Health insurance exchanges may be too small to succeed

Posted by on Friday, Nov 23, 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 Insurance Exchanges May Be Too Small to Succeed

By Dana P. Goldman, Michael Chernew and Anupam Jena
The New York Times, November 23, 2012

With the re-election of President Obama, the Affordable Care Act is back on track for being carried out in 2014. Central to its success will be the creation of health-insurance exchanges in each state. Beneficiaries will be able to go to a Web site and shop for health insurance, with the government subsidizing the premiums of those whose qualify. By encouraging competition among insurers in an open marketplace, the health care law aims to wring some savings out of the insurance industry to keep premiums affordable.

Certainly, it is hard to be against competition. Economic theory is clear about its indispensable benefits. But not all health care markets are composed of rational, well-informed buyers and sellers engaged in commerce. Some have a limited number of service providers; in others, patients are not well informed about the services they are buying; and in still others, the quality of the service offerings vary from provider to provider. So the question is: What effect does insurer competition have in a marketplace with so many imperfections?

The evidence is mixed, but some of it points to a counterintuitive result: more competition among insurers may lead to higher reimbursements and health care spending, particularly when the provider market – physicians, hospitals, pharmaceuticals and medical device suppliers – is not very competitive.

In imperfect health care markets, competition can be counterproductive. The larger an insurer’s share of the market, the more aggressively it can negotiate prices with providers, hospitals and drug manufacturers. Smaller hospitals and provider groups, known as “price takers” by economists, either accept the big insurer’s reimbursement rates or forgo the opportunity to offer competing services. The monopsony power of a single or a few large insurers can thus lead to lower prices. For example, Glenn Melnick and Vivian Wu have shown that hospital prices in markets with the most powerful insurers are 12 percent lower than in more competitive insurance markets.

So health insurance exchanges are probably welcome news for hospitals, physicians, and pharmaceutical and medical device companies throughout the United States. If health insurance exchanges divide up the market among many insurers, thereby diluting their power, reimbursement rates may actually increase, which could lead to higher premiums for consumers.

There is some evidence on how insurer market power affects premiums. Leemore Dafny, Mark Duggan, and Subramaniam Ramanarayanan have found that greater concentration resulting from an insurance merger is associated with a modest increase in premiums — suggesting that concentration may not help consumers so much — although they did report a reduction in physician earnings on average. Over all, however, the evidence is limited and mixed.

Greater competition in the insurance industry — either through health insurance exchanges or other measures — may not lower insurance premiums. Weakening insurers’ bargaining power could instead translate into higher costs for all of us in the form of higher premiums.

In financial markets, we ask if banks are too big to fail. When it comes to health care, perhaps we should ask if insurers are too small to succeed.

It is true that very large insurers within the exchanges can use their monopsony power (controlling the market as exclusive buyers) by demanding lower prices for health care services, but only for their own plans. Most health care costs will still be covered by employer-sponsored plans, Medicare, Medicaid and other programs. Thus plans offered by the exchanges cannot have much impact on our total national health expenditures.

Another difficulty with the monopsony power of private insurers is that when they are investor owned (WellPoint, UnitedHealth, Aetna, etc.), their first priority must be to use their leverage to benefit their investors. That results in insurance innovations that often are not particularly transparent, but have adverse consequences for the patients they insure. The private sector exercising power as a monopsony can be as evil as a monopoly.

In contrast, a public monopsony can be very beneficial in getting prices right – high enough to ensure adequate capacity in the delivery system, yet low enough to ensure value in health care.

The ultimate beneficent monopsony would be a single public program covering absolutely everyone (“single payer”). We could achieve this easily by improving Medicare and then making it universal. Health policy studies have proven that this would not only cover everyone, but it would finally bring us that elusive goal of health care reform – bending the cost curve to sustainable levels.…

AHIP response to new rules on essential health benefits

Posted by on Wednesday, Nov 21, 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.

Essential Health Benefits, Actuarial Value, and Accreditation Standards: Ensuring Meaningful, Affordable Coverage (HHS)
November 20, 2012

On November 20, 2012, the Department of Health and Human Services (HHS) published a proposed rule that helps consumers shop for and compare non-grandfathered private health insurance options in the individual and small group markets by promoting consistency across plans, and protecting consumers by ensuring that plans cover a core package of items and services.

Specifically, this rule outlines health insurance issuer standards related to the coverage of essential health benefits (EHB) and the determination of actuarial value (AV), while providing significant flexibility to states to shape how EHB are defined.

The Affordable Care Act sets forth that EHB be equal in scope to benefits offered by a “typical employer plan.”  To meet this requirement in every state, the proposed rule defines EHB based on a state-specific benchmark plan, including the largest small group health plan in the state. The rule proposes that states select a benchmark plan from among several options identified in the proposed rule, and that all plans that cover EHB must offer benefits that are substantially equal to the benefits offered by the benchmark plan. This approach balances consumers’ desires for an affordable and comprehensive benefit package, our legal requirement to reflect the current marketplace, and issuer flexibility to offer innovative benefit designs and a choice of health plans.


AHIP Statement on ACA Implementation

America’s Health Insurance Plans (AHIP)
November 20, 2012

America’s Health Insurance Plans (AHIP) President and CEO Karen Ignagni released the following statement on proposed rules released today by the U.S. Department of Health and Human Services on implementation of the Affordable Care Act (ACA):

“As implementation of the ACA moves forward, the focus needs to be on affordability for consumers and employers.

“For health insurance exchanges and new insurance market rules to work, coverage needs to be affordable and there needs to be broad participation in the system.  While additional flexibility on essential health benefits (EHB) is a positive step, we remain concerned that many families and small businesses will be required to purchase coverage that is more costly than they have today.  It also is important to recognize that the new EHB requirements will coincide with the new restrictions in age rating rules that also go into effect on January 1, 2014.  Both of these provisions may incentivize young, healthy people to wait to purchase insurance until they are sick or injured, driving up costs for everyone with insurance.”…

The Department of Health and Human Services has provided states with considerable flexibility in establishing essential health benefits (EHB) in the individual and small group insurance markets. The states will not have to require benefits that are typical of large employer health benefit programs, but rather the benefits will correspond to existing small group plans, as long as some services in each of ten required categories are included. These plans will be inadequate for those who require benefits that are not covered, not to mention the limitations of excess cost sharing and insufficient provider networks.

Yet the insurance lobby group, AHIP, complains that many families and small businesses would have to purchase coverage that is more costly than they have today. The reason that plans with the minimal essential benefits would be more costly is that the current individual and small group market is saturated with plans that are so substandard that they fail to provide adequate financial security in the face of medical need. With the new essential health benefits requirement, the insurance industry would lose the right to sell these highly profitable, but substandard plans. They will have to raise their standards to the level of mediocrity, as required by the new EHB rule.

Once again they state that “coverage needs to be affordable.” They have previously stated that health care costs need to be controlled, but, in the absence of any truly effective method of doing that, they need to be able to use innovative product design to keep their premiums competitive in the insurance market. The new EHB rule along with the actuarial value rule allows them the flexibility to be quite innovative. The bottom line is that in the conflict between affordable insurance premiums and adequate protection for patients, they will always choose to protect their market rather than protect patients.

The insurance industry understandably is interested in its own welfare. If that means compromising the adequacy of their plans, then so be it. But does that mean that we have to accept compromise in our health and in our financial security? We wouldn’t if we dismissed the private insurers and established our own improved Medicare program for everyone.

Uninsured have higher mortality after surgery for brain tumors

Posted by on Tuesday, Nov 20, 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.

Postoperative Mortality After Surgery for Brain Tumors by Patient Insurance Status in the United States

By Eric N. Momin, MD; Hadie Adams, MD; Russell T. Shinohara, PhD; Constantine Frangakis, PhD; Henry Brem, MD; Alfredo Quiñones-Hinojosa, MD
Archives of Surgery, November 2012

Among patients with brain tumors with no other major medical condition, uninsured patients (but not necessarily Medicaid recipients) have higher in-hospital mortality than privately insured patients, a disparity that was pronounced in teaching hospitals. These findings further reinforce prior data indicating insurance-related disparities in medical and surgical settings.

These insurance-related disparities might be explained by 1 of 3 possible mechanisms. Insurance status could influence health outcomes by affecting (1) a patient’s overall state of health, (2) the ability to access care (affecting the acuity of disease presentation), or (3) the quality of treatment that is provided.

Insurance-related disparities are not unique to the field of neurosurgery. Uninsured patients fare worse than privately insured patients in the settings of critical illness (higher chance of having life support withdrawn), ischemic or hemorrhagic stroke (higher mortality and neurologic impairment), myocardial infarction (higher mortality), and physical trauma (higher mortality). However, it is not clear that enrolling in a state-funded health plan would help the uninsured because Medicaid recipients also seem to experience a similar disparity in other settings, including pneumonia, appendicitis, abdominal aortic aneurysm repair, limb-threatening ischemia, and surgery for colorectal carcinoma. Of note, this Medicaid disparity was also present in our full cohort but was not convincingly present in the adjusted analysis of patients with no comorbid disease, especially in teaching hospitals.

Uninsured patients operated on for brain tumors have a higher in-hospital mortality than do insured patients. Regardless of the reasons why, this study adds to the abundance of studies that demonstrate that being uninsured can be bad for your health. Even patients with Medicaid may experience similar adverse outcomes.

The Affordable Care Act will leave 30 million uninsured, and it relies partially on Medicaid to expand coverage. Thus the Affordable Care Act may still be bad for the health of many of us.

We need a single program that provides all of us with high quality care – an improved Medicare for all. We should not put up with a deficient health care program that leaves some of us sick or even dead.

Primary care physicians’ experiences in ten countries; U.S. stands out

Posted by on Monday, Nov 19, 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.

A Survey Of Primary Care Doctors In Ten Countries Shows Progress In Use Of Health Information Technology, Less In Other Areas

By Cathy Schoen, Robin Osborn, David Squires, Michelle Doty, Petra Rasmussen, Roz Pierson and Sandra Applebaum
Health Affairs, November 15, 2012

To explore the experiences of physicians as health reform policies unfold, we surveyed primary care physicians in the following ten countries in 2012: Australia, Canada, France, Germany, the Netherlands, New Zealand, Norway, Switzerland, the United Kingdom, and the United States.

Swiss and US patients often face substantial deductibles as well as cost sharing, although Swiss health insurance standards reduce rates for low-income people and limit out-of-pocket liability to levels well below those in the United States.

The United States is alone among the study countries in segmenting the population by income and age for government-sponsored health insurance and in its lack of coordinated policies across multiple private and public insurers.

US and Canadian physicians’ responses to questions regarding after-hours arrangements mirror patients’ experiences: In the 2010 international population survey on patient experience with health care services, Canadian and US patients were more likely than those in other countries to have used emergency departments and among the most likely to say that it was difficult to obtain health care after hours.

In 2012, 59 percent of US physicians said that their patients often have difficulty paying out-of-pocket costs for medical care – a percentage well above that in any other country.

In the United States, physicians’ perceptions of affordability or difficulties getting specialized care varied by patient insurance mix. Doctors with high proportions of uninsured or Medicaid patients were the most likely to say that their patients often faced long waits for specialized care.

To gauge primary care physicians’ perspectives overall, the survey asked about their views of their country’s health system, their satisfaction with the practice of medicine, and their perceptions of change in recent years. Repeating a pattern observed in earlier surveys, US and German physicians were the most negative about their health care systems, with only 15 percent and 22 percent, respectively, saying that the system needs only minor changes versus fundamental change or rebuilding. German and US physicians were also the least likely to say that they were satisfied or very satisfied with practicing medicine.

As countries aim to reduce health care costs, some countries have looked to coverage restrictions on treatments or medications or to reviews of physician care decisions. Although such interventions may target the appropriateness of care, they can also have the unintended consequence of imposing time and administrative burdens on physicians. Among the study countries, US physicians were the most likely to say that such time concerns are a major problem: More than half of US respondents said that they or their staff spend too much time getting patients care because of coverage restrictions on treatment or medications.

Notably, the share of Dutch doctors expressing concern about this issue has more than doubled since the 2009 survey (increasing from 10 percent to 26 percent). This suggests that problems are emerging with the growing complexity of health insurance practices in the Netherlands.

Regarding after-hours access to primary health care services, all of the study countries except the United States and Canada have policies for after-hours coverage. The low rates of after-hours arrangements reported by Canadian and US physicians indicate that such arrangements are slow to develop if they must depend on the actions of individual practices.

Insurance design also matters. US physicians stand out, as they have in past surveys, for saying that their patients often have difficulty paying for care and that insurance restrictions on care decisions consume substantial doctor and staff time. The other countries in the study all provide universal coverage and, with the exception of Switzerland, have little or no cost sharing for primary care and essential medications. All of the other countries limit out-of-pocket expenses to levels well below those typical in US insurance.

In contrast to other countries with multiple insurers, US private insurers often use prior authorization and employ varying drug formularies and complex benefit designs, with little standardization. Recent studies confirm that the resulting insurance-related complexity adds substantially to US practice costs as a result of increased paperwork and time demands.

In patient surveys, the United States also stands out for insurance-related time concerns. US experiences provide a cautionary example for other countries regarding the time and resource costs of complexity.

In general, US primary care physicians’ views and experiences endorse the need for reform, including enhanced access. US physicians who reported that their patients often faced cost or other access barriers were the most likely to say that the system required major change.…

We spend by far the most money per capita on health care. Yet, compared to primary care physicians in other nations, U.S. physicians are by far the most negative about our health system, with only 15 percent saying that “the system needs only minor changes” (versus fundamental change or rebuilding).

The perspective provided by the excerpts posted above should drive the citizens of our nation to demand comprehensive reform. Are we up to it?

Why employers’ health benefit cost growth of 4.1% is a fraud

Posted by on Thursday, Nov 15, 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.

Employers Held Health Benefit Cost Growth to 4.1% in 2012, the Smallest Increase in 15 Years

Mercer, November 14, 2012

Decisive action by employers in 2012 – in particular, moving more employees into low-cost consumer-directed health plans and beefing up health management programs – was rewarded with the lowest average annual cost increase since 1997. According to the National Survey of Employer-Sponsored Health Plans, conducted annually by Mercer and released today, growth in the average total health benefit cost per employee slowed from 6.1% last year to just 4.1% in 2012. Cost averaged $10,558 per employee in 2012.

With a growing number of employers now positioning a high-deductible, account-based consumer-directed health plan as their primary plan – or even their only plan – employee enrollment jumped from 13% to 16% of all covered employees in 2012. Many employers see these plans as central to their response to health care reform provisions that will raise enrollment. Over the past two years, offerings of CDHPs have risen from 17% to 22% of all employers, and from 23% to 36% of employers with 500 or more employees. Well over half (59%) of very large organizations (20,000 or more employees), which typically offer employees a choice of medical plans, now offer a CDHP.

Moving even a small number of employees out of a more expensive plan into a CDHP can result in significant savings for an employer. The cost of coverage in a CDHP with a health savings account is about 20% lower, on average, than the cost of PPO coverage – $7,833 per employee compared to $10,007.

“PPACA requires that health plans cover, at a minimum, 60% of eligible health plan expenses,” says Ms. Cunninghis (Sharon Cunninghis, US business leader for health and benefits). “Some employers are resetting their health plan value to move closer to that minimum, and saving money as a result.”

Offering a lower-cost CDHP is one way employers “reset” plan value in 2012. Others simply raised the deductible of an existing PPO plan. The average PPO in-network deductible reached $1,427 for an individual in 2012.

“Over the past decade, employers have figured out how to stabilize health benefit cost increases through cost-shifting and other cost management techniques. Now we’re seeing a move toward even greater control through defined contribution strategies,” says Ms. Cunninghis.

An example of a defined contribution strategy is determining in advance what the employer contribution to the cost of coverage will be, and requiring employees to pay anything above that amount. If the employer offers a range of plans, employees can save money by choosing a lower-cost plan. Nearly half of employers – 45% – say they currently use or are considering using a defined contribution strategy.

Pop the champagne corks! Businesses have held the rate of health benefit cost increases to only 4.1%! Though that is still twice the rate of inflation, it’s the smallest increase in 15 years!

How did they achieve this success? By moving employees into lower cost consumer-directed health plans. By increasing deductibles for the plans. By other forms of cost shifting. By lowering actuarial values of plans to 60% – the minimum required by the Affordable Care Act. By adopting defined contribution strategies. By shifting to private insurance exchanges. By herding employees into narrower provider networks.

So have the employers finally learned how to slow the escalation of health care costs? No! They have dumped their costs onto the backs of their employees!

So while they enjoy the bubbly in their executive suites, they have left too many of their employees without even any beer money.

If you didn’t read yesterday’s message that included the work of Thomas Piketty and Emmanuel Saez, you should. You will see that the solution is quite simple. Tax the crap out of the plutocrats and spend the proceeds on a public insurance program for all of us – an Improved Medicare for All. (I would use less inflammatory language except that wealthy employers who have such a low regard for their own employees do not deserve elegant language.)

Please note that this message does not apply to the multitude of small businesses which are struggling to maintain a modicum of success. These businesses are also victims of the burdensome health insurance costs. They too would benefit from an equitable public insurance program, if only they would make an effort to understand what it would mean for them. It’s our job to try to educate them.

The fiscal cliff and single payer (with thanks to Piketty, Saez & Stantcheva)

Posted by on Wednesday, Nov 14, 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.

Transcript of President Obama’s Press Conference

The New York Times, November 14, 2012

Q (Jessica Yellin): Mr. President, on the fiscal cliff — two years ago, sir, you said that you wouldn’t extend the Bush-era tax cuts, but at the end of the day, you did. So respectfully, sir, why should the American people and the Republicans believe that you won’t cave again this time?

PRESIDENT OBAMA: Well, two years ago the economy was in a different situation. We were still very much in the early parts of recovering from the worst economic crisis since the Great Depression…

But what I said at the time is what I meant, which is this was a one-time proposition. And you know, what I have told leaders privately as well as publicly is that we cannot afford to extend the Bush tax cuts for the wealthy. What we can do is make sure that middle-class taxes don’t go up…

And what we can then do is shape a process whereby we look at tax reform, which I’m very eager to do. I think we can simplify our tax system. I think we can make it more efficient. We can eliminate loopholes and deductions that have a distorting effect on our economy.

Q: You’ve said that the wealthiest must pay more. Would closing loopholes instead of raising rates for them satisfy you?

PRESIDENT OBAMA: I think that there are loopholes that can be closed, and we should look at how we can make the process of deductions, the filing process easier, simpler.

But when it comes to the top 2 percent, what I’m not going to do is to extend further a tax cut for folks who don’t need it, which would cost close to a trillion dollars. And it’s very difficult to see how you make up that trillion dollars, if we’re serious about deficit reduction, just by closing loopholes in deductions. You know, the math tends not to work.…


Taxing the 1%: Why the top tax rate could be over 80%

By Thomas Piketty, Emmanuel Saez, Stefanie Stantcheva
Vox, December 8, 2011

Top income tax rates on upper income earners have declined significantly since the 1970s in many OECD countries, again particularly in English-speaking ones. For example, top marginal income tax rates in the United States or the United Kingdom were above 70% in the 1970s before the Reagan and Thatcher revolutions drastically cut them by 40 percentage points within a decade.

At a time when most OECD countries face large deficits and debt burdens, a crucial public policy question is whether governments should tax high earners more. The potential tax revenue at stake is now very large.

There is indeed a strong correlation between the reductions in top tax rates and the increases in top 1% pre-tax income shares from 1975–79 to 2004–08 across 18 OECD countries for which top income share information is available. For example, the United States experienced a 35 percentage point reduction in its top income tax rate and a very large ten percentage point increase in its top 1% pre-tax income share. By contrast, France or Germany saw very little change in their top tax rates and their top 1% income shares during the same period. Hence, the evolution of top tax rates is a good predictor of changes in pre-tax income concentration. There are three scenarios to explain the strong response of top pre-tax incomes to top tax rates. They have very different policy implications and can be tested in the data.

First, higher top tax rates may discourage work effort and business creation among the most talented – the so-called supply-side effect. In this scenario, lower top tax rates would lead to more economic activity by the rich and hence more economic growth. If all the correlation of top income shares and top tax rates were due to such supply-side effects, the revenue-maximising top tax rate would be 57%. This would still imply that the United States still has some leeway to increase taxes on the rich, but that the upper limit has already been reached in many European countries.

Second, higher top tax rates can increase tax avoidance. In that scenario, increasing top rates in a tax system riddled with loopholes and tax avoidance opportunities is not productive either. However, a better policy would be to first close loopholes so as to eliminate most tax avoidance opportunities and only then increase top tax rates. With sufficient political will and international cooperation to enforce taxes, it is possible to eliminate most tax avoidance opportunities, which are well known and documented. With a broad tax base offering no significant avoidance opportunities, only real supply-side responses would limit how high top tax rate can be set before becoming counter-productive.

Third, while standard economic models assume that pay reflects productivity, there are strong reasons to be sceptical, especially at the top of the income distribution where the actual economic contribution of managers working in complex organisations is particularly difficult to measure. In this scenario, top earners might be able to partly set their own pay by bargaining harder or influencing compensation committees. Naturally, the incentives for such ‘rent-seeking’ are much stronger when top tax rates are low. In this scenario, cuts in top tax rates can still increase top income shares, but the increases in top 1% incomes now come at the expense of the remaining 99%. In other words, top rate cuts stimulate rent-seeking at the top but not overall economic growth – the key difference with the first, supply-side, scenario.

To tell these various scenarios apart, we need to analyse to what extent top tax rate cuts lead to higher economic growth. There is no correlation between cuts in top tax rates and average annual real GDP-per-capita growth since the 1970s. For example, countries that made large cuts in top tax rates such as the United Kingdom or the United States have not grown significantly faster than countries that did not, such as Germany or Denmark. Hence, a substantial fraction of the response of pre-tax top incomes to top tax rates may be due to increased rent-seeking at the top rather than increased productive effort.

Naturally, cross-country comparisons are bound to be fragile, and the exact results vary with the specification, years, and countries. But by and large, the bottom line is that rich countries have all grown at roughly the same rate over the past 30 years – in spite of huge variations in tax policies. Using our model and mid-range parameter values where the response of top earners to top tax rate cuts is due in part to increased rent-seeking behaviour and in part to increased productive work, we find that the top tax rate could potentially be set as high as 83% – as opposed to 57% in the pure supply-side model.

In the end, the future of top tax rates depends on the public’s beliefs of whether top pay fairly reflects productivity or whether top pay, rather unfairly, arises from rent-seeking. With higher income concentration, top earners have more economic resources to influence social beliefs (through think tanks and media) and policies (through lobbying), thereby creating some reverse causality between income inequality, perceptions, and policies.

An important result of the election is that now both Republicans and Democrats agree that an increase in tax revenues will be one requirement to avoid plunging off the fiscal cliff (i.e., avoiding the trap that Congress set for itself that would result in spending cuts that neither side wants).

There does remain a sharp divide over what should be the source of those increased revenues.

The Republicans prefer to broaden the tax base primarily by reducing tax expenditures (reducing deductions for home loan interest, charitable contributions, state taxes, etc.), but they are adamantly opposed to any increase in income tax rates. In fact, they want a further reduction in tax rates, obviously creating more deficit that must be made up by further broadening the tax base, even though there really isn’t much leeway, if any.

Democrats have supported allowing the temporary Bush tax cuts to expire for those with over $250,000 in income. They have indicated that they are willing to negotiate, suggesting that they might leave the rates at 35% instead of the reversion to 39.6%, if they could achieve similar results through the broadening of the tax base.

This is why the work of Piketty, Saez and Stantcheva is so important. They show that we should do both. We should broaden the tax base by eliminating tax avoidance opportunities, and we should increase tax rates to a level that will fully fund all important public functions. We could set top tax rates as high as 57% without having any adverse impact on the economy, or we could set rates even higher at 83% if we wanted to compensate for rent-seeking (simply stated, the means by which the wealthy extract large amounts of money from the rest of us without providing any substantial value in return).

Although we could easily eliminate our budget deficits through these two tax policies – eliminating tax avoidance opportunities and increasing tax rates for the highest income bracket – our politicians are also proposing spending reductions. Of particular concern to health reform advocates is that some politicians want to reduce “entitlement” spending for Medicare. It is not just the Republicans since President Obama already had agreed to significant Medicare reductions in his tentative “grand bargain” he made with Speaker Boehner. This attack on Medicare should be opposed vigorously since we need to protect Medicare until we are able to replace it with a better program.

So what does this all have to do with single payer? Quite simply, it provides an answer to those who say that we cannot afford the taxes that would be required to fund equitably a single payer system. Clearly, not only could we collect enough taxes to fund the system without having a negative impact on other sectors of the economy (and health care is one of the most important sectors), but we would also accomplish two other important economic goals: 1) establish a transfer from the wealthy to fund health care for low- and moderate-income individuals and families who can not longer bear their full equally-divided share of our national health expenditures, and 2) finally begin to reverse the unfair and inequitable distribution of excess wealth to the rent-seekers.

Employers expanding use of higher deductibles

Posted by on Tuesday, Nov 13, 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 Prevalence and Cost of Deductibles in Employer Sponsored Insurance:
A View from the 2012 Employer Health Benefit Survey

Kaiser Family Foundation, November 2012

The percent of covered workers enrolled in a plan with a general annual deductible has increased significantly over time.  In 2006, just over half (52%) of covered workers had a deductible for single coverage, compared with almost three-quarters (72%) in 2012.

Overall, the average general annual deductible is $1,097 for covered workers enrolled in a single coverage plan requiring a deductible; an increase of 88% since 2006.

Deductibles are much higher for workers enrolled in HDHP/SO plans (savings options), with 25% of workers enrolled in a plan with a deductible between $1,000 and $1,400, and 25% of workers in a plan with a deductible greater than $2,500.

Although workers at small firms are no more likely to be enrolled in health coverage that includes a deductible, they typically face much higher deductibles than workers at large firms.  The average deductible for covered workers enrolled in single coverage at a small firm is nearly twice as much as the deductible for covered workers at larger firms.

Covered workers enrolled in PPO and POS plans with many higher-wage workers tend to have lower deductibles than their counterparts at firms with fewer higher-wage workers.  Covered workers in HMO, PPO and HDHP/SO plans at firms with some unionized workers have lower general annual deductibles than workers at firms without unions.


In addition to contributing more towards premiums, covered workers are increasingly faced with higher cost sharing.  A larger proportion of workers are required to meet a deductible prior to utilizing services and these deductibles are increasing in size.  It has become commonplace for covered workers to be enrolled in a plan with a deductible of $1,000 or more.  While many working families have sufficient savings and coverage in case of a medical emergency, the growth in workers’ contributions and cost sharing may increasingly become a financial strain on some households.

Ever higher deductibles have now become the standard for employer-sponsored plans. The new state exchange plans to be offered to individuals and small businesses will have to have higher deductibles as well because of their comparatively low actuarial values.

The conclusion in this report states that “the growth in workers’ contributions and cost sharing may increasingly become a financial strain on some households.” This is an overly conservative statement since innumerable studies have shown that high deductibles already do cause both financial hardship and impairment of access to appropriate health care.

A single payer system controls costs without the necessity of imposing financial barriers such as high deductibles. Let’s change to policies that take care of patients first rather than policies that shift costs from employer or government budgets to individual patients, especially since ultimately we’re all funding those budgets anyway, whether as consumers or taxpayers.

Burns and Pauly take a critical look at accountable care organizations

Posted by on Monday, Nov 12, 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.

Accountable Care Organizations May Have Difficulty Avoiding The Failures Of Integrated Delivery Networks Of The 1990s

By Lawton R. Burns and Mark V. Pauly
Health Affairs, November 2012


Accountable care organizations are intended to improve the quality and lower the cost of health care through several mechanisms, such as disease management programs, care coordination, and aligning financial incentives for hospitals and physicians. Providers employed several of these mechanisms in forming the integrated delivery networks of the 1990s. The networks failed, however, because of heavy financial losses stemming from hospitals’ purchase of physician practices and their inability to align incentives, garner capitated contracts, and develop the infrastructure to manage risk. Although the current mechanisms underlying accountable care organizations continue to evolve, whether and how they will have an impact on quality and costs remains open to question. Care coordination and information technology are proving more complicated and expensive to implement than anticipated, providers may lack the ability to implement these mechanisms, and primary care providers are in short supply. As in the 1990s, success depends on targeting specific populations, such as people with multiple chronic conditions who need and may benefit from coordinated care.

Future Directions

What does that imply for the emergence, performance, and success of accountable care organizations? It requires a reconsideration of our earlier conjecture that the organizations will be more likely to improve quality than to lower costs. With intense financial pressure from Medicare generated by lower Medicare payments, the organizations may be forced to limit costs — and, if they cannot do so by ridding their systems of waste, perhaps to do so by achieving fewer quality improvements.

More generally, Medicare may wish to use accountable care organizations to contain costs. In effect, the organizations will be told, “Here is how much money you will get per patient, and you are not allowed to charge any more; do the best you can with that.”

This draconian incentive system will truly constitute a test of how much waste there is in the system.

The Affordable Care Act includes several measures supposedly to control health care spending, but analysis of the health policy literature to date suggests that none of these will have more than a negligible impact. Most hope is held out for accountable care organizations (ACOs), but this report by Burns and Pauly suggests that these new entities include many of the flaws of previous similar efforts, primarily the failed integrated delivery networks of the 1990s.

In reading their full article you will understand better why we cannot expect dramatic results from ACOs and the mechanisms that they would use such as disease management, care coordination, realignment of financial incentives, health information technology, electronic health records, computerized physician order entry, clinical decision support systems, and especially the Medicare shared savings program.

As opposed to well established integrated health systems like Kaiser Permanente, these new systems will be formed from the existing health care community. The authors explain that there is no guidebook to develop and implement a coherent system by combing the existing professionals and institutions. Efforts will require considerable money and time. New personnel such as care coordinators and information technology staff will be required. As they state, “We have seen no model of a ‘flat’ accountable care organization — one requiring no increase in numbers or layers of staffing.” And it will be difficult “to ensure that all changes are internally congruent.”

Although most agree that there is a need for reinforcement of our primary care infrastructure, the authors provide evidence that the demands of care coordination under ACOs will cause a reduction in time spent on direct patient care. One study indicated that care coordination would require an additional 3.2 weeks per year of physician time.

The successful Kaiser and Group Health models took many decades to develop. You cannot suddenly take the existing fragmented delivery system and create competing, truly integrated systems in each community. That is what was wrong with Enthoven’s managed competition model, and that is what is wrong with the incipient accountable care organization model.

The greatest risk of ACOs seems to be that Medicare will use them to help meet the political goal of “reducing entitlement spending,” sacrificing the emphasis on quality because of cost considerations, and applying pressure to ratchet down spending. The latter is particularly a problem because private health systems are not very adept at identifying and ferreting out waste, rather they reduce spending primarily by impairing access. Selectively limiting Medicare spending will further compound access problems by a reduction in the numbers of willing providers, likely diminishing public support of Medicare.

In contrast, a single payer system is designed to reduce the abundance of identifiable waste, especially administrative, while improving both quality and access. It would be fine to continue with a demonstration project studying integration of health care to see if such delivery system reform could improve quality, but we don’t want to allow that to displace the much needed financing and health system reforms of single payer. That’s where we would have the greatest return on quality, access and costs.

“Obamacare will prove to be a gold mine for astute traders and investors”

Posted by on Friday, Nov 9, 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.

NOTE: Do not bother reading this article; simply take only three seconds to skim it. Its essence can be elucidated by reading this one sentence gleaned from the article: “Obamacare will prove to be a gold mine for astute traders and investors on the long side and the short side.”

26 ways to profit from ‘Obamacare’

By Nigam Arora
MarketWatch, November 8, 2012

Obama has been re-elected; “Obamacare” is the law of the land. It doesn’t matter if you agree or disagree with Obamacare, you might as well generate big profits from it.

Obamacare has been profitable for us. We bought Amerigroup Corp. at $22.05, and, as of this writing, the stock is at $91.44 — this is a whopping 315% return.

It wasn’t long ago when we aggressively bought Tenet Healthcare at $20.40. Yesterday THC hit a 52-week high of $27.60.

Here are 26 ways to profit from both the long and the short side.

Hospital stocks

The best way to profit on the long side from Obamacare is to buy hospital stocks as utilization rates will increase and uncollected receivables will go down.

Under Obamacare, the pool of paying patients will increase. It is estimated that currently about 30 million Americans are uninsured. The increase in the number of paying patients will be huge.

By law, hospitals have to serve all patients who show up at their emergency rooms including indigents as well as those with no insurance. Hospitals also have difficulty collecting from low income Americans who may have no insurance or are underinsured. Some hospitals aren’t able to collect as much as 30% of their billings.

The earnings of some hospitals may increase by as much as 25%.

Our favorite stock in this sector is THC. Other hospital stocks on our list buy are Community Health Systems, HCA Holdings, LifePoint Hospitals, and Universal Health Services.

Medicaid HMOs

These HMOs focus on Medicaid and other government programs and will be big beneficiaries of Obamacare.

We own AGP but it is not suitable for those not in the stock. AGP is being bought by WellPoint.

Other names on our buy list are Centene Corp., Molina Healthcare, and WellCare Health Plans.

Medicare Part D

Medicare Part D is a private plan which provides prescription drug coverage for those eligible for Medicare. Government payments received by insurance companies for this program are likely to see reductions.

Humana is our top pick to short sell, but we will wait for this stock to meet all of our six screens before acting.

Branded pharmaceuticals

In the long run, branded pharmaceuticals will be hurt. Obama will be under intense pressure to reduce rising health care costs in Medicaid and Medicare. Branded drugs are a sitting duck simply because Big Pharma sells them for far less abroad than in the United States.

Large-cap pharmaceutical stocks are in favor these days. The market participants perceive them as safe. The reasoning goes that people will always be using drugs irrespective of what happens in Europe, China or to the U.S. economy.

It doesn’t hurt that these stocks also pay high dividends. Buying high dividend stocks is the rage. However Bush tax cuts expire at the end of this year; if there is no compromise in Washington, income-tax rate on dividends will jump and high dividend stocks will give up some of their recent gains.

Secret to making money by short selling is to sell short stocks that are popular and whose fundamentals are likely to deteriorate. We are short Market Vectors Pharmaceutical.

We have recently taken profits on Lilly, but we plan to short it again.

Two other stocks to short on our list are Merck and Pfizer.

Generic pharmaceuticals

In the short run, Obamacare is positive for generic pharmaceutical companies such as Teva, Mylan, and Dr. Reddy’s Labs. In the long run, these companies will suffer as there will be intense pressure on the prices they can charge. There is an opportunity here on the long side in the medium term, but it will become a short opportunity in due course.

Medical devices

Obamacare levies a tax on medical devices. Further pressure on medical device companies such as Medtronic, Stryker, St. Jude Medical, and Zimmer Holdings to reduce prices will increase.

We plan to short sell these companies when they meet our six screens.

Testing laboratories

There will be more medical tests as more patients are insured. In the short run, implementation of Obamacare is positive for testing companies such as Quest Diagnostics and Laboratory Corp. of America.

In the long run, Obamacare is very negative for these companies because they will come under heavy pressure to reduce rates. These are some of the best ways to profit from the short side in the long-term.

Drug distributors

As more pharmaceuticals are used, the ruling is positive for drug distributors such as McKesson, Cardinal Health, and AmerisourceBergen.

Obamacare will prove to be a gold mine for astute traders and investors on the long side and the short side. The key to making money will be the timing of entries and exits using a proven method such as ZYX Change Method. If you cannot short, consider the inverse ETF RXD.…

The SEC will affirm that shareholders of health care firms must always have priority over the patients that should benefit from their products and services. The Affordable Care Act has expanded investor ownership within our health care system. As this article states, “Obamacare will prove to be a gold mine for astute traders and investors.”

Is this what our health care system is all about?

It doesn’t have to be this way.

Dr. Weisbart writes on single payer in the AMA Journal of Ethics

Posted by on Thursday, Nov 8, 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.

A Single-Payer System Would Reduce U.S. Health Care Costs

By Ed Weisbart, MD, CPE
American Medical Association Journal of Ethics, Virtual Mentor, November 2012

Today’s fragmented system is akin to requiring each household in a community to anticipate their needs for the coming year and negotiate their own fees and scope of services with the local police and fire departments. Imagine instead how much of their budgets these life-saving community services would be obliged to devote to marketing to and negotiating with each household and the rampant disparities in service that would result. That is precisely what is happening today in health care, and it is absurdly wasteful. For police and fire departments, we have recognized that it is significantly less wasteful to give all citizens the same “coverage” for set prices and to administer it with regional coordination. Global budgeting is the only sensible strategy for such unpredictable yet universally needed services.


The ACA has begun the process of much needed change. Now we need to go further in reforming health care finance to enable all Americans to achieve their fundamental human right to comprehensive coverage. The rest of the modern world has run the laboratory studies for us; now is the time for us to adopt this well proven solution.

Health care financing is a fundamental ethical issue, thus it is very appropriate that Ed Weisbart’s article on single payer be published in the AMA’s journal of ethics. Hopefully, the brief excerpt above will entice you to click on the link to read the entire article, and then share it with others to spread the word on the imperative of the single payer model – an improved Medicare for everyone.

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