The cost of regulatory overload

Posted by on Friday, Oct 27, 2017

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.

Regulatory Overload: Assessing the Regulatory Burden on Health Systems, Hospitals and Post-acute Care Providers

American Hospital Association, October 2017

Every day, health systems, hospitals and post-acute care (PAC) providers – such as long-term care hospitals, inpatient rehabilitation facilities, skilled nursing facilities and home health agencies – confront the daunting task of complying with a growing number of federal regulations. Federal regulation is largely intended to ensure that health care patients receive safe, high-quality care. In recent years, however, clinical staff — doctors, nurses and caregivers — find themselves devoting more time to regulatory compliance, taking them away from patient care. Some of these rules do not improve care, and all of them raise costs. Patients also are affected through less time with their caregivers, unnecessary hurdles to receiving care and a growing regulatory morass that fuels higher health care costs.

This report assesses the administrative impact that existing federal regulations from just four agencies – CMS, OIG, OCR and ONC – have on health systems, hospitals and post-acute care providers across nine domains:

1. Quality reporting;

2. New models of care/value-based payment models;

3. Meaningful use of electronic health records;

4. Hospital conditions of participation (CoPs);

5. Program integrity;

6. Fraud and abuse;

7. Privacy and security;

8. Post-acute care; and

9. Billing and coverage verification requirements.

Major Findings

1. Health systems, hospitals and PAC providers must comply with 629 discrete regulatory requirements across nine domains.

2. Health systems, hospitals and PAC providers spend nearly $39 billion a year solely on the administrative activities related to regulatory compliance in these nine domains.

3. An average size hospital dedicates 59 FTEs (full-time equivalents) to regulatory compliance, over one-quarter of which are doctors and nurses.

4. The timing and pace of regulatory change make compliance challenging.

5. Among the nine areas investigated, providers dedicate the largest proportion of resources to documenting CoP (conditions of participation) adherence and billing/coverage verification processes.

6. Meaningful use has spurred provider investment in IT (information technology) systems, but exorbitant costs and ongoing interoperability issues remain.

7. Quality reporting requirements are often duplicative and have inefficient reporting processes, particularly for providers participating in value-based purchasing models.

8. Fraud and abuse laws are outdated and have not evolved to support new models of care.

General Opportunities to Reduce Burden

A reduction in administrative burden will enable providers to focus on patients, not paperwork, and reinvest resources in improving care, improving health and reducing costs. Given these findings, we have several general recommendations to reduce administrative requirements without compromising patient outcomes, both overall and within each domain.

• Regulatory requirements should be better aligned and consistently applied within and across federal agencies and programs, and subject to routine review for effectiveness to ensure the benefits for the public good outweigh additional compliance burden;

• Regulators should provide clear, concise guidance and reasonable timelines for the implementation of new rules;

• CoPs should be evidence-based, aligned with other laws and industry standards, and flexible in order to support different patient populations and communities;

• Federal agencies should accelerate the transition to automation of administrative transactions, such as prior authorization;

• Meaningful use requirements should be streamlined and should increasingly focus on interoperability, without holding providers responsible for the actions of others;

• Quality reporting requirements should be thoroughly evaluated across all programs to better determine what measures provide meaningful and actionable information for patients, providers and regulators;

• PAC rules should be reviewed and simplified to remove or update antiquated, redundant and unnecessary rules; and

• With new delivery system and payment reforms emerging, Congress, CMS and the OIG should revisit the Stark Law and AKS and their respective regulations, as well as other requirements aimed at combating fraud, and make meaningful changes to ensure that statutes provide the flexibility necessary to support the provision of quality, high-value care.

From the Conclusion

Health systems, hospitals and PAC providers are besieged by federal regulatory requirements promulgated by CMS, OIG, OCR and ONC, many of which are duplicative and cumbersome and do not improve patient care. In addition to the regulatory burden put forth by those agencies, health systems, hospitals and PAC providers are subject to regulation by additional federal agencies, such as the Department of Labor, the Drug Enforcement Administration, the Food and Drug Administration and by state licensing and regulatory agencies. They also operate under stringent contract requirements imposed by payers, such as Medicare Advantage, Medicaid Managed Care plans and commercial payers, which also require reporting data in different ways through different systems. States and payers contribute to burden through, for example, documentation, quality reporting and billing procedures layered on top of the federal requirements.

Regulatory reform aimed at reducing administrative burden must not approach the regulatory environment in a vacuum — evaluating the impact of a single regulation or requirements of a single program — but instead must look at the larger picture of the regulatory framework and identify where requirements can be streamlined or eliminated to release resources to be allocated to patient care.…

A quick look at the nine domains of regulatory overload is all you need to be reminded of the nightmare created by these evolving requirements. Inefficiencies, wasted resources, and provider burnout ensue, which negatively impact the primary mission of the health care system: patient care.

It is estimated that health systems, hospitals, and post-acute care providers spend about $39 billion per year on administrative activities related to compliance in these domains. This report provides suggestions for reducing this regulatory overload, though only a portion of the costs would be recovered since appropriate regulatory oversight is still essential.

For perspective, think of the recoverable administrative waste that characterizes our fragmented health care financing system – most of it in the private sector. We spend over a trillion dollars a year on administration, and somewhere around $300 billion to $500 billion is recoverable merely by transitioning to a well designed single payer system. Thus the total spending attributed to regulatory overload is, at most, only a tenth of what could be recovered.

The opportunities listed to reduce the burden of regulatory overload should be considered but with the realization that they are limited by the constraints of our current dysfunctional health care financing system. What needs to be done first is to correct the fundamental flaw in our health care financing infrastructure by enacting and implementing a single payer system, and then the list can be surveyed to fine tune any residual regulatory burdens.

We desperately need reform, but let’s get it right.

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James Morone explains rationale of ‘Medicare for All’

Posted by on Thursday, Oct 26, 2017

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

How to Think about “Medicare for All”

By James A. Morone, Ph.D.
The New England Journal of Medicine, October 25, 2017

In April 1946, President Harry Truman introduced a single-payer health plan and met the same reaction that would greet Senator Bernie Sanders (I-VT) and his colleagues when they proposed “Medicare for All” in September 2017. “It is believed by competent Congressional observers to have little chance of approval,” reported the New York Times back in 1949. Newsweek was blunter: “No chance at all.” Neither Truman nor Sanders even bothered to include financing for their plans. Truman had no more success with a scaled-back proposal to cover only people over 65 years of age, but 13 years later President Lyndon Johnson signed the Truman revision into law as Medicare, declaring that the United States was finally harvesting “the seeds of compassion and duty” that his predecessor had sown. A proposal with no chance in one era had become law in another. Medicare proved so popular that it came to be a third rail of American politics — dangerous to touch. What lessons does Truman’s success hold for today’s “no chance” Medicare for All?

The usual metrics for evaluating policy proposals — vote counts, Congressional Budget Office scores, and tax calculations — are misleading because Medicare for All is an idea for the long run. For a more accurate assessment of its prospects, keep an eye on four key questions.

Is there a right to health care? The Affordable Care Act and the efforts to repeal and replace it raised fundamental ethical questions about whether Americans have a right to health care and, if so, whether government should secure it. The Medicare-for-all proposal responds with a strong claim for a right to roughly equal health care coverage for everyone. The American patchwork — superb health insurance for some; no health insurance for 30 million others; and shaky high-deductible, high-premium plans on the individual market and in many workplaces — is not just poor policy. It is wrong. It violates the norms of communal decency. Late-night talk-show host Jimmy Kimmel distilled this view when he tearfully responded to the House repeal-and-replace plan: “No parent should ever have to decide if they can afford to save their child’s life. It just shouldn’t happen. Not here.”

Medicare for All is, first and foremost, an exercise in moral persuasion. It will become a serious policy proposal if it creates a major surge in public opinion. That’s how “no chance” reforms win in the United States, whether it’s the passage of Medicare or the right of same-sex couples to marry. On this measure, Sanders is making progress. Last time he proposed his plan, he stood alone; this time, 16 Democrats crowded beside him — including some leading contenders for the next presidential nomination. The difference sprang from the 12,029,699 votes Sanders racked up in the Democratic presidential primaries. To handicap the future prospects of the plan, watch what happens as candidates take it to the voters.

Won’t the cost savings eventually convince skeptics? International comparisons reveal that other wealthy countries cover most of their populations with much lower spending. Although every country is unique, no other nation supports the sprawling administrative, insurance, and billing bureaucracies that reach into every U.S. clinic and practice; moreover, single-payer systems offer budgetary levers that our own fragmented nonsystem does not have. The results are striking. For example, Canadian health costs were indistinguishable from those in the United States until Canada finished introducing its national health insurance program in 1971; then, health care’s share of the Canadian economy flattened out dramatically. By 2014, according to the World Health Organization, Canada spent 10.4% of its gross domestic product on health care, as compared with the 17.1% we spent in the United States. Closer to home, our own single-payer plan, Medicare, appears to constrain rising costs more tightly than private insurers do.

The data tempt advocates to push Medicare for All as an efficiency fix for U.S. health care. However, mere efficiency arguments are unlikely to propel a change this big through the multiple checks and balances of U.S. politics. In politics, good data are not enough. They are a necessary but not sufficient condition for winning major legislation. Proponents will first have to create a movement.

Still, the efficiency claim always lingers in the middle distance: like Charles Dickens’s ghost of Christmas yet-to-come, single-payer plans challenge us to change our ways. If more conventional approaches fail to control costs and offer Americans more reliable access to health care, Medicare for All will continue to beckon as the fairer, less expensive, cross-nationally tested alternative.

But what about the taxes? Skeptics emphasize the new taxes that Medicare for All would require. In a white paper accompanying his proposal, Sanders fills in some vertiginous details: raise marginal income tax rates to 40% on incomes from $250,000 to $500,000; raise rates to 52% for incomes above $10 million; and tax capital gains and dividends like income from work. Do those kinds of increases doom Medicare for All? Perhaps just the reverse, for this is one of the few policies that directly confronts American inequality.

No other country has experienced a rise in inequality as steep or as high as the one we’ve seen in the United States. In 1970, standard inequality measures pegged the United States at roughly the same level as France and Japan; almost 50 years later, U.S. inequality levels are closer to those of Mexico and Brazil than to those in Northern Europe. Today, the top 1% of households control 38.6% of the country’s wealth, far more than the bottom 90% (which controls just 22.8%). The median white family (in the exact midpoint of the income distribution) is 10 times as wealthy as the median black family. Intergenerational economic mobility has stagnated. Political scientists generally believe that rising inequality and slowing mobility have a destabilizing effect — and they may be driving the angry populism that is now stirring on both the left and right ends of the political spectrum.

Medicare for All offers politicians a way to squarely address the issue. It would lift a substantial financial burden from low- and middle-income families — their health insurance premiums — and shift the weight to wealthier Americans by raising their taxes. In reversing inequality, taxes are not a bug but a populist feature. Disruptive populism ended past American gilded ages, and it shows signs of challenging the current one. If so, Medicare for All is on a short list of available policies designed to push back on inequality.

Isn’t Medicare for All politically implausible in antigovernment America? It is easy to forget how dramatically U.S. politics changes from era to era. New issues rise onto the agenda, different national values grow more (or less) important, underlying political assumptions evolve, and an entirely new coalition grows influential. What seems impossible in one generation is taken for granted in another. The kind of turbulence we are experiencing in contemporary party politics often signals precisely this sort of sea change. One necessary condition for a breakthrough change is already in place: a righteous band of reformers, deeply committed to a cause, pushing against all odds.

Medicare for All fits awkwardly into the Washington conversation because it is more than a health policy prescription. It aims to foster changes on three different levels of analysis. It is a policy proposal designed to improve health care delivery, an ambitious claim about equality and social justice, and an effort to usher in a more progressive era in American politics. Each is a long shot, but Medicare for All and its advocates stand in a venerable reform tradition that has rewritten U.S. politics many times in the past. It would be a mistake to dismiss them now.

James A. Morone, Ph.D. is the John Hazen White Professor of Public Policy and Professor of Political Science and Urban Studies, Brown University…

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California’s Select Committee Hearing on Health Reform

Posted by on Wednesday, Oct 25, 2017

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.

Informational Hearing: Health Care Delivery Systems in California and Other Countries

California Legislature, October 23-24, 2017

Joaquin Arambula, Chair: One of the things that is quite striking and sad is that we lose our health care here in America when you lose your job. It seems like that’s the last time that you would want to be losing your health care coverage. And so I’m wondering how do other countries… Is it just that commitment that health care is a human right? Is it the belief that we are in this in solidarity? To be equitable partners as members of the same community, and how best can we help those who through no fault of their own may have lost their employment and now can’t afford the care that they will require?

Robin Osborn, Vice President and Director, International Program in Health Policy and Practice innovations, The Commonwealth Fund: So, I think that you used the word that comes up very frequently in talking to people from these other health care systems, and solidarity is it. I mean there is a strong sense of an entitlement as a basic human right to health care. So that’s not… There isn’t a debate about that in these countries. And even where there is a difference in political parties around a vision for the health care system, it is not as dramatic… and maybe polarizes you like we see here in the United States. There basically is a general acceptance of “this is our health care system.” And maybe there are reforms about how doctors will be paid or maybe reforms about how primary care practices will be organized, but there is usually sort of a broad commitment and level of support for having the health care system that they have. So I think it’s a different starting place from maybe where we are now.

Assembly Select Committee Informational Hearing: Health Care Delivery Systems in California and Other Countries

October 23, 2017: California’s Current System and Current Gaps in Coverage
October 24, 2017: Universal Coverage Systems in Other Countries

For links to agenda and archived videos:…

This Select Committee of the California State Assembly was formed to take a comprehensive look at health care reform options in response to a decision to hold in committee the single payer bill that had already passed in the State Senate, SB 562 – The Healthy California Act.

On the second day of the first hearing, testimony was presented by Robin Osborn and Sara Collins of The Commonwealth Fund demonstrating that other wealthy nations are much more effective than we are in ensuring health care access and affordability for everyone. How do they do it? As Robin Osborn explains, it’s through solidarity. Other nations do not even have to think about that. It is a given.

Can we have that here? Maybe if we cut out all the political noise and start talking to each other.

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Health insurance competition continues to shrink

Posted by on Tuesday, Oct 24, 2017

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.

AMA study says competition among health insurers is shrinking

By Shelby Livingston
Modern Healthcare, October 23, 2017

A single health insurance company dominates the commercial insurance market in more than 4 in 10 of the nation’s metropolitan areas, according to an analysis by the American Medical Association.

The study released Monday showed that competition among health insurers continues to shrink, despite several proposed mergers falling through earlier this year, including deals between Aetna and Humana, and Anthem and Cigna. Previous studies have shown that consolidation among insurers leads to lower payments for doctors and higher premiums for patients.

In 2016, a single insurer captured at least half of the commercial insurance market share in 43% of the 389 metro areas analyzed, according to the AMA. That’s up from 40% of metro areas in 2014. The AMA also said 89% of metro areas had at least one insurer with a commercial market share of 30% or more.

The findings are part of the AMA’s annual review of insurance market competition. It found that nearly 7 out of 10 commercial markets have a significant lack of competition, with 9 in 10 of the health insurance exchange markets lacking competition.…

AMA release:…

Although we have by far the world’s highest health care costs we continue to rely on competition between private health insurers to bring costs down. But the AMA shows us once again that private health insurance markets are not competitive while per capita costs remain twice the average of other wealthy nations. So do we continue on the same path simply wishing that someday it would work?

We pay the private insurers a huge amount for their administrative services while tolerating the costly administrative burden that they place on the health care professionals and institutions. Since this hasn’t brought us lower costs through competition, then what are we actually purchasing with these extra payments? Plans with high deductibles and other cost sharing that erect financial barriers to care? Plans with narrow networks that take away choices of physicians and hospitals? Plans that manipulate markets to avoid more costly patients with greater needs? These are negatives, and we are paying extra for them?

The insurers need us, but we certainly don’t need them. It’s time to extricate ourselves from the capture by this industry. Let’s replace them with our own system – an improved Medicare for all – designed to help us get the health care we need, at costs that are reasonable.

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A net of 3.5 million Americans have lost their insurance this year

Posted by on Monday, Oct 23, 2017

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.

U.S. Uninsured Rate Rises to 12.3% in Third Quarter

By Zac Auter
Gallup News, October 20, 2017

The percentage of U.S. adults lacking health insurance rose in the third quarter of 2017 to 12.3%, up 0.6 percentage points from the previous quarter and 1.4 points since the end of 2016.

The uninsured rate, measured by Gallup and Sharecare since 2008, had fallen to a record low of 10.9% in the third and fourth quarters of 2016. However, the 1.4-point increase in the percentage of adults without health insurance since the end of last year represents nearly 3.5 million Americans who have entered the ranks of the uninsured.

Several marketplace factors could be contributing to the growth of the uninsured rate since 2016. Some insurance companies have stopped offering insurance through the exchanges, and the lack of competition could be driving up the cost of plans for consumers. As a result, the rising insurance premiums could be compelling some Americans to forgo insurance, especially those who fail to qualify for federal subsidies.

Uncertainty about the healthcare law also may be driving the increase. Congressional Republicans’ attempts to replace the healthcare law may be causing consumers to question whether the government will enforce the penalty for not having insurance.

The uninsured rate has increased at least one point among all key demographic subgroups since late 2016, except for those aged 65 and older. The growth has been concentrated mostly among middle-aged Americans, racial minorities and lower-income Americans.…

The uninsured rate of U.S. adults, at the end of last year, was 10.9%. Since then it has increased to 12.3%, representing a net of nearly 3.5 million Americans who have entered the ranks of the uninsured. This increase in the numbers of uninsured, in spite of the Affordable Care Act, provides us with two important lessons.

The politicians that we elect play a very important role. Americans have chosen leaders who believe that reducing government spending is more important than ensuring health care for all. Thus we have seen a targeted effort both in Congress and especially in the Trump administration to reduce government subsidies of health care. If you don’t mind seeing more Americans, especially racial minorities and those with low incomes, going without affordable access to health care, then keep electing the same politicians. Those who do care (the majority) need to become more involved in political activism.

The other even more important lesson is that the infrastructure of the financing system is absolutely crucial. Right now we have a highly fragmented system which allows manipulation to favor both the vested interests and the political ideologues. This study showed that the only group that did not have at least a one point increase in the uninsured was those aged 65 and older – Medicare!

Medicare is a highly stable social insurance program that belongs to everyone as an entitlement. It is ours; we earned it. The politicians currently in control are telling us once again that Medicare is going broke, and we have to do something about that, but fortunately over the last half century the program has remained resistant to their attacks. Their agenda this year includes premium support (vouchers) which would be very damaging to the program since they chisel away government support. But as long as Americans keep defending Medicare, it should always be there for us.

The obvious conclusion is that we should improve Medicare so it works better, and then expand it to include everyone. Contrast that to the expansion program we are supporting today – ACA – as we watch 3.5 million Americans lose their coverage!

When the politicians in public forums answer questions about single payer by telling us that single payer may be in the future but for now now we have to keep supporting ACA, remind them that their response to the decline in coverage is to add copper plans that pay only half of average medical costs (bipartisan Alexander-Murray legislation), just so they can say more people are insured – though that is a sure path to a skyrocketing rate of medical bankruptcies. Copper plans should fit well with our outrageous deductibles, with our empty health savings accounts, with our loss of choice through narrow provider networks, and with our unaffordable premiums that support such egregiously excessive administrative costs. They want more of that?!

It seems that boos and catcalls have lost their impact. Maybe it’s time to revitalize the Bronx cheer. Yes, that’s rude, but what could be more rude than them telling us that we should be thankful that they are going to try to get us copper plans.

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Is lowering Medicare eligibility to age 55 a wise incremental step?

Posted by on Friday, Oct 20, 2017

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

A New Plan To Rescue The ACA: Medicare-At-55

By Thomas Bodenheimer
Health Affairs Blog, October 16, 2017

On October 12, 2017, the Trump Administration announced that it would end subsidies that reduce out-of-pocket payments for low-income individuals. This action might drive insurers out of the exchanges and might encourage younger people to drop their individual insurance plans — thereby destabilizing the individual insurance market.

Extending Medicare to the 55-64 age group—who have relatively high health care costs—is a potential fix that could insure the near-elderly and provide stability to the marketplaces. It would remove expensive individuals and families from coverage by private insurance companies, who could in turn reduce premiums for individuals and families below the age of 55.

Under this proposal, Medicare-at-55 would be universal for people in the 55-64 age group and they would leave their current private insurance. It would require an increase in the Medicare payroll tax contribution which has not increased proportionately to increases in Medicare spending; other countries sustain their health insurance programs by gradually increasing their payroll tax contributions. To make this plan fiscally sustainable, the United States would need to do the same.

The Problem With Making Medicare-At-55 Optional

Medicare-at-55 is quite different from proposals suggested by Democrats in 2009 and 2017, which allowed people aged 55-64 to voluntarily buy into Medicare as an alternative to private insurance. The problem with the idea of Medicare buy-in is that relatively few of the near-elderly would choose it. Medicare premiums for this age group—about $8,200 per year for an individual—would be significantly higher than what they currently pay with employer-sponsored insurance and with individual insurance subsidized under the Affordable Care Act (ACA).

In addition, under an optional buy-in there would be confusion among potential enrollees on whether to use the buy-in and person-by-person enrollment would be administratively complex. Moreover, the buy-in would raise vexing legislative questions around premium levels, Medigap and Medicare Advantage policies, and whether people could buy-in to Parts A, B, and D separately.

Automatic Enrollment, Just Ten Years Earlier

The better approach would be to implement a Medicare-at-55 concept in which everyone would be automatically enrolled in Medicare — just like the current system does for those 65 and above. Upon reaching the age of 55, eligible individuals (almost everyone in the 55-64 age group) would simply receive their red-white-and-blue Medicare card. Private insurers and employers would no longer be responsible for this age group, which would allow private insurers to reduce premiums on younger families because they would have a younger, and typically healthier, pool of people to cover. In 2015, per capita health care costs for people between 55 and 64 years of age were $9,707 compared with $6,637 for the 45-54 age group, $4,442 for the 26-44 cohort, and $2,915 for those between 19 and 25.

Once on Medicare at the age of 55, people could choose to get a Medicare supplement through their previous insurer or join a Medicare Advantage plan. While the 55-64 age group has higher health care costs than younger people, they have lower costs than current Medicare beneficiaries, which in 2015 incurred per capita spending of $11,904.

Keep in mind that this is not small group to be adding to Medicare’s risk pool. In 2015, there were 41.1 million people in the 55-64 age group. 24 million have access to employer-sponsored insurance, 3 million have subsidized individual insurance under the ACA, 2 million purchase unsubsidized individual insurance, and 3.4 million are uninsured. This leaves an estimated 8 to 9 million already on Medicare and/or Medicaid.

How Would We Pay For Medicare-At-55?

First, it is noteworthy that from 2010 to 2016, per capita Medicare spending growth was 1.3% compared with 3.5% for private insurance. Second, it would be impossible for most people in the 55-64 age group to pay for their Medicare plan and—given the high per capita costs of this age group—it would be very expensive for the federal government to subsidize their plan. The costs of Medicare-at-55 would have to be borne by the younger population, who would benefit greatly as they reached 55.

The best revenue source for Medicare-at-55 is the current Medicare financing model: payroll tax for Medicare Part A, individual premiums and general federal revenues for Medicare Part B, and Part D through general federal revenues and out-of-pocket costs. The same model could be extended to the 55-64 age group, with an increase in the payroll tax, for example, from 2.9% (half from employers and half from employees) to 3.9% and an increase in the higher-income payroll tax from 2.35% to 3.35%. The precise increases would have to be calculated by federal actuaries and these increases could also be used to extend Medicare’s life from the current date of 2029.

To add to these Medicare revenues, which are distributed throughout the entire population, the new 55-64 beneficiaries would still pay their Part B premiums ($134 per month for incomes of $85,000 or less, more for higher incomes) and Part D (prescription drugs) premiums. Their out-of-pocket costs would depend on whether they have a Medicare supplement or Medicare Advantage plan. The 55-64 population would be subject to the same Medicare rules as the over 65 Medicare population.

To pay for the 55-64 age group to be folded into Medicare, not only the payroll tax, but the portion of Medicare financing provided by general federal revenues, needs to increase. Employers that insure their employees would be required to contribute through Medicare-earmarked payments. Otherwise these employers would receive a windfall since they would no longer be responsible for the health care costs of their 55-64 year-old employees.

Medicare-at-55 is a reasonable proposal to stabilize the ACA while providing reliable health insurance for the 55-64 age group. As the most expensive group insured through the ACA marketplaces moves to Medicare, insurers could reduce premiums for the remaining younger and healthier age groups. The transfer of the 55-64 cohort from employer-sponsored insurance to Medicare would allow insurers to also moderate their premiums in the employer market.

Many questions have yet to be answered in developing the concept of Medicare-at-55, but the idea deserves to be added to the mix of proposals designed to extend our nation’s insurance coverage and repair the ACA marketplaces.

Copyright ©2017 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.…

Most individuals who are serious about health care reform recognize that the improvements brought to us through the Affordable Care Act have been insufficient in that costs have not been adequately contained while far too many people remain uninsured or underinsured with detrimental consequences to their health and financial well being. Further reform is mandatory.

Yet sincere reform advocates remain divided with some supporting incremental measures that would gradually repair some of the flaws in our system while others support transformation, in one step, to a universal, comprehensive program that addresses essentially all of the major defects in health care financing today. That step would be the enactment of a single payer system – an improved Medicare for all.

The divide between these two groups is not always that clear. Of those who support incremental steps some would merely tinker with the current system while supporting relatively ineffectual concepts such as value-based financing or consumer empowerment. Other incremental supporters recognize that changes should represent significant steps forward that would eventually result in a truly universal system.

Thomas Bodenheimer describes a true step forward – that of lowering Medicare eligibility to age 55. He contrasts that with the recommendation of others to allow individuals to purchase Medicare coverage. He explains some of the flaws of the Medicare buy-in, and there are others such as disruption of risk pools. Other than the fact that we do not arrive at single payer as fast, are there any other problems with this first step in moving more people into Medicare by reducing the eligibility age? Well, yes.

The traditional Medicare program is inadequate in its coverage. The cost sharing, especially coinsurance, places too great of a financial burden on retirees with modest resources, especially since there is no cap on the out-of-pocket costs. Most Medicare beneficiaries have additional coverage through Medigap, Medicare Advantage, employment retiree programs or Medicaid. Before Medicare is expanded to include those over 55, the program should be improved so that it prevents financial hardship for all beneficiaries. Also the benefits need to be expanded so that the coverage is more comprehensive. Expanding the population covered without improving the program would make it even more difficult later on to address the problems of excessive cost sharing and inadequate benefits. These defects would tend to be locked in.

Also leaving Medigap, Medicare Advantage and retiree plans as supplemental options would perpetuate the fragmentation and administrative excesses of our system, not to mention the perpetuation of inequities, especially for those who cannot afford or are not eligible for such coverage.The supplemental benefits of these plans need to be rolled into the traditional Medicare program.

Of course, that would make the expansion more expensive. The additional taxes required would likely meet with greater resistance, which is a problem anyway. But it seems more logical to face this tax issue with a single expansion to include everyone rather than fighting it over and over again with each incremental expansion.

Medicare at 55 does address the problem of covering this age group, but there is a downside to doing this as an incremental step. With other programs covering the elderly, children, pregnancy, the disabled, the poor, and the invincibles, there would be less pressure for comprehensive reform since many of the incrementalists would decide that we’ve done about all we can. They would, of course, continue to ignore the other important features of a well designed single payer system that would bring us greater administrative efficiency, equity, access, improved resource allocation, and, yes, true universality. Just try to superimpose those features on a system that the incrementalists say that we’ve already fixed.

So is lowering Medicare eligibility to age 55 a wise incremental step? As incremental steps go, it might be wise, but trying to get to an improved Medicare for all though incremental steps is clearly not wise, for the reasons mentioned. We likely would never make it to the altruistic program we envision. As Quentin Young said, we don’t want to cross that chasm in two steps.

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Copper plans are an unacceptable trade-off

Posted by on Thursday, Oct 19, 2017

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.

Here’s the Alexander-Murray bill

By Caitlin Owens
Axios, October 17, 2017

S.___  A bill to stabilize individual market premiums for the 2018 and 2019 plan years and provide meaningful State flexibility. (The Murray-Alexander Bill)

Sec. 4 Allowing all individuals purchasing health insurance in the individual market the option to purchase a lower premium copper plan.…


ACA Catastrophic Plans

Catastrophic health insurance plans have low monthly premiums and very high deductibles. They may be an affordable way to protect yourself from worst-case scenarios, like getting seriously sick or injured. But you pay most routine medical expenses yourself.

Deductibles — the amount you have to pay yourself for most services before the plan starts to pay anything — are very high. For 2017, the deductible for all Catastrophic plans is $7,150.…

Government means-tested cost sharing reductions (CSR) were designed to reduce out-of-pocket expenses for low-income individuals in order to make health care access more affordable. President Trump terminated the CSR payments. This can result in disruptions in the ACA exchange plans.

Sen. Lamar Alexander and Sen. Patty Murray have proposed legislation in which Sen. Alexander will agree to a two year extension of the CSR payments in exchange for concessions from Sen. Murray.

One of those concessions is to allow anyone to purchase on the exchange the catastrophic plans that are currently available only to individuals under 30 or those who qualify for certain hardship exemptions. These plans are sometimes referred to as copper plans, indicating that they have an actuarial value below the other metal tier plans (bronze, silver, gold, and platinum).

The appeal of these plans is that their premiums are very low, but that is because their actuarial value is only 50 percent – they cover an average of about half of health care costs. For 2017, the deductible for these plans is $7,150.

Yesterday’s message on the deteriorating financial protection offered by today’s health plans, especially those with larger deductibles, demonstrates that this trend has produced severe adverse consequences for both the physical health and financial well being of the insured. Because of the spartan nature of the copper catastrophic plans, the adverse consequences can be anticipated to be even more severe.

The concept that we can take beneficial policies and detrimental policies and combine them to come up with a reasonable compromise is a fallacy. Bad policies are bad policies, and they cannot be neutralized by political accommodations.

Under a well designed single payer national health program catastrophic plans would not exist. The sooner we get there, the better it will be for all of us – better for our health and better for our personal finances.

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Growth of underinsurance now rampant in employer-sponsored plans

Posted by on Wednesday, Oct 18, 2017

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

How Well Does Insurance Coverage Protect Consumers from Health Care Costs?

By Sara R. Collins, Munira Z. Gunja, Michelle M. Doty
The Commonwealth Fund, October 18, 2017


Congress intended for the ACA to do more than expand access to insurance; it aimed for the new coverage to allow people to get needed health care at an affordable cost.

For people covered by employer-based insurance — which includes more than half of Americans under age 65, or more than 150 million people — plans were historically far more comprehensive and cost-protective than individual market coverage. However, over the past decade, premium cost pressures have led companies to share increasing amounts of health costs with workers, particularly in the form of higher deductibles. At the same time, income growth has been sluggish, leaving families increasingly pinched by health care costs.

Survey Findings

Estimated 41 Million Adults Are Underinsured

As of July 2016 through November 2016, 28 percent of U.S. adults ages 19 to 64 who were insured all year, or an estimated 41 million people, were underinsured. This is more than double the rate in 2003 when the measure was first introduced in the survey, and is up significantly from 23 percent, or 31 million people, in 2014.

The underinsured population is predominantly composed of people in employer plans: 56 percent of underinsured adults had coverage through employers at the time of the survey. This reflects the fact that the majority of insured adults have employer coverage. However, people with coverage through the individual market, including the ACA marketplaces, and Medicare beneficiaries who are disabled adults under age 65, are disproportionately represented among the underinsured.

The share of adults who were underinsured has climbed over time in each coverage group. Among adults with employer-based coverage at the time of the survey, 24 percent were underinsured, which is more than double the rate in 2003, and is up significantly from 2014. People working in small firms historically have had somewhat higher underinsured rates than employees of larger firms. But in 2016, the share of adults in firms with 100 or more workers who were underinsured climbed significantly to 22 percent — the same rate as among workers in small companies.

People with individual market coverage, including those in marketplace plans, are significantly more likely to be underinsured than people in employer plans. In 2016, 44 percent of adults with individual market policies, including marketplaces plans, were underinsured.

One-quarter (26%) of adults with Medicaid coverage — the poorest adults in the survey — were underinsured in 2016. Medicaid requires little cost-sharing, but because people eligible for the program have very low incomes, minor out-of-pocket costs can comprise a large share of income.

Adults under age 65 with Medicare who were continuously insured are by far the sickest group of covered adults in the survey — 77 percent have a chronic condition or are in fair or poor health — and the second-poorest after Medicaid enrollees. Many have very high health expenditures and low incomes. Almost half (47%) of adults in this group were underinsured in 2016.

Underinsured Rates in the Four Largest States

The survey drew an additional sample of people in the nation’s four most populous states. Adults in Florida and Texas were underinsured at higher rates than those in California and New York. Among adults who were insured all year, 32 percent of Floridians and 33 percent of Texans were underinsured compared with 21 percent of Californians and New Yorkers.

Higher Deductibles Are Increasingly a Factor in the Underinsured Rate

Between 2003 and 2016, deductibles were increasingly a factor in underinsurance: more people than ever before have plans with deductibles and more have deductibles that are high relative to income.

The share of privately insured adults who had health plans without deductibles has fallen by nearly half over the past 13 years, from 40 percent in 2003 to 22 percent in 2016. At the same time, deductibles have grown in size. By 2016, more than one of 10 (13%) adults enrolled in a private plan had a deductible of $3,000 or more, up from just 1 percent in 2003.

Deductibles are outpacing growth in many families’ incomes, and thus representing a greater share of income. In 2016, 12 percent of adults with insurance coverage all year, or 18 million people, had a deductible that comprised 5 percent or more of their income, up from 3 percent, or 4 million people, in 2003.

Deductibles that are high relative to income are more common in the individual market, but have grown increasingly prevalent in employer plans. Among those insured all year, about one-quarter of adults with individual market policies and marketplace plans had deductibles that equaled 5 percent or more of their income, up from 7 percent in 2003. Among people who had employer coverage, the share with a high deductible grew from 2 percent in 2003 to 13 percent in 2016.

Large deductibles have been most common among small employers, but in 2016 the share of workers in large firms with high deductibles climbed significantly. Among adults with health benefits through their own employer who were working part-time or full-time in companies with 100 or more workers, the share with a high deductible relative to income climbed to 13 percent, the same rate as in small-employer plans.

When we examined the data more closely in the individual market, we found differences by income that likely reflect the effects of the Affordable Care Act’s cost-sharing reductions. These reductions lower deductibles and other cost-sharing elements for lower-income enrollees in marketplace plans. In 2016, a smaller share of adults with incomes under 200 percent of poverty ($23,760 for an individual and $48,600 for a family of four) in the individual market had high deductibles relative to their income than did higher-income enrollees. In contrast, in employer plans, lower-income enrollees have higher deductible burdens than do higher-income employees because the deductible amount does not vary with income. We have found a similar pattern in analyses of other survey data since the ACA’s major coverage expansions in 2014.

Adults with Low Incomes or Health Problems Are at Greatest Risk of Underinsurance

People with low incomes in the United States are by far the most at risk of being underinsured. Among adults who had health insurance for the full year, 44 percent of those with incomes under 200 percent of the federal poverty level ($23,760 for an individual and $48,600 for a family of four) were underinsured in 2016, more than twice the rate of adults with incomes over 200 percent of poverty (20%). Low-income adults comprised 61 percent of the 41 million underinsured adults in 2016.

People with health problems are also at greater risk of being underinsured because of their relatively higher health care costs. Among adults who were insured all year, more than one-third (34%) of those in fair or poor health or those with a chronic health problem were underinsured in 2016, compared to 23 percent of those in better health.

Underinsured Adults Have High Rates of Medical Bill Problems

Greater cost exposure is leaving Americans burdened with medical debt. Half (52%) of underinsured adults reported problems paying their medical bills or said they were paying off medical debt. This is about the same rate as adults who were uninsured for some time during the year and more than twice the rate reported by insured adults who were not underinsured (25%).

Among adults with private coverage who had been insured all year, those with high deductibles were more likely to report problems with medical bills than those with low or no deductibles. Two of five (40%) adults with a deductible of $3,000 or more said they had difficulty paying their medical bills or had accumulated medical debt compared with 21 percent of those who did not have a deductible.

Among adults who were paying off medical bills over time, those who had high deductibles were carrying the largest debt loads. Nearly two of five (39%) privately insured adults with deductibles of $1,000 or higher were paying off accumulated medical bills of $4,000 or more.

Medical Bill and Debt Problems Have Long-Term Financial Consequences

Many adults who have struggled to pay their medical bills report lingering financial problems. People who are either underinsured or uninsured have the highest rates of such problems: both groups had higher debt loads and lower incomes than adequately insured adults. Half (47%) of underinsured adults who had problems paying medical bills or had medical debt said they had used up all their savings to pay their bills; 40 percent said they had received a lower credit rating because of their bills. Over one-third (38%) of underinsured adults with medical bill problems said they had taken on credit card debt to pay bills. About 6 percent of underinsured adults reported they had to declare bankruptcy.

Underinsured Adults Report Not Getting Needed Care Because of Cost

Underinsured adults are more likely to skip needed health care because of cost than are adults with more cost-protective insurance. More than two of five (45%) underinsured adults reported not getting needed care because of cost in the past year, including not going to the doctor when sick, not filling a prescription, skipping a test or treatment recommended by a doctor, or not seeing a specialist. This is twice the rate of continuously insured adults who were not underinsured (22%). It is also close to the rate reported by adults who were uninsured (52%).

Privately insured adults who had health plans with high deductibles were more likely than those with no deductibles to report cost-related problems getting health care. More than two of five (47%) privately insured adults who were insured all year with a deductible of $3,000 or more reported not getting needed care because of cost compared with 22 percent of adults who did not have a deductible.

Many underinsured adults with health problems reported difficulty getting appropriate care. Among underinsured adults with at least one chronic health condition, nearly a quarter (24%) said they had not filled a prescription for their condition or had skipped a dose of their medication because of cost, compared with 10 percent of those with adequate coverage.

Addressing the Key Driver of Insurance Costs: Health Care Cost Growth

Health care costs are the single largest factor in the growth of private insurance premiums in the United States. Insurers and employers have tried to manage premium growth by making consumers increasingly responsible through higher deductibles and other cost-sharing vehicles. Advocates of this approach argue that with more skin in the game, consumers will help to slow cost growth by choosing more-efficient providers and being more selective in the services they use. But years of experience with high-deductible health plans in the U.S. has yielded scant evidence that such a strategy is effective. Instead, as the survey findings indicate, many consumers have responded to higher deductibles by avoiding needed health care and skipping their medications.

Evidence suggests that consumers cannot do the heavy lifting required to reduce the rate of growth in medical costs in the United States.…

When the Affordable Care Act was crafted, a majority of Americans were enrolled in large employer-sponsored group plans which seemed to be working fairly well. It was decided that these plans should be left alone, other than slightly modifying them to ensure continued protection. Most enrollees seemed to be satisfied with these plans, and so President Obama said that you could keep them if you wanted to. Even today they tell us that that we would face a voter revolt if we tried to take these plans away from people and replace them with a more comprehensive single payer system.

This report reveals that protection provided by employer-sponsored plans is rapidly deteriorating, including in the highly touted large group plans. A relatively high percentage of individuals with these plans are finding that they are underinsured. They are experiencing financial barriers to health care and are suffering financial hardship when they must access that care. The percentages of individuals exposed are scattered through the excerpts above, and they are very significant.

Those who are fortunate enough to remain healthy and do not need much health care may be satisfied with their current plans, not realizing that they are only one serious illness or major injury away from being exposed to financial hardship. They assume that their insurance will take care of any problems, but the experience of those who need care has demonstrated the degree of deterioration in protection that has gradually taken place in recent years.

Those under 65 with long-term disabilities who are enrolled in Medicare are finding that their coverage is inadequate. That is why we need to improve Medicare if we are going to use it as a universal program that covers everyone. Although Medicaid has lower cost-sharing requirements, enrollees are low-income individuals who find that these modest out-of-pocket amounts may create a hardship. Individual and small group plans have traditionally provided more meager coverage, again leaving individuals financially vulnerable. Individual plans offered in the ACA exchanges have some protection for low-income individuals through cost-sharing reductions (if they are reinstated), but individuals with incomes above 250% of the federal poverty level are exposed to significant out-of-pocket costs because of the relatively low actuarial value of the silver plans. So now employer-sponsored insurance has joined the lineup of plans and programs that expose individuals to underinsurance.

It will only get worse. We spend too much and receive too little. We have been shifting to consumer empowerment by placing more of the burden on patients, but this report confirms that we are worse off for it. The report concludes, “Evidence suggests that consumers cannot do the heavy lifting required to reduce the rate of growth in medical costs in the United States.” The heavy lifting can easily be done by a well designed single payer national health program – an improved Medicare for all. Under such a program, nobody should be underinsured.

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UnitedHealth celebrates Trump’s executive order

Posted by on Tuesday, Oct 17, 2017

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.

Top U.S. Health Insurer to Look at Trump Obamacare Alternatives

By Zachary Tracer
Bloomberg, October 16, 2017

UnitedHealth Group Inc., the U.S.’s biggest health insurer, said it’s excited about the the chance to sell health plans President Donald Trump is promoting as alternatives to Obamacare.

Last week, Trump signed an executive order promoting short-term health insurance plans, “association health plans” for business owners who could band together, and tax-advantaged savings accounts that could be used to pay for health services. The order — which Trump has acknowledged as a move to effectively dismantle Obamacare — rattled some health insurance and hospital stocks last week.

“We have a great deal of experience in the areas covered in the order — short-term policies, association plans and expanded use of HRAs,” Chief Executive Officer David Wichmann said on a call with investors. “We will be engaging with policymakers as the regulatory frameworks in these areas are developed.”

UnitedHealth said in a statement Tuesday that its medical-loss ratio, a measure of how much of every premium dollar is spent on care, was 81.4 percent.

The company’s shares rose 4.4 percent to $201.75 at 9:41 a.m. in New York, after earlier rising as much as 5.3 percent for the biggest intraday gain in a year. They’re up about 26 percent so far this year.…

As President Trump signs an executive order designed to help dismantle Obamacare, look who is celebrating – UnitedHealth Group, Inc., the nation’s largest health insurer. UnitedHealth has already mastered Trump’s tools to increase profits through short-term health insurance plans, association health plans, and health reimbursement arrangements – tools which reduce the amount the insurers have to pay for health care.

Wall Street also wants its piece of the action, as demonstrated by the boost in UnitedHealth’s share prices, now up about 26 percent this year.

UnitedHealth is touting its medical-loss ratio of 81.4 percent, which means that they divert 18.6 percent of their premium revenue to their own purposes, including high executive compensation and shareholder profits. Compare that to Medicare’s spending on health care which is about 98 percent of revenues.

And this afternoon we learn that Sen. Lamar Alexander and Sen. Patty Murray have reached an agreement that would temporarily extend cost-sharing payments in exchange for softening the rules to allow for cheaper, skimpier plans – shifting yet more health care costs away from insurers.

And when we try to offer the single payer solution, our progressive colleagues jump up and say we can’t have a litmus test. We must continue to support those (neoliberals) who have led us down this path to health care purgatory.

What is your next step? A champagne toast with UnitedHealth’s executives? That seems to be all that we are getting out of D.C. Or are we finally going to do something about this? Like demanding an improved Medicare for all. No, really. We have to make that demand and make it in an effective manner. They are not going to volunteer it.

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The pecuniary distortion of limited networks

Posted by on Monday, Oct 16, 2017

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.

NBER Working Paper 23742: Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets

By Kate Ho and Robin S. Lee
National Bureau of Economic Research, August 2017


Why do insurers choose to exclude medical providers, and when would this be socially desirable? We examine network design from the perspective of a profit-maximizing insurer and a social planner to evaluate the welfare effects of narrow networks and restrictions on their use. An insurer may engage in exclusion to steer patients to less expensive providers, cream-skim enrollees, and negotiate lower reimbursement rates. Private incentives for exclusion may diverge from social incentives: in addition to the standard quality distortion arising from market power, there is a “pecuniary” distortion introduced when insurers commit to restricted networks in order to negotiate lower rates. We introduce a new bargaining solution concept for bilateral oligopoly, Nash-in-Nash with Threat of Replacement, that captures such bargaining incentives and rationalizes observed levels of exclusion. Pairing our framework with hospital and insurance demand estimates from Ho and Lee (2017), we compare social, consumer, and insurer-optimal hospital networks for the largest non-integrated HMO carrier in California across several geographic markets. We find that both an insurer and consumers prefer narrower networks than the social planner in most markets. The insurer benefits from lower negotiated reimbursement rates (up to 30% in some markets), and consumers benefit when savings are passed along in the form of lower premiums. A social planner may prefer a broader network if it encourages the utilization of more efficient insurers or providers. We predict that, on average, network regulation prohibiting exclusion has no significant effect on social surplus but increases hospital prices and premiums and lowers consumer surplus. However, there are distributional effects, and regulation may prevent harm to consumers living close to excluded hospitals.

From the Introduction

Since the passage of the Affordable Care Act (2010) there has been growing concern among policymakers about “narrow network” health insurance plans that exclude particular medical providers. Selective contracting by insurers — in which only particular providers are accessible — is not a new phenomenon. Dating back to the 1980s, managed care insurers have used exclusion to steer patients towards more cost effective or higher quality hospitals and physicians, and to negotiate lower reimbursement rates. While networks broadened somewhat with the “managed care backlash” of the 1990s (Glied, 2000), recent high profile exclusions from state exchange plans have reinvigorated the debate over the desirability of such practices. Amid concerns that restrictive insurer networks may adversely affect consumers by preventing access to high-quality hospitals (Ho, 2006), or may be used to “cream skim” healthier patients, regulators at the state and federal levels are considering formal network adequacy standards for both commercial plans and plans offered on state insurance exchanges.

In this paper, we examine the private and social incentives for exclusion of hospitals from insurer networks, and consider the potential effects of network adequacy regulations in the U.S. commercial (employer-sponsored) health insurance market. We begin with a simple framework that isolates the fundamental economic trade-offs when deciding whether or not to exclude a hospital, and identifies the empirical objects required to measure the costs and benefits from exclusion. We then extend the model of the U.S. commercial health care market developed and estimated in Ho and Lee (2017) — which incorporates insurer-employer bargaining over premiums and consumer demand for hospitals and health insurers — to capture exclusionary incentives on the part of insurers. Extensions include incorporating a stage of strategic network formation by an insurer and allowing for endogenous outside options in bargaining. Finally, we use our model to predict equilibrium market outcomes under hospital networks that would be chosen by an agent maximizing social or consumer welfare, or by a profit-maximizing insurer. By comparing outcomes across networks either maximizing different objectives or required to cover all hospitals in a market, we uncover circumstances when private incentives diverge from social or consumer preferences, and evaluate the effects of certain forms of network regulation.


Narrow provider networks have grown more prevalent in both exchange and employer-sponsored health care markets in recent years. Their presence raises important questions. Are these plans effective at reducing spending, and if so, through what means? And is regulation warranted — are the networks that are introduced too narrow from either a social or consumer welfare perspective?

Our paper addresses these and related questions. We extend the model of the commercial U.S. health care market developed in Ho and Lee (2017) by endogenizing an insurer’s hospital network and incorporating a new bargaining concept that explicitly captures an insurer’s incentives to exclude. In the employer-sponsored setting that we examine, we find that selective contracting and informed network design can have substantial effects on overall health care spending. Narrow hospital networks are preferred by a profit-maximizing insurer primarily due to their ability to substantially reduce negotiated rates — and not necessarily due to cream-skimming healthier enrollees or steering patients towards lower-cost hospitals. A private insurer tends to engage in exclusion more than is socially optimal, but typically does so to a lesser extent than the average consumer would prefer because consumers often benefit from substantial premium reductions.

These results support the argument that allowing insurers to exclude providers can substantially reduce hospital payments and premiums without significantly affecting social surplus. This tends to benefit consumers (and hence employers) on average, implying that employers and insurers may wish to work together to control spending through exclusion. Our framework may be useful for these and other interested parties to inform network design. It also can be used to address potential distributional consequences of exclusion by identifying affected populations and quantifying the transfers needed to offset harm from reduced access.…

This paper looks at the motivation of insurers in establishing narrower hospital networks (profit-maximization, of course) and the perspective of the consumer (i.e., patient) and the social planner.

For the insurer, it’s simple. Contract with the hospital(s) that will agree to the lowest negotiated rates. Quality, cream-skimming or steering patients to lower-cost hospitals has little to do with it as long as the insurers save on negotiated rates.

These economists join others in concluding that consumers prefer narrower-network insurance plans. But it needs to be emphasized, once again, that patients are not choosing narrower-network plans simply because they prefer not to be burdened by having to make decisions regarding having a broader choice in their health care options. They choose narrower-network plans solely for one reason – lower insurance premiums. It would be incorrect to conclude that patients do not mind giving up provider choice as long as they can save some money. Rather it is that insurance premiums have become so expensive that they find paying them often creates a financial hardship. They do not want to give up their choice of health care providers, but many often feel that they have no other option since they have little or no disposable income.

From the standpoint of the social planner, health care resources should be made available based on need. Arbitrarily removing options for care based on pecuniary benefit to the insurer conflicts with optimal social planning. These and other economists tend to be somewhat, but not completely, dismissive of the social planner. They do concede that it could be beneficial to address “potential distributional consequences of exclusion by identifying affected populations and quantifying the transfers needed to offset harm from reduced access.” Or, “there are distributional effects, and regulation may prevent harm to consumers living close to excluded hospitals.”

It shouldn’t be just about money – about insurers’ profits and about patients’ spending as consumers. Social planning is crucial in providing optimal access to health care services. It doesn’t take much thought to conclude which model emphasizes social planning – the for-profit, private insurance model, or the patient service model of a well designed, single payer national health program – an improved Medicare for all. If you need a reminder, the traditional Medicare program does not use provider networks. Costs are contained in much more patient-friendly ways.

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