Amy Finkelstein: Moral Hazard in Health Insurance

Posted by on Tuesday, Dec 2, 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.

Moral Hazard in Health Insurance

By Amy Finkelstein
Columbia University Press, December 2014

In 1963, Ken Arrow proposed the concept of moral hazard in health insurance, the idea that health insurance may increase the demand for medical care. That creates a fundamental tension for health policy that is trying both to cover the uninsured and simultaneously reduce the level and growth of health spending.

The challenge posed in Arrow’s paper to subsequent generations of economists was whether we could verify that this theoretical notion of moral hazard and health insurance actually existed, and whether we could quantify its magnitude and explore its nature and implications.

How have we risen to this challenge? There is compelling evidence from randomized trials that health insurance affects medical spending. Those who say otherwise are ignoring the evidence at their own peril. This is a fact of life. It mat not be what we wished for, but we have to think about it, grapple with it, and think about its implications for policy.


The RAND Health Insurance Experiment, Three Decades Later

By Aviva Aron-Dine, Liran Einav, and Amy Finkelstein
Journal of Economic Perspectives, Winter 2013

Our reexamination concludes that despite the potential for substantial bias in the original estimates stemming from systematically differential participation and reporting across experimental arms, one of the central contributions of the RAND experiment is robust: the rejection of the null hypothesis that health spending does not respond to the out-of-pocket price. Naturally, however, these potential biases introduce uncertainty about the magnitude of the impact of the different insurance plans on medical spending. Moreover, the translation of these experimental estimates into economic objects of interest—such as a price elasticity of demand for medical care—requires further assumptions and machinery, which go beyond the “raw” experimental results. While economic analysis has made progress in the intervening decades in developing techniques that may offer new approaches to the economic analysis of moral hazard effects of health insurance, it will always be the case that, like the famous –0.2 price elasticity of demand estimate produced by the original RAND investigators, any attempt by researchers to apply the experimental estimates out of sample will involve more assumptions—and hence scope for uncertainty—than the direct experimental estimates themselves. This point, while straightforward and uncontroversial (we’d think), may have become somewhat lost in the intervening decades of use of the RAND estimates. Our hope is that this essay may help put both the famous experiment and its results back in context.

This short book by Amy Finkelstein, “Moral Hazard in Health Insurance,” provides an excellent update that can be used to better understand the application of the concept of moral hazard to the design of health care financing. But more must be said.

The book is based on the fifth annual Kenneth J. Arrow Lecture presented at Columbia University in April 2012. Finkelstein’s lecture is covered in 30 pages. An introduction is provided by Joseph P. Newhouse (RAND HIE). Commentaries are provided by Jonathan Gruber (provider-side moral hazard), Kenneth J. Arrow himself (asymmetry of information), Joseph E. Stiglitz (markets and health care), and a brief discussion follows. Finally, Kenneth Arrow’s seminal 1963 paper, “Uncertainty and the Welfare Economics of Medical Care,” is included. This book should be in every library covering health policy.

As applied to health insurance, the concept of moral hazard is quite simple: many people will use more health care if they are protected from the out-of-pocket costs of that care. What is not so simple is how much of an impact that has and what the ramifications are. Amy Finkelstien helps us by explaining that there is much unknown, and that even the classical studies must be interpreted with great care as they are applied to today’s insurance models. Nevertheless, she makes the case that the evidence that health insurance affects medical spending is compelling.

One important concern about her presentation is that she attacks what she calls “the rhetorical case against the notion of moral hazard and health insurance” by criticizing the “alternative view” that “medical care is determined not by price but by needs.” She then seems to dismiss the great work by John Nyman plus the input by Uwe Reinhardt, not directly, but by merely including them in a quote from Malcolm Gladwell’s New Yorker article, “The Moral-Hazard Myth.” When she writes, “Those who say otherwise are ignoring the evidence at their own peril,” it seems that she is referring to Gladwell, Nyman and Reinhardt.

Unfortunately, she seems to be guilty of using a straw man analogy. I do not recall ever reading that either Nyman or Reinhardt said that price was not a factor in medical care. In fact, Reinhardt is coauthor of the Health Affairs article, “It’s the Prices, Stupid.” However, they have both made the point that need is a very important factor in accessing medical care, even when there are price barriers. Moral hazard enthusiasts need to address medical need.

The greatest problem with this book is that it advances, without requisite criticism, the widely accepted thesis that having insurance increases health care spending . This concept has resulted in the widespread application of countermeasures that erect financial barriers to care – high deductibles, greater coinsurance, tiering of benefits, and narrow networks. All of these impair patient access to beneficial care – the opposite of what a well-functioning system should be providing for us.

Is depriving patients of beneficial care harmful? Many economists seem to glibly dismiss the potential harm if it is effective in reducing spending. They cite the RAND HIE and the Oregon natural experiment as showing that harm is negligible or non-existent. Yet Finkelstein and her colleagues, in the Journal of Economic Perspectives paper on the RAND HIE, state, “attempt by researchers to apply the experimental estimates out of sample will involve more assumptions – and hence scope for uncertainty – than the direct experimental estimates themselves.”

It is frequently stated in the lay literature that the RAND HIE and the Oregon experiment showed that the decrease in care caused by patient out-of-pocket spending does not result in adverse outcomes. That statement is incorrect. There were some adverse outcomes in both studies, but, more importantly, the studies concentrated on spending and were not powered to detect impaired health outcomes. The facts are that we do not have studies that can reliably assure us that no harm is done. Such studies would be complex, expensive and unethical.

We have a century of experience with our health care delivery system. The beneficial effects of modern health care far outweigh the detrimental effects. We do not need policy studies to try to counter this observation. It is intuitive that having better access to health care is beneficial, and, in this case, intuition is more than enough to drive policy.

From the  perspective of optimal patient care, the thesis of this book is upside-down. Rather than looking at the increase in spending that occurs when a person is covered with insurance, we should be looking at the impaired access that results from the reduction in spending due to ill-advised financial barriers erected through insurance innovations. Our efforts should be directed toward removing those barriers.

But then what about the spending that economists characterize as “increases” due to moral hazard? The answer is simple. Instead of depriving patients of beneficial care we should turn to the other methods of containing costs that have been proven to be effective in other nations.

We could start with the administrative waste that would be recovered simply by converting to a single payer system (not to mention the many other financial benefits of single payer). Just the administrative savings alone would be far more than could ever be saved through the application of moral hazard policies.

We already have high deductibles and coinsurance, and yet our health care costs are much higher than in those nations that do not use such detrimental interventions. Application of moral hazard theory has been a failure primarily because it diverted our attention away from social policies that would advance health care justice.

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Prevalence of underinsurance unimproved and likely worse under ACA

Posted by on Monday, Dec 1, 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.

Cost Still a Barrier Between Americans and Medical Care

By Rebecca Riffkin
Gallup, November 28, 2014

One in three Americans say they have put off getting medical treatment that they or their family members need because of cost. Although this percentage is in line with the roughly 30% figures seen in recent years, it is among the highest readings in the 14-year history of Gallup asking the question.

Last year, many hoped that the opening of the government healthcare exchanges and the resulting increase in the number of Americans with health insurance would enable more people to seek medical treatment. But, despite a drop in the uninsured rate, a slightly higher percentage of Americans than in previous years report having put off medical treatment, suggesting that the Affordable Care Act has not immediately affected this measure.

The percentage of Americans with private health insurance who report putting off medical treatment because of cost has increased from 25% in 2013 to 34% in 2014.

This year, 22% of Americans say they have put off medical treatment for a “very” or “somewhat serious” condition.

Bottom Line

One of the goals of opening the government exchanges was to enable more Americans to get health insurance to help cover the costs of needed medical treatments. While many Americans have gained insurance, there has been no downturn in the percentage who say they have had to put off needed medical treatment because of cost.


Underinsurance Remains Big Problem Under Obama Health Law

By Aaron E. Carroll
The New York Times, December 1, 2014

The A.C.A. has not done as much as many had hoped it would to reduce underinsurance. In fact, it may be helping to spread it. And proposed modifications to the law, like those that would introduce a new tier of “copper” plans in addition to bronze, silver, gold and platinum, might make underinsurance worse.

The point of having insurance is to be able to get care when you need it, without too large a financial burden. Underinsured Americans are not receiving this benefit, though. They can’t get the care they need. Twenty-seven percent of adults with a deductible large enough to render them underinsured didn’t see the doctor when they were sick; 23 percent didn’t get a preventive care test; 29 percent skipped a test, treatment or follow-up appointment; and 22 percent didn’t see a specialist to whom they were referred. Forty percent of them had at least one of these cost-related access problems.

These are people who had private health insurance for the full year. They are not the uninsured.

In the quest for universal coverage, it’s important that we not lose sight of “coverage” in order to achieve “universal.” The point of improving access is, after all, to make sure that people can get, and afford, care when they need it.…

Health care reform should have eliminated underinsurance, not create more of it. The private insurance industry will not fix this problem but only compound it as it strives to keep its premiums competitive.

We need to replace the private insurers with our own single payer program. For some, Medicare is also underinsurance. We need to fix that and then provide it to everyone.

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OECD: United States is first in private social spending

Posted by on Wednesday, Nov 26, 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.

Social spending is falling in some countries, but in many others it remains at historically high levels

OECD, November 2014

In 2014, OECD countries devote more than one-fifth of their economic resources to public social support.

Countries on average spent more on cash benefits (12.3% of GDP) than on social and health services (8.6% of GDP).

Cash income support to the working age population accounts for 4.4% GDP on average across the OECD, of which 1% GDP towards unemployment benefits, 1.8% on disability/sickness benefits, 1.3% on family cash benefits and another 0.4% on other social policy cash supports.

Public expenditure on health is another important social policy area. On average across the OECD, public expenditure on health has increased from 4% in 1980 to 6% of GDP.

In terms of spending, public pension payments constitute the largest social policy area with spending at just below 8% of GDP.

In the United States public social spending is relatively low, but total social spending is the second highest in the world

Thus far, the discussion focussed on public social spending on cash benefits and social and health services, and in the United States and other non-European OECD countries such spending is lower than in most European countries. However, a focus on public budgets misses two important features that affect social spending totals and international comparisons of social expenditure: 1) private social expenditure and 2) the impact of tax systems.

Private social expenditure

Private social expenditure concerns social benefits delivered through the private sector (not transfers between individuals) which involve an element of compulsion and/or inter-personal redistribution, for example through the pooling of contributions and risk sharing in terms of health and longevity. Pensions constitute an important part of both public and private social expenditure. Private pension payments can derive from mandatory and voluntary employer-based (sometimes occupational and industry wide) programmes (e.g. in the Netherlands or the United Kingdom), or tax-supported individual pension plans (e.g., individual retirement accounts in the United States).

Individual out-of-pocket spending on health services is not regarded as social spending, but many private health insurance plans across the OECD involve pooling of contributions and risk sharing across the insured population. On average across the OECD, such private social health expenditure amounted to 0.6% of GDP in 2012. It was 1.5% of GDP in France and 2.5% of GDP in Chile, but across OECD countries private health insurance is most important in the United States where it amounted to 5.7% of GDP. Taken together with public spending on health amounting to 8% of GDP in the same year, and the value of revenue foregone on tax breaks on health premiums (just over 0.5% of GDP), total social health spending in the United States amounted to over 14% of GDP – 4 percentage points higher than in France which is the second biggest “health spender” among OECD countries.

Private social spending plays the most important role in the United States where it amounted to almost 11% of GDP.

Cross-country rankings

The combination of small “net tax effects” and considerable private social spending ensures that Australia, Canada, Japan and in particular the United States move up the international social spending ladder. As private social spending (including health) is so much larger in the United States compared with other countries, its inclusion moves the United States from 23rd in the ranking of the gross public social spending to 2nd place when comparing net total social spending across countries.…

The character of a nation is determined by support of its social programs. Medicare and Social Security are two social insurance programs that are revered by U.S. citizens. Yet those programs, combined with other public social programs, leave us ranked only 23rd amongst OCED nations. It is our unique private social spending programs that move us from 23rd to 2nd place.

At almost 11% of our GDP, private social spending was by far the highest in the United States, as compared to other nations. Contributing to this are our private pension plans (5% of GDP) and especially spending on private health insurance (5.7% of GDP). In fact, our total public and private social spending on health care (private insurance @ 5.7%, public spending @ 8%, and tax breaks on health premiums @ 0.5%) amount to 14% of GDP, making us by far the biggest health spender of all nations.

Is it wise for us to rely so heavily on private social spending? First of all, administration of private retirement accounts is much more expensive and complex than administration of our Social Security system, and administration of private health insurance plans is also much more expensive and complex than is administration of Medicare. We are wasting private social funds on these inefficient intermediaries.

But more than that, as a percentage of income, contributions to private retirement accounts and private health insurance are regressive. For comparable benefits, lower-income individuals pay a higher percentage of their incomes for private pensions and private health insurance than do higher-income individuals. The fact that we rely much more heavily on private social spending demonstrates how inegalitarian the United States has become, in contrast to other nations.

Imagine folding the benefits of individual retirement accounts into Social Security and folding the benefits of private health insurance plans into Medicare, and then fund both programs with equitable progressive taxes. We would have the finest retirement and health programs in the world.

Tomorrow – Thanksgiving – we can give thanks for having the wisdom to do that as a nation (or did I get something wrong here?).

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Health policy views of medical students in Ontario and in California

Posted by on Tuesday, Nov 25, 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.

Attitudes and knowledge regarding health care policy and systems: a survey of medical students in Ontario and California

By Sherif Emil, MDCM, Justine M. Nagurney, MD, Elise Mok, PhD, Michael D. Prislin, MD
CMAJ OPEN, November 11, 2014



Canada and the United States have similar medical education systems, but different health care systems. We surveyed medical students in Ontario and California to assess their knowledge and views about health care policy and systems, with an emphasis on attitudes toward universal care.


A web-based survey was administered during the 2010–2011 academic year to students in 5 medical schools in Ontario and 4 in California. The survey collected demographic data and evaluated attitudes and knowledge regarding broad health care policy issues and health care systems. An index of support for universal health care was created, and logistic regression models were used to examine potential determinants of such support.


Responses were received from 2241 students: 1354 from Ontario and 887 from California, representing 42.9% of eligible respondents. Support for universal health care coverage was higher in Ontario (86.8%) than in California (51.1%), p < 0.001. In California, females, self-described nonconservatives, students with the intent to be involved in health care policy as physicians and students with a primary care orientation were associated with support for universal coverage. In Ontario, self-described liberals and accurate knowledge of the Canadian system were associated with support. A single-payer system for practice was preferred by 35.6% and 67.4% of students in California and Ontario, respectively. The quantity of instruction on health care policy in the curriculum was judged too little by 73.1% and 57.5% of students in California and Ontario, respectively.


Medical students in Ontario are substantially more supportive of universal access to health care than their California counterparts. A majority of students in both regions identified substantial curricular deficiencies in health care policy instruction.

From the Interpretation

Whether the culture of many American medical schools promotes or discourages support for universal health care can be debated. However, most would agree that health policy education in North American medical schools is poor. In our study, only one-third of all respondents demonstrated accurate knowledge of the basics of their own health care system, and fewer than 1 in 10 respondents understood the basics of the neighbouring country’s health care system. For example, less than 60% of California respondents correctly answered the question regarding the Patient Protection and Affordable Care Act of 2010, despite a recent survey showing that 80% of students are supportive of the law. A large majority of respondents in both locations rated the quantity of instruction on health care policy as too little, and a minority rated the quality as good or excellent. The medical curriculum ranked low as a source of information. These deficits have been consistently reported in previous medical student surveys. If students graduate without adequate knowledge of health care policy or alternative health care systems, they are unlikely to acquire that knowledge as physicians. Studies have shown that American physicians, both primary practitioners and specialists, have inaccurate impressions of the Canadian system. On the other hand, there is evidence that integration of instruction on health care policy into resident and student curricula results in increased knowledge, participation and action.


The differences in health care systems between the US and Canada are deep-rooted and embedded in the history, politics and cultural traditions of both countries. These differences were reflected in our comparison of Ontario and California medical students. The differences in the level of physician support for universal access to health care between Ontario and California start in medical school. Many of these views, which are embedded early in a physician’s formative experience, are based on inadequate knowledge of health care systems. Like many, we believe that medical schools and academic medicine in general have a responsibility to train socially responsible physicians who will advocate for universal health care access of appropriate quality and cost. This can only be achieved if high-quality and sufficient quantity instruction on health care policy and health care systems is integrated into medical school curricula in the US and Canada, a challenge yet to be met.

Two-thirds of medical students in Ontario and in California do not have accurate knowledge of the policy basics of their own health care systems and nine-tenths fail to understand the basics of the neighboring country’s health care systems.

However, Ontario students do show greater support for universal health care coverage than do California students (86.8% versus 51.1%). Also, support for a single payer health care system, which of course the Canadians have and we do not, was greater amongst Ontario students than it was amongst California students (67.4% versus 35.6%).

What might account for these differences? The authors state, “In California, females, self-described nonconservatives, students with the intent to be involved in health care policy as physicians and students with a primary care orientation were associated with support for universal coverage. In Ontario, self-described liberals and accurate knowledge of the Canadian system were associated with support.”

We can only speculate that if these students were better informed on health policy that their views of their own country’s system and especially of the neighboring country’s system might change. It may be that ideology is a greater driving force of opinion, especially when unencumbered with facts of which they are unaware. If so, it seems that Canadian medical students have more egalitarian views than those in the United States.

Can a better understanding of the facts change ideological stances? The Ontario students with more accurate knowledge of the Canadian system were more supportive of universal health care coverage. There is hope that PNHP’s mission of educating our colleagues and the public could help.

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Grady and WellPoint fight, patients lose

Posted by on Tuesday, Nov 25, 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.

Grady, Blue Cross at impasse as contract expires

By Andy Miller
Georgia Health News, November 24, 2014

Contract standoffs between hospital systems and health insurers typically have a way of being resolved — often right before a deadline.

But high-stakes negotiations between Grady Health System and Georgia’s biggest insurer failed to produce a new contract before the midnight deadline Sunday.

That means Grady Memorial Hospital is now “out of network” for Blue Cross and Blue Shield of Georgia members. Patients with Blue Cross insurance will face higher out-of-pocket costs at the Atlanta hospital and its clinics.

Lindsay Caulfield, senior vice president of public affairs at Grady, said in a statement Monday that Blue Cross “pays our health system up to 70 percent less than it pays other Georgia hospitals. By paying us unfairly low rates, Blue Cross Blue Shield has long put Grady at a disadvantage and threatens our long-term sustainability.”

Grady proposed several compromise plans, Caulfield said, “but Blue Cross continually refused to move in their position in any meaningful way.”

The lack of an agreement will affect Blue Cross in trauma services, where Grady has a strong profile, Smith said. But he added that he believes the two sides will eventually reach a new deal. “It’s going to be very difficult for any hospital not to have the largest payer in the state,’’ he said.…

We’ve heard similar stories many times before. The largest insurer in Georgia, WellPoint’s Blue Cross and Blue Shield of Georgia, has been unable or unwilling to negotiate a contract renewal with Grady Memorial Hospital, the home of one of the most prominent trauma centers in the nation.

Although Grady will continue to provide emergency services, it is the patients who will be exposed to excessive costs, only because we have a system in which we insist that private, for-profit, autonomous corporations be allowed to take charge of our health care dollars.

The solution is obvious – fire WellPoint and the other private insurers and replace them with our own single payer national health program – an improved Medicare that covers everyone.

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Why we don’t need long-term care insurance

Posted by on Monday, Nov 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.

Maybe You Don’t Need Long-Term Care Insurance After All

By Ben Steverman
Bloomberg, November 12, 2014

The biggest threat to a retiree’s nest egg isn’t a stock market crash. It’s a long illness requiring round-the-clock care.

The statistics behind that scenario — $81,000 a year for a nursing home, $184,000 for 24-hour home care — are what sells long-term care insurance policies. But while past research suggested that many more people needed the coverage than bought it, a new study suggests that most people should just skip it.

The study, by Boston College’s Center for Retirement Research, focused on singles, who now make up the majority of Americans. Long-term care insurance makes financial sense only for the richest 20 to 30 percent of unmarried people, it finds. For the rest, it makes more sense to go without. If they need care, spending down their assets and then letting Medicaid pick up the tab is the most practical solution.

Long-term insurance can pay off for wealthier singles, even under the Center’s new math. It takes $260,405 in assets, or about $90,000 in annual income, to put a household in the top 25 percent, the Russell Sage Foundation and the Congressional Research Service estimate. These affluent customers can afford the premiums, and insurance can protect their heirs’ inheritance if that’s a goal. The same logic works for couples, but only if they’re even wealthier. Webb warns that forthcoming research will show long-term care insurance makes even less sense for married couples than it does for singles.…

Report from Center for Retirement Research at Boston College: – Community-Based Long-Term Services & Supports:…

The Affordable Care Act included Senator Ted Kennedy’s Community Living Assistance Services and Supports Act (CLASS Act) which would have provided long-term care. Unfortunately the specifics of the CLASS Act proved to be unworkable and thus it has been suspended. But according to this new study, unless you are wealthy, you do not need long-term care insurance anyway. Most of us can simply spend down our assets and then Medicaid will take care of us.

Think about how that could apply to the increasing use of patient cost-sharing, especially the ever-higher deductibles. We could eliminate individual health insurance coverage. When individuals are faced with expensive acute or chronic conditions, they could simply spend down their assets and then go on Medicaid to cover their future health care costs.

The obvious flaw in all of this is that it would require near destitution for us to have our heath care expenses covered. Other nations automatically cover these expenses for everyone without forcing them to relinquish their assets. It is a sad commentary that we accept the policy that a person must go broke before we will provide them with long-term care. This should not happen in a caring society.

But what are we doing with moderate-income individuals and families right now? We are requiring cost-sharing, especially deductibles, at a level that wipes out liquid assets for many of them, if they even have such assets. Financial hardship has become an expected consequence for far too many people who have significant medical needs. It is primarily wealthier individuals and families who have the assurance of being able to obtain health care without losing their assets.

Long-term care should be covered by our health care financing system, and significant cost-sharing should be eliminated. A single payer system would ensure that all of us could get the care we need, including long-term care, without adverse financial consequences.

If we really do expect that people should use their personal assets to contribute to the financing of health care, do it through estate taxes, but make the taxes equitable, that is, progressive. Do not take away from our seniors what little they have in the final years of their lives.

And do not charge the estate specifically for the amount of health care that was given. We shouldn’t deprive families of their modest inheritances just because medical bills were high late in life. Estate tax rates should not apply to smaller estates, but then the rates should increase with the size of the estate, unrelated to whatever health care costs the family faced. Yes, the rich would pay more, but that’s the way it should work in a caring society.

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Medicaid improving access for the homeless, but…

Posted by on Friday, Nov 21, 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.

Early Impacts of the Medicaid Expansion for the Homeless Population

By Barbara DiPietro, Samantha Artiga and Alexandra Gates
Kaiser Family Foundation, November 13, 2014

The Affordable Care Act (ACA) Medicaid expansion offers a significant opportunity to increase coverage and improve access to care for individuals experiencing homelessness, who historically have had high uninsured rates and often have multiple, complex physical and mental health needs.

*  The Medicaid expansion has led to significant increases in coverage that are contributing to improved access to care and broader benefits for homeless individuals. Providers reported that these coverage gains have enabled patients to access many services that they could not obtain while uninsured, including some life-saving or life-changing surgeries or treatments. Participants also identified other broader benefits for homeless individuals stemming from Medicaid coverage gains. For example, providers noted improvements in individuals’ ability to work and maintain stable housing due to better management of health conditions. In addition, participants said individuals have reduced financial stress and improved access to other services and programs, including disability benefits.

*  Providers reported having access to a broader array of treatment options as a result of Medicaid coverage gains among their patients. With these increased options, providers said they are better able to provide care based on the best courses of treatment rather than based on the availability of charity or discounted resources.

*  Gains in Medicaid revenue are facilitating strategic and operational improvements focused on quality, care coordination, and information technology. In addition, administrators indicated that Medicaid revenue gains supported staff increases and led to changing staff roles to meet increased administrative and billing needs. However, participants emphasized that, even with Medicaid revenue gains, other funding sources remain vital for supporting the full range of services needed by the homeless population.

*  Participants from the non-expansion site (Florida – did not expand Medicaid) indicated that their patients remain uninsured and are continuing to face significant gaps in care that contribute to poor health outcomes. Participants also said they are facing an increasingly challenging financial situation because they are missing out on Medicaid expansion revenue gains and other funding sources are declining.

*  As homeless patients gain Medicaid coverage and are enrolled in managed care, some challenges are emerging. Participants commented that some patients are being auto-assigned to providers with whom they do not have an existing relationship and/or they may have difficulty accessing due to lack of transportation. Additionally, working within provider networks can be difficult given the complex needs of individuals, lack of transportation, and the limited experience among other providers in serving this population. Lastly, participants emphasized that prior authorization requirements and limited and/or changing drug formularies are leading to delays in care for individuals and creating substantial administrative burdens for providers.…

The experience of the homeless population under the Affordable Care Act (ACA) demonstrates both the benefits of reform under ACA and the flaws of ACA that call for replacement with a single payer system. ACA was better than nothing, but we can have so much more through enactment of a single payer system.

The primary ACA benefit for the homeless is that most of them in expansion states qualify for Medicaid and thus have improved access to health care without financial barriers. Some of the homeless who access health care have been noted to have an increased ability to work and to maintain stable housing. Financial stress is reduced and some have gained access to appropriate disability benefits. These benefits to the homeless are more reasons why calls for simple repeal of ACA are bad policy, devoid of compassion.

Yet the last paragraph from the excerpts above explains why Medicaid managed care is often a poor choice for the homeless (and many other lower-income individuals as well). Homeless patients often are unable to see the health care professionals who would be most accessible and appropriate for them. Transportation concerns are more likely. Essential specialized services may not be available. Managed care intrusions such as prior authorization requirements, limitations and changes in formularies, or other perverse managed care innovations may impair access to important health care services or products. Further, those states that refuse to expand Medicaid are leaving most of the homeless without any coverage and therefore reliant on often inadequately funded safety-net institutions.

There are those who believe that we should merely proceed with implementation of ACA and try to obtain legislative and administrative patches along the way. Compared to the deficiencies in our dysfunctional system, patches have only minimal beneficial impact while increasing the administrative complexity that already overburdens our system. Patches fall way too short of what we need.

We should not repeal ACA since it does provide some temporary benefit until we can implement a single payer system. But we should not let ACA implementation divert us from instituting what we really need – a single payer national health program. Not only would that benefit the homeless, it would benefit all of the rest of us as well.

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International comparison of patients over 65 – impact of Medicare

Posted by on Thursday, Nov 20, 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.

International Survey Of Older Adults Finds Shortcomings In Access, Coordination, And Patient-Centered Care

By Robin Osborn, Donald Moulds, David Squires, Michelle M. Doty and Chloe Anderson
Health Affairs, November 2014 (online)


Industrialized nations face the common challenge of caring for aging populations, with rising rates of chronic disease and disability. Our 2014 computer-assisted telephone survey of the health and care experiences among 15,617 adults age sixty-five or older in Australia, Canada, France, Germany, the Netherlands, New Zealand, Norway, Sweden, Switzerland, the United Kingdom, and the United States has found that US older adults were sicker than their counterparts abroad. Out-of-pocket expenses posed greater problems in the United States than elsewhere. Accessing primary care and avoiding the emergency department tended to be more difficult in the United States, Canada, and Sweden than in other surveyed countries. One-fifth or more of older adults reported receiving uncoordinated care in all countries except France. US respondents were among the most likely to have discussed health-promoting behaviors with a clinician, to have a chronic care plan tailored to their daily life, and to have engaged in end-of-life care planning. Finally, in half of the countries, one-fifth or more of chronically ill adults were caregivers themselves.

Comparative US Performance And Challenges Going Forward

Despite having Medicare coverage, older US adults remained much more likely to face financial barriers to care than their counterparts in other developed countries. This may be surprising, as other studies have found that Medicare offers more stable and protective insurance than other forms of coverage in the United States, including employer-sponsored private coverage. However, it is still clearly less protective than the universal coverage offered in the health systems of other countries surveyed. This finding likely reflects limitations in Medicare coverage, including substantial deductibles and copayments, especially for pharmaceuticals, which are often more expensive in the United States than elsewhere. The absence of limitations on catastrophic expenses and long-term care coverage likely play a role as well.

Financial barriers aside, elderly Americans also face comparatively poor access to primary care and after-hours care, relatively high dependence on the ED, and large gaps in care coordination. Yet the survey also captures areas where the experience of US older adults is favorable. Both comparatively and objectively, Americans reported good access to specialists. The US health care system also performed relatively well when it came to hospital discharge planning and on the more patient-centered measures of health promotion, self-management support for chronically ill patients, and support for end-of-life planning.

Finally, the US elderly population is sicker than the comparable population in other surveyed nations, reporting a much higher incidence of chronic disease. This higher disease burden will pose critical challenges for US policy makers in years to come. The United States already significantly outspends all of the other countries in the survey—often by a two-to-one margin—despite having the youngest population. Although the growth in health care costs has slowed in recent years in all of these countries, these considerations suggest that the United States will face growing cost pressures. It will be hard to maintain the current low-growth trajectory unless the United States successfully implements delivery and payment system reforms that reduce the cost of care and finds a way to narrow the health gap between itself and other countries.…


Richard Gottfried, Chair, Committee on Health, New York State Assembly, made the following observation: “The lesson:  Living 65 years with American insurance companies leaves you sicker. Then, transitioning to American social insurance gives you quicker access to specialists.”

(Personal communication, 11/19/14)


U.S. Seniors’ Health Poorest, Global Survey Shows

By Steven Reinberg
HealthDay, November 19, 2014

Dr. Steffie Woolhandler, co-founder of Physicians for a National Health Program, said American seniors are sicker because of the inadequate care they received before they turned 65.

“The health care system for the under-65 population is full of gaps, and lots of people fall through the cracks,” she said.

Woolhandler, who is also a professor of health at CUNY School of Public Health at Hunter College in New York City, added that Medicare is also leaving many Americans underinsured and that the Affordable Care Act will not make a major difference.

“We need to be providing much more comprehensive coverage to everyone, including lower co-pays and deductibles,” she suggested.…

This international comparison of health care in older adults in eleven nations is the latest in the series sponsored by the Commonwealth Fund. For the United States, it is unique in that it compares only patients over 65 in our public Medicare program with older patients in other nations that already have universal health care systems.

Perhaps the most remarkable finding for the United States is that patients enter the Medicare program sicker than older patients in other nations, but, once there, they have better access to health care than those younger than 65. But even our Medicare program leaves our elderly exposed to greater financial barriers to care than do the systems of other nations.

This study once again shows what the United States needs is obvious. We need to improve Medicare so that it provides better coverage, and then we need to expand it to cover everyone.

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Prescription drug plans are adding more tiers and switching from co-pays to coinsurance

Posted by on Wednesday, Nov 19, 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.

Avalere Analysis: Medicare Beneficiaries Will Pay Higher Out-Of-Pocket Costs As PDPs Increase Use Of Coinsurance In 2015

By Caroline F. Pearson, Vice President
Avalere, November 13, 2014

First Time in History of Part D, All PDPs Will Incorporate a Specialty Tier

A new analysis from Avalere Health finds that Medicare Part D prescription drug plans (PDPs) are poised to increase significantly the use of coinsurance in 2015. Avalere found that two-thirds of standalone Part D PDPs will apply coinsurance—i.e., consumers paying a percentage of the total cost of the drugs—to at least their top two formulary tiers, an increase of 83 percent from 2014.

“Adding coinsurance to a second plan tier means that more beneficiaries will be looking at the full cost of branded drugs at the pharmacy counter,” said Dan Mendelson, CEO at Avalere Health. “This strategy has proven central to plan operations as they try to keep premiums low to maintain stability in Part D.”

For First Time in History of Part D, All PDPs Will Incorporate a Specialty Tier in 2015

Since the introduction of Part D in 2006, the use of specialty tiers has been more common in Medicare Part D than in other markets, such as employer-sponsored insurance. From 2012 to 2015, the number of Part D PDPs using specialty tiers has increased, jumping nearly 15 percent in four years. As a result, all PDPs will use a specialty tier in 2015, the first time this has occurred in the history of Part D.

“The clear trend toward specialty tiers in exchanges and Part D is likely to have an impact on employer-sponsored benefit designs over time,” said Caroline Pearson, Vice President at Avalere Health. “Benefit managers and C-Suite executives are definitely taking notice of how active management of the pharmacy benefit may be able to reduce premiums.”

Two-Thirds of PDPs Will Use at Least Two Coinsurance Tiers

Perhaps more significant for beneficiaries and manufacturers is the major shift toward the use of at least two coinsurance tiers in 2015. Avalere’s analysis found that 66 percent of PDPs in 2015, representing 60 percent of covered Medicare Part D beneficiaries, will apply coinsurance to their top two tiers. In 2014, only 32 percent of PDPs (representing 35 percent Part D beneficiaries) did the same.  In total, enrollment in plans with at least two coinsurance tiers increased from 6.4 million to 11.1 million from 2014-2015.

In most cases, these plans include one specialty tier and apply coinsurance to the non-preferred brand tier. Unlike the specialty tier, there are no restrictions on what drugs can be placed on non-specialty coinsurance tiers, nor are there cost-sharing limitations. As a result, many of these tiers have cost-sharing rates ranging from 35 to 50 percent.

The shift toward more than one coinsurance tier has been accompanied by a shift toward formularies with five tiers. In 2015, 89 percent of plans will have five or more tiers, a 53 percent increase since 2012. Indeed, the dominance of five-tier plans can be accounted for in part by a surge in the number of such plans with two coinsurance tiers in 2015—while only three plans used this formulary structure in 2014, 335 plans will do so in 2015. Among these plans, coinsurance on tier four (typically used for non-preferred brand drugs) averages 44 percent.

“The inclusion of more coinsurance tiers on PDP formularies is designed to increase plans’ ability to obtain lower spending for high-cost – but non-specialty – drugs,” said Christine Harhaj, Senior Manager, Avalere Health. “Unlike most specialty drugs, however, these treatments are often prescribed to a broad patient population and applying coinsurance rates may have the effect of significantly increasing cost sharing for a large number of Part D beneficiaries.”…

There has been an explosion in the introduction of very high cost drugs. At the same time the generic drug market is being manipulated to enable exponential increases in the prices of generic drugs. So what innovations are the insurers introducing in response?

They are expanding the number of drug pricing tiers, and they are switching from modest co-payments (fixed dollar amount) to much higher coinsurance payments (a percentage of the actual costs), both of which shift much more of the costs to patients. Many patients will go without medications that they should have simply because the out-of-pocket costs will be truly unaffordable.

The insurance industry prides itself on offering innovative products to the public. But insurance innovations are designed to benefit the the insurers. In a public insurance program, problems such as the excessive prices of drugs are addressed through innovations that are designed to benefit… wait for this… the patient!

A well designed single payer system would not use unbearable cost sharing to try to address the high prices of drugs. Rather it would use its power as a monopsony (single purchaser in a market) to demand fair pricing of drug products based on legitimate costs and fair margins. Those prices would be paid by our shared single risk pool, funded through equitable taxes.

Really. If you didn’t read the excerpts above, read them now to see what a disaster these changes will be. And these are only changes introduced in one year for one program – Part D Medicare – though the intent is to extend these changes to employer-sponsored plans as well.

Just consider the changes that the private insurance industry makes in every program every year – some subtle, some not so – and add those up and you’ll understand why we have an exorbitantly priced but mediocre health care financing system. It’s time to turn it over to our own public administrators.

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Deloitte report on digging deep – for out-of-pocket health care costs

Posted by on Tuesday, Nov 18, 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.


h2>Dig deep: Impacts and implications of rising out-of-pocket health care costs

Deloitte Center for Health Solutions, November 17, 2014

Executive summary

Even though more consumers are gaining health insurance coverage, they are by no means insulated from the burden of health care costs. Consumers are paying more of their health plan premium and experiencing higher out-of-pocket (OOP) cost-sharing for all types of health care services. These increases are expected to continue as employers shift to high-deductible offerings and individuals gain coverage through insurance marketplaces (also known as public health insurance exchanges). Moreover, government estimates of health care spending do not take into account discretionary consumer spending on a number of products and services; Deloitte’s Hidden Costs Analysis shows these purchases add considerably to the total.

Increases in consumer OOP spending impact hospitals, life sciences companies, and health plans as well as consumers. In response, hospitals should consider strategies to help patients anticipate and pay their bills. Pharmaceutical companies should consider identifying ways to minimize consumers’ cost-sharing for their products. Finally, health plans should consider developing tools to help consumers understand how to use their coverage and plan for care, including choosing high-value providers.

Implications for consumers

Consumers are finding it increasingly difficult to bear the burden of mounting OOP costs and many are searching for ways to manage the expenditure. For example, in Deloitte’s surveys of U.S. consumers, respondents have shown a willingness to skip care and/or use over-the-counter products to avoid the cost of doctors’ office and hospital visits. Some opt to not fill prescriptions, take less than the prescribed amount, or have trouble getting behavioral health care.

A growing number of individuals are buying health plans that have lower premiums (so are less expensive on a monthly basis) but have high deductibles, without understanding that these plans will not pay for a doctor visit or for prescription drugs before the consumers meet their annual deductible. These choices can result in thousands of dollars of OOP medical expenses each year. The challenges of insurance illiteracy are great: A study by Consumer Reports found that many consumers were not aware of basic insurance concepts. (HHS is running a campaign to help people understand how to use their insurance.) Among potential implications of insurance illiteracy, some consumers in future rounds of marketplace purchases may choose to “buy up” when they learn about their financial exposure under some of the less-expensive plans.

Ideally, consumers seeking to reduce OOP costs will take time to research options and use available tools to select low-cost, high-quality providers in their health plan’s network. OOP costs may even encourage some consumers to take extra steps to stay healthy. But even consumers who are fully committed to healthy living will at some time or another need health care and this may involve high prices. Finally, people facing high cost-sharing may be discouraged from using many of the health services they need, including help managing chronic health conditions, and may not see the value in paying premiums for future coverage.…

This report is written for the health care industry. It provides advice on potential strategies to deal with an increasing problem in health care today: the impacts of rising out-of-pocket health care costs. Although Deloitte’s advice is directed more towards the medical/industrial complex that provides health care services, our concern is with what Deloitte calls consumers, though we know them as patients.

Shifting costs of health care to patients’ pockets is not in the interests of the patients. They would be better served by a system that prepays all essential health care services so that they can access care as needed without having to face financial barriers. Other nations do this while spending much less per capita on health care than we do.

So is shifting costs to patients in the best interests of the medical/industrial complex? For the providers of health care services and products – physicians and other health care professionals, hospitals, pharmacists, laboratories, imaging centers, medical equipment suppliers, and others – instead of collecting charges from a single payer, these entities must also collect from individual patients the deductibles, co-payments, coinsurance, out-of-network charges, and uncovered health expenses that the insurers exclude from provider payments. This increases the administrative complexity for the providers and exposes them to losses for charges that prove to be uncollectible. Increases in administrative efforts and exposure to potential losses are not in the interests of the providers. They would be better off providing services within a prepaid system that eliminates patient cost sharing.

If this isn’t working for either the patients or the providers, then who is benefiting? The private insurers, of course. They benefit by selling us more of their primary product: administrative services. They benefit by paying less for health care services and products, since some of the costs are shifted to patients’ pockets. They benefit by increasing the administrative complexity of health care financing thereby making their intermediary role an essential service that insured patients and contracted providers require to negotiate the administrative maze of health care payment. So we need them because they created an administrative nightmare that is so complex that we can’t do without them?

As would be expected, Deloitte advises tinkering to address the problem of digging deep for out-of-pocket spending. Or, failing that, they suggest that patients “take extra steps to stay healthy.” But for patients and for the health care delivery system, the correct solution is obvious. Provide first dollar coverage and pay for care through an administratively efficient system: a single payer national health program.

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