Medicare at 50: Strengths to Build On

Posted by on Monday, Jun 22, 2015

by John Geyman, M.D.

Traditional, or Original Medicare, turns 50 on July 30, having had many challenges and achievements from the days of its passage to today. It is time to celebrate its many successes, note some of its current challenges and threats to its future, and briefly discuss how it gives us a strong foundation upon which to build still-needed health care reform.

When it was enacted in 1965, about one-half of seniors in the U. S lacked health insurance, and many could not afford necessary health care. When it was passed with strong bipartisan support (313-116 in the House, and 70-24 in the Senate), 20 million Americans age 65 and older gained health insurance. (1)

From the start, Medicare was a political football raising strong arguments for and against any kind of universal health insurance, quite similar to those we hear today, including from the American Medical Association, hospitals, and the health insurance industry. But a “corporate compromise” was struck in 1965 whereby private insurers were relieved of their worse health risks, hospitals could expect assured payments for their costs of serving a previously disadvantaged population, and physicians gained a permissive “usual, customary, and reasonable” reimbursement policy. (2) Claims processing and bill auditing were contracted out by the government to private fiscal intermediaries, especially Blue Cross and Blue Shield plans. (3)

From the beginning, Medicare has provided a broad set of benefits, defined by law, protecting all seniors, many of whom could not afford health insurance in the private market. Part A provides hospital insurance, while Part B provides supplementary medical insurance for 80 percent of physician services (initially with a $50 deductible and 20 percent coinsurance), X-ray and laboratory tests, and some home health and outpatient and mental health services. Some additional benefits were added in later years to this basic program, including coverage for the disabled and patients with end-stage renal disease in 1972 and partial coverage for prescription drugs in 2003 (Part D).  Medicare’s benefits have always been considered an earned right, not an entitlement, since all beneficiaries pay into the program through mandatory contributions from individuals and/or employers. (4)

Today, Medicare is a very large program, covering more than 55 million Americans, including all seniors and 9 million people with permanent disabilities under age 65. It accounted for 14 percent of the federal budget in 2014 and about 20 percent of total personal health expenditures in 2013. (5) Since the 1990s, we have seen an increasing trend toward privatized Medicare plans (Part C), starting with Medicare + Choice HMOs in the 1990s and their sequel, Medicare Advantage (MA) since 2003. These plans have been promoted by conservative policymakers and think tanks with a goal to replace Medicare as an “entitlement program” with private market plans, health savings accounts and vouchers. Almost one-third of seniors are now enrolled in MA plans.

The Many Strengths of Traditional Medicare over 50 Years

Traditional Medicare has performed much better over the years than any of these private plans, which operate with the goal of profits more than service. Table 1 summarizes the major differences between traditional Medicare and privatized plans. (6)


Source: Adapted from Geyman, JP. Shredding the Social Contract:
The Privatization of Medicare. Monroe, ME. Common Courage Press, 2006, p. 206.

These comparisons are supported by many studies over the years. As just four examples:

  • A literature review by the Kaiser Family Foundation of 40 studies since 2000 found that beneficiaries rated access and quality of care better in traditional Medicare than in Medicare Advantage, especially by those who were sick. (7)
  • An analysis by the Urban Institute over three decades found that private Medicare plans cost the government more than fee-for-service traditional Medicare, which contained costs better than private plans over those years. (8)
  • Traditional Medicare operates with an administrative overhead of 2  percent, compared to overhead of Medicare Advantage about seven times higher. (9)

The Centers for Medicare and Medicaid Services (CMS) took 35 enforcement actions against Medicare Advantage plans and Medicare Part D plans in 2014, particularly for inappropriate denials of care and requiring unnecessary preauthorization of services and medications that resulted in more cost shifting to beneficiaries. (10)

Some Major Challenges Facing Medicare Today

As in 1965, Medicare remains a lightning rod for intense political  debates over its future. Despite its proven track record for efficiency, reliability, and responsible service over these last 50 years and widespread public support, Republicans are united in their attempts to dismember it, convert it to a voucher program, and shift patients to the private marketplace, all under the guise of reining in federal spending and austerity. Some Democrats are amenable to raising the eligibility age for Medicare and increasing cost sharing. These ideas are a complete disconnect with the needs of our aging society in a time of increasing inequality of incomes. More than 25 million seniors and people with disabilities live on annual incomes of $23,500 or less, many of whom cannot afford premiums and cost-sharing in either traditional or privatized Medicare. And as our population ages, pensions that in the past assured defined benefits are shifting to defined benefit pensions, without such assurances. (11) There are still many gaps in coverage, even within traditional Medicare, including for long-term care and dental care.

Future funding for Medicare is seriously threatened and murky at best. The Obama administration has told us that the Affordable Care Act (ACA) will be financed in part by $716 billion in Medicare cuts over 10 years, with the unbelievable claim that these cuts will not result in reduction of services. The recently passed H. R. 2, the “doc fix” bill, has provisions in it that will require new deductibles in first-dollar supplemental Medigap plans (held by 40 percent of Medicare beneficiaries) and expand means-testing for Medicare Part D, both of which will increase costs for seniors and further undermine traditional Medicare.

Just as the future of Medicare is unclear, so is that of our entire health care system. The U. S. Supreme Court is expected to rule in coming days on the legality of subsidies under the ACA. A negative ruling will be a serious blow to the ACA and call into question where we should go next. Republicans in Congress will push for repeal or defunding parts of the ACA.  As the debate heats up, the leading alternatives will likely be: (1) continuation of the ACA as it unravels, (2) some GOP “plan” based on patients having “more skin in the game” that further threatens access and affordability of care; (3) revival of the “public option” idea, hardly an effective fix as merely adding one more payer to our dysfunctional multi-payer financing system; and (4) long-overdue  consideration of single-payer national health insurance that would cover all Americans in a large risk pool with more benefits, less cost, more reliability and equity in a sustainable way, as described in my recent book, How Obamacare Is Unsustainable: Why We Need a Single-Payer Solution for All Americans. (11)

Traditional Medicare has proven its superiority over any private, market-based alternatives for the last 50 years. It is time to build on this social insurance model as the health care debate continues.


1. Rosenblatt, B. House passes massive expansion of health care coverage. Washington, DC. National Academy of Social Insurance, April 10, 2015.

2. Geyman, JP. Shredding the Social Contract: The Privatization of Medicare. Monroe, ME. Common Courage Press, 2006, pp. 49-51.

3. Oberlander, J. The Political Life of Medicare. Chicago. The University of Chicago Press, 2003, p. 33.

4. Study Panel on Medicare’s Larger Social Role, Final Report.
Washington, DC. National Academy of Social Insurance, 1999, pp. 31-35.

5. Cubanski, J. A primer on Medicare: Key facts about the Medicare program and the people it covers. Kaiser Family Foundation, March 20, 2015.

6. Ibid # 2, p. 206.

7. Gold, J, Casillas, G. What do we know about health care access and quality in the Medicare Advantage versus the traditional Medicare program? Kaiser Family Foundation, November 6, 2014.

8. Boccuti, C, Moon, M. Comparing Medicare and private insurers: growth rates in spending over three decades. Health Affairs (Millwood) 22 (2): 230, 2003.

9. Himmelstein, D, Woolhandler, S. The post-launch problem: the Affordable Care Act’s persistently high administrative costs. Health Affairs Blog, May 27, 2015.

10. Herman, B. Medicare is doing more to police Advantage and Part D lapses, but does it matter? Modern Healthcare, December 4, 2014.

11. Geyman, JP. How Obamacare Is Unsustainable: Why We Need a Single-Payer Solution for All Americans. Friday Harbor, WA. Copernicus Healthcare, 2015.

CBO: Repeal of ACA would raise economic output (per dynamic scoring)

Posted by on Monday, Jun 22, 2015

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.

Budgetary and Economic Effects of Repealing the Affordable Care Act

CBO, June 2015

In this report, the Congressional Budget Office and the staff of the Joint Committee on Taxation (JCT) analyze the main budgetary and economic consequences that would arise from repealing that law.

What Would Be the Major Effects of Repealing the ACA?

CBO and JCT estimate that repealing the ACA would have several major effects, relative to the projections under current law:

  • Including the budgetary effects of macroeconomic feedback, repealing the ACA would increase federal budget deficits by $137 billion over the 2016–2025 period. That estimate takes into account the proposal’s impact on federal revenues and direct (or mandatory) spending, incorporating the net effects of two components:
    • Excluding the effects of macroeconomic feedback — as has been done for previous estimates related to the ACA (and most other CBO cost estimates) — CBO and JCT estimate that federal deficits would increase by $353 billion over the 2016–2025 period if the ACA was repealed.
    • Repeal of the ACA would raise economic output, mainly by boosting the supply of labor; the resulting increase in GDP is projected to average about 0.7 percent over the 2021–2025 period. Alone, those effects would reduce federal deficits by $216 billion over the 2016–2025 period, CBO and JCT estimate, mostly because of increased federal revenues.
  • For many reasons, the budgetary and economic effects of repealing the ACA could differ substantially in either direction from the central estimates presented in this report. The uncertainty is sufficiently great that repealing the ACA could reduce deficits over the 2016–2025 period — or could increase deficits by a substantially larger margin than the agencies have estimated. However, CBO and JCT’s best estimate is that repealing the ACA would increase federal budget deficits by $137 billion over that 10-year period.
  • Repealing the ACA would cause federal budget deficits to increase by growing amounts after 2025, whether or not the budgetary effects of macroeconomic feedback are included. That would occur because the net savings attributable to a repeal of the law’s insurance coverage provisions would grow more slowly than would the estimated costs of repealing the ACA’s other provisions — in particular, those provisions that reduce updates to Medicare’s payments. The estimated effects on deficits of repealing the ACA are so large in the decade after 2025 as to make it unlikely that a repeal would reduce deficits during that period, even after considering the great uncertainties involved.
  • Repealing the ACA also would affect the number of people with health insurance and their sources of coverage. CBO and JCT estimate that the number of nonelderly people who are uninsured would increase by about 19 million in 2016; by 22 million or 23 million in 2017, 2018, and 2019; and by about 24 million in all subsequent years through 2025, compared with the number who are projected to be uninsured under the ACA. In most of those years, the number of people with employment-based coverage would increase by about 8 million, and the number with coverage purchased individually or obtained through Medicaid would decrease by between 30 million and 32 million.
    • About 14 million fewer people would be enrolled in Medicaid.
    • About 18 million fewer people would have nongroup coverage. That reduction is the net effect of a projected decline of about 22 million in nongroup coverage purchased through exchanges (which would no longer serve as a conduit for federal subsidies and might not exist at all) and a projected increase of about 4 million enrollees in nongroup coverage purchased directly from insurers.
    • About 8 million more people, on net, would have employment-based coverage—roughly mirroring the agencies’ estimate of the extent to which the ACA will reduce employment-based coverage in future years.
    • About 24 million more nonelderly U.S. residents would be uninsured.

The Macroeconomic Feedback Effects of a Repeal and Their Impact on the Federal Budget

CBO and JCT also have analyzed the effects that repealing the ACA would have on the U.S. economy and estimated the budgetary impact — or feedback effects — of those macroeconomic changes. CBO and JCT estimate that the net effect on the economy’s output would be negligible in 2016 but would grow after that. According to the agencies’ estimates, from 2021 through 2025, a repeal would increase GDP by about 0.7 percent, on average — mostly by repealing provisions that, under current law, are expected to reduce the supply of labor.

Labor Supply

CBO and JCT estimate that repealing the ACA would increase the supply of labor and thus increase aggregate compensation (wages, salaries, and fringe benefits) by an amount between 0.8 percent and 0.9 percent over the 2021–2025 period. Those effects would be the result of repealing various provisions of the ACA that are estimated to reduce the amount of labor that people choose to supply. In particular, the subsidies and tax credits for health insurance that the ACA provides to some people are phased out as their income rises — creating an implicit tax on additional earnings — and those subsidies, along with expanded eligibility for Medicaid, generally make it easier for some people to work less or to stop working without losing health insurance coverage. For other people, the act directly imposes higher taxes on labor income, thus discouraging work. Repealing the ACA would reverse those effects. In percentage terms, the increase in total hours worked is estimated to be larger than the increase in aggregate compensation because the largest increases in labor supply would occur among the lower-wage workers whose incentives would be most strongly affected. Specifically, repealing the ACA would increase the aggregate number of hours worked by about 1.5 percent over the 2021–2025 period, CBO and JCT estimate.

How Would a Repeal Affect the Budget and the Economy Beyond 2025?

CBO and JCT expect that the trend projected for the latter part of the coming decade would probably continue after 2025, whether or not the effects of macroeconomic feedback are incorporated into the analysis. To generate rough estimates for the decade beyond 2025, CBO and JCT extrapolated the budgetary effects that a repeal of the ACA would have in the years before 2025. According to that analysis, and excluding the budgetary effects of macroeconomic feedback, a repeal would increase annual deficits over the 2026–2035 period by amounts that lie within a broad range around one percent of GDP. Although the macroeconomic feedback stemming from a repeal would continue to reduce deficits after 2025, the effects would shrink over time because the increase in government borrowing resulting from the larger budget deficits would reduce private investment and thus would partially offset the other positive effects that a repeal would have on economic growth. Consequently, taking that feedback into account would not substantially alter the increases estimated for federal deficits that would occur over that period. A repeal of the ACA would probably increase deficits in subsequent decades as well, whether or not the effects of macroeconomic feedback are included.…


Mixed Effects Are Seen on an Affordable Care Act Repeal

By Robert Pear
The New York Times, June 19, 2015

The nonpartisan Congressional Budget Office said Friday that repealing the Affordable Care Act would significantly increase federal budget deficits and the number of people who are uninsured.

But, it said, repealing the law would also raise economic output because it would create incentives for some people to work more.

The estimates came in the first major study issued by the new director of the budget office, Keith Hall. It was also the first report to use new methods of fiscal analysis, according to instructions from the Republican majority in both houses of Congress.

Repealing the law would increase federal budget deficits by $137 billion in the decade from 2016 to 2025, Mr. Hall said in the report. In addition, he said, the number of uninsured people, estimated at 35 million under current law, would increase by 24 million if the law was repealed.

Senator Michael B. Enzi, Republican of Wyoming and the chairman of the Senate Budget Committee, said the report showed that “repealing the president’s health care law will increase economic growth.” But Representative Nancy Pelosi of California, the House minority leader, said it showed that “repeal will explode the deficit.”

The report analyzes the economic effects of the health care law and the ways in which those effects may, in turn, influence federal spending and revenues — a technique known as dynamic scoring. Democrats fear that Republicans will use that approach to help justify tax cuts. But at least in the report on Friday, Mr. Hall was cautious in using the new technique and carefully documented the economic assumptions that led to his conclusions.…


Dynamic Scoring in Congress Is Defensible but Slippery

By N. Gregory Mankiw
The New York Times, February 28, 2015

… congressional leaders appointed Mr. Hall, a veteran of the Bush administration, to be the new head of the budget office.

Until now, conventional budget analysis has used a process called static scoring, which assumes that the path of gross domestic product remains the same when the government changes taxes or spending. This procedure has the virtues of simplicity and transparency.

We don’t yet know how Mr. Hall’s leadership will differ from Mr. Elmendorf’s but we do know that he will face a big challenge. House Republicans have recently changed the rules: The Congressional Budget Office and Joint Committee on Taxation are now required to use “dynamic scoring” when evaluating major changes in tax and spending policy. This is the can of worms that awaits Mr. Hall as he takes on his new job.…


Obamacare and Labor Supply

By Paul Krugman
The New York Times, June 20, 2015

I was critical of CBO yesterday — probably excessively — for giving what seemed like undue cover for deficit scolds in its long-run budget projection. So credit where credit is due: the new report on the consequences of repealing the ACA is definitely not what the Congressional majority wants to hear. Despite including “dynamic scoring”, the report finds, unambiguously, that Obamacare reduces the deficit and repealing it would enlarge the deficit.

Is there anything in the report that provides fodder for the opponents? I see that the Times report says that there are “mixed effects”, because CBO says that GDP would be higher if the ACA were repealed. And maybe the usual suspects will try to spin it that way.

But the truth is that this report is much, much closer to what supporters of reform have said than it is to the scare stories of the critics — no death spirals, no job-killing, major gains in coverage at relatively low cost.

And there’s another important point: while the ACA may lead to somewhat lower GDP because it reduces labor supply, this does not imply a one-for-one loss in welfare. Suppose that a family’s second earner, now assured of being able to get health insurance, chooses as a result to work shorter hours and spend more time taking care of the children. GDP goes down — but there is a compensating non-monetary gain.

In fact, in a perfectly competitive economy the gain would fully offset the fall in GDP: if workers are paid their marginal product, the fall in GDP from the ACA is equal to the lost wages, but workers choosing to work less clearly prefer to have the extra time to the extra wages. Or to put it a bit differently, other things equal it’s a good thing if workers, freed from the fear that they won’t be able to get health insurance, respond by voluntarily working less.

OK, the story is made more complicated by taxes, which place a wedge between wages paid and income received; so there probably is a net cost to a fall in labor supply. But this effect is fully captured by the loss in revenue, which CBO doesn’t think would be large.

So overall this isn’t at all a “mixed” report — it’s a very big win for Obamacare supporters.

This report from the Congressional Budget Office (CBO) is important because it describes the consequences of repealing the Affordable Care Act (ACA) – a goal of many conservatives in Congress. But there also is an important sub-story here – the advent of the use of “dynamic scoring” by the CBO and its potential implications.

One of the more severe deficiencies of ACA is that when it is fully implemented about 29 million people will still be uninsured. This CBO analysis indicates that repeal of ACA will increase the numbers of uninsured by another 24 million – bringing the total to over 50 million. If no other lesson is drawn from this report, it is that  we should not move backwards with efforts to reject what progress has been made, but that instead we should move forward with real reform that would cover everyone (in case you need any hints, that would be single payer).

From the perspective of the federal budget, this report also shows that repeal of ACA would cause significant increases in the deficit which presumably would require either increased revenues (taxes) which the conservatives reject, or decreases in spending which would be intolerable when considering that our discretionary federal budget is already spartan. If we moved forward with more effective reform – single payer – the provisions of that reform would include equitable financing, and thus the budgetary damage done by the displacement of ACA would become a moot point.

But what about dynamic scoring, and what is it? It seems to have more to do with politics and less with economic science. When the CBO analyzes the potential impact of proposed legislation on the federal budget, they look at not only the direct impact of the legislative requirements, but they also look at the macroeconomic impact – the changes in the economy at large that can result from the legislation. They can do this with static scoring – assuming that the gross domestic product remains the same when government changes taxes or spending – or they can use dynamic scoring – evaluating how fiscal policy influences the course of the economy.

The Republicans who now control Congress have changed the rules for the non-partisan CBO and now require dynamic scoring, and this is the first CBO report in which this tool has been applied. Does it represent economic science or political posturing?

They determined that repeal of ACA would increase the supply of labor, and this increase would result in a 0.7 percent increase in the gross domestic product (GDP) – an example of dynamic scoring. Why should the supply of labor be increased? They say that loss of insurance would drive greater employment rates amongst the unemployed and underemployed. With a continued sluggish economy, limited employment opportunities, and the permanent exiting of millions from the job market, do they really believe that health insurance status is a significant driver when everyone already wants income and job security? Do they really believe that people are not working because having insurance makes “it easier for some people to work less or to stop working,” as the CBO report states? Do they really believe that employers are not hiring now because there is a robust job market, whereas they would start hiring if the job market contracted? Does anyone of any integrity really propose that we do the experiment of repealing ACA and then follow the change in the GDP to see if it increases, while ignoring declines in insurance coverage and increases in the federal deficit?

Another concept implicit in this report is that the reduction in government expenditures for health care brought about by repealing ACA would somehow improve the economy. Yet health care is one of the most important sectors of our economy, and its strength likely prevented the Great Recession from becoming a full-on depression. Sidestepping the issue of precisely how GDP is or should be defined, wouldn’t the stimulus to the health care industry provided by ACA (confirmed by Wall Street reports) have a much greater impact on the economy than would this reduction in labor supply caused by more people being insured?

Considering the numbers who would become uninsured and considering the increase in the national debt that would occur with ACA repeal, it sounds like repeal would be a cruel and fiscally irresponsible act. Yet the conservatives are celebrating the fact that the CBO has allegedly implied in this report that repeal of ACA would be good for the economy. As Senate Budget Committee Chairman Mike Enzi said, “repealing the president’s health care law will increase economic growth” (Robert Pear, New York Times, June 19), and Senate majority leader Mitch McConnell said, in a tweet, “The CBO says an Obamacare repeal actually boosts the American economy” (Kate Gibson, CBS Moneywatch, June 19).

The CBO has always been the source of highly credible, non-partisan reports on important matters before Congress. Dynamic scoring could be used to increase the accuracy of CBO analyses, but it would have to be very carefully applied to avoid analyses driven by political ideology. Through the appointment of a conservative economist with an order to institute dynamic scoring, the Republicans may be impairing the credibility of the CBO. Imagine how they might use dynamic scoring to try to discredit single payer.

(In fairness to CBO Director Keith Hall, economist Paul Krugman does remind us, “the ACA may lead to somewhat lower GDP because it reduces labor supply.” Also respected New York Times reporter Robert Pear concludes, “Mr. Hall was cautious in using the new technique and carefully documented the economic assumptions that led to his conclusions.” So a generous application of this economic principle allows CBO to include in its summary the statement, “Repeal of the ACA would raise economic output, mainly by boosting the supply of labor; the resulting increase in GDP is projected to average about 0.7 percent over the 2021–2025 period.” But this isolated statement does allow, as Krugman indicates, fodder for the usual suspects to try to put a positive spin on repeal – exemplified by the statements of McConnell and Enzi. Nevertheless, I still contend that the loss of health insurance would not cause a major incremental increase in the labor supply for a population that already craves employment security. “Hey, I got insurance; forget about food and rent.”)

[Corrected text posted June 23, 2015.]

  • Comments Off on CBO: Repeal of ACA would raise economic output (per dynamic scoring)

Part D drug benefit did not save money for Medicare

Posted by on Friday, Jun 19, 2015

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.

Did Medicare Part D Affect National Trends in Health Outcomes or Hospitalizations?: A Time-Series Analysis

By Becky A. Briesacher, PhD; Jeanne M. Madden, PhD; Fang Zhang, PhD; Hassan Fouayzi, MS; Dennis Ross-Degnan, ScD; Jerry H. Gurwitz, MD; and Stephen B. Soumerai, ScD
Annals of Internal Medicine, June 16, 2015

Background: Medicare Part D increased economic access to medications, but its effect on population-level health outcomes and use of other medical services remains unclear.

Objective: To examine changes in health outcomes and medical services in the Medicare population after implementation of Part D.

Results: Five years after Part D implementation, no clinically or statistically significant reductions in the prevalence of fair or poor health status or limitations in ADLs or instrumental ADLs, relative to historical trends, were detected. Compared with trends before Part D, no changes in emergency department visits, hospital admissions or days, inpatient costs, or mortality after Part D were seen. Confirmatory analyses were consistent.

Conclusion: Five years after implementation, and contrary to previous reports, no evidence was found of Part D’s effect on a range of population-level health indicators among Medicare enrollees. Further, there was no clear evidence of gains in medical care efficiencies.


Researchers find prescription drug benefit did not save money for Medicare

By Joe O’Connell
news@Northeastern, June 16, 2015

For years, the Medicare pre­scrip­tion drug ben­efit Part D has been cred­ited with pos­i­tively impacting national trends in health out­comes and med­ical ser­vices. But a recent study led by North­eastern asso­ciate pro­fessor Becky Briesacher chal­lenges that assump­tion.

“We are con­cluding that Medicare Part D did not save the (Medicare) pro­gram any money overall,” said Briesacher, a health ser­vices researcher in the School of Phar­macy with nationally-​​recognized exper­tise in drug policy and med­ica­tion use in older adults. “You have to be real­istic about the fact that giving people access to med­ica­tion is impor­tant, but it’s not going to sub­stan­tially save money in other parts of the health care system or keep a sig­nif­i­cant number of people out of the hospital.”…

Although it was important to include a drug benefit in the Medicare program there was concern that the conservatives designing the program wanted to allow the market to work its magic. The program was to be administered by private pharmacy benefit managers (PBMs) rather than the government. In fact, the government was even prohibited from negotiating drug prices with the manufacturers. Further, it was thought that the benefits of improving access to drugs would make patients healthier thus reducing future costs for Medicare.

This study shows that the magic did not work in that the drug benefit did not save money for Medicare, and it did not measurably change the health status of Medicare beneficiaries. Specifically there were no changes in emergency room visits, hospitalizations, and inpatient costs, nor was there any change in mortality.

It would not be surprising to see conservatives propose that the Part D program be terminated since it supposedly isn’t doing any good. But there are innumerable studies that have shown that some medications do provide at least a modest benefit, though those benefits were not detected by this study.

At any rate, it is clear that PBMs are not as effective price negotiators as is our government, as demonstrated by the greater value in drug purchasing that we have through the VA and the Medicaid program. Also, the PBMs waste considerable funds in excess administrative activities, not to mention the added middleman profits that they divert to themselves.

Under an improved Medicare for all we would have a more efficient and less costly publicly-administered program that would ensure that the government was paying fair prices for our drugs. It is not that way now.

  • Comments Off on Part D drug benefit did not save money for Medicare

Our unethical health reform violates the principle of equipoise

Posted by on Thursday, Jun 18, 2015

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.

Randomize evaluations to improve health care delivery

By Amy Finkelstein, Sarah Taubman (MIT)
Science, February 13, 2015

The medical profession has long recognized the importance of randomized evaluations; such designs are commonly used to evaluate the safety and efficacy of medical innovations such as drugs and devices. Unfortunately, innovations in how health care is delivered (e.g., health insurance structures, interventions to encourage the use of appropriate care, and care coordination approaches) are rarely evaluated using randomization. We consider barriers to conducting randomized trials in this setting and suggest ways for overcoming them. Randomized evaluations of fundamental issues in health care policy and delivery should be — and can be — closer to the norm than the exception.


Health care reform unethical by research standards

Science, June 19, 2015

A. Finkelstein and S. Taubman report on the underuse of randomized controlled trials for U.S. health care reform (“Randomize evaluations to improve health care delivery” Policy Forum, 13 February). This reliance on suboptimal research compromises information needed for policy. However, a second problem about health reform decision-making is more serious, constituting a major ethical breach.

The principles of research with humans require that deviations from the standard of care are allowable only if there is real uncertainty regarding which intervention is better. This is called the “principle of equipoise”; only when we don’t know which strategy yields the best results is it acceptable to compare them (1).

Yet for health care reform writ large — i.e., the basic payment system — there is no equipoise. Research from dozens of developed countries demonstrates convincingly that single-payer financing reduces costs, assures access, and improves outcomes.

To ignore this compelling evidence risks lives in the United States as we experiment with partial fixes to the multi-payer system. This experimentation would be rejected by any responsible university institutional review board as violating the principle of equipoise and causing unacceptable patient harm.

James G. Kahn (UCSF)
Paul Hofmann (Moraga CA)

1. Freedman B. Equipoise and the Ethics of Clinical Research. N Engl J Med 1987; 317:141-145


Equipoise and the Ethics of Clinical Research

By Benjamin Freedman, Ph.D.
New England Journal of Medicine, July 16, 1987

The ethics of clinical research requires equipoise — a state of genuine uncertainty on the part of the clinical investigator regarding the comparative therapeutic merits of each arm in a trial. Should the investigator discover that one treatment is of superior therapeutic merit, he or she is ethically obliged to offer that treatment. The current understanding of this requirement, which entails that the investigator have no “treatment preference” throughout the course of the trial, presents nearly insuperable obstacles to the ethical commencement or completion of a controlled trial and may also contribute to the termination of trials because of the failure to enroll enough patients.

I suggest an alternative concept of equipoise, which would be based on present or imminent controversy in the clinical community over the preferred treatment. According to this concept of “clinical equipoise,” the requirement is satisfied if there is genuine uncertainty within the expert medical community — not necessarily on the part of the individual investigator — about the preferred treatment.

Here’s a shocker. Enactment and implementation of the Affordable Care Act has been and continues to be unethical, under the “principle of equipoise.” How could that be?

Amy Finkelstein and Sarah Taubman, of MIT, call for an increased use of “randomized evaluations of fundamental issues in health care policy,” likening policy research to medical research. On the surface this seems quite reasonable, but James Kahn and Paul Hofmann reveal the potential dire implications of such a proposal when policies are studied that, at best, would fall short of already well established beneficial policy principles.

Medical research requires the adherence to the principle of equipoise – the principle that it is unethical to expose a patient to an experimental treatment when there exists a better treatment that would always be recommended regardless of the outcome of the study. Only when there is agreement that the more effective and safer treatment is not known is it ethical to proceed with a randomized trial.

How would this apply to health policy research? In randomized trials proposed health policies could be compared with existing or other proposed health policies to determine which policies produce more favorable outcomes. This would require that the existing comprehension of the policies would be clearly inadequate to reliably predict the outcomes. Keep in mind that a health system’s policies can impact individual health as much or even more than the actual health care received. If the outcomes are predictable, it would be unethical to proceed with the study.

The problem with the proposal by Finkelstein and Taubman is that health policy science is quite advanced, and we have a rich body of knowledge of the potential impacts of various health policies. These researchers suggest that randomized evaluations should be closer to the norm when, in fact, it would be quite rare that two or more policy options would be so poorly understood that it would require a randomized trial to determine which would produce better outcomes.

To understand the enormous impact of this, let’s compare the most basic policies perpetuated and enacted by the Affordable Care Act with fundamental policies inherent in a well designed single payer system – policies that are well understood through our experiences and the experiences of many other nations.

The Affordable Care Act

  • Tens of millions will be left uninsured
  • Tens of millions will be underinsured
  • Financial barriers to care that result from being uninsured or underinsured clearly impair access to beneficial health care services and thus often result in poor health outcomes and even death

Single Payer National Health Program

  • Everyone would be insured
  • Underinsurance is eliminated by removing financial barriers, especially high deductibles and coinsurance
  • Removal of financial barriers improves access to health care with a consequent improvement in health outcomes and with a lower mortality rate

Further, our current system wastes hundreds of billions of dollars on administrative excesses – much of which could be recovered under a single-payer system and be redirected into health care delivery.

We cannot do a randomized trial comparing single payer with the Affordable Care Act since a single payer system cannot exist commingled with a fragmented, multi-payer system, but we would not want to do that study anyway since we already understand the policy science behind these systems. Such a study would clearly violate the principle of equipoise.

To continue with our current grand national experiment in health care reform is clearly unethical because of the financial hardships, physical suffering and premature deaths that are perpetuated and would be prevented if we switched to a single payer national health program.

It would be unethical to repeal the Affordable Care Act and do nothing else since some provisions of the Act are beneficial. But since we can enact and implement a single payer national health program, we are engaging in unethical behavior by failing to do so.

Our national policymakers need to understand how profoundly unethical their behavior is by their continued violation of the principle of equipoise. People are suffering and dying as a result.

  • Comments Off on Our unethical health reform violates the principle of equipoise

How deficient is California’s Medicaid program?

Posted by on Wednesday, Jun 17, 2015

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.

Improved Monitoring of Medi-Cal Managed Care Health Plans Is Necessary to Better Ensure Access to Care

California State Auditor, California Department of Health Care Services, Report 2014-134, June 2015

Cover letter of report:

June 16, 2015

Dear Governor and Legislative Leaders:

As requested by the Joint Legislative Audit Committee, the California State Auditor presents this audit report concerning the California Department of Health Care Services’ (Health Care Services) oversight of California Medical Assistance Program (Medi-Cal) managed care health plans (health plans).

This report concludes that Health Care Services did not verify that the provider network data it received from health plans were accurate. Therefore, it cannot ensure that the health plans it contracts with had adequate networks of providers to serve Medi-Cal beneficiaries. Health Care Services’ contracts with health plans to provide medical services to Medi-Cal beneficiaries generally require the plans, among other things, to maintain a network of primary care providers that are located within either 30 minutes or 10 miles from a member’s residence. To determine whether the health plan has an adequate provider network to meet these standards, Health Care Services receives provider network data from each of the health plans. However, for the health plans we reviewed, Health Care Services did not verify the accuracy of these data before certifying the health plans’ network adequacy during the Healthy Families Program transition to Medi-Cal and did not verify data for another health plan at the time the health plan entered the Medi-Cal program. Similarly, it does not verify the accuracy of the data it receives from health plans and that it provides to the California Department of Managed Health Care (Managed Health Care), with which it has an agreement to conduct quarterly network adequacy reviews. Furthermore, it has not ensured that Managed Health Care performed all quarterly reviews of health plans’ provider networks required pursuant to the agreement.

In addition, flaws in Health Care Services’ process for reviewing provider directories have resulted in it approving provider directories with inaccurate information. Specifically, our review of provider directories for three health plans — Anthem Blue Cross, Health Net and Partnership HealthPlan — found many errors in directories, including incorrect telephone numbers and addresses, or information about whether they were accepting new patients. However, Health Care Services’ review of these same directories had not identified these inaccuracies before it approved the directories for publication. Furthermore, we noted that thousands of calls from Medi-Cal beneficiaries seeking assistance through Health Care Services’ Medi-Cal Managed Care Office of the Ombudsman have gone unanswered. Specifically, each month between February 2014 and January 2015 an average of 12,500 calls went unanswered. Finally, Health Care Services has not performed all statutorily required annual medical audits of Medi-Cal managed care health plans to determine whether the health plans meet their beneficiaries’ needs.

Respectfully submitted,


State Auditor

Full report:

Summary of report:

Fact sheet:

Medicaid patients throughout the nation are being transferred into Medicaid managed care plans, allegedly to provide more coordinated care at a lower cost. There has been some justifiable concern that these plans may not be delivering on their promises. This auditor’s report of California’s Medi-Cal managed care plans provides some limited insight into the performance of these plans.

Medi-Cal is California’s Medicaid program for low-income individuals and families. Three-fourths of the 12 million Medi-Cal patients are already enrolled in the Medi-Cal managed care plans (state population 39 million). Astonishingly nearly half of all children in California are enrolled in Medi-Cal managed care, especially since those previously enrolled in CHIP were transferred to Medi-Cal. It is a massive program.

The auditor did not look at the adequacy or the quality of the health care services that are being delivered. Rather she looked at the plans’ reports submitted to the Department of Health Care Services on the adequacy and accessibility of their networks, the accuracy of the provider directories, and the effectiveness of the Medi-Cal Managed Care Office of the Ombudsman – basically just whether or not the infrastructure was adequate to provide the promised services.

The auditor found that the reports from the plans were inadequate and the oversight provided by the California Department of Health Care Services and the Department of Managed Health Care was also inadequate. It was not possible to determine the degree of the failures, but enough information was gathered to know that the system fell far short of the requirements. Some perspective of the extent of this problem is demonstrated by the fact that each month about 12,500 calls to the Office of the Ombudsman went unanswered. The Medi-Cal system wasn’t working for the patients, and the calls for help overwhelmed the telephone system.

Some have suggested that the funding was inadequate. Medicaid has been chronically underfunded, and Medi-Cal is near the bottom of all states in its level of funding. Also governments chronically underfund their own agencies. In a health care system that is infamous for its administrative excesses, under the Affordable Care Act we have expanded the need for yet more administrative services for both the health plans and for the government bureaucracies that provide oversight (not to mention the providers), yet our federal and state legislators do not authorize adequate funds to carry out their requirements.

Although the auditor attributed most of the blame to failures of the California Department of Health Care Services, the real blame lies with those who devised these expensive and inefficient programs and then failed to fund them adequately. The agencies cannot do their job if they are unable to hire the personnel that they need.

Although this report raises serious concerns about the infrastructure, much more important is whether or not the actual health care services are adequate in both quantity and quality. Though this report does not address that, there is reason to be concerned. Are the health plans really delivering more integrated care at a lower cost? Is the funding enough for the dedicated health care professionals to deliver on this promise? Unlikely, based on preliminary information. It is unfortunate that we will have to wait longer until the severity of the deficiencies is exposed.

If nothing else, it does appear that, through Medicaid, we have institutionalized a lower tier of a two-tiered health care system. The Affordable Care Act perpetuates a mediocre system for middle-income individuals and families and a substandard system for those with low incomes. Most other wealthy nations have a single higher health care quality standard for all of their people, delivered at a much lower cost. What is our resistance to learning from them?

  • Comments Off on How deficient is California’s Medicaid program?

Will King v. Burwell have a long-term impact?

Posted by on Tuesday, Jun 16, 2015

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.

Obamacare’s final test: if it survives the Supreme Court, it’s here to stay

By Sarah Kliff
Vox, June 15, 2015

In the next two weeks, the Supreme Court will rule in King v. Burwell, a challenge that threatens to dismantle Obamacare by ending financial subsidies for 6.4 million Americans.

If the challengers win, it would throw the health-care law into chaos. But if the White House prevails, something equally momentous will have occurred: President Obama’s signature legislative accomplishment will actually, really, definitely be here to stay.

“If we win this, I think that’s major, and I’d call it a monumental step,” says Ron Pollack, executive director of the pro-Obamacare advocacy group Families USA. “It means that the ACA is a permanent part of the American health-care system.”


Will Inefficient Financial Healthcare Reform Kill the ACA?

By Jacqueline DiChiara
RevCycleIntelligence, June 15, 2015

Is the Affordable Care Act (ACA) hurling the healthcare industry further into the red? The answer is a definite yes, according to a recent article about key findings from a pair of Harvard Medical School professors’ Health Affairs blog study.

The bureaucracy will gobble up a quarter of federal spending; the ACA will add almost $274 billion in new administrative costs heading into 2022, well beyond what would have been expected had the ACA not been passed, maintain David U. Himmelstein, MD and Steffie Woolhandler, MD.

“Previous work we’ve done suggests that a third of the total healthcare dollar goes to paperwork and bureaucracy,” Himmelstein states. Such numbers are likely mere underestimates that require updating, he confirms.

“Most other nations are much more efficient in the way that they finance and administer healthcare,” Himmelstein confirms. “There is no reason, other than political difficulty, that we can’t shed massive bureaucratic costs.”

Himmelstein predicts the ACA will soon lose dominance within the healthcare industry, moving forward. “Instead of fighting about whether to go back to an old system, repealing the ACA,” he says, “the debate will turn to how we move from here to something different, hopefully better.”

“Costs are likely to resume an upward growth pattern and more and more people are going to find themselves grossly underinsured. All of those problems are going to be part of the debate very soon,” he says. “We are moving to a handful of giant organizations controlling the health delivery system, largely focusing on their own interests and giving lip service to wanting to serve patients, but really acting like corporate masters of the healthcare system and shaping it to do what they want rather than what patients need,” he maintains.

The simple solution is to implement national health insurance, Himmelstein maintains. “Is it appropriate that some private organization have the decision making power over the healthcare of the vast majority in that region?” he asks. “Privatization is much less efficient,” Himmelstein states. “We’ll again be coming to a debate about national health insurance.”…

Everywhere you turn these days there is rampant speculation on what the impact will be of the soon-to-be-released Supreme Court decision on King v. Burwell – the case on whether or not subsidies can be provided to enrollees in federal ACA insurance exchanges. In the long run, the outcome doesn’t matter.

As David Himmelstein (co-founder of PNHP) explains in the RevCycleIntelligence article above, “Costs are likely to resume an upward growth pattern and more and more people are going to find themselves grossly underinsured,” and “Instead of fighting about whether to go back to an old system, repealing the ACA, the debate will turn to how we move from here to something different, hopefully better.” Regardless of the King v. Burwell outcome, “We’ll again be coming to a debate about national health insurance.”

It’s absolutely inevitable.

  • Comments Off on Will King v. Burwell have a long-term impact?

by John Geyman, M.D.

You might think that we learned the lesson of discredited managed care in the 1990s. The term “managed care” is confusing to many, but really amounts to managed reimbursement rather than managed care, whereby a set prospective annual payment is made by federal/state governments, as in the case of Medicaid managed care (MMC), to cover whatever services patients will receive over the coming year. There is therefore a built-in incentive for managed care organizations to skimp on care and pocket more profits. Predictably, by the end of the 1990s, there was widespread discontent across the country over denial of services by for-profit managed care organizations.

Today, this same problem is back in the form of privatized Medicaid managed care, facilitated further by the Affordable Care Act (ACA). More than one-half of Medicaid beneficiaries are now in privatized plans, which have been catching on in many states based on the unproven theory that private plans can enable access to better coordinated care and still save money. That theory is not just unproven, it is patently wrong. Privatized programs have high administrative costs, built-in profits, and do not save money or improve care. Their route to financial success is by finding more ways to limit care and deny services.

It is undeniable, of course, that millions of people have been helped by becoming newly insured, either through the exchanges or expanded Medicaid. In fact, a recent study by the Urban Institute found that the uninsured rate among adults between age 18 and 64 fell from 17.8 percent to 12.8 percent between December 2013 and December 2014. (1) But even as the Obama administration touts the ACA as a great success, with up to 16 million newly insured under the program, the Medicaid story isn’t as positive as it might appear.

For Medicaid overall, the federal government pays an average of 57 percent of the total costs of the program borne by the states. For states that expanded Medicaid under the ACA, federal funding has covered the costs of expansion at the 100 percent level for the first three years, then phasing down to 90 percent by 2020. Twenty-two states, mostly in the South under Republican leadership, rejected Medicaid expansion money. But many states, including those in the South, still welcome federal money for Medicaid, which they then often outsource to private insurers under MMC, with the supposed goal to be more efficient and save money.

These are some of the less publicized downsides of how the ACA actually works within privatized Medicaid programs:

• There were 267 mostly for-profit MMC organizations across the country in 2014; an Urban Institute study of nonelderly non-SSI adults (those not on Social Security incomes for disabilities) recently found that the higher the MMC penetration in counties, the more likely patients were to have an emergency department visit, the more difficult it was for them to see a specialist, and the higher the unmet need of getting prescription drugs; for nonelderly SSI adults, there was no evidence for improved access, use of services, or cost savings. (2)

•  According to a 2015 study by HealthPocket, only one-third of health care providers are accepting Medicaid patients; typical Medicaid reimbursement is only 61 percent of what Medicare pays for the same service. The ACA made a temporary attempt to increase reimbursement for primary care, but that has had little impact on access to primary care. (3)

• A recent study by the Commonwealth Fund found that more than 40 percent of residents in Texas and Florida reported not going tot he doctor when they were sick, fill a prescription, see a needed specialist, or skipped a recommended test or treatment in the previous year; the same proportion said they could not afford to pay a medical bill, had been contacted by a collection agency, or had medical debt requiring a change in their way of life. The authors of that study conclude that state decisions about not expanding Medicaid may actually be widening health care disparities in the United States. (4)

•  Subcontracting of Medicaid coverage has almost doubled Medicaid’s administrative overhead, increasing from 5.1 percent of total Medicaid expenditures in 1980 to 9.2 percent today. (5)

•  Some states have received federal waivers to impose premiums and/or copays to Medicaid patients; this cost-sharing has been shown to result in disenrollment and decreased access to care. (6)

•  Tennessee Medicaid plans, operated by BlueCross BlueShield of Tennessee, UnitedHealthcare, and Anthem, are a poster child for the inadequacies of MMC plans, with inadequate physician networks, long waits for care, and denials of many treatments, even as the insurers pocket new profits (7)

•  There are about 5 million people falling into the “Medicaid coverage gap” in the states that opted out of Medicaid expansion; theyhave incomes below the federal poverty level (FPL) but above Medicaid eligibility levels. (8)

•  Most non-expanding states require parents to earn less than the FPL to be eligible for Medicaid. (9)

Given all of the above problems, why do we still worship at the altar of privatization in U. S. health care, especially for the poor and most vulnerable among us? The answers are obvious, interrelated and disappointing after our experience with managed care in the 1990s. These stand out: (1) there is a lot of money to be made by insurers operating health programs subsidized by the government; (2) exploitive privatized programs are perpetuated by well-funded “free market” think tanks, their followers in Big Business, and compliant politicians responding to industry lobbyists; (3) regulations are inadequate to prevent gaming by insurers at patients’ expense; and (4) as a society, we still don’t seem to care when people have bad health outcomes and die because of failed health care policies. Yogi Berra would call this state of affairs “deja vu all over again.”

We are told that government regulators will soon initiate the biggest overhaul of Medicaid managed care rules in more than 10 years, intended to limit profits and set more rigorous requirements for quality of care and physician networks. The MMC industry lobby group, Medicaid Health Plans of America, will fight against such rules, of course, as “terrible policy”. (10) But given our track record, the power and influence of the insurance industry, don’t hold your breath. As long as health care remains so lucrative for private insurers, patients’ needs and the public interest don’t carry much weight.

It doesn’t have to be this way, as noted in earlier postings and my current book, How Obamacare Is Unsustainable, Why We Need a Single-Payer Solution for All Americans. (11) Not-for-profit single-payer financing of a one-tier system of universal coverage, based on medical need, not ability to pay, would resolve these persistent problems of failed market policies.

1. Andrews, M. Medicaid expansion helps to cut rate of older, uninsured adults from 12 to 8 percent. Kaiser Health News, May 22, 2015.

2. Tavernise, S, Gebeloff, R. Millions of poor are left uncovered by health law. New York Times, October 2, 2013.

3. Glied, S, Ma, S. How states stand to gain or lose by opting in or out of the Medicaid expansion. Commonwealth Fund, December 2013.

4. Caswell, KJ, Long, SK, The expanding role of managed care in the Medicaid program. Inquiry, April 16, 2015.

5. Coleman, K. Medicaid acceptance by healthcare providers drops to 1-out-of-3. HealthPocket, February 26, 2015.

6. Levey, N, Four largest states have sharp disparities in access to health care. Los Angeles Times, April 10, 2015.

7. Himmelstein, DU, Woolhandler, S. The post-launch problem: the Affordable Care Act’s persistently high administrative costs. Health Affairs Blog, May 27, 2015.

8. Dickson, V. Medicaid cost-sharing could reduce enrollment, experts warn. Modern Healthcare, September 16, 2014.

9. Hancock, J. Medicaid’s tension: getting corporate giants to do right by the needy. Kaiser Health News, April 28, 2015.

10. Ibid # 9.

11. Geyman, JP. How Obamacare Is Unsustainable: Why We Need a Single Payer Solution for All Americans. Friday Harbor, WA. Copernicus Healthcare. 2015.

  • Comments Off on Privatized Medicaid Managed Care: Yet Another Health Policy Disaster

Deductibles do not foster price shopping

Posted by on Monday, Jun 15, 2015

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 care cost-sharing prompts consumers to make big cuts in medical spending

By Ben Handel
The Conversation, June 15, 2015

Is that surgery really worth it? Do I really value that cancer screening? Is that extra imaging service necessary?

These are the kinds of questions consumers ask themselves when their insurance plans require higher cost-sharing for medical services. This is a new reality in the US health care system as large employers offering coverage have moved aggressively toward less generous, high-deductible insurance offerings.

This shift was accelerated by the “Cadillac Tax” provision contained in the Affordable Care Act (ACA), which, starting in 2018, places an excise tax on employers offering insurance plans that cover very high levels of medical spending. Further, many of the consumers enrolling in the public state exchanges created under the ACA have enrolled in lower- coverage financial plans that cover an average of 60% (bronze) or 70% (silver) of medical expenditures, similar to typical high-deductible coverage.

Though these policies are in part motivated by the government’s need to reduce its share of total health care spending, they are also driven by the expectation that they will lead consumers to use higher-value, lower-cost medical services.

In my recent research with Zarek Brot-Goldberg, Amitabh Chandra, and Jon Kolstad, we dug into the mechanisms for how and why consumers reduce medical spending when faced with higher cost-sharing.

To do this, we studied the medical claims and medical spending of more than 150,000 employees and dependents from one large firm that moved everyone from an insurance plan that provided completely free health care to a high-deductible plan covering 78% of medical spending on average.

During the switch, the in-network providers that consumers could access and the services covered remained the same. As a result, this switch presented an excellent opportunity to assess in detail how consumers respond to markedly increased cost-sharing.

Primarily, we wanted to know whether employees would reduce their medical spending as a result of the change and, if so, by how much. Further, we hoped to learn where specifically they’d cut back. Would they spend less on nonessential services or reduce spending across the board? Would they try to find cheaper sources of health care? Do some employees cut more than others? Do employees correctly perceive the true marginal price of care in a complex insurance contract?

Health care spending plunges

We first established that increased cost-sharing does reduce medical spending at the firm. Age- and inflation-adjusted medical spending dropped by 19% – from a base of approximately US$750 million in spending – when employees switched to high-deductible coverage.

Strikingly, many of the spending reductions come from the sickest employees. The sickest 25% (based on prior diagnoses each year) reduced spending by one-quarter after shifting coverage. This is especially notable, and somewhat surprising, since these employees earn relatively high incomes and their maximum out-of-pocket payment in high-deductible coverage for the calendar year was approximately $6,500 for a family.

How did consumers reduce spending? A detailed data analysis reveals that medical prices did not go down. Further, we show that consumers did not price-shop after the switch – that is, they did not move toward cheaper providers, for example, when they were going to undergo a specific procedure.

It turns out that all spending reductions were directly linked to quantity reductions: consumers just consumed less medical care.

Cuts across the board

Importantly, it didn’t seem like consumers were particularly choosy about what kind of health care they cut: consumers appeared to reduce consumption across a range of medical services, from low to high value.

For example, quantity reductions led to a 22% drop in spending on imaging services (such as MRIs or CT Scans), some of which are likely unnecessary. However, consumers also reduced how many preventive health services they used – which policymakers typically believe are underutilized – by 16%.

The cuts were across the board. Spending on mental health care fell 8%, inpatient and outpatient hospital services declined 14% and 17%, respectively, drug purchases dropped 20%, and emergency room services plunged 27%. Of the top 30 medical procedures (by revenue) that we investigated, we found that consumers reduced spending for 23 of them.

Simply put, consumers did not look for cheaper services but consumed less medical care, and did so across almost the entire range of medical services.

Insurance price misperceptions

One possible reason for why these sick, relatively high-income consumers reduced potentially valuable medical spending is that they perceived the marginal price of their medical care to be higher than it actually is.

Take the example of a consumer who knows he/she is quite sick entering the year and expects to spend a lot on health care. That consumer should not worry about the deductible and cost-sharing when making medical decisions early in the year because he/she knows that by the following January, all medical care used after passing the plan’s out-of-pocket limit will be free. Thus, the true marginal price of health care for this predictably sick consumer is close to $0, no matter how high the deductible is, so care consumed early in the year is essentially free as well.

But we found that these consumers substantially reduced spending early in the year when under the deductible, but once they passed it spent more. In other words, many consumers whose true marginal price for care throughout the year is essentially zero because of their impending high spending don’t treat incremental care as free when under the deductible. Instead, they respond as if the price of care under the deductible is the relevant price, despite the fact that they will spend that money during the year regardless.

This suggests that they misperceive their own health risks, misperceive how much medical care costs or don’t understand how the high-deductible insurance contract actually works. Similar consumer price misperceptions are also documented in Medicare Part D, electricity markets and broadband markets.

What this means for reform efforts

Giving consumers direct incentives to think about their health care spending is a cornerstone of health reform in the US and plays a large role in several national health systems around the world, such as in France.

An important prerequisite for these reforms to be successful is that consumers, who may or may not be making medical decisions in conjunction with physicians, understand the costs and benefits of different health care services. Our evidence suggests that consumers don’t seem to be responding to increased cost-sharing with nuanced expertise and instead reduce consumption across the range of medical services, some valuable and some likely wasteful.

Additionally, they reduce care heavily when sick and under the deductible, even when their true marginal price of care is very low.

Thus, while increased consumer cost-sharing can be an effective instrument for reducing health care spending, it may be a blunt instrument for encouraging higher value medical spending, especially relative to supply-side interventions that target physician incentives or interventions that reduce the use of high-cost low-value medical technologies.

As health reform pushes forward, policymakers will need to recognize the limits of consumer cost-sharing policies and focus more on how to appropriately incentivize providers to deliver high-value, low-cost care.

This article:…

“What Does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics” by Zarek Brot-Goldberg, Amitabh Chandra, Benjamin Handel and Jonathan Kolstad (43 slides):

A cursory glance at this article suggests that it is simply one more study that confirms that high deductible plans decrease health care spending, and since you already know that you might be tempted to pass on reading today’s message. But don’t skip this one if you wish to better understand just what impact high deductibles really do have.

What is unique about this study is that it evaluated the patterns of the change in health care spending when a large firm switched about 85 percent of its employees from a PPO plan that provided first dollar coverage (no deductibles, no coinsurance, and $0 out-of-pocket maximum) to a HDHP (high deductible health plan with $3,750 deductible, 10% coinsurance, and $6,250 out-of-pocket maximum). The health care providers were the same both before and after the change was made. This is about as pure of a study as you could devise on this topic – the same employees, the same health care providers, but with a change to a high deductible with coinsurance and a new patient responsibility for up to $6,250 in cost-sharing.

As expected, spending abruptly declined – by about 19%. So was this a result of better price shopping, as the advocates of these consumer-directed HDHPs tout? No. Medical prices did not go down after the switch was made. These health care consumers did not shop prices.

What went down was the quantity of health care provided. In fact, the sickest employees reduced their use of health care services even more – by about 25%. The reductions in utilization were across the board – inpatient services, outpatient services, emergency room services, mental health care, drug purchases, imaging, and preventive health services. Most of these are beneficial services.

Another interesting finding is that those individuals with significant disorders who knew that they would reach their maximum out-of-pocket spending nevertheless reduced their utilization of health care services while they were still under the deductible. They did not need to reduce their use of these services since after the out-of-pocket maximum is reached, their marginal cost of additional health care is essentially zero. Their net costs are the same regardless of their utilization. It is likely that these sick individuals were needlessly forgoing beneficial health care services.

The author states, “consumers appeared to reduce consumption across a range of medical services, from low to high value.” Clearly policies that reduce the consumption of high value care are undesirable, and, for this reason alone, deductibles and coinsurance should be eliminated. But what about low value care? What is low value care? Is that the MRI that, in retrospect, turned out to be normal? Wasn’t there some benefit in excluding potential pathology? Attempting to ferret out low value care can be detrimental if it consequentially results in the blunt elimination of high value care as well.

Besides, how much spending reduction would we really see with the reduction in beneficial health care services that results from deductibles? Remember that the 20 percent of individuals with greater health care needs consume 80 percent of our health care services. Most of this spending is well above the maximum out-of-pocket costs and thus cost-sharing has very little impact on this spending. The deductibles might influence utilization for the other 80 percent of us, but that would reduce spending by only a fraction of the 20 percent of health care that we use. Anyway, is the amount of health care used by us low-utilizers really an egregiously excessive amount of care? We usually have a legitimate reason for going to the doctor.

In this article, Ben Handel states, “while increased consumer cost-sharing can be an effective instrument for reducing health care spending, it may be a blunt instrument for encouraging higher value medical spending, especially relative to supply-side interventions that target physician incentives or interventions that reduce the use of high-cost low-value medical technologies.”

Instead of using detrimental demand-side patient cost-sharing instruments to reduce spending, just think of what could be accomplished on the supply-side using a well designed single-payer monopsony for financing health care: global budgeting of institutions such as hospitals, dramatic reduction of administrative waste, negotiation of rates for services and products, bulk purchasing of pharmaceuticals, avoiding excess capacity through planning and separate budgeting of capital improvements, and establishing a global budget for the entire health care delivery system.

There is no need to assess financial penalties (deductibles and coinsurance) merely for accessing beneficial health care services. With a single payer system, patients simply obtain the health care that they need, when they need it. That’s the way it should be.

  • Comments Off on Deductibles do not foster price shopping

CMS’s latest ACO report is inscrutable

Posted by on Monday, Jun 15, 2015

Successful Pioneer ACO journey leaves faint trail for followers

By Melanie Evans
Modern Healthcare, May 7, 2015

Touting $380 million in savings from the Affordable Care Act’s first test of accountable care, Medicare says the [Pioneer ACO] pilot did well enough to expand. But it’s unclear how the participants got the savings and to what extent others can replicate the success.

Dr. Patrick Conway, head of the CMS Innovation Center, and his colleagues announced the savings this week in JAMA. They detailed medical spending for Medicare patients who received care from 32 accountable care organizations during the first two years of the Innovation Center’s Pioneer ACO program.

“It’s very hard to take apart the findings of a study like this,” said Stuart Guterman, vice president for Medicare and cost control for the Commonwealth Fund. “It’s hard to tell what the aggregate numbers mean.”

One perplexing result from the CMS analysis was a drop in spending for primary care office visits. Accountable care emphasizes care in lower-cost settings, chronic disease management and prevention, all of which is typically the work of primary care providers.

“I am not sure how to explain it,” Guterman said.

Stuart Guterman’s characterization of CMS’s latest report on the Pioneer ACO program is accurate. It is impossible to explain the report’s findings.

The report in question was a paper published in the Journal of the American Medical Association by David Nyweide and six other CMS employees. That paper was in turn based on an “evaluation” of the Pioneer ACO program by L&M Policy Research. The JAMA paper and the L&M study purported to evaluate the performance of the 32 ACOs in the Pioneer ACO program during the program’s first two years (2012 and 2013). (Nine of the 32 ACOs dropped out by the end of 2013.)

In a recent comment I criticized the JAMA and the L&M studies on two grounds: They failed to subtract from the alleged savings the amount CMS paid out in bonuses to the ACOs; and they analyzed a simulated version of the program rather than the actual program.

In this comment I address the question Dr. Guterman and the Modern Healthcare reporter raise in the excerpt quoted above: Why is it so difficult to make heads or tails of the findings? I’ll examine the L&M report because it is by far the longer and more complex of the two documents.

Let us begin by asking what accounts for two of the report’s most significant findings:

•  Only 10 of the 32 Pioneer ACOs saved money in both 2012 and 2013, and

•  nearly every one of the 32 ACOs cut spending on primary care doctors in both 2012 and 2013.

L&M’s report offers not a single fact to help us answer that question. That is not L&M’s fault. The problem is the failure of ACO proponents, including CMS, to define “ACO.” L&M summarized the problem on page 1 of their report:

The ACO “treatment” under investigation is not a prescribed set of activities or interventions. Rather, it is a financial arrangement in which provider organizations attempt to reduce expenditures below a set target while maintaining high quality metrics in exchange for bearing risk for reducing expenditures.

It’s hard to imagine a definition more devoid of meaning. Let’s begin with the lead noun, “arrangement.” Is it possible to choose a more abstract word? What does it mean to say “provider organizations” are “in an arrangement” and, once in, they “attempt to reduce expenditures while maintaining high quality metrics”? How do they “attempt”? We don’t know. We don’t know because ACO proponents have never set forth a “prescribed set of activities or interventions,” as L&M put it so precisely.

The refusal of ACO proponents to state clearly what it is ACOs are supposed to do means ACOs are under no obligation to employ any particular intervention, to hire any particular type of staff, to follow any particular protocol, or to focus on any particular type of patient. And that in turn means contractors such as L&M, researchers such as Dr. Guterman, and reporters such as Melanie Evans (the author of the Modern Healthcare article) can’t make any sense of the outcomes of the Pioneer program.

L&M makes a gallant attempt to describe what goes on inside some of the 32 Pioneer ACOs, but the language is so abstract and the examples so anecdotal we learn little. Given the highly abstract “definition” of ACO, how could it be otherwise? Here are some illustrative quotes from pages 41 and 42 of L&M’s evaluation:

•  One ACO “has encouraged each component entity of the ACO to select and pilot its own care management approach … such as disease-focused [and] high-risk patient focused [approaches]”;

•  “[a]nother Pioneer ACO … is providing transition management in the acute care setting,” and

•  a third ACO “has a dedicated staff that use claims data and timely hospital admission information to determine when a patient is in need of care management services and then deploy community-based care managers throughout the organization in response.”

“Approaches,” “disease-focused,” “high-risk patient focused,” care management,” “transition management,” “community-based care”? What do those phrases mean? L&M either doesn’t elaborate, or elaborates and adds little information. In explaining the phrase “transition management,” for example, L&M says it may or may not include home visits (p. 42).

Later we read about another ACO that stations “nurse care coordinators … at two of the three area hospitals responsible for admitting the largest volume of ACO patients, and nurses comb through hospital census records daily to identify all ACO-assigned patients with recent admissions. … [T]he ACO provides care transition services to any admitted ACO patient, regardless of risk status” (p. 60).

These quotes suggest ACOs provide “management” services, whatever they are, to only a portion of their assigned members, notably those who are acutely or chronically ill. But L&M also presents the responses to a “satisfaction” survey of a “random sample” of Medicare beneficiaries assigned to ACOs, which suggests L&M and CMS define ACOs as “accountable” for services provided to all Medicare beneficiaries assigned to them, not just a subset of the sick.

Let’s stop and ask what we’ve learned from the information I just presented. We’ve learned that ACOs administer services with vague labels (“care management,” “care coordination,” etc.) to

•  only “high-risk” patients,
•  only patients with specific diseases,
•  only patients currently in, or recently discharged from, some but not all hospitals,
•  all of the above, or
•  all of the above plus all other Medicare beneficiaries assigned to the ACOs.

How is a CMS contractor supposed to “evaluate” such vaguely characterized services administered to such vaguely defined pools of Medicare recipients?

L&M’s solution was to hypothesize, without reference to any research, that the following vaguely defined “features” of ACOs might correlate with Medicare expenditures on the ACOs:

•  “hospital relationships,”
•  “capacity to follow and monitor beneficiaries through the care continuum,”
•  “engaged leadership,”
•  “provider engagement,” and
•  “market pressures.”

With the exception of “hospital relationships,” L&M offered no useful definition of these “features.”[1]  Not surprisingly, L&M found no correlation between any of these five “features” and ACO spending, nor between patent satisfaction scores and spending.

And if they had, so what? Let’s say L&M found a correlation between “leadership engagement” and spending. We still wouldn’t know who did what to lower spending.

And so it is that the reader arrives at the last page of L&M’s 117-page report with no idea how to explain any of L&M’s findings, including the two findings I reported at the outset. I’ll close by speculating on the causes of those two findings.

What did the 10 ACOs that allegedly saved money in both 2012 and 2013 do that the other 22 ACOs were not doing? And how did they accomplish those savings so quickly? The 10 highly sophisticated corporations that participated in the Physician Group Practice (PGP) Demonstration, an experiment widely seen as a test of the ACO concept, were unable to do that. Those entities were well versed in managed care methods (seven of the 10 owned or previously owned an HMO (p. ES-3). But over the five-year period of the PGP demo, the 10 PGPs cut Medicare spending by only 1.7 percent, and by only .3 percent after taking into account CMS’s bonus payments.[2]  And much of those savings were an illusion created by upcoding.

I offer three hypotheses that might explain why ten of the Pioneer ACOs cut costs overnight.

First, the money-saving ACOs might be focusing on the very small fraction of their patients for whom their return on investment is likely to be positive. Research on disease management indicates there are only a few diseases for which the return on investment (a) is usually positive and (b) turns positive almost overnight as opposed to a decade or two down the road (disease management of congestive heart failure is an example).

Second, the ACOs that appear to be saving Medicare money may be attracting healthier Medicare enrollees, and L&M’s crude risk-adjustment method is failing to adjust spending accordingly. The high “churn rate” among ACO doctors and patients from year to year, and the small savings we’re trying to explain, makes accurate risk adjustment essential.

L&M hints that my favorable-selection hypothesis could be correct. In their discussion of the results of the patient satisfaction survey, they state, “[I]t is possible that these CAHPS [Consumer Assessment of Healthcare Providers and Systems] results are confounded, given that beneficiaries are aligned or assigned to an ACO because they receive regular care from ACO providers” (pp. 31-32). Some ACOs may benefit more from this algorithm-induced favorable selection than others.

Third, the money-saving ACOs may benefit not just from algorithm-induced cherry-picking but ACO-generated rationing and lemon-dropping – driving sicker patients away. L&M reported that ACO patients were more likely to complain about having a hard time getting access to doctors, especially specialists.[3]

Finally, let us ask how all but one ACO in 2012, and all by three in 2013, cut spending on primary care doctors? These cuts were statistically significant for 29 ACOs in 2012 and 28 in 2013 (see Figure 5, p. 20). The cuts ranged from approximately 1 to 4 percent. By contrast, over the five years of the PGP demonstration, the PGPs achieved no savings in outpatient care.[4]

I hope the explanation is that the ACOs substituted non-billable services provided by nurses and other non-physician primary care professionals for billable services previously provided by doctors. That would be consistent with ACO lore: ACOs allegedly hire more “care managers” who provide services that keep patients away from doctors and out of hospitals. But it’s lore only. If we had data on what ACOs spend their money on, we might be able to confirm that the lore is reality. But ACO proponents and analysts have completely ignored the subject of how much money ACOs spend to do whatever it is ACOs do and what that money buys.

But the substitution of nurses and other professionals for doctors might not be the explanation. An alternative and less pleasant explanation might be the two I mentioned above – algorithm-induced cherry-picking, lemon-dropping, and denial of services to the sicker patients who could not be avoided by cherry-picking or lemon-dropping.

We shouldn’t be guessing about such important issues. But as long as ACOs are black boxes, reports about them will be inscrutable, and readers will be reduced to guessing about the reports’ findings. I have no doubt L&M’s report on the Pioneer program’s third year will be equally inscrutable.


1. “Engaged leadership” isn’t defined at all, for example, while “provider engagement” is defined as “use of provider incentives or referral stream management activities” (p. 8).

2. See Table 5-13 p. 65, Evaluation of the Medicare Physician Group Practice Demonstration, Final Report: “Expressed as a percentage, the [PGP] demonstration saved Medicare .3% of the claims amounts” (p. 64).

3. L&M stated, “Pioneer ACOs were rated statistically significantly lower on access to specialists and ease of getting care” (p. 31).

4. “Across all 10 PGPs, Demonstration savings were achieved totally from the inpatient setting (savings = $228). In fact, the estimated Demonstration impact on total outpatient expenditures indicates slight dis-savings (dis-savings = $25), possibly indicating some degree of substitution of outpatient for inpatient services among the Demonstration PGPs.” (Evaluation of the Medicare Physician Group Practice Demonstration, Final Report, p. 195).

Kip Sullivan, J.D., is a member of the board of Minnesota Physicians for a National Health Program. His articles have appeared in The New York Times, The Nation, The New England Journal of Medicine, Health Affairs, the Journal of Health Politics, Policy and Law, and the Los Angeles Times.

  • Comments Off on CMS’s latest ACO report is inscrutable

Zero-premium Medicare Advantage plans have higher cost sharing

Posted by on Friday, Jun 12, 2015

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.

Medicare Advantage Members’ Expected Out-Of-Pocket Spending For Inpatient And Skilled Nursing Facility Services

By Laura M. Keohane, Regina C. Grebla, Vincent Mor and Amal N. Trivedi
Health Affairs, June 2015


Inpatient and skilled nursing facility (SNF) cost sharing in Medicare Advantage (MA) plans may reduce unnecessary use of these services. However, large out-of-pocket expenses potentially limit access to care and encourage beneficiaries at high risk of needing inpatient and postacute care to avoid or leave MA plans. In 2011 new federal regulations restricted inpatient and skilled nursing facility cost sharing and mandated limits on out-of-pocket spending in MA plans. After these regulations, MA members in plans with low premiums averaged $1,758 in expected out-of-pocket spending for an episode of seven hospital days and twenty skilled nursing facility days. Among members with the same low-premium plan in 2010 and 2011, 36 percent of members belonged to plans that added an out-of-pocket spending limit in 2011. However, these members also had a $293 increase in average cost sharing for an inpatient and skilled nursing facility episode, possibly to offset plans’ expenses in financing out-of-pocket limits. Some MA beneficiaries may still have difficulty affording acute and postacute care despite greater regulation of cost sharing.

From the Discussion

MA beneficiaries still pay a great deal for inpatient and SNF services even after new regulations have gone into effect. We found that these expenses often exceed what traditional Medicare beneficiaries without supplemental coverage would pay under the Part A deductible, which covers hospitalizations and SNF services. The majority of MA beneficiaries are enrolled in zero-premium plans with higher cost-sharing expectations. This pattern could reflect other studies’ findings that Medicare beneficiaries are strongly influenced by premium levels and have trouble selecting plans that will minimize their out-of-pocket exposure.

The growth in enrollment in private Medicare Advantage (MA) plans has been largely due to the attraction of not having to pay a premium for the plans. The trade-off is that the patient is exposed to higher out-of-pocket expenses.

Many studies have shown that selection of health plans is most heavily influenced by the premium, since plan purchasers are averse to higher premiums. For insurers to be able to offer plans with low premiums they must reduce the coverage, primarily by requiring higher deductibles and other cost sharing. This study shows that the cost sharing for inpatient and SNF services may be unaffordable and thereby impair access for those enrolled in zero-premium MA plans – the plans that the majority select.

In a single payer system, there is no premium. Equitable taxes, based on ability to pay, fund the universal risk pool. Individuals are not faced with the temptation of being allowed to keep more money in exchange for accepting less than adequate coverage. With single payer, everyone would have adequate coverage, while progressive taxes would would make it affordable for all of us.

  • Comments Off on Zero-premium Medicare Advantage plans have higher cost sharing

About this blog

Physicians for a National Health Program's blog serves to facilitate communication among physicians and the public. The views presented on this blog are those of the individual authors and do not necessarily represent the views of PNHP.

News from activists

PNHP Chapters and Activists are invited to post news of their recent speaking engagements, events, Congressional visits and other activities on PNHP’s blog in the “News from Activists” section.