The moral hazard of Medigap plans

Posted by on Monday, Jul 18, 2011

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

FAQ: Seniors May See Changes in Medigap Policies

By Julie Appleby
Kaiser Health News, July 15, 2011

What is Medigap and why do people buy it?

Unlike most job-based health insurance, traditional Medicare does not include “catastrophic” coverage, an annual maximum upper limit on the amount beneficiaries could pay. So enrollees can be liable for thousands of dollars each year, including: $1,132 per-episode deductible for hospital admissions; hundreds of dollars in daily charges for hospital stays of longer than 60 days; a $162-a-year deductible for doctor care, plus 20 percent of charges for office visits or equipment like wheelchairs.

Ten standardized types of supplemental plans offered by private insurers – including AARP’s UnitedHealthcare policies  – cover all or most of such deductibles and copayments.  Some employers also pay all or part of such costs for their retirees.

What changes are under consideration?

It is not clear exactly what’s on the table in the negotiations between congressional leaders and the White House.  But the charts  released show that one such proposal under consideration would bar insurers from offering supplemental policies unless the policies came with an annual deductible. People who didn’t want a deductible could pay $530 a year in additional premium to ensure that they won’t be hit with costs before their coverage kicks in.

What about people who don’t have a Medigap plan?

Only about 10 percent of seniors don’t have some sort of supplemental coverage. Some people have military/VA benefits, others are in Medicaid, and some have coverage through Medicare Advantage plans, which are insurance policies offered by private insurers as an alternative to traditional Medicare.

Would changing supplemental coverage save money?

Some economists and policy experts say that supplemental coverage insulates beneficiaries from medical costs, driving up demand for unnecessary care. A study done for MedPAC in 2009 found that beneficiaries with supplemental insurance used more care and cost the program more money. The increased spending wasn’t for emergency hospitalizations, but for other services such as elective hospital admissions, preventive care, doctor office visits and some types of tests.

What else do people say about the idea?

Advocacy groups like the Medicare Rights Center oppose restricting Medigap plans, saying it would simply shift more costs from the government to elderly and low-income people who can least afford it. “Some in government feel people in Medicare don’t have enough ‘skin in the game,’” says Ilene Stein, federal policy director for the center. In fact, she says, people on Medicare already pay 15 percent of their incomes for health care, well above the level paid by non-Medicare households. While the proposals would cap maximum annual spending per enrollee to $5,500 or $7,500, “that’s a lot of money for someone making $22,000,” the median household income for those on Medicare, she says.


Exploring the Effects of Secondary Coverage on Medicare Spending for the Elderly

Study by Direct Research, LLC
For the Medicare Payment Advisory Commission (MedPAC)
June 2009

Our results show that secondary insurance has a substantial impact on Medicare spending, consistent with the prior literature in this area. After removing beneficiaries with any VA use and adjusting for differences in health status, income, education, and demographics, individuals with Medigap coverage had Medicare costs 33 percent higher than those with no secondary insurance. Other private secondary insurance was associated with smaller increases in spending. There was no statistically significant difference in Part A spending, but a large and statistically significant increase in Part B spending.

Out-of-pocket payment reduced spending largely by suppressing elective care (broadly defined) as opposed to emergency care. In particular:

* Emergency care (ambulance use, emergency room visits, emergency and urgent hospitalizations) appeared unaffected by the presence of secondary insurance.

* Elective admissions, preventive care, minor procedures and endoscopies were strongly affected by secondary insurance coverage, with substantially higher use among those with private secondary insurance.

It is not possible to use observational (non-experimental) data to prove beyond a doubt that a causal relationship exists between secondary insurance and spending. For several reasons, however, this analysis strongly suggests secondary insurance (reduced out-of-pocket costs) genuinely causes higher spending, and is not merely associated with secondary insurance due to some other factors affecting both insurance demand and health care use. The following factors suggest that this is a causal relationship. First, beneficiaries themselves report that out-of-pocket costs are a significant reason for delaying care. Nearly 20 percent of beneficiaries without secondary insurance reporting delaying care due to concerns over cost, versus 5 percent of beneficiaries with private secondary insurance. Thus, survey data provide direct evidence that out-of-pocket cost is a mechanism by which secondary insurance increases demand for care.

Second, there was a clear dose-response relationship between depth of insurance coverage and increased spending. Those with first-dollar or nearly first-dollar coverage had much higher spending than others, regardless of secondary insurance status.

Third, only the depth of coverage mattered, not the type of secondary insurance. When a flag for (nearly) first-dollar coverage was included in the regression, the individual types of secondary insurance were no longer statistically significant determinants of spending. Low out-of-pocket cost was a sufficient explanation for all of the observed increase in demand, regardless of the source of the secondary insurance.

This finding of a universal effect of first-dollar coverage regardless of insurance type weakens any alternative explanation based on the specifics of insurance ownership (described below). Ultimately, it did not matter whether beneficiaries chose to purchase coverage or not, or earned coverage as a retirement benefit or not. The only factor that mattered was whether or not their Part B care was free or nearly free. There are two generic counter-arguments that can be used to explain the results of a regression analysis as something other than a causal relationship. The first is omitted variables bias. This is the possibility that some unobserved factors are strongly correlated with insurance and are strong determinants of spending. This could be some unobserved difference in health status, or merely a systematic difference in beneficiaries taste for or preference for health care use. If such factors exist, then the apparent relationship between insurance and spending shown by the regression is merely proxying for these unobserved factors. The second counter-argument is self-selection, for the types of insurance that are individually purchased. If beneficiaries bought secondary coverage in anticipation of having higher spending, then the causality runs from spending causing insurance coverage, and not the other way around.

Unobserved health status differences cannot plausibly explain these results. Any hypothesized health status differences would have to be highly selective and secretive. They would only affect the need for Part B services but not Part A, only require elective care but not emergency care, and would only affect those who have near-first-dollar coverage and not others. Such factors would also have to be undetectable both by physicians (reporting diagnoses used in risk adjustment) and by beneficiaries (in their own self-reported health and functional status). to be strongly correlated with ownership of secondary insurance. That combination is implausible enough that we can reasonably dismiss it from consideration.

Unobserved differences in taste and preference for health care are impossible to rule out as an alternative explanation of the results. It is possible that, on average, beneficiaries who ended up with nearly-complete secondary coverage, regardless of the source of that coverage, had developed a taste for higher levels of health care use prior to becoming eligible for Medicare. Whereas beneficiaries with the same class of coverage, but paying at least 5 percent of costs, did not. We could think of no obvious mechanism that would generate such a strong correlation across all types of secondary coverage. But tastes and preferences are idiosyncratic and unobservable, so there is no obvious data-driven way either to rule that out or to test it as an alternative.

Self-selection as an alternative hypothesis could only apply to individual purchase insurance, not to employer-sponsored coverage. If self-selection is offered as an alternative explanation, it has to be paired with some alternative explanation of higher costs for those with employer-sponsored coverage. Moreover, any self-selection of insurance based on observable factors – observed health status, income, education, or demographics – should largely be accounted for by the regression analysis. For example, any connection between good health and unwillingness to purchase secondary insurance should be captured by the presence of health status measures in the regression analysis.

Finally, we appeal to Occam’s Razor (a principle that generally recommends selecting the competing hypothesis that makes the fewest new assumptions, when the hypotheses are equal in other respects) to argue that the lack of copayment causes the higher spending by those with secondary insurance. On the one hand, one simple explanation – those who receive nearly free care use much more of it – provides a simple, universal explanation for the higher spending by beneficiaries with all types of private secondary insurance. On the other hand, alternative explanations are a hodgepodge of factors that only apply to some types of insurance (self-selection) and unobservable taste and preference factors that (through some unexplained mechanism) apply only to a subset of persons with secondary insurance (those with near-first-dollar coverage). Clearly, lack of copayment is the simpler explanation of what we have observed.

In summary, the evidence is reasonably clear that secondary insurance raises Medicare costs. After eliminating persons with VA use and adjusting for covariates (health, income, education, demographics), beneficiaries with secondary insurance use much more health care than those who have no secondary insurance. The effect is due solely to those with near-first-dollar coverage (defined here as paying less than 5 percent of Part B costs). Beneficiaries without such coverage, by contrast, appear no different from those with no secondary insurance. The differential impact by service type – more on Part B than Part A, more on elective care than emergency care – also suggests that the out-of-pocket cost causes the lower use of care. When asked, beneficiaries themselves say exactly that – those without secondary insurance are far more likely to report having delayed care due to cost. Taken together, this provides a coherent picture that out-of-pocket costs matter significantly to Medicare beneficiaries, and that eliminating those costs raises health care spending.

This analysis does not address whether the increased spending is desirable or undesirable, or whether reduced spending leads to poorer outcomes. That question — whether the value of additional care exceeds its cost – cannot be answered from the analysis of spending data alone, if it can be answered at all. Instead, this analysis merely shows that beneficiaries in fee-for-service Medicare will tend to use much more health care when each additional service is free (to them) than they would if they had to pay a significant portion of the cost of each additional service.

Although this excerpt from the 44 page MedPAC report on secondary insurance for Medicare beneficiaries (Medigap, etc.) is more than most people want to read, it really is important because this report is being used to try to expand policies that would reduce the moral hazard of insurance. The theory is that people use too much health care if it is “for free” (no deductibles, copayments, or coinsurance), and that they would access only the care that they really needed if they had to pay for at least a portion of it. Is this theory valid?

Although many proposals to reduce the government component of Medicare spending would do so by transferring government costs to the beneficiaries, this proposal to require cost sharing in Medigap plans is quite different. Since Medigap plans are privately funded, the reduction in premiums due to increases in cost sharing would accrue to the beneficiaries and not to the government. The reduction in government spending occurs only indirectly by not having to pay the government’s share of that care which was not received because of the patients’ own concerns about out-of-pocket costs.

The authors of the MedPAC report do confirm that individuals without supplementary coverage (without Medigap) use less care and therefore cost less. Policymakers using this report seem to be extrapolating the conclusion that eliminating cost sharing creates an increased demand for care that patients can do without, even though the authors clearly state that “this analysis does not address whether the increased spending is desirable or undesirable.” Nevertheless, the authors do seem to demonstrate some bias as they dismiss alternative explanations.

A few observations are warranted:

* Above all, the greater amount of care obtained by those with first dollar coverage cannot be dismissed as being excessive or wasteful. Although predominantly elective, these included preventive services and services that may reduce symptoms and improve quality of life. Preventive services were used only half as often by those with no supplemental coverage compared to those with additional coverage. A health care system should provide affordable access to more than just emergency services.

* Only about 10 percent of Medicare beneficiaries have no supplemental coverage, and it was this group that used fewer services. The authors seem to dismiss the facts that these individuals may not be culturally attuned to freely using the health care system, and many would self-select to not purchase additional coverage. They may decide that premiums for the plans are not worth the cost, or they may simply not like doctors and want to avoid all of the health care that they can.

* The fact that those receiving supplemental plans from their employers used less care than those purchasing their own Medigap plans suggests that the former group was diluted with individuals who would not have purchased plans had their employers not provided them. Again, this suggests that individuals averse to health care and not wanting to pay for it should not be used as the standard for the proper level of care.

* An observation buried in this report is that mortality was higher in those who had no supplemental coverage. Although the authors were not able to explain precisely why, they did state, “In summary, the importance of this finding comes down to a judgment. On the one hand, the finding of excess mortality is based on a single year’s experience, and is inconsistent with the other measures of population health status. On the other hand, it is not explained by demographic or other factors, and it is not obviously an artifact of the methodology used. Finally, excess mortality would be a reasonable outcome from deficiencies of care, for example, from the lack of preventive care for this population.”

* Whether or not increased utilization by those with supplemental coverage provided a medical benefit, the plans clearly provided financial security for users of health care. How could anyone consider that to not be of benefit?

* This report remains silent on the issue of the profound administrative waste in providing plans that supplement the traditional Medicare program. The savings achieved by rolling the benefits of the supplemental plans into Medicare would likely offset much of the cost of services declined because of perceptions of affordability. Of course, once we fix Medicare, we should provide it to everyone.

Blaming our high health care costs on the moral hazard of having free access to health care at the time of need has got to end. Several nations that spend half of what we do nevertheless provide comprehensive health care services with free access. The real moral hazard is not that people might use more health care that they don’t have to pay for at the time of services, the moral hazard we should be concerned about is that people might not get the care that they should have because of financial barriers to that care.

That turns the moral hazard argument upside down, but that’s where it belongs.

For more on cracks in the foundation of moral hazard, citing the work of John Nyman:

Making Medicare beneficiaries pay more

Posted by on Friday, Jul 15, 2011

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

Once politically taboo, proposals to shift more Medicare costs to elderly are gaining traction

By Noam N. Levey
Los Angeles Times, July 15, 2011

The heated debate over the federal deficit has pumped new life into controversial proposals for requiring Americans on Medicare to pay more for their healthcare, raising the possibility that seniors’ medical bills could jump hundreds, or even thousands of dollars.

“Over the long haul, beneficiaries will have to pay more and taxpayers will have to pay more,” warned Henry Aaron, a longtime healthcare expert at the Brookings Institution. “It’s just too darn expensive.”

That could mean higher co-pays, higher deductibles or higher premiums for many seniors.

Though the elderly are much better off financially than they were when Medicare was enacted, half of seniors subsist on incomes below $22,000 a year.

“What many people may not realize is that the Medicare benefit package is not actually very generous,” said Jonathan Oberlander, a University of North Carolina health policy professor who has written extensively about the program’s history.

On top of standard premiums of more than $141 a month, enrollees must pay a $1,132 deductible for every hospital stay, and hundreds of dollars a day more for long hospital stays.

Medicare beneficiaries are also responsible for 20% of the bills for medical equipment such as wheelchairs and non-hospital procedures, such as kidney dialysis, physical therapy or outpatient surgery.

Medicare also doesn’t cover long-term care in nursing homes. And unlike many private health plans, Medicare doesn’t offer catastrophic protection by capping how much beneficiaries have to pay out of pocket every year.

That can mean substantial healthcare tabs for some seniors.

Medicare households on average spent $4,620 on healthcare in 2009, more than twice what non-Medicare households spent, according to the nonprofit Kaiser Family Foundation.

“We will do better if people are more involved in making healthcare choices,” said Gail Wilensky, a health economist who oversaw the Medicare program under President George H.W. Bush. “There are few people who are more price sensitive than seniors.”

How much more seniors can afford to pay continues to stoke intense debate, however, especially as Medicare beneficiaries are already projected to spend as much as quarter of their income on healthcare in 2020, up from around a sixth now.

“Some have the impression that seniors are quite wealthy and could afford more premiums,” said Tricia Neuman, director of the Medicare Policy Project at the Kaiser Family Foundation. “The numbers tell a different story.”

A recent Kaiser analysis showed that half of all Medicare beneficiaries have less than $33,100 in retirements account and other savings.

Neuman and others also warn that increasing co-pays and deductibles may discourage seniors from seeking medical care they need.

Brown University researchers, for example, found that seniors went to the doctor less frequently after their Medicare managed care plans raised co-pays for outpatient visits. At the same time, they ended up spending more time in the hospital.

Because hospital care is so much more expensive, that probably ended up costing Medicare more than the program saved by paying for fewer doctor visits, while also leaving seniors sicker, said Dr. Amal Trivedi, the lead author of the study.

“Policymakers should be very sensitive to adverse and unexpected consequence of increased cost-sharing,” Trivedi warned. “It can be a lose-lose proposition.”,0,2124812,full.story


Press Conference by the President

The White House
July 15, 2011

President Barack Obama:  So with that, let me see who’s on the list. We’re going to start with Jake Tapper.

Q: Thank you, Mr. President. You’ve said that reducing the deficit will require shared sacrifice. We know — we have an idea of the taxes that you would like to see raised on corporations and on Americans in the top two tax brackets, but we don’t yet know what you specifically are willing to do when it comes to entitlement spending. In the interest of transparency, leadership, and also showing the American people that you have been negotiating in good faith, can you tell us one structural reform that you are willing to make to one of these entitlement programs that would have a major impact on the deficit? Would you be willing to raise the retirement age? Would you be willing to means test Social Security or Medicare?

THE PRESIDENT: We’ve said that we are willing to look at all those approaches. I’ve laid out some criteria in terms of what would be acceptable. So, for example, I’ve said very clearly that we should make sure that current beneficiaries as much as possible are not affected. But we should look at what can we do in the out-years, so that over time some of these programs are more sustainable.

I’ve said that means testing on Medicare, meaning people like myself, if — I’m going to be turning 50 in a week. So I’m starting to think a little bit more about Medicare eligibility. (Laughter.) Yes, I’m going to get my AARP card soon — and the discounts.

But you can envision a situation where for somebody in my position, me having to pay a little bit more on premiums or co-pays or things like that would be appropriate. And, again, that could make a difference.  So we’ve been very clear about where we’re willing to go.

What we’re not willing to do is to restructure the program in the ways that we’ve seen coming out of the House over the last several months where we would voucherize the program and you potentially have senior citizens paying $6,000 more. I view Social Security and Medicare as the most important social safety nets that we have. I think it is important for them to remain as social insurance programs that give people some certainty and reliability in their golden years.

But it turns out that making some modest modifications in those entitlements can save you trillions of dollars. And it’s not necessary to completely revamp the program. What is necessary is to say how do we make some modifications, including, by the way, on the providers’ side. I think that it’s important for us to keep in mind that drug companies, for example, are still doing very well through the Medicare program. And although we have made drugs more available at a cheaper price to seniors who are in Medicare through the Affordable Care Act, there’s more work to potentially be done there.

So if you look at a balanced package even within the entitlement programs, it turns out that you can save trillions of dollars while maintaining the core integrity of the program.

Q: And the retirement age?

THE PRESIDENT:  I’m not going to get into specifics. As I said, Jake, everything that you mentioned are things that we have discussed. But what I’m not going to do is to ask for even — well, let me put it this way: If you’re a senior citizen, and a modification potentially costs you a hundred or two hundred bucks a year more, or even if it’s not affecting current beneficiaries, somebody who’s 40 today 20 years from now is going to end up having to pay a little bit more.

The least I can do is to say that people who are making a million dollars or more have to do something as well. And that’s the kind of tradeoff, that’s the kind of balanced approach and shared sacrifice that I think most Americans agree needs to happen.

Q: Thank you.

The facts are clear. Medicare is an inadequate program, driving most beneficiaries to purchase supplemental coverage, or to rely on supplemental retirement benefits provided by their prior employment, or to switch to Medicare Advantage plans. Also, instead of advocating for patching the deficiencies in Medicare, our Washington politicians are supporting policies that would move more of the costs to Medicare beneficiaries themselves. With median incomes of only $22,000 and median savings and retirement accounts of only $33,100, the average Medicare population would be further burdened financially.

Let’s look at two of the policies that President Obama supported in his press conference today: 1) “we should make sure that current beneficiaries as much as possible are not affected, but we should look at what can we do in the out-years, so that over time some of these programs are more sustainable,” and 2) we should require higher income Medicare beneficiaries to pay “more on premiums or co-pays or things like that.”

Making Medicare “more sustainable” for future beneficiaries means reducing government spending on this already inadequate program. That reduction comes at the cost of forcing increased spending by the beneficiaries. We should be going in the opposite direction. We should be rolling the benefits of the supplemental plans into the traditional Medicare program. Since that would eliminate the administrative waste of these programs, it would actually reduce total spending on health care, even if more of the costs are shifted to the government program. The decrease in out-of-pocket costs would be greater than the increase in government spending.

Since health care costs are now so high, it is very reasonable to expect higher income individuals to pay more for Medicare, but how should we do that? If we start means-testing the deductibles and coinsurance, we create an administratively complex system that would test the fortitude of patients, providers, and the IRS. Instead, we should be eliminating deductibles and coinsurance. Other nations have demonstrated that reducing “moral hazard” through cost sharing is unnecessary since their costs are much lower than ours even though they have first dollar coverage.

Should premiums be means tested? Requiring wealthier individuals to pay significantly higher premiums would motivate them to look for other private options for health care. Without the political support of the wealthy, Medicare would become another underfunded welfare program. It would be like Medicaid except with skimpier benefits, greater out-of-pocket costs, and a greater lack of willing providers.

Instead of means tested Medicare premiums, we should totally eliminate the premiums and fully fund Medicare through progressive taxes. Separating the financing totally from the payment system allows us to “means test” the contribution to the program without having any negative impact on access for anyone, regardless of personal financial resources.

What is sad is that this diversion into defending Medicare as it is, with all of its deficiencies, has kept the national dialogue from moving into the conversation that we need to have – fixing Medicare and providing it for all of us. In the meantime, Washington burnishes its reputation of being the nation’s prime source of bad ideas, and we live with the consequences.

How would Walmart cover part time, seasonal and other short term employees?

Posted by on Thursday, Jul 14, 2011

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

Employers Lobby to Weaken Insurance Mandate

By Janet Adamy
The Wall Street Journal, July 13, 2011

It is three years before most of the new health-care law kicks in, but already some of America’s largest employers are peppering the Internal Revenue Service with concerns that making the changes will be far more complex than they anticipated.

At issue is one of the law’s central requirements: employers with 50 or more full-time workers must offer affordable insurance or pay a penalty. It sounds simple enough. But in crafting the rules, the IRS and two other federal agencies are now tackling basic yet messy questions, such as who counts as a full-time worker and how do companies measure whether insurance is “affordable.”

Retailers, restaurants and other companies that rely on seasonal, temporary and other workers with flexible schedules, say it’s hard to figure out who is a full-time worker. That could cause the employer to enroll and drop them from coverage, potentially churning them through new state-run insurance exchanges or the Medicaid federal-state program for the poor, as their hours fluctuated.

Census Bureau data shows that six million, or 5.6% of private-sector employees, work variable hours.

The debate centers on how federal agencies define a full-time worker. The law itself, signed by President Barack Obama in March 2010, defines a full-time employee as one who works at least 30 hours per week on average in a given month.

Once classified as a full-time worker, the employer is obligated to provide affordable health care or pay a penalty of $2,000 per worker, excluding the first 30 workers.

In response, the IRS in May floated the idea of giving employers a “look-back” period of between three and 12 months to determine whether certain workers met the full-time definition. Only then, if the employee hit the target, would the employer have to start providing insurance or pay the penalty.

Meanwhile, employers cheered the idea and are pressing the IRS to go further. An umbrella group called Employers for Flexibility in Health Care, which represents at least four dozen big employers and trade groups, last month asked the IRS to ensure that all part-time, temporary and seasonal hires wait up to 12 months, plus an additional 90-day waiting period, before they qualify for insurance.

In one of more than 200 submissions made recently to the IRS, Wal-Mart Stores Inc., Gap Inc., United Parcel Service Inc., Hilton Worldwide Inc. and others have pushed for a lengthy grace period that could stave off penalties for a year or more after certain workers are hired. The result could undermine some of the law’s intent to insure those who can’t afford coverage.



June 17, 2011
From: Employers for Flexibility in Health Care
To: Internal Revenue Service

RE: Request for Comments on Shared Responsibility for Employers Regarding Health Coverage (IRC §4980H, as created by PPACA §1513)


A. Definition of Full-time Employee Under the “Look-back” Methodology

1. Employers should be granted flexibility to utilize the look­back period for new part­time, temporary, and seasonal hires. Of primary importance to employers with variable workforces is the treatment of new and newly eligible employees, as our workforce fluctuates on an ongoing basis throughout a given year with new employees entering our systems sometimes on a daily basis. Notice 2011-36 indicates that the Department is considering applying the proposed safe harbor “only in a limited form” for such employees. A limited application for newly hired employees would be extremely problematic for employers with variable workforces. Employers with variable workforces must be able to utilize the look-back period primarily in the first year of an employee’s service to determine whether the employee has worked sufficient hours to reach full-time status and become eligible for the employer’s health plan. In many cases in our industries, employees may choose to leave before completing one year of service. In addition, under the individual mandate in 2014, these employees may be receiving coverage through other sources (e.g., Exchange, Medicaid, dependent or parent coverage). Because these employees may be in the middle of a plan year for other coverage and do not want to lose their annual benefits (i.e., restart their annual deductible or out of pocket maximum), they may choose to retain that coverage rather than enroll in the employer plan in the first year of service.

Employers should have the flexibility to choose the length of the look-back period ranging from 3 to 12 months depending on the nature of their business and their workforce.

For employers offering health plans, the 90-day wait period would begin once an employee’s eligibility for the employer plan is established.

Utilizing this form of a look­back not only allows for a longer measuring period, but also a longer stability period to reduce churn between employer and Exchange coverage. Not applying the look-back period to new part­time, temporary and seasonal employees would be a strong deterrent to employers’ giving employees the opportunity to work more than 30 hours per week on average and employing seasonal workers beyond 90 days.

C. Maintaining the Employment Connection During the Stability Period

The Notice states that if an employee is determined to be full time during the look­back period, then the employee would be treated as a full-time employee during a subsequent stability period, regardless of the number of the employee’s hours of service during the stability period, so long as he or she “remained an employee.”

The Coalition recommends that employees maintain a connection with an employer and meet a minimum work threshold during the stability period. This is particularly important for employers with large numbers of part­time, temporary, or seasonal workers whose hours and patterns of work fluctuate considerably.

D. Penalties

1) Penalties should not apply during any look­back or wait periods.

2) Seasonal employees should not be included in the total number of full­time employee for purposes of calculating employer tax liability.

For full 10 page letter, including signers, click on this link:

When supposedly the intent of the health reform legislation was to try to provide health insurance for everyone (well, not quite), it is particularly disconcerting to see large employers such as Walmart, Gap, United Parcel Service, Hilton, and even health insurer Aetna propose rules that would relieve them of the requirement to cover as many as half or even more of their employees. But these employers do have a point. Is it reasonable for them to provide health benefits for a highly unstable workforce that works seasonally, part time, or temporarily, especially when that turnover creates instability and fragmentation in the employees’ health care coverage?

Although Walmart has been a favorite whipping boy for the health justice community, should Walmart alone really bear that much of the blame? As long as we have a system that is dependent on a patchwork of private health plans, public programs, and no programs at all, no matter how much Walmart tries, their employees cannot possibly be assured of having stable, comprehensive coverage throughout their pre-Medicare years.

We should dismiss Walmart (and all other employers) as the keeper of health insurance (while encouraging them to apply the savings toward living wages). But to do that, we need to end our fragmentation of coverage and care by establishing a single, comprehensive health program that will include everyone – from birth, throughout life – through an improved Medicare for all.

I mean… look back over a year of employment? … and then start another three month waiting period before eligibility is established? … and then find that this “associate” is no longer employed? (Check… more bucks for the Walton family.) Come on!

Malpractice reform lessons from abroad

Posted by on Wednesday, Jul 13, 2011

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

Administrative Compensation for Medical Injuries: Lessons from Three Foreign Systems

By Michelle M. Mello, Allen Kachalia, and David M. Studdert
The Commonwealth Fund, July 2011

Medical malpractice reform is a perennial issue for state legislatures and, more recently, for the U.S. Congress. The American medical liability system is widely acknowledged to perform poorly in several important respects. Few patients with injuries due to negligence file claims, in part because of the difficulty of obtaining attorney representation and the arduousness of the litigation process. Many meritorious cases do not result in compensation to the patient, while many non-meritorious cases do lead to settlements or jury awards. The amounts awarded are highly variable across similar injuries, inadequate in some cases and excessive in others. The highly adversarial litigation process destroys physician–patient relationships and involves considerable emotional strain for both plaintiffs and defendants. Fear of litigation chills open discussion about medical errors, resulting in missed opportunities for learning and patient safety improvement, and leads physicians to order extra tests, referrals, and other services primarily for the purpose of reducing their liability exposure. Such defensive medicine, together with the high cost of malpractice insurance premiums that increases providers’ overhead costs and the prices they charge, contributes to the upward growth of health care expenditures.


The United States requires patients injured by medical negligence to seek compensation through lawsuits, an approach that has drawbacks related to fairness, cost, and impact on medical care. Several countries, including New Zealand, Sweden, and Denmark, have replaced litigation with administrative compensation systems for patients who experience an avoidable medical injury. Sometimes called “no-fault” systems, such schemes enable patients to file claims for compensation without using an attorney. A governmental or private adjudicating organization uses neutral medical experts to evaluate claims of injury and does not require patients to prove that health care providers were negligent in order to receive compensation. Information from claims is used to analyze opportunities for patient safety improvement. The systems have successfully limited liability costs while improving injured patients’ access to compensation. American policymakers may find many of the elements of these countries’ systems to be transferable to demonstration projects in the U.S.

Our medical liability system is very expensive, highly inefficient, extremely adversarial thereby inflicting much emotional pain on all involved, and leaves most individuals with medical injury uncompensated. It is a very lousy system. This report describes far better systems in three other nations, providing very valuable lessons for the United States.

There are two important stumbling blocks if we were to decide to adopt a more rational liability system based on these models. First, these nations demonstrate greater social solidarity than the United States, such as having other social insurance programs (health care, disability, unemployment) obviating the need for for filing as many medical injury claims.

Second, just as we seem to be incapable of displacing our wasteful, inefficient, highly expensive private insurance industry, we would likely find similar resistance in displacing our wasteful, inefficient, highly expensive legal system. Health insurers and tort attorneys have the ear of Congress.

What can we do? Citizen activism. It’s empowering.

HHS’s proposed rule on risk adjustment

Posted by on Tuesday, Jul 12, 2011

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

Insurers Will Share Revenue Under U.S. Health Market Rules

By Alex Wayne and Drew Armstrong
Bloomberg, July 11, 2011

Insurers with healthier, lower-cost patients would share revenue with rivals whose customers run up higher bills under U.S. rules to stabilize insurance markets within the 2010 health-care law.

Insurers such as UnitedHealth Group Inc. (UNH) would also qualify for $20 billion in subsidies from 2014 to 2016 when they take on the sickest patients, according to the regulations. The money would come from fees levied on the insurance industry.

Rules issued by the Obama administration today attempt to make good on the law’s goal of discouraging private health plans from cherry-picking patients while easing market disruptions when top changes in the medical system take effect in 2014.

The rules create a “risk-adjustment” program that would take money from insurers in a state with low-cost patients and give it to plans whose customers run up the highest bills. The policy applies both to insurers selling coverage within the exchanges and those operating independently.


Affordable Insurance Exchanges: Standards Related to Reinsurance, Risk Corridors and Risk Adjustment (HHS)
July 11, 2011

Risk Adjustment

The Affordable Care Act provides for a program of risk adjustment for all non-grandfathered plans in the individual and small group market both inside and outside of the Exchange. Under this provision, the Secretary of Health and Human Services, in consultation with the States, will establish criteria and methods to be used by States in determining the actuarial risk of plans within a State. The risk adjustment program serves to level the playing field, both inside and outside of the Exchange. Risk adjustment ends the incentive for issuers to avoid the sick and market only to the healthy by transferring excess payments from plans with lower risk enrollees to plans with higher risk enrollees. For this reason, plans will have to compete on the basis of price, quality and service. This allows consumers the ability to pick the plan that best meets his or her needs. The proposal suggests that a constant set of data for risk adjustment be considered, preventing a health insurer that offers qualified health plan in different States from having different reporting requirements. It proposes that risk adjustment calculations occur at the State, rather than plan or Federal level, given States’ role in the system. And while a Federal risk adjustment methodology would be developed, States could use an approved alternative. We welcome comments on the risk adjustment program design.


Patient Protection and Affordable Care Act; Standards Related to Reinsurance, Risk Corridors and Risk Adjustment

Department of Health and Human Services

Proposed rule


§153.320 Federally-certified risk adjustment methodology.
(a) General requirement. Any risk adjustment methodology used by a State, or HHS of behalf of the State, must be established as a Federally-certified risk adjustment methodology. A risk adjustment methodology may become Federally-certified by one of the following processes:
(1) A risk adjustment methodology developed by HHS, with its use authorized and published in a forthcoming annual Federal notice of benefits and payment parameters; or
(2) An alternative risk adjustment methodology submitted by a State in accordance with §153.330, and reviewed and certified by HHS. After HHS approves a State alternative risk adjustment methodology, that methodology is considered a Federally-certified risk adjustment methodology.
(b) Publication of methodology in notices. A State must use one of the Federally-certified risk adjustment methodologies that will be published by HHS in a forthcoming annual Federal notice of benefits and payment parameters or that has been published by the State in the annual State notice described in §153.110(b). Each methodology will include:
(1) A complete description of the risk adjustment model, including –
(i) Factors to be employed in the model, including but not limited to demographic factors, diagnostic factors, and utilization factors if any;
(ii) The qualifying criteria for establishing that an individual is eligible for a specific factor;
(iii) Weights assigned to each factor; and
(iv) The schedule for collection of risk adjustment data and determination of factors; and
(2) Any adjustments made to the risk adjustment model weights to determine average actuarial risk.
(c) Use of methodology for States that do not elect an Exchange. HHS will specify in the forthcoming annual Federal notice of benefits and payment parameters the Federally-certified risk adjustment methodology that will apply in States that do not elect to operate an Exchange.

Proposed rule (103 pages):

Private insurers have been gaming the system for many decades. They have been selectively marketing their products to the healthy workforce, their young, healthy families, and to healthy individuals who purchase their coverage in the individual market. The costs of higher needs patients have been shifted to the taxpayers through programs such as Medicare end-of-life care, Medicare long-term disability care, Medicaid nursing home and other care, and safety-net institutions for the uninsured. So what has changed that requires us to now look at risk adjustment?

Congress and the President decided to cover a larger percentage of our population by expanding the market of private health plans, plus expanding Medicaid for low-income individuals. It is the expansion of private insurance that has forced the realization that these plans now will have to include individuals with higher health care costs.

Since the model chosen for reform is a market of private plans competing within and outside of the exchanges, insurers have great incentives to market to the healthy while dumping the more costly patients onto their competitors. The higher costs that their competitors would face would have to be reflected in higher premiums, causing a plunge in market share and an eventual exit from the market – a process known as the death spiral. Pro-market enthusiasts certainly understand the consequences of this anti-competitive behavior.

The solution that has been promoted is risk adjustment. Those insurers that have been successful in enrolling a healthier population are required to take some of the savings and pass that on to insurers who have had to cover the higher costs of less healthy beneficiaries. This transfer of funds penalizes insurers who have deliberately avoided covering those with greater needs, while protecting the insurers who have included in their rolls a disproportionate share of these high cost patients. The alleged advantage is that it preserves a competitive market, even if not through a true laissez-faire free market.

There is some controversy over the effectiveness of risk adjustment. Most proposals do not transfer the full difference in spending caused by the variation in risk exposure, still leaving those insurers with higher risks at a disadvantage. Also, the insurers who find that their gaming operations are under attack can be quite innovative in finding new games to play. One of the more common is to upcode to make their patient population appear sicker than they really are. Although auditing can be used in an attempt to discover such chicanery, it is an expensive and not very effective process. Proving that each patient was not as sick as the insurer claimed is arduous and very frequently does not exceed the benefit-of-the-doubt threshold.

Because of these problems, we have been anxiously awaiting HHS’s proposed rule on how they were going to approach risk adjustment that would be fair to all and not cause yet further increases in health care costs. Unfortunately, the proposed rule doesn’t help much. They have not yet presented their model for actuarial risk adjustment, merely stating that “a Federal risk adjustment methodology would be developed.”

Regarding costs, the transfer would be budget neutral (the amount taken from some insurers and given to others would not change total spending on actual health care), but the costs of administering the program, including extensive data collection and the high costs and complexity of the auditing processes, would be assessed against the insurers and passed on to patient/consumers in the form of higher insurance premiums.

Risk adjustment is yet one more expensive, administratively burdensome, and often inequitable consequence of insisting on using private insurers to provide health care coverage. Nefarious risk gaming would not occur in a single payer national health program. But games the private insurers play, and with our money!

HHS releases the proposed rule for insurance exchanges

Posted by on Monday, Jul 11, 2011

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

Patient Protection and Affordable Care Act: Establishment of Exchanges and Qualified Health Plans

Department of Health and Human Services

Proposed rule.


In paragraph (d)(1), we propose that the Exchange permit a qualified individual and any dependents to enroll in a QHP (Qualified Health Plan) due to loss of other minimum essential coverage. We interpret loss of coverage to include any event that triggers a loss of eligibility for other minimum essential coverage. We further propose that a dependent of a current enrollee in a QHP and the enrollee are each eligible for a special enrollment period if the dependent loses other minimum essential coverage. Examples of loss of coverage include decertification of a QHP that occurs outside of the annual open enrollment period. In such cases, an enrollee would be allowed to select and enroll in a new QHP upon notification of plan decertification. If the enrollee does not select a new QHP before the effective date of plan termination, he or she would be provided 60 days from the date of plan termination, which is the triggering event, to select a new QHP.

Other examples of events that would qualify as loss of coverage include but are not limited to the following: legal separation or divorce ending eligibility of a spouse or step-child enrolled in other minimum essential coverage as a dependent; end of dependent status (such as attaining the maximum age to be eligible as a dependent child under the plan); death of an individual enrolled in minimum essential coverage ending eligibility for covered dependents; termination of employment or reduction in the number of hours of employment necessary to maintain coverage; or relocation outside of the service area of the QHP. Examples of relocation include relocation to the United States (US) in the case of a US citizen, national, or lawfully present individual who was not previously eligible for Exchange participation while residing outside of the US; release from incarceration; moving from the jurisdiction of one Exchange to another; or relocating outside of the individual’s QHP’s service area.

In accordance with section 9801(f) of the Code, we propose that loss of coverage also include: termination of employer contributions for a qualified individual or dependent who has coverage that is not COBRA continuation coverage by any current or former employee, exhaustion of COBRA continuation coverage, reaching a lifetime limit on all benefits in a grandfathered plan, and termination of Medicaid or CHIP.

HHS News Release:

Proposed Rule (244 pages):

The excerpt above from today’s HHS release of the proposed rule for the insurance exchanges to be established under the Patient Protection and Affordable Care Act was selected to make a point. The fragmentation and instability of coverage is only one of the great many highly flawed features of the model of reform foisted off on us by our politicians.

I have little more to say now. Having just skimmed through these 244 pages and those of other supporting documents, I am thoroughly depressed. We could have had health reform that would be so much better than this. (But my inner voice says, “Don, don’t waste your time moping. We can still have a system that will work for all of us, but that will take a lot of work, and we need to move on to fulfill our role as a major driving force in that effort.”

How well is the Utah health insurance exchange working?

Posted by on Friday, Jul 8, 2011

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

Utah Health Exchange Is Geared To Small Business Employees

By Juan E. Gastelum
Kaiser Health News, July 6, 2011

Utah’s exchange is one of only two operating in the country; Massachusetts has the other. Utah’s approach has been called the conservative “bookend” of the two because it favors a free-market in which multiple insurers compete with minimal intervention from the state.

(Utah), which had experimented with public programs to expand coverage to low-income adults, created its exchange in 2007 through state legislation signed by former Gov. John Huntsman, a Republican who is now seeking the party’s nomination for president.  The exchange was designed to insure small business employees, who make up the majority of Utah’s workers. It launched to a limited group in 2009, and then opened to all small employers at the start of this year. It now provides coverage for about 3,583 people working for 139 employer groups.

Utah’s state health insurance exchange is now in full operation. It is a very loosely regulated system organized as what they call a “defined contribution market.” It is designed to cater especially to small businesses which include the majority of Utah’s workers. How successful has this program been?

Currently 3,583 people have been insured through the exchange. With a population of 2.9 million people, that amounts to a mere 0.12 percent who are covered by through the exchange. Though Utah does not yet have a mandate to have insurance coverage, it still raises the question, if states build insurance exchanges, will people come?

What did we learn from the Oregon HIE?

Posted by on Thursday, Jul 7, 2011

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

The Oregon Health Insurance Experiment: Evidence from the First Year

By Amy Finkelstein, Sarah Taubman, Bill Wright, Mira Bernstein, Jonathan Gruber, Joseph P. Newhouse, Heidi Allen, Katherine Baicker, The Oregon Health Study Group
The National Bureau of Economic Research, July 2011

NBER Working Paper No. 17190

In 2008, a group of uninsured low-income adults in Oregon was selected by lottery to be given the chance to apply for Medicaid. This lottery provides a unique opportunity to gauge the effects of expanding access to public health insurance on the health care use, financial strain, and health of low-income adults using a randomized controlled design. In the year after random assignment, the treatment group selected by the lottery was about 25 percentage points more likely to have insurance than the control group that was not selected. We find that in this first year, the treatment group had substantively and statistically significantly higher health care utilization (including primary and preventive care as well as hospitalizations), lower out-of-pocket medical expenditures and medical debt (including fewer bills sent to collection), and better self-reported physical and mental health than the control group.

Although innumerable studies have shown that health insurance provides both health security and financial security, some have contended that insurance is not necessary, especially for low income individuals, since they can find care through our safety-net institutions. As President George W. Bush stated, “After all, you just go to an emergency room.” This study, the Oregon Health Insurance Experiment (Oregon HIE), puts an end to that contention. Low income Oregon residents who were selected by a random lottery to be enrolled in Medicaid fared significantly better than those who were randomly excluded.

The Oregon Medicaid lottery provided a great if disconcerting opportunity for policy researchers. It would be unethical for them to have designed and carried out a study that randomly provided health care benefits to one group while leaving uninsured another group serving as a control. This unique opportunity arose when Oregon received more funds for their Medicaid program, but not nearly enough to cover everyone eligible. They decided to randomly select by lottery those whom they could fit into the program while leaving many more out in the cold.

It is ironic that politicians created a study opportunity that is clearly unethical by policy research standards, yet doesn’t seem to violate the ethical standards of the politicians. If you need any more proof of that, just look at the Affordable Care Act (ACA) where policy decisions were made that will leave 23 million individuals without any health care coverage, but they can go to the emergency room.

Although much of the media coverage of the Oregon HIE implies that it was a wise decision to include in ACA the expansion of coverage under Medicaid, there are many other factors not covered in this study. Two important considerations stand out.

Having Medicaid is better than having no coverage at all, but access is still impaired under the program because of a lack of willing providers, especially for specialized services. Bringing millions more into the program will certainly exceed the already inadequate capacity. With the low level of funding for this program, it is unlikely that funds will be available in the near future to expand capacity. Adequate capacity for everyone does exist within our entire health care delivery system, but not when providers are allowed to opt out of an underfunded component of it.

Another important element in this study is that Medicaid eliminates most cost sharing by the patients. If the patients are able to find providers who will accept them then they do not have to face financial barriers that would prevent them from receiving recommended care, tests, prescriptions, and preventive services that they should have. This is one of the major advantages of the Medicaid program (though some states are now considering cost sharing as a means of reducing Medicaid spending).

Supposedly the RAND Health Insurance Experiment (RAND HIE) demonstrated that cost sharing did not have a major impact on health care outcomes, except for low income individuals, even though health care utilization decreased. The problem with the RAND HIE conclusions is that they have only intrinsic validity for a healthy workforce and their young, healthy families for only a brief, healthy interval in their lives. It is inappropriate to expect the same result for a cross section of our population including a fair sampling of those with greater health care needs. Had greater cost sharing been used in the Oregon HIE, utilization certainly would have been less, and it is likely that outcomes would have been worse.

Before we start celebrating the fact that Medicaid is better than nothing at all, let’s keep in mind the facts that Medicaid lacks the capacity to meet the expanded coverage through ACA, that eliminating cost sharing does improve access, and that expanding Medicaid will do nothing for the 23 million remaining uninsured and the tens of millions more who will be underinsured through low actuarial value plans with very high cost sharing.

There is a far better way – a single payer national health program that provides comprehensive benefits for everyone with no cost sharing barriers to care. Other nations have adopted such programs at a far lower cost than our dysfunctional system. We can do it too. (You’ve heard this before.)

GAO report on difficulty with Medicaid and CHIP referrals

Posted by on Wednesday, Jul 6, 2011

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

MEDICAID AND CHIP: Most Physicians Serve Covered Children but Have Difficulty Referring Them for Specialty Care

June 2011

Report to Congressional Committees

On the basis of its 2010 national survey of physicians, GAO estimates that more than three-quarters of primary and specialty care physicians are enrolled as Medicaid and CHIP providers and serving children in those programs. A larger share of primary care physicians (83 percent) are participating in the programs — enrolled as a provider and serving Medicaid and CHIP children — than specialty physicians (71 percent). Further, a larger share of rural primary care physicians (94 percent) are participating in the programs than urban primary care physicians (81 percent). Nationwide, physicians participating in Medicaid and CHIP are generally more willing to accept privately insured children as new patients than Medicaid and CHIP children. For example, about 79 percent are accepting all privately insured children as new patients, compared to about 47 percent for children in Medicaid and CHIP. Nonparticipating physicians — those not enrolled or not serving Medicaid and CHIP children — most commonly cite administrative issues such as low and delayed reimbursement and provider enrollment requirements as limiting their willingness to serve children in these programs.

Physicians experience much greater difficulty referring children in Medicaid and CHIP to specialty care, compared to privately insured children. On the basis of the physician survey, more than three times as many participating physicians — 84 percent — experience difficulty referring Medicaid and CHIP children to specialty care as experience difficulty referring privately insured children — 26 percent.

This highly credible report from GAO provides more evidence that access remains a problem within the Medicaid and CHIP programs. Less than half of physicians are willing to accept children in these programs as new patients, and over four-fifths experience difficulty referring Medicaid and CHIP children to specialty care. Instead of trying to expand this chronically underfunded program, we should replace it and all other programs with a single comprehensive program for everyone that eliminates financial barriers to care. No one would ever have to ask again if a physician accepts whatever program. They would simply get the care they need, no questions asked.

Medical Patriotism

Posted by on Wednesday, Jul 6, 2011

By Pippa Abston MD, PhD, FAAP

Every year around the Fourth of July, amid the flag waving and fireworks, I come across an article or two blaming patriotism for the ills of civilization. I agree with much of the criticism. A constant obsession with being “the best in the world” makes us both arrogant and unrealistic. Believing we can be truly healthy—economically, environmentally, or otherwise—without considering the roles and needs of other nations is not only immature but dangerous.

As I often do when confronted with a loaded word, I looked up “patriot” in my old Merriam Webster dictionary. I was struck right away by the short, simple definition: “love for or devotion to one’s country.” I’m sure you know it came originally from the Latin for father, pater. Interesting, since the earth parent is usually a maternal one. The paternal face of country has more to do with the political structure, historically a masculine creation, than the land itself.

What if we imagined our country, in both earthy and political nature, as a parent? I don’t mean to invoke the over-protective helicopter version. I’m talking about our formation as persons—the various influences that eventually make us who we will be. And how about our reciprocal duty to our parents, as they age and sometimes need us to care for them? Could we consider how we are serving in that role to our nation, now well over 200 years old?

I’ve worried sometimes, while advocating strenuously for Medicare for All (including visitors and immigrants), that I’m taking a sort of parochial view. It seems a little selfish to spend so much effort lobbying for my fellow country-people, when much of the world fares far worse in life expectancy. I wonder if I should be doing something more globally relevant instead.

But all this thinking about land and politics, fathers and mothers, and caring for one another took me in an unexpected direction. We aren’t patriotic enough. If we were more patriotic (loving, devoted), and followed the principle of loving other (countries) as ourselves, maybe we’d do better. There’s no need to hold back our love for this land, its history or its people. We don’t have to be blind about it either. In fact, we owe a special duty to address the errors of those we love. I have a deep love for my state, Alabama, despite its sometimes recalcitrant and difficult ways. It’s ok to love a city, a certain neighborhood, a particular tree. We can all start where we are, then extend ourselves outwards, as in the spiritual practice of lovingkindness meditation.

Let’s love our country more. Tell Congress we want to pay for our nation’s healthcare and not be forced to give protection money to private insurers. With the savings, we will be in better condition to bring resources to those other (also beloved) lands in need. We don’t have to limit the borders of our patriotism. Everybody in. Nobody out.

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