence to support concerns over hospital consolidation and market power. Specifically, using individual level data from 61 hospitals for patients treated during 2008 for any of six high-cost inpatient cardiac or orthopedic procedures, I show that hospitals in concentrated markets charge significantly higher prices to private payers than do their peers in more competitive markets. Furthermore, these prices are significantly above their direct costs of providing care.
The work reported here confirms earlier studies showing that hospitals are able to extract higher private payments when they hold more market power. Public policy has been ambivalent with respect to the ongoing consolidation within hospital markets. While antitrust regulatory agencies have challenged a number of hospital mergers in the past few decades, these challenges rarely culminated in decisions to disallow a merger. Now provisions of the ACA are encouraging further consolidation of hospitals and physicians, and the final antitrust review regulations from the Department of Justice and the Federal Trade Commission have eliminated the proposed mandatory review of certain prospective ACOs.
It will take some time to see what types of ACOs are allowed to form and how they will affect the competitive structure within their markets. It is clear, however, that the ongoing consolidation of local hospital markets is already frustrating the efforts of employers and private insurers to moderate the growth of health care costs. While the use of administered pricing systems largely insulates public payers from the effects of provider market power, the higher reimbursement rates that dominant providers can extract from private payers during rate negotiations put significant upward pressure on private premiums. In response, employers and other purchasers of private coverage have begun demonstrating a new willingness to accept limits on their health plan’s provider network, and private insurers are developing new products using tiered networks that exclude or disadvantage providers judged to not deliver value commensurate with their higher prices.
The increase in hospital market concentration has resulted in higher prices with enormous profits, simply due to the boost in leverage that consolidation of hospitals has had in price negotiations with private insurers. How will the Affordable Care Act impact this?
The Federal Trade Commission will be relaxing antitrust review of provider consolidation in order to allow greater freedom for accountable care organizations to experiment with delivery system reform. Consolidation will likely increase.
To counter this, private insurers are already developing new products such as those with tiered networks which will penalize patients financially if they use the dominant providers in their communities.
So the intent is to improve quality and the cost effectiveness of health care by encouraging integration of the health care providers, as through accountable care organizations, yet we will be seeing higher costs and higher profits as a result. That inevitably means that premiums for the private health plans will be higher – a problem that the Affordable Care Act was supposed to address.
What is the link that causes this unintended perversity? It is the insistence of our policymakers that the private insurers be included as the financial intermediaries. Plenty of studies have now shown that the private insurers do not have negotiating clout in markets with provider consolidation. So why should we continue to include them, especially when they waste so much in imposing a huge administration burden, while taking away patients’ choices of health care providers?
The government does have the leverage to get the pricing right. We should have it representing all of us in obtaining the best value for our national health expenditures. An improved Medicare for everyone is the vehicle that we need.
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.
Growth in the Residential Segregation of Families by Income, 1970-2009
By Sean F. Reardon and Kendra Bischoff, Stanford University
US2010 Project, November 2011
As overall income inequality grew in the last four decades, high- and low-income families have become increasingly less likely to live near one another. Mixed income neighborhoods have grown rarer, while affluent and poor neighborhoods have grown much more common. In fact, the share of the population in large and moderate-sized metropolitan areas who live in the poorest and most affluent neighborhoods has more than doubled since 1970, while the share of families living in middle-income neighborhoods dropped from 65 percent to 44 percent. The residential isolation of the both poor and affluent families has grown over the last four decades, though affluent families have been generally more residentially isolated than poor families during this period. Income segregation among African Americans and Hispanics grew more rapidly than among non-Hispanic whites, especially since 2000. These trends are consequential because people are affected by the character of the local areas in which they live. The increasing concentration of income and wealth (and therefore of resources such as schools, parks, and public services) in a small number of neighborhoods results in greater disadvantages for the remaining neighborhoods where low- and middle-income families live.
From the Conclusion
During the last four decades, the isolation of the rich has been consistently greater than the isolation of the poor. Although much of the scholarly and policy discussion about the effects of segregation and neighborhood conditions focuses on the isolation of poor families in neighborhoods of concentrated disadvantage, it is perhaps equally important to consider the implications of the substantial, and growing, isolation of high-income families. Given that in 2008 the top 10 percent of earners controlled approximately 48 percent of all income in the United States (Piketty & Saez, 2010), the increasing isolation of the affluent from low- and moderate-income families means that a significant proportion of society’s resources are concentrated in a smaller and smaller proportion of neighborhoods. As we argued above, this has significant consequences for low- and middle-income families, because the isolation of the rich may lead to lower public and private investments in resources, services, and amenities that benefit large shares of the population, such as schools, parks, and public services.
As the more affluent members of our society continue to concentrate themselves in their upscale neighborhoods, they take our resources with them, including some of the best of our health care services. Not only do they leave behind fewer resources for low- and moderate-income families, they also leave behind the political will to do something about it.
Can we convince those in the affluent communities that most of them are still a part of the 99 percent? Or will their guileless but infelicitous complacency perpetuate inertia?
Health at a Glance 2011: OECD Indicators
Organization for Economic Cooperation and Development (OECD)
Why is health spending in the United States so high?
The United States spends two-and-a-half times more than the OECD average health expenditure per person.
Rich countries spend more than poor countries. Chart 3 (at link below) shows that for nearly every country, if you know how rich they are, you can predict their health spending per person per year to within a few hundred dollars. The United States is an exception – Americans spend nearly $3000 per person per year more than Swiss people, even though Swiss people have about the same level of income.
Where does the money go?
Hospital spending is higher than in the five other OECD countries, by over 60%.
Spending on Ambulatory care providers – that is, physicians and specialists as well as dentists, is much higher than in the other OECD countries – almost two-and-a-half times the average of the other five countries.
Spending on Pharmaceuticals and medical goods is higher in the US than in any other country, but overall accounts for a smaller share of total health spending than in the other countries.
Spending on Public Health and Administration is particularly high – more than two-and-a-half times the average.
Are U.S. health prices high?
Overall, the evidence suggests that prices for health services and goods are substantially higher in the United States than elsewhere. This is an important cause of higher health spending in the United States.
Does the U.S. provide too much health care?
(The United States) does not have many physicians relative to its population; it does not have a lot of doctor consultations; it does not have a lot of hospital beds, or hospitals stays, when compared with other countries, and when people go to hospital, they do not stay for long. All these data on health care activities suggest that US health spending should be low compared with other countries.
On the other hand, the US health system does do a lot of interventions. Table 3 (at link below) shows that it has a lot of expensive diagnostic equipment, which it uses a lot. And it does a lot of elective surgery – the sort of activities where it is not always clearcut about whether a particular intervention is necessary or not.
Why is health spending in the United States so high?
Health at a Glance 2011: OECD Indicators
(The entire publication can be accessed for free at this website.)
The Organization for Economic Cooperation and Development (OECD) has just released “Health at a Glance 2011: OECD Indicators.” It “provides the latest comparable data on different aspects of the performance of health systems in OECD countries.” You should save the link above that provides free access to this publication since the data are frequently used by the policy community to compare the United States with other nations.
When examining the tables, charts, graphs and text, keep in mind that the data are sometimes presented in a manner that does not always correlate with highly credible data from other sources.
For instance, the category of public health and administration does not include the same administrative costs as measured by Woolhandler and colleagues in their landmark NEJM articles. Nevertheless, the OECD still reports that public health and administrative costs in the United States are more than two-and-a-half times the OECD average.
Also, the OECD estimates of public spending for health care in the United States leave out two important categories. The tax deductibility of employer-sponsored plans amounts to a subsidy of taxpayer funds, plus taxpayers also pay for the employer component of health insurance premiums for employees of federal, state and local government agencies. Although the OECD reports the percent of government spending on health care in the United States as being one of the lowest, on a per capita basis our public spending on health care is actually higher than the public and private spending combined in almost all other nations.
So when you hear others cite the OECD data, it would be helpful if you have a heads up on the actual data and how it compares to that of other reliable sources. Save the link above for future reference.
Billions Wasted on Billing
By Ezekiel J. Emanuel
The New York Times, November 12, 2011
The range of expert opinions on how much of (administrative costs) could be saved goes as high as $180 billion, or half of current expenditures. But a more conservative and reasonable estimate comes from David Cutler, an economist at Harvard, who calculates that for the whole system – for insurers as well as doctors and hospitals – electronic billing and credentialing could save $32 billion a year. And United Health comes to a similar estimate, with 20 percent of savings going to the government, 50 percent to physicians and hospitals and 30 percent to insurers.
Cutting Health Costs by Reducing the Bureaucracy
Letters, The New York Times
November 20, 2011
To the Editor:
Ezekiel J. Emanuel lowballs estimates of the current costs and potential savings on medical bureaucracy, and raises vain hope that health reforms short of a single-payer system will realize substantial savings (“Billions Wasted on Billing,” Sunday Review, Nov. 13).
Peer-reviewed studies in The New England Journal of Medicine by two colleagues and me document that administrative costs account for 31 percent of health spending in the United States versus 17 percent in Canada. The 14 percentage-point difference translates to $380 billion in potential savings in 2011. Other researchers have reached similar conclusions.
A single-payer reform could realize these savings by eliminating insurance middlemen and radically simplifying payments to doctors and hospitals. The lesser measures that Dr. Emanuel champions – computerized and standardized billing – won’t do the job.
Hospital billing has been computerized for decades, and bureaucratic costs have skyrocketed since the adoption of the standard hospital billing form in 1982.
Combat over who pays and who profits underlies health administration’s overgrowth. A nonprofit single-payer system makes those issues moot.
New York, Nov. 14, 2011
The writer, an internist, is a professor of public health at the City University of New York.
NEJM – Costs of Health Care Administration in the United States and Canada
The landmark 1991 and 2003 New England Journal of Medicine articles comparing health care administrative costs in the fragmented, multi-payer financing system in the United States with the single payer system in Canada were meticulous, peer-reviewed studies that confirmed that a massive amount of administrative spending in the United States is potentially recoverable – an estimated $380 billion for 2011 alone.
Politicians and academics who believe that we need to support politically feasible models of reform, such as the Affordable Care Act, have attempted to ignore or discredit these numbers. Even the most noted attack on these numbers, by Brookings economist Henry Aaron, was based on a back-of-an-envelope calculation arbitrarily assuming health care wages to be one-tenth of what they actually are in the United States. There is some irony in this attack by the highly-respected and otherwise highly-credible Aaron when in the same article he states, “I look at the U.S. health care system and see an administrative monstrosity, a truly bizarre melange of thousands of payers with payment systems that differ for no socially beneficial reason, as well as staggeringly complex public systems with mind-boggling administered prices and other rules expressing distinctions that can only be regarded as weird.”
During the reform process, administrative inefficiencies were frequently brought up as a problem that needed to be addressed, but the perception of the extent of the problem always fell far short, at least by those who controlled the process. This led to grossly deficient suggestions such as merely streamlining insurance billing functions through computer systems (which already exist) and through a simplified universal billing form (which is already in use). This myopic thinking has led to grossly deficient estimates of potential savings, such as that of Ezekiel Emmanuel who suggests a savings less than one-tenth of the true potential.
It is true that not much of the current administrative waste can be recovered as long as politically influential individuals, such as Ezekiel Emmanuel, insist the the private insurers must remain as an intermediary in our health care financing. Their business product is administration.
As you watch the development of new innovations by the insurance industry, you will see that they all involve even more administrative products. As long as they are in charge, they will always try to capture a larger portion of our national health expenditures. However, since administrative costs will now be limited to 15 to 20 percent of their premiums, you will see these new administrative services being introduced as “health care.” Only the label has changed.
We All Want It, but We Don’t Know What It Is: Toward a Standard of Affordability for Health Insurance Premiums
By Peter Muennig, Bhaven Sampat, Nicholas Tilipman, Lawrence D. Brown and Sherry A. Glied
Journal of Health Politics, Policy and Law, October 2011
The 2010 Patient Protection and Affordable Care Act (P.L. 111-148), or ACA, requires that U.S. citizens either purchase health insurance or pay a fine. To offset the financial burden for lower-income households, it also provides subsidies to ensure that health insurance premiums are affordable. However, relatively little work has been done on how such affordability standards should be set. The existing literature on affordability is not grounded in social norms and has methodological and theoretical flaws. To address these issues, we developed a series of hypothetical vignettes in which individual and household sociodemographic characteristics were varied. We then convened a panel of eighteen experts with extensive experience in affordability standards to evaluate the extent to which each vignette character could afford to pay for one of two health insurance plans. The panel varied with respect to political ideology and discipline. We find that there was considerable disagreement about how affordability is defined. There was also disagreement about what might be included in an affordability standard, with substantive debate surrounding whether savings, debt, education, or single parenthood is relevant. There was also substantial variation in experts’ assessed affordability scores. Nevertheless, median expert affordability assessments were not far from those of ACA.
The discussion started in earnest with a review of the vignettes, beginning with Sarah (age 25, single, no children, college graduate, working for a non-profit), a vignette character who earns $1,610 per month, just under 200 percent of the FPL. In the case of characters with very low earnings, such as Sarah, there was considerable agreement among the panelists. All but one of the experts thought that she should pay something for health insurance, and all agreed that it should be very little.
The discussion heated up when participants considered Jessica, who earns $2,210 per month (age 25, single, no children, lives in Chicago, and pays rent of $1160 monthly). Here it was revealed that some participants interpreted affordability as what the person should pay and others as what they could pay. This provided a jumping-off point to a broader discussion of what affordability means.
One participant suggested that Jessica could “literally” afford $800 per month, and denounced affordability as “a lousy policy where you impoverish people so they can buy a minimal set of other goods after they end up paying for health insurance.” Another respondent who also gave a very high affordability threshold noted, “I’m not saying it would be worth it for her to pay this much, but she could still manage reasonably well if she [did] . . . so.” Many others disagreed with this literal interpretation, noting, “I don’t think literal affordability is an interesting policy.” One respondent described affordability as “asking really, ‘How much could one reasonably pay for health insurance.'” Several others argued that a policy would be affordable for beneficiaries if there would “be no adverse consequences by pushing them to that limit.”
One participant, who argued that the standard should be $100 to $150, said, “I’m a low-ball guy because [I take into account] the real costs of living, the fact that the poverty line is too low, etc.”
There is not a natural, objective standard of affordable health insurance coverage. Of course this is true for most (if not all) policies that require government subsidies. Reasonable people disagree about how much a given household can be expected to put aside to spend on health insurance and health care. That there is considerable disagreement even among distinguished experts in social policy on this issue suggests that the concept is mainly a subjective one and that any specific affordability threshold or subsidy structure is likely to be contentious and contested. In this area, as with many others, even highly qualified experts are unlikely to provide scientific answers to guide policy.
This study was designed to demonstrate what well qualified policy experts, from across the political and academic spectra, would conclude should be the standard for determining affordability of health insurance premiums. So what is that standard?
After analyzing a great many vignettes, each expert then devised their own rules of thumb for determining appropriate premium contributions. Although the rules were quite varied, the mean calculations for premium contributions were close to those specified in the Affordable Care Act (ACA). Does this mean that members of Congress and their staffs were quite astute in their calculations of premium subsidies for the exchange plans?
Although the mean calculations were close to those of ACA, there was a very wide variation in the experts’ assessed affordability scores. In the vignette for “Jessica” ($2210 per month income with a Chicago rent of $1160, leaving $1050 for all of her expenses other than rent), expert estimates of affordable health insurance premiums ranged from $100 or $150 per month up to $800 per month. At $800 per month, that leaves $250 for all expenses other than rent and health insurance (e.g., food, clothing, utilities, transportation, education expenses, retirement fund, and “luxuries” such as a cellphone, TV, vacations, holiday gifts, etc.). That $250 must also cover out-of-pocket medical expenses such as deductibles, copayments, and out-of-network services. Even the “low-ball” estimate leaves only $900 to $950 per month for everything beyond rent and health insurance.
The fundamental defect here is that we keep trying to match payment for a specified package of medical benefits to the incomes of specific individuals. Since a reasonable package is no longer affordable by median-income individuals, some form of subsidization is required for the majority of us. Yet recognized experts in the policy community have very different concepts as to how much and in what form the subsidies should be.
Averaging these wide ranges of opinions on how much each person should pay is not a satisfactory solution since the averages or medians place too much of the burden of health care costs on those with modest incomes. These averages also would not satisfy those dispassionate experts who believe that individuals should pay dearly for their health insurance and health care, so they won’t waste their money on things like flat-screen TVs (or really, “wasting” it on healthier foods, transportation to their employment, 401k plans, and so forth).
Financing health care and providing health benefits need to be totally separated. The correlation between ability to pay and medical need is negative, not positive. Payments based on ability to pay should be made into a common risk pool covering everyone, most easily accomplished through the tax system. Health care benefits should be provided to everyone out of that risk pool based on medical need. That is sort of the way Medicare works now for selected populations, but it could be improved.
That sounds like a good idea. Let’s improve Medicare and then provide it for everyone.
Indiana places a big bet on consumer-driven health insurance
By Christine Vestal
Stateline, November 17, 2011
One thing Mitch Daniels believes with absolute conviction is that consumers need to pay more of the cost of their health care.
“The prevalent model of health plans in this country,” the Republican Daniels argued recently in a Wall Street Journal commentary, “signals individuals they can buy health care on someone else’s credit card.” He called today’s health care system “a machine perfectly designed to overconsume and overspend.”
No one can say Daniels isn’t practicing what he preaches. Indiana has been using a version of consumer-driven health care for state employees since 2006. Starting next year, 90 percent of Indiana state workers will be covered by a consumer-driven plan with low premiums and high out-of-pocket expenses for actual care.
Indiana has attracted customers to its consumer-driven system by adding quite a few sweeteners. Starting in 2006, Indiana state employees were given the option to sign up for a consumer-driven plan with no monthly premiums. The plan paid 80 percent of all doctor bills, but only after a $5,000 deductible was met. The maximum out-of-pocket exposure was $8,000.
The traditional plan — with a $1,500 deductible and $2,000 total exposure — remained available at a cost of $3,500 in annual premiums for family coverage.
To make the consumer-directed plan even more attractive, Indiana did other things that most states haven’t done. It paid 60 percent of the $5,000 deductible through a contribution to an employee-owned health savings account. The entire $3,000 contribution was deposited on January 1, reducing much of the risk that a catastrophic event early in the year would leave an employee with a huge medical bill and not enough money set aside to pay for it.
At first, state employees were slow to adopt the scheme; only 4 percent signed up the first year. But it gradually caught on — partly through word-of-mouth and partly through an intensive education program. By the third year, 30 percent of the state’s 28,000 civil servants had signed up, and the numbers have steadily increased.
As more of the state workers opted for a consumer-driven plan, premium costs in the traditional plan started rising. An employee’s annual premium for family coverage in the traditional system started out at $3,500 in 2006, rose to nearly $5,000 within three years, and next year will exceed $9,000. The consumer option generated something of a snowball effect.
The reason for the premium increase in the traditional plan is what is known as “adverse selection.” When an insurance pool shrinks, fewer healthy people remain to cover the costs for those who have high medical bills. At this point, the math on the traditional plan no longer makes sense for anyone. “It defies logic that anyone would continue to stay in the traditional plan,” says Indiana’s personnel director, Daniel Hackler.
In Indiana’s case, the state contribution for health insurance is about $15,000 per employee for both consumer-driven and traditional plans. The savings come from reduced use of the health care system and from cheaper prescription drugs.
In part, it is Indiana’s intensive education and outreach program that has overcome the barriers to acceptance that most states face.
But Indiana’s generous health savings account contribution is likely the biggest reason for the plan’s extraordinary growth.
So is it time to declare Mitch Daniels’ experiment a success? Possibly. Experts say that the state’s traditional plan is close to what they call a “death spiral,” in which the cost of covering a small pool of subscribers exceeds the price any given employee is able to pay. Once the remaining traditional plan subscribers are added to the consumer-driven pool, the price tag is likely to go up, and customer dissatisfaction is likely to go up with it.
For now, though, it seems to be working. In addition to other advantages, each of Indiana’s current consumer-driven subscribers has a sizeable health savings nest egg to fall back on. Overall, the savings account fund exceeds $49 million, and many individual subscribers have more than $10,000 in their accounts.
Although there has been continued slow growth in consumer-driven health plans (CDHP) – high-deductible health insurance plans (HDHP) paired with health savings accounts (HSA) – the take-up by public employees in Indiana has been phenomenal – 90 percent of state workers. What drove this success? Or is it a success?
It is easy to understand why CDHPs would appeal to healthy, wealthy individuals. The high-deductible plans have significantly lower premiums than traditional plans. The money saved by purchasing these lower cost plans can be placed in an HSA, using pre-tax income. If the person remains healthy, the funds that accumulate in the savings account, including any tax-deferred earnings, can be drawn out in retirement without paying a penalty. It’s a great plan for those who stay healthy and have the extra funds to deposit into these accounts.
But what about those who rapidly deplete their savings accounts because of significant medical problems? They must then rely on a high-deductible plan that potentially subjects them to financial hardship because of high out-of-pocket expenses. Thus CDHPs are a poor choice for those who need more health care. This defeats the purpose of pooling risk in which the many who are healthy pay the bills for the few with greater needs.
The funds from the HSAs that are drawn out in the retirement years of the many who are healthy have been omitted from the collective pooling of funds that are needed to take care of the sick (i.e., the lower premiums of the high-deductible plans underfund the collective need of everyone, and the difference is made up by shifting the responsibility for payment directly to the patients who need more health care). It is not only the HSA money that has been diverted from the pools, but also the money that was saved by paying lower premiums yet was never deposited into the HSAs (the most common circumstance).
It is interesting what Indiana Gov. Mitch Daniels did with the state employees’ health benefit program. Most employers that switch to a CDHP do so to save money by paying the lower premium of the HDHP. Some employers will even use a portion of the savings, but not all, to provide seed money for the HSAs. Gov. Daniels decided to put all of the savings in the HSAs so that the cost of the CDHP (HDHP plus HSA contribution) was about the same as the traditional health plan. His ideological drive to make employees sensitive to health care costs was greater than his desire to save the state money.
Imagine the response of the healthy employees, which is most of them. In exchange for agreeing to change to a high-deductible plan – a plan that they probably wouldn’t use much anyway because they are healthy – they are given a cash contribution of $3,000 each year for their own savings accounts, which can be used for health care now or for their retirement later on. If they were to stay healthy and didn’t draw on these accounts, they could have perhaps another $100,000 for retirement!
The healthy employees were sold on the concept, and made the transition. Employees with medical problems in their families were more reluctant to change. They did not want to give up their established health care relationships, plus they didn’t want to be exposed to high-deductibles with depleted HSAs. They stayed in the traditional plan.
Most who have been following health policy recognize that this is “adverse selection.” The healthy leave the insurance pool and the sick stay in. That can only drive premiums up. The employees share of the premium for a family plan went from $3,500 to $9,000. Ouch!
Many of you recognize this as the “death spiral” of premiums. With higher premiums, more leave the plan, and then it eventually has to shut down because nobody could pay the even higher premiums that would have to be charged.
So now this concentration of employees and their families with higher health care needs moves into the CDHPs. What will the insurers do when they have a large influx of expensive patients signing up with the high-deductible plans? Obviously, they’ll have to jack up the premiums to levels that will displease everyone.
Those hurt the most will be those with health care needs, who have depleted HSAs, who will have higher premiums, and who will have greater out-of-pocket costs because of the high deductibles – the very people who have the greatest need for insurance protection. This is hardly a “success.”
By now, you can write your own closing lines about how we can do it right.
Architect of Obama’s health care plan fears a ‘political’ decision by the Supreme Court, says Romney’s lying
By Reid Pillifant
Capital, November 16, 2011
Jonathan Gruber, an M.I.T. professor and a key intellectual architect of President Obama’s overhaul of the American health care system, said, “You know, I think basically, what they’ve constructed, the Affordable Health Act, is the best possible private-sector solution to our problem of the uninsured that we have available, you know, short of single-payer.”
“Basically, this is the last hope for a free-market solution for covering the uninsured. If this fails, then you either give up on the uninsured or you go to single-payer. Those are the only two options left. And the Republicans, if they’re willing to stand up and say, ‘We give up on the uninsured,’ then great, let them say that and let the voters come to the polls and decide, but they won’t say that.”
“Best possible solution… you know, short of single payer.” If the Affordable Care Act fails (which it clearly will because it’s only more of the same), then either we “give up,” or we “go to single payer.” It’s too bad that Jonathan Gruber was distracted by concerns about feasibility when he was assisting with the design of the Romney and Obama plans. The only plan that’s really feasible is one that works – single payer.
Tufts, Blue Cross contract row threatens members
By Robert Weisman and Liz Kowalczyk
The Boston Globe, November 16, 2011
Tufts Medical Center and its doctors group say they will stop doing business with Blue Cross Blue Shield of Massachusetts on Jan. 17 because the two sides can’t agree on a new contract. The move could force tens of thousands of Blue Cross members to change doctors and compel employers across Massachusetts to consider switching to another insurer.
Blue Cross disclosed the termination notice yesterday as it prepared to send letters to about 55,000 employers and other customers alerting them to the Tufts threat, which came as increasingly tense contract negotiations stalled Monday night.
“This is confusing and disruptive,” said Amy Whitcomb Slemmer, executive director of Health Care for All, a Boston advocacy group. “We have essentially a train wreck that has nothing to do with the quality of health care, but is all about escalating costs. In their failure to reach agreement, Tufts and Blue Cross are affecting people’s care.”
Nancy Turnbull, associate dean at the Harvard School of Public Health, said Tufts’ request for 3 percent increases seems “very much in line” with what other providers such as Partners HealthCare System and Children’s Hospital have received in recent contracts. And she noted that those providers already were getting higher reimbursements than Tufts.
Turnbull said the dispute underscores why the government needs to get more involved in setting payment rates.
Blue Cross, Fallon post big earnings
By Robert Weisman
The Boston Globe, November 16, 2011
The state’s largest commercial health insurance companies, citing seasonal improvements in their business and a decline in medical claims tied to the sluggish economy, yesterday posted robust financial results for the three months ending Sept. 30.
Blue Cross Blue Shield of Massachusetts, the state’s largest health plan, led the pack in the most recent quarter, ringing up net income of $78.9 million compared with the $75.8 million it earned a year ago.
By reading the first article in full (available at the link), you can learn some of the details behind the contract dispute between Tufts Medical Center and Blue Cross Blue Shield of Massachusetts. But that isn’t the important issue. What is important is that a very profitable, “non-profit” private insurer, that is able to restrict patient choices in health care providers, is using the threat of disrupting patients’ care as leverage in negotiations over health care payment rates.
Tufts Medical Center is also a party in this dispute. They are also in a position to make a decision that can be very disruptive to the care of their patients.
The problem is in the way we finance health care. We continue to perpetuate a system in which we grant the power to control health care dollars to private financial intermediaries that must consider their own interests first. Health care providers are then placed in a position that a decision must be made on whether or not to participate in the proposed contract with the intermediary.
Contrast that with a single payer system in which the government sets payment rates based on legitimate costs of providing health care. The government pays enough to maintain the operations of the providers, along with separate disbursements for appropriate capital improvements. The providers are not faced with a decision on whether or not to accept the government contract. The only decision they might consider would be whether or not they would want to shut down operations. The government single payer would not allow that to happen merely because of an actual shortage of funds for necessary expenses, as long as essential services were being provided.
It really is time to get the private intermediaries out of our health care. They cost too much, and they take away our choices. An improved version of our own Medicare program would provide the necessary administrative services for us far more efficiently and at a considerably lower cost.
Anthem Blue Cross sued over higher medical insurance deductibles
By Duke Helfand
Los Angeles Times, November 15, 2011
For the second time in eight months, California health insurer Anthem Blue Cross is being sued over allegations that it has breached contracts with individual policyholders for hiking annual insurance deductibles in the middle of the year.
The latest lawsuit, filed Monday by the group Consumer Watchdog, says that California’s largest for-profit health insurance company used “bait and switch” tactics to raise deductibles and other out-of-pocket costs for some customers May 1.
The lawsuit says the Woodland Hills insurer improperly changed policy renewal periods Aug. 1 from one year to one month, allowing the company to alter its benefits, co-pays and other costs repeatedly throughout the year.
Some of those Anthem customers have seen their annual deductibles rise in the middle of the year to $550 from $500, according to the consumer lawsuit. Other deductibles have gone to $1,750 from $1,500 and to $2,950 from $2,500.
WellPoint’s Anthem Blue Cross has found yet another way to shift insurance risk from itself to its beneficiaries. Individuals who purchased or renewed their health plans did so while assuming in good faith that their costs and risk exposure would be set for another year. No. Anthem Blue Cross included in the fine print the condition that these were only one month renewals, allowing them to change the terms of the insurance contract repeatedly throughout the year.
“Bait and switch” is a despicable business practice, and the nation’s largest insurer, WellPoint, is not above it. At the current rate of insurer consolidation, WellPoint’s plans will likely be amongst only a few choices, if that, in the state health insurance exchanges to be established under the Affordable Care Act. And surely the other insurers will adopt the same despicable practices in order to remain competitive.
Now the nation is awaiting a Supreme Court decision on the individual mandate that will tell us whether we will be required to purchase a plan from a selection of these despicable private programs or if we will have the right to remain uninsured – a right that many will exercise simply because these plans will be unaffordable, even with the proposed subsidies.
We wouldn’t have to tolerate the despicable behavior of the private insurers if only Congress would improve and expand Medicare. Medicare belongs to the people. We should all be able to benefit from it.
Despicable: “So worthless or obnoxious as to rouse moral indignation.”
(It’s the right word, so we should use it.)
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