Cui bono?

Posted by on Monday, Dec 1, 2008

The Los Angeles Times today quotes one of the founders of the Herndon Alliance:

“There is a growing understanding that you have to give people choice and you can’t take away what they have,” said Ron Pollack, head of Families USA, an influential advocacy group for healthcare consumers that is working with a diverse collection of interest groups to build consensus. “One of the big no-nos is that you must not ever threaten the coverage that people have.”

Do people really love their health insurance? What is the origin of such false wisdom? Kip Sullivan illuminates the question in the following message from the All Unions Committee For Single Payer Health Care — HR 676:


Why Does Celinda Lake Oppose Single Payer?

Self-described as “one of the Democratic Party’s leading political strategists,” Celinda Lake has claimed that single-payer reform lacks meaningful popular support. Lake’s research, done for the Herndon Alliance, has consistently supported reform based upon private health insurance. She and the Herndon Alliance are largely responsible for the notion that a single payer Medicare-for-all healthcare system is ‘not politically feasible.’

Lake’s findings are in sharp contradiction to numerous polls showing that single payer is enormously popular.

* In a New York Times/CBS News poll in February 2007, 64% said that the federal government should guarantee health insurance for all Americans.

* In October 2003, 62% of respondents to a Washington Post/ABC News poll said they preferred “a universal health insurance program, in which everybody is covered under a program like Medicare that’s run by the government and financed by taxpayers.”

* These findings were repeated in a 2007 Associated Press-Yahoo poll in which 65% supported a Medicare-for-all system.

Kip Sullivan, an attorney and health systems analyst, has been at work on a soon-to-be published analysis of the research methods and methodology used by Celinda Lake to conduct her work on behalf of the Herndon Alliance.

Sullivan has written over 100 articles on health policy, many of which appeared in national newspapers, magazines and journals such as American Journal of Public Health, Health Affairs, Los Angeles Times, The Nation, New England Journal of Medicine, New York Times, and Washington Monthly. He is the author of “The Health Care Mess: How We Got Into It and How We’ll Get Out of It” (AuthorHouse, 2006). He has a BA from Pomona College and JD from Harvard Law School.

Below is Sullivan’s executive summary. For a copy of the article, contact Sullivan at kiprs[at]

An analysis of Celinda Lake’s slide show, “How to talk to voters about health care”
By Kip Sullivan, November 29, 2008

Executive Summary

Celinda Lake is a pollster who has developed a slide show entitled, “How to talk to voters about health care.” Based on research Lake did for the Herndon Alliance, a coalition formed in 2005, Lake offers an explanation of how “Americans” view “health care reform.” According to Lake, “Americans” have surprisingly conservative “values” about this topic. According to Lake, this means advocates for “health care reform” must not only use and avoid certain words, but they must endorse and avoid certain policies.

Examples of Lake’s findings include:

* Americans think Medicare is “frighteningly flawed” and, consequently, Americans oppose a national health insurance program based on Medicare or which resembles Medicare;
* Americans who have private health insurance not only like it, but like it so much they will resist a Medicare-for-all solution to the health care crisis because it does not leave them the option of continuing to receive coverage from a health insurance company;
* Americans don’t want to pay for health insurance for “the undeserving,” a category which includes even the parents of average Americans;
* Americans don’t like the phrase “universal coverage” or “universal health insurance,” and prefer “quality, affordable health care”;
* Similarly, activists should never say “Medicare for all,” and instead say “choice of public and private plans,” which is, of course, equivalent to saying no one should support a Medicare-for-all (or single-payer bill) and should instead only support legislation that allows the health insurance industry to continue to take in tax dollars and premium payments. (Under a Medicare-for-all system, one payer like Medicare would replace the nation’s 1,500 health insurance company as the sole payer of clinics, hospitals and other providers.)

To understand why Lake would depict Americans as Scrooges who like their health insurance company and are afraid of Medicare, it helps to understand why the Herndon Alliance was formed. The Alliance was founded by individuals who have either opposed or refused to support Medicare-for-all legislation and instead supported legislation like President Bill Clinton’s 1993 Health Security Act, a bill that would have pushed all but the wealthiest Americans into HMOs. In 2005, several individuals who would play leading roles in creating the Herndon Alliance met to discuss why they “keep losing,” that is, why none of the bills they had supported in the past were enacted or, if enacted, stayed enacted. These individuals decided that the primary problem was the “values” of the American people. According to this diagnosis of the problem, their failure to achieve universal coverage was not due primarily to the power of the insurance industry or the unattractiveness of the legislation they had supported, but rather to the “values” of the average American.

But this diagnosis conflicts with a large body of research which shows that 65 to 85 percent of Americans support universal health insurance, and 60 to 70 percent support a Medicare-for-all program. For example, a 2007 poll by AP-Yahoo asked respondents whether they agreed or disagreed with this statement: “The United States should adopt a universal health insurance program in which everyone is covered under a program like Medicare that is run by the government and financed by taxpayers.” Sixty-five percent said yes.

If the Herndon Alliance founders had said that a large majority of Americans support universal coverage and Medicare-for-all programs, and this support can be reduced by false propaganda against such programs, that would have been an accurate diagnosis. But they didn’t. Instead, they adopted the much more questionable assumption that most Americans harbor “values” that cause them not support universal coverage. It is reasonable to infer that Lake was hired by the Herndon Alliance to produce research to confirm their armchair diagnosis of the American pyche.

Lake’s research occurred in three stages: a “mapping values” stage, a focus group stage, and a polling stage. There were serious defects in all three stages.

In the first stage, as Lake put it, “[O]ur research … explor[ed] … the core values that shape … views on health care….” The result of this first stage was a report by a firm called American Environics (AE) that claimed to identify 117 “values” held by Americans that allegedly have some influence over how we think about health care reform. These “values” had names like “brand apathy,” “discount consumerism,” “more power for big business,” “meaningful moments,” and “sexual permissiveness.” The “value” known as “meaningful moments,” for example, was defined this way: “The sense of impermanence that accompanies momentary connections with others does not diminish the value of the moment.” Lake and AE refuse to explain where these “values” come from or how any of them relate to “health care reform,” much less deserve to be called “core values that shape … views on health care.”

On the basis of these “values,” AE divided Americans into eight groups or “clusters” with names as fanciful as the “values” AE says we hold. The three largest groups, in order of size, were “Proper Patriots” (34 percent), “Marginalized Middle-Agers” (17 percent), and “Mobile Materialists” (13 percent). AE describes the millions of people in these “clusters” in terms that can only be called psychobabble. Here is how AE stereotypes Mobile Materialists:

This group tries to impress others with their homes, cars, clothes and looks, scoring high on Status via Home, Buying on Impulse, Importance of Brand, Joy of Consumption, Crude Materialism and Ostentatious Consumption. … [T]he new rims for their car or yet more designer handbags are welcome escapes from everyday drudgery. They tune out after work by watching MTV Cribs (Living Virtually) and feel best when they make time for a workout at the gym or a mani-pedi (Look Good Feel Good, Concern for Appearance).

The second and third stages of Lake’s research were based on the bizarre results of the first stage. For her focus groups, Lake selected people who represented the strange “clusters” concocted by AE. Lake does not tell us how she determined that the people she selected fell into one of the “clusters,” or what questions she asked them. All we hear from Lake are her conclusions about what allegedly went on in the focus groups. It was from these focus groups that Lake allegedly learned that Americans don’t support “universal coverage,” fear Medicare, feel good about their health insurance company, and think their own parents are among “the undeserving.”

In the third stage, Lake conducted a poll designed to see how people felt about a health care reform proposal she developed during the second stage (called “guaranteed affordable choice”) compared with single-payer. She wrote the question in a way that ensured the respondents would favor “guaranteed affordable choice” (GAC) over the single-payer proposal. To offer just one example: Lake declined to tell her respondents that patients would continue to have limited choice of doctors and hospitals under the GAC plan while under the single-payer plan patients would have complete freedom to choose their doctors and other providers.

In short, Lake delivered to the Herndon Alliance the results the founders of the Alliance were looking for. She told them, in effect, that they were right all along to support legislation that leaves the insurance industry at the top of the health care food chain and not to support a Medicare-for-all or single-payer proposal. And she gave them the rationale they wanted to hear – that they were justified in abandoning single-payer and supporting a role for the health insurance industry because that’s what Americans want them to do.

But to give the Herndon Alliance the results they wanted, Lake had to rely on secretive and biased methods. Until Lake reveals her methods and offers a reasonable explanation for why her results are so different from those of other researchers, the public should treat Lake’s research as junk science.

Distributed by:

All Unions Committee For Single Payer Health Care–HR 676
c/o Nurses Professional Organization (NPO)
1169 Eastern Parkway, Suite 2218
Louisville, KY 40217
(502) 636 1551

For a complete list of the unions that have endorsed HR 676 and a sample union resolution write to Kay Tillow at nursenpo[at]

Alain Enthoven responds on reform of the Dutch system

Posted by on Monday, Dec 1, 2008

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.

The Quote of the Day for November 28, 2008 briefly discussed the JHPPL article by Pauline Vaillancourt Rosenau and Christiaan J. Lako, “An Experiment with Regulated Competition and Individual Mandates for Universal Health Care: The New Dutch Health Insurance System.” The authors referred to the Dutch reform as “Enthoven-inspired.”

Alain C. Enthoven, Ph.D. is the Marriner S. Eccles Professor of Public and Private Management, emeritus, at Stanford University, and a core faculty member at CHP/PCOR. Known as the “father of managed competition,” he was one of the founders of the Jackson Hole Group, a national think-tank on healthcare policy.

Professor Enthoven provides this response to the November 28 Quote of the Day message:

Don’t leap to unfounded conclusions too quickly in this complex and important subject.

In 1977-8, when I designed and proposed Consumer Choice Health Plan, a plan for universal health insurance based on regulated competition in the private sector, I observed that, in the United States, there were many alternatives to inflationary uncoordinated fee-for-service which dominates our scene. They were mainly prepaid multi-specialty group practices (PGPs), also other multi-specialty group practices, all proven to be able to reduce and manage costs, as well as physician-created individual practice associations some of which were and are being successful in managing and reducing costs. So the main idea was to subject inflationary uncoordinated fee for service to competition to produce value for money from organized alternatives that were reducing costs, and ultimately to replace uncoordinated fee for service almost entirely. Unfortunately, the USA has not created market conditions favorable to efficient economical health care (most employers do not even offer PGPs as a choice), so these systems have not been able to prove themselves on a national scale. And Medicare has remained dominated by fee for service, and it is a huge strain on Federal finances. In smaller regional situations, however, competing multi-specialty group practices have been proved to be far less costly than fee for service when embedded in a competition model. Perhaps the best example is the public employee’s Employee Trust Funds in the State of Wisconsin. The state employees plan is a good model of managed competition. Employees are offered a variety of choices and the state pays approximately the low priced plan. They have some excellent multi specialty group practices with their own insurance plans, and some group health cooperatives which are similar. The great majority of employees have chosen HMOs. And the costs in Madison, the state capitol where the market is dominated by public employees are far less than they are on the east coast of Wisonsin dominated by fee for service (a difference of approximately $4000 per family per year.)

Unfortunately, the Dutch have no prepaid group practices or even multi specialty group practices. Their insurance companies are selling what we call “preferred provider insurance” which is a variation of fee for service solo practice. For several reasons, they have not been able or willing to become highly selective in their provider networks. For one, many prices are still regulated by government. For another, they lack public quality measures that the insurers could use to select narrower networks. So, as I told the Dutch leaders in a 2006 lecture, they have implemented only half of the managed competition concept. They need integrated delivery systems as we have in America. I suggested to the Minister of Health that after studying American integrated delivery systems, they get to work on starting some in Holland. That will take time. Nothing can change the whole health care system in a short time. So many Dutch people have been over here studying American integrated delivery systems, including the Minister of Health and his team. They need to find some doctors who are interested in the project and then fund some startups. That would put a lot of pressure on the insurance companies to innovate in more economical health care.

It is interesting to note that the British have several teams studying American integrated delivery systems. The process started in 2002 when a famous British doctor and his wife, a former Kaiser Permanente executive, published an article in the British Medical Journal called “More For their Dollar: A comparison of California’s Kaiser Permanente and the British National Health Service.” They found that after making appropriate price and other adjustments, that Kaiser costs were similar to the NHS and for that, Kaiser members got far more for their dollar than the NHS, including such things as much more prompt access to advanced technologies, aggressive outreach for cancer prevention, etc. That was met with a storm of debate. But when the dust settled, their conclusion proved unshakeable. British scholars found, for example, that members 65 and over in the UK spent 3.5 times as many days in hospital as did similar people in Kaiser in California. Their follow up studies found that the essential ingredient was far superior integration of medical practices. My editorial accompanying the 2002 article was entitled “Competition Made them Do It.”

So in my view, it would be a serious error to leap to the conclusion that the Dutch model is a flop. It is a work in progress. The Dutch health care model does get good ratings in international surveys and their costs remain far below ours in America. Whether we are talking Holland or the USA, costs will not be contained and quality not improved, until we replace uncoordinated fee for service with efficient organized delivery systems that use information technology to measure and improve results, that accept responsibility for managing costs and quality. The good news is that when given a responsible choice, most consumers choose the efficient organized delivery systems. So the change does not need to be forced on an unwilling population (as, unfortunately, many employers tried in the 1990s.)

Alain Enthoven

Quote of the Day, “Lessons from the Netherlands,” Nov. 28, 2008:

Quote of the Day, “Feachem’s Kaiser study not credible,” June 1, 2004:

We share with Alain Enthoven the concern over our very high and ever increasing spending for a mediocre health care system that leaves so many out. We have disagreed with him (sometimes obnoxiously so) on the best approach to return value and high performance to our health care delivery system. He supports “universal health insurance based on regulated competition in the private sector,” whereas we support a publicly administered and publicly financed single payer national health program.

Enthoven discusses prepaid multi-specialty group practices (PGPs) and physician-created individual practice associations (IPAs) as examples of integrated systems that can manage and control costs. Although there are several variations, Kaiser Permanente can serve as a proxy for the concept of an integrated health care delivery system.

We certainly have no problem with integrated health care delivery systems. In fact, we have included them in our models of single payer reform, though with the primary function of delivering health care, rather than in a risk-beariing insurance role. Arnold Relman, a single payer supporter, has stressed the importance of not only reforming health care financing, but also the importance of using multi-specialty, not-for-profit organizations to deliver health care.

It seems that where we part with Prof. Enthoven is over the role of competition. I think that we all agree that physicians, hospitals, and other health care providers competing based on the quality of their services would be beneficial in the health care marketplace. Competing on price is quite another issue.

Most economists agree that price competition plays almost no role for individuals who must access the system for health care. So most of the discussion of price competition has been in the choice of insurance products. We agree with Enthoven that our existing, dysfunctional, fragmented, multi-payer system in the USA “has not created market conditions favorable to efficient, economical health care.”

Enthoven seems to concede that the Dutch model is not yet a model for the United States since it relies on “preferred provider insurance” (PPOs). He considers the Dutch reform to be a work in progress, still requiring the transformation of the health care delivery system into “integrated delivery systems.”

Imagine maybe four competing integrated health care delivery systems within a metropolis, again using Kaiser Permanente as a proxy. Each one would have its own exclusive professionals, hospitals and other facilities to provide the full range of health care services, including the most advanced technological services. Would each one have an organ transplant service? What about the suburban and rural sectors served by these integrated systems? Would each integrated system provide a primary care outpost, four in each community, duplicating services in these outreach areas? Could one metropolis support four very costly, duplicative, integrated health delivery systems?

The point is that integrated delivery systems are an important part of our entire health care delivery system, but they can never serve as an exclusive single financing model to herd us into systems competing on price (and quality), with no other place to turn for health care.

In one paragraph above, Enthoven mentions the comparison of Kaiser Permanente with the British National Health Service, citing a study that was done by Richard Feachem, et al. Enthoven states that their study “met with a storm of debate… but when the dust settled, their conclusion proved unshakeable.” Feachem’s flawed study is a diversion from the important issues discussed here, but the dust never did settle. A critique of Feachem’s study can be found at the link above, and nothing more will be said about it here (Quote of the Day, June 1, 2004).

Prof. Enthoven raises a red flag that our policy makers need to take heed of. He attributes the failure of the Dutch to achieve their goals of reform to the fact that, to date, the insurers are selling only “preferred provider insurance.” That is currently the predominant form of private insurance in the United States. It forms the basis of the competing private insurance plans that we will be required to purchase under the current leading proposals for reform. Although some choices are nominally HMOs, in fact they are functionally PPOs in disguise. True HMOs such as Kaiser Permanente are not available to the majority of us.

We should listen to Prof. Enthoven and reject PPOs. We can obtain our care from any accessible integrated health delivery system, if we so choose. But let’s adopt a system that actually will slow the growth in health care costs while providing a mechanism for improving the allocation of our health care dollars: a single payer national health program (even if that is not Prof. Enthoven’s preferred model of reform).

Lessons from the Netherlands

Posted by on Friday, Nov 28, 2008

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.

An Experiment with Regulated Competition and Individual Mandates for Universal Health Care: The New Dutch Health Insurance System

By Pauline Vaillancourt Rosenau, University of Texas, Houston, and Christiaan J. Lako, Radboud University Nijmegen, the Netherlands
Journal of Health Politics, Policy and Law
December 6, 2008

The 2006 Enthoven-inspired Dutch health insurance reform, based on regulated competition with a mandate for individuals to purchase insurance, will interest U.S. policy makers who seek universal coverage. This ongoing experiment includes guaranteed issue, price competition for a standardized basic benefits package, community rating, sliding-scale income-based subsidies for patients, and risk equalization for insurers. Our assessment of the first two years is based on Dutch Central Bank statistics, national opinion polls, consumer surveys, and qualitative interviews with policy makers. The first lesson for the United States is that the new Dutch health insurance model may not control costs. To date, consumer premiums are increasing, and insurance companies report large losses on the basic policies. Second, regulated competition is unlikely to make voters/citizens happy; public satisfaction is not high, and perceived quality is down. Third, consumers may not behave as economic models predict, remaining responsive to price incentives. Finally, policy makers should not underestimate the opposition from health care providers who define their profession as more than simply a job. If regulated competition with individual mandates performs poorly in auspicious circumstances such as the Netherlands, how will this model fare in the United States, where access, quality, and cost challenges are even greater? Might the assumptions of economic theory not apply in the health sector?

Why is this article so important? Simply because there is a rapidly building momentum for similar health care reform in the United States built on a model of competing private insurance plans (possibly with a public plan offered as an additional option). The recent Dutch reform has important lessons for us.

Although the Dutch health care system was in far better shape than ours, their politicians decided that they could improve their system even more, while making it more affordable, by replacing their dual public and private insurance programs with a single market of competing private plans.

They put into place the policies (listed in the abstract above) that we are currently discussing for our reform, which theoretically would regulate the market to ensure efficiency and prevent the private insurers from gaming the system. The Netherlands has provided us with a very instructive, real-life experiment on whether competing private plans would serve us well as a model for health care financing reform in the United States.

The Dutch model was not initiated with a clean slate on policy principles. We now have decades of research and experience which should provide us with a basis for predicting, to varying degrees of certainly, the anticipated results of these policy applications.

Essentially everyone agrees that market competition fails to provide greater value and control costs when applied to obtaining care within the health care delivery system. Many still believe, however, that competition between private health plans will achieve that goal. Consumers can shop based on differences in the private plans, while the insurers can contract with the providers, demanding the value and cost containment that we seek. Or so goes the theory.

When the Dutch embarked on this reform, those understanding health policy raised many red flags. Here we’ll discuss only the basic premise that private plans are more effective in controlling costs than was the public/private dual system. After all, cost containment was given by the Dutch government as the primary reason for health financing reform.

What did those of us who were concerned about their model predict? We predicted that the private plans would not be able to control costs, that there would be consolidation of the private plans, and that health care would become even less affordable for the Dutch citizens.

After almost three years of this experiment, what has happened? Health care costs have continued to grow well in excess of the rate of inflation. Health insurers attempted to keep their premiums affordable in order to gain market share, but because of insurer losses, premium increases have been greater than would have been anticipated based on the market competition theory. In spite of these premium increases, insurer losses have been increasing. Insurers with less penetration in the marketplace are now facing the necessity of consolidation.

In another article in this same journal, Kieke Okma states, “… the trend of market concentration in Dutch health insurance and health care will likely continue. This might result in both higher prices and more-restricted access to health care services, both of which will not be too popular with Dutch patients and insured.”

Although there are many policy lessons for us in the Dutch experiment, there is one predominant message that the U.S. policy community must understand. Everyone agrees that costs absolutely must be contained, and we need to do that in a manner that repairs our fractured health care delivery system. The primary reason for the Dutch reform was this need for cost containment. But what is their position now?

According to Rosenau and Lako, “In the face of initial failure to control costs, the reaction of the Dutch government has been to reiterate its faith in the free market for health insurance and to argue that cost containment was not an important rationale for the Health Insurance Act in any case (confidential personal interview, April 13, 2007).”

With the insistence that the mandates of political feasibility require that the ideology of private plan competition displace sound health policies, the path that our national policy makers are currently negotiating places at grave risk both our finances and our health.

AHIP: tax credits for moderate-income individuals and working families

Posted by on Wednesday, Nov 26, 2008

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.

AHIP (America’s Health Insurance Plans)
November 19, 2008

From the Summary of AHIP’s Proposal to Guarantee Coverage for Pre-existing Conditions and Promote Affordability in the Individual Insurance Market:

* Promote affordability by providing refundable, advanceable tax credits for moderate-income individuals and working families


Health Care Reform: An Economic Perspective

Testimony of Uwe Reinhardt, Ph.D.
U.S. Senate Finance Committee
November 19, 2008

Appendix A

A clear distinction is made between the task of collecting the funds in an insurance pool from that of disbursing funds to the providers of health care. One should always treat these two facets separately when thinking about health care reform, because any financing system for health care could be coupled with any number of alternate disbursement systems. (Journal of American Health Policy, May/June 1993)

This quote from AHIP was buried in another Quote of the Day last week, but it is being repeated here because of its importance in the health reform dialogue.

AHIP has now explicitly acknowledged what single payer supporters have been saying for some time. Private health plans are no longer affordable for “moderate-income individuals and working families.” To maintain the viability of the private insurance market, AHIP is recommending tax subsidies to help purchase the plans.

Assuming that we are serious about including everyone in our health care system, why should we go to such extremes to assign a specific actuarial value for the insurance for each person in the United States, and then collect an individual premium that reflects that actuarial value (whether that premium is collected from the individual or from the employer on behalf of the individual), especially when that premium must now be modified by tax policies tailored to specific individuals?

Uwe Reinhardt states in an appendix to his testimony before the Senate Finance Committee, “A clear distinction is made between the task of collecting the funds in an insurance pool from that of disbursing funds to the providers of health care.”

In another quote this week, Uwe Reinhardt also stated, “The question is how long American health policy makers, and particularly the leaders of our private health insurance, can justify this enormous and costly administrative burden to the American people and to the harried providers of health care.”

Although we support an administratively efficient public single payer to disburse the funds, others point out that it can also be done by private health plans functioning as a social insurance model (though at higher costs with some sacrifice in equity, which will not be discussed here). What is most important is that the financing of the universal risk pool be a separate process based on ability to pay rather than based on the actuarial value of the benefits.

If those now planning our health care future behind closed doors were to grasp this concept, it would certainly simplify their process. As Dr. Reinhardt has suggested, the contribution wouldn’t need to be through a tax. It could be through an income-adjusted premium paid in a different section of the tax return.

Okay. Maybe that’s just playing with labels. The point is that a universal risk pool, funded equitably based on ability to pay, would achieve what we all profess to be our goal: affordable health care for each individual. Once we get that right we can move on to defining the most efficient method of disbursing funds.

The Medicare Advantage lesson on what not to do

Posted by on Tuesday, Nov 25, 2008

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

Medicare’s Private Plans: A Report Card On Medicare Advantage

MA has brought much more choice but also added complexity, higher costs, no apparent quality gains, and uneven benefits.

by Marsha Gold
Health Affairs
November 24, 2008

With higher payments and expanded private-plan authority, Medicare Advantage (MA) has caused the market to grow. One in three Medicare beneficiaries with Part D now gets this coverage through MA. Analysis of the sources of and reasons for enrollment growth suggest a troubling report card. Clearly, the Medicare Modernization Act (MMA) has expanded choice and the private-sector role. But it also has added to Medicare’s complexity and costs and has created potential inequities, without apparent improvements in quality.


Payment Policy And The Growth Of Medicare Advantage

Higher MA payment rates have financed a Medicare benefit expansion for MA enrollees, without producing any overall savings for Medicare.

by Carlos Zarabozo and Scott Harrison
Health Affairs
November 24, 2008

The higher MA payment rates have financed what is essentially a Medicare benefit expansion for MA enrollees, without producing any overall savings for the Medicare program, and with increased costs borne by all beneficiaries and taxpayers. At the same time, although plan payments have financed additional benefits for enrollees, the additional payments have not resulted in improved quality among MA plans.


Medicare Advantage Plans At A Crossroads–Yet Again

The experience with private-plan contracting shows that assuring stable plan choices and extra benefits requires extra money.

by Robert A. Berenson and Bryan E. Dowd
Health Affairs
November 24, 2008

These three online reports from Health Affairs give us an update on a decade of experience with private health plan options in the Medicare program. The plans were sold to us as a private sector solution that would provide higher quality care at a lower cost than the traditional public Medicare program.

The results are in. These reports add to the plethora of data that confirm that the private plans have not improved quality, yet they have been considerably more expensive than care provided under the traditional Medicare program for patients of comparable health status. (This comment and those that follow do not refer to integrated health care delivery systems, but only to the private insurance function.)

Since a significant portion of this excess spending was for administrative services that benefit insurers rather than patients, taxpayers should be outraged at this waste of our Medicare funds. The good news is that some of these funds were used to expand benefits for patients in the Medicare Advantage plans, but this is another instance where good news is really more bad news.

Individuals receiving these extra benefits generally did not pay for them, and often paid less in premiums and cost sharing. So where did the money come from? It was paid by all taxpayers (payroll taxes and general revenues) and by patients paying premiums into the traditional Medicare program. So the bad news is that these extra benefits are highly inequitable because they’re granted to individuals in the Medicare Advantage programs but paid by everyone else not in the programs. Tax policies and public programs should be designed to achieve equity, but the Medicare Advantage program achieves the opposite.

Does that mean that the extra Medicare Advantage benefits should be eliminated? No. Instead, those benefits should be added to the traditional Medicare program to make it even better. The Medigap plans that supplement the traditional Medicare program are one of the worst values in health insurance. The benefits provided by the Medigap plans should be rolled into Medicare, and then the wasteful Medigap plans can be eliminated.

Those who contend that we can’t afford to add more benefits to Medicare need to keep in mind that we would merely be shifting private out-of-pocket spending to the public Medicare program, actually reducing total spending by eliminating the waste in the Medigap and Medicare Advantage plans, offset partially by improved access to appropriate services.

There is an interesting comment in the paper by Berenson and Dowd:

“However, a point often overlooked by single-payer advocates is that unilateral monopsonist purchasing power also is inefficient. The optimal market structure is ‘atomistic’ competition among many sellers in markets with many purchasers, but this has proved difficult to achieve in health care. For example, atomistic competition requires aggressive enforcement of antitrust laws in both provider and insurance markets–something that the antitrust enforcement agencies and the courts appear unwilling or unable to do. Thus, reliance on monopsony purchasers, public or private, may be socially desirable.”

Hmmm. Help me with this one. We single payer advocates sometimes do refer to single payer as a beneficent public monopsony, but we also tout its efficiency. Since atomistic competition does not and never will exist in health care, we will never be able to use the market to price health care services efficiently. Thus, as a single public monopsony, we would rely on the efficiency of pricing through a process of negotiation, taking into consideration all legitimate costs and fair profits, and balancing our interests as both patients and taxpayers. Did I miss something here?

More from Berenson and Dowd:

“Traditional Medicare has been the source of important payment innovations, moving many payment systems away from FFS to prospective payment, such as the diagnosis-related group (DRG) prospective payment system (PPS) for inpatient services. The resource-based relative value scale (RBRVS) for physician fees, despite its flaws, has been adopted widely by private plans… Commercial insurers also look to Medicare to make initial technology approval decisions and to initiate more-aggressive payment denials–for example, for ‘never’ events and medically ineffective treatments.”

Thus the public Medicare program has brought us greater efficiency in health care financing than has the private sector. The private Medicare Advantage plans have brought us higher costs with no improvement in quality, and have actually increased the inequities in our health care system. Why should we expect the private plans in our current health reform proposals to do any better? They won’t.

It’s time to move forward with a new and improved, single payer Medicare for all.

Uwe Reinhardt on indefensible administrative costs

Posted by on Monday, Nov 24, 2008

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.

Why Does U.S. Health Care Cost So Much? (Part II: Indefensible Administrative Costs)

By Uwe E. Reinhardt
The New York Times
November 21, 2008

In my previous blog post, I showed that America suffers from “excess spending” in its health care system. Here I will discuss one factor that drives up that spending: indefensibly high administrative costs.

To review: “Excess health spending” in this context refers to the difference between what a country spends per person on health care, and what the country’s gross domestic product per person should predict that that country would spend. (The prediction is based on trends in other countries in the Organization for Economic Cooperation and Development.) The word “excess” here should not be taken as “excessive” unless one could demonstrate that what the other O.E.C.D. nations spend is appropriate and what we spend is ipso facto wasteful.

The United States spends nearly 40 percent more on health care per capita than its G.D.P. per capita would predict. Given the sheer magnitude of the estimated excess spending, it is fair to ask American health care providers what extra benefits the American people receive in return for this enormous extra spending. After all, translated into total dollar spending per year, this excess spending amounted to $570 billion in 2006 and about $650 billion in 2008. The latter figure is over five times the estimated $125 billion or so in additional health spending that would be needed to attain truly universal health insurance coverage in this country.

One thing Americans do buy with this extra spending is an administrative overhead load that is huge by international standards. The McKinsey Global Institute estimated that excess spending on “health administration and insurance” accounted for as much as 21 percent of the estimated total excess spending ($477 billion in 2003). Brought forward, that 21 percent of excess spending on administration would amount to about $120 billion in 2006 and about $150 billion in 2008. It would have been more than enough to finance universal health insurance this year.

The McKinsey team estimated that about 85 percent of this excess administrative overhead can be attributed to the highly complex private health insurance system in the United States. Product design, underwriting and marketing account for about two-thirds of that total. The remaining 15 percent was attributed to public payers that are not saddled with the high cost of product design, medical underwriting and marketing, and that therefore spend a far smaller fraction of their total spending on administration.

Two studies using more detailed bilateral comparisons of two countries illustrate even more sharply the magnitude of our administrative burden relative to that in other developed countries.

One of these is an earlier McKinsey study explaining the difference in 1990 health spending in West Germany and in the United States. The researchers found that in 1990 Americans received $390 per capita less in actual health care but spent $360 more per capita on administration.

A second, more recent study of administrative costs in the American and Canadian health systems was published in 2003 by Steffie Woolhandler and David Himmelstein in The New England Journal of Medicine. The study used a measure of administrative costs that includes not only the insurers’ costs, but also the costs borne by employers, health-care providers and governments – but not the value of the time patients spent claiming reimbursement. These authors estimated that in 1999, Americans spent $1,059 per capita on administration compared with only $307 in purchasing power parity dollars (PPP $) spent in Canada.

More and more Americans are being priced out of health care as we know it. The question is how long American health policy makers, and particularly the leaders of our private health insurance, can justify this enormous and costly administrative burden to the American people and to the harried providers of health care.

Professor Reinhardt already said it: “More and more Americans are being priced out of health care as we know it. The question is how long American health policy makers, and particularly the leaders of our private health insurance, can justify this enormous and costly administrative burden to the American people and to the harried providers of health care.”

Thank you, John Holahan and Linda Blumberg, for showing us that a public insurance plan cannot compete within, much less change the character of, the private health insurance market.

by Andy Coates and Kip Sullivan

A short paper by John Holahan and Linda Blumberg asks “Can a Public Insurance Plan Increase Competition and Lower the Costs of Health Reform?” The call for a government-run insurance entity established to compete alongside private health insurance companies can be found in a proposal by Professor Jacob Hacker and recent mainstream Democratic Party proposals, including one put forward this month by Senator Max Baucus of Montana. We expect it will be part of upcoming White House proposals too.

We would like to discuss several fatal flaws in this proposal in light of the paper by Holahan and Blumberg. Their work helps reveal the folly of these unfounded assumptions:

~ A Medicare-like public insurer will maintain its advantage in cost savings through low-overhead when competing with private plans.
~ Market competition automatically yields efficiencies and savings.
~ A public insurance company will start out big or get big, and if it gets big, will be able to use its size to reduce costs.
~ Adverse selection can be prevented.

While they address the first two assumptions adequately, partially examine the third, and simply mention the last, John Holahan, Director of the Urban Institute Health Policy Center, and Linda Blumberg, Principal Researcher a the Urban Institute Health Policy Center, nevertheless endorse the proposal:

In this brief we argue that using a public plan is a good idea and will likely contribute to cost containment, but is probably not a panacea.
John Holahan and Linda J. Blumberg, “Can a Public Insurance Plan Increase Competition and Lower the Costs of Health Reform?”

Not a panacea?

If their conclusion were consistent with the content of the paper, Holahan and Blumberg would have said of the public plan option: “not even a placebo!”

They begin by citing sound research for the conclusion that public insurance programs have lower administrative costs, including the 2003 New England Journal of Medicine article, “Costs of Health Care Administration in the United States and Canada” by Steffie Woolhandler, Terry Campbell and David Himmelstein. That study demonstrated that the United States would save hundreds of billions of dollars if it created a single-payer health program like the one in Canada, often called “Medicare for All.”

It is true that Medicare is more efficient than any private-sector health insurance company. But Medicare overhead costs are very low because it is the single payer for the elderly, not one of many competing insurers. (Medicare spends little or nothing on marketing, underwriting, telling doctors how to practice medicine, lobbyists, executive salaries, and profit.) Medicare’s status as the largest insurer in the country also means Medicare can induce clinics and hospitals to accept lower fees than smaller insurers can.

Holahan and Blumberg point out that when a public health insurance plan competes on a private market, it must adopt most, if not all, of the survival tactics of private insurers. They identify “premium collection costs” and “marketing costs” as well as “claim processing, claims and utilization review, and care management” among the many costs that must be borne by a competing public insurer that are either not incurred by Medicare now or cost Medicare far less than they cost private insurers.

Holahan and Blumberg add that “commissions and profits for private plans” would remain a burden upon the entire system. In short, they echo, rather than refute, Woolhandler, Campbell and Himmelstein, who wrote:

A system with multiple insurers is also intrinsically costlier than a single-payer system. For insurers it means multiple duplicative claims-processing facilities and smaller insured groups, both of which increase overhead. Fragmentation also raises costs for providers who must deal with multiple insurance products…
N Engl J Med 2003;349:768-75

Race to the bottom

Having undermined the premise that a Medicare-like program will retain its overhead advantage in a multiple-payer setting, Holahan and Blumberg address another assumption underlying the Edwards-Clinton-Obama-Baucus-Hacker plan, namely the myth of market competition.

Although Holohan and Blumberg ignore the question of how the public plan will acquire critical mass, they do present several reasons to believe that even if the public plan is large it might not be able to use its negotiating clout to much effect.

Holahan and Blumberg take as a starting point the reality of the modern health care marketplace. They note that “insurer and hospital markets are increasingly dominated by large insurers and provider systems.” When the market has “become dominated by a small number of large insurers,” they explain, insurance companies have increased both premiums and profits, ratcheting total costs skyward.

The authors point out at least four further reasons why a public insurance company injected into a multi-payer system will fail to reign in costs:

First… large and expensive teaching hospitals, have little incentive to negotiate with insurers and lower prices. Second, small insurers do not aggressively compete over price… but rather seem to follow the pricing of the dominant insurer. Competition in insurance markets is often about getting the lowest risk enrollees as opposed to competing on price and the efficient delivery of care. Third… the lack of clear information necessary to allow individuals to effectively shop for plans based on benefits, price, and quality. Finally, the consolidation of hospital systems that has occurred in recent years has also severely limited insurers’ ability to negotiate with hospitals for lower rates.
John Holahan and Linda J. Blumberg, “Can a Public Insurance Plan Increase Competition and Lower the Costs of Health Reform?”

The evidence at hand supports all of these criticisms. The health insurance industry is heavily consolidated, the hospital industry is heavily consolidated, and consumers have very little information with which to force insurers and providers to compete on price and quality.

Competition in insurance markets is often about getting the lowest risk enrollees as opposed to competing on price and the efficient delivery of care.

This line by Holahan and Blumberg bears repetition. They recognize that a leopard cannot change its spots. Competition in insurance markets is not about the delivery of the best care for the sick. It is about which insurer can avoid enrolling the sick and when the people they do enroll get sick, how to deny them the services they need and thereby encourage them to enroll with another insurer.

If the Medicare-like plan does not treat patients as heartlessly as the private plans do, it will attract a disproportionate share of the sick and in turn, premiums would then have to rise. If the public plan insists on lower reimbursements to providers and hospitals, the best it might achieve would be a two-tier health care system region by region, with success tantamount to ruthlessness on the part of the public plan toward the sick as well as the hospitals and providers.

Giant or pipsqueak?

But Holahan and Blumberg might have looked more closely at the assumption that such a public program would start out with a size advantage.

Why should we expect that if a Medicare-like program opens an office in, say, Dallas and begins advertising heavily in the Dallas media that large portions of Dallas residents will sign up with the Medicare-like program? Health care, with a few exceptions for expensive, high-tech procedures, is almost exclusively a local business. How will the existence of a public plan option lower costs, let alone improve the nation’s health, if it is large in terms of its total national enrollment but small in any particular urban area or region of the country? Advocates of the Hacker proposal have offered us no reason to believe that opening-day enrollment in the public program will be large anywhere, including at the national level.

One problem is dominance of a few private insurers. A second is that the Medicare-like plan will be faced with the awful choice of adopting the antisocial tactics of the private plans or accepting responsibility for continued cost escalation.

Social responsibility

Holahan and Blumberg weigh the daunting implications of the scenario they’ve conjured:

The problem is that the government, as a strong buyer, becomes responsible for the health and stability of the system. If it limits hospital and physician payments too strictly, it faces the risk of perhaps causing hospital closures, slowing down the introduction of new technologies by more than is socially desirable, limiting access to physician services, and affecting the quality of individuals seeking medical education.

Here the authors recognize that public intervention into the health system brings expectations and responsibility: the health of the nation. They suggest that reliance on overhead cost advantage, market competition and an enrollment size advantage, even in the best-case scenario, would not be enough. The logical question should follow: would the public insurance option be set up for failure?

This makes for a sharp comparison with a single-payer program that would cover everyone. A single-payer would offer a way to hold down costs, through massive ongoing overhead savings. It would eliminate the perverse incentives of insurance market competition while creating the bargaining power for price controls (for example bulk purchasing of drugs). A single-payer program would further offer a mechanism to allocate health resources where they are needed.

Likely scenario?

Holahan and Blumberg don’t address the single payer proposal except to say that a public plan competing with private insurance would never morph into a single-payer program. (We agree.) They offer “The Likely Scenario”:

We think that a public plan would not drive out private competitors and result in a government takeover of the system, nor would it be fully successful in controlling cost growth…

The presence of private plan competition will place a constraint on how penurious a public plan can be. Public plans would have to keep physicians and hospitals reasonably happy, otherwise enrollees would exit to private plans…

We believe Holohan and Blumberg’s ‘likely scenario’ is too rosy in light of the very arguments they develop. We agree with Holohan and Blumberg that a public option insurance plan will never drive the private insurers off the market, that the public plan will not enjoy an unusually low overhead, and it will have a hard time using whatever size it acquires to lower provider fees and other medical costs, thanks to the cruel facts of the insurance and health care marketplace. We think they have made an additional, probably incorrect, assumption that Medicare will start out with a large enrollee base.

To their credit, Holahan and Blumberg raise the issue of adverse selection (the tendency in private health insurance enrollments for the healthy to go in and the sick to go out). But their light treatment of the issue seems a serious error. They call for “assessments” on the private plans that enroll healthier enrollees, as if these assessments can be precisely determined at little cost.

Adverse selection, rewarded and encouraged by the health insurance market, would likely present another force capable of destroying and discrediting the public program. One shudders at such a scenario, for such a debacle could delay the day in which every inhabitant of the United States will have access to comprehensive care.

Holahan and Blumberg ultimately conclude:

Public plans are attractive because they can offer better access to necessary care for diverse populations, they have lower administrative costs, and they can be large-scale purchasers with a strong negotiating position with providers.

As we have discussed, the body of the paper contradicts this conclusion.

Finally Holahan and Blumberg end the paper with a coda, awkwardly tacking on several stray ideas, each one unproven. Yet ironically each one has also often been held up as a panacea — electronic medical records, new technology, chronic disease management, “cost-sharing structures,” “payment reforms,” and preventive medicine measures. These further weaken the contradictory conclusions the offer.

Still we would like to credit Holahan and Blumberg for breaking ranks with current liberal orthodoxy. They offer reality-based criticism of the central premise underlying mainstream Democratic Party proposals — that inserting a public insurer like Medicare into the current multiple-payer system can force the entire system to be more efficient and somehow improve the health of the nation. While they say it is not a panacea, they convincingly demonstrate that the proposal is not even a placebo — it could be a poison pill.

HR 676. Now.

A single-payer program for financing health care in the United States, embodied in the Congressional bill with 94 co-sponsors, House of Representatives 676 (HR 676), has been shown to lower costs through massive reduction in administrative waste and to provide comprehensive care to every inhabitant regardless of employment or health status. It will do this without adopting the antisocial techniques of the private insurance industry. It will be organized around the health needs of the nation, not the incentives of the market. It will restore to patients their freedom to choose their own doctor, and it will restore to patients and doctors their freedom to decide what medical services are appropriate. The evidence is in. We should stick a plan that will work: HR 676.

Is administrative savings a myth?

Posted by on Friday, Nov 21, 2008

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.

5 Myths on Our Sick Health Care System

By Shannon Brownlee and Ezekiel Emanuel
The Washington Post
November 23, 2008 (Web posting Nov. 21)

… we dispel a few myths about how health care works and how much reform Americans are willing to stomach.

3. We would save a lot if we could cut the administrative waste of private insurance.

The idea that we could wring billions of dollars in savings this way is seductive, but it wouldn’t really accomplish that much. For one thing, some administrative costs are not only necessary but beneficial. Following heart-attack or cancer patients to see which interventions work best is an administrative cost, but it’s also invaluable if you want to improve care. Tracking the rate of heart attacks from drugs such as Avandia is key to ensuring safe pharmaceuticals.

Let’s just say that we could wave a magic wand and cut private insurers’ overhead by half, to what the Canadian government spends on administering its health-care system — 15 percent. How much would we save? Not as much as you may think. Private insurers pay a little more than a third of what we spend on health care, which means that we’d cut a little more than 5 percent from our total budget, or about $124 billion. That’s not peanuts, but it’s not even enough to cover everybody who’s currently uninsured.

More to the point, we only get to save it once. That’s because administrative waste isn’t what’s driving health-care costs up faster than inflation. Most of the relentless rise can be attributed to the expansion of hospitals and other health-care sectors and the rapid adoption of expensive new technologies — new drugs, devices, tests and procedures. Unfortunately, only a fraction of all that new stuff offers dramatically better outcomes. If we’re worried about costs, we have to ask whether a $55,000 drug that prolongs the lives of lung cancer patients for an average of a few weeks is really worth it. Unless we find a cure for our addiction to the new but not necessarily improved, our national medical bill will continue to skyrocket, regardless of how efficient insurance companies become.

The authors understand that a single payer or “Medicare for all” model of reform is the most rational competitor to their preferred model of reform – thus their attack on the administrative savings that a single payer system would bring us. They concede that the savings are not a myth as they are considerable, but they still understate the savings because they exclude the tremendous financial burden that our dysfunctional, fragmented, multi-payer system places on the health care delivery system. They also incorrectly state that the administrative savings are a one-time event. In fact, the efficiencies that are achieved are permanent, shifting the trajectory of health care cost increases downward.

Their dismissal of single payer reform (see Emanuel’s “Healthcare, Guaranteed”) as merely an inadequate administrative measure, considering the complexity of the systemic problems in our health care delivery system, ignores the most important benefit of the single payer model. A single payer system creates our own public monopsony, or single purchaser of health care services. Many economists agree that, by controlling the spending of our health care dollars, we can finally demand value in our health care purchasing, introducing infrastructure changes that will lead to the high-performance system for which we are already paying, but not experiencing.

Because Medicare controls health care spending for only about 15 percent of our population, it is a very weak monopsony. Nevertheless it has been able to introduce some spending efficiencies. Think of how effective it would be if it covered all of us.

Medicare is our most popular, most efficient, and most equitable health care financing program, yet it is being dismissed as a model for all of us because of the idea that it somehow represents an ideological extreme. In health care, political compromise based on ideology is not only bankrupting individuals, it is killing them.

11/21/2008 12:36:15 PM

A letter to our new president

Posted by on Friday, Nov 21, 2008

Dear President-elect Obama:

As you prepare to begin your presidency during a period of severe recession, you will be searching to make financially sound decisions for our country. You have promised to reform the health care system, and only one solution will enable you to create an effective system and save money: a single-payer national health program.

During your campaign, you proposed a health plan to extend coverage to the 45 million uninsured Americans by expanding private and public programs, with the help of federal subsidies and mandates. This will only add to the cost of our health insurance system, currently a hefty $7,129 per person. However, if we adopt a single-payer national health program rather than attempting to expand our dysfunctional multiple payer, private insurance system, we would save money.

Drs. David Himmelstein and Steffie Woolhandler, health care researchers at Harvard Medical School, have calculated that the United States could save $350 billion/year by adopting a single-payer national health program. A single-payer program would eliminate private insurance companies and the enormous expense of their administrative costs and profits.

Every other industrialized country in the world has a national health plan that covers everyone and is administered by the government. And other countries spend less than half as much per person on health care as we do in the United

States. One reason they are able to provide health care for everyone for much less money is because their administrative costs are a small fraction of the costs in our country.

A single-payer national health program would also be a real boon to individuals faced with rapidly rising health insurance costs, and would rescue people who are falling into bankruptcy and are losing their homes because of medical debts. American automakers might not need bailouts if they didn’t have to provide insurance for their workers and retirees. Small businesses would no longer shoulder the expense and administrative burden of providing health insurance for their workers.

Not only would we save money for the government, business, and the individual, but a single-payer national health program would also cover everyone, and we would all have access to more comprehensive benefits. These benefits would include medical care, mental health care, dental care, prescription drugs, and long-term care, which is a primary concern for the baby boomers who have been watching their life savings and retirement funds evaporate with the collapse of Wall Street.

A group of 15,000 U.S. doctors in the organization Physicians for a National Health Program have called on you to enact a single-payer program. A Massachusetts poll revealed that 64 percent of doctors support single-payer health care, and the American College of Physicians has voted its support for a national health program as well.

As a Massachusetts resident, I am witnessing an attempt at health care reform that has similarities to your proposed plan, and is being touted as a model for our country. This program has expanded health insurance coverage to people who were previously uninsured, but it is not economically sustainable for our state government or for individuals. Many people are unhappy with the current health insurance program in Massachusetts, which has not reduced rapidly rising premium costs, co-payments and deductibles for the working individual. Massachusetts residents who were able to vote on local ballot initiatives in their legislative districts on Nov. 4, supported single-payer health care by landslide margins. Opinion polls also show that two-thirds of the public supports this kind of reform.

You have a mandate from the American people, and from many doctors and other health care professionals who actually provide our care. You have the opportunity to seize this moment of economic crisis, and create financially sound, sustainable health care reform. As Dr. Quentin Young, a long-time single-payer advocate, has said, “Adopting a nationwide single-payer system will build on the great achievement of Medicare, further unify our people, strengthen our country’s economic competitiveness and assure President Obama’s legacy as an American hero.”

AHIP & BCBSA support guaranteed issue and individual mandate

Posted by on Thursday, Nov 20, 2008

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

Health Plans Propose Guaranteed Coverage for Pre-Existing Conditions and Individual Coverage Mandate

AHIP (America’s Health Insurance Plans)
November 19, 2008

Summary of AHIP’s Proposal to Guarantee Coverage for Pre-existing Conditions and Promote Affordability in the Individual Insurance Market:

  • Guarantee-issue coverage with no pre-existing condition exclusions;
  • Establish an individual coverage requirement with an insurance coverage verification system, an automatic enrollment process and effective enforcement of the requirement that all individuals purchase and maintain coverage;
  • Promote affordability by: providing refundable, advanceable tax credits for moderate-income individuals and working families; and promoting tax equity whether coverage is obtained through an employer or the individual market; and
  • Ensure premium stability for those with existing coverage through a broadly funded reimbursement mechanism that spreads costs for the highest-risk individuals.


BCBSA Announces Support for Individual Mandate Coupled with a Requirement for Insurers to Offer Coverage to All

BlueCross BlueShield Association (BCBSA)
November 19, 2008

To assure truly meaningful reform, the Blue Cross and Blue Shield Association (BCBSA) and the 39 member Blue Cross and Blue Shield companies today announced support for every individual being required to have coverage and all insurers being required to accept everyone regardless of their health status.

If anyone has any remaining doubt that comprehensive reform is close at hand, just look at the response of the private insurance industry. AHIP, representing 1,300 insurance companies, and BlueCross BlueShield Association, insuring over 100 million individuals, in simultaneous press releases have confirmed that they understand that, if they want to continue to insure the majority of Americans, they must abandon their current business model and come to the table with policies that work. Policies that work means that everyone must be included, and that risk must be distributed in an equitable manner, based on ability to pay.

So what is their current business model that no longer works? They have been successful in limiting their exposure to the very large numbers of us who are relatively healthful: the healthy workforce, their young healthy families, and the healthy sector of the individual insurance market. But health care costs are now so high that the premiums that must be charged for these healthy risk pools are no longer affordable for the majority of us.

The industry’s response was to reduce benefits thereby reducing the upward pressure on premiums, but that has resulted in the rapidly growing epidemic of underinsurance. As a result, health care is now often unaffordable even for those who do have insurance. Also, in response to high premiums and mediocre coverage the numbers of uninsured continue to rise.

The private insurance industry has been trying to ride this out, but no more. Their hand is being forced by the political tidal wave that is sweeping over our health care system with the demand for reform that works for all of us.

They understand that in a truly universal system they must guarantee coverage for everyone regardless of preexisting conditions. Since that would push premiums up, they know that they must add larger numbers of healthy individuals to dilute the risk in their pools. An obvious source is the large numbers of young, healthy individuals who are uninsured. But the only way those individuals would pay the high premiums would be by forcing them to participate. Thus an individual mandate must be coupled with guaranteed issue.

The industry pretends that an individual mandate with guaranteed issue is all that they need to be major players, but they are reticent on revealing the most crucial barrier that they face. Although premiums for private plans are already too high for average-income individuals to afford, they must reverse the innovations that have led to underinsurance. Obviously that will significantly increase premiums. Also, since they currently sell to mostly healthy individuals, adding those with preexisting disorders will result in even higher premiums.

What to do, what to do? The AHIP release gives us a couple of hints.

Those supporting universal coverage through private health plans have long conceded that tax credits (or vouchers) must be used to assist low-income individuals with the purchase of their plans. In their press release, AHIP now states that we must use “refundable, advanceable tax credits for moderate-income individuals and working families.” Finally, the industry explicitly concedes that most of us can no longer afford to purchase their health plans. So who is going to help? The taxpayers. Gee, isn’t that us?

The other problem is how are they going to pay for the high-risk individuals who now must be covered? Their solution is somewhat more cryptic. They are going to “ensure premium stability for those with existing coverage through a broadly funded reimbursement mechanism that spreads costs for the highest-risk individuals.” “Premium stability” means that other sources will be paying the higher costs of the higher-risk individuals. What other sources? They propose “Guarantee Access Plans” which are “loosely modeled on state high-risk pools.” Oops. The taxpayers – us – again.

Think about it. The private insurance industry has just the solution for us, but only if we agree to foot the bill for those who actually need health care, while they continue to collect large premiums to pay for their egregiously wasteful administrative excesses.

Their proposal is to shift the real costs of health care to the taxpayer. They are right. We need to establish a universal risk pool and fund it equitably based on ability to pay. The only sensible way to do that is through a single payer national health program. Why would we want to implant on our health care financing system the cancer of private health plans?

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