Happy Birthday, Dear Medicare!
By Pippa Abston MD, PhD, FAAP

Happy Birthday, Medicare! I should send you one of those gag cards that teases you about getting older—but at 46, you’re a year younger than I am, so I won’t go there. On your special day, a little reminiscing about your life…

You sure did have a hard time in the womb. Many times, your enemies—the ones we always have with us, those who believe man is an island entire of himself—tried to abort you. Even the doctors in the AMA worked like the dickens to get rid of you. They didn’t kill you, thank goodness, but they did succeed in maiming you. You were conceived as a public insurance for us all, but by the time you were born you had lost the limbs to care for those under age 65. And you were hobbled so that you could only cover limited services, leaving deductibles and co-pays.

Even with your birth injuries, you’ve managed to do a lot of good in your 46 years. I’m grateful for the service you’ve given to my grandparents, my father, and my in-laws. Without your help, my husband and I would have been bankrupt long ago trying to help pay for their medical care. Folks who worry about being in the “sandwich generation” now probably don’t realize how bad it would be with medical bills piled on top of that sandwich. Our finances would be panini, or maybe toast.

Your enemies have tried to poison you over the years. They force you to donate blood to something they call “Medicare Advantage”, private corporations who divert your precious transfusions toward their own profit instead of caring for patients. These same enemies put a gag over your mouth so you couldn’t negotiate with drug companies for fair prices. Even today, some are working to drain all your blood and give it to private corporate vampires.

These actions have weakened you, but there’s a way to restore you to health. We’ve got the technology to reattach the limbs you lost at birth, so you can become what you were always meant to be—Medicare for All. Not only that, but we can improve you—make you cheaper and stronger—by removing your burdensome co-pays and deductibles.

Some worry you’d be slower with all your limbs. We can plan ahead to solve that problem by training more doctors and other health workers. Once we remove all those bloodsucking insurance companies from you and the rest of us, you can get your strength back. Our healthcare system as a whole has had to operate on 2/3 power for decades, while private insurers and the associated administrative costs have siphoned off a third of our medical funds. Imagine what we can do when fully powered!

Happy Birthday, Medicare! I’ll quit talking about your enemies—after all, this is a day to celebrate. You also have friends. Friends who love you are working tirelessly to help you fulfill your dreams. Physicians for a National Health Program, Healthcare-Now!, and many other organizations, including labor unions and churches, continue to gain new members working for your cause. There’s great hope in the next generation of doctors—the largest medical student group, the American Medical Student Association, officially endorses Medicare for All. Even smart conservatives support you, because you are the most financially responsible way to address our health insurance needs.

So today, it’s all about you! We’re having parties and singing your song, all over the country. Happy Birthday, Dear Medicare. May you have many, many more.

Dr. Pippa Abston, a general pediatrician, sees patients and teaches medical students and residents in Huntsville, Alabama. She posted the essay above at Pippa Abston’s Blog: A Pediatrician’s Perspective on Healthcare Reform.

The Commonwealth Fund compares twelve industrialized

Posted by on Friday, Jul 29, 2011

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 U.S. Health System in Perspective: A Comparison of Twelve Industrialized Nations

By David A. Squires
The Commonwealth Fund, July 2011

This analysis concentrated on 2010 OECD health data for Australia, Canada, Denmark, France, Germany, Netherlands, New Zealand, Norway, Sweden, Switzerland, the United Kingdom, and the United States.

What is driving higher health care spending in the U.S.?

Spending on health care in the U.S. in 2008 far exceeded that seen in other countries. In both dollar figures and as a percentage of GDP, no country came within 70 percent of U.S. spending ($7,538 per capita, 16% GDP). This higher spending does not seem to simply reflect higher income.

There are many forces driving health care spending. An annual series of Commonwealth Fund-sponsored analyses of OECD health data dating back to 1999 has explored a number of potential factors, including: administrative complexity, the aging of the population, the practice of “defensive medicine” under threat of malpractice litigation, chronic disease burden, health care supply and utilization rates, access to care, resource allocation, and the use of technologically advanced equipment and procedures. These and other studies have found, contrary to often-cited explanations, the U.S. has a relatively young population, average or below-average rates of chronic conditions, and comparatively few doctor visits and hospitalizations compared with other industrialized countries. Instead, these studies suggest major reasons for higher spending include substantially higher prices and more fragmented care delivery that leads to duplication of resources and extensive use of poorly coordinated specialists.

A 2010 cross-national study conducted by The Commonwealth Fund ranked the U.S. sixth of seven countries in terms of quality, with average performance on effectiveness and patient-centeredness and low performance on safety and coordination.

These findings suggest that the U.S. health system is not delivering superior results despite being more expensive, indicating opportunities for cross-national learning to improve health system performance.

With chronic disease on the rise amidst an aging demographic and accounting for ever more health care spending, more effective treatment and management in primary care settings may have the potential to simultaneously improve patient care while preventing the unnecessary use of scarce and expensive resources.

http://www.commonwealthfund.org/~/media/Files/Publications/Issue%20Brief/2011/Jul/1532_Squires_US_hlt_sys_comparison_12_nations_intl_brief_v2.pdf

This Commonwealth Fund report confirms, once again, that we spend far more than other nations for health care while receiving only mediocrity from a fragmented system. There is much that we can do to improve quality and value, but it needs to begin with a rational system of financing health care.

We don’t have such a system now and will not have it under the provisions of the Patient Protection and Affordable Care Act – a model of reform that is the most expensive and falls far short on goals of reform. We already have learned much from the other eleven nations discussed in this report, but we have failed to act on what we know. Clearly, a single payer national health program with reinforcement of our primary care infrastructure is the redirection that we need.

National Health Expenditures in 2011 and 2020

Posted by on Thursday, Jul 28, 2011

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.

National Health Spending Projections Through 2020: Economic Recovery And Reform Drive Faster Spending Growth

From the Office of the Actuary, Centers for Medicare and Medicaid Services
Health Affairs, July 28, 2011

National Health Expenditures, billions:
2011 – $2,708.4
2020 – $4,638.4

National Health Expenditures, per capita:
2011 – $8,648.5
2020 – $13,708.8

National Health Expenditures, as percent of GDP:
2011 – 17.7%
2020 – 19.8%

http://content.healthaffairs.org/content/early/2011/07/27/hlthaff.2011.0662.full

This year we are spending $2.7 trillion on health care, or about $8,650 per person. What can we expect after the Patient Protection and Affordable Care Act is fully implemented? In 2020, we will be spending over $4.6 trillion, or about $13,700 per person. As a percent of GDP, our health care spending will increase from the current 17.7 percent to almost 20 percent.

Is the Affordable Care Act really affordable? A single payer national health program would be effective in controlling costs, but, much more importantly, it would ensure that all of us – no exceptions – would receive the health care that we need. The Affordable Care Act will cost us more while leaving far too many broke and without health care.

We can still have the health care system that we need, but we’ll have to replace our dysfunctional representatives in Congress. Can we do that?

Medigap Medical Loss Ratio Improvement Act

Posted by on Wednesday, Jul 27, 2011

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.

Rep. Stark, Sen. Kerry Introduce Bill to Provide Medicare Beneficiaries Better Value for Their Medigap Premium Dollars

Congressman Pete Stark
Press Release, July 26, 2011

Today, Rep. Pete Stark (D-CA) and Sen. John Kerry (D-MA) introduced the Medigap Medical Loss Ratio Improvement Act. The legislation improves consumer protections in the Medigap marketplace by raising the minimum percentage of premium dollars that must go toward medical care, not executive compensation or administrative costs. This percentage is called the medical loss ratio (MLR).

Under current law, Medigap insurers are required to meet an MLR of only 65 percent in the individual marketplace and 75 percent in the group market. The Medigap Medical Loss Ratio Improvement Act would require Medigap insurance plans to spend at least 85 percent of every premium dollar on medical care in the group market and 80 percent in the individual market.

http://www.stark.house.gov/index.php?option=com_content&view=article&id=2260:press-release-stark-kerry-introduce-bill-to-provide-medicare-beneficiaries-better-value-for-their-medigap-premium-dollars&catid=82:press-releases-2011&Itemid=62

And…

The Hill
July 26, 2011

The insurance industry opposes Kerry and Stark’s bill.

The healthcare law’s MLR requirements didn’t extend to Medigap because it’s a form of supplemental coverage, said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans.

As supplements, Medigap plans collect lower premiums than comprehensive policies, but the administrative costs aren’t necessarily lower. Extending the 80 to 85 percent MLR standards to Medigap would disrupt coverage with which seniors are satisfied, Zirkelbach said.

http://thehill.com/blogs/healthwatch/health-insurance/173623-aarp-backs-bill-to-extend-new-rules-on-insurers-spending

Medigap policies are private plans that supplement Medicare coverage. They are quite popular because of the exposure that Medicare beneficiaries have to relatively high out-of-pocket expenses. They also represent one of the worst values in private insurance because of their very low medical loss ratios (a low percentage of of the premiums collected is spent on actual health care).

Rep. Pete Stark and Sen. John Kerry have introduced the Medigap Medical Loss Ratio Improvement Act (HR 2645 and S 1416) to bring the Medigap medical loss ratios up to the same level as other private plans under the Patient Protection and Affordable Care Act. Individual Medigap plans will have to spend at least 80 percent of the premium on health care, and group Medigap plans at least 85 percent.

To no surprise, the insurance industry is opposed, and understandably so. In order to calculate the supplemental benefits to be paid under the Medigap plans, the insurers must still process all services, most of which are paid by Medicare, thereby involving the same administrative effort as comprehensive plans. Also, their marketing costs are similar to their comprehensive private plans. Thus their administrative costs and profits are proportionately much higher considering the small amount paid out in supplemental benefits.

The insurers are really in a bind. They can’t reduce their administrative services, yet, because the plans are only supplements, they can’t pay out much more in benefits. Requiring the same medical loss ratios as apply to comprehensive plans would likely destroy the Medigap model, and insurers would have to withdraw these plans.

That would be good since these plans are such a terrible value no matter how you cut it. But we have to keep in mind why these plans exist. Medicare benefits are inadequate, leaving beneficiaries exposed to excessive costs. To eliminate this wasteful private industry of Medigap plans, the appropriate solution would be to reduce or preferably eliminate the out-of-pocket cost sharing of Medicare.

Although that reintroduces the “moral hazard” issue of “free” health care, other nations have shown that comprehensive “free” health care can be provided at much lower costs than ours. If we’re going to talk about morality, then we should ask, what is moral about injecting an expensive, superfluous, worthless industry into our health care?

This legislation is important because it identifies the problem of excessive administrative waste, which adds even more to our very high health care costs. But rather than this bill, we really do need an improved Medicare for all.

Medicare beneficiaries struggle with drug plans

Posted by on Tuesday, Jul 26, 2011

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.

Medicare beneficiaries struggling with prescription drug coverage

By Julian Pecquet
The Hill, July 25, 2011

Five years after the launch of Medicare prescription drug coverage, many beneficiaries are still struggling to sign up, according to a new report from the Medicare Rights Center.

The report highlights how hard it is for beneficiaries to choose among “a multitude of plans that have different benefit structures, pharmacy networks, formularies and rules for accessing benefits.”

“This report reinforces what we hear time and again on our helpline,” center President Joe Baker said in a statement. “The Part D plan selection process is enough to make many beneficiaries and their loved ones throw up their arms in surrender. People simply want to be able to find and enroll in the drug plan that is right for them, without getting stuck in a morass of indistinguishable plan options.”

http://thehill.com/blogs/healthwatch/medicare/173345-medicare-beneficiaries-struggle-with-prescription-drug-coverage

“People simply want to be able to find and enroll in the drug plan that is right for them, without getting stuck in a morass of indistinguishable plan options.” No. People simply want to have the drugs that they need when they need them.

The Part D drug plan should have been created as a straightforward benefit of Medicare. The program should have been funded equitably through the tax system, and the benefit should have been simply to be able to obtain necessary drugs whenever prescribed. But no.

Congress decided to interject a separate, expensive, administratively complex industry into the picture – a market of competing drug plans. Not only do these entities waste resources, they establish even more barriers to access to the drugs patients need – barriers such as formulary exclusions, tiering of drugs, prior authorization requirements, exclusion of pharmacies from the plan networks, not to mention the complexities of trying to select from a hodgepodge of plans with widely different characteristics.

The obvious solution would be to establish a single payer national health program in which pharmaceuticals are a full, unencumbered benefit. That’s as obvious as, say, when you need the debt limit raised, you simply vote to raise the debt limit. But Congress doesn’t seem to be capable of making obvious choices.

Impact of single payer on physician income in Canada

Posted by on Monday, Jul 25, 2011

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 Single-Payer Health Care on Physician Income in Canada, 1850–2005

By Jacalyn Duffin, MD, PhD
American Journal of Public Health, July 2011

Over nearly 60 years, into the 21st century, physician income grew at a rate of increase that outpaced that of other Canadians. Since 1958 through the advent of medicare, until at least 1992 and probably into the present, physicians, as a professional category, were the top earners in the country.

In 2005, US doctors earned about five-and-a-half times the US GDP per capita; Canadian doctors earned about four times their country’s GDP per capita.

The observation that Canadian physicians are paid less than their American counterparts invites us to ask, what do Canadians “get” in exchange for paying their physicians less than their American counterparts? A 1990 study showed that, although per capita expenditures on health in the United States were higher than those in Canada, the actual number of services was fewer. In other words, Canadian citizens were getting more and spending less.

From this research, we observe that even when the readjustments resulting from various policy and payment alterations are taken into account, Canadian medicare did not lead to a loss in physician income. Rather, physician incomes grew more quickly than those of other Canadians and are considerably greater. In short, the medical-income argument against moving toward a Canadian-style system is feeble.

The universal, single-payer system has been good not only for Canadians but also for their doctors.

http://ajph.aphapublications.org/cgi/content/abstract/101/7/1198

The experience with single payer in Canada has revealed that not only were physicians’ incomes not harmed, physicians remain the top earners in the country. This article should allay the fears of U.S. physicians who would like to see us achieve a health care system that ensures quality health care for all but who remain apprehensive that their incomes might be adversely affected. As this report states, “The universal, single-payer system has been good not only for Canadians but also for their doctors.”

Mark Weisbrot: U.S. health care problems are rooted in the private sector

Posted by on Friday, Jul 22, 2011

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.

Problems of U.S. Health Care Are Rooted in the Private Sector, Despite Right-Wing Claims

By Mark Weisbrot
McClatchy-Tribune Information Services, July 20, 2011

Right-wingers, insurance companies, and other opponents of health care reform in the United States are always looking for ways to blame the government for the failures of our health care system. But the simple truth is that they have it backwards: our problems with health care are firmly rooted in the private sector. That is why the average high-income country – where government is vastly more involved in health care – spends half as much per person on health care as we do, and has better health outcomes.

That is why even Medicare – which has to pay for health care services and drugs at costs inflated by our dysfunctional private health care sector – has still proven to be much more efficient than private insurance.

The most effective way to insure everyone and make our health care system affordable would have been to expand Medicare to everyone, while beginning the process of reducing costs through negotiation with, and restructuring incentives for, the private sector. The private insurance companies use up hundreds of billions annually on administrative costs, marketing, and other waste – which is what you would expect from companies who maximize profit by insuring the healthy and trying to avoid paying for the sick.

It remains to be seen whether the PPACA will be a step toward more comprehensive, effective reform that gives us Medicare for all. In the meantime, the right will try to blame the government and the legislation itself for rising health care costs and other failures of our health care system. But in fact these result from the legislation not having gone far enough to rein in the private sector.

(Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C.)

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/problems-of-us-health-care-are-rooted-in-the-private-sector-despite-right-wing-claims

When it seems that we are making so little progress on the reform front, it is reassuring to see that PNHP and our single payer colleagues are not alone in spreading the Medicare for all message.

Declines in preventable deaths linked to increases in public health spending

Posted by on Thursday, Jul 21, 2011

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.

Evidence Links Increases In Public Health Spending To Declines In Preventable Deaths

By Glen P. Mays, and Sharla A. Smith
Health Affairs, July 21, 2011

Public health activities in the United States are supported through a patchwork of funding sources and financing arrangements that vary widely across states and communities and that are relatively unstable over time. These arrangements result in large geographic differences in spending for public health activities, even among communities with relatively similar population characteristics and health needs.

At the state level, per capita public health spending varied by a factor of more than thirty in 2010, ranging from a low of less than $4 in Nevada to a high of more than $171 in Hawaii. Local variation in public health spending was even larger, ranging from less than $1 per capita to more than $200 per capita in 2008.

Communities with larger increases in public health spending experienced larger reductions in mortality from leading preventable causes of death over a thirteen-year period. This relationship was consistent across several different mortality measures, and it persisted after accounting for differences in demographic and socioeconomic characteristics, medical resources, and unobserved community characteristics that jointly influence spending and health.

Although our study does not establish a definitive causal link between spending and mortality because of the observational research design we used, it nevertheless provides compelling evidence that differences in public health investments may contribute to differences in community health outcomes.

http://content.healthaffairs.org/content/early/2011/07/19/hlthaff.2011.0196.abstract

This study is just a reminder that population health involves much more than just the interaction between patients and their health care professionals and institutions. The importance of the public role is undeniable. It’s too bad that our politicians don’t seem to understand that.

New KFF report confirms negative impact of introducing cost sharing to Medigap

Posted by on Wednesday, Jul 20, 2011

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.

Medigap Reforms: Potential Effects of Benefit Restrictions on Medicare Spending and Beneficiary Costs

By Mark Merlis
Kaiser Family Foundation, July 2011

Among the many proposals under consideration to control the growth in Medicare spending is one that attempts to achieve savings by restricting coverage under Medigap plans to require enrollees to pay a larger share of the costs of Medicare-covered services.

Medicare by itself has relatively high deductibles, and imposes coinsurance for most covered services. Moreover, Medicare does not have any limit on total cost sharing, exposing some beneficiaries to large out-of-pocket (OOP) costs. Medigap policies help cover some or all of Medicare’s cost-sharing requirements. Some analysts contend that comprehensive “first dollar” coverage from Medigap leads enrollees to obtain unnecessary services, which results in excess Medicare spending.

This brief examines the potential effects of three different Medigap reform proposals on Medicare program spending and on beneficiaries’ out-of-pocket costs.

Medigap reforms would have a disproportionately negative impact on enrollees with modest incomes, in relatively poor health, and those with any inpatient hospital utilization. Under all three options, a greater share of beneficiaries reporting fair or poor health than those in better health would experience an increase in total out-of-pocket costs, because their premium savings would not be enough to offset their new spending for direct cost-sharing. Under Options 1 and 2, more than one-third of all Medigap enrollees in fair or poor health would experience a net increase in premiums and other out-of-pocket costs for Medicare covered services, as compared to less than one-fifth of those in relatively good health. Because those in relatively poor health use more services than healthier enrollees, the increase in their direct cost-sharing expenses for Medicare-covered services would more than offset any premium reduction.

Enrollees facing higher net costs are disproportionately those in fair or poor health, those requiring inpatient hospital care, and those with modest incomes. Even enrollees who do not actually see an increase in their total costs could be thought of as suffering a “welfare loss.” Beneficiaries buy comprehensive insurance in part for the peace of mind of knowing that they are fully protected against unpredictable events. They may see the loss of this protection as outweighing any potential premium savings.

http://www.kff.org/medicare/upload/8208.pdf

Two days ago we discussed the negative impact of requiring deductibles for Medigap plans – a proposal designed to reduce the moral hazard of insurance (the propensity to obtain more care if it is free at the time of access). This KFF study is timely because it confirms that requiring Medigap cost sharing “would have a disproportionately negative impact on enrollees with modest incomes, in relatively poor health, and those with any inpatient hospital utilization.” Further, even if eliminating cost sharing does not have a net financial benefit, it does provide a “welfare gain” by providing beneficiaries with “the peace of mind of knowing that they are fully protected against unpredictable events.”

CO-OP (Consumer Operated and Oriented Plan) Health Plans under the Affordable Care Act

Posted by on Monday, Jul 18, 2011

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.

CO-OP Health Plans: More Competition, New Choices for Consumers and Small Business

Healthcare.gov, July 18, 2011

On July 18, the U.S. Department of Health and Human Services (HHS) proposed standards for establishing CO-OP health insurance plans.

A CO-OP is a private, nonprofit organization that sells health insurance coverage, like a Health Maintenance Organization (HMO) or a Preferred Provider Organization (PPO), and will be subject to the same rules as other health insurers.

Unlike many health insurance companies today, a CO-OP:

* Gives its enrollees a say in their health plan. CO-OP members elect the board of directors, a majority of whom must also be enrolled in the CO-OP health plan.

* Uses profits to benefit enrollees. CO-OPs are required to use their profits to lower premiums, improve health benefits, improve the quality of health care, expand enrollment or otherwise contribute to the stability of coverage for members.

* Educates enrollees about the plan. Because a CO-OP relies on its enrollees to help decide the direction of the plan, communication about key features of the plan will be a high priority.

HHS is proposing standards for establishing CO-OPs, and for qualifying for $3.8 billion in loans to help start-up and capitalize these new health plans. All CO-OP loans must be repaid with interest and loans will only be made to private, nonprofit entities that demonstrate a high probability of becoming financially viable.

http://www.healthcare.gov/news/factsheets/2011/07/coops07182011a.html

And…

Establishment of Consumer Operated and Oriented Plan (CO-OP) Program

Patient Protection and Affordable Care Act
Department of Health and Human Services, July 18, 2011

Proposed rule.

Subpart F–Consumer Operated and Oriented Plan Program

§ 156.500 Basis and scope.

This subpart implements section 1322 of the Affordable Care Act by establishing the Consumer Operated and Oriented Plan (CO-OP) program to foster the creation of new consumer-governed, private, nonprofit health insurance issuers, known as “CO-OPs.” Under this program, loans are awarded to encourage the development of CO-OPs. Applicants that meet the eligibility standards of the CO-OP program may apply to receive loans to help fund start-up costs and meet the solvency requirements of States in which the applicant seeks to be licensed to issue CO-OP qualified health plans. This subpart sets forth the governance requirements for the CO-OP program and the terms for loans awarded under the CO-OP program.

§156.520 Loan terms.

(a) Overview of Loans.

(1) Applicants may apply for the following loans under this section: Start-up Loans and Solvency Loans.

(2) All loans awarded under this subpart must be used in a manner that is consistent with the FOA, the loan agreement, and all other statutory, regulatory, or other requirements.

(3) Solvency Loans awarded under this subsection will be structured in a manner that ensures that the loan amount is recognized by State insurance regulators as contributing to the State-determined reserve requirements or other solvency requirements (rather than debt) consistent with the insurance regulations for the States in which the loan recipient will offer a CO-OP qualified health plan.

(b) Repayment period. The loan recipient must make loan payments consistent with the approved repayment schedule in the loan agreement until the loan is paid in full consistent with State reserve requirements, solvency regulations, and requisite surplus note arrangements. Subject to their ability to meet State reserve requirements, solvency regulations, or requisite surplus note arrangements, the loan recipient must repay its loans and, if applicable, penalties within the repayment periods in paragraphs (b)(1), (2), or (3) of this section.

(1) The contractual repayment period for Start-up Loans and any associated penalty is five years following each drawdown of loan funds consistent with the terms of the loan agreement.

(2) The contractual repayment period for Solvency Loans and any associated penalty is fifteen years following each drawdown of loan funds consistent with the terms of the loan agreement.

(3) Changes to the loan terms, including the repayment periods, may be executed if CMS determines that the loan recipient is unable to repay the loans as a result of State reserve requirements, solvency regulations, or requisite surplus note arrangements or without compromising coverage stability, member control, quality of care, or market stability. In the case of a loan modification or workout, the repayment period for loans awarded under this subpart is the repayment period established in the loan modification or workout. The revised terms must meet all other regulatory, statutory, and other requirements.

http://www.ofr.gov/OFRUpload/OFRData/2011-18342_PI.pdf

The proposed rule has now been released for the establishment of CO-OPs under the Affordable Care Act. The CO-OPs are private, nonprofit organizations that sell insurance, like HMOs and PPOs, under the same rules as the other private insurers. The most important difference is that a CO-OP is controlled by a board of directors that is elected by the individuals enrolled in the CO-OP.

These are new organizations, and, as such, require a new infusion of capital to meet the reserve requirements for future claims. These are the same requirements that have been established by the states for other private insurers already competing in the marketplace.

Private, for-profit insurers have the capability of establishing start-up costs and solvency reserves by selling shares of stock. Since the CO-OPs are nonprofit, they don’t have this resource to tap. Recognizing this, the Affordable Care Act included provisions for government loans for start-up costs and other loans for solvency (reserve funds for future claims). It is important to understand that these are not grants but are loans that must be repaid, with interest, within five years for start-up loans and fifteen years for solvency loans.

Think about that. The CO-OPs are required to compete with the private insurers under the same terms, while having the additional requirement of paying back these loans. Since their only revenue source is premiums for the insurance they are selling, these loan costs that their competitors don’t have will have to be recovered through higher premiums. Under these terms, how could they possibly compete with the private insurers? It is no wonder that HHS anticipates a default rate of 35 or 40 percent on these loans.

There are many other issues. How long would it take to establish a critical threshold of enrolling enough members to create a viable entity? Since it is likely that the CO-OPs would be subject to adverse selection (enrolling a larger share of patients with greater health care needs), there would be further upward pressure on their premiums (death spiral) since current risk adjustment tools do not recover the full excess losses (as if health care is a “loss”).

There is also the possibility that states will rule that a reserve fund established by a loan does not qualify as a capital reserve, and for good reason. Another problem is that an unstable system of private and public plans with varying and ever changing eligibility requirements would make it very difficult for a CO-OP to maintain a stable patient population, sacrificing much of the benefits of the CO-OP model.

It’s too bad. CO-OPs should have offered us the opportunity to establish altruistic health care organizations. Instead, the politicians bent over backwards not only to keep the government out of these programs, but also to protect the private insurers’ marketplace by being sure that the CO-OPs were not allowed a fair playing field by saddling them with insurmountable debt.

We needed a seat at the table.

About this blog

Physicians for a National Health Program's blog serves to facilitate communication among physicians and the public. The views presented on this blog are those of the individual authors and do not necessarily represent the views of PNHP.

News from activists

PNHP Chapters and Activists are invited to post news of their recent speaking engagements, events, Congressional visits and other activities on PNHP’s blog in the “News from Activists” section.