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.
By Robert B. Reich
Published 2010 by Alfred A. Knopf
In September 2009… Treasury Secretary Tim Geithner, assessing what had happened to the United States in the years leading up to the Great Recession, repeated the conventional view that “for too long, Americans were buying too much and saving too little.”
The problem was not that Americans spent beyond their means but that their means had not kept up with what the larger economy could and should have been able to provide them.
Part I – The Broken Bargain
Chapter 2 – Parallels
Economists Emmanuel Saez and Thomas Piketty have examined tax records extending back to 1913. They discovered an interesting pattern. The share of total income going to the richest 1 percent of Americans peaked in both 1928 and in 2007, at over 23 percent.
Between the two peaks is a long, deep valley. After 1928, the share of national income going to the top 1 percent steadily declined… to 9 to 11 percent in the 1950s and 1960s, finally reaching the valley floor of 8 to 9 percent in the 1970s. After this, the share going to the richest 1 percent began to climb again… reaching its next peak of more than 23 percent in 2007.
Part III – The Bargain Restored
Chapter 1 – What Should Be Done: A New Deal for the Middle Class
Medicare for all. The passage of health care legislation in 2010 represents only the first step toward reform. The next stage should be Medicare for all. The most efficient way to provide all Americans with high-quality health care is to allow everyone to sign up for Medicare and to subsidize the costs for middle-class and lower-income families.
Emmanuel Saez – Striking it Richer: The Evolution of Top Incomes in the United States
The landmark study by Emmanuel Saez and Thomas Piketty has been cited by many in helping to explain what went wrong with our economy. The productivity gains of American workers were not shared with the workers but were transferred to the wealthiest Americans. Robert Reich explains that the economy falters when the masses to not have the funds to purchase the products and services made possible by their own productivity.
What should be done is intuitive. In restoring the bargain by creating a New Deal for the middle class, one of the most obvious and effective measures would be to establish a Medicare program for everyone and fund it publicly through progressive tax policies.
So simple and so right. Yes, Reich is right.
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.
What Changes In Survival Rates Tell Us About US Health Care
By Peter A. Muennig and Sherry A. Glied
October 7, 2010
Many advocates of US health reform point to the nation’s relatively low life-expectancy rankings as evidence that the health care system is performing poorly. Others say that poor US health outcomes are largely due not to health care but to high rates of smoking, obesity, traffic fatalities, and homicides. We used cross-national data on the fifteen-year survival of men and women over three decades to examine the validity of these arguments. We found that the risk profiles of Americans generally improved relative to those for citizens of many other nations, but Americans’ relative fifteen-year survival has nevertheless been declining. For example, by 2005, fifteen-year survival rates for forty-five-year-old US white women were lower than in twelve comparison countries with populations of at least seven million and per capita gross domestic product (GDP) of at least 60 percent of US per capita GDP in 1975. The findings undercut critics who might argue that the US health care system is not in need of major changes.
We speculate that the nature of our health care system — specifically, its reliance on unregulated fee-for-service and specialty care — may explain both the increased spending and the relative deterioration in survival that we observed. If so, meaningful reform may not only save money over the long term, it may also save lives.
This study provides credible evidence that lower life expectancy in the United States, when compared to twelve other nations, is not due to smoking, obesity, traffic accidents nor homicides. Thus this study can be used to refute those who contend that we have the greatest health care system on earth, but it is the bad habits of those unworthy of health care that result in our lower life-expectancy ratings.
The authors speculate, “It is possible that rising US health spending is itself responsible for the observed relative decline in survival.” Specifically they suggest that “reliance on unregulated fee-for-service and specialty care may explain both the increased spending and the relative deterioration in survival.” They seem to dismiss the lack of health insurance as not having been found to have “substantial impacts,” though there is “uncertainty on this point.”
This opinion meshes well with a prevalent view expounded during the reform process that our costs are high because of an excess of health services that often impair outcomes. With almost no substantial evidence, the Dartmouth variations often were blamed for impaired outcomes, while largely ignoring a plethora of data that show that insufficient care, especially related to being uninsured or under-insured, greatly impairs outcomes.
One of the authors of this study, Sherry Glied, is taking this spending-causes-decline-in-survival theory with her to the Department of Health and Human Services where she is assistant secretary for planning and evaluation. These “neo-theorists” preach that we can improve quality and decrease spending through economic tools such as accountable care organizations and bundling of services. Come on.
It’s time to bring in the old school European-style theorists who have already shown that universal social insurance programs with well established primary care infrastructures do control costs and improve outcomes. Many Europeans engage in the same bad habits as found here in the United States, yet none of them are unworthy of health care.
By Claudia Chaufan
While “consumer-driven fire department” sounds decidedly weird, for some reason some have been brainwashed to believe that “consumer-driven health care” makes sense.
But it does not. It makes no more sense to let people’s house burn down because they cannot pay their fire-department fees — maybe they chose the wrong “plan”? or a plan with a deductible they cannot afford? – than to let them die because they cannot afford their health care.
Now, why the new federal law, the Patient Protection and Affordable Care Act P-PACA), will fail to keep its two key promises (protecting patients and making health care affordable), is not the topic of this posting, because I and many others have commented on it extensively elsewhere.
Rather, it is to point out that if we continue turning health care more and and more into a “consumer good” that those who have the ear (and pockets) of Congress and the White House can make a profit off of (and P-PACA reinforces the trend ), we are up to extremely unpleasant experiences.
Such as, for instance, looking at our homes burn down while the Fire Department watches. And unfortunately, this nightmare is already with us. It happened just a few days ago, in Tennessee.
Here is how the episode is described in Amy Goodman’s show, Democracy Now:
In Tennessee, a local fire department refused to put out a house fire last week because the homeowner had forgotten to pay $75 for fire protection from a nearby town. The firefighters showed up to the scene of the fire and then watched as the home of Gene Cranick burned to the ground. Cranick’s neighbors had paid the $75 fee, so when the fire spread across the property line firefighters took action, but only to save the neighbor’s property.
The local mayor defended the actions of the firefighters. South Fulton Mayor David Crocker said, “Anybody that’s not in the city of South Fulton, it’s a service we offer. Either they accept it or they don’t.” On Monday, Gene Cranick appeared on Countdown with Keith Olbermann.
Gene Cranick: “Everything that we possessed was lost in the fire. Even three dogs and a cat that belonged to my grandchildren was lost in it. And they could have been saved if they had been—they had put water on it. But they didn’t do it, so that’s just a loss.”
Keith Olbermann: “When you all called 911, as I understand it, you told the operator you’d pay whatever was necessary to have the firefighters come put out and prevent the fire from spreading to your house. What was their response?”
Cranick: “That we wasn’t on their list.”
Are we going to watch in disbelief while our homes burn down?
As Dr. Bill Skeen, executive direction of Physicians for a National Health Program-California, wrote:
Sadly, those of us who believe healthcare is a right know that this country has never assumed the mantle of providing healthcare to all its residents. Currently we leave 50 million of our brothers and sisters uninsured; 45,000 of them die each year because of it. It is time for us to stand up and demand that our nation return to the real American values of empathy and compassion and caring about our neighbors’ wellbeing.
Last night we as a nation let a family’s house burn to the ground while those who could save it watched and did nothing. Everyday we let more than a hundred people die who have no health insurance. Are we willing to standby and do nothing to stop it?
We don’t need to. And we mustn’t.
Let’s pick up the phone and call our U.S. Representatives today, and tell him or her to co-sponsoer HR676 when it is reintroduced next year in Congress. Tell him or her that you are outraged at what happened in Tennessee and that these two issues, fire protection and health care for all, are one and the same at their core. They demonstrate the incontrovertible need for government to protect the common good, and for we Americans to show our humanity to each other.
Let us demand Medicare for All – everybody in, nobody out!
Originally posted on Social Medicine.
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.
Statement on the application of medical loss ratio standards to certain health plans under the Affordable Care Act
U.S. Department of Health & Human Services
September 30, 2010
Jay Angoff, director of the Office of Consumer Information and Insurance Oversight, within the U.S. Department of Health and Human Services (HHS) released the following statement today, regarding the application of medical loss ratio standards to certain health plans under the Affordable Care Act:
“As many employers and insurers consider health insurance options for 2011, one question that has been raised is the applicability of provisions of the Affordable Care Act to health plans and coverage with special circumstances. HHS remains committed to implementing the law in a way that minimizes disruption to coverage that is available today while also ensuring that consumers receive the benefits the Act provides.
“For example, pursuant to the Affordable Care Act and our regulations, HHS recently announced an expedited process for plans to apply for a waiver from the requirement in the Affordable Care Act establishing minimum annual limits where such limits would result in decreased access or increased premiums. HHS has approved dozens of these waiver requests, most often filed by so-called “mini-med” plans, and in doing so, has ensured the continuation of health coverage for workers and their families. Complete waiver applications were generally processed in 48 hours.
“More recently, the issue of the applicability of the medical loss ratio requirements to plans such as mini-med plans has come up. HHS has not yet issued regulations implementing the medical loss ratio requirements because the Affordable Care Act tasks the National Association of Insurance Commissioners (NAIC) with first making recommendations to the Secretary.
“Although the NAIC is close to completing its work, we understand that some employers must soon make decisions regarding coverage options for 2011. As such, we fully intend to exercise her discretion under the new law to address the special circumstances of mini-med plans in the medical loss ratio calculations. According to the Affordable Care Act, medical loss ratio “methodologies shall be designed to take into account the special circumstance of smaller plans, different types of plans, and newer plans.” We recognize that mini-med plans are often characterized by a relatively high expense structure relative to the lower premiums charged for these types of policies. We intend to address these and other special circumstances in forthcoming regulations.”
So the Patient Protection and Affordable Care Act (ACA) didn’t extend health care coverage to everyone and didn’t enact significant cost containment measures, but at least it did establish regulations that would end insurance abuses such as low annual dollar caps on coverage and administrative excesses that waste dollars that should be going to health care. Or did it?
Next year plans are required to provide a minimum of $750,000 in coverage, phasing to unlimited coverage in 2014. Also group plans are required to pay out at least 85 percent of premium revenues for health benefits (medical loss ratio). These regulatory changes are essential if health plans are going to benefit the insured, even though that would require plan redesign by employers such as McDonald’s and Jack in the Box that currently offer limited-benefit plans (mini-med plans) to their employees.
These plans offer as little as $2,000 a year in benefits. This could be perceived as a practical joke, but it certainly isn’t funny. This isn’t under-insurance; it’s virtually no insurance at all. Also, with so few benefits paid out, these plans cannot possibly meet the required medical loss ratios. Though ACA will not insure everyone and will not control costs, the new regulatory rules were supposed to bring an end to these abusive un-insurance programs.
Under ACA the Department of Health and Human Services (HHS) was given an expanded role in regulatory oversight, so what is their response to these plans? They have established an expedited process for these plans to be granted waivers exempting them from the new requirements!
What will happen in 2014? What changes will take place in the interim that will cause HHS to terminate the waiver program and require removal of dollar caps on coverage along with compliance with medical loss ratios? If the employers need the waivers now, they’ll certainly need them in 2014 when premiums are much higher because of the new regulatory requirements.
Is HHS really that sympathetic to employers while being so uncaring about the needs of their employees? I mean waivers… not just waivers… but expedited waivers! Just what was reform supposed to have accomplished?
As with so many of these daily messages, this would not even be a topic if Congress had enacted a single payer national health program – an improved Medicare for all.
Health Care Providers, Insurers: Accountable Care Organizations Bring Legal Worries
By Jenny Gold and Phil Galewitz
Kaiser Health News
October 5, 2010
Doctors and hospitals eager to pursue a new model of health care being promoted by the Obama administration are raising concerns that they could run afoul of antitrust and anti-fraud laws, while insurers are warning that the new arrangements could lead to higher prices for medical care.
A key part of the health overhaul law encourages the development of “accountable care organizations” that would allow doctors to team up with each other and hospitals in new ways to provide medical services. Health care providers want to make sure their ACOs won’t be accused of stifling competition or trying to fix prices when they bargain with insurance companies. Insurers, meanwhile, are expressing concern that providers could use the leverage of ACOs to demand higher prices.
Whether ACOs – which are just a concept for now – can be made to work could determine whether the health care law ultimately succeeds in lowering costs and improving care for consumers.
The federal health program for the elderly and disabled is due to start trying out ACOs in 2012, and some providers are scrambling to figure out how to apply the idea to privately insured patients as well. The antitrust rules mostly concern the private insurance market; in Medicare, the government sets the payment rates.
But America’s Health Insurance Plans, the insurers’ trade group, warned government officials against being too accommodating. It said in a recent letter that ACOs won’t help consumers “if they are mere vehicles for price fixing or aggregating market power, and the antitrust agencies must continue their efforts in this area, using enforcement, guidance, and other tools.”
Cory Capps, an economist at Bates White Economic Consulting, said, “We could end up in the worst world,” one in which the delivery of care isn’t made more efficient but providers accumulate “greater pricing power.”
Susan DeSanti, director of policy planning at the FTC, said that the agency is working with CMS on the issues, and that guidance on ACOs will be issued to reduce uncertainty. “The antitrust laws are actually consistent with the goals of ACOs,” she said. “The antitrust laws encourage collaborations when they are going to produce good things for consumers, like improved health care, and the only caveat is that the creation of market power shouldn’t go along with that. But antitrust is not a barrier here.”
Humana Medical Director Dr. Tom James said the insurer wants to show that “health plans have a role with ACOs,” adding that it’s important that ACOs be seen as more than cost-cutters. “If not done right, it could give the whole movement a bad name,” he said. “We learned that with HMOs in the 1990s.”
The Patient Protection and Affordable Care Act (ACA) promises us greater affordability through the establishment of accountable care organizations (ACOs). By adopting an as-yet-to-be-defined team approach to health care, the organizations purportedly would improve quality while controlling costs, theoretically by eliminating the excess services demonstrated by the Dartmouth Atlas (even though our much greater problem is under-utilization as demonstrated by Commonwealth, RAND, and others).
Who will be making the decisions on the structure and then the operations of these teams? Will it be altruistic members of the medical, hospital, and policy communities? Very unlikely, based on the history of the HMOs. Although the original HMOs were designed with the intent of providing optimal patient care (through a team approach!), the enabling legislation that brought a surge in managed care also brought out the entrepreneurial minds that replaced health care altruism with a business ethic of health care.
There is absolutely no doubt that the same will occur now, and actually has already begun. The entrepreneurs will be in control before the altruists can develop a process to fulfill the vision for a health care utopia. Although the teams will be designed along business lines, purportedly to control costs, the motivation of those in control will be to make money. Even if the teams are not owned by passive investors, the physicians and hospital administrators will still be manipulating the structure and operations to serve their own interests first.
The vision of various teams competing with each other by offering higher quality and lower costs is a fantasy. These teams will use their oligopolistic and monopolistic powers to drive costs up. Markets do work very well for those who are able to pervert them. Just look at the perversions of the private insurance industry that has helped to orchestrate the most expensive health system in the world, while squandering the opportunities to bring some measure of quality to our system.
Congress and the Obama administration have brought us ACOs, and you would think that they would feel some obligation as government stewards to provide guidance and oversight. But what has been their response? Susan DeSanti of the Federal Trade Commission said that “the antitrust laws encourage collaborations,” and that “antitrust is not a barrier here.”
As Cory Capps of Bates White Economic Consulting stated, “We could end up in the worst world,” one in which the delivery of care isn’t made more efficient but providers accumulate “greater pricing power.”
The tragedy is that all of the attention that has been diverted to these ill-defined and perversely-incentivized ACOs has distracted our nation’s policy makers from seriously considering reform that actually would achieve our goal of quality, affordable care for everyone – an improved Medicare for all. Focus, folks.
By Drs. Margaret Flowers and Andy Coates
Photo courtesy of Dr. Walter Tsou
These words, taken from a speech by Dr. King, were the refrain of a speech today by the actor Wendell Pierce. He was the one of few speakers at the One Nation rally who began to express what we and our colleagues have experienced since George Bush left the White House. We must be dissatisfied until we have social and economic justice for all in this nation. Dissatisfaction fuels our drive to end the great inequalities in this nation until we succeed.
The United States is an outlier, abnormal when compared to other industrialized nations in so many ways. We have the greatest income inequalities (except for Singapore) and this inequality is associated with poor performance in many areas of social well-being. We spend the most on health care and we leave the greatest percentage of our population either completely uncovered (50.7 million) or partially covered and at risk of financial ruin in the face of a serious accident or illness.
The One Nation march which was held in Washington, D.C., Saturday was intended to support efforts to elect Democrats in November and speaker after speaker expounded the importance of electing Democrats. Yet we met very different concerns among those in attendance.
We heard and saw the majority of people talking about issues, not elections. We joined with coalitions marching for peace and for immigrant rights and unions demanding the right to organize, workplace dignity, job security and a living wage. There were signs with slogans supporting an end to corporate power and personhood, as well as those for jobs, education and an end to racism. Teachers were in the house, defending public education.
Our aim was to invite other attendees at the rally to renew support for single-payer health care reform/improved Medicare for all. We were doctors and health care advocates from around the country standing together to make it clear that we still have a health care crisis and we still need single payer. And we were greeted warmly, as people joined our chants, took our literature and signs, and cheered as we passed.
The health reform that recently passed does not solve the fundamental problems that we have in this country. Simply put, it will cost too much and cover too few. Today we saw that another reform is still possible.
We know that two-thirds of people in the U.S. support single payer. Among Democrats, it is closer to 4 out of 5 who support it. Yet in spite of the great popularity of single payer, many leading Democrats became convinced that single payer was not politically feasible and accepted the bill that passed. They supported a law written by and for the very industries that profit off our sick-care non-system, instead of the opinions of their political base. While the party continues to laud their bill as a great success, today we saw that it is imperative that we continue to reach out to Democrats with our message.
And so, single-payer supporters gathered in Washington. Doctors wore their white coats or scrubs. Advocates decorated themselves with stickers and carried signs. We marched as a group through the crowds carrying banners and we chanted, “We still need health care: Medicare for all!” And everywhere we went, people cheered and took photographs.
The single-payer movement is building. We must make this manifest. We must be present and spread our message. One of the banners we carried read, “Every day, 120 Americans die from lack of health care. It doesn’t have to be this way. Single payer now. Everybody in, nobody out.” This is a human tragedy that is unacceptable.
And so let us be dissatisfied until this health injustice ends.
Insurance firms infuse GOP with big doses of cash
By Noam N. Levey
October 4, 2010
Faced with wide-ranging new requirements in the health care law, the insurance industry is pouring money into Republican campaign coffers in hopes of scaling back regulations while preserving the mandate that Americans buy coverage.
Since January, the nation’s five largest insurers and the industry’s Washington-based lobbying arm have given three times more money to Republican lawmakers and political action committees than to Democrats.
That is a marked change from 2009, when the industry largely split its political donations between the two parties, according to federal election filings.
The largest insurers also are paying hundreds of thousands of dollars to lobbyists with close ties to key Republican lawmakers who could be shaping health policy in January, records show.
Cigna’s head lobbyist, G. William Hoagland, a former senior Republican Senate aide, said the company hopes to get a more receptive hearing next year. “This is all political now,” he said.
“We generally support candidates whose views align with our business and health care interests,” said Aetna spokeswoman Anjie Coplin.
And Indianapolis-based WellPoint Inc., which was vilified by Democrats this year for proposing huge rate hikes in California, has given nearly nine times as much to Republicans this year.
Karen Ignagni, America’s Health Insurance Plans president, said she wouldn’t speculate about what Republicans would do if they retake the House and Senate in November.
But she acknowledged the industry’s interest in the GOP. America’s Health Insurance Plans has given the party twice as much as it has given Democrats this year.
“The numbers speak for themselves,” Ignagni said.
Well, that didn’t last long. The insurance industry supported the Democrats just long enough to get passed into law their one policy proposal made in insurance heaven: a mandate for everyone to purchase their private insurance products. Now that we have to buy their plans, they want Republican-style market reforms to make sure that their insurance products are not priced totally out of the market, even if that leaves health care itself unaffordable.
What are these measures that Republicans support and that Democrats don’t?
* Insurers want to be able to sell their plans across state lines. By opening up markets in the less regulated states, insurers can sell more competitively priced products, even if they provide patients less protection against loss.
* They want to sell less expensive, high-deductible plans linked to health savings accounts that attract their favored healthier and wealthier clientele, even if it harms the sick by pushing them into more expensive, higher-risk insurance pools.
* They want to increase wasteful taxpayer subsidies of their private Medicare Advantage plans in order to create incentives to shift more patients from our government Medicare program into their own industry plans.
* They want relief from having to insure high-needs, high-cost patients. They would do this by shifting the burden to taxpayer-financed high-risk insurance pools or reinsurance programs.
* They don’t want to be exposed to some of the transitional programs such as requiring coverage of children with preexisting disorders.
* They want to be sure that required “standard benefits” are defined as loosely as possible to protect their market of low cost products, even if those products fail to provide adequate protection.
* They want to be sure that rules for waivers will be applied liberally so that they can continue to offer innovative products such as the mini-med plans for McDonald’s employees that have basic benefits paying a maximum of $2,000 per year, or up to $10,000 maximum per year for the deluxe plan. (These plans are a cruel hoax.)
* They want to be sure that overall regulatory oversight will be relaxed as much as possible so that the free market can offer the highest quality insurance products at the very best prices (sic).
Right now Sandy and I have the pleasure and honor of hosting some of the Mad as Hell Doctors at our home during their current California tour in support of single payer. At dinner last night, one of them asked me if, when I’m writing the Quote of the Day, aren’t there times that I want to say… like… Bullshit!!… or something like that.
Yes! Right now. Bullshit!! Today I’m also a Mad as Hell Doctor!
We have to get this uncaring, thieving industry out of our health care and out of our lives. The Republicans won’t do that, but don’t ever forget that it was the Democrats who set up the framework that will keep them there forever – unless we start exercising more effectively our responsibilities to participate in a citizen-run democracy.
By Don McCanne
October 1, 2010
In the Quote of the Day for September 28, 2010, I wrote, “The $18,000 in average health care costs for a family of four is already over one-third of the median household income of $50,000.” Understandably, some readers perceived that I was implying that the average family with an income of $50,000 was paying an average of $18,000 out of that income for health care. That wasn’t my intent. I was trying to make the point that our current level of spending on health care is already far beyond the capability of the members of a typical household to pay their equally allocated share.
Also I should have refined the numbers a little bit more. The median household income is now $50,221, but the Census Bureau does not include the value of the employer contribution to the insurance premium in that number. According to the Hewitt report in my September 28 message, employers contribute $7612 per employee (including dependents if covered). So the median income with the employer insurance contribution added would be $57,833. The population with a median household income is not identical to the family of four described by the Milliman Medical Index (the average amount spent on actual health care for a family of four covered by an employer-sponsored PPO), but there is considerable overlap.
For purposes of describing how high health care spending is in relation to income, dividing the the Milliman Index of $18,074 by the adjusted median household income of $57,833 does provide a rough approximation of how much that is. It is still over 31 percent, though short of the “over one-third” I reported previously. Again, I can’t overemphasize that $18,074 is not the average amount that each family of four is paying directly out of its income, but it is the average amount that is being spent on health care on its behalf.
Even these numbers seem unbelievable. How could we possibly be spending that much when incomes are so low comparatively?
A very good friend of mine responded in appropriate disbelief. He wrote, “The information on the average health care costs that a family pays is difficult to determine, but the link here shows an average about $6,000 which is about 14% of the median household income.”
The link to an article on the cost of heath insurance:
Because it has been so difficult for many of us (including me) to grasp just how much we are spending on health care, I decided to provide a more detailed response. Since this reality check is so important, I decided to share my comments with others by making this the Quote of the Day for today (and you may wish to share it with others):
Response to a Dear Friend:
I knew that you would have a problem with these numbers. It doesn’t seem reasonable that the average health care costs for a family of four with employer-sponsored insurance is $18,000 when the median household income is $50,000. These numbers don’t seem to compute, but they are very real.
Let me start with the $6,000 (actually $6,328) for family insurance as cited in the article you sent. That number came from a report by AHIP (America’s Health Insurance Plans – the lobby organization that helped to orchestrate the reform bill).
AHIP – Individual Health Insurance 2009:
From page 4 of the report: “Nationwide, annual premiums averaged $2,985 for single coverage and $6,328 for family plans in mid-2009.”
That $6,328 is not health care costs, but rather it is the premium paid for family coverage in the individual insurance market. It is not the premium paid for an employer-sponsored family plan. That’s a very important distinction and here’s why.
The individual insurance market is highly dysfunctional, and was one of the primary motivators for the regulatory changes in the Patient Protection and Affordable Care Act (ACA). About 30 percent of individuals who apply for individual plans are denied coverage. The private insurers will cover only individuals with an unblemished health record. Most health care costs for those individuals are very low and often below the deductible. This is why the insurers can sell an individual family policy for only $6,328 – these are healthy people who rarely file significant claims. In fact, when they do file larger claims, the private insurers routinely look to see if they could find an omission in the application such as a prior yeast infection not reported, and then they would reject all claims and rescind the coverage. Both of these practices are illegal for employer-sponsored group coverage, which is partly why group coverage is more expensive, but they were very effective in limiting claims losses in the individual market. The new law requires guaranteed issue (all applicants accepted) and prohibits rescission (retroactive revocation of insurance). These two changes will wipe out the individual insurance market as we know it, and will result in skyrocketing insurance premiums.
Another reason that individual plans are so cheap (if you call $6,328 cheap) is that they do not provide nearly as good coverage – both in benefits and cost sharing. Individual plans frequently omit pharmaceuticals, mental health services, maternity benefits, etc. Also they tend to have larger deductibles ($1,000 to $25,000) and high coinsurance (a percentage of fees which is usually much higher than co-pays would be). The bankruptcy studies have shown that medical debt contributes to about 60 percent of personal bankruptcies, and three-fourths of those with medical debt had health insurance. Individual plans have deteriorated to a degree that they don’t keep people out of bankruptcy when they develop significant medical problems. The new law will establish a standard benefit package which will also drive premiums up, though it will still permit excessive cost sharing (at an actuarial value of 60 to 70 percent).
Another study done for AHIP by PriceWaterhouseCoopers:
From page 5: “This analysis shows that the cost of the average family coverage is approximately $12,300 today.”
Once again, this is not the costs of health care, but it is the average of family premiums paid by those in both the individual and employer-sponsored group market. Already you can see that group coverage is going to be higher when you remove the individual plans from the calculations.
Okay, now the Milliman Medical Index does not represent premiums paid, but rather it represents the average amount paid for health care for a family of four with an employer-sponsored PPO plan (Blue Cross, Blue Shield, etc.). It does not include the administrative costs and profits for the insurer; it includes only the average amount that was paid for actual health care for the family. It is an important number for business entities because it shows what health care actually costs. You should read the first couple of pages of their report since it really brings home what we are paying in health care. (Note that Milliman is an actuarial consulting firm for industry – so these are not numbers that we concocted.)
Milliman Medical Index:
From page 1 (3rd page of document): “The total 2010 medical cost for a typical American family of four is $18,074.”
But it’s even worse. This is what businesses and their employees are paying for health care. Keep in mind that this sector is the relatively healthy workforce and their young healthy families.
When you think about it, the private insurance industry has skimmed off the largest and healthiest sector of our society and is selling insurance to them – America’s workforce. The private insurers are having great difficulties selling affordable plans to employers because these costs even for the healthy are so high. They have been shifting more costs to patients through higher deductibles and other cost sharing, but they still can’t keep their premiums affordable. This is why Karen Ignagni of AHIP said over and over again during the debate on reform that this is not going to work unless the GOVERNMENT does something to control costs – a tacit admission that the insurers are incapable of controlling costs.
But think about this. If $18,074 is the average amount that health care costs for a relatively healthy family of four, then what is average cost if you include everyone in the calculation? That is, what is the cost per capita if you add up all health care spending in the nation and divide that by our population of 310,000,000? That number is available from the Office of the Actuary, Centers for Medicare and Medicaid Services (CMS).
Health Spending Projections:
From the table on page 523:
Projected National Health Expenditures (NHE) for 2010: $2,589.6 billion
NHE as percent of GDP: 17.3%
NHE per capita: $8,289.9
So if we put all of our health spending dollars into one giant insurance fund, we would be paying out an average of $8,290 for each man, woman and child in this nation. For that family of four, their share is $33,160. Think about what that means when the median household income is $50,000.
These numbers are very accurate, yet how could that be? How could we be spending so much per capita and yet the average family does not see health bills of that magnitude?
First of all, we fragment our insurance risks into multiple pools. The less healthy 20 percent of people consume 80 percent of our health care. Workers fall into the 80 percent of people who use only 20 percent of the care. Thus isolating the healthy workers and their families into employer-sponsored pools dramatically reduces the per person insurance premiums because of the much lower per person costs of these healthy individuals.
Let’s see what that would be for this healthy family of four. Milliman shows that their average health care costs are about $18,000. The new health care bill says that the plans should have an actuarial value of 60 or 70 percent, but let’s use 70 percent (the insurance pays an average of 70 percent of health care costs and the family pays an average of 30 percent out of pocket). Thus the insurer pays an average of $12,600, and the family pays an average of $5,400. The law also allows the insurer to keep 15 percent of the premium to pay the bills and the administrative costs, so the premium for the family would be $14,824 ($12,600 divided by .85). Thus the family pays, under the new law, an average of $20,223 (the premium plus the out-of-pocket expenses). Again, with a median household income of $50,000 no middle income family could afford that. That is why the law provides subsidies for both the premiums and for the out of pocket expenses. However these subsidies will not be adequate for most, so, under the new law, financial hardship is an almost inevitable consequence for those who face significant medical problems.
There is a much more important reason why families are not paying an average of $33,000. Although they receive their health care financing through risk pools for the healthy, most higher cost patients have their care financed through expensive risk pools for the sick. Some examples include Medicare, Medicaid, the VA system, state high risk health pools, safety-net institutions for the uninsured, and so forth. What do these have in common? They are financed by us – the taxpayers! In fact, if you add those together, and include the tax subsidies we are providing for employer-sponsored coverage, and include the private health insurance that tax payers purchase for federal, state and local government employees, we are already paying 60 percent of our entire national health expenditures through the tax system. That is largely invisible to most of us. Also, it shows that our health care financing is much more progressive than most realize. The wealthy are paying much more than average-income families.
If that’s already true, then why don’t we leave it like it is? The reason is that this fragmented system of financing health care wastes hundreds of billions of dollars each year – money that could be going to pay for health care. Perhaps worst of all, from our perspective, is that the current law will leave tens of millions uninsured; it will establish underinsurance as the norm (60 to 70 percent actuarial value); and it will do very little to slow the outrageous escalation in health care costs. A single payer national health program – an improved Medicare that covers everyone – would control costs and cover everyone. How that works is another story.
Hoping for Economic Recovery, Preparing for Health Reform: A Look at Medicaid Spending, Coverage and Policy Trends
by Vernon K. Smith, Ph.D., Kathleen Gifford and Eileen Ellis
Kaiser Family Foundation
In FY 2010, 48 states implemented at least one new policy to control cost and 46 states plan to do so in FY 2011 with some states reporting program reductions in multiple areas. While many states mentioned that ARRA (American Recovery and Reinvestment Act of 2009) helped to avoid or mitigate provider rate cuts, states still took action in this area. In FY 2010, 39 states implemented a provider rate cut or freeze compared to 33 states in FY 2009. In FY 2011, 37 states have planned provider rate restrictions. More than any other area, provider rates are linked to economic conditions. Under budget pressure, states turn to rate cuts to have an immediate budget impact and when conditions improve states are able to restore or enhance rates. States must balance the need to control costs with ensuring that provider rates are sufficient to maintain participation and access to services for enrollees.
In FY 2010, 20 states implemented benefit restrictions, the largest number in one year since the surveys began in 2001 and double the number from FY 2009. In addition to this record level of benefit restrictions in FY 2010, 14 states have planned benefit restrictions in FY 2011. These benefit restrictions include the elimination of covered benefits as well as the application of utilization controls or limits for existing benefits.
Under health reform, Medicaid will be expanded to cover nearly all individuals with incomes below 133 percent of poverty resulting in a large adult expansion in most states, particularly adults without dependent children who had historically been barred from coverage under the program. This expansion provides the foundation for new coverage under health reform. Not surprisingly, Medicaid officials are playing a lead role in preparing for health reform implementation, in many cases alongside insurance commissioners. Some of the key challenges that states will face in implementing reform include implementing the Medicaid expansion, transitioning to a new income eligibility methodology for Medicaid, setting up Health Insurance Exchanges and re-designing eligibility systems to coordinate with the Exchanges. These challenges are magnified by recent administrative cuts and state workforce reductions limiting states’ capacity to focus on new responsibilities. Many states said that they need
timely regulations and guidance as well as financial support to help them move forward and meet tight implementation timelines.
In spite of the infusion of funds from the American Recovery and Reinvestment Act of 2009 (ARRA), states are implementing Medicaid provider rate cuts and implementing Medicaid benefit restrictions. Yet with the enactment of the Patient Protection and Affordable Care Act (ACA), the Medicaid program will be greatly expanded to include almost everyone with incomes below 133 percent of poverty.
Medicaid always has been and always will be a welfare program for low-income individuals. Serving a population that lacks an adequate political voice, it also has been and always will be a chronically underfunded program.
Most physicians who do accept Medicaid patients do so, in spite of inadequate reimbursement, because they believe that everyone should have health care. With a much greater volume of Medicaid patients some physicians will certainly face the dilemma of crowd-out of privately insured patients because of the Medicaid overload in their appointment schedules.
Imagine a physician facing Medicaid overload, declining net revenues, and frustrations of trying to help patients negotiate a system with diminishing benefits and with impaired access to specialized services because of a lack of willing providers.
Certainly some physicians will feel that they have no other choice than to close their practices to Medicaid patients. What will that do to other physician practices that are already overloaded with Medicaid patients?
Adverse selection can sink insurers, but it would be much more tragic to see adverse selection sink the practices of those physicians who are trying their hardest to do the right thing.
If everyone were in the same health care program, say an improved Medicare for all, an underfunded, segregated sector of stigmatized and humiliated welfare patients wouldn’t even exist. They would have access to the same care the rest of us have. Wouldn’t that be nice for a change.
By Benjamin Day
Most of you will have missed a short article tucked away in yesterday’s Boston Globe, which – when put in context – speaks volumes about our health care system. Robert Weisman reports that Harvard Pilgrim – Charlie Baker’s former health insurance company – will be canceling all of its Medicare Advantage plans in Massachusetts and two other states, and will instead offer a plan allowing seniors to purchase supplemental coverage to traditional Medicare. This is particularly interesting in light of the recent retrospective article on Charlie Baker’s 1999 decision to pull Harvard Pilgrim out of Rhode Island, leaving 128,000 residents without health coverage.
Medicare Advantage plans were created in 2003 under George W. Bush and a Republican majority in both houses of Congress to privatize Medicare: it allowed seniors to choose a private insurance company to manage their Medicare benefits instead of the traditional public Medicare plan. The law was written to intentionally overpay Medicare Advantage plans. It allows them to cherry pick enrollees in parts of the country with the highest reimbursement rates, and Medicare Advantage plans have often used this overpayment to offer more extensive benefits and lure seniors away from public Medicare. This is not exactly what you would call an open market with a level playing field! The number of seniors enrolled in privatized, Medicare Advantage plans has ballooned to 28% of all enrollees in 2008, and insurance companies that provide Medicare Advantage coverage have been paid on average 14% more than it costs our public Medicare plan to cover the same people (see source here). Sounds like a lucrative business – so why would Harvard Pilgrim be jumping ship in Massachusetts? The answer is national health reform. It was a priority of Democrats to start reducing those overpayments to private insurance companies, for the simple reason that the country cannot afford them. This proposal, you may remember, elicited nationwide fear-mongering that Obama was attempting to slash benefits for seniors. Even with death-panels and granny-killing, the new national health reform will freeze Medicare Advantage reimbursement rates in 2011 and slowly begin eliminating the 14% overpayment in the following years.
This suddenly puts in perspective Harvard Pilgrim’s decision: ‘”We became concerned by the long-term viability of Medicare Advantage programs in general,” said Lynn Bowman, vice president of customer service at Harvard Pilgrim.’ In short, Harvard Pilgrim does not believe it can compete with traditional Medicare on an even playing field, and is getting out of the business.
Traditional Medicare is not a single payer insurance plan for seniors. The efficiency of a single payer system comes from providers – hospitals, doctors offices, nursing homes, etc – dealing with only one payer. That one payer is also able to plan and budget across the health care system. Medicare can not do any of these things and it, like the private insurance system, faces unsustainable cost growth. However as a public insurance program, Medicare is much more efficient than a private insurance company, spends less on overhead expenses, and is able to set lower but equitable rates for providers.
Today’s article tells us an interesting story about the incredible waste of our private insurance system, and the growing role it plays as an unnecessary middle man that drives up our costs. Hopefully we will be able to reclaim Medicare in the following years as an efficiently managed public service for seniors, not a profit center for health entrepreneurs, and pave the way for Medicare for All.
See Mass-Care’s website for more information.
Benjamin Day is Executive Director of Mass-Care.
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