Medicare Advantage as a precursor of premium support

Posted by on Monday, Jan 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.

Variations In County-Level Costs Between Traditional Medicare And Medicare Advantage Have Implications For Premium Support

By Brian Biles, Giselle Casillas and Stuart Guterman
Health Affairs, January 2015


Concern about the future growth of Medicare spending has led some in Congress and elsewhere to promote converting Medicare to a “premium support” system. Under premium support, Medicare would provide a “defined contribution” to each Medicare beneficiary to purchase either a Medicare Advantage (MA)–type private health plan or the traditional Medicare public plan. To better understand the implications of such a shift, we compared the average costs per beneficiary of providing Medicare benefits at the county level for traditional Medicare and four types of MA plans. We found that the relative costs of Medicare Advantage and traditional Medicare varied greatly by MA plan type and by geographic location. The costs of health maintenance organization–type plans averaged 7 percent less than those of traditional Medicare, but the costs of the more loosely structured preferred provider organization and private fee-for-service plans averaged 12–18 percent more than those of traditional Medicare. In some counties MA plan costs averaged 28 percent less than costs in traditional Medicare, while in other counties MA plan costs averaged 26 percent more than traditional Medicare costs. Enactment of a Medicare premium-support proposal could trigger cost increases for beneficiaries participating in Medicare Advantage as well as those in traditional Medicare.

From the Discussion

This analysis of the relationship between the costs to provide Medicare benefits by MA private plans and by traditional Medicare in the same county found that these costs varied widely by the type of MA plan and the level of costs in traditional Medicare at the county level.

Most notably, Medicare Advantage HMO plans had lower costs than traditional Medicare in areas in the nation where the average costs per beneficiary in traditional Medicare were relatively high compared to the national average. In contrast, the three less tightly organized MA plan types had higher costs than traditional Medicare in almost all areas of the nation, and their costs were much higher where the average costs in traditional Medicare were lower than the national average.

Although both traditional Medicare and MA plans are changing, these findings have broad implications for future Medicare policy, especially for proposals to transform Medicare into a premium support-based program.

Nationwide, MA plans in rural areas have costs that average 115 percent of local costs in traditional Medicare. In some metropolitan areas, MA plan costs to provide Medicare benefits are also higher than in traditional Medicare. In cities such as Rochester, New York; Sacramento, California; and Seattle, Washington, Medicare Advantage HMO plan costs are higher than costs in traditional Medicare by 18 percent or more. In these areas, with low costs in traditional Medicare, a premium-support program would not lead to an increase in the monthly Medicare premium to traditional Medicare beneficiaries. It would, however, reduce payments to MA plans, which would then need to raise their monthly premiums to Medicare members and reduce any supplemental benefits that they now provide.

Policy Implications

This analysis suggests that reform of Medicare based on the premium-support model will inevitably result in major changes in costs for health insurance coverage and health care services for elderly and disabled beneficiaries in substantial portions of the nation. The analysis finds that only the more tightly organized Medicare Advantage HMO–type plans have costs that are lower as a national average than traditional Medicare costs in the same area. Medicare Advantage HMO–model private plans, although very successful in some high-cost urban regions, have proved expensive and difficult to develop and expand in other areas with lower costs in traditional Medicare. After thirty years of federal and private support, the most tightly organized Medicare Advantage HMOs have achieved significant cost savings relative to local costs in traditional Medicare in only a limited number of urban counties.

The lesson is that these less structured MA plans, which mostly mimic the fee-for-service payment system for which traditional Medicare is criticized, have costs that are substantially higher than those of traditional Medicare in the same area and would not contribute to lower Medicare costs.

Finally, the analysis finds that the traditional Medicare program is not as universally inefficient and expensive relative to private plans as is often suggested. The findings described here indicate that MA plans have average costs that are higher than costs in traditional Medicare in five of the ten US county cohorts with the lowest traditional Medicare costs. In the three county cohorts with the lowest traditional Medicare costs, even HMO plans have costs that exceed those of traditional Medicare, by more than 10 percentage points.

The contention that private Medicare Advantage (MA) plans competing with the traditional Medicare program are able to lower costs has been proven repeatedly to be a fiction. Yet there continues to be a push to convert Medicare into a premium support system in which patients would use vouchers to purchase private plans under the false promise of lower costs through market competition.

Although tightly organized HMO-type Medicare Advantage plans may have lower costs in areas where the costs of the traditional Medicare program were higher, more loosely structured PPO and private fee-for-service Medicare Advantage plans averaged 12 to 18 percent more than the costs of the traditional Medicare program.

Understanding the distinction between tightly organized HMOs and loosely organized PPOs and private FFS plans is important to be able to make sense of the economic impact of these models. PPO and FFS Medicare Advantage plans are business models of private insurance designed to be marketed as insurance products that partially cover losses due to health care. These models are associated with very high administrative costs, a fact acknowledged in the Affordable Care Act since similar plans are permitted to consume 15 to 20 percent of the premiums for their own administrative costs and profits. These administrative costs are far higher than those of the traditional Medicare program, as mentioned above.

Tightly organized HMOS, such as Kaiser Permanente, are designed as patient service models providing prepaid health care. These models have been shown to be effective in improving efficiency and sometimes reducing health care costs. What distinguishes them from the loosely organized models is that these HMOs are integrated health care delivery systems whereas the loosely organized models are simply intermediary insurance plans that contract with mostly non-integrated private providers.

Why is this important? Integrated systems such as Kaiser that are a part of the delivery system would be covered under a single payer national health program – an improved Medicare for all. The loosely organized models are simply private insurers that are not part of the health care delivery system. Under single payer they would be replaced by an improved Medicare. Thus we would be keeping efficient prepaid delivery systems while dumping the wasteful and intrusive private insurer intermediaries.

How would premium support change this? The advocates would provide generous vouchers for these wasteful intermediaries while failing to provide adequate cost adjustments for the traditional Medicare program. We know that they would do this because they already are doing it. Although the Affordable Care Act called for the reduction of the Medicare Advantage overpayments, a conspiracy between the insurance industry and the administration has resulted in various accounting innovations that have preserved these overpayments, though in a disguised form. So they would eventually displace traditional Medicare with a thriving market of private plans, but, as patients would eventually discover, plans with unaffordable cost sharing and limited choice of narrow networks.

This study is yet one more that demonstrates the irrationality of using wasteful private insurance plans in a public program. Yet it also shows that those who prefer to obtain care through an integrated delivery model, such as Kaiser Permanente, could continue to do so under single payer since it is a prepaid health delivery system rather than a private, superfluous, intermediary insurer. But, by all means, be prepared to protest vociferously when you hear talk of premium support.

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Commonwealth – Workers paying more but getting less

Posted by on Thursday, Jan 8, 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.

State Trends in the Cost of Employer Health Insurance Coverage, 2003–2013

By Cathy Schoen, David Radley, and Sara R. Collins
The Commonwealth Fund, January 8, 2015


From 2010 to 2013—the years following the implementation of the Affordable Care Act—there has been a marked slowdown in premium growth in 31 states and the District of Columbia. Yet, the costs employees and their families pay out-of-pocket for deductibles and their share of premiums continued to rise, consuming a greater share of incomes across the country. In all but a handful of states, average deductibles more than doubled over the past decade for employees working in large and small firms. Workers are paying more but getting less protective benefits. Costs are particularly high, compared with median income, in Southern and South Central states, where incomes are below the national average. Based on recent forecasts that predict an uptick in private insurance growth rates starting in 2015, securing slow cost growth for workers, families, and employers will likely require action to address rising costs of medical care services.

From the Overview

For workers and their family members who are insured through employers, annual premium increases have far exceeded wage growth for more than a decade—with premiums rising three times faster than wages. In every state in the country, from 2003 to 2013, the total costs of insurance premiums rose far faster than median household income.

From the Discussion

Costs per person for private insurance have risen faster than in Medicare since 2008. Over the next decade, federal projections indicate that per-enrollee medical spending among the privately insured will continue to rise faster than in Medicare, increasing to an average of 4.7 percent per year from 2014 to 2023. Concerns are mounting that the recent wave of hospital mergers and hospital acquisition of physician practices will result in higher prices paid by private insurers, regardless of the quality of care provided. The higher prices paid in the United States relative to other high-income countries account for a large portion of the share of national income that is consumed by health care in the U.S.

Although the Affordable Care Act offers a platform from which to build, securing a more affordable future will likely require action beyond those reforms, focusing on costs of care, particularly for the privately insured.

The key question is how to slow health care cost growth in a way that benefits middle class and lower-wage working families—that is, keeping premium growth in check without eroding benefits. This will likely require concerted efforts that span the private and public sectors. The challenge to policy leaders will be to pursue reforms that improve the quality of health care, rein in cost growth, and ensure that savings are shared with patients and families across the income spectrum.…

Although some news reports are celebrating the slowdown in the growth of premiums paid by employers for their employee health benefit programs, the news is not so good for those the coverage is designed to serve – workers and their families. As this report states, “Workers are paying more but getting less protective benefits.”

Specifically, “the costs employees and their families pay out-of-pocket for deductibles and their share of premiums continued to rise, consuming a greater share of incomes across the country.” Further, “Costs per person for private insurance have risen faster than in Medicare.”

Employer-sponsored health insurance – the best coverage that the private insurance industry has to offer – is further burdening workers and their families, yet still falls short of Medicare in its effectiveness in containing health care spending.

Although the Affordable Care Act was specifically designed to perpetuate the role of employer-sponsored coverage, our experience shows that the best that the private insurance industry had to offer is still not good enough. Medicare is certainly better, although it has problems that need to be addressed. But it would be far easier to fix Medicare – a system designed for patient service – than it would be to harness the private health insurance industry – a system designed to serve business interests.

It’s time to relieve employers of their responsibility of providing health benefit programs for their employees. We need to move forward with enacting and implementing an expanded and improved Medicare for all.

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The top complaint received by the Consumer Financial Protection Bureau

Posted by on Wednesday, Jan 7, 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.

Creating the Consumer Bureau

Consumer Financial Protection Bureau (CFPB)

Beginning in 2007, the United States faced the most severe financial crisis since the Great Depression. Millions of Americans saw their home values drop, their savings shrink, their jobs eliminated, and their small businesses lose financing. Credit dried up, and countless consumer loans—many improperly made to begin with—went into default. Today, we’re still in the process of recovering.

In July 2010, Congress passed and President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act created the Consumer Financial Protection Bureau (CFPB). The CFPB consolidates most Federal consumer financial protection authority in one place. The consumer bureau is focused on one goal: watching out for American consumers in the market for consumer financial products and services.


Consumer Advisory: 7 ways to keep medical debt in check

By Gail Hillebrand
Consumer Financial Protection Bureau, December 11, 2014

Debt collection is the top complaint we’ve received since September 2013. Out of all debt types, medical collections make up 52 percent of collection accounts on credit reports, far outpacing all other types of debt.

Medical collections are so widespread, that an estimated 43 million consumers with an account in collection have medical debt. We analyzed medical collections in our latest report, to explain why medical debt is affecting so many more credit reports than any other type of debt.…

In the financial crisis of the recent Great Recession, people lost their jobs, lost their homes, lost their savings, and their consumer loans went into default. The role of Wall Street compounded and sometimes even created these problems, and that led to greater increases in income and wealth inequality that have adversely impacted America’s working families. In response, Elizabeth Warren, Barney Frank, Chris Dodd and others were instrumental in establishing the Consumer Financial Protection Bureau. So what is the number one complaint that the bureau is now receiving? Medical debt!!

Specifically, debt collection is the top complaint, and medical collections, at 52 percent of collection accounts on credit reports, far outpace all other types of debt.

With first dollar coverage under a single payer system, this problem would disappear. Let’s do it.

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Effect of an enhanced medical home on serious illness and cost of care among high-risk children with chronic illness: A randomized clinical trial

By Ricardo A. Mosquera et al.
JAMA 2014;312:2640-48

We conducted a randomized clinical trial to assess whether an enhanced medical home providing comprehensive care for high-risk children with chronic illness would reduce serious illnesses, medical costs, or both, from a health system perspective. …

Comprehensive care was provided at the UTH [University of Texas, Houston] High-Risk Children’s Clinic as a medical home. … The clinic was open 40 hours per week and staffed by the medical director (a pediatric pulmonologist …) and 2 pediatric nurse practitioners who provided primary care. … All parents had the cell phone number to directly reach 1 of the primary care clinicians at all hours. … [E]ach clinician could access clinic records from home.

The clinic was also staffed by a nutritionist and social worker. Children were scheduled as needed to see a dedicated pediatric gastroenterologist, neurologist, or allergist/immunologist, who each attended the clinic once monthly. A pediatric infectious disease specialist helped develop measures to reduce … and effectively treat infections. … These subspecialists were promptly available by telephone for consultation at all hours.

When ED visits or hospitalizations were needed, the clinicians discussed the child’s problems and treatment with the responsible physicians. A timely follow-up visit was arranged before discharge from the ED or hospital. … [T]he nurse practitioners and medical director met weekly to discuss any parent complaints and scrutinize the care provided before all ED visits and hospitalizations.

The total estimated costs per child-year were considerably lower with comprehensive care than with usual care due to a large reduction in hospital costs ($9,810 vs $25,059, respectively) … that exceeded the increase in clinic costs ($6,713 vs $1,722).

The benefits and cost savings we identified with comprehensive care seem likely to be achievable only in high-risk populations treated in major academic centers with the subspecialists, resources, and clinician commitment to provide such care.

The “medical home” concept has become counterproductive. It is muddling the debate about how to improve medical care without raising costs, and it is punishing primary care clinics. The paper by Mosquera et al. illustrates both problems.

At the beginning of the paper, the authors assert there is no solid evidence for the claim that “patient-centered medical homes” (PCMHs) cut costs. That assertion is correct. A review of the research on PCMHs published in 2013 found “no evidence for overall cost savings.” A paper published in 2014  found that “one of the earliest and largest multi-payer medical home pilots conducted in the United States” achieved no savings after three years.

Mosquera et al. then go on to report on a program that appears to have cut costs substantially by spending more on outpatient care and thereby greatly reducing hospital utilization. But they note that the PCMH can only cut costs under the following conditions: The PCMH consists of a very expensive, highly specialized group of health care professionals; it is applied to a carefully selected group of very sick patients who represent far less than 1 percent of the population.

The authors seem to be uncomfortable using the PCMH label for the Texas clinic where the study was conducted. They invoke the label several times, but make no effort to explain why they equated the clinic with a PCMH. The paper lists only three of the accoutrements PCMH’s are supposed to display (access to clinicians 24/7, electronic medical records, and the regular use of patient “satisfaction” surveys); and the doctors are all specialists (PCMHs are supposed to be primary care clinics).

In fact, the concept Mosquera et al. operationalized, and use repeatedly in the paper, is “comprehensive care,” not “medical home.” In the discussion section explaining why “comprehensive care” reduced total expenditures, the authors refer to the “high-risk population” and the extra staff.

Why couldn’t Mosquera et al. simply assert that the clinic was able to reduce hospital costs because it hired more staff? What is gained by claiming that a clinic that hires more staff deserves an ostentatious name like “medical home”?

I suspect the authors thought the paper would draw more attention if it could be associated with the “medical home” fad. But whatever the reason, the authors’ effort to cram this experiment into the PCMH pigeonhole illustrates how the “home” fad confuses the debate about how to improve medical care without raising costs.

The fad has conflated two questions that must be kept separate: Whether a given problem needs more resources to solve it, and whether the problem should be addressed as well, or alternatively, with organizational change.

Organizational or structural change is implied by “medical home” and other language used by PCMH and managed care advocates such as “accountable care organization,” “delivery system reform,” “re-engineering,” “restructuring,” and “transformation.” The implication of this language, especially when it is used repeatedly without reference to the new administrative and personnel costs these interventions generate, is that clinics and hospitals do not need more money, but instead need a change in structure that will cause them to work more efficiently.

It is clear from Mosquera et al.’s paper that the hiring of more staff explains the large reduction in hospital costs and the dramatic improvement in the health of the patients who received “comprehensive care.” The clinic invested huge sums of money – $5,000 more per patient per year than it spent on “usual care” – to hire more specialists, nurses, and other staff. There is, conversely, no evidence in the paper indicating the clinic underwent any change in structure, much less a “transformation” into something so different it required a label like “medical home.”

I understand the authors’ reluctance to come right out and state the obvious: “We spent more money on clinic personnel and cut costs on hospital care.” The idea that a problem can be solved by bringing more resources to bear is inconsistent with reigning managed care theology. That theology holds that whatever ails our health care system can be solved or ameliorated by structural change induced, or accompanied, by “payment reform” that shifts risk to doctors and hospitals.

But defects in structure or organization are not what ails the U.S. primary care sector. The problem is insufficient resources devoted to primary care professionals. This insufficiency is aggravated by unnecessary administrative costs inflicted on clinics by the multiple-payer system and by the endless stream of managed care experiments hatched by the insurance industry, Congress and state legislatures. The overhead costs of PCMHs, to take one example of the managed care nostrums that are draining money out of clinics and hospitals, are substantial.

How substantial? It’s hard to say because the question is of no interest to PCMH advocates and has been the subject of little or no peer-reviewed research. As was the case with other managed care fads, the policy entrepreneurs who launched the PCMH fad did so without an ounce of evidence on the intervention costs it would generate. The only relevant evidence I’m aware of is anecdotal evidence. It suggests that the costs clinics incur to become “homes” – additional medical staff plus new administrative costs – raise clinic costs by 15 to 25 percent.

Consider two bits of anecdotal evidence about PCMHs run by doctors who sincerely believe in the PCMH model.

In March of 2012, the Wall Street Journal published an article with the headline, “Why America’s doctors are struggling to make ends meet.” It was about Dr. Scott Hammond, one of three doctors who practice at the Westminster Medical Clinic in Denver, and the clinic’s effort to participate in the Colorado Multipayer Patient-Centered Medical Home Pilot. The article contained a photo of a small ledger showing a summary of the expenses and income for the clinic for 2011. The income side of that little ledger indicated the clinic received large upfront payments from several insurers participating in the pilot to offset the costs of becoming a “home” ($243,000) plus a grant to hire a social worker ($34,000). These payments totaled $277,000 – 13 percent of the clinic’s total income of $2.1 million in 2011. Moreover, the expense side of the ledger indicated the clinic spent $6,000 on electronic medical records and the text of the article indicated the clinic’s income fell $200,000 in forgone patient visits to free up staff time to devote to the PCMH pilot.

Anecdote 2: At a May 30, 2014, conference on PCMHs sponsored by WellPoint, Dr. Mark Frazier spoke about his experience running a PCMH for a program called the Comprehensive Primary Care Initiative (CPCI) run by WellPoint and the Centers for Medicare and Medicaid Services. Here is an excerpt from Dr. Frazier’s remarks from the transcript:

What happened in our first year of the CPCI? Revenues actually dropped by 5 percent and office expenses increased by 19 percent. … [O]ur office overhead increased 52 percent. … I’m working 14 to 16 hours days every day and I can’t figure out whether it’s because of patient-centered medical home model, or the EMR, or a combination.

Commentary by doctors involved in PCMHs confirms these anecdotes. A report published in the newsletter of the American Academy of Family Physicians on the academy’s 2012 Congress of Delegates indicates the AAFP leadership got an earful from its members about the AAFP’s support for PCMHs.

The article quoted three delegates who spoke about the high cost of PCMHs. One of them, Dr. Kim Yu, said she had to close her practice because she couldn’t afford all the trappings associated with becoming a PCMH. The comments that other doctors posted at the end of this report were harshly critical of the AAFP’s support for “homes.” Readers interested in reading the views of some other exasperated primary care doctors should read the comments that follow this report on the conference that Dr. Frazier spoke at.

News of the financial and psychological stress that the PCMH experiment is imposing on primary care clinics seems to be filtering up to some of the august bodies that launched the “home” fad back in 2007 and 2008. At its March 6, 2014, meeting, several members of the Medicare Payment Advisory Commission (MedPAC), which endorsed “homes” in 2008 on no basis other than some unnamed “experts” thought it was a good idea, expressed concern about the high cost of meeting the requirements stipulated by the National Committee for Quality Assurance. Commission chair Glenn Hackbarth called the requirements “gold-plated” and said he was worried NCQA’s “bells and whistles” had put the “medical home model [at] a real cost disadvantage.” (pp. 251-253, transcript)

But despite the growing awareness that PCMHs are stressing clinics and cannot save money when applied to the general population, neither MedPAC nor the AAFP nor any other of the major proponents of the “home” fad have withdrawn their support. They should. The concept has become counterproductive. It promotes the mistaken belief that our primary care sector needs to be “re-engineered” when what it really needs is more resources. It justifies expenditures on paraphernalia that have never been shown to cut costs. It promotes the mistaken belief that the NCQA’s one-size-fits-all model can save money when in fact it appears it can save money only for a tiny, very sick fraction of the population, and then only if we pretend a clinic that hires more staff isn’t just a clinic with more staff but a “medical home.”

It is time to junk the “medical home” concept and to focus instead on expanding our primary care work force. Where might those resources come from? We could of course simply funnel more money into the health care system, either in the form of more premium payments to the insurance industry or higher taxes. But more money for the system would not be necessary under a single-payer system. We could easily finance the training and hiring of more primary care doctors, nurses, social workers, and community health workers with the immense savings generated by a single-payer system.

Kip Sullivan 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.

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Harvard professors’ crusade against health care injustice

Posted by on Tuesday, Jan 6, 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.

Harvard’s Health Benefits Unfairness

The Harvard Crimson, November 12, 2014


Last week, the Faculty of Arts and Sciences voted unanimously in favor of a motion asking the President and Fellows to suspend changes to the health benefits offered faculty and non-union staff for 2015. In justifying the benefits changes, the University offered four main explanations for its addition of deductibles and co-insurance: (1) the cost of benefits relative to the overall budget; (2) parity with peer institutions; (3) social science on containing health care costs and (4) the future financial health of the University. In advancing these explanations, the University has offered information that is incomplete, incorrect, deeply misleading, and ethically troubling.

The second argument offered in favor of the health benefits changes has been that we need to remain in line with our peers. We contend that the only peer pressure Harvard should heed is that which makes us a better research university. Increasing salaries and benefits might do this if it allowed Harvard to recruit and retain the brightest minds in our fields of research and teaching, as well as the post-doctoral fellows and staff needed to support these research and teaching endeavors.

Perhaps the most distressing argument advanced in favor of the changes, however, has been one that draws on a social science experiment from the 1970s to suggest that a co-insurance system, where the insured must pay a percentage of after-deductible costs, is the best way to contain health-care costs. At the November FAS meeting, Provost Alan M. Garber ’76 and members of the University Benefits Committee asserted that because the RAND Health Insurance Experiment, or HIE, demonstrated a reduction in healthcare utilization without decreasing overall well-being, the new Harvard plan will do likewise.

We assert that, on the contrary, the HIE is irrelevant to the present benefits proposal before us.

The HIE randomized individuals into different insurance plans (some received health insurance free of charge, while others faced a range of co-insurance options). It found that those paying a higher percentage of costs visited primary care physicians less frequently and reduced their health-care expenditures as a result.  But copays for regular physician visits have long been standard and are already part of Harvard’s plan. What Harvard now proposes is further extending cost-sharing to hospitalizations, surgery, and diagnostic testing via co-insurance.

The HIE’s measurement of outcomes is also irrelevant to the matters that concern all of us. The study looked at indicators of general health such as blood pressure, visual acuity, and propensity to smoke. The relevant question for today’s Harvard is not whether going to one’s primary care doctor more often makes one smoke less, but whether a diagnostic test ordered by that doctor could save one’s life, or detect an illness in time to allow for a less invasive, and perhaps in the long run, less expensive treatment.

Co-insurance is not only of questionable utility in the 21st century—at a time when diagnostic testing is much more effective at influencing outcomes than it was in the 1970s—it also unethically transfers risk and expense to the most vulnerable in our community.

We often hear that Harvard is the apex of academic research and teaching institutions, and that part of its success is due to its sense of community. The University ignored that community when it embarked on a secret and non-consultative planning process and disregarded the strong concerns that faculty have about their own health and that of less well-paid members of our community.

The result is a plan that imposes a serious financial burden on those with chronic illness or who face medical emergencies for themselves or their families. This plan is based on a flawed process, on a misguided charge to the University Benefits Committee, on misinformation about our peers, and on outdated research that is not relevant to the current situation. It is unfair to the most vulnerable members of our community, and not worthy of our great university.

Jerry R. Green, John Leverett Professor in the University and David A. Wells Professor of Political Economy
Alison F. Johnson, Professor of History
Marc W. Kirschner, John Franklin Enders University Professor of Systems Biology
Mark Kisin, Professor of Mathematics
Charles H. Langmuir ’72, Professor of Geochemistry
Mary D. Lewis, Professor of History
James J. McCarthy, Alexander Agassiz Professor of Biological Oceanography
Lisa M. McGirr, Professor of History
Richard F. Thomas, George Martin Lane Professor of the Classics
Mary C. Waters, M.E. Zuckerman Professor of Sociology
Christopher Winship, Diker-Tishman Professor of Sociology…


Harvard Ideas on Health Care Hit Home, Hard

By Robert Pear

The New York Times, January 5, 2015

For years, Harvard’s experts on health economics and policy have advised presidents and Congress on how to provide health benefits to the nation at a reasonable cost. But those remedies will now be applied to the Harvard faculty, and the professors are in an uproar.

Members of the Faculty of Arts and Sciences, the heart of the 378-year-old university, voted overwhelmingly in November to oppose changes that would require them and thousands of other Harvard employees to pay more for health care. The university says the increases are in part a result of the Obama administration’s Affordable Care Act, which many Harvard professors championed.

“Harvard is a microcosm of what’s happening in health care in the country,” said David M. Cutler, a health economist at the university who was an adviser to President Obama’s 2008 campaign. But only up to a point: Professors at Harvard have until now generally avoided the higher expenses that other employers have been passing on to employees. That makes the outrage among the faculty remarkable, Mr. Cutler said, because “Harvard was and remains a very generous employer.”

Richard F. Thomas, a Harvard professor of classics and one of the world’s leading authorities on Virgil, called the changes “deplorable, deeply regressive, a sign of the corporatization of the university.”

Mary D. Lewis, a professor who specializes in the history of modern France and has led opposition to the benefit changes, said they were tantamount to a pay cut. “Moreover,” she said, “this pay cut will be timed to come at precisely the moment when you are sick, stressed or facing the challenges of being a new parent.”

The university is adopting standard features of most employer-sponsored health plans: Employees will now pay deductibles and a share of the costs, known as coinsurance, for hospitalization, surgery and certain advanced diagnostic tests. The plan has an annual deductible of $250 per individual and $750 for a family. For a doctor’s office visit, the charge is $20. For most other services, patients will pay 10 percent of the cost until they reach the out-of-pocket limit of $1,500 for an individual and $4,500 for a family.

Harvard’s new plan is far more generous than plans sold on public insurance exchanges under the Affordable Care Act. Harvard says its plan pays 91 percent of the cost of services for the covered population, while the most popular plans on the exchanges, known as silver plans, pay 70 percent, on average, reflecting their “actuarial value.”

Michael E. Chernew, a health economist and the chairman of the university benefits committee, which recommended the new approach, acknowledged that “with these changes, employees will often pay more for care at the point of service.” In part, he said, “that is intended because patient cost-sharing is proven to reduce overall spending.”

“It seems that Harvard is trying to save money by shifting costs to sick people,” said Mary C. Waters, a professor of sociology. “I don’t understand why a university with Harvard’s incredible resources would do this. What is the crisis?”…

Peering into Harvard’s academic cocoon, there are two lessons we can take home. One has to do with the insularity of the Harvard academic staff as they consider their own health benefit program, but the more important lesson has to do with the insularity of the health policy academics at Harvard and other institutions regarding the design of optimal systems of health care financing.

When we have a new national standard for health insurance that has an actuarial value of 70 percent (patients pay an average of 30 percent of their health care costs) based on the benchmark silver plans offered in the insurance exchanges established by the Affordable Care Act, it is astonishing to hear the outrage expressed by the Harvard academic community over the reduction of the actuarial value of their plans to the almost unheard of level of 91 percent! They would pay on average only 9 percent of their health care costs.

That said, they are right. They should be able to receive all essential health care services without paying anything out-of-pocket at the time they receive care. Other nations have proven that you can provide first dollar coverage at a per capita cost that averages half of what we spend in the United States. Placing financial barriers in the way of health care access is not only unnecessary, it is frequently harmful.

The first lesson here is that the insularity of these academics did not allow them to think beyond the needs of themselves and the needs of the “less well-paid members of our community” – the Harvard community, that is. It is difficult to watch the expression of their outrage over their comparatively modest reduction in benefits, leaving them with platinum-level plans, when they remain silent on the deficient plans that most of the nation has to deal with. From their academic towers, they have the luxury of being able to sound off about the health care injustices that so many in the nation face. But they didn’t do it. They merely whined about the injustices of their own solid-platinum insurance.

But then there is the academic health policy community. They are still fixated on the misinterpretations and extrapolations of the RAND Health Insurance Experiment (see the Harvard Crimson excerpts above). They continue to insist that when patients have health care needs, they must buy a ticket to enter the health care arena, partially invalidating their prepayment arrangements (i.e., health insurance). That there are better ways to improve value without erecting financial barriers to care seems to be lost not only behind the blinders that these health policy academics are wearing, but also behind the earplugs that they must be wearing as well. They see and hear no evil, but they sure do speak evil!

When are those of us outside of the moat protecting Harvard’s insular compound finally going to take over the policy reins? Soon, I hope.

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Medicare Advantage as a form of managed competition

Posted by on Monday, Jan 5, 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.

Can health insurance competition work? Evidence from Medicare Advantage

By Vilsa Curto, Liran Einav, Jonathan Levin, Jay Bhattacharya
National Bureau of Economic Research, December 2014, NBER Working Paper 20818


We estimate the economic surplus created by Medicare Advantage under its reformed competitive bidding rules. We use data on the universe of Medicare beneficiaries, and develop a model of plan bidding that accounts for both market power and risk selection. We find that private plans have costs around 12% below fee-for-service costs, and generate around $50 dollars in surplus on average per enrollee-month, after accounting for the disutility due to enrollees having more limited choice of providers. Taxpayers provide a large additional subsidy, and insurers capture most of the private gains. We use the model to evaluate possible program changes.

From the Introduction

Introducing managed competition into healthcare has been an alluring idea to economists and policy-makers. Proponents argue that effectively designed market mechanisms can avoid the inefficiencies of an administrative price system.

The final part of the paper combines our estimates to calculate welfare effects from Medicare Advantage. A useful way to think about this is in terms of the total (dollar) surplus created by a private plan enrollment, and then its division among the plan, the enrollee and taxpayers. As mentioned, MA plans achieved cost savings of 77 dollars in providing the standard FFS insurance benefit. Taxpayers captured none of this. Instead, they provided an additional subsidy of around 94 dollars per month relative to government costs under fee-for-service Medicare. The beneficiaries of these 171 dollars (cost savings of 77 plus subsidy of 94) were insurers and consumers. We estimate that insurers captured 95 dollars per enrollee-month (not accounting for any fixed administrative costs). MA enrollees gained the rest, but also incurred a disutility of 27 dollars from having a limited network of providers, so their net surplus was lower, 50 dollars (per enrollee-month). In short, we estimate fairly substantial efficiency benefits, but an even larger net cost to taxpayers.

This technical paper is not worth reading. It was apparently written with the intent of proving that private Medicare Advantage plans show that health insurance competition works. Numerous assumptions were made while largely ignoring the gaming of insurers through favorable risk selection and upcoding for risk adjustment. With all of the authors’ efforts to prove the efficiencies of managed competition through private Medicare Advantage plans, they still showed that this program resulted in “an even larger net cost to taxpayers.”

We need to lay managed competition to rest. Single payer, now.

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Hillary Clinton: 1994 statement on single payer

Posted by on Wednesday, Dec 31, 2014

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.

Remarks by the Fist Lady to Lehman Brothers Health Corporation

The White House, Office of the Press Secretary, June 15, 1994
The William J. Clinton Presidential Library, Previously Restricted Documents

Question:  This next question… comes from Scott Engstrom (phonetic) of Franklin Templeton Funds. He asks, it seems clear that everyone on Capitol Hill is in favor of “health care reform” and that if the Administration wanted to compromise, some legislation could be passed very quickly. Is the danger of that approach from your perspective that that you may be giving up a mandate at a specific period in history in which you may be able to effectuate radical change? Is it now or never for massive health care reform?

Mrs. Hillary Clinton:  No, because what I think would happen if there is not health care reform this year, and if, for whatever reason, the Congress doesn’t pass health care reform, I believe, and I may be to totally off base on this, but I believe that by the year 2000 we will have a single payer system. I don’t think it’s — I don’t even think it’s a close call politically.

I think the momentum for a single payer system will sweep the country. And regardless of the referendum outcome in California, it will be such a huge popular issue in the sense of populist issue that even if it’s not successful the first time, it will eventually be. So for those who think that building on the existing public-private system with an employer mandate is radical, I think they are extremely short-sighted, but that is their choice.

There are many ways to compromise health care reform, and I don’t think that the President could have been clearer in every public statement he has made that he has one bottom line. It is universal coverage by a date certain. And he has basically told the Congress, you know, you’ve got different ways of getting there. Come to us, and let’s look at it. There are only three ways to get to universal coverage. You know, a lot of people stand up and applaud universal coverage, and they sit down, and you say, “Well, how are you going to get there?”, and they don’t want to confront that there are only three ways.

You either have a general tax — the single payer approach that replaces existing private investment — or you have an employer mandate, or you have an individual mandate. And there isn’t any other way to get to universal coverage. The market cannot deliver universal coverage in the foreseeable future, and any compromise that people try to suggest that would permit the market  to have a few years to try to deliver universal coverage without a mandate that would take effect to actually finish the job will guarantee a single payer heath care system.…

More documents (search engine available):

Happy New Year!

(What else can I say?)

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Patient migration between high and low health care utilization regions

Posted by on Tuesday, Dec 30, 2014

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.

Sources of Geographic Variation in Health Care: Evidence from Patient Migration

By Amy Finkelstein, Matthew Gentzkow, and Heidi Williams
NBER Working Paper 20789, National Bureau of Economic Research, December 2014


We study the drivers of geographic variation in US health care utilization, using an empirical strategy that exploits migration of Medicare patients to separate the role of demand and supply factors. Our approach allows us to account for demand differences driven by both observable and unobservable patient characteristics. We find that 40-50 percent of geographic variation in utilization is attributable to patient demand, with the remainder due to place-specific supply factors. Demand variation does not appear to result from differences in past experiences, and is explained to a significant degree by differences in patient health.

From the Introduction

Health care utilization varies widely across the United States. Adjusting for regional differences in age, sex, and race, health care spending for the average Medicare enrollee in Miami, FL was $14,423 in 2010, but just $7,819 for the average enrollee in Minneapolis, MN. The average enrollee in McAllen, TX spent $13,648, compared to $8,714 in nearby and demographically similar El Paso, TX.

In this paper, we exploit patient migration to separate variation due to patient characteristics such as health or preferences from variation due to place-specific variables such as doctors’ incentives and beliefs, endowments of physical capital, and hospital market structure. As a shorthand, we refer to the former as “demand” factors and the latter as “supply” factors.

Like past decompositions, ours is not sufficient to draw strong conclusions about the efficiency of observed geographic variation. Though it may be tempting to see supply-driven heterogeneity as evidence of waste, such variation could reflect different allocations of physical or human capital, and so be consistent with efficiency. Conversely, demand-driven heterogeneity could reflect patient misinformation, and so contribute to inefficiency. We view our findings as both a first step toward a more welfare-relevant understanding and a clarification of an influential body of existing evidence.


We find robust evidence that 40 to 50 percent of geographic variation in the log of health care utilization is due to fixed characteristics of patients that they carry with them when they move. Our examination of mechanisms suggests that a large part of this demand-side heterogeneity may be due to patient health. The remaining 50 to 60 percent of variation is due to place-specific factors, possibly including doctor practice patterns and characteristics of health care organizations.

These results suggest that demand-side factors play a larger role in geographic variation than conventional wisdom might suggest. This does not translate immediately into conclusions about efficiency. The correlation of utilization with demand-side factors (and with patient health in particular) may reflect differences in the marginal impact of treatment or the marginal utility from a given impact, and so be consistent with efficiency. But it could also reflect differences in other demand drivers, such as patient information or beliefs. A more careful examination of the efficiency implications of the geographic variation is an important direction for further work.

Our findings have implications beyond our patient-place decomposition. The fact that habit formation seems limited implies that demand-side differences in utilization are unlikely to change quickly in response to policy, at least among the 65 and over population, a population that accounts for about a third of total annual health care spending. The fact that a large part of demand-side geographic variation reflects variation in patient health may also point to limits to the effectiveness of demand-side policies aimed at changing patient beliefs or preferences. At the same time, the sharp adjustment we observe around moves suggests policies that affect the supply-side can have immediate impacts.

While we have taken a first step toward understanding the origins of the patient component we measure, it remains for future work to better understand the mechanisms behind the place component. Particularly interesting questions concern the role of physicians’ training and practice patterns, and the role of health care organizations.

Although this article is technically challenging to read and absorb, and the authors caution that more work is needed to understand better the implications of their initial results, nevertheless, this is a very important article because it improves our understanding of geographic variations in health care utilization as related to “patient characteristics such as health or preferences” (demand-side) and to “place-specific variables such as doctors’ incentives and beliefs, endowments of physical capital, and hospital market structure” (supply-side). Because of concerns over global health care spending, many important demand-side and supply-side policies are being put in place without an adequate regard of the policy science behind those decisions, both known and unknown.

On the demand side, it appears that the health of the patient is far more important in patient decisions on utilization than are patients’ beliefs, preferences and habits. This is as it should be. The health care system should be there to serve the health care needs of the patient. Yet the leading efforts to control demand-side over-utilization include measures that impair access, particularly financial barriers such as high deductibles and tiered layers of coinsurance, and provider barriers established through the use of narrow- and ultra-narrow networks. Policies that prevent patients from getting the care they need should be rejected. The claim that these policies control excess patient demand is based on the fiction that patients are demanding excessive care; they are not.

On the supply side, much has been written about excess capacity that results in excessive utilization, including the alleged excessive supply of high-tech specialized services. The authors of this study state that we need to learn more about the role of physicians’ training and practice patterns, and the role of health care organizations. Yet the leading efforts to control supply-side over-utilization include the use of accountable care organizations, in spite of the lack of evidence of their effectiveness, and the use of dubious pay-for-performance levers to guide physicians’ practice patterns. Many contend that about one-third of care provides marginal benefits that could be done away with, since the the overall negative impact would be small (but not zero). But it is very difficult to prospectively select the care that could be omitted. That is what the accountable care organizations are supposed to be doing, yet, to date, there has been very little reduction in spending under these programs, and often that reduction is erased by the performance rewards.

We already know of very effective policies that could control excesses on the supply side. Our prices are created on the supply side, and they are too high. They could be brought into line through public policies that would ensure adequate funding of services and products while reducing the waste of excessive pricing. The complexity of the supply-side administrative services wastes tremendous resources.  That waste could be dramatically reduced through an administratively simplified single payer financing infrastructure. Excess capacity that invites over-utilization could be reduced through central planning and budgeting of capital improvements – a step that would also address our even greater need to improve capacity in regions wherein services are inadequate.

So let’s get to the basics. Demand side? Remove barriers to care. Supply side? Begin by replacing our dysfunctional health care financing system with a single payer national health program. Once we have those in place, then we can sit around and have intellectual discussions about physicians’ training and practice patterns, and the role of health care organizations. But we can’t waste our time with decades of esoteric policy studies when we have important work to do right now.

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Tiered pharmacy benefits can be lethal

Posted by on Monday, Dec 29, 2014

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.

Comparative Effectiveness of Generic and Brand-Name Statins on Patient Outcomes: A Cohort Study

By Joshua J. Gagne, PharmD, ScD; Niteesh K. Choudhry, MD, PhD; Aaron S. Kesselheim, MD, JD, MPH; Jennifer M. Polinski, ScD, MPH; David Hutchins, MBA, MHSA; Olga S. Matlin, PhD; Troyen A. Brennan, MD; Jerry Avorn, MD; and William H. Shrank, MD, MSHS
Annals of Internal Medicine, September 16, 2014

Background: Statins are effective in preventing cardiovascular events, but patients do not fully adhere to them.

Objective: To determine whether patients are more adherent to generic statins versus brand-name statins (lovastatin, pravastatin, or simvastatin) and whether greater adherence improves health outcomes.

Design: Observational, propensity score–matched, new-user cohort study.

Setting: Linked electronic data from medical and pharmacy claims.

Participants: Medicare beneficiaries aged 65 years or older with prescription drug coverage between 2006 and 2008.

Intervention: Initiation of a generic or brand-name statin.

Measurements: Adherence to statin therapy (measured as the pro- portion of days covered [PDC] up to 1 year) and a composite outcome comprising hospitalization for an acute coronary syndrome or stroke and all-cause mortality. Hazard ratios (HRs) and absolute rate differences were estimated.

Results: A total of 90 111 patients who initiated a statin during the study was identified; 83 731 (93%) initiated a generic drug, and 6380 (7%) initiated a brand-name drug. The mean age of patients was 75.6 years, and most (61%) were female. The average PDC was 77% for patients in the generic group and 71% for those in the brand-name group (P < 0.001). An 8% reduction in the rate of the clinical outcome was observed among patients in the generic group versus those in the brand-name group (HR, 0.92 [95% CI, 0.86 to 0.99]). The absolute difference was -1.53 events per 100 person-years (CI, -2.69 to -0.19 events per 100 person-years).

Limitation: Results may not be generalizable to other populations with different incomes or drug benefit structures.

Conclusion: Compared with those initiating brand-name statins, patients initiating generic statins were more likely to adhere and had a lower rate of a composite clinical outcome.

Primary Funding Source: Teva Pharmaceuticals.

From the Discussion:

In a head-to-head comparison, we found that patients initiating generic statins were more likely than those initiating brand-name statins to adhere to their prescribed treatment and had an 8% lower rate of a composite end point of cardiovascular events and death. Generic drug use has been widely recognized to reduce patient out-of-pocket costs and payer spending. Most persons in the United States are enrolled in prescription drug insurance programs with tiered benefits that require higher copayments for brand-name prescriptions than bioequivalent generic versions. Among patients in our study, the mean copayment for the index statin prescription was $10 for generic drug recipients and $48 for brand-name drug recipients. Our finding that adherence is greater with generic statins than with brand-name statins is therefore not surprising and is consistent with other studies that have shown a direct relation between higher copayments and lower adherence.

This study further dispels the notion that more skin in the game leads to better outcomes.

The researchers prospectively examined 90,111 patients who received a new prescription for statin therapy and divided them into receiving generic (83,731 patients) versus name-brand (6380 patients) for the 3 statins that were generic at that time. They used propensity scores to “match” patients since they weren’t able to properly randomize patients to generic versus name-brand. They then measured adherence and outcomes and found the following:

  • 77% adherence in patients receiving generics versus 71% adherence in patients receiving name brand
  • 8% reduction in the rate of pooled clinical outcomes (stroke, acute coronary syndrome or all cause mortality) for patients receiving generics
  • They note that the out of pocket costs to fill the generic was 10 dollars and the branded was 48 dollars

They basically conclude that patients who have to pay more for their medications are less likely to be adherent, and that the difference in clinical outcomes occurred as a direct result of the increased cost, leading to poorer adherence and consequently more strokes/ACS/death.

There’s lots in here:

  • Generics work
  • Generics are cheaper
  • Relatively small differences in adherence can lead to substantial clinical outcomes (ie, perhaps we should focus on improving adherence to prescribed therapies)

But I think that the biggest take-home is that if patients have to pay more for medications, they will not take them and then they will die. Ergo, shifting costs to patients leads to more death.

Philip Verhoef, MD, PhD is Clinical Instructor of Medicine at The University of Chicago Medicine, a member of the PNHP Advisory Board, and co-president for PNHP-Illinois.

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John McDonough on what follows Vermont

Posted by on Wednesday, Dec 24, 2014

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.

Vermont ends single payer bid: Feds now left to confront the issue

By John E. McDonough
CommonWealth, December 23, 2014

Many American dislike the Affordable Care Act not because it goes too far but because it does not go far enough.  About 24 percent of Americans believe the ACA should be expanded, and by that, many mean a Medicare-for-All single payer financing scheme that takes insurance companies out of the equation.

Since the ACA is nothing like single payer, for four years now, the candle in the window for single payer advocates has stood in the governor’s office in the Vermont State House.  Gov. Peter Shumlin got elected in 2010 promising to bring a single payer health financing scheme to Vermont, and various people in his administration have been hard at work figuring how to make it happen.  Last Wednesday, though, Shumlin snuffed out the candle, admitting that he couldn’t make the numbers work.

So what is single payer’s future?  Like all good Democrats, I harken to the words of my late boss, Sen. Kennedy: “…the work goes on, the cause endures, the hope still lives, and the dream shall never die.”

Today, in the United States, we have three-plus mega-health insurance programs in Medicare, Medicaid, and the new ACA subsidy/exchange structure.  Medicare is actually two programs when you count Medicare Advantage.  Medicaid is nearing 70 million covered lives.  And as employer coverage continues its 25 year plummet, the ACA subsidized exchange world is going to grow in size and importance.

It may take 5, 10, 15 years, or even longer – but at some point, some Republicans and Democrats will propose federal health insurance consolidation.  The illogic and wastefulness of running these enormous, siloed health insurance behemoths will become clear – that will be the backdoor start and momentum will grow.

The Vermont failure, I believe with regret, signals the end of serious efforts to achieve single payer at the state level.  It’s too big a lift, economically and politically.  Shumlin inadvertently blew out the candle.

At the federal level, I do expect it – but through the backdoor, not the front, and no time soon.

John McDonough is a professor at the Harvard School of Public Health and the author of Inside National Health Reform.…

John McDonough is one of the nation’s most astute observers of health care reform. We can take solace in his prediction that the entire nation will eventually achieve single payer reform, while regretting that it will be a slow process.

For those who differ, prove him wrong.

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