Do premiums correlate with actuarial values?

Posted by on Monday, Mar 15, 2010

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.

Actuarial Value: A Method for Comparing Health Plan Benefits

By Roland McDevitt, Ph.D., Director of Health Research, Watson Wyatt Worldwide
California HealthCare Foundation
October 2008

Actuarial value is a summary measure of likely payments by a plan. It measures the percentage of medical expenses paid by a health plan for a standard population, ranging from 0.00 for a plan that pays nothing to 1.00 for a plan that pays all medical expenses.

Actuarial value only measures benefit payments. To fully assess whether a plan is a good purchase, consumers would want to know both the premium and the actuarial value. They may also want to consider other aspects of the plan, such as whether specific benefits like maternity are covered, whether the plan offers a broad choice of providers, and whether the plan has a good record of administrative performance.

Individual market plans in Los Angeles County, 2006
32 plans listed at
Actuarial value and premium for a 32-year-old

0.86 – $194
0.83 – $289
0.83 – $242
0.82 – $204
0.70 – $257
0.69 – $198
0.67 – $56
0.67 – $448
0.64 – $186
0.63 – $110
0.62 – $62
0.62 – $403
0.59 – $244
0.58 – $222
0.57 – $81
0.56 – $50
0.56 – $69
0.49 – $193
0.49 – $283
0.47 – $244
0.46 – $83
0.46 – $111
0.46 – $278
0.46 – $87
0.45 – $77
0.44 – $298
0.44 – $72
0.44 – $166
0.41 – $93
0.41 – $60
0.39 – $149
0.34 – $75

If the policy goal is to provide a single number that consumers can use to compare the relative value of different benefit packages, actuarial value presents a more robust measure than any single cost-sharing provision.


H.R. ____

House of Representatives
March –, 2010

To provide for reconciliation…

Table of premium percentage limits and actuarial value percentages based on income tier

Family income of 350% through 400% of federal poverty level (FPL)
Final premium percentage – 11%
Actuarial value percentage – 70%

Reference premium amount – average premium for the 3 basic plans in the area for the plan year with the lowest premium levels

An important finding in this Watson Wyatt report is that the premium paid for a private insurance plan has a very poor correlation with the percentage of medical expenses that are paid by that plan on average, as represented by the actuarial value. In this list from 2006, a plan that paid 86% of the medical expenses had a premium of $194, whereas another plan that paid 44% of expenses had a premium of $298.

Another important observation is that most of these plans in the individual market have a comparatively low actuarial value. Almost half of them don’t even pay one-half of the medical expenses on average. Think of the burden on the typical family of a year’s worth of premiums plus one-half of all medical expenses.

Although following the numbers reminds you of a shell game, it is instructive to look at the reconciliation bill released by the House Budget Committee last night (link above). With a family income of 350% to 400% of the federal poverty level, the family would be required to purchase a plan with an actuarial value of 70%, and they would be required to pay up to 11% of their income for the premium. Thus the family would  be responsible for 11% of their income plus, on average, 30% of the medical expenses covered by the plan, plus all other costs not covered by the plan.

That family also would be limited to providers selected by the private insurer. In addition, that 11% of income cap on premiums applies only to the average of the three cheapest plans with a 70% actuarial value. Seeing the poor correlation with actuarial value, the family may feel compelled to purchase a much more expensive plan with the same 70% actuarial value if the cheapest plans do not include their personal health care professionals with whom they have an established relationship.

Furthermore, most would prefer to have a plan that has benefits closer to typical employer-sponsored plans which until now have had an actuarial value of about 80%, and sometimes more. The family would be responsible for the full additional costs of any such plan if they should upgrade. (Upgrade really isn’t the best choice of terms since all trends today actually constitute a downgrade from the traditional standard.)

The bottom line is that a family at 400% FPL is being priced out of health care, and a major factor contributing to this is that we are relying on an incompetent private insurance industry that can’t even price its products properly. And Congress is… yes… cramming that down our throats!

The “public option” and the wheelbarrow parable: Part 3
By Kip Sullivan, JD

In the second part of this three-part series, I reviewed the evidence indicating the “public option” campaign as well as “option” proponents in Congress refused to adopt criteria that would have guaranteed that the “option” would be large enough to survive competition with the behemoths that dominate America’s highly concentrated insurance industry. This failure to articulate a clear vision of what it would take to ensure large size in the “option” was the first indication that the “option” campaign gave higher priority to an insurance industry bailout than the “option.”

In this part – Part 3 of a three-part series – I review the second type of evidence that indicates the “option” campaign’s highest priority to date has been a bailout for Aetna et al. The evidence I review in this part indicates the “option” campaign never made the “option” a precondition for its support of the Democrats’ “reform” bill, and that even after the Senate passed a bill with no “option” in it the “option” campaign’s leaders (with perhaps the sole and fleeting exceptions of Howard Dean and continued to support the Senate bill.

No demand that the “option” be included in the final bill

The “option” campaign’s failure to insist that the Democrats’ “option” meet Jacob Hacker’s original criteria (or any other meaningful criteria for that matter), and their willingness to exaggerate the damage the Democrats’ little “option” would do to the insurance industry, were not the only signs that they cared more about the bailout than the “option.” In the final months of 2009 it became clear “option” proponents were not going to make inclusion of an “option” a precondition of their support for the Democrats’ “reform” bills. In short, it became clear “option” leaders couldn’t bring themselves to oppose what even they knew was an unadulterated insurance industry bailout.

This became increasingly obvious in the weeks after September 16 when Senator Max Baucus (D-MT), chair of the Senate Finance Committee, made it official that he would not include an “option” in his bill. “Option” advocates mounted a well-funded publicity campaign throughout the fall and early winter to urge Baucus, Senate Majority Leader Harry Reid and other Senate leaders to include an “option” in the final bill. But at no time – not even after the Senate passed a bill on Christmas Eve without an “option” – did leaders of the “option” campaign tell Democrats they were fed up and would oppose any bill without an “option.”

There were some rare exceptions, notably Howard Dean’s Democracy for America and (both organizations are members of Health Care for America Now). Dean spent a few days in December urging universal coverage advocates to oppose the Senate bill (see, for example, Dean’s December 16 comment on Vermont public radio and his December 17 op-ed in the Washington Post). But despite Dean’s encouragement, HCAN and HCAN member-organizations like the AFL-CIO, SEIU, AFSCME, Planned Parenthood Federation, and ACORN refused to do anything to stop the insurance industry bailout. Many of these organizations severely criticized the bill for not having an “option,” for including a “Cadillac tax,” for restricting the right to an abortion, etc. But none urged a no vote on the ground that the “option” had been stricken from the bill.

In fact, they did the reverse. They urged their followers to support the bill. Hacker led the charge just days after Dr. Dean’s Washington Post op-ed. In a piece published in the Huffington Post on December 20 entitled “Why I still believe in this bill,” Hacker wrote:

Now that the core demand of progressives has been removed from the Senate health care bill – namely, the public health insurance option – should progressives continue to support the effort? …. It would … be tempting for me to side with Howard Dean and other progressive critics who say that health care reform should now be killed. It would be tempting, but it would be wrong.

On December 15, HCAN’s blogger Jason Rosenbaum wrote: “I’d say there’s no question that Health Care for America Now believes the Senate bill doesn’t conform to our principles for reform…” But on December 24, the day the Senate passed its “option”-less bill, HCAN’s campaign director Richard Kirsch hailed the bill as “one big step closer to comprehensive health care reform.” And SEIU President Andy Stern declared, “Make no mistake about it, for working Americans this vote signals progress.”

The “option” campaign’s disinterest in promoting a large “option” (see Part 2), its failure to make even the weak version of the “option” a precondition for its support of the bailout, and its explicit support for the Senate bill are not the only indications the “option” campaign supports a bailout with or without an “option.” The campaign continues to promote slogans designed to drum up support for generic “reform” bills regardless of whether they contain an “option.” For example, has urged the public to “pass Obama’s health care plan” and for the last several weeks HCAN leaders have urged their followers to tell Congress to “get the job done.” On March 9, HCAN sponsored a rally outside a meeting of America’s Health Insurance Plans at which they promoted the false message that the insurance industry is scheming to oppose the bailout HCAN has worked so hard for. As HCAN’s Rosenbaum put it on the HCAN blog, the message of the rally participants was: “We need Congress to listen to us and not the insurance companies. We need to pass real reform now.” Demanding “real reform” is quite different from, “We want a ‘public option’ and we will not support a bailout bill that does not contain an ‘option.’”

Advocates within Congress almost as wishy-washy

Unlike Hacker and HCAN, some “option” advocates within Congress actually threatened to oppose legislation that did not contain the Democrats’ mouse version of the “option.” This happened more often in the House than the Senate. Throughout the spring, summer and fall of 2009, the Congressional Progressive Caucus (which represents 79 Democrats in the House) repeatedly stated that the “option” should be included in the final House bill. They even said on a few occasions their members would vote against a bill that contained no “option.” For example, on June 8 CPC co-chair Representative Raul Grijalva posted a press release on behalf of the CPC that read, “On April 2, the CPC sent a letter to Speaker Nancy Pelosi and Senate Majority Leader Harry Reid stating that a majority of its members would oppose any legislation that did not include a public option.”

Similarly, on September 3, 2009 the CPC sent President Obama a letter in which they rattled their swords once again for what they deemed to be a “robust public option” (which in “optionese” means a tiny “option” blessed by Congress with the meaningless authority to use Medicare’s rates plus 5 percent). “We continue to support the robust public option … and will not vote for a weakened bill on the House Floor or returning from a Conference with the Senate. Any bill that does not provide, at a minimum, a public option built on the Medicare provider system and with reimbursement based on Medicare rates — not negotiated rates — is unacceptable.”

However, when push came to shove, the CPC’s threat turned out to be meaningless bluster. The bill that ultimately passed the House in November did contain a little “option” but not the “robust” version (one authorized to use Medicare rates) the CPC said it had to have. According to Salon, only two CPC members (Representatives Eric Massa, who just resigned from Congress, and Dennis Kucinich) voted against the House bill. And now that President Obama is proposing a compromise bill with no “option” at all in it, the CPC is apparently abandoning even a “less than robust option.” Salon recently reported that Representative Grijalva hinted that he and his CPC colleagues would vote for the insurance industry bailout without the “public option” because, at a March 4 meeting with CPC members, Obama promised to work for an “option” in the future.

Senator Jay Rockefeller appears to be the only “option” proponent within the Senate who stated publicly he would withhold his vote for the “reform” bill if it did not contain an “option.” But Rockefeller soon retracted his threat. Today Rockefeller, like Hacker, argues against adding an “option” to the Democrats’ bailout bill. The failure of HCAN and its member organizations to adopt a similar position may have had something to do with Rockefeller’s about-face.

When did the bailout become the highest priority?

The press release published by HCAN on July 8, 2008, which announced HCAN’s formation, offered this semi-stirring explanation of its mission:

Health Care for America Now offers a bold new vision for health care reform: Americans can keep the private insurance they have, join a new private insurance plan, or choose a public health insurance plan.

Imagine how much less stirring this “vision” would have been if HCAN had announced the position it holds today. The press release would have gone something like this:

HCAN offers a bold new vision: Ten percent of Americans will be given the opportunity to enroll in a public health insurance plan, the other 90 percent will be forced to buy health insurance from the insurance industry, and the taxpayer will be asked to fork over half-a-trillion dollars per decade to the insurance industry. HCAN will not go to the mat for the tiny public program. If necessary, HCAN will jettison the little public program and throw their full support behind an insurance industry bailout. It is more important to HCAN that the insurance industry get millions of new customers and its half-trillion from the taxpayer than it is to enact any form of a public health insurance plan.

Obviously, if HCAN had enunciated this “vision” in July 2008, they would have turned off a sizable chunk of the universal coverage movement. They did not do that. They promised instead a huge public program that would be available to all Americans (they heaped straw in the proverbial wheelbarrow). Jacob Hacker adopted the same tactic.

It was obvious as early as last June when the Democrats introduced their moribund version of the “option” that this tactic had failed. With the failure of the Senate to include even the moribund “option” in the bill it passed on Christmas Eve, with the election of Scott Brown in Massachusetts in January, and with Obama’s refusal to include an “option” in the legislation he announced on February 22, it seems safe to say that what was a moribund “option” has become a dead “option.” However, a naked bailout of the insurance industry – a bailout without even the fig leaf of a little “option” pasted over it – remains a real possibility.

Is this what the “option” campaign wants? Given the campaign’s record, one would have to say it is. It may not always have been so. It is possible that two years ago most of the campaign’s leadership sincerely viewed a bailout as no more important than an “option.” But whatever the campaign leadership’s original motivation might have been, the record shows that at some point, no later than 2009, a bailout became their highest priority and the “option” became a lower priority. The record also indicates that HCAN et al. engaged in deception to conceal this fact.

For the record I would like to stress once again that my objection to the “option” is not that the “option” itself will waste tax dollars, enrich the insurance industry (the country’s most powerful opponent of single-payer legislation), retard the universal coverage movement, and threaten to snuff out the state-level single-payer movement. All those dire consequences flow from the insurance industry bailout – the mandate and the subsidies – not from the little “option,” at least not directly. My primary objection to the “option” is the role it has played in facilitating enactment of the bailout. It has played the role of the straw in the wheelbarrow parable. It has allowed the “option” campaign to turn itself into a campaign for an insurance industry bailout — right under our noses.

Kip Sullivan is a member of the steering committee of the Minnesota chapter of Physicians for a National Health Program. He is the author of The Health Care Mess: How We Got Into It and How We’ll Get Out of It (AuthorHouse, 2006).

Grayson’s “Public Option Act” or “Medicare You Can Buy Into Act”

Posted by on Friday, Mar 12, 2010

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.

Grayson Introduces Public Option Act

Congressman Alan Grayson
Press Release
March 9, 2010

Congressman Alan Grayson, D-Fla., today introduced a bill (H.R. 4789) which would give the option to buy into Medicare to every citizen of the United States.  The “Public Option Act,” also known as the “Medicare You Can Buy Into Act,” would open up the Medicare network to anyone who can pay for it.

Congressman Grayson said, “Obviously, America wants and needs more competition in health coverage, and a public option offers that.  But it’s just as important that we offer people not just another choice, but another kind of choice.   A lot of people don’t want to be at the mercy of greedy insurance companies that will make money by denying them the care that they need to stay healthy, or to stay alive.  We deserve to have a real alternative.”

The bill would require the Secretary of Health and Human Services to establish enrollment periods, coverage guidelines, and premiums for the program.  Because premiums would be equal to cost, the program would pay for itself.

“The government spent billions of dollars creating a Medicare network of providers that is only open to one-eighth of the population.  That’s like saying, ‘Only people 65 and over can use federal highways.’  It is a waste of a very valuable resource and it is not fair.  This idea is simple, it makes sense, and it deserves an up-or-down vote,” Congressman Grayson said.

H.R. 4789 – “Public Option Act” or “Medicare You Can Buy Into Act”: Click Bill Number. Enter H.R. 4789. Click Search. From there you can access the text of the legislation (very short bill), cosponsors, and other information.

Video of Grayson’s introduction of H.R. 4789 to House (5 minutes):

Article XVIII, Sec. 1818

Article XVIII, Sec. 1818A

Medicare premiums for 2010

Throughout the reform process members of Congress have been fighting over whether or not the reform legislation should include the option of purchasing a government-sponsored plan through the proposed insurance exchanges – the so-called “public option.” Since Congressman Alan Grayson introduced the “Public Option Act” or “Medicare You Can Buy Into Act” three days ago, a wave of enthusiastic support has been generated based on the perception that this is the perfect solution. Today’s comment briefly discusses this legislation, and it will sound really great at first blush, but do not draw any firm conclusions until you read through to the end.

Okay. What does this bill do? It simply allows any legal resident of the United States under age 65 to buy into Medicare. The program will be paid for by the premiums to be collected from the individuals purchasing the coverage. Six age brackets are established for purposes of pooling funds. This reduces the financial burden on younger, healthier individuals by requiring older individuals to pay the higher premiums that would be required to fully fund their less healthy risk pool.

Many are not aware of this, but Medicare already has a buy-in program. Under Title XVIII, Sec. 1818, individuals over 65 who have fewer than 40 quarters of Medicare-covered employment who would otherwise not be eligible for Medicare can still participate by paying a full premium for Part A coverage (hospital) or a reduced premium if they have 30 to 39 quarters of Medicare-covered employment. Likewise, under Sec. 1818A, disabled individuals whose entitlement ends due to having earnings that exceed the qualification level can also purchase Medicare Part A. Grayson’s bill adds a new Sec. 1818B to Title XVIII to expand the buy-in option to anyone under 65.

For 2010, the premium under Sec. 1818 and Sec. 1818A to buy into Medicare Part A is $461 per month. The premium for Part B (supplemental medical) is the same as for qualified retirees – $110.50 and up, based on income (ignoring the hold harmless exception). Thus the buy-in is about $571 per month, or more for those with higher incomes.

Although Medicare beneficiaries have a high rate of chronic disease plus the costs of end-of-life care, the risk pool is diluted with a very large number of healthy seniors, thus the premiums are not as high as one might think. On the other hand, it is likely that the risk pools for the older but still under 65 age groups in the Grayson proposal would be subject to adverse selection. Since the premiums must pay all costs, they may be higher, perhaps much higher, than the diluted post 65 risk pool. Grayson has not included any risk adjustment mechanism to compensate for this.

At any rate, the Grayson proposal seems to be the true public option, run by the government, that progressives have been fighting for. So what could be wrong with it?

The greatest concern of all is that it still does not fix our outrageously expensive, administratively wasteful, highly inequitable, fragmented method of financing health care. It merely provides another expensive option in our very sick system of paying for health care. Providing yet one more option that people can’t afford really hasn’t moved the process.

Although Medicare is a very popular program, it is highly flawed. It has an oppressive central bureaucracy. It fails to use more efficient financing systems such as global budgeting for hospitals and negotiation to obtain greater value in health care purchasing. There are serious questions about whether Medicare funds are being distributed equitably and in a manner to promote greater efficiency. Its benefit package is relatively poor, covering only about half of health care costs for our seniors. Most Medicare beneficiaries feel that they essentially are forced either to purchase Medigap plans, which provide the worst value of all private health plans, or to enroll in Medicare Advantage plans, which waste too many tax and premium dollars. It would be both much less expensive for all of us and better for Medicare beneficiaries if the extra benefits of these private plans were rolled into the traditional Medicare program. Part D should be stripped of its private market administrative and profit excesses and also be rolled into the traditional program. Medicare also has failed to introduce beneficial innovative programs such as the British NICE system, which would improve both quality and value in our health care.

When we advocate for an improved Medicare for all, we really aren’t advocating for Medicare with a few tweaks. We are advocating for replacing Medicare with a single payer national health program that covers everyone, which we can still call Medicare, just as the Canadians do. Adding another buy-in program to the two buy-in programs that already exist in our highly dysfunctional system will do virtually nothing to fix these flaws we now have. It does nothing to slow the growth in our national health expenditures, and the high premiums for a package of mediocre benefits will do little to reduce the numbers of uninsured.

For those who say that a Medicare buy-in is an incremental step towards health care utopia, explain precisely how that is going to work. Explain each problem that it solves. Explain how it is going to morph into a universal or near universal system in which each individual is paying the full actuarial value of the coverage. It won’t happen.

Playing with a Medicare buy-in is an unnecessary diversion at a time that we need to get serious about reform. We need to fix Medicare and expand it to cover everyone.  Nothing less will do.

Republicans deny facts on uninsured, but don’t care anyway

Posted by on Thursday, Mar 11, 2010

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

A Partisan Divide On The Uninsured

By Tara Sussman Oakman, Robert J. Blendon, Andrea L. Campbell, Alan M. Zaslavsky and John M. Benson
Health Affairs
March 11, 2010


The partisan split in Congress over health reform may reflect a broader divide among the public in attitudes toward the uninsured. Despite expert consensus over the harms suffered by the uninsured as a group, Americans disagree over whether the uninsured get the care they need and whether reform legislation providing universal coverage is necessary. We examined public perceptions of health care access and quality for the uninsured over time, and we found that Democrats are far more likely than Republicans to believe that the uninsured have difficulty gaining access to care. Senior citizens are less aware than others of the problems faced by the uninsured. Even among those Americans who perceive that the uninsured have poor access to care, Republicans are significantly less likely than Democrats to support reform. Thus, our findings indicate that even if political obstacles are overcome and health reform is enacted, future political support for ongoing financing to cover the uninsured could be uncertain.

Attitudes Toward Universal Coverage

Creating a national health insurance system to pay for most forms of health care was significantly more popular among people who perceived that the uninsured are unable to get care (72 percent) or able to get care with great difficulty (75 percent) than it was among those who perceived that it is not too difficult (38 percent) or not at all difficult (31 percent) for the uninsured to get care. Similarly, 63 percent of respondents who perceived that the uninsured do not get the same quality of care as the average insured person also favored national health insurance, as compared to a minority (43 percent) of respondents who said that there is no difference in the care obtained by uninsured and insured people.

These associations persisted even after political party and demographic characteristics were controlled for in multivariate analysis. As expected from prior literature, political party is still a significant predictor of support for reform. The effect of partisanship does not appear to be mediated by the perceptions of how difficult or not it is to obtain care. Republicans are less favorable toward national health insurance than Democrats, even after perceptions of care access or quality for the uninsured are controlled for.

Since the failure of the Clinton effort at reform there has been an intense campaign by innumerable entities to educate the nation on the problems with our health care system and the potential impact of the various solutions. The results of the surveys reported in this Health Affairs article are sobering, if not depressing.

A proliferation of studies has demonstrated beyond all doubt that uninsured individuals have difficulty gaining access to health care, and the results of those studies have been widely disseminated. Yet these surveys show that far too many individuals do not believe this is true in spite of the overwhelming evidence presented to them through the years.

This study demonstrated that those less likely to believe the facts about impaired access for the uninsured included Republicans, males, seniors, and the wealthy. What is perhaps most disconcerting of all is that even Republicans who do understand that lack of insurance impairs access still are opposed to creating a national health insurance system. They simply don’t care about the fate of those who must do without adequate health care.

Those supporting the current proposal before Congress should take note of this quotation from the article:

“Even among those who perceive that the uninsured have poor access to care, Republicans are significantly less likely than Democrats to support reform. Further, the elderly, who are a politically influential group because of their high political participation rates, are not cognizant of the problems faced by the uninsured. Thus, our findings indicate that even if President Barack Obama signs health reform into law, its future political support could be uncertain. A shift from Democratic to Republican control of either congressional body could mean the reduction or elimination of funding for insurance subsidies. Subsidies are essential to a coverage expansion that these critical constituencies ultimately deem unnecessary.”

The proposed private insurance subsidies are already so modest that RAND predicts that 25 million people will remain uninsured. When Republicans take control, under the proposed model of reform they wouldn’t even have to repeal the program. All they would have to do is slash the premium subsidies to wipe out the effectiveness of this legislation. Then the next step would be to reduce the actuarial value of the plans supported, thereby requiring sick and injured individuals to pay even more out of pocket than these plans already require.

Try that with a single publicly-financed and publicly-administered program that belongs to the people. The Republicans have already tried that with Medicare, and though they caused some damage, the program barely budged.

We desperately need a single program built on a solid foundation, a program that belongs to all of us – an improved Medicare for all.

Effective comparative effectiveness research

Posted by on Wednesday, Mar 10, 2010

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.

Medicine in the dark

By Michael Hochman and Danny McCormick
Los Angeles Times
March 10, 2010

Some doctors treat patients with early-stage prostate cancer with radiation. Others favor surgery, while some advocate only close monitoring. Which approach is most successful? No one knows.

When it comes to diabetes management, doctors don’t have answers to key questions: At what point should insulin be started? Is it safe to lower the blood sugar to normal levels? What is the best way to monitor blood sugar control?

Similarly, endocrinologists don’t know what is the best way to treat patients with hyperactive thyroids. Doctors in Europe typically use medications, while those in the U.S. more frequently give radioactive iodine. Only limited evidence is available to guide the decision.

It may seem perplexing that there is so much uncertainty about these relatively simple questions. All of the above treatments have been around for decades. Shouldn’t we have definitive answers by now?

In this week’s issue of the Journal of the American Medical Assn., we report the results of a study that may help explain why we don’t. In the study, we analyzed 328 medication studies recently published in six top medical journals and found that just 32% were aimed at determining which available treatment is best. The rest were either aimed at bringing a new therapy to market or simply compared a medication with a placebo. Whether the therapy was better or worse than other treatments was simply not addressed.

Research involving new therapies is of course crucial for medical progress, but there is also a need for research that compares the effectiveness of the rapidly growing array of existing therapies and approaches.

So why, then, did only a third of medication studies focus on helping doctors use existing therapies more effectively? The answer lies in the fact that pharmaceutical companies fund nearly half of all medication research, including the lion’s share of large clinical trials. For obvious reasons, commercially funded research is primarily geared toward the development of new and marketable medications and technologies. Once these products have won approval for clinical use, companies no longer have incentives to study exactly how and when they should be used.

In support of this claim, we found that 87% of the comparative effectiveness studies we analyzed were funded entirely or in part by non-commercial sources, such as nonprofit foundations or government institutions. In addition, 91% of studies comparing medications with non-pharmacologic therapies (such as surgery or lifestyle changes) received non-commercial funding, as did 94% of studies comparing different medication strategies (such as different blood sugar targets in patients with diabetes) and 90% of studies comparing the safety profiles of medications. Non-commercial sources funded 100% of studies comparing the cost- effectiveness of different treatments, though only 2% of the studies we reviewed included such analysis.

Congress recently appropriated more than $1 billion in the American Recovery and Reinvestment Act to promote comparative effectiveness research. This is a good first step, but the money will need to be spent carefully. We believe studies that address fundamental clinical decisions — such as when to use medications versus surgery or how to use therapies more effectively — should be favored over those that simply compare two alternative medications. There is also clearly a need for more research on the comparative safety and costs of different treatments. And although many researchers are thankful for the new research funds, it may soon become apparent that $1 billion is far from sufficient.

Reform is also necessary to ensure that commercially funded research is designed in a way that is more helpful to doctors. Our study showed that two-thirds of commercially funded randomized trials compared medications with a placebo rather than with another active therapy. Though placebos are appropriate when no alternative therapies are available, in many of the trials we examined, we suspect alternative therapies could have been used instead. For this reason, we believe that regulatory agencies such as the Food and Drug Administration should only approve new therapies that have been shown to be at least as good as existing therapies whenever such alternatives exist. Alternatively, though more controversial, some experts have proposed that pharmaceutical companies should be allowed to fund — but not design — clinical studies.

As medical science advances, clinical decision-making will only become more complex. Only by expanding public funding for comparative effectiveness research can we hope to put existing medical treatments and healthcare services to their best use. Doing so would ensure that national research priorities are determined by patient needs rather than by corporate agendas.

Michael Hochman, MD, is an assistant professor of clinical medicine at USC’s Keck School of Medicine. Danny McCormick, MD, MPH, is an assistant professor of medicine at Harvard Medical School.,0,3812725.story

JAMA – Characteristics of Published Comparative Effectiveness Studies of Medications, by Michael Hochman, MD and Danny McCormick, MD, MPH:

JAMA editorial – Charting a Path From Comparative Effectiveness Funding to Improved Patient-Centered Health Care, by Patrick H. Conway, MD, MSc and Carolyn Clancy, MD:

Rather than using excerpts from the JAMA article by Hochman and McCormick as today’s qotd, their op-ed in today’s Los Angeles Times provides an even better summary of their findings along with their astute comments.  Their op-ed obviates the need for me to provide any additional commentary.

The “public option” and the wheelbarrow parable: Part 2
By Kip Sullivan JD

It is way past time for “public option” advocates to take a stand either for or against an insurance industry bailout.

Do “option” advocates support the individual mandate in the Democrats’ legislation (a requirement that all uninsured Americans buy health insurance from the bloated insurance industry) and the subsidies that will allegedly make the mandate affordable, even if these provisions are enacted without an “option”? Or do they oppose the mandate and the subsidies if there is no “option” in the final legislation? Does the “robustness” of the “option” have any bearing on their decision, or will any provision with the title “public option” in it suffice to win their support for an insurance industry bailout?

For the last two years, the leaders of the “option” campaign have been extraordinarily vague about what sort of “option” they stand for and whether the “option” is more important to them than an insurance industry bailout. They have refused to adopt minimum criteria that would guarantee that the “option” would be large and they have refused to make the “option,” even the tiny “option” unveiled by congressional Democrats last June, a precondition for their support of the Democrats’ “reform” bills. On the other hand, they have urged their followers to support the Democrats’ bills and, in the case of the Senate bill, they have even urged their followers to support the bill after the “option” was stripped from it.

These tactics – creating a hullabaloo over a vaguely defined “option” but then supporting bailout legislation that contains no “option” – remind me of an old parable about an employee of a factory who, night after night for many years, left the factory pushing a wheelbarrow filled with straw. At the factory gate, the security guard carefully lifted the straw to see what if anything the employee might be stealing and, finding nothing, waved the guy on. On his last day of work, the employee approached the factory gates without his usual wheelbarrow filled with straw and said goodbye to the guard. “What were you stealing all those years?” the guard asked. “I’m sure you were stealing something but I never figured it out.”

“Wheelbarrows!” replied the employee.

Like the wheelbarrow thief who induced the guard to focus on the straw, leaders of the “option” campaign have been promoting a bailout of the health insurance industry – the centerpiece of a plan proposed by the insurance industry — right under the noses of progressives and the media. They have done so by focusing all their rhetoric on the “option.” The public has been inundated by a blizzard of news stories, blog comments and email appeals about the politics of the “option” and how it will work. Will this or that party or politician support it? Will it be open to large employers? Will the co-op version work as well as the more abstract version in the House bill? Will the “option” have the authority to use Medicare’s rates plus 5 percent? Will it attract more than its share of sick enrollees? Should it be in place prior to 2013? And so on.

On the other hand, the “option” campaign has been utterly silent on the most fundamental question one could ask about the bailout: Should Congress enact a requirement that most non-elderly Americans become compulsory customers of the insurance industry and should the taxpayer finance massive subsidies for the insurance industry, with or without an “option”?

Health Care for America Now (HCAN), the most prominent advocate of the “option,” and its allies both inside and outside Congress have been silent on virtually every issue raised by this question: Is it ethical to force Americans to purchase the product of a particular industry? Could the individual mandate backfire on Democrats, especially when the news media starts publishing stories about the IRS enforcing fines against middle-income Americans who don’t or can’t obey the mandate? Will the bailout strengthen the insurance industry and thereby postpone the day America enacts a Medicare-for-all system? Will federal courts decide that the individual mandate, the subsidies and the exchanges pre-empt state single-payer legislation and thereby snuff out the state-level single-payer movement? (See discussion of this issue in my opening statement for a recent live blog and the discussion that followed.) How, if at all, are the answers to any of these questions altered by the enactment of the tiny “option” contained in the House bill?

On these and other critical questions about the bailout – the mandate that Americans buy insurance plus the tax-financed subsidies for the insurance industry in the amount of a half-trillion dollars per decade – the “option” leadership has been silent. Their silence on these issues coupled with (a) their refusal to endorse criteria for the “option” that would guarantee the “option” would be large, (b) their hype about the “option” and (c) their support for the Democrats’ bills even if they contain only a tiny “option” or no “option” at all indicates their true priorities. Like the wheelbarrows in the parable, the “option” leadership’s true priority – the enactment of an insurance industry bailout – has been in plain sight for a long time.

In the remainder of this article I review the evidence indicating the “option” campaign failed to promote to the public or to members of Congress criteria that would have guaranteed the “option” would be large enough not only to survive but to take on the gigantic insurance companies that dominate every market in America today. In the last part of this three-part series, I review evidence indicating the “option” campaign never informed congressional Democrats that an “option” of any sort (large or small) was a precondition for their support of the Democrats’ “reform” legislation.

No minimum criteria for the “option”

The first sign that the “option” campaign would give higher priority to the bailout than the “option” was HCAN’s refusal to adopt any criteria at all for the “option” until long after the Democrats began writing their “reform” bills. Although the bill-writing process began no later than late 2008, HCAN waited until June 2009 to release four vague criteria, and then promptly ignored them.

The bill-writing process began formally in January 2009 in the Senate Finance and Senate Health, Education, Labor, and Pensions (HELP) committees when the new Congress convened, and informally as early as 2008 when Senator Ted Kennedy (chairman of the HELP Committee) convened secret meetings of the “workhorse group.“ (According to the Wall Street Journal, this group began meeting in early 2008. According to the New York Times, it began meeting in the fall of 2008.) The process began in the House in March 2009 when the chairmen of the three committees with jurisdiction over health care reform agreed to write a single House “tri-committee” bill. The bill-writing process was completed by the Senate HELP committee on June 9, 2009 and by the House “tri-committee” on June 19, 2009. On those dates those committees published draft versions of their bills. Nearly identical versions of these bills were formally introduced a few weeks later.

HCAN was well connected in Congress and must have known long before the public did that the HELP Committee and the tri-committee would recommend tiny, ineffective versions of the “option.” (The AFL-CIO, an HCAN steering committee member, was a member of the “workhorse group.”) Nevertheless, HCAN waited until June 12, 2009 to post four vague “option” criteria. Of these, only two related to size, and both of these (“national and available everywhere” and “bargaining clout”) were merely expressions of a desired goal, not descriptions of criteria that had to be met to achieve the goal. Merely expressing the wish that the “option” be “available everywhere,” for example, does nothing to ensure that the “option” is big everywhere.

HCAN could have endorsed Hacker’s original criteria

If HCAN had been serious about promoting a large “option,” it would have endorsed the five criteria proposed by Jacob Hacker, the godfather of the modern “option,” and it would have done so early in the bill-writing process, not after the bills were written.

In papers published in 2001 and 2007 Hacker set forth five criteria that would have guaranteed massive size in the “option:

(1) The program had to be pre-populated (he proposed that states “shift” current Medicaid and SCHIP enrollees and the uninsured into the program prior to the start of operations);

(2) People who enrolled in the public program would get tax-financed subsidies to pay the the public program’s premiums while people who signed up with insurance companies would not;

(3) All non-elderly Americans would be eligible to enroll in the public program;

(4) The public program would have the authority to use Medicare’s reimbursement rates; and

(5) The insurance industry would have to offer the same coverage required of the public program.

According to Hacker as well as the Lewin Group (which published analyses of Hacker’s proposal in 2003 and 2008), a public health insurance company that met these five criteria would be able to insure half the nonelderly population – in 2007, 129 million people – and charge premiums far below those of the insurance industry.

But because the HELP committee and the three House committee chairmen who wrote the House “tri-committee” bill were far more interested in being able to say the “option” would “compete with the insurance companies on a level playing field” than they were in creating a huge “option,” they incorporated only the fifth criterion (insurance companies had to offer comparable coverage) and abandoned the other four. The abandonment of the other four, especially the criteria calling for pre-population and subsidies only for the “option,” resulted in a much weaker and smaller “option” program than the one envisioned by Hacker. The Congressional Budget Office estimated the HELP committee “option” would insure no one and that the House bill would insure only 6 million people. (I have written elsewhere about why even this dismal estimate of the House “option’s” size by the CBO was excessively rosy.)

“Option” proponents cave

June 2009, then, would have been an obvious time for HCAN, Hacker and other “option” proponents to rise up on their hind legs and demand that if Democrats wanted their support for an insurance industry bailout the Democrats would have to take their sick little “option” back to the drawing board and draft an “option” based on Hacker’s original criteria. That didn’t happen. As I have reported earlier, in June 2009 the “option” campaign entered the “switch” phase of what was turning out to be a “bait and switch” campaign. Even though they had to have known by June 2009 that the “option” in the HELP and tri-committee bills were travesties of Hacker’s original proposal, the “option” campaign pretended otherwise. They called the Democrats’ microscopic “options” “robust” and “strong,” and lavished praise on the bills – bills which contained the bailout provisions so coveted by the insurance industry.

Neither HCAN, Hacker nor any other leading individual or group within the “option” campaign made an effort to restore the pre-population and subsidy criteria, and apparently none made any effort to restore the criterion calling for the “option” to be universally available. When Richard Kirsch, HCAN’s campaign director, testified in favor of the House “reform” bill before a subcommittee of the House Energy and Commerce Committee on June 23, 2009, Kirsch knew or should have known that the “option” in that bill did not meet Hacker’s pre-population, subsidy, or universally available criterion. Kirsch, however, made no effort to call his listeners’ attention to that fact. To the contrary, he concealed the small size of the “option” by telling the committee it would be available to everyone.

The only criterion of the four abandoned by Democrats that “option” leaders went to bat for was the one authorizing the “option” to use Medicare’s rates to reimburse clinics and hospitals, and even here they could not bring themselves to fight for Hacker’s original criterion. They pushed not for Medicare’s rates (which are about 20 percent below the rates insurance companies pay), but Medicare’s rates plus 5 percent.

But without Hacker’s first three criteria – the pre-population, subsidy, and available-to-all criteria, which were essential to guaranteeing the “option” would start out large and stay large – the demand that the “option” be given the authority to use Medicare’s rates plus 5 percent was meaningless. Giving a microscopic “option” the authority to use low rates is like giving first-graders the authority to bench press 400 pounds. They can’t do it, and giving them permission to do it doesn’t change that fact. Similarly, an “option” program that represents zero to 6 million people cannot expect clinics and hospitals to agree to be paid below-industry rates (see my discussion of “the chicken and egg” problem here). No dispensation or blessing from Congress is going to change that. What the “option” needed from its supporters was an uncompromising insistence upon large size on the day it opened for business. But the “option” campaign made no effort to fight for the criteria that would guarantee large size. (As “option” proponent Jon Walker recently explained, “option” proponents did, however, adopt the ludicrous label “robust” to distinguish a tiny “option” with the authority to use Medicare rates plus 5 percent from a tiny “option” that does not have that authority. The label was extremely misleading.)

“Option” proponents in Congress equally incompetent

Members of Congress who supported the “option” adopted tactics virtually identical to those of the “option” campaign, and thereby revealed that they too cared more about the bailout than the “option.” They refused to adopt criteria that would guarantee large size in the “option,” they refused to alert the public that the Democrats’ “option” was a mere shadow of Hacker’s original version, and they insisted on calling the Democrats’ scrawny “option” “robust” if it included the Medicare-rates-plus-5-percent provision.

In one of their first letters to the Democratic leadership in the House expressing support for the “option,” the Democratic Congressional Progressive Caucus (CPC) failed to say a word about Hacker’s original criteria. In fact, they made things worse. Two criteria the CPC did endorse in that letter – that subsidies should go to the insurance industry as well as the “option,” and that the “option” pay providers “competitive rates” – nullified two of Hacker’s original criteria (the subsidy and Medicare-rates criteria). The nullification of these criteria would have greatly reduced the power of the “option” vis a vis Hacker’s original version.

Like HCAN, the CPC waited till long after the bill-writing process had begun to develop a list of criteria for the “option.” On June 8, 2009 (four days before HCAN released its four vague “option” criteria), the CPC released the contents of a June 5 letter to Speaker Nancy Pelosi which contained a one-page mish-mash of “principles” they said the “option” had to meet. The mish-mash included, for example, a call for dental coverage and “transparency” in the “option.” On the other hand, it mentioned only one of Hacker’s original principles (the one requiring that all non-elderly Americans be allowed to join the “option”). To make matters worse, the mish-mash included the same two criteria the CPC had adopted earlier which nullified Hacker’s subsidy and Medicare-rate criteria. Unlike HCAN, which never summoned the courage to say it would oppose legislation that did not meet its criteria, the CPC did say in this letter to Pelosi that it would “oppose” the final House bill if it did not include an “option” that met its “principles.” As we shall see in Part 3, this threat turned out to be a bluff.

“Option” proponents in the Senate were even less assertive about spelling out criteria for the “option” and demanding that they be met than the CPC was. A May 29, 2009 letter from 16 Senators to Senators Baucus and Kennedy (chairs, respectively, of the Finance and HELP committees) urging them to include an “option” in their committees’ bills mentioned no criteria. Over the next nine months, nothing changed. On February 16, 2010, Senator Michael Bennet (D-Utah) and three of his colleagues sent a letter to Senator Harry Reid (D-NV) urging him to restore “a strong public option” to the Senate bill. (This letter was subsequently endorsed by two dozen other Senators.) Although this one-page letter used the phrase “public option” 15 times, and although half the time the word “strong” preceded the phrase, the letter made no attempt to define what “strong” meant.

Senator Ron Wyden made an effort late in the 2009 session to make the “option” available to all non-elderly. He received very little support from “option” proponents and his effort failed.

These isolated and, in the case of the CPC, confused efforts by members of Congress to reinvigorate the moribund “option” are further evidence that HCAN and other advocates of the “option” were doing nothing to create pressure on Congress to adopt minimum criteria that would guarantee that the “option” would start out large and stay large.

Compromising on the large “option” had consequences

The small size of the “option” endorsed by Democrats, and the disinterest among “option” proponents both inside and outside Congress in strengthening the “option,” meant the Democrats’ “option” would pose virtually no threat to the insurance industry. It meant the “option” would not be available to the vast majority of Americans (according to the Congressional Budget Office it would be available to about 10 percent of us), and would have very little impact on health care costs in the US.

The small size of the “option” meant, furthermore, that the “option” campaign’s slogans, which arguably had some integrity prior to the introduction of the Democrats’ mouse version of the “option” in June 2009, became false advertising thereafter. No longer could the campaign say they were promoting “quality affordable health care for all.” They were only promoting coverage for some. No longer could they say, “If you like your health insurance you can keep it.” The reality was that the individual mandate plus the tiny “option” meant, “If you don’t like your health insurance, you must keep it (because unless you’re among the 10 percent of Americans with access to the exchange, you won’t have access to the ‘option’”). No longer could the “option” campaign claim the “option” would cut the cost of health care in the US.

As health policy, the “public option” was worthless. But as a political tool it was priceless. As the straw distracted attention from the wheelbarrow, so the “option” distracted attention from the fact that the health care “reform” promoted by the “option” campaign will criminalize the uninsured and transfer hundreds of billions of dollars of public funds to private insurance companies.

Kip Sullivan is a member of the steering committee of the Minnesota chapter of Physicians for a National Health Program.

David Cutler on ten ideas to bend the cost curve

Posted by on Tuesday, Mar 9, 2010

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

Health Reform Passes the Cost Test

By David M. Cutler
The Wall Street Journal
March 9, 2010

Many people are worried that the health-care reform proposed by President Obama and congressional Democrats will fail to bend the “cost curve.” A number of commentators are urging no votes because of this, and Republicans have asked the president to start health reform over, focusing squarely on the issue of cost reduction.

These calls overlook the actual legislation. Over the past year of debate, 10 broad ideas have been offered for bending the health-care cost curve. The Democrats’ proposed legislation incorporates virtually every one of them. Here they are:

• Form insurance exchanges. These would help curb underwriting and inefficient marketing practices that raise costs in the small-group and individual insurance markets. This is addressed in all the House and Senate bills, and the president’s proposal. Grade: Full credit.

• Reduce excessive prices, including those of supplemental plans enrolling Medicare beneficiaries. The president’s proposal reduces these Medicare Advantage overpayments and others to different providers, even in the face of Republican claims that reducing such overpayments is tantamount to rationing care for seniors. Grade: Full credit.

• Moving to value-based payment in Medicare. Both Democrats and Republicans have called for moving from a system where volume drives reimbursement to one where value drives reimbursement. The president’s proposal includes virtually every idea offered for doing this. Grade: Full credit.

• Tax generous insurance plans. Health-insurance benefits are excluded from income taxation, providing incentives for excessively generous insurance. Many economists have proposed capping the tax exclusion to reduce these incentives. The president’s proposal taxes some of the most generous policies, though it has deferred the date by which these taxes take effect. Grade: Partial credit.

• Empower an independent Medicare advisory board. Interest-group politics intrudes too deeply within the mechanics of Medicare policy, raising program costs and hindering efforts to improve care. Despite powerful opposition, the president proposes this independent board and a process for fast-tracking such recommendations through Congress. Grade: Full credit.

• Combat Medicare fraud and abuse. The administration has started an active task force to combat these problems. Other ideas to reduce fraud and abuse were presented at the recent health-care summit, and were incorporated in the president’s proposal. Grade: Full credit.

• Malpractice reform. Defensive medicine is a small but important driver of medical spending. The reform proposal makes some headway, encouraging states to experiment with alternative mechanisms to reduce malpractice burdens. More could be done—for example, specialized malpractice courts and a safe harbor for physicians practicing evidence-based medicine—but the president’s proposal makes a start. Grade: Partial credit.

• Invest in information technology. Many studies suggest savings in the tens of billions of dollars from IT investment. The stimulus bill passed a year ago contains funds to wire the medical system over the next few years, and the administration is supplementing this with significant funds to analyze the comparative effectiveness of different treatments—even in the face of “death panel” claims. Grade: Full credit.

• Prevention. The president’s proposal includes significant public-health investments, provides new incentives for physicians to focus on preventive and chronic care, and opens Medicare to finding new ways of supporting prevention. The only area of weakness is the lack of a junk food tax or tax on sugar sweetened beverages. Grade: Partial credit.

• Create a public option. A public insurance option would provide competition for insurers in areas that are nearly a monopoly and provide a path for reforms in Medicare to expand readily in the under-65 population. The public option was eliminated because of Republican opposition, however. Grade: No credit.

So reform gets full credit on six of the 10 ideas, partial credit on three others, and no credit on one. The area of no credit (a public option) is because Republicans opposed the idea. One area receives only partial credit because of Democratic opposition (malpractice reform) and two other areas reflect general hesitancy to increase taxes (taxing Cadillac plans and taxing drivers of obesity).

Why is reform viewed so negatively? In part, it may reflect the perfect being the enemy of the good. If the only passing grade is 10 out of 10, then reform clearly fails. But given where the Republican Party is on a public option, no reform will get a passing grade. If both parties were willing to raise taxes and Republicans negotiated malpractice reform for their overall support, we could probably get a nine out of 10.

Reform is also viewed negatively because official scorekeepers do not believe anything on this list other than reducing prices will save much money. The Congressional Budget Office has consistently estimated that policies built around changing incentives and thus encouraging more efficient care will not have any effect on cost trends. My own calculations, mirrored by other observers and a host of business and provider groups, suggest that the reforms will save nearly $600 billion over the next decade and even more in the subsequent one.

Of course, no one knows precisely how much medical spending increases will moderate. But one cannot doubt the commitment to try. What is on the table is the most significant action on medical spending ever proposed in the United States. Should we really walk away from that?

Mr. Cutler is a professor of economics at Harvard University. He was senior health-care adviser to the Obama presidential campaign.

There is an important debate taking place as to whether or not the Obama proposal, based on the Senate bill, will control health care costs. President Obama and his supporters contend that every idea on controlling costs is in this bill. The private insurance industry contends that premiums will continue to increase at unsustainable levels because this measure does very little to control rising costs. Who is right?

Harvard economics professor David Cutler served as a health care adviser to the Obama presidential campaign and is well situated to present the arguments in support of the position that the Obama proposal will “bend the cost curve,” slowing the rise in health care costs. Let’s look at the arguments that he presents in this WSJ article.

*  Form insurance exchanges.

Private insurance plans to be offered through the exchanges will have higher premiums than plans currently in the individual market because the increased costs of the required benefits will more than offset any administrative efficiencies of these plans. Since the actuarial value of the exchange plans will be lower than the average of today’s employer-sponsored group plans, patients will have to bear a significant portion of the costs. The exchanges themselves create additional administrative costs which will reduce the savings from administrative efficiencies.

Although the administrative waste in our current fragmented financing system is profound, reform that would recover much of this waste was rejected before the process began. If there is any net savings at all from the exchanges, it will not qualify as even a footnote in the annual report on our national health expenditures (NHE).

*  Reduce excessive prices, including those of supplemental plans enrolling Medicare beneficiaries.

Studies have shown that one of the largest and most important contributors to our health care spending is the very high health care prices in the United States, when compared to other nations. In other nations, the government plays a significant role in pricing, but our legislators rejected any type of administered pricing that was not already in force in our public programs, instead leaving it to market competition of private plans. The fact that we have the highest prices is proof that the private plans have not been capable of controlling prices.

The proposal reduces the overpayments to private plans, but leaves in place their administrative excesses. Spending in Medicare actually could be reduced by eliminating both the Medicare Advantage plans and the Medigap plans. Medigap provides the very worst value of private health plans. It would be far less expensive to roll the extra benefits that are of value in these plans into the traditional Medicare program. That would enable modest savings while providing Medicare beneficiaries with a better program.

*  Moving to value-based payment in Medicare.

Cutler says that the president’s proposal “includes virtually every idea offered” for “moving from a system where volume drives reimbursement to one where value drives reimbursement.” Nice rhetoric, but the plethora of health policy literature provides almost nothing on how to do this. Current measurements of value in health care are very primitive and would have very little impact on our total health care delivery system.

Much of health care is not particularly productive even if provided in large volumes, but it is exceedingly difficult to slash the volume without slashing the truly beneficial services blended into that volume. We should certainly make greater strides in trying to sort out beneficial and non-beneficial services, but that is not dependent on the passage of this bill.

Many of the financing experiments in the proposal are limited to Medicare and wouldn’t even apply to the remaining 85 percent of our population. When we do find out how to obtain greater value in health care, we need to apply those principles to our entire population and not simply to Medicare beneficiaries. To do that would require an improved Medicare-like financing structure that includes everyone, because the fragmented market of private insurance plans could never pull their act together.

*  Tax generous insurance plans.

Employer-sponsored plans formerly provided an actuarial value of about 89 percent, leaving 11 percent of the costs as the responsibility of the employee. In an attempt to control premium increases – not cost increases – more of the costs have been shifted to employees, reducing the average actuarial value to about 80 percent. The exchanges will be offering plans at a 70 percent actuarial value.

In one of the great deceptions of the reform process, plans that actually protect patients from financial hardship are now called “generous insurance plans” which allegedly need to be taxed. The intent of the tax is to ratchet down the actuarial value of employer-sponsored plans to control the premiums, while reducing spending by increasing financial barriers through greater patient cost sharing. We need policies to help get patients the care that they need, not hinder access.

*  Empower an independent Medicare advisory board.

As discussed in a recent Quote of the Day, we do need a greater government role in improving our health care financing, which can help to transform health care delivery into a high performance system, whether that is through an Independent Medicare Advisory Board – an empowered MedPAC – or some other appropriate institution. Again, this should not be a role limited to 15 percent of our population. To be effective it should be applied to an improved Medicare that covers everyone. The Obama plan, since it perpetuates our fragmented system, would not enable such an institution to provide the impact that it should have.

*  Combat Medicare fraud and abuse.

Since the beginning of Medicare everyone knows that fraud and abuse are problems because of all of the reports of the government cracking down on these criminal activities. This legislation is not essential to perpetuate the government oversight that we need to reduce these losses. What we need instead is an expansion of this oversight to our entire health system and not limited to the government programs. The federal government formerly partnered with the private insurers in fraud prosecution, but it doesn’t anymore since the private insurers contributed very little but merely wanted a cut of the recovery. Can you imagine the insurers ever risking offending their network panels by conducting fraud investigations against them?

*  Malpractice reform.

Our malpractice tort system fails to provide most individuals who experience medical injury with any compensation. It isn’t working and needs to be reformed. If we do provide compensation for all victims of medical injury, costs will increase. Although that is appropriate, we can’t pretend that costs will decrease merely because of the enactment of this legislation.

*  Invest in information technology.

Electronic medical records and integrated information technology systems are expensive. Most studies indicate that they increase costs. One study demonstrated that they have enabled upcoding, resulting in higher prices for the same services. Well designed systems may provide some benefit, but don’t look for cost savings, and certainly don’t think that this legislation provides the key to unlock the IT world.

*  Prevention.

Prevention is very important, but overall it does not save money, and it is certainly not dependent on the enactment of this legislation.

*  Create a public option.

There is no public option in the Obama plan. Even if there were, it would not reduce the waste in our dysfunctional health care system, just as Medicare has been largely unable to do. In our fragmented system Medicare is merely an additional player, adding to the complexities and costs of health care financing and health care delivery. As a single entity covering everyone, an improved Medicare would provide the efficiencies that would recover hundreds of billions of dollars that could be used to fully cover the uninsured and underinsured.


The confusion in costs and “bending the curve” has resulted from the fact that the discussion primarily has been limited to consultations with the Congressional Budget Office on the federal budget and not on our national health expenditures. The very modest bending of the curve has related to federal budget projections. Much of that was accomplished by placing a greater financial burden on the people, especially moderate and upper-moderate income individuals and families. We need to fix the problem of our escalating total costs, and then adjust the federal budget to match the solution.

Now do like David Cutler and go back and score these “ten broad ideas that have been offered for bending the health-care cost curve.” Negative scores are not only permitted but should be used when appropriate.

Your final score?  (Ouch!)

AMA and Goldman Sachs on insurer market concentration and decline in price competition

Posted by on Monday, Mar 8, 2010

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

Health plans extend their market dominance

By Emily Berry
American Medical News
March 8, 2010

Members of Congress and state lawmakers have called health insurance executives on the carpet to make them explain why their companies are hiking individual insurance rates so steeply across the country. A recently released American Medical Association study of health insurance markets gives one answer: Because they can.

The AMA’s most recent look at the health insurance market — “Competition in health insurance: A comprehensive study of U.S. markets,” released Feb. 23 and based on 2009 data — finds that 99% of 313 metropolitan areas tracked would be considered to have “highly concentrated” insurance markets under guidelines used by the U.S. Dept. of Justice and the Federal Trade Commission. In its 2009 version of the study, the AMA found that 94% of metropolitan areas were ranked “highly concentrated.”

One insurer held 70% or more of the health plan market share in 24 of 43 states measured, up from 18 in 42 states in the previous year’s study. In 92% of the 313 markets in the report, one insurer held at least a 30% share.

In past releases of its survey, the AMA has noted that insurer market dominance has allowed health plans to force physicians into take-it-or-leave-it contracts. But this year the AMA — echoing other experts — noted that market dominance has allowed plans to give patients take-it-or-leave-it pricing.


A front-line perspective on 2010 commercial price & product trends

Transcript of conference call with Willis
Goldman Sachs
March 3, 2010

Matt Borsch, Goldman Sachs:  Let me jump right in here with, perhaps, the most important question from the standpoint of institutional investors looking at the sector, and that is, what are you seeing in terms of competition between the carriers, specifically relative to last year or two years ago or whatever you want to use as the baseline, has price competition increased or decreased?

Steve Lewis, regional leader for the employee benefits practice of Willis, the third largest insurance broker in the world:  As a specific answer to that, we would say, price competition is down from year ago. An overall theme that we would characterize this year, meaning, when I say this year, the just completed January 1 renewals, and continuing up and through today. We feel this is the most challenging environment for us and our clients in my 20 years in the business.

Not only is price competition down from year ago (when we had characterized last year’s price competition as being down from the prior year), but trend or (healthcare) inflation is also up and appears to be rising. The incumbent carriers seem more willing than ever to walk away from existing business resulting in some carrier changes.

And that’s a significant adjustment from last year where we saw aggressive pricing on the renewal front but not so much on the new business front.

So 99 percent of metropolitan areas have “highly concentrated” private insurance markets, and price competition of private insurers continues to decrease as private insurers are “more willing than ever to walk away from existing business.” Competitive pricing has almost disappeared from the private insurance market, so insurance has become a “take it or leave it” proposition.

And precisely what does the legislation before Congress do to ensure a competitive market of private insurance plans? Look at the Senate bill which forms the basis of the Obama proposal. When you read “Part II – Consumer Choices and Insurance Competition through Health Benefit Exchanges,” you will see that this legislation does virtually nothing to expand insurer competition in these concentrated markets.

President Obama and the members of Congress need to give up on the idea that they can legislate a thriving, competitive market of private health plans that will bring affordable health care to all of us. The changes that would be required are not in this bill, and, besides, they would be more complex, more expensive, and less effective than merely replacing the private insurers with a single payer national health program – an improved Medicare for all.

Once again today, in a pep talk at Arcadia University near Philadelphia, President Obama said that they put all ideas on the table, but they didn’t. They left single payer off. He did mention that people on the left wanted single payer, and judging by the cheers, apparently the audience wants single payer as well. Too bad he doesn’t listen.

The “public option”and the wheelbarrow parable
(Part 1 of 3)
By Kip Sullivan, JD

On July 8, 2008, Health Care for America (HCAN) announced its existence. The press release HCAN published that day described HCAN’s “vision” for health care reform in these words:

Health Care for America Now offers a bold new vision for health care reform: Americans can keep the private insurance they have, join a new private insurance plan, or choose a public health insurance plan.

It is clear today that HCAN’s position is quite different from the “vision” HCAN announced in July 2008. If HCAN had announced on July 8, 2008 the position it promoted during 2009, its announcement would have sounded like this:

HCAN offers a bold new vision: Ten percent of nonelderly Americans will be given the opportunity to enroll in a public health insurance plan, the other 90 percent will be forced to buy health insurance from the insurance industry, and the taxpayer will be asked to fork over half-a-trillion dollars per decade to the insurance industry. HCAN will not go to the mat for the tiny public program. If necessary, HCAN will jettison the little public program and throw their full support behind an insurance industry bailout. It is more important to HCAN that the insurance industry get millions of new customers and its half-trillion from the taxpayer than it is to enact a tiny “option.”

But despite the passage of almost two years, the leadership of HCAN and the “option” campaign has yet to announce to the public that the “option” is dispensable and that HCAN’s highest priority is an insurance industry bailout: tens of millions of compulsory customers plus massive tax-financed subsidies for the industry. To the contrary, the “option” campaign’s leadership continues to employ the tactics it has used from the beginning of the campaign, namely, to generate a great public fuss over the tiny “option” while simultaneously expressing support for bailout legislation that contains an ineffective “option” or no “option” at all.

This behavior reminds me of a parable about a company employee who stole wheelbarrows from the company right under the nose of the company’s security guard. He would leave work every night pushing a wheelbarrow filled with straw. The guard at the factory gate was fooled into thinking the straw hid something and focused all his attention on the straw and never thought to ask about the wheelbarrow. He would carefully lift the straw and look for stolen goods, and, finding none, would wave the employee on.

If we substitute a health insurance industry bailout for the wheelbarrow, and the “option” for the straw, the parable illustrates the strategy of the “option” campaign. By creating a great ruckus over the “option” but all the while supporting bailout legislation (with or without an “option”), the “option” campaign has fooled its followers and the public into thinking its highest priority is the “option” when in fact its highest priority is a bailout.

In this three-part series, I summarize the evidence for this conclusion – that the “option” campaign cares more about the bailout than the “option.” In Part 2 I present the evidence indicating the “option” campaign never adopted criteria that would guarantee the “option” would be large and that it did little or nothing to educate Congress about such criteria. The result of the “option” campaign’s failure to promote such criteria was predictable: Democrats in Congress adopted a very tiny, ineffective “option.” Part 2 also presents evidence indicating “option” proponents within Congress adopted very similar tactics.

Part 3 summarizes the evidence indicating that the “option” campaign’s leaders never made the tiny “option” a precondition for their support of the Democrats’ health care “reform” bills and, to make matters worse, when Democrats in the Senate passed a bill with no “option” in it, the “option” campaign’s leaders continued to support the Senate bill. Part 3 also presents evidence indicating “option” proponents within Congress were almost as wishy-washy about the “option” as the leadership of the “option” campaign was.

Kip Sullivan is a member of the steering committee of the Minnesota chapter of Physicians for a National Health Program.

Uwe Reinhardt on fraud and abuse

Posted by on Friday, Mar 5, 2010

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.

How Much Fraud and Abuse Is There in U.S. Health Care?

By Uwe E. Reinhardt
The New York Times
March 5, 2010

One of the more remarkable proposals put on the table at last week’s bipartisan summit on health care reform was an idea from Senator Tom Coburn, an Oklahoma Republican, to deploy undercover agents posing as patients in an effort to ferret out fraud and abuse by doctors and hospitals.

It subsequently became one of the ideas from Republicans that President Obama offered to incorporate in a revised health reform bill. One wonders whether the president was sincere or just being a bit naughty.

After all, the idea to legislate the infiltration of undercover agents into private medical practices and hospitals in America does not exactly square with the loudly voiced opposition of Republicans to government intrusion into American health care. Can one imagine anything more intrusive?

Senator Coburn is a physician and may have reasons to put forth such a controversial idea. As someone outside of the profession, I would not be in a position to second-guess him on that issue.

If the president and Congress wish to constrain the growth of the administrative cost of American health care, they should look not only to the private health insurance industry. They might commission a study exploring how government-run health systems in other nations manage to pay hospitals and doctors without imposing on them the huge administrative burden borne by American providers of health care. Perhaps Congress can learn from such a study.

A proper slogan here might be “evidence-based administration” (E.B.A.), meaning that just as the use of clinical procedures should be based on solid empirical evidence that they work and are worth their cost, the ever-new administrative burdens that government imposes on health-care providers should meet the same evidence-based test.

A second problem faced by hospital executives is that they have only partial control over the costs they must book and for which they seek to get paid. The bulk of these costs are driven by the clinical decisions of physicians who are affiliated with hospitals and can use the hospital as a free workshop, so to speak.

Posted response of Don McCanne, San Juan Capistrano, CA (# 1):

Instances of blatant fraud in health care provide great fodder for the media. The identification and prosecution of criminals in Florida becomes national news.

Those who claim that fraud and abuse are a primary reason for high health care costs use such stories to say that the government is not doing its job in identifying and prosecuting these crooks, when the stories are about the government doing its job in identifying and prosecuting these crooks.

Thieves will always be with us and need to be ferreted out, and the government will continue to do that.

The far greater problem, as Dr. Reinhardt explains, is in physician practice patterns. The great variability in use of resources is not so much a matter of abuse as it is simply a variation in individual and regional concepts of “that’s the way its done.”

Much of the high use is in imaging, or consultations, or referral for high-tech procedures for which the primary physician receives no additional compensation. That is not fraud.

Nor is it defensive medicine. A test or consultation allegedly ordered to prevent a malpractice lawsuit is not ordered out of an intellectual void. It is ordered because the patient has a real risk, even if small, of having a problem that may require intervention.

Most physicians want to practice high quality, efficient medicine. They welcome information such as that generated by the British NICE program – a program designed to identify best practices. The opponents of reform dismiss even these efforts with nonsense accusations of “rationing.”

Not spending money on medical services that are not helpful or even harmful is not rationing. Rather it exemplifies a fundamental concept characteristic of free markets – providing more transparency in order to obtain greater value in our health care purchasing.

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