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.
Covering People with Pre-Exisiting Conditions: Report on the Implementation and Operation of the Pre-Existing Condition Insurance Plan Program
February 23, 2012
Before the Affordable Care Act, Americans with pre-existing conditions who did not receive health coverage through their employers had few affordable options to get the care they needed. In most States, insurance companies could refuse to sell them coverage, charge exorbitant premiums, or offer them coverage that excluded benefits for their health conditions.
The law ends discrimination against people with pre-existing conditions.
As a bridge to 2014, when these protections apply to all Americans, the law created a new program designed to help the tens of thousands of Americans who have been locked out of the insurance market due to their health conditions. The Pre-Existing Condition Insurance Plan or PCIP is a temporary high-risk health insurance program that makes health coverage available and more affordable immediately to individuals who are uninsured and have been denied health insurance by insurance companies because of a pre-existing condition. Twenty-seven States are operating their own program, often in coordination with existing State High Risk Pools, and 23 States and the District of Columbia have opted to have a Federally-operated program.
The PCIP program will continue to provide affordable coverage to consumers who are enrolled and will facilitate their transition to Affordable Insurance Exchanges in 2014.
Enrollment as of December 31, 2011: 48,879
Under the Affordable Care Act (ACA), 48,879 previously uninsurable people with serious medical problems are receiving essential health care services under the pre-exisiting condition insurance program. We can’t celebrate this gain because far too many people are still left out. It is a mere glimmer that doesn’t light our path to reform. But temporarily we should accept what limited benefits ACA does provide, instead of trying to repeal it, while we work on a program that actually is going to take care of everyone – an improved Medicare for all.
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.
California health insurers to raise average rates 8% to 14%
By Chad Terhune
Los Angeles Times, February 23, 2012
California’s largest health insurers are raising average rates by about 8% to 14% for hundreds of thousands of consumers with individual coverage, outpacing the costs of overall medical care.
Anthem has proposed raising premiums 9.6% to 13.8% on average, effective May 1 or July 1, for about 700,000 individual policyholders and their family members.
Nonprofit Kaiser Permanente increased premiums 9% on average for nearly 300,000 customers last month.
Blue Shield of California, also a nonprofit, is boosting average rates by 7.9% for 265,000 members and by 8.9% for 56,000 members, both effective March 1.
The cost of goods and services associated with medical care grew just 3.6% over the last 12 months nationally, government figures show. But insurance premiums have kept climbing at a faster pace in California.
Insurers defended their rate hikes, saying they are based on their claims experience with the customers they insure and not just the broader rate of medical inflation. They also say that healthier members dropped out of the individual market as premiums rose and the economy worsened in recent years, leaving behind a group of policyholders who have higher average costs.
Why should individual health insurance premiums continue to increase at a rate much greater than the cost of goods and services associated with medical care?
One of the most important reasons is that health insurance is now so expensive that many individuals who consider themselves to be healthy are choosing to go without coverage. Those who have health care needs make greater efforts to retain their insurance, thereby concentrating high-cost individuals within the insurance risk pools. This is known as adverse selection.
As the insurance premiums continue to increase, a greater number of healthier individuals will find the premium costs to be intolerable and will drop out, driving premiums up even higher – a phenomenon known as the death spiral of insurance premiums.
One purpose of the Affordable Care Act (ACA) was to correct such dysfunctions of the private insurance industry. Can we really expect adverse selection with skyrocketing insurance premiums to go away once the Act is fully implemented?
Keep in mind that in the individual market insurers have been using one of the most effective tools to reduce adverse selection. They have refused to cover individuals with greater health care needs, filling their risk pools with healthier individuals – favorable selection. That is now going away. They are going to be required to insure all applicants. That will surely drive up the premiums for the populations expected to be served by the state insurance exchanges.
Under ACA, it is also predicted that 23 million individuals will remain uninsured. A very large percentage of these individuals, who otherwise likely would have participated in the insurance exchanges, will not because of the unaffordable premiums – unaffordable even with the subsidies. Some will remain uninsured based on affordability exemptions in ACA, but some will simply not comply and be subject to penalties which the government may or may not be able to collect. These will be healthier individuals since those with needs will make greater efforts to obtain coverage. More adverse selection.
So once we’ve established the state insurance exchanges, what can we expect? Very high premiums due to adverse selection. A mediocre benefit package based on state small group plans. Very low actuarial values which shift the costs of health care to the very individuals who have greater needs. In other words, UNAFFORDABLE UNDER-INSURANCE will be the new standard in America.
We’re a better country than that. Let’s fix Medicare and provide it for everyone.
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 Coverage for Low-wage Workers, 1979-2010 and Beyond
By John Schmitt
Center for Economic and Policy Research, February 2012
In 2010, over 38 percent of low-wage workers lacked health insurance from any source, up from 16 percent in 1979.
Coverage problems are particularly severe for Latino workers. Almost 40 percent of all Latino workers (not just low-wage workers) have no health insurance of any form. African American (about 22 percent) and Asian (about 17 percent) workers are also much less likely to have coverage than white workers (about 12 percent).
Affordable Care Act of 2010
For simplicity, if we assume that all adults – workers and non-workers – have the same coverage rate, then under CBO’s projections, workers as a group would have a 5.8 percent non-coverage rate after the ACA. By comparison, in 2010, the actual non-coverage rate for all workers was about 17.7 percent. The CBO gives no guidance about how the coverage improvements for workers would be divided across the wage distribution. If, at the extreme, we assume that all of the uncovered workers are low-wage workers by our definition – that is that all 5.8 percent of workers remaining without coverage are in the bottom quintile – then the non-coverage rate for low-wage workers would be about 29.0 percent. This would be a reduction of one-fourth in the share of low-wage workers without coverage relative to the actual non-coverage rate for low-wage workers in 2010 (38.5 percent). A less extreme assumption about the distribution of non-coverage rates by wage level after the ACA would produce larger gains for low-wage workers. For example, if instead we assume that the top 80 percent of workers have a frictional 3 percent non-coverage rate, then an overall non-coverage rate for workers of 5.8 percent implies a 17.0 percent non-coverage rate for low-wage workers, well short of universal coverage, but a non-coverage rate that is less than half of the current rate.
The ACA will not produce universal coverage for low-wage workers. But, if the ACA is not enacted – due to judicial or legislative action – every indication is that coverage rates will continue their three-decades-long decline.
Conservatives who oppose health care reform often argue that being uninsured is a consequence of the individual’s own personal irresponsibility. Those individuals merely need to shape up and go out and get a job, and then they would have health insurance. The conservatives lose their credibility on this point when the actual data show that 38 percent of low-wage workers, who do go out and get a job, lack health insurance from any source.
Because of such deficiencies in our system reform advocates were able to muster the political support to pass the Affordable Care Act – a half-glass reform. Those who view this as a glass half full celebrate the fact that over half of these uninsured workers will become insured under ACA.
The advocates of reform who view this as a glass half empty bemoan the fact that ACA will still leave about 17 percent of low-wage workers without insurance. The diversionary half full, half empty debate is particularly tragic when you consider that a single payer national health program would have brought us a full glass.
The addendum below is from this same report. It is added because it explains the roots of the decline in coverage rates – an important concept indicating that our battle for health care justice is only a part of the offensive that must take place to expedite social justice throughout the United States.
The decline in coverage rates has its roots in two long-standing economic processes. The first is the rising cost of health care, which has squeezed workers’ wages and made it less economical for firms to offer health insurance, especially to low-wage workers. In the absence of reforms to the existing health-care system, these costs – and implicitly the pressure on workers’ after-health-insurance compensation – are projected to continue rising indefinitely.
The other force behind falling coverage rates, especially for low-wage workers, is the decline over the last three decades in the bargaining power of most workers. Beginning in the late 1970s, a set of structural changes in the economy has significantly reduced the bargaining power of workers, especially those at the middle and the bottom of the wage distribution. These structural changes include: a steep decline in unionization; an erosion in the inflation-adjusted value of the minimum wage; the deregulation of many historically high-wage industries (trucking, airlines, telecommunications, and others); the privatization of many state and local government functions (from school cafeteria workers to public-assistance administrators); the opening up of the U.S. economy to much higher volumes of foreign trade; a sharp rise in the share of immigrant workers, who often lack basic legal rights and operate in an economy that provides few labor protections regardless of citizenship; and a macroeconomic policy environment that has typically maintained the unemployment rate well above levels consistent with full employment. All of these changes have acted to reduce the bargaining power of workers, especially those at the middle and bottom of the wage distribution. As a result, workers as a group have seen their relative (and even absolute) wages fall and the availability and quality of health-insurance and retirement plans decline.
Implementing Health Reform: Essential Health Benefits And Medical Loss Ratios
By Timothy Jost
Health Affairs Blog, February 18, 2012
On December 16, 2011, the Department of Health and Human Services issued a bulletin describing the approach that it intended to take to defining the essential health benefits (EHB) that individual (nongroup) and small group plans must cover under the Affordable Care Act.
The EHB bulletin raised a host of questions as to how this approach would work. On February 17, 2012, HHS issued guidance in the form of an FAQ (frequently asked questions) addressing some of these questions. This post will discuss this FAQ.
The FAQ do go some distance toward clarifying a number of the issues left open by the initial bulletin, in particular how plan flexibility will (and will not) work, that states will not establish a new EHB every year, and that a state’s commercial plan EHB need not apply to Medicaid. The approach selected by HHS will allow states to maintain their coverage mandates (or at least those that apply to the small group market) until 2016, but will preclude the addition of new mandates. It is still hard to imagine how this is all going to work out in practice, however, and more to the point how plan compliance will ever be monitored, given the ability of plans to substitute services within categories. One must wonder whether in the end it might not have been more straightforward simply to come up with a federal menu of services.
CMS – FAQs on essential health benefits:
Being the fine gentleman he is, Professor Jost politely states, “One must wonder whether in the end it might not have been more straightforward simply to come up with a federal menu of services.”
You don’t have to wonder. Not only should we have a national standard calling for comprehensive benefits for everyone, we also should have simplified the financing system to make it more equitable and much more efficient so that health care would be accessible and affordable for everyone.
Administrative Simplification: From compliance to competitive advantage
Administrative Simplification, part of the Patient Protection and Affordable Care Act of 2010 (ACA) signed into law on March 23, 2010, has an overarching goal of streamlining administrative interactions between health plans and providers to improve the patient experience and reduce costs throughout the health care system. Administrative Simplification provisions build on the electronic standards first defined in 1996 with HIPAA 4010 and accelerated in 2009 with passage of HIPAA 5010. While HIPAA addresses the technical structure of transactions, Administrative Simplification addresses how they are used.
• Standardized business and operating rules to eliminate variability in transaction implementation, moving the industry toward commoditization of “back-end” transaction processing
• Standardized benefit coverage information to drive consistency of eligibility content, enabling providers to better understand financial liability
• Provision of patient financial liability at or before the point of care, enabling providers to improve the collections process
• Real-time electronic auto-adjudication and claims status, providing for automated reconciliation
• Automation of health plan utilization management and care management decision processes required to support real-time referrals and pre-authorizations
Key dates and scope:
• Wave 1 (January 1, 2013): Automation of point-of-care eligibility and claims status
• Wave 2 (January 1, 2014): Automation of claims payment remittance advice and electronic funds transfer
• Wave 3 (January 1, 2016): Automation of claims and encounters, enrollment/disenrollment, referral authorization, premium payments, and claim attachments
Deloitte – Administrative Simplification:
CMS – Administrative Simplification Provisions in the Patient Protection and Affordable Care Act of 2010 (ACA) (6 page pdf):
It has long been recognized that profound administrative waste is a unique feature of the U.S. health care system – waste that contributes to our unparalleled, sky-high health care spending. During the reform process, the subject of administrative waste was brought up repeatedly. In response, Congress included in the Affordable Care Act “Sec. 1104 Administrative Simplification.” What is that?
You can read either Sec. 1104 in ACA, or, better, you can read the six page summary by CMS (link above). However, easiest would be to read the excerpts above from the Deloitte report on Administrative Simplification. There is enough there to let you know what it is.
It will not take long for people who understand the administrative advantages of the single payer model to realize that Sec. 1104 has nothing to do with the administrative waste that is a result of our highly fragmented, dysfunctional health care financing infrastructure. Sec. 1104 is primarily revising the information technology systems of the insurers and then requiring the providers to become compliant.
An idea of what Sec. 1104 is really about can be gleaned from Deloitte’s discussion of a revolutionary scenario for administrative simplification:
“This scenario assumes that all stakeholders adopt real-time, end-to-end transaction processing, and that product standardization emerges. Implementation costs would be significant for both health plans and providers. Commercial health plans, in particular, would face a new strategic reality as claims transactions become a commodity, and health plan differentiation shifts to other areas, such as provider network and member experience. Such revolutionary change is possible if existing industry players and/or new entrants look for innovative ways to capitalize on market opportunities to affect health care cost and quality and make meaningful improvements to our health care system.”
Do not be misled when ACA supporters talk about “administrative simplification.” That’s their code language for “commoditization” and “innovative ways to capitalize on market opportunities.”
“Administrative simplification” is another term that they have stolen from the single payer community, and then bastardized it. Don’t let them get away with it. That’s our policy science.
Medicare And Commercial Health Insurance: The Fundamental Difference
By Diane Archer and Theodore Marmor
Health Affairs Blog, February 15, 2012
As the debate over Medicare continues in connection to America’s fiscal problems, it is critical to understand how Medicare differs from commercial health insurance for working people. There is a fundamental difference between these two types of health insurance plans, one social and one commercial.
The basic difference between Medicare and commercial insurance is that Medicare is designed to absorb risk, serving individuals who have or may have costly and complex medical needs as well as the relatively healthy, whereas commercial insurance is required to protect its business interests by avoiding those most likely to use medical care.
But nothing can change the underlying reality that programs like Medicare are designed to absorb and broadly distribute risk, protecting everyone, while commercial insurers are designed to select and protect individuals with the fewest needs.
The belief that competition among private health insurance firms can produce cost savings or higher quality care represents the victory of illusion over evidence. We need to let the existing Medicare system do what it already does effectively: insulate Americans from risk, rather than shift risk to the most vulnerable citizens.
The fundamental difference between Medicare and commercial health insurance is very basic and easy to understand. Medicare is “designed to absorb and broadly distribute risk, protecting everyone, while commercial insurers are designed to select and protect individuals with the fewest needs.”
The explanation of this difference in this Health Affairs Blog entry by Diane Archer and Theodore Marmor should make us question once again why Congress and President Obama chose commercial insurers as the foundation for the Affordable Care Act when what we clearly needed was a universal public program based on improved version of Medicare.
You should read their fairly brief blog entry and then read the replies posted first by Vince Kuraitis and then by Don McCanne. They exemplify the differences between the commercial approach to insurance and the social function of Medicare.
It’s really an easy concept to grasp:
Commercial – “Of or relating to commerce, having profit as a chief aim”
Social – “Of, relating to, or occupied with matters affecting human welfare”
Addendum: Since the reply submitted by Don McCanne has not yet been posted on the blog website, both the Kuraitis reply and McCanne reply are reproduced here.
Vince Kuraitis says:
You (Archer and Marmor) make a sweeping statement: No matter what regulations are instituted in an attempt to guarantee their good behavior, commercial insurers will still have an incentive to avoid risk, and they will do so insofar as it is possible.
An equally sweeping rebuttal: this problem is entirely fixable by risk adjusting — paying higher premiums for members that are less healthy. Medicare has already started doing this with Medicare Advantage plans.
Of course, the devil is in the details…and in a debate we’d probably come out in the middle somewhere. Risk adjustment is easier to conceptualize than to do accurately.
…but I think your broad, blunt assertion needs to be challenged.
Don McCanne says:
Vince Kuraitis writes that the authors’ statement on incentives for commercial insurers needs to be challenged. It is Mr. Kuraitis’ challenge that needs to be challenged since the authors’ statement is quite correct.
Commercial insurers do have incentives to avoid risk, and, if subjected to risk adjustment, they have incentives to game the system. This is not suggesting illegal activity. It merely represents “appropriate” commercial activity – activities that are rewarded on Wall Street.
Risk adjustment already takes place in the Medicare Advantage program. An NBER study (Working Paper No. 16977, April 2011) revealed that the Medicare Advantage plans were able to further increase their own advantage and transfer more resources from the relatively sick in the traditional program to the relatively healthy within their plans.
Quoting from the NBER report, “With social insurance programs, however, imperfect pricing can induce private firms to cream-skim, exacerbating the utility consequences of the underlying inequality the program was initially intended to mitigate. At least in the case of Medicare, we find little evidence that risk adjustment has solved this problem.”
And from the NBER Digest, “Thus the authors conclude that the Medicare Advantage program both increased total Medicare spending and transferred Medicare resources from the relatively sick to the relatively healthy, and that risk-adjustment was not able to address either of these problems.”
Archer and Marmor are precisely correct: “No matter what regulations are instituted in an attempt to guarantee their good behavior, commercial insurers will still have an incentive to avoid risk, and they will do so insofar as it is possible.” That is the nature of the commercial approach to insurance, which is in sharp contrast to the social function of the traditional Medicare program.
Health Status and Hospital Prices Key to Regional Variation in Private Spending
Research Brief by Chapin White
National Institute for Health Care Reform, February 15, 2012
Differences in health status explain much of the regional variation in spending for privately insured people, but differences in provider prices — especially for hospital care — also play a key role, according to a new study by the Center for Studying Health System Change (HSC) for the nonpartisan, nonprofit National Institute for Health Care Reform (NIHCR).
Based on claims data for 218,000 active and retired nonelderly unionized autoworkers and their dependents, the study found that health spending per enrollee in 2009 varied widely across 19 communities with large concentrations of autoworkers, from a low of $4,500 in Buffalo, N.Y., to a high of $9,000 in Lake County, Ill. The autoworkers’ health benefits are essentially uniform nationally, so spending differences do not reflect benefit differences.
Differences in service quantities accounted for two-thirds of the overall spending variation, while differences in prices accounted for one-third, according to the study.
On the quantity side, differences in health status and other demographic factors explained most, but not all, of the variation in quantity. About 18 percent of the total variation in spending was a result of unexplained differences in service quantities. On the price side, the cost of doing business explained very little of the price differences, with almost all of the differences in prices unexplained, the study found.
From the Research Brief:
Sources of health care spending variation across autoworker communities, 2009
Differences in spending due to quantities
37% – Differences in health status
10% – Differences in age and sex
18% – Differences in quantities (excess)
Differences in spending due to prices
2% – Differences in providers’ cost of doing business
33% – Differences in prices (excess)
Comparing Private Prices to Medicare
Physician office visits. The prices paid by the autoworker plan for physician office visits, on average, are only 3 percent higher than what Medicare would have paid for the same services.
Hospital inpatient care. The prices for inpatient hospital care paid by the autoworker plan are, on average, 55 percent higher than what Medicare would pay, and the price gap varies widely across communities.
Hospital emergency department care. The prices paid by the autoworker plan for hospital emergency department care are, on average, more than double the Medicare price, and the price gap varies even more widely across communities than for inpatient care.
Policy wonks likely will download this Research Brief since it will prove to be a landmark study explaining the wide variation in spending amongst privately insured patients – very useful information when designing policies to improve our health care financing.
We already have several landmark studies demonstrating the wide variations in quantity of services and in pricing of those services – both factors in determining the variations in health care spending.
What has not been so clear is whether the quantities vary based on the health status of the patients or based simply on variations in intensity amongst populations of comparable health (i.e., providing excess services to drive up revenues, though deficient services when system capacity is inadequate is an important but separate concern).
What also has not been so clear is whether price differences are primarily due to differences in costs of health system resources, or simply due to charging higher prices where private insurer market control is weaker.
This study provides very convincing data to explain the differences. Look at the percentage differences listed above.
Health status (37%) and age and sex (10%) explain almost half (47%) of the differences in spending. These are entirely appropriate differences and do not require policy intervention. The 18% that is not otherwise explained may well be excess quantity of services that perhaps could be moderated by judicious application of health policy.
But let’s not kid ourselves. Those who suggest that, based on the Dartmouth studies, close to 100% of the difference in quantity of services is excessive tend to support policies that would come as close as possible to eliminating the differences. Since this study shows that the excess quantity is only about 18% of the difference in spending (only slightly over one-fourth of the increased quantity in higher spending areas), it would be very difficult to design policies that would tease out this modest amount while leaving in place the other services that are clearly beneficial. That doesn’t mean that efforts shouldn’t be made to do so, but it does mean that great care must be taken to be certain that people still receive the services that they should have – a much more important priority than budget trimming.
Excessive prices (33%) appear to account for most of the differences in prices for services since differences in the providers’ costs of doing business account for a mere 2% of spending differences. Most of this excess pricing is found in hospitals and in their emergency departments. This finding screams out for a better method of controlling prices. All other wealthier nations use some form of government pricing to eliminate these excesses. We should too.
Uwe Reinhardt has provided convincing evidence that an all-payer system, such as the hospital price-setting system in Maryland, would capture much of this excess in pricing. That is true, though it would be more difficult for an all-payer system to address the problem of excess quantity.
Our objection to all-payer systems is that they address only this one issue and leave out the many other advantages of a single payer national health program. When we have a solution that would fix so many problems at once let’s go with that.
Vt. would allow ‘bronze plan’ to encourage health
February 6, 2012
Vermont Gov. Peter Shumlin and legislative leaders said Monday they wanted to make it possible for more of the state’s small businesses to offer lower premium health insurance plans sometimes known as “bronze plans” until the state can implement its single payer health care system.
Speaking Monday in Montpelier, Shumlin and leaders from the House and Senate, all Democrats, said they would also allow businesses with more than 50 employees to remain outside the federally-mandated health care exchange until 2016.
“This was a hard decision, a very hard decision because there are people who will not have the opportunity to get into that market and they’ll have to wait two years and their employees will have to wait two years as well,” (House Speaker Shap Smith) said.
Vermont is providing us with very important lessons on just how difficult it is to set up a single payer program on a state level. The legislation that passed – hailed as the first single payer system in the United States – is primarily an enactment of a state health insurance exchange as called for in the Affordable Care Act, along with future proposals that are not much more than a wish list at this point.
When they enacted the insurance exchange, they deliberately eliminated the bronze plan since it has an actuarial value of only 60 percent, which would leave 40 percent of covered health care costs to be paid by the patient out-of-pocket, minus income-related subsidies which are inadequate to prevent financial hardship for many of those with health care needs. They wanted better coverage than that.
The problem they faced was that the premiums for the silver and gold plans (70 and 80 percent actuarial values) would be too expensive for many individuals and small businesses in Vermont, thus the trade off of lower premiums for spartan plans.
What doesn’t appear in this article is that these high-deductible bronze plans are very profitable for insurers, and they certainly would want to maintain and grow this sector of their market. It is likely that the insurers’ message to the governor and the legislature was that they couldn’t provide silver and gold plans at the level of premium that many businesses could afford, and the insurers likely didn’t need to resort to threats of withdrawing from markets. (BlueCross BlueShield of Vermont is the dominant insurer and can write its own ticket, and, though a nonprofit, it still depends on profits.)
The governor and the legislature are to be commended for doing their very best to try to bring a single payer system to Vermont, though they are finding many of the barriers to be insurmountable. While they are patching together what they can, they should join our growing movement demanding that Congress enact a national single payer program. That would solve the health care financing problems for all states.
Hospitals Flout Charity Aid Law
By Nina Bernstein
The New York Times, February 12, 2012
New York’s charity care system, partly financed by an 8.95 percent surcharge on hospital bills, is one of the most complicated in the nation, but many states have wrestled with aggressive debt collection by hospitals in recent years. Like New York, several passed laws curbing hospitals’ pursuit of unpaid bills, including Illinois, California and Minnesota.
But a new study of New York hospitals’ practices and state records finds that most medical centers are violating the rules without consequences, even as the state government ignores glaring problems in the hospitals’ own reports.
Hospitals are not legally barred from seeking judgments or liens, but must first offer an aid application, help the patient complete it, and wait while it is pending. Instead, many hospitals turn to collection agencies, and sue when that fails. The unpaid bills — typically reflecting much higher rates than what insurers pay — are then treated as the equivalent of charity care.
Change is now urgent, health care experts agree, because the state pool stands to lose hundreds of millions of federal dollars in 2014, when provisions of the health care overhaul will no longer treat so-called bad debt, based on uncollected bills, as if it were charity care.
How much charity care should hospitals be expected to provide? Contrary to the prevailing view, the answer should be, “None.” Let me explain.
With our fragmented, dysfunctional system of financing health care it is inevitable that some individuals will receive essential health care services in hospitals, often on an urgent or emergency basis, even though they lack both the funds and insurance coverage to pay for those services. Charity always has been expected of hospitals, so much so that some even have included “Charity” in their names.
The issue became more acute with a differentiation between nonprofit and for-profit hospitals. Nonprofit hospitals were relieved of tax obligations on retained revenues exceeding their costs in exchange for fulfilling their obligation to provide charity care. These retained excesses could then be used for capital improvements, or for charity care.
For-profit hospitals, as entrepreneurial entities, are taxed on these retained revenues as profits. As such, they usually are not expected to provide free care as part of their mission to profitably serve the health care needs of the community.
Members of Congress have expressed concerns over the fact that many nonprofit hospitals seem to be shirking their responsibilities to provide charitable services. They have been acting more like the for-profit hospitals in that much of their uncompensated care is not for prearranged charitable services but rather represents charges that patients were unable to pay. They then write this off as their charitable obligation, but usually only after vigorous attempts to collect the bills – efforts which often leave those patients in financial ruin forever.
It seems ironic that members of Congress pursue an investigation of the charity practices of nonprofit hospitals while paying their respects to market principles by exempting the for-profit hospitals from such an investigation, though it is understandable when you realize that Congress allows tax policy to trump health policy.
The fundamental flaw in all of this is our dysfunctional health care financing system. Everyone should have comprehensive health care coverage that pays all appropriate costs. There should never be a situation in which a person would require charity care. This is a fundamental principle common to most other wealthier nations in that their systems are designed to see that everyone receives appropriate care without the necessity of negotiating financial barriers. Services outside of the system, such as vanity cosmetic surgery, would be available based on the ability to pay, but would never require a need for charity.
Once again, it’s clear that we need to move forward with enacting an efficient, comprehensive, equitable single payer national health program. Why do we keep putting it off when the need is so clear?
Consumers Hit By Higher Out-of-Network Medical Costs
By Julie Appleby
Kaiser Health News, February 8, 2012
Consumers have long complained about the cost of going outside their health plan’s network, but …
Now, instead of paying a percentage of the “usual and customary” charges from physicians and other providers, insurers are basing reimbursements on a percentage of what Medicare pays, which can be much less. “Every carrier is moving to this,” says Ken Sperling, global health care practice leader at the benefit consulting firm Aon Hewitt.
Many employers welcome the change as a way to slow rising premium increases, but some “employees are going to get stuck shouldering a significant portion of the bill because they don’t understand how it’s done,” Sperling says.
Consumers are responsible for the difference between what the out-of-network doctor charges and what their insurer pays. But few understand the basis on which plans reimburse, let alone the widely varying prices doctors and hospitals charge. As a result, they may be blindsided by big bills, says Lynn Quincy, senior health policy analyst at Consumers Union.
Insurer networks are designed to slow rising health care costs, in part by getting doctors and hospitals who join to agree to negotiated rates, which are generally lower than their usual fees.
Because out-of-network hospitals and doctors are not held to negotiated rates, they can set their own fees and “balance bill” patients for the portion insurers don’t cover.
“One of the most expensive decisions that a customer could make is going out of network,” says Alan Muney, chief medical officer at Cigna.
Medicare strictly limits how much patients can be balance billed by doctors who don’t participate in the program.
Benefit consultants, insurers, patient advocates and actuaries say the shift to Medicare rates began after a national database tracking usual and customary charges — run by UnitedHealthcare subsidiary Ingenix — was shuttered in 2009 following an investigation by the New York Attorney General, who questioned whether the data were skewed in favor of insurers.
While the closure was touted as a consumer win, “unfortunately, it’s worse now,” says Jennifer Jaff, executive director of Advocacy for Patients with Chronic Illness, a Connecticut-based group that helps file insurance appeals for consumers. “Once New York said you can’t use those (Ingenix figures) anymore, the insurers looked at it as an opportunity to pay even less.”
The most effective cost containment tool introduced during the managed care revolution was the ability of insurers to contract for set rates with networks of health care providers, eliminating arbitrarily high rates by those providers, rates that seemed to have no end in sight. Although health plan purchasers benefited by the slowing of the rate of premium increases, the trade-off was that care obtained outside of the networks either required larger out-of-pocket costs, or was not covered at all.
A universal single payer system would apply rate controls to all health care no matter where is was obtained. The obvious advantage would be that patients would then have their choice of any and all health care providers. With the current provider networks established by the private insurers, care outside of the networks may not be available because of prohibitive out-of-pocket costs.
Networks may not include centers of excellence, specialists with greater expertise of complex problems, an adequate network of primary care physicians, care that is provided by non-network physicians called in during a hospitalization, or care that is accessible within reasonable geographic boundaries. There are many reasons, not always under the control of the patient, as to why care is obtained out of the network.
Although the insurer may not provide any coverage for out-of-network care, it is more common to provide coverage that will cost the insurer no more or even less that would be paid to in-network providers. The patient could bear the brunt of the costs when the amount of the allowed charges not covered is higher, but the greater risk is that the patient is responsible for the full amount of charges over the allowed amount since the providers’ charges are not bound by a network contract.
Those supporting the private insurance industry tout the application of insurer innovations as being one of the great advantages of market solutions. But these are not social institutions that serve the public good. These are private businesses that serve their own interests. The innovations are designed to leverage markets in their favor.
This latest innovation is particularly repulsive because it is a new deception that was designed to replace the fraudulent rate-setting perpetrated by Ingenix, a UnitedHealthcare subsidiary. Ingenix and the insurers using them were caught cheating patients by manipulating downward the usual fees charged by out-of-network providers so that they would pay less out-of-network, while the patients had to take up the slack. The insurance industry paid hundreds of millions of dollars in legal settlements and shut down the Ingenix program.
Not to be outdone, without fanfare, they replaced the phony usual fee determination for out-of-network care with an allowable fee based on a percentage of Medicare fees. In most cases, this shifts even more of the costs away from the insurers and onto the patients receiving care. So these Ingenix-driven scam artists have shifted to a worse-than-Ingenix system of manipulating prices, but one that will pass legal muster since it’s in the fine print of the insurance contract (as an example, on page 108 of the 126 page booklet of the Oxford/UnitedHealthcare plan mentioned in the article).
Another newer innovation that compounds the injustice of this scheme is that insurers are increasing the number of limited network plans – smaller networks which increase the probability that patients will be stuck with the much higher costs of out-of-network providers.
Also compounding this problem is that the high-deductible plans that flooded the individual market are now being adopted wholesale by employers. Insurers benefit because they can keep their premiums more competitive, even if still outrageous. Employers have complicity with these strategies because they want the lower premiums made possible by protecting the insurers from the costs that are shifted to the patients.
Under the Affordable Care Act, we’ll continue to see more of these abuses. Employers will continue to shift more payment responsibilities to their employees. Insurers will continue to innovate to bring them the highest return possible using this sick financing system. And the patients will be exposed to ever greater financial hardship.
Most employers would prefer not to introduce these innovations that stiff their employees, but the very high cost of private plans almost force them to do so. We should relieve employers of the obligation to sponsor their employees’ health plans. Above all, we need to eliminate the industry that uses health care payment innovations to enrich themselves at a great cost to patients.
For those who have not yet watched Lawrence O’Donnell’s video on employer-sponsored plans and single payer, do it now, and then share it with others:
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