This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.
Obamacare premiums to rise a modest 4.2% in 2015
By Stuart Pfeifer, Chad Terhune, Soumya Karlamangla
Los Angeles Times, July 31, 2014
Defying an industry trend of double-digit rate hikes, California officials said the more than 1.2 million consumers in the state-run Obamacare insurance exchange can expect modest price increases of 4.2% on average next year.
“We have changed the trend in healthcare costs,” said Peter Lee, Covered California’s executive director. “This is good news for Californians.”
State officials and insurers credited the strong turnout during the first six-month enrollment window that ended in April for helping to keep 2015 rates in check. But others cautioned it’s still too early to gauge the health law’s impact, suggesting several factors may be temporarily holding rates down in the individual market.
“We don’t really know what the real cost of Obamacare is yet because insurance companies are heavily subsidized for the first three years” of the law’s implementation, said Robert Laszewski, a healthcare consultant in Virginia who has closely tracked the overhaul. “The insurance companies essentially can’t lose money.”
California Insurance Commissioner Dave Jones said the modest uptick in premiums was a positive sign, but he said insurers were likely motivated by a November ballot initiative, Proposition 45, that would give his office new authority to regulate health insurance rates.
“This is merely a pause in the double-digit rate increases we’ve seen historically,” Jones said.
Consumer Watchdog, the Santa Monica advocacy group pushing Proposition 45, said insurers held back this year to avoid that kind of voter backlash.
WellPoint Inc., Anthem Blue Cross’ parent company, Kaiser and other insurers have contributed more than $25 million to defeat the ballot measure.
Before we discuss some of the possible reasons that the 2015 increase in premiums for California’s ACA exchange were held down to 4.2 percent, we should mention the bad news that is not being covered by the media. We are celebrating an artificially low increase that is still twice the rate of inflation – 2.1 percent (Consumer Price Index, June 2014 – Bureau of Labor Statistics), as workers continue to fall behind over the last three decades of increasing income inequality.
Although ACA enthusiasts are touting success in controlling health insurance premiums, there are many reasons why their celebration is premature, but two stand out.
Proposition 45, which will be on the November ballot, would provide authority to California’s insurance commissioner to regulate health insurance premiums. The last thing the insurers want to do is to anger voters with high rate increases just before this election. The insurers have already contributed over $25 million to defeat this measure.
The other important reason is that the insurers are still protected by reinsurance and insurance rate corridors. In fact, the Obama administration adjusted this coverage to be sure that the insurers were fully protected again next year should they not receive enough premium revenue to meet their expenses. They can’t lose! Of course they are going to come in with low bids when they are under the threat of voter revolt.
And what about the next year when they no longer have protection against losses? We already know the routine. “The patients enrolled in our plans were older and sicker while the younger, healthier individuals were covered by plans at work, or bought the cheap catastrophic plans, and the new drugs that cost tens of thousands of dollars or more placed a strain on our budgets, and our contingency reserves were depleted with the market crash of 2015, and we’ve lost our rate flexibility with the termination of government reinsurance, and…” Well, you know.
Although there are many other uncertainties as the implementation of ACA plays out, one certainty that we can rely on is that insurers will be requesting much larger premium increases for 2017, possibly double digits. That would not be happening under a single payer national health program.
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 Do Other Rich Nations Spend So Much Less on Healthcare?
By Victor R. Fuchs
The Atlantic, July 23, 2014
Despite the news last week that America’s healthcare spending will not be rising at the sky-high rate that was once predicted, the fact remains that the U.S. far outspends its peer nations when it comes to healthcare costs per capita. This year the United States will spend almost 18 percent of the gross domestic product (GDP) on healthcare.
Why does the United States spend so much more?
The biggest reason is that U.S. healthcare delivers a more expensive mix of services. For example, a much larger proportion of physician visits in the U.S. are to specialists who get higher fees and usually order more high-tech diagnostic and therapeutic procedures than primary care physicians.
A second important reason for higher healthcare spending in the U.S. is higher prices for inputs such as drugs and the services of specialist physicians. The prices of branded prescription drugs in the U.S. are, on average, about double those in other countries. The fees of specialist physicians are typically two to three times as high as in other countries. The lower prices and fees abroad are achieved by negotiation and controls by governments who typically pay for about 75 percent of all medical care. Government in the U.S. pays about 50 percent, which would still confer considerable bargaining power, but the government is kept from exerting it by legislation and a Congress sensitive to interest-group lobbying.
The third and last important reason for higher spending in the U.S. is high administrative costs of insurance. Many of our peer countries have lower administrative costs through more coordination, standardization, and in some countries a single national system or several regional healthcare-insurance systems, even when the provision of care is primarily a private-sector responsibility.
The complexity of private-sector insurance is not in the public interest. Each company offers many plans that differ in coverage, deductibles, co-pays, premiums, and other features that make it difficult for buyers to compare the prices of different policies.
If we turn the question around and ask why healthcare costs so much less in other high-income countries, the answer nearly always points to a larger, stronger role for government. Governments usually eliminate much of the high administrative costs of insurance, obtain lower prices for inputs, and influence the mix of healthcare outputs by arranging for large supplies of primary-care physicians and hospital beds while keeping tight control on the number of specialist physicians and expensive technology. In the United States, the political system creates many “choke points” for diverse interest groups to block or modify government’s role in these areas.
For those who would like to limit government control, there is an alternative route to more efficient healthcare through “managed competition,” proposed by Alain Enthoven, a Stanford University Business School Professor, more than 25 years ago. It is based on integrated group practice, which brings the insurance function, physicians, hospital, drugs, and other elements of care into a single organization that takes responsibility for the health of a defined population for an annual risk-adjusted per capita payment. Examples include the Group Health Cooperative of Puget Sound in Seattle and the Kaiser Permanente organizations in California.
With regard to healthcare, the United States is at a crossroads. Whether the Affordable Care Act will significantly control costs is uncertain; its main thrust is to reduce the number of uninsured. The alternatives seem to be a larger role for government or a larger role for managed competition in the private sector. Even if the latter route is pursued, government is the only logical choice if the country wants to have universal coverage. There are two necessary and sufficient conditions to cover everyone for health insurance: Subsidies for the poor and the sick and compulsory participation by everyone. Only government can create those conditions.
Highly respected Stanford economist Victor Fuchs has long supported private solutions to universal coverage, such as Alain Enthoven’s managed competition. Although there is much to be said for establishing integrated health care delivery systems within the community, the logistics of providing all care through competing integrated delivery systems have proven to be insurmountable, as witness the managed care revolution that reduced this concept to competition between inefficient, expensive and intrusive third party insurer money managers.
Fuchs now notes that “the complexity of private-sector insurance is not in the public interest.” He acknowledges the crucial role of government in other nations. He states that we are now at a crossroads between “a larger role for government or a larger role for managed competition in the private sector.” Even if private managed competition is selected, “government is the only logical choice if the country wants to have universal coverage.”
But look at the government requirement he would impose if the private managed competition option were selected: “Subsidies for the poor and the sick and compulsory participation by everyone.” We already have that in the Affordable Care Act, and yet we will be left with 31 million uninsured.
At least Fuchs is right when he says, “Only government can create those conditions.” But the vehicle has to be functional. That’s why we need to do it through a single payer national health program. We can still have our integrated health care delivery systems that Arnold Relman also supported, but in addition we will need the other components that make the system work efficiently for all of us.
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.
Where are California’s Uninsured Now? Wave 2 of the Kaiser Family Foundation California Longitudinal Panel Survey
By Bianca DiLulio, Jamie Firth, Larry Levitt, Gary Claxton, Rachel Garfield and Mollyann Brodie
Kaiser Family Foundation, July 30, 2014
Of those Californians who were uninsured prior to open enrollment, 58 percent now report having health insurance, which translates to about 3.4 million previously uninsured adult Californians who have gained coverage, and 42 percent say they remain uninsured. The most common source of coverage was Medi-Cal with 25 percent of previously uninsured Californians reporting they are now covered by Medi-Cal. An additional 9 percent of California’s previously uninsured say they enrolled in a plan through Covered California, resulting in about a third reporting new coverage from the two sources most directly tied to the ACA. Twelve percent say they obtained coverage through an employer and 5 percent report enrolling in non-group plans outside of the Covered California Marketplace; some enrollment in these types of coverage may have been motivated by the ACA’s requirement to purchase insurance and some may be the result of normal movement within the marketplace.
Section 3: The Remaining Uninsured
Who Remained Uninsured?
As many previously uninsured Californians gained coverage, 42 percent remained uninsured. Many of the remaining uninsured have tenuous links to health insurance posing challenges for future enrollment efforts. Forty-five percent of the remaining uninsured reported in the baseline survey that they had been without health insurance for two or more years and an additional 37 percent said they have never had insurance. Hispanics make up 62 percent of the remaining uninsured and nearly half of them (29 percent) are undocumented Hispanics who are not eligible for Medi-Cal or assistance through Covered California. About 4 in 10 (39 percent) report family income that put them in the group likely eligible for Medi-Cal and another quarter (24 percent) are likely eligible for financial assistance through Covered California. These shares reflect the demographics of people who were uninsured prior to the first ACA open enrollment period and did not get coverage during the open enrollment period. Others may have been covered prior to open enrollment but now uninsured – a group not captured by this survey.
Why Did They Remain Uninsured?
Why did 42 percent of California’s uninsured prior to open enrollment remain without coverage? Most of the remaining uninsured seem to value insurance, with majorities saying it is something they need (71 percent) and that it is worth the costs (59 percent). Still roughly 3 in 10 of the remaining uninsured say they can get by without insurance (28 percent) or don’t feel coverage is worth the price (33 percent), including 4 in 10 (40 percent) of those who are likely eligible for coverage through Covered California or Medi-Cal due to their self-reported income level and immigration status.
The cost of insurance (whether perceived or actual) remains a barrier. When asked in their own words why they didn’t get coverage, one-third (34 percent) point to costs as the reason. Fifteen percent say they don’t qualify or don’t think they do, including 9 percent who say they can’t enroll or are worried about signing up because of their immigration status. Other reasons the remaining uninsured give for not signing up for coverage include not having yet tried or being too busy (9 percent), not having enough information about enrolling (9 percent), having tried but not being successful (8 percent), and not wanting or needing coverage (7 percent). A few (6 percent) say they didn’t get insurance because of issues associated with the application process, including three percent who say they are still awaiting contact or approval – a finding that is perhaps related to the large backlog of about 900,000 Medi-Cal applicants waiting for counties across the state to process their applications.
California’s Undocumented Uninsured
In California, undocumented immigrants make up about a fifth of those who were uninsured before the ACA expansions kicked in, and under the law, they are not eligible for Medi-Cal or subsidies through the exchange. As a group they are largely aware of these restrictions – 63 percent say they are not eligible for Medi-Cal and 70 percent say they don’t qualify for financial assistance through Covered California. Half say the mandate doesn’t apply to them and most (60 percent) correctly respond that they won’t have to pay a fine for not having coverage.
While the ACA restricts access to health benefits for undocumented immigrants under the law, there is still keen interest in coverage among this group. Since last summer about a third (35 percent) of California’s undocumented uninsured say they obtained coverage and of those who remain uninsured, half say they intend to get coverage later this year. In fact, the remaining undocumented uninsured are more apt to say they place a high value on insurance than other remaining uninsured Californians; nearly three quarters (73 percent) of the undocumented uninsured say health insurance is worth the cost and 85 percent say it is something they need, each 20 percentage points higher than the share for other remaining uninsured Californians.
California’s aggressive efforts to implement the provisions of the Affordable Care Act resulted in 58 percent of the previously uninsured now having coverage – about 3.4 million individuals. While this certainly gives cause for celebration, it must be tempered by the knowledge that 42 percent of the previously uninsured are still uninsured. Who are these people and why are they not insured?
The excerpts above provide a brief answer, though much more is available in the comprehensive report at the link above. In very general terms, as these authors note, many of the remaining uninsured “have tenuous links to health insurance posing challenges for future enrollment efforts.” The roughly 2.5 million previously uninsured who still remain uninsured will provide much greater challenges in trying to get them enrolled in some form of coverage, and a great many of them will still remain uninsured.
A comment should be made about California’s undocumented residents. They tend to be blamed by some for California’s high numbers of uninsured. Actually they constituted only about one-fifth of the uninsured before implementation of ACA. Although they are not eligible for Medi-Cal (Medicaid) nor for subsidies under Covered California (ACA insurance exchange), 35 percent obtained coverage on their own and another 50 percent intend to later this year. They have, in fact, been more responsible in this regard than have other uninsured Californians who were not enrolled in Medi-Cal or Covered California.
California’s efforts have been exemplary, and those involved in the ACA implementation are to be commended. Yet it is likely that one or two million people will remain uninsured. That’s not acceptable, and it is not California’s fault. California, and the entire nation for that matter, has an irreparably flawed health care financing infrastructure with which to work. It is obvious what we need to do. We need to replace this flawed system with a single payer national health program covering everyone, including the undocumented. The sooner the better.
Code Red: Two Economists Examine the U.S. Healthcare System
By David Dranove and Craig Garthwaite
Narrow Networks Redux, July 29, 2014
The Affordable Care Act is premised, at least in part, on the notion that competition can be harnessed to reduce healthcare costs and improve quality.
When most people think about the benefits of competition, they tend to think about prices. Monopolies charge high prices; competitors charge low prices. There is nothing wrong with this perspective, but it misses a more fundamental point. In the long run, the greatest benefit of competition is that it has the potential to fuel innovation.
This is as true, in theory, for health insurers as it is for telecommunications and consumer electronics. It hasn’t always been true in practice; for several decades after the IRS made employer-sponsored health insurance tax deductible, insurers tended to offer the same costly indemnity products. But consumers eventually demanded lower premiums, and insurers responded with managed care. After the backlash, insurers developed high deductible health plans and value based insurance design. Insurers are now moving towards reference pricing. These plans offer consumers reimbursement up to a pre-specified level for treatments that can be easily broken into a treatment episode such as hip replacements or MRIs.
High deductibles and reference pricing are fine, but do not always work in practice. Chronically ill patients quickly exhaust their deductibles, and reference pricing does not work well for chronic diseases. In order to complement these tactics, some insurers are once again offering narrow network plans. We commented in earlier blog posts that the ACA would catalyze the return of these narrow networks and also warned that this might fuel another backlash. Unfortunately, a recent New York Times article shows, the backlash is well underway.
Make no mistake, restrictive networks are essential to cost containment. Through narrow networks, insurers can negotiate lower prices. More importantly, they can direct enrollees to providers who have lower overall costs and higher quality. Dranove has written two books about this. Don’t take his word for it. The independent Robert Wood Johnson Foundation has published two comprehensive studies showing that the competition triggered by networks has been successful in reducing costs and improving quality.
By definition, some providers are excluded from narrow networks, and this is where the trouble begins. Excluded providers who have lost out in the cauldron of competition always complain the loudest. We should have no sympathy for them.
What about patients? Some patients knowingly choose health plans with narrow networks in order to save money, and should not be surprised to find that some of their favorite providers are excluded. Others may be in the dark about their networks. The solution isn’t to regulate narrow networks out of existence; it is to shine some light on network structure.
Another concern may be that low income enrollees who cannot afford broader networks might be at a disadvantage. But if we want to provide big enough subsidies so that all enrollees have broad networks, we will have to either (a) raise taxes further, or (b) limit the number of uninsured we can enroll. Neither choice seems better than the status quo.
Now, this does not mean that we think there is no place for regulation of narrow network plans. We don’t think that the newly formed ACA exchanges, or any market, should be the proverbial Wild West. For example, if we want consumers to make educated choices across insurance plans, then they require timely and accurate information about which providers are in which networks. We would think this would be more than feasible, though healthcare.gov was somehow unable to provide this information to many of the initial enrollees. We understand that providers go in and out of networks all the time and it would be burdensome for insurers to inform enrollees of all network changes in real time. But insurers could provide regular updates. We also wonder if insurers have the capability of identifying, through billing records, when a particular patient’s provider has gone out of network, and sending that patient an immediate update. In these situations, patients should be allowed to change their choice of plans outside of the open enrollment period in the same way they might be able to if they had another qualifying event such as the birth of a child.
In addition, narrow network plans are only effective if there are multiple high quality providers offering services in an area. Given the recent wave of provider consolidations, it is critical that anti-trust authorities carefully monitor these mergers. After all, competition can only work in truly competitive markets.
But what we must avoid is mandating broader access. This would spell the end of market-based health reform. If insurers cannot exclude some providers, then providers have little incentive to lower prices and become more efficient.
Many states have already attempted to mandate minimum access through Any Willing Provider laws. These laws require insurers who have come to terms with a specific provider to accept all providers who agree to those same terms. This may sound fair, but the economic implications of AWP for patients are anything but fair. Under AWP, no providers need negotiate with insurers or accede to an insurer’s request for discounts. Providers can bide their time, knowing that they can always force their way into the network. Having lost all their leverage, insurers can no longer demand discounts, and prices invariably rise.
The push for broad access seems to be especially strong in sparsely populated states such as Montana. But proposals to assure access, which often take the form “At least X% of enrollees must live within Y miles of a provider” do more to drive up costs than any other rules we can imagine, because they grant effective monopoly rights to rural providers. Insurers facing such rules have two options (a) accede to the pricing demands of the local monopolies, or (b) drop coverage in areas where providers have been granted local monopolies. Montanans may as well have nationalized healthcare.
This blog entry by David Dranove and Craig Garthwaite is another example, like yesterday’s, where economists from “the other side” clearly understand the policy issues, but are guided by an ideological preference for market solutions as opposed to more effective government solutions.
Narrow networks do terrible things. As these authors state, narrow networks provoke backlashes from patients who are unhappy with the restrictions. Healthy individuals select their plans primarily based on price but then are disappointed when they find that the networks are unable to meet either their needs or their choices. The narrow networks become anti-competitive when excluded providers leave the community and are not available for the next year of provider contracting. The authors point out that requiring the providers to be within a reason distance from patients drives up costs, as if cost containment is far more important than access. With the inevitable changes in patient plan enrollment and in provider network enrollment, narrow networks can be highly disruptive because of the need to leave your established care and enter new narrow networks. Perhaps worst of all, the authors state that “low income enrollees who cannot afford broader networks might be at a disadvantage.” But then they state that if we are to broaden the networks we must “either (a) raise taxes further, or (b) limit the number of uninsured we can enroll,” as if there were absolutely no other option for containing costs that did not involve narrow networks. They seem to believe that the trade-off is worth the cost of disadvantaging low income enrollees.
They contend that “restrictive networks are essential to cost containment,” after making the case that other market tools of competition have been inadequate. But ideology dictates that market competition must be the driving force for cost containment. They caution that mandating broader access “would spell the end of market-based health reform.”
The case they make for Montana seems to be the clincher on why narrow networks are such a highly flawed policy – a conclusion that they did not intend. They complain that requiring reasonable distances to health care creates a provider monopoly that will cause insurers to either charge outrageous rates or simply drop coverage. They say that “Montanans may as well have nationalized healthcare.” Maybe they should, as should the rest of us.
If the inadequacy of other tools of market competition have required insurers to turn to perverse narrow networks maybe we should be questioning whether market competition is the best policy for controlling costs. Come to think of it, maybe we should listen to these authors when they say that allowing broader access “would spell the end of market-based health reform.” Other national systems depending on government administered pricing provide care for everyone at an average of half of what we are spending per capita. Now that’s effective cost containment, and it’s accomplished without kowtowing to the ideologues who insist that health reform must be market based.
‘Double Jeopardy’ In American Health Insurance
By Dana P. Goldman and Tomas J. Philipson
Forbes, April 1, 2014
Health insurance markets allow people to share risks; those lucky enough not to need health care pay premiums to cover care for the unlucky ones who do. This risk-sharing—which most of us are very willing to purchase — amounts to a modest income loss through our premiums when we are healthy to avoid serious financial trouble when we are sick.
However, a disturbing trend has emerged over the last few years. As health care costs have risen, many insurance companies have responded by starting to increase cost-sharing on to patients when they get sick, sometimes dramatically. This has occurred particularly for the unlucky patients who are the sickest and who need highly specialized therapies. Such so called “specialty drugs” are different than standard prescription drugs and often cost substantially more, many times because they are harder to manufacture. For example, the Centers for Medicare and Medicaid Services, the agency that implemented the Medicare Part D prescription drug benefit, allowed plans to create a ‘formulary tier’ specifically for drugs costing $600 or more per month—and about 90 percent of plans use them. And, among the plans who use the tier, more than half require patients to pay 25% or more of costs. The drugs on this tier are those of patients faced with many difficult conditions – it includes medications for rheumatoid arthritis, osteoporosis, MS, and even cancer.
This insurance design often means that the sickest patients also take the largest financial hits; what we argue amounts to a “double jeopardy” of current health insurance. Consider the case of cancer care which is a relatively rare event compared to diseases like hypertension or diabetes, but often leads to a cascade of high expenses. Insurance companies are now pushing those expenses on patients at the time of care, rather than covering them through premiums paid before illness. Ironically, this has led to outrage against manufacturers of cancer treatments rather than payers, For example, oncology specialists have often criticized the manufacturers for the high prices involved because their patients can’t afford the treatments. The irony is that other forms of care are much more expensive — such as the use of intensive care units (ICUs) — yet there is no outcry by physicians against the device manufacturers concerning these costs. The reason is that ICU care–which often costs about $4,000 per day in the most futile cases–is fully covered (as it should be), whereas the specialty treatments remain only partially covered.
Pushing these costs onto the patient at the time of sickness not only distorts treatment patterns, but also leads to inequity. One common strategy to manage these specialty products is to force patients to try cheaper treatments before insurers will cover more expensive ones – a practice euphemistically called ‘step therapy.’ For those who respond to the cheaper therapy, they get better and pay very little. But for those who are unlucky enough not the respond to the first treatment, they move to the next therapy, often at much higher cost. The result is both worse health prospects but also a larger financial burden for the same but more severe form of the same disease, another form of double jeopardy. The high out-of-pocket costs of second-line therapy may also encourage patients and their physicians to retry ineffective, first line therapies, sometimes at great risk to the patient. Patients with more recalcitrant disease are being asked to pay more—the opposite of what we want insurance to do.
Since the 1960’s, economists have noted that cost-sharing at the time of illness for medical services is a way to balance the financial risks of health care spending against improper incentives for care when sick. On the one hand, full coverage eliminates all financial risks to patients, but it provides no incentive to economize on care when sick. On the other hand, no insurance imposes too much risk on a patient while it provides better incentives to economize on care. Thus, economists agree that the optimal cost-sharing should strike a balance between financial protection and proper incentives to economize on care. In particular, when treatments are valuable and patients are willing to seek them at very high prices, economists recognize there is little value to high copayments because they would just impose financial risks through care that would have been undertaken anyway. However, double jeopardy of American insurance imposes financial risk on the patient at precisely the moment when it is likely least appropriate. A cancer patient is willing to pay large sums to cling on to life, but is hit with both the dreaded disease and a large medical bill at the same time.
What can be done to limit the damage of double jeopardy in insurance? In cases where treatment is effective, payers should provide real insurance and not impose substantial burdens on patients when they are sick—especially those who do not respond to conventional first line care. In face of market forces, we would expect patients or their benefit managers to sooner or later shun plans with double jeopardy designs. The second best alternative would be to encourage manufacturers to fix the insurance failure by providing copayment assistance for these patients. The analogy is Medigap coverage, which provides secondary insurance for costs that Medicare does not cover. In the private sector, such coverage is often outlawed on the grounds that it interferes with payer’s incentives to make patients economize on care.
The bottom line is that insurance that doesn’t cover the financial risks for the sickest seriously lowers the value of coverage to the insured pool, imposes the largest losses on the sickest even within the same diagnosis, and leads to finger-pointing at the wrong parties.
Dana P. Goldman is the Leonard D. Schaeffer Chair and Director of the Schaeffer Center for Health Policy and Economics at the University of Southern California. Tomas J. Philipson is the Daniel Levin Chair of Public Policy at the University of Chicago. Both are founding partners of Precision Health Economics LLC.
This is an important article. The topic is important because it represents one of the more serious flaws in recent trends of health care financing reform – a flaw which results in greater financial burdens being imposed on people with serious medical disorders. It is also important because it represents the views of two authorities in the health policy community who come from the “other side,” generally holding views at odds with the health care justice positions of PNHP. This time they are right.
Insurers are using several techniques that place patients in “double jeopardy” – facing both the burdens of serious illness and the high costs imposed on them by insurance plan design. When serious medical problems develop, the insurers impose higher cost sharing on patients through techniques such as ever higher deductibles, large coinsurance requirements (paying a higher percentage of costs rather than lower copayments), and tiering of drugs and specialized services with even higher coinsurance requirements for the most expensive tiers.
The authors note that, not only are the patients exposed to higher costs, but some insurers require less expensive treatments as a trial before high cost treatments will be authorized (stepped therapy). The risk of delay of definitive treatment is obvious in disorders such as cancer, not to mention that it introduces more inequity into health care.
Although they repeat the consumer-directed canard that cost sharing is essential to provide incentives to economize on care, they seem to express the opposite view when they state, “when treatments are valuable and patients are willing to seek them at very high prices, economists recognize there is little value to high copayments because they would just impose financial risks through care that would have been undertaken anyway.”
Further, they state, “double jeopardy of American insurance imposes financial risk on the patient at precisely the moment when it is likely least appropriate. A cancer patient is willing to pay large sums to cling on to life, but is hit with both the dreaded disease and a large medical bill at the same time.”
Their solution is even more interesting, considering where they come from. “In cases where treatment is effective, payers should provide real insurance and not impose substantial burdens on patients when they are sick — especially those who do not respond to conventional first line care. In face of market forces, we would expect patients or their benefit managers to sooner or later shun plans with double jeopardy designs.” Imagine that. They suggest that the markets will reject precisely those cost sharing plans that their colleagues on the “other side” are pushing – plans which have gained great traction in recent years, especially since the implementation of the Affordable Care Act.
An alternative proposal of theirs also seems to reject the concept of making the consumer a better health care shopper through cast sharing. “The second best alternative would be to encourage manufacturers to fix the insurance failure by providing copayment assistance for these patients. The analogy is Medigap coverage, which provides secondary insurance for costs that Medicare does not cover.” Wow. Right now their colleagues are recommending that Medigap be pared back to deliberately increase exposure of patients to the direct costs of health care.
We can be thankful that these authors have pointed out the perversities of cost sharing. They do speak of “balance” but not when the burden is significant. Although, what might seem to many to be modest levels of cost sharing, that balanced level has been shown to be a harmful burden for those of more modest means.
We should accept their principle that payers should provide real insurance without burdens or secondary insurance for uncovered costs. But far easier and much more efficient than altering the private insurance model would be to replace it with a universal prepaid health system with equitable public funding (i.e., single payer). Although Goldman and Philipson are not quite there, maybe we can coax them over.
Glimmers of healthcare politics at meeting of Western Washington docs
Tough talk from Kshama Sawant and others at annual gathering of Western Washington Physicians for a National Health Program.
By Ted Van Dyk
Crosscut.com (Seattle), July 23, 2014
Seattle City Council member Kshama Sawant also was critical of Obamacare, arguing that the administration colluded with drug and insurance companies in framing it. Sawant spoke longest and most avidly at the meeting. She called on committed single-payer supporters to follow the example of those who sought a $15 minimum wage in Seattle, and bring tireless pressure to bear on Democratic officeholders in particular. Sawant is a committed socialist who often referred to “working class interests” and “corrupt corporations, banks, and hedge fund operators.”
Kshama Sawant (video at 4:45):
“Our discussion should be formulated not on the basis of whether or not the ACA delivered something good. Maybe it did, but that’s not the point. The point is, what are we not getting from it, and why didn’t we win single payer health care? That’s what I would like to focus on.”
Socialist Kshama Sawant, a member of the Seattle City Council, came to national attention by leading her fellow council members in passing a $15/hour minimum wage for their city. Having shown that political activism can still be effective, she has important advice for us in our efforts to enact single payer reform.
Currently attention has been diverted from single payer, as most progressives are celebrating the supposedly great successes in implementation of the Affordable Care Act (ACA). Even the Republicans in Congress who have voted several times to repeal ACA, are now suing President Obama for not implementing it fast enough.
Those of us who continue to adamantly support single payer are facing criticism for not joining the ACA bandwagon. This is where Sawant’s message is so important. Whether “ACA delivered something good” is not the point. The point is, we have to inform the public on “what are we not getting from it.” And what we are not getting is most of the goals of reform! The accomplishments are extremely modest compared to the reform that we need.
What are we not getting from ACA that we would be getting from single payer?
And what successes are the ACA supporters touting (though using different rhetoric)?
Sawant delivers a very strong leftist message on social justice issues, and includes in her comments the failures of the Democratic Party to act. But this point on what we are not getting from ACA and why we need single payer is not a leftist message. It is a call for all of us from across the political spectrum who support single payer to take control of the message. We can no longer allow ourselves to be a meek voice silenced by those who, for noble and ignoble reasons, celebrate the paltry successes of ACA.
Again, the something good that ACA did is not the point. The point is what we are not getting from ACA and would be getting under a single payer system. Let’s drown out the message of the ACA supporters who wimped out on real reform.
Arkansas Weighs Plan To Make Some Medicaid Enrollees Fund Savings Accounts
By Michelle Andrews
Kaiser Health News, July 22, 2014
If all goes according to plan, next year many Arkansas Medicaid beneficiaries will be required to make monthly contributions to so-called Health Independence Accounts. Those that don’t may have to pay more of the cost of their medical services, and in some cases may be refused services.
Supporters say it will help nudge beneficiaries toward becoming more cost-conscious health care consumers. Patient advocates are skeptical, pointing to studies showing that such financial “skin-in-the-game” requirements discourage low-income people from getting care that they need.
Michigan and Indiana have already implemented health savings accounts for their Medicaid programs, modeled after the accounts that are increasingly popular in the private market. The funds, which may be supplemented by the state, can be used to pay for services subject to the plan deductible, for example, or to cover the cost of other medical services.
The program particulars in each state differ. But both states – and the Arkansas proposal — require beneficiaries to make monthly contributions into the accounts in order to reap certain benefits, such as avoiding typical cost sharing for medical services. Funds in the accounts may roll over from one year to the next, and participants may be able to use them to cover their medical costs if they leave the Medicaid program.
“We believe in consumerism,” says John Selig, director of the Arkansas Department of Human Services. By requiring Medicaid beneficiaries to make a monthly contribution to a Health Independence Account, “we think they’ll use care more appropriately and get a sense of how insurance works.”
Under the health law, states can expand Medicaid coverage to adults with incomes up to 138 percent of the federal poverty level (currently $16,105 for an individual). So far, about half have done so. But some conservatives have objected to the expansion of a government entitlement program, preferring a private market approach that they say encourages personal responsibility.
Arkansas and Iowa proposed and received approval from the federal Department of Health and Human Services for premium assistance programs that use federal funds to enroll the new Medicaid-eligible beneficiaries in marketplace plans.
For 2015, Arkansas is proposing to expand its experiment by introducing the Health Independence Accounts. Nearly all beneficiaries earning between 50 and 138 percent of the poverty level ($5,835 to $16105 for an individual) would have to participate through monthly contributions of between $5 and $25, depending on their income, or face cost-sharing requirements capped at 5 percent of income by Medicaid rules. In addition, Medicaid enrollees with incomes over the poverty level could be refused services if they don’t make their monthly contribution and don’t make a copayment. (This year, those with incomes between 100 and 138 percent of poverty already have co-pays.)
Under the new program, any of the private option enrollees would be able to avoid all cost sharing charges next year by making monthly contributions to their HIA.
Each month that a beneficiary makes a payment to his or her account, the state will contribute $15. Unused amounts will roll over from one year to the next up to a maximum of $200, which can be used by the beneficiary for health care costs if he or she leaves Medicaid for private coverage.
Advocates say they’re pleased that 175,000 Arkansans have gained coverage under the Medicaid expansion. But the proposal for next year gives them pause.
“There are concerns with adding cost sharing to those below the poverty level,” says Anna Strong, health care policy director at Arkansas Advocates for Children and Families.
Those concerns are well founded, say experts. “This is something that researchers have looked at a lot,” says MaryBeth Musumeci, associate director at the Kaiser Commission on Medicaid and the Uninsured. “Overarchingly, premiums and cost sharing have been shown to discourage or impede folks from getting needed care.”
Some experts note that at least 40 states already charge premiums or cost sharing for at least some beneficiaries. Beneficiaries have skin in the game already, they say, and they question the value of these special accounts that add a whole new layer of complexity for people who may not ever have had insurance before.
“We’re creating these incredibly complicated administrative structures, and I don’t think people will understand them,” says Judith Solomon, vice president for health policy at the Center on Budget and Policy Priorities.
Arkansas is demonstrating to us the irrationality of basing reform on ideological concepts divorced from health policy science. Let’s look closer at this proposal for “Health Independence Accounts,” their version of consumer directed health care for very low income individuals, using the concept of health savings accounts.
No, it’s not about improving health care access. According to John Selig, director of the Arkansas Department of Human Services, “We believe in consumerism. We think they’ll use care more appropriately and get a sense of how insurance works.”
This is ideology that is totally divorced from health policy science. Contrast that with ideology that is based on sound health policy science that results in everyone receiving the health care that they need within a system that is affordable for all. Of course, that would be a single payer national health program.
This is sometimes presented as an ideological divide between the “individual responsibility” and the “we’re all in this together” mindsets, but ideology cannot be divorced from policy science. Health care should not simply be teaching poor people about how insurance works. It should be about getting them the care that they need, when they need it.
Health Care Spending Slowdown: The Consumer Paradox
By Al Dobson, Ph.D., Gregory Berger, M.P.P., Kevin Reuter, Phap-Hoa Luu, M.B.A. and Joan E. DaVanzo, Ph.D., M.S.W.
Dobson/DaVanzo, Report prepared for the Federation of American Hospitals, July 23, 2014
In recent reports we have outlined the continuing historic slowdown in the growth rate of health care spending driven in large part by emerging structural changes in the health care system. Recent evidence suggests that the cost curve has continued to bend, with health care spending declining in the first quarter of 2014. Despite this continuing trend in health care spending growth, consumers are increasingly concerned that they are ever-more financially burdened by spending on their own health care.
This consumer perception is largely a factor of the “new normal” being established through health insurance, which includes:
- Benefit plan designs, used by employers and insurers to shift greater financial risk to consumers through higher out-of- pocket spending (i.e., deductibles, co-payments, and co- insurance); and
- Health insurance premiums, which continue to rise faster than the average person’s income.
This trend of growth in out-of-pocket spending combined with increases in health insurance premiums that outpace increases in wages is not sustainable over the long term, and harms both patients and providers.
- In the first quarter of 2014, consumer spending on health care declined by 1.4%, representing the largest decline in over 30 years
- Almost 60% of Americans think that health care costs have been growing faster than usual in recent years, and more than 70% of consumers attribute responsibility for their perceived high and rising costs to health insurance companies
- Total premiums have increased substantially over the past decade, from 14.9% to 21.6% of median household income between 2003 and 20126
- Employee contributions to premiums and out-of-pocket spending have risen 23% faster than employee costs since 2009 (32% in cumulative growth vs. 26%)
- Cumulative growth in workers’ contributions to premiums between 2002 and 2013 was 114%, approximately four times higher than growth in workers’ average income (31%)
- Deductibles for family coverage increased more than 75% from 2006 and 2013 (from $1,034 to $1,854), while enrollment in plans with a deductible increased to 81% in 2013
- The percentage of workers enrolled in high-deductible plans ($1,000 or more) has increased more than five times over the past decade, from 4% in 2006 to 26% in 2014
- Overall, employees’ premium contributions and out-of-pocket expenses per capita have grown by 42% over the past five years, from $6,824 in 2009 to $9,695 in 2014
Payers and providers are both adjusting to a “new normal” in the marketplace through a variety of multi-year strategies aimed at improving quality, reducing costs, and minimizing financial risk within the evolving regulatory framework. Additional interventions or blunt policymaking, rather than allowing the market to respond to current reform efforts, could interfere with the system.
Both payers (including employers) and providers have prepared multi-year transition plans to adjust their business models, and require some level of predictability and capital reserves. Major disruptions to the operating environment for providers, payers and/or employers may generate uncertainty, which ultimately could flow down to consumers in the form of higher premium contributions and out-of-pocket spending.
This report describes the paradox of the “new normal” in which increases in health care costs have been slowing as payer/employers and providers adjust their business models to the marketplace, while the financial burden for health care on patient/consumers continues to increase. As this report states, “this trend of growth in out-of-pocket spending combined with increases in health insurance premiums that outpace increases in wages is not sustainable.”
This study was sponsored by the Federation of American Hospitals – the lobby organization for America’s private, investor-owned hospitals. To no surprise, they recommend that the marketplace be allowed to work its magic, avoiding disruptions or policy changes that could interfere with the system. They caution that such interference “could flow down to consumers in the form of higher premium contributions and out-of-pocket spending.”
What? They have just shown us how the market they want to protect is taking care of payer/employers and providers (including for-profit hospitals) while creating financial burdens for patient/consumers through “higher premium contributions and out-of-pocket spending.”
They haven’t gotten reform right, and they won’t as long as we allow the medical/industrial complex to remain in charge. Reform needs to be centered around the patient, yet it is the patient who is being dumped on. Single payer would fix that.
How Much Is Enough? Out-of-Pocket Spending Among Medicare Beneficiaries: A Chartbook
By Julliette Cubanski, Christina Swoope, Anthony Damico and Tricia Neuman
Kaiser Family Foundation, July 21, 2014
As part of efforts to rein in the federal budget and constrain the growth in Medicare spending, some policy leaders and experts have proposed to increase Medicare premiums and cost-sharing obligations. Today, 54 million people ages 65 and over and younger adults with permanent disabilities rely on Medicare to help cover their health care costs. With half of all people on Medicare having incomes of less than $23,500 in 2013, and because the need for health care increases with age, the cost of health care for the Medicare population is an important issue.
Although Medicare helps to pay for many important health care services, including hospitalizations, physician services, and prescription drugs, people on Medicare generally pay monthly premiums for physician services (Part B) and prescription drug coverage (Part D). Medicare has relatively high cost-sharing requirements for covered benefits and, unlike typical large employer plans, traditional Medicare does not limit beneficiaries’ annual out-of-pocket spending. Moreover, Medicare does not cover some services and supplies that are often needed by the elderly and younger beneficiaries with disabilities—most notably, custodial long-term care services and supports, either at home or in an institution; routine dental care and dentures; routine vision care or eyeglasses; or hearing exams and hearing aids.
Many people who are covered under traditional Medicare obtain some type of private supplemental insurance (such as Medigap or employer-sponsored retiree coverage) to help cover their cost-sharing requirements. Premiums for these policies can be costly, however, and even with supplemental insurance, beneficiaries can face out-of-pocket expenses in the form of copayments for services including physician visits and prescription drugs as well as costs for services not covered by Medicare. Although Medicaid supplements Medicare for many low-income beneficiaries, not all beneficiaries with low incomes qualify for this additional support because they do not meet the asset test.
Because people on Medicare can face out-of-pocket costs on three fronts—cost sharing for Medicare-covered benefits, costs for non-covered services, and premiums for Medicare and supplemental coverage—it is important to take into account all of these amounts in assessing the total out-of-pocket spending burden among Medicare beneficiaries. Our prior research documented that many beneficiaries bear a considerable burden for health care spending, even with Medicare and supplemental insurance, and that health care spending is higher among older households compared to younger households.
- Premiums for Medicare and supplemental insurance accounted for 42 percent of average total out-of-pocket spending among beneficiaries in traditional Medicare in 2010
- Out-of-pocket spending rises with age among beneficiaries ages 65 and older and is higher for women than men, especially among those ages 85 and older.
- As might be expected, beneficiaries in poorer health, who typically need and use more medical and long-term care services, have higher out-of-pocket costs, on average.
- Just as Medicare spends more on beneficiaries who use more Medicare-covered services, more extensive use of services leads to higher out-of-pocket spending.
- Among beneficiaries in traditional Medicare, those with a Medigap supplemental insurance policy pay more in premiums for this additional coverage, on average, than beneficiaries with employer-sponsored retiree health benefits ($2,166 vs $1,335, on average, in 2010).
- Analysis of ‘high out-of-pocket spenders’ finds a disproportionate share of certain groups, including older women, beneficiaries living in long-term care facilities, those with Alzheimer’s disease and ESRD, and beneficiaries who were hospitalized, in the top quartile and top decile of total out-of-pocket spending (including both services and premiums).
- Between 2000 and 2010, average total out-of-pocket spending among beneficiaries in traditional Medicare increased from $3,293 to $4,734, a 44 percent increase.
The typical person on Medicare in 2010 paid about $4,700 out of pocket in premiums, cost sharing for Medicare-covered benefits, and costs for services not covered by Medicare. Even with financial protections provided by Medicare and supplemental insurance, some groups of Medicare beneficiaries incurred significantly higher out-of-pocket spending than others, which could pose challenges for those living on fixed or modest incomes. Out-of-pocket spending tends to rise with age and number of chronic conditions and functional impairments, and is greater for beneficiaries with one or more hospitalizations, particularly those who receive post-acute care.
This KFF update on the financial burden placed on Medicare beneficiaries shows that average out-of-pocket costs are $4,734 when half of all people on Medicare have incomes of less than $23,500. Although Medicaid supplements Medicare for some low income beneficiaries, destitution is a prerequisite for qualifying for Medicaid. The wealthy should have no problems, but should affordable access to health care be granted only to those with modest or low incomes who must give up what little fungible assets they have been able to accumulate through life?
Another concern in this report is that those with a Medigap supplemental insurance plan pay considerably more in premiums than do those with an employer-sponsored retiree health benefit program. Although Medigap benefits are quite modest, the premiums charged make them one of the worst values in the health insurance market.
Medicare benefits need to be expanded to a level at which Medicare becomes a prepaid health care program. When you need health care, you get it.
Beyond Obamacare: Universalism and Health Care in the Twenty-first Century
By A. W. Gaffney
New Politics, Summer 2014
Among those working towards more fundamental health care change (for instance, as I’ll discuss below, a single-payer system), an assessment of the overall impact of the ACA is a frequent cause for disagreement. Is the law a (possibly wobbly) step in the right direction to be embraced and expanded, a harmful compromise to be denounced and discarded, or something in between? My own sense here is that global assessments are problematic and not that helpful: the massive law does many different things for many different people, and so is better dissected (and criticized) with respect to its specific effects and shortcomings rather than rejected or championed en toto.
Now if eliminating the problem of uninsurance was our only goal, it seems that the ACA would be at least be a clear step in the right direction. Unfortunately, however, there is another phenomenon that has been evolving for some time, that the ACA neither created nor fixed but to some extent codifies, and which confers a highly inegalitarian element to our health care system: underinsurance. Underinsurance is often defined as having insurance but still having substantial out-of-pocket costs for medical care (i.e. greater than 10 percent of family income after premiums); it’s clearly a growing problem, and it is by no means eliminated by the ACA. The plans on the exchanges, for instance, incorporate high levels of cost sharing, or copays, deductibles, and coinsurance. They are graded into four metallic tiers based on their actuarial value (i.e. the percent of your health care expenses that insurance covers), beginning at a paltry 60 percent for the “bronze plans.” Putting aside the deeply inegalitarian concept of dividing a population into different grades of metal (the allusion to Plato’s Republic has somehow not yet been made), such plans fulfill the long-held concern of health policy “experts” that patients need more “skin in the game” (i.e. cost exposure), such that they don’t whimsically procure medically unnecessarily procedures and diagnostic studies. Families will be subject to as much as $12,700 annually in additional out-of-pocket costs for health care (after premiums are paid) to keep the dreaded “moral hazard” of “free care” at bay.
Putting aside what happens to the level of strictly defined “underinsurance,” I would argue that there is a larger problem on the rise, which one might call “malinsurance,” namely insurance that compromises the physical and economic health of the bearer. Malinsurance encompasses an even broader scope of problematic insurance plans: insurance where the price of the premiums impinges on a reasonable standard of living; insurance with unequal and inferior coverage of services, drugs, or procedures; insurance with “cost sharing” that forces individuals to decide between health care and other necessities; insurance with inadequate and inequitable access to providers or facilities; and insurance that insufficiently protects against financial strain in the case of illness.
Today, many (if not most) of us could in some ways be considered underinsured, while most (or maybe all) of us might be considered malinsured. This will, unfortunately, remain the case in coming years, even with the full and unimpeded enforcement of the ACA.
Moving Forward: A Single-Payer Solution?
A “single-payer system” is probably the best-studied alternative for the United States. Conceptually, it is quite simple: national health insurance, with a single entity (the government) providing health insurance for the country. Its core principles (as generally agreed upon within the single-payer movement) can be briefly summarized. First, everyone in the country would be covered by national health insurance. Second, the system wouldn’t impose “cost sharing,” so health care would be free at the point of care, with underinsurance thereby eliminated (assuming an adequate level of funding). Third, it would drastically reduce spending on health care administration and bureaucracy through elimination of the fragmented multi-payer system, and also through the global budgeting of hospitals. It would also contain costs through health care capital planning, and through other measures like direct negotiations with pharmaceutical companies over drug prices. Putting this together, a single-payer system would constitute a markedly egalitarian turn in American health care. Access to health care would be made not only universal but also equal, with free choice of provider and hospital to everyone in the country, provided as a right.
The confluence of several of the following dynamics (and many others) may, for instance, create a political opening for such a project in the coming years.
First, dissatisfaction with our health care system will almost certainly rise, which I think will occur as we become more and more a “copay country,” with high-deductible, high-premium, and narrow-network health plans becoming the new normal. One could imagine considerable public outrage and mobilization against this new commodified status quo, just as there was against corporatized HMOs in the 1990s.
Second, though politics at the federal level may remain inhospitable to the cause for some time, single-payer campaigns at the state government level may provide an opening for the construction of more limited single-payer state systems, while also providing an opportunity for grassroots organizing and movement building that would, in turn, strengthen the larger national campaign.
Third, support for a single-payer system among physicians (which already has majority support in some polls) might be translated into more vocal outrage in coming years. In particular, as patients pay more and more out-of-pocket at the time of care, physicians will increasingly be forced into the role of “merchants of health,” basing medical decisions not only on clinical evidence, but on their patients’ income and wealth. I believe—and deeply hope—that such class-based medicine will be rejected by the profession.
Fourth, and perhaps most important, a broader mobilization against the politics of inequality now seems to be in the making. As it is perceived that the excessive costs of American health care are actually contributing to the problem of inequality—for instance, insofar as high premiums indirectly reduce income or as cost sharing directly consumes a greater portion of already stagnant wages—one can imagine that the drive for a single-payer system might become closely linked with a much larger, and more powerful, political mobilization.
As A. W. Gaffney points out in this article, underinsurance or “malinsurance” may drive us to demand single payer as we mobilize against the politics of inequality. The entire article is well worth downloading and reading when you have a free moment.
Note on word usage: Gaffney’s neologism, “malinsurance,” is sometimes used to refer to medical malpractice insurance. To avoid confusion, we should continue to use the already established term, “underinsurance,” as the label for the rapidly expanding menace of inadequate health care coverage.
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