Employers considering defined contribution for health care

Posted by on Friday, Jul 6, 2012

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.

With health care law upheld, employers weigh shift to defined contribution insurance plan

By Peter Frost
Chicago Tribune, July 3, 2012

Many Chicago-area employers have remained on the sidelines with their employee health plans, waiting for the U.S. Supreme Court to determine whether the 2010 health care overhaul passed constitutional muster.

But with the court’s decision last week to uphold most of the law, companies may pursue a historic change.

Many employers are quietly considering a move away from traditional defined benefit plans and toward defined contribution plans, which set aside a fixed amount of money each year for employees to use toward health care costs.

Under the structure of defined contribution plans, companies hand an employee a set amount — say $9,000 — and employees use that money to buy or help pay for a health insurance plan they choose themselves.

At the heart of the shift is a desire of companies to reduce their exposure to health care costs by shifting the risk of unpredictable expenses to their workers.

Few employers, particularly large companies, are eager to discuss their internal deliberations on the issue because they don’t want to raise concerns among employees before final decisions are made, said Paul Keckley, executive director of the Deloitte Center for Health Solutions, the health care research arm of consulting firm Deloitte LLP.

“The only thing that’s certain right now is (companies are) doing everything that’s legal to shift cost to employees,” Keckley said.

Employees of companies that pursue the defined contribution route may be funneled into so-called corporate health care exchanges, which function in much the same way as state-run exchanges.

The private exchange market “is really emerging and growing, largely because of all the interest in the state exchanges,” said Michael Thompson, a principal in PricewaterhouseCoopers LLC’s global human resources practice.

Inside the exchanges, employees will be offered more choices on what types of coverage they desire — and how much they’re willing to pay.

“If you value broad access and you’re willing to pay for it, that’s fine,” Thompson said. “If you’re willing to live with a narrower network (of providers) and possibly a higher deductible, you would have the ability to save significant money on your premiums.”

On private exchange GoHealth.com, consumers can shop and ask for advice. Michael Mahoney, GoHealth’s vice president of marketing, said the company has explored a corporate health care exchange for its employees, but it will continue offering its “traditional and robust” health insurance plan for the time being.

His reason? “If you give control to the employees, they could choose to save money and possibly choose something where they’re not completely covered, so they end up in a pinch. Right now, we’re going to overspend on our employees and give them more than they want so they’re always covered.”


Just as they did with employee pension plans, employers are now gearing up to convert employee health benefit programs from defined benefit to defined contribution. What does that mean?

Over the past few decades, employers passed on the risks of their pension plans to their employees by switching from a defined benefit (a guaranteed dollar amount that employees would receive monthly in retirement) to a defined contribution such as 401(k) plans (a set dollar amount contributed to the pension account, but with no guarantee of the amount received in retirement – the employee thus bearing the full risk of the uncertain investment returns on the pension funds).

Now many employers plan to do the same with their health benefit programs. They intend to pay a set dollar amount for the premiums, whereas the employees will have to bear the the costs of health care inflation plus the costs of any benefits in excess of the basic program to be offered  by the employer.

This will be disastrous. Employees are already being stuck with higher deductibles in order to slow the rate of premium increases for the employer. With defined contribution, premiums can be contained further by limiting the benefits covered, by further increasing the out-of-pocket cost sharing of deductibles, copayments and coinsurance, by tiering cost sharing of different levels of products and services, and by further restricting the panels of approved health professionals and institutions.

When the employee uses the defined dollar amount to purchase plans from the choices offered, but must pay the full balance of the premium, most will choose lower cost plans that place them at very high risk for out-of-pocket expenses should they or their family members need health care. This is the disaster that is pending. Employees will not be able to afford the care that they or their families need, in spite of being nominally insured by their employers.

From a policy perspective, we can understand why employers would want to control their overhead expenses, in this case by protecting themselves from health care inflation, but we can’t understand why policymakers would want to keep employers in charge of health care financing for the majority of Americans, and then add further insult by perpetuating regressive tax policies that favor wealthier employees over those with lower incomes.

With this defined contribution threat looming, we should once and for all remove the employer from the equation. Let’s replace our health care financing system with a much more sensible and equitable single payer national health program, which would remove from employers the burden of having the responsibility of supervising health benefit programs.

Can we learn from Rawanda?

Posted by on Thursday, Jul 5, 2012

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.

In Rwanda, Health Care Coverage That Eludes the U.S.

By Tina Rosenberg
The New York Times, July 3, 2012

Last week’s Supreme Court decision upholding of the constitutionality of President Obama’s health care law moves the United States closer to the goal of health coverage for all. All other developed countries have it. But so do some developing nations — Brazil, Thailand, Chile. These countries are mostly middle income. But one country on the list is among the poorest of the poor: Rwanda.

The point is not that Americans should envy Rwanda’s health system — far from it. But Rwanda’s experience illustrates the value of universal health insurance.  “Its health gains in the last decade are among the most dramatic the world has seen in the last 50 years,” said Peter Drobac, the director in Rwanda for the Boston-based Partners in Health, which works extensively with the Rwandan health system.

It couldn’t have happened without health insurance.

Rwanda is known, of course, for the 1994 genocide that killed 800,000 Tutsi and moderate Hutu. Since 1994, the country has been ruled by Paul Kagame, at first as de facto leader and, since 2000, as president.  Kagame runs a repressive regime that equates criticism with treason; opposition journalists or politicians in Rwanda have disappeared or died mysteriously.

But Kagame is also widely admired as the most effective leader in Africa. A country in ashes 18 years ago is now safe and clean. It is one of the least corrupt countries in Africa. Per capita income has tripled — although the fact that it is now only $550 a year tells you how destitute Rwanda was.

Its most impressive gains, however, have been in health. AIDS has been cutting life expectancies in Africa and is widespread in Rwanda. Yet life expectancy at birth in Rwanda has increased from 48 to 58 — in the last 10 years. Deaths of children under 5 have dropped by half in five years; malaria deaths have dropped by roughly two-thirds. “Of all countries in Africa Rwanda is probably getting the closest to having health for all, health access for all,” said Josh Ruxin, a longtime resident of Rwanda who is the founder of the Access Project, a Rwandan-run health program.

One key reason that Rwandans are so much healthier today is the spread of health insurance.  In 1999, Rwanda’s health facilities sat unused, as the vast majority of people couldn’t afford them.   In response, the Health Ministry began a pilot project of health insurance in three districts.   In 2004, the program began to spread across the nation.   Now health insurance — called Mutuelle de Santé — is nearly universal. Andrew Makaka, who manages the health financing unit at the Ministry of Health, said that only 4 percent of Rwandans are uninsured.

In most poor countries — and in the United States — health disasters are a leading cause of a family’s decline into poverty, but not for Rwandans. “It gives relief to people knowing that if you get sick, you don’t need to have a lot of money,” said Dr. Agnes Binagwaho, Rwanda’s health minister. “It gives you psychological stability so you can concentrate on something else. The money can be used for other things — this is very important in trying to stimulate economic development.”

“You can bring on all the diagnostic services, new technologies and specialties,” said Drobac. “But if those things can’t reach people in need, what’s the point?”

We could ask the same thing in the United States.  Rwanda, starting from nothing, decided to build a health system that includes everyone.  And it found economic value, alongside human value, in doing so.  Now we can get started.


Rawanda, one of the poorest nations in the world, has seen a dramatic improvement in the health of their people since the establishment of their near-universal health insurance program, Mutuelle de Santé, covering all but 4 percent of their population.

After the Affordable Care Act is fully implemented in the United States, over 8 percent of our population will still be uninsured – over twice the percentage of Rawanda’s uninsured. Shouldn’t we be ashamed? We know how to do better than that; we just have to do it.

OECD 2012 Economic Survey of the United States

Posted by on Tuesday, Jul 3, 2012

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 United States needs to foster education and innovation to keep its cutting edge

OECD Economic Surveys: United States 2012
OECD, June 26, 2012

Particularly worrying is the performance in education, which is essential to provide workers with the skills necessary to become more productive and to adapt to technological change. Attainment in tertiary education stagnated over the past three decades while it grew significantly in almost every other OECD country. Today, 22 out of 30 OECD countries surveyed have more graduates in science and engineering among the 25 to 34 year old workers than the United States.

To prevent long-term unemployment from becoming chronic, the Survey suggests a greater focus on “active” labor market programs that help to facilitate job search and guide individuals towards training and education. These measures have proven to be effective even during periods of high unemployment and should complement existing “passive” benefit programs. The United States spends very little on activation policies relative to other OECD countries.

The Survey also highlights rising income inequality in the United States. The trend owes mainly to rising skill premiums and disproportionate income growth for top earners over the past two decades. High income inequality is also associated with low intergenerational social mobility. Children born to low-income parents in the U.S. find it more difficult to move up the social ladder than in most European OECD countries.

Providing equal access to high-quality elementary and secondary education is essential to addressing this challenge. The Survey also notes that the U.S. tax and benefits system is much less effective in reducing relative poverty than that of other OECD countries. This is largely the result of the limited and poorly targeted financial transfers to low-income households.


OECD Economic Surveys: United States 2012 (122 pages)

So what does an economic survey of the United States have to do with health care? Simply that we cannot expect to have a superior health care system that serves everyone well if we don’t fulfill our citizen obligation to demand greater government oversight and intervention in education, employment, and especially in the intolerable rise in income inequality. Current trends in the United States are not encouraging.

Trying to fix health care alone without addressing our other serious economic deficiencies offers little hope of bringing to all of us a truly high performance  health care system. The Affordable Care Act, by establishing a standard of low actuarial value plans with excessive financial barriers to care will not enable the masses to have the same access to high quality care that the more affluent members of our society experience.

Why are we focusing on austerity when our potential is so great? We should reject political leaders who would foster yet more austerity. We need leaders who understand the importance of education, employment, and more equitable income distribution. That’s not only good for our economy, it’s good for our health as well.

Republican health care executive on single payer

Posted by on Monday, Jul 2, 2012

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 remedy is universal Medicare

By Jack Bernard
The Kansas City Star, July 1, 2012

We did end up with a health care reform law. But, strangely enough, it was stolen from Romneycare and the Republican side of the aisle simply because of the political cost to the Democrats of inaction. It is a horse put together by a committee — ineffective, complex and political. If Romneycare is any indication, it will clearly not control costs to the taxpayer, the top health care concern of most Americans.

The public does not understand the new health care reform law’s true benefits, which are substantial in regard to access. Short-term, Democrats will again lose independent voters in many swing states vital to their 2012 chances.

Plus, this administration squandered the chance for real reform, a simple expansion of Medicare. The “government takeover” catch phrase scared them off.

Universal Medicare is a concept that makes sense technically and fiscally. The U.S. currently has per capita health expenditure costs double that of other developed nations on single-payer systems.

Medicare For All can be paid for through payroll and employer taxes, just like Medicare and Social Security are now. It is affordable because private insurance marketing and administrative costs (30 percent of the premium) are eliminated for employees and the firms employing them. Costs can be controlled through the Independent Payment Advisory Board, an independent panel set up under Obamacare. And, just like those programs, it would find immediate acceptance by the American public after implementation.

For more information on costs and benefits, please go to the web site of Physicians for a National Health Program at www.pnhp.org/.

Taking the long view, universal Medicare will eventually be implemented in the U.S., because of increasing premium costs and cost shifting if nothing else. But in 15 or 20 years, our health care cost and quality problems will be even worse because of congressional inaction.

(Jack Bernard is a retired health care executive who formerly worked with Kansas hospitals on planning and cost containment issues. He is now a Republican county commissioner in Monticello, Ga., a suburb of Atlanta.)


This op-ed is of special significance for us for two reasons: 1) Medicare for All is not only a liberal/progressive issue as these are the words of a Republican health care executive, and 2) The efforts of PNHP to communicate the single payer message are gaining traction as he cites us as an authoritative source.

Jack Bernard is to be commended for his persistent efforts to inform the public on a better health care alternative. We need to renew and expand our important work on behalf of health care justice for all. It’s working.

So is ACA all there is?

Posted by on Friday, Jun 29, 2012

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.

Senator Bernie Sanders
June 28, 2012

In my view, while the Affordable Care Act is an important step in the right direction and I am glad that the Supreme Court upheld it, we ultimately need to do better.  If we are serious about providing high-quality, affordable healthcare as a right, not a privilege, the real solution to America’s health care crisis is a Medicare-for-all, single-payer system. Until then, we will remain the only major nation that does not provide health care for every man, woman and child as a right of citizenship.


The responses to the Supreme Court decision to uphold the basics of the Affordable Care Act were quite predictable. Through all of the cacophony, two predominant views settle out: 1) After a period of celebration, the proponents want to move forward with implementation, and 2) The opponents want to change control of the government so that they can repeal the Act (though maybe proceed with reintroducing limited elements of it).

Yet there is another view simmering under the surface. There is a grave concern that too many people will be left out of the system, that those who have insurance will find that the subsidies are inadequate to provide financial security in the face of medical need, and that the Medicaid program will remain chronically underfunded, resulting in health care access limitations. It will become obvious that these are not acceptable outcomes.

People who understand the single payer model realize that it is the only feasible option, but just as it was buried during the reform process, it will now be buried under the fervor in implementing the Affordable Care Act. We will continue to speak out, but the supporters of the Act will refuse to listen because they are too busy with implementation.

By about 2015 or 2016, those dedicated ACA supporters will see that the numbers really aren’t working, in spite of their efforts – still too many uninsured, costs too high, personal financial hardship rampant, and inability to adequately fund Medicaid because of the stigma of being a welfare program. By then, the celebration of the Supreme Court victory will have long worn off, and our friends will understand that decisions will have to be made as to how to alter course.

Those currently in charge are tinkering incrementalists. They will be looking for solutions such as enhancing consumer empowerment (i.e., keeping insurance premiums down by shifting costs to patients), structural reform of delivery systems (after the failure of accountable care organizations), capping malpractice awards (wrong solution to tort problem), and opening insurance markets across state lines to make insurance affordable (even if health care isn’t). After all, since the ACA provisions aren’t working, it’s time to try the conservatives’ favorite approaches, they’ll reason.

Come on. The solution is staring them in the face – single payer! Yet the resistance will continue. We’ll have ever more of “let’s try this first.”

It will take us until about 2015-2016 to have an impact, only because we’ll have to wade though the muck of ACA reform before our well-meaning friends see that there is only more muck ahead. At that time they will be looking for better solutions, but we cannot wait until then to recharge our campaign. The need is now! We have to establish single payer as a meme. It has to be an automated mentation process.

This means that we have to gear up immediately with an unrelenting campaign to get our friends to understand that single payer is not only the logical solution, but it is the only feasible alternative since it is the only approach that will work. It is long past time for us to replace the concept of political feasibility with the concept of social feasibility.

The Supreme Court decision

Posted by on Thursday, Jun 28, 2012

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 Supreme Court Ruling on the Patent Protection and Affordable Care Act

Go ahead and wade through the cacophony of responses to the Supreme Court decision. It should be a fascinating excursion through society’s exposed soul at its finest, and at its worst. Some of the responses you will hear will rely on refined cognitive processes and others on fundamental reflexive emotions.

You will not hear much new. The sounds will only be louder and more concentrated. Most of you will be able to sort the good policies from the bad policies and identify the special interest sources of the various proposals. Most of us know to keep foremost in our thoughts the only special interest that counts – the patient – with the full understanding that special interests which truly support patients are the ones that we want to pull out of the chaff, leaving behind those such as the private insurers who would serve others using the patient only as marketplace chattel.

We need to continue to guard against the “sound-good” proposals that would seem to move us incrementally toward a high performance system that serves all patients well. By incremental proposals we are not referring to important measures such as reinforcing the primary care infrastructure and expanding the presence of community health centers in underserved communities. Improving the effectiveness and quality of the health care delivery system is a continual process that must always be with us.

The sound-good incremental steps are those that would seem to move us in the right direction but are more like trying to walk up the steep side of a mountain in deep, loose sand. The steps seem to go forward, but the peak is never reached. Yet we will hear pleas to move up this slope. We have been climbing this slope for half of a century, and it’s time to look for another route.

Many will plead to keep the glass half full now that the Act has been upheld, while others of us will complain about the glass being half empty. It is time to end this petty fray when we can have a full glass – affordable, high quality care for everyone – simply by enacting a single payer national health program. Call it an improved and expanded Medicare for all, if you will.

(Yes, the Supreme Court ruled that the individual mandate survives as a tax, and that Medicaid is limited but not invalidated. But these decisions have been only a diversion, and thus are included here only as a parenthetical remark. The decisions were limited to an Act that merely tweaks the status quo, when what we need is a new act that rejects the status quo. The Supreme Court does not have the authority to bring us that act. Above all, we must guard against celebrating the fact that the Affordable Care Act was upheld, if that should mean that we would walk away from the reform that we desperately need.)

The Supreme Court decision will not eliminate the private insurers

Posted by on Wednesday, Jun 27, 2012

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

Private Insurance Is Bankrupting Americans: Is Congress Paying Attention?

By Diane Archer
Health Affairs Blog, June 26, 2012

Over the last decade, health insurance costs doubled for the average family of four, and health costs ate away at real income, eliminating any wage gains that occurred.

Health insurance premiums (for both employers and workers) now amount to one-quarter of median family income and are projected to rise to 35 percent in the next decade. And these higher premiums are buying thinner and thinner coverage: We are paying more and more every time we go to the doctor or hospital – deductibles and copays have risen rapidly over the last decade. The share of workers paying a deductible greater than $1,000 has risen from 10 percent to over 30 percent since 2006.

Costs are rising for employers as well, and the share of workers who even receive insurance from their employer is plummeting, having fallen from more than 69 percent to 61 percent in the last 10 years.  Meanwhile, fewer large employers continue to offer supplemental coverage to retirees. Since the early 1990s, the percentage of large employers offering retiree coverage has fallen from 40 percent to only 21 percent.

Shifting Americans with Medicare into private pools is not a serious solution to the rising cost of health care, given the far higher costs in the private sector. Privatizing Medicare, or even raising the age of eligibility and forcing more of our parents and grandparents into the commercial market, would actually raise overall costs, and it would only save the government money by forcing more of the cost burden onto people who cannot afford it.


Regardless of tomorrow’s Supreme Court decision on the fate of the Affordable Care Act, the status quo is dependent on private insurance and the Affordable Care Act model is dependent on private insurance, yet private insurance has been a miserable failure.

You don’t have to wait until tomorrow to decide what approach should be taken in response to the Supreme Court decision. You can start immediately with efforts to replace the private insurers with an improved Medicare for all.

Private Medicare Advantage plans being paid for phantom care of VA patients

Posted by on Tuesday, Jun 26, 2012

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.

Duplicate Federal Payments for Dual Enrollees in Medicare Advantage Plans and the Veterans Affairs Health Care System

By Amal N. Trivedi, MD, MPH; Regina C. Grebla, MGA, MPH, PhD; Lan Jiang, MS; Jean Yoon, PhD; Jent Mor, PhD; Kenneth W. Kizer, MD, MPH
JAMA, June 26, 2012


Context: Some veterans are eligible to enroll simultaneously in a Medicare Advantage (MA) plan and the Veterans Affairs health care system (VA). This scenario produces the potential for redundant federal spending because MA plans would receive payments to insure veterans who receive care from the VA, another taxpayer-funded health plan.

Objective: To quantify the prevalence of dual enrollment in VA and MA, the concurrent use of health services in each setting, and the estimated costs of VA care provided to MA enrollees.

Design: Retrospective analysis of 1 245 657 veterans simultaneously enrolled in the VA and an MA plan between 2004-2009.

Main Outcome Measures: Use of health services and inflation-adjusted estimated VA health care costs.

Results: Among individuals who were eligible to enroll in the VA and in an MA plan, the number of persons dually enrolled increased from 485 651 in 2004 to 924 792 in 2009. In 2009, 8.3% of the MA population was enrolled in the VA and 5.0% of MA beneficiaries were VA users. The estimated VA health care costs for MA enrollees totaled $13.0 billion over 6 years, increasing from $1.3 billion in 2004 to $3.2 billion in 2009. Among dual enrollees, 10% exclusively used the VA for outpatient and acute inpatient services, 35% exclusively used the MA plan, 50% used both the VA and MA, and 4% received no services during the calendar year. The VA financed 44% of all outpatient visits (n = 21 353 841), 15% of all acute medical and surgical admissions (n = 177 663), and 18% of all acute medical and surgical inpatient days (n = 1 106 284) for this dually enrolled population. In 2009, the VA billed private insurers $52.3 million to reimburse care provided to MA enrollees and collected $9.4 million (18% of the billed amount; 0.3% of the total cost of care).

Conclusions: The federal government spends a substantial and increasing amount of potentially duplicative funds in 2 separate managed care programs for the care of same individuals.


Most veterans who are eligible for enrollment in the Veterans Administration health care system are also eligible for enrollment in Medicare when they turn 65. Many of these veterans elect to enroll in the publicly-financed but private Medicare Advantage plans. This study shows that these private plans benefit greatly by receiving full capitation payments for all care in spite of the fact that they avoid the costs of the care that is actually delivered in our publicly-financed VA system. Thus taxpayers are paying twice for the same care – real care in the VA system and phantom care under the Medicare Advantage plans.

The authors suggest that rules could be changed to rectify this. Either the VA could be authorized to bill the private Medicare Advantage plans for care delivered by the VA (currently prohibited by federal law – a law dating back to before private Medicare plans were available), or the capitation payments to the Medicare Advantage plans could be adjusted downward to reflect the use of VA facilities.

There is a far better choice. The traditional Medicare program could be improved by expanding benefits and eliminating out-of-pocket cost sharing. Then we could get rid of the private Medicare Advantage plans with their profound administrative waste and the restrictions in health care choices that they inflict upon their patients. The VA-eligible patient would be able to choose either Medicare or the VA system, but regardless, we would be paying for the care only once, instead of twice like we are now.

In fact, the improved Medicare system would be so effective that we should all be able to have it as participants in a single payer national health program. Providing veterans with the choice of the VA system would not be much different from providing the rest of us with the choice of an integrated health care delivery system such as Kaiser Permanente. It would be just another health care delivery option under an improved Medicare for all.

What about the insurance subsidies?

Posted by on Monday, Jun 25, 2012

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

Health Reform Subsidy Calculator

Kaiser Family Foundation

Based on the Patient Protection and Affordable Care Act (including subsequent amendments in the Health Care and Education Reconciliation Act of 2010), as signed by the President.

The premiums are illustrative examples in 2014 dollars derived from estimates of average premiums for 2016 from the Congressional Budget Office.

Premium subsidies are based on a silver plan (with an actuarial value of 70%), so all premiums shown are for silver coverage. People may be able to pay a lower premium for less comprehensive coverage (i.e., a bronze plan, with an actuarial value of 60%). The tables showing results by age and income also reflect premiums for silver coverage, though the minimum insurance that people would be required to obtain would be bronze coverage.

The actual premium calculated is adjusted for family type, and for age (within the three to one limit specified in the proposal). Subsidized people can enroll in more expensive plans, but must pay the full difference in the premium.

Health Reform Subsidy Calculator:

On June 28, the Supreme Court will release its ruling on the constitutionality of the Affordable Care Act. If the full Act is repealed, individuals who would have purchased plans in the state insurance exchanges will receive neither their premium subsidies nor their tax credits for out-of-pocket expenses. What precisely would they be losing?

Let’s use the Health Reform Subsidy Calculator to check a few examples. In each example, we will assume that the policyholder is 45, has a family of four, and does not have employer coverage available. For this family living in a region with a medium cost factor, the predicted premium for the silver plan (70% actuarial value) is $14,245. In the examples, we will change only the income level.

Income:  $31,155 (133% of poverty)
Premium payment:  None – covered by Medicaid
Maximum out-of-pocket costs:  None – covered by Medicaid

Income:  $31,156 (133% of poverty plus $1)
Premium payment:  $935
Maximum out-of-pocket costs:  $4,167

Note that at this level, one additional dollar of income results in the family losing the more comprehensive benefits of the Medicaid program, and mandates that they pay a premium of $935 plus potential out-of-pocket expenses of $4,167, for a total exposure of $5,202. That’s a staggering amount at this income level. Compliance surely would be a problem, not by lack of will but simply by inability to pay.

Income:  $93,700 (400% of poverty)
Premium payment:  $8,901
Maximum out-of-pocket costs:  $8,333

Income:  $93,701 (400% of poverty plus $1)
Premium payment:  $14,245
Maximum out-of-pocket costs:  $12,500

So at an income of $93,700, the premium would be $8,901 and the potential out-of-pocket costs would be $8,333, for a total exposure of $17,234. That is quite a dent for a family that is trying to save for two college educations, a retirement fund, and maybe for replacement of the broken-down family automobile. But add just one more dollar of income and the premium shoots up to $14,245 and potential out-of-pocket expenses to $12,500, for a total of $26,745. Then what are you going to cut out of the family budget? And isn’t the $9,511 increase quite a “tax” to pay on that one dollar of additional income?

Just the premium increase alone might cause this family to downgrade their coverage from silver (70% actuarial value) to bronze (60%) in order to save on the premium. If so, this family literally would be placing a bet that none of them would develop a serious medical problem, and it would lose the bet if any of them did so. Should we really be forcing a family to gamble on its health care coverage?

If the Affordable Care Act is repealed, all of this goes away, and many more would remain with no coverage at all. That would be tragic. But even if the Act is upheld, this coverage is still far from satisfactory, and should be unacceptable as a standard for our nation. Regardless of the Supreme Court decision, we should replace the Affordable Care Act with a program that really does work: a single payer, improved Medicare for all.

Innovation leader – Medicare or private insurance?

Posted by on Friday, Jun 22, 2012

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.

How Medicare Solves Private Plans’ Problems and Vice Versa

By Austin Frakt, PhD
JAMA Forum, June 21, 2012

In a new article in the Annual Review of Economics, Katherine Baicker, Amitabh Chandra, and Jon Skinner point out some of the ways Medicare has helped solve a coordination problem among private plans:

“It is natural to ask why private providers have not adopted ACOs [Accountable Care Organizations, groups that give coordinated health care and for whom payment is tied to achieving health care quality outcomes and goals that can lead to cost savings] or more bundled payments on their own. This remains a puzzle. One explanation is that it is a coordination problem—all insurers may want to adopt larger bundled payments, but no single insurer can make the transition. This is certainly consistent with the historical record on the adoption of prospective payment for hospital care. Once it was introduced in Medicare, private plans were quick to adopt it. Similarly, private hospitals were quick to use the federal government’s efforts to measure quality of care even though nothing stopped them from forming consortiums to measure quality before these federal efforts.”

Their points are generally valid in that it’s common for private plans to adopt certain types of payment reforms and quality monitoring after these measures are introduced in Medicare but not before. Nevertheless, there are some examples of ACO-like contracts made by private plans ahead of the Medicare counterparts. And that doesn’t count the failed attempts at capitation (establishing a dollar amount to cover the cost of health care services provided for an individual during a specified length of time) by private insurers and provider groups in the 1990s. I don’t think this invalidates the general point the authors make. It seems Medicare has solved a coordination problem among private insurers.

Indeed, some of the things Medicare will do are properly viewed as public goods. All but a handful of large, dominant health plans cannot convince large hospital systems to accept a new form of payment system. But Medicare can. What health plan will do its own comparative effectiveness analysis to determine which interventions work best for managing a condition? Medicare will or could. The results of both of these types of innovations, and others, will be public information and can benefit all plans and all consumers.

History shows that Medicare has done some things private plans seem unable to do, and then private plans voluntarily copy Medicare. But it goes the other way too.

For example, private plans have innovated in ways that traditional Medicare has not. Managed care, consumer-directed health plans, prescription drug benefits, and catastrophic coverage all exist or existed in the commercial market before adoption by Medicare (if ever). In some cases, the Medicare program, though not the traditional fee-for-service arm of Medicare itself, followed private plans’ lead, adding managed care plans (Medicare Advantage) and a prescription drug benefit (Part D), for example.

There does seem to be a coordination problem among private plans that Medicare solves. Likewise, the private sector sometimes does a better job of designing health plan options. That both plan types, private and government, play a worthwhile role needn’t be shocking or blasphemous. The fact that they both play worthwhile roles ought to be widely acknowledged. Naturally, it often isn’t—least of all, it seems, in our politically charged health policy debates.


Austin Frakt makes the point that both Medicare and the private health insurers have each independently introduced innovations that then can help the other when these innovations are shared. But when you look at the respective innovations, it becomes obvious which innovator it is that truly serves the interests of patients.

Medicare attempts to create greater value when using taxpayer and premium dollars for the payment of health care services. Thus you see innovations such as the adoption of prospective payment for hospital care. We benefit both as taxpayers and as patients.

Look at the innovations of private insurers that Frakt mentions: managed care, consumer-directed health plans, and prescription drug benefit plans. These designs take away choice of health care professionals and institutions, choice of drug benefits, and also erect financial barriers between the patient and health care. Here the process of innovation is not used to benefit patients, but rather is designed to enhance the business model of the intermediary intruder – the private insurance plans.

Frakt points out that these private innovations are being used by Medicare in the private Medicare Advantage plans and in the private Part D Medicare drug benefit. True, but these are terrible innovations to introduce into Medicare because they waste funds and reduce choice while increasing administrative complexity. Medicare’s adoption of private innovations has been a bad thing, not a good thing.

Coordinated care is certainly beneficial and should be expected regardless of whether Medicare or private insurers are paying the bills. There may be instances where bundling of payment would be appropriate, just as capitation has been appropriate in selected circumstances. If it benefits both taxpayers and patients, it would be appropriate. The risk is that the business mind of the private insurers will most likely morph accountable care organizations into intermediary intruders designed to benefit third party payers, likely at a cost to patients. That is not a desirable innovation.

Frakt does make the important point that Medicare does not provide catastrophic coverage, whereas some private plans do. Medicare certainly should as well. But that’s not really a private plan innovation; it’s merely a benefit that should have been included in Medicare in the first place. That is one more reason why we advocate for an improved Medicare for all, rather than merely for a universal expansion of the existing Medicare program.

Government can do it. In fact, it is leading on the catastrophic coverage benefit by making it a requirement through the Affordable Care Act. Innovation in the private sector benefits the private sector. Innovation in the government serves the public interest. Trading public and private innovation is not in our interest when we come out the losers.

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