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. Health Care Could Be More Like Denmark’s
By Steffie Woolhandler
Room for Debate, The New York Times, October 20, 2015
In last week’s Democratic debate, when Bernie Sanders cited Denmark as a role model for the United States to follow, Hillary Clinton was quick to point out that “we are not Denmark.”
The United States isn’t Denmark, but it can, like Scandinavia, implement changes to its health care system that save money, cover everyone and help us live longer.
In the 1950s, U.S. health statistics were world class: infant mortality rate among the lowest, life expectancy among the highest, and health costs about average. One by one, other nations — not just Denmark and Sweden, but Australia, Britain, Canada and Taiwan, to name a few — adopted national health programs. By the end of the 20th century, the U.S. was the lone hold out for private, for-profit health insurance, and its health statistics lagged behind dozens of countries. Meanwhile, costs soared to twice the average in other wealthy nations.
For Americans, national health insurance would mean comprehensive coverage, a free choice from a smorgasbord of any doctor or hospital and lower costs. Other countries have seen huge savings by evicting private insurers and the reams of expensive paperwork they inflict on doctors and hospitals. Aetna keeps 19 cents of every premium dollar for overhead and profit, leaving only 81 cents for care. And U.S. hospitals devote 25.3 percent of total revenue to administration, reflecting the high cost of collecting patient copayments and deductibles, and fighting with insurers.
Obamacare will direct an additional $850 billion in public funds to private insurers, and boost insurance overhead by $273.6 billion. Yet it will leave 26 million uninsured and similar numbers with such skimpy coverage that a major illness would bankrupt them. Most Americans have coverage that limits their choice of doctors and hospitals, and inflicts steep financial penalties when they stray “out-of-network” by accident or necessity.
In contrast, insurance overhead in single-payer programs (and fee-for-service Medicare) takes only 1 percent to 2 percent. In these programs, hospitals don’t need to bill each patient; they’re paid a lump sum budget, the way we fund fire departments, sharply cutting hospital administrative costs. Moving to a single-payer system would save about $400 billion annually on paperwork and administration — enough to ensure every American top coverage.
Messages like “We are not Denmark” insist we put blinders on and refuse to learn from others. That reasoning would have us ignore innovations like vaccination or CT scanners (British inventions), echocardiograms (a Swedish one) or cardiac stents (first used in France). A single-payer reform — like the one advocated by the 20,000 members of Physicians for a National Health Program — could save thousands of American lives each year. That’s as American as apple pie.
We need to be sure that the fundamentals do not get lost in political rhetoric. The fact is that health system performance in the United States has lagged behind many other nations while our costs have soared to twice the average of wealthier nations. Bernie Sanders says that we can learn from Denmark (meaningful rhetoric). Hillary Clinton says that we are not Denmark, but we are the United States of America (dismissive rhetoric). Steffie Woolhandler says that saving lives through single-payer reform would be as American as apple pie (Yankee Doodle Dandy rhetoric).
So how about a little Yankee Doodle Dandy? James Cagney or Mickey Rooney – you choose:https://www.youtube.com/watch?v=StDpLge_ITM
Where else but in America could we choose which Yankee Doodle Dandy we prefer? And we can even choose health care for all if we were willing to give up our uniquely American health care system, as dysfunctional as it is. But that would mean adopting policies of health care justice already in use in other nations. Apple pie anyone?
PNHP does not take any position on candidates or political parties. Rather we support the policy of health care justice for all through single payer reform.
This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.
The Efficiency Consequences of Health Care Privatization: Evidence from Medicare Advantage Exits
By Mark Duggan, Jonathan Gruber, Boris Vabson
The National Bureau of Economic Research, October 2015
NBER Working Paper No. 21650
There is considerable controversy over the use of private insurers to deliver public health insurance benefits. We investigate the efficiency consequences of patients enrolling in Medicare Advantage (MA), private managed care organizations that compete with the traditional fee-for-service Medicare program. We use exogenous shocks to MA enrollment arising from plan exits from New York counties in the early 2000s, and utilize unique data that links hospital inpatient utilization to Medicare enrollment records. We find that individuals who were forced out of MA plans due to plan exit saw very large increases in hospital utilization. These increases appear to arise through plans both limiting access to nearby hospitals and reducing elective admissions, yet they are not associated with any measurable reduction in hospital quality or patient mortality.
From the introduction
The growing privatization of Medicare has been motivated by potential efficiencies from the Medicare management provided by private insurance companies. This is a particularly interesting topic in the context of Medicare Advantage, where private insurers provide coverage side-by-side with the government system.
… we find that there is a substantial rise in inpatient hospital utilization after MA plan exit. We estimate that previous MA enrollees see their utilization of the hospital rise by about 60%, when moving back to the traditional FFS plan. This estimate is comparable to the corresponding estimate of 65% from the RAND Health Insurance Experiment of the 1970s, which randomly assigned patients to managed care plans. The finding is robust to specification checks and appears to be long-lasting, so that it does not simply reflect pent-up demand that caused a temporary increase in utilization. The increases appear across all types of hospitalizations, but are particularly pronounced for elective visits. We also find substantial reductions in the average distance traveled to the hospital when patients exogenously switch from MA to FFS following plan exit. This suggests that the mechanisms for lowering costs under MA plans are both reduced hospital availability and greater restrictions on elective care.
From 3.3 Quality Impacts
To measure the quality of care at the hospital level, we turn to two sets of standardized measures from the CMS Hospital Quality Initiative database. The first set of metrics consists of process measures…
Using these measures, we do not see any consistent evidence of moving to higher quality hospitals, as seven of the nine measures are insignificant; further, one of the significant coefficients suggest higher quality (improved process for pneumonia) while the other suggests lower quality (worse outcomes for heart failure). Moreover, all of the coefficients are very small relative to mean values and precisely estimated, ruling out meaningful impacts.
We next turn to more direct process measures of outcomes created from our discharge data. One such measure, the 60-day hospital readmission rate… Another measure, preventable hospitalizations…
When MA plans exit, we find that both measures rise – that is, plan exit does not appear to be translating to more efficient care on net that is lowering readmissions or preventable admissions. The odds of readmission, conditional on an initial hospitalization, rises by about 15% among those initially in MA plans after plans exit. Meanwhile, the odds of a given hospitalization being preventable rises by 10%. By these measures, therefore, quality is falling for those initially enrolled in MA following the exit of MA plans.
Finally, we examine the impact on mortality… Both estimates are in fact positive, suggesting that plan exit leads to higher mortality, although neither estimate is significant.
The results from this section appear to indicate that there is a sizeable inefficiency in transitioning elders out of Medicare Advantage into the FFS program. Utilization of, and spending in, the hospital rises substantially, with no consistent indication of quality improvement (although travel to the hospital is greatly reduced). If anything, we find a reduction in quality, with readmissions, preventable hospitalizations and mortality (the last insignificantly) increasing after the shift out of managed care plans.
From the Conclusions
The role of private players in public insurance is the subject of a central debate in U.S. public policy. This debate is perhaps most heated around the role of Medicare Advantage plans. Advocates claim that the higher efficiency of such private options should push the government towards expanding the role of managed care plans. Opponents point to the sizeable positive selection faced by these plans (and their high baseline reimbursement, even independent of selection) to claim that they are over-reimbursed and are costing, rather than saving, government dollars.
Central to this debate is the question of whether MA plans actually deliver care more efficiently. Our paper contributes to the literature on this point in two important ways. First, we make use of data that tracks the treatment of both traditional Medicare (FFS) recipients and MA enrollees. Second, we make use of exogenous variation in MA availability, arising from county-level exit of MA plans. Using these empirical advantages, we document sizeable increases in hospital inpatient utilization along many dimensions when MA plans exit a county. Hospital inpatient utilization rises by 60%, and total charges by more than 50%. We find that MA insurers may achieve this by reducing the use of the hospital for elective and emergency cases, and also by increasing the distance that a patient needs to travel to the nearest hospital. Moreover, we find no evidence that this is accompanied by reduced quality of care for Medicare patients when enrolled in MA; quality indicators, if anything, deteriorate when MA plans exit.
… our results suggest that there are large efficiencies from ensuring that at least some managed care option is available to enrollees. This could occur through a premium support system of the type discussed in CBO (2013), which would set up competitive exchanges through which private plans could compete with the government option. Alternatively, the government could establish a monopoly MA provider for each area, and auction off the number of MA slots for the area, in that way minimizing the reimbursement of MA plans while ensuring MA plan availability.
We will likely hear more about this study. The reports will certainly say that private Medicare Advantage (MA) plans provide greater efficiency and lower costs by reducing unnecessary hospitalizations and elective care. We may even hear that they do this while increasing quality and reducing mortality. With a more careful analysis of this article and with additional thought input, these conclusions do not seem to be warranted.
This study was of hospital utilization in regions where the sole MA plan picked up stakes and left the region. Why would a plan pull out of a region? Simply because the business prospects did not seem favorable (code language for not enough profits).
These plans were successful in reducing access to hospitals, partly by using hospitals that were a greater distance away, requiring greater travel for patients. They were also able to use managed care techniques (prior authorization, etc.) in a manner that reduced elective and emergency admissions. Even though the MA plans were paid more than what was being spent on traditional fee-for-service (FFS) Medicare patients, it still wasn’t enough, and they bailed out.
After the plans left, the patients were hospitalized at a greater rate, and costs went up. The authors of this study suggest that these hospitalizations occurred because the FFS Medicare program is not as efficient in preventing them as were the private MA plans. But couldn’t this be explained by the business success of MA plans in preventing patients from having care that was appropriate? Isn’t it more likely that chronic conditions – ubiquitous in this group – became worse and thus more expensive through the neglect imposed by the MA plans?
The authors try to dismiss this possibility by looking at measurements of quality and mortality. They report that “quality indicators, if anything, deteriorate when MA plans exit.” Yet from the CMS Hospital Quality Initiative database, they report, “we do not see any consistent evidence of moving to higher quality hospitals, as seven of the nine measures are insignificant; further, one of the significant coefficients suggest higher quality (improved process for pneumonia) while the other suggests lower quality (worse outcomes for heart failure).” By these measures, there was no quality difference.
On the other hand, they report that hospital readmissions and preventable hospitalizations both rose after the MA plans exited. They interpret this as evidence of lower quality in the traditional FFS Medicare program. But every clinician knows that readmissions and preventable hospitalizations represent a sicker patient population. Rather than being evidence of poorer quality it is much more likely that this is further confirmation of the well established adage that Medicare Advantage patients go into the plan healthy and come out sick.
They use mortality estimates that are not statistically significant to suggest that plan exit leads to higher mortality. Even if the data were powered to show an increase in mortality, is it not true that sicker populations have a higher mortality rate?
This study has the same flaws as many other studies being produced today that are supportive of the private insurance industry. They look at only a minuscule portion of potential outcomes of health care. They show that the differences of what they did measure are almost or sometimes even completely negligible. Then when drawing conclusions between the choices of whether additional care is inefficient or is beneficial, they choose the conclusion that supports the private insurance industry, even if it is a non sequitur.
In their conclusion, they suggest that the “large efficiencies” from the managed care option warrant consideration of the premium support proposal that would privatize Medicare (convert it into a market of private plans). A better interpretation of their data, based on what is best for the patient, rather shows us that we should end the experiment with private Medicare Advantage plans since they prevent patients from receiving care that they should have.
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.
Covering the Remaining Uninsured: Not Just a Red-State Issue
By Drew Altman
The Wall Street Journal, October 14, 2015
About 32 million people in the U.S. remained uninsured as of early 2015, a Kaiser Family Foundation analysis of federal survey data has found, with about half of them eligible for Medicaid or subsidies under the Affordable Care Act. With the high-profile resistance in some states to Medicaid expansion and the ACA generally, you may think those places are the main obstacle to covering more of the uninsured. But the uninsured remain a problem in both red and blue states.
About half of the remaining uninsured, 16 million people, are in mostly blue states that have expanded Medicaid. The other 16 million are in states that have not expanded Medicaid and where there is strong anti-ACA sentiment. Consider the examples of California and Texas, the states with the largest populations of remaining uninsured, to understand the different challenges.
Remaining uninsured as of 2015:
Eligible for Medicaid:
Eligible for tax credit:
Ineligible for financial assistance due to income, employer offer, or citizenship status:
In Medicaid “coverage gap”:
California (no gap)
Some elements of the remaining uninsured problem are uniquely a red state issue. The most prominent of these are 3.1 million people—or one in 10 of the uninsured—who fall in the “coverage gap” in 20 red states that have chosen not to expand Medicaid coverage. But as the examples of Texas and California demonstrate, progress on covering the remaining 32 million uninsured will depend on action in both red and blue states.
Texas should be ashamed. They have the largest number of uninsured individuals in the nation, and yet they have failed to take advantage of the provisions in the Affordable Care Act (ACA) that would grant the state 90 percent of the costs of Medicaid expansion, plus they have failed to provide adequate outreach efforts to enroll individuals in exchange plans where they would be eligible for federal premium tax credits and cost-sharing subsidies. In contrast, California has been aggressive in trying to get as many individuals as possible covered by health insurance of one type or another. How do the results in California (a blue state) compare to those in Texas (a red state)?
In California, 10 percent remain uninsured, whereas in Texas, 16 percent lack insurance. California’s efforts have paid off… for some. But why should California, with its strong support of ACA, still have 3,845,000 people without any insurance? It’s very simple. ACA is a highly flawed model of reform.
Models which build on existing, fragmented, multi-payer systems are the most expensive models of reform, yet they fall short of many of the goals, including universality. Yet the least expensive comprehensive models of reform achieve the goals of universality, efficiency, affordability, equity, improved access, and better health care outcomes. These are the single payer national health insurance and national health service models.
Many suggest that we should celebrate our gains and move forward with incremental patches to the system. There are two problems with this approach. Incremental patches will add significant additional costs to the system, and patches cannot possibly repair the fundamental structural flaws in the financing system. Thus, under ACA, we will always fall short of the goals.
There is a better way. Fix Medicare and provide it to everyone. California would then achieve its goal of reducing its uninsured to zero. Texas would too, even if its politicians were opposed. One thing for sure, once everyone in Texas did have Medicare, the people would be overwhelmingly supportive.
What Does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics
By Zarek C. Brot-Goldberg, Amitabh Chandra, Benjamin R. Handel, Jonathan T. Kolstad
The National Bureau of Economic Research, NBER Working Paper No. 21632, October 2015
Measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets. We study consumer responsiveness to medical care prices, leveraging a natural experiment that occurred at a large self-insured firm which forced all of its employees to switch from an insurance plan that provided free health care to a non-linear, high deductible plan. The switch caused a spending reduction between 11.79%-13.80% of total firm-wide health spending ($100 million lower spending per year). We decompose this spending reduction into the components of (i) consumer price shopping (ii) quantity reductions (iii) quantity substitutions, finding that spending reductions are entirely due to outright reductions in quantity. We find no evidence of consumers learning to price shop after two years in high-deductible coverage. Consumers reduce quantities across the spectrum of health care services, including potentially valuable care (e.g. preventive services) and potentially wasteful care (e.g. imaging services). We then leverage the unique data environment to study how consumers respond to the complex structure of the high-deductible contract. We find that consumers respond heavily to spot prices at the time of care, and reduce their spending by 42% when under the deductible, conditional on their true expected end-of-year shadow price and their prior year end-of-year marginal price. In the first-year post plan change, 90% of all spending reductions occur in months that consumers began under the deductible, with 49% of all reductions coming for the ex ante sickest half of consumers under the deductible, despite the fact that these consumers have quite low shadow prices. There is no evidence of learning to respond to the true shadow price in the second year post-switch.
From the Conclusion
In this paper we studied the health care decisions and spending behavior for a large population of employees (and their dependents) who were forced into high-deductible insurance after years of having access to completely free health care.
A meaningful portion of all spending reductions came from well-off consumers who were predictably sick, implying that the true marginal prices they faced under high-deductible care were actually quite low.
We found that almost all spending reductions during the year occurred while consumers were still under the deductible, despite the fact that the majority of incremental spending occurs for consumers that have already passed the deductible. Moreover, about 30% of all spending reductions come from consumers in months when they (i) began that month under the deductible but (ii) were predictably sick, in the sense that they had very low shadow prices for health care.
This study is forcing economists to rethink high-deductible health insurance
By Sarah Kliff
Vox, October 14, 2015
Economists Zarek Brot-Goldberg, Amitabh Chandra, Benjamin Handel, and Jonathan Kolstad studied a firm that, in 2013, shifted tens of thousands of workers into high-deductible insurance plans. This was a perfect moment to look at how their patterns of care changed — whether they did, in fact, use the new shopping tools their employer gave them to compare prices.
Turns out they didn’t. The new paper shows that when faced with a higher deductible, patients did not price shop for a better deal. Instead, both healthy and sick patients simply used way less health care.
This raises a scary possibility: Perhaps higher deductibles don’t lead to smarter shoppers but rather, in the long run, sicker patients.
Kolstad and his co-authors looked at the case of a large, unnamed company that shifted more than 75,000 workers and their dependents from a plan with no deductible to one with a $3,750 deductible.
Workers’ health spending dropped, and did so quickly.
In one sense, then, the high-deductible plan did accomplish a key goal: lower health spending. But when the researchers looked at why spending dropped, they found it had nothing to do with smarter shopping. The average price of a doctor visit wasn’t dropping.
Instead, under the high-deductible plan, workers just went to the doctor way less. The paper finds that “spending reductions are entirely due to outright reductions in quantity.” Workers did use less “potentially wasteful care,” like imaging services, but they also cut back on “potentially valuable care,” like preventive visits.
Even more striking: The sickest workers were those who were most likely to reduce their use of care while still under the deductible — even though this is the group that needs lots of care and is most likely to blow through the deductible by the end of the year. Once these sick workers actually exceeded their deductible, though, use of medical services rebounded.
“This is a difficult task for consumers to take on, and we now have very detailed data to show that’s the case,” (Kolstad) says. “When we’ve thought about the economics, we’ve generally thought this type of price change wouldn’t be problematic, that sicker people would just spend their deductible and get the care they need. This research suggests that’s not the case.”
For Kolstad, this makes him skeptical of “demand-side” interventions in health care — those that rely on consumer demands for lower health prices to ultimately lead to less medical spending.
This is an important study. It shows that sick patients will not shop prices but rather they will forgo beneficial health care services while they are still under the deductible for their plan.
This confirms that deductibles are an inappropriate tool for reducing health care spending, since health policies should be designed to improve care rather than impair it. This puts the entire concept of consumer-directed health care under question as a means of slowing health care spending. In contrast, single payer policies control spending while benefiting patients.
This study may seem familiar to regular readers. That is because it was covered in our June 15, 2015 Quote of the Day. It was based on an article in “The Conversation” by Ben Handel, one of the co-authors of this study.
What is new is that NBER has now released the full study, and reports of it are appearing in the media. It is a concept well worth repeating. Excerpts of the Vox article by Sarah Kliff are included above in that her description is quite clear, avoiding the technical language of economists and policy wonks.
Quote of the Day, June 15, 2015: http://www.pnhp.org/news/2015/june/deductibles-do-not-foster-price-shopping
Backgrounder: Health Care Plan
Jeb!, October 13, 2015
ObamaCare must be repealed and replaced. To position American health care to make the most of the potential of transformational innovation, policy solutions should go even further to stop the damage Washington central planners have caused for decades. Solutions should ensure that health care is centered on individuals, the consumers, and that the health care system benefits from the innovation that will make it more accessible, convenient, personal and affordable.
Governor Bush’s reforms will get Washington out of the way and empower patients with more choices, security and control over their health care decisions. These reforms will not only lower the costs of care, they will substantially lower federal spending. They will enable a modern system that is convenient, affordable, accessible and results-oriented.
Jeb’s Obamacare Repeal-And-Replace Plan Is More Repeal Than Replace
By Jonathan Cohn
The Huffington Post, October 13, 2015
The Bush plan calls for a familiar mix of conservative ideas on health care, according to campaign documents obtained by The Huffington Post. It would eliminate the coverage scheme of “Obamacare” — the tax credits, regulations on insurance, and individual mandate that have led to a historic reduction in the number of uninsured Americans.
In its place, Bush would introduce a new kind of financial assistance for people buying insurance on their own — specifically, tax credits pegged to age but not to income, and not designed to guarantee access to the same level of coverage as Obama’s health care program does.
The Bush plan also would give control of Medicaid, the insurance program for low-income Americans, over to the states.
What would this all mean in practice? It’s impossible to say with any precision, at least without more details about the dollar amounts involved.
Still, the outlines of Bush plan look a lot like like some other plans now in circulation on the right, like the so-called 2017 Project Plan and a proposal from Rep. Tom Price (R-Ga.). These plans envision less government spending and regulation, but would likely result in some combination of fewer people with insurance and less financial protection for people who have coverage. Experts contacted by The Huffington Post said they expected Bush’s plan, if enacted, would play out in a similar way.
The Bush plan would weaken (the Affordable Care Act) standards on insurance: People buying coverage would have more freedom to buy less-generous policies that cover only catastrophic costs. And the tax credits that Bush would provide, by design, guarantee access only to these catastrophic policies.
That’s cheaper than subsidizing the “silver” plans that the Affordable Care Act treats as its standard — a result conservatives would certainly cheer. But without ACA levels of assistance, poorer people who want more comprehensive coverage probably wouldn’t have the money to buy it. Once they got sick, they’d be stuck with more punishing out-of-pocket expenses. And because these are people with lower incomes, they’d have less money to cover those costs.
While the campaign has not specified how much money the states would get under Bush’s scheme (for Medicaid), conservative plans to hand control over to the states generally call for less spending on the program. Medicaid is already under-funded. If states had even less money with which to manage it, they’d almost surely have to restrict eligibility or cover fewer services — either of which would mean less financial protection, in this case for the very poor.
One more key footnote to the Bush plan is its protection for people with pre-existing conditions, which is different from the guarantee in the Affordable Care Act. The Bush plan calls for guaranteeing access, but only for people with “continuous” coverage. That means people whose insurance has lapsed — say, because they lost a job and couldn’t afford premiums for a few months — could be subject to denial because of their current medical problems.
“There seems to be an emerging consensus among Republican candidates for how to approach health care, beyond repealing Obamacare,” Larry Levitt, senior vice president at the Henry J. Kaiser Family Foundation, said on Monday night. “It centers around more limited protections for people with pre-existing conditions, health insurance tax subsidies that don’t vary with income, scaling back the tax subsidy for employer-based health benefits, and capping Medicaid. It means less regulation, and also less direct help for lower income people with their health needs.”
Although Jeb Bush’s health reform proposal released today is lacking in detail, there is enough to know that he would reduce government spending and government regulations, leaving patients even more exposed to impaired access and financial hardship. Those with a basic understanding of health policy can wade through the deceptive political rhetoric of Bush’s proposal to see how harmful it would be.
Financial health shaky at many Obamacare insurance co-ops
By Amy Goldstein
The Washington Post, October 10, 2015
A new breed of health insurers created under the Affordable Care Act — representing one of the government’s most innovative attempts in decades to foster better coverage — is on shaky financial ground in many of the 23 states where the plans began.
The nonprofit health plans were envisioned as a consumer-friendly counterweight to for-profit insurers, a way to provide more competition, greater consumer choice and better coverage in markets typically dominated by big commercial carriers. The government allocated billions of dollars in loans for them.
But in recent months, nearly half of the unorthodox start-ups have been told by federal regulators that their finances, enrollment or business model need to shape up.
The Centers for Medicare and Medicaid Services (CMS), which oversees the health-care law, recently sent warning letters to 11 of the “co-ops,” as they’re known. The agency placed them on “enhanced oversight” or required them to produce a plan of “corrective action,” or both, according to federal figures not previously made public. Several have been notified in the past two weeks.
Amid this increased monitoring, one co-op has folded, stranding its members, and four others are preparing to close in late December. They include the Nevada Health Co-Op, which was initially among a top tier that federal officials had regarded as best poised to succeed.
The birth and quick death of these co-ops illustrate the program’s fragility. When the ACA was enacted in 2010, the Consumer Operated and Oriented Plans were a compromise to appease congressional liberals who had wanted a new public insurance program for Americans unable to get health benefits at work.
Yet the co-ops’ struggle of late also reflects regulators’ shifting posture. In moves that could affect coverage for hundreds of thousands of people, CMS has gone from nurturing to getting tough.
The first plan to collapse served people in Iowa and Nebraska; it folded in February after being taken over by state insurance regulators. In July, Louisiana’s co-op revealed it was shutting down. Then late last month in New York state, the nation’s largest co-op toppled, startling insurance industry and health policy analysts who thought it was too big for the government to let fail.
The latest announcement came Friday, when the Kentucky Health Cooperative, serving about 51,000 customers, said that it, too, will close Dec. 31 because of poor finances.
The co-op disappearances are disrupting coverage for nearly 400,000 customers across five states, according to the most recent publicly available enrollment figures.
The program has been under siege from the start, including from the insurance industry. Before the law’s passage, government grants to help them get going were switched to loans. None of that money could go for advertising — a wounding rule for new insurers that needed to attract customers. Moreover, the amount available was cut from $10 billion to $6 billion and then later, as part of the administration’s budget deals with congressional Republicans, to $2.4 billion. Federal health officials abandoned plans for a co-op in every state.
At the time, some health policy experts warned that the constraints would make it difficult for some co-ops to thrive.
In August, federal officials delayed another type of assistance intended to help cushion the risk of covering the previously uninsured. This temporary “risk corridor” money was cut last week to a small fraction of what many co-ops had been banking on. The Kentucky co-op blamed its demise on its cut — from an expected $77 million to less than $10 million.
During the crafting of the Affordable Care Act (ACA), there was strong support for including the option of selecting a government-run insurance program in the insurance exchanges. This “public option” was first emasculated so that it would not be an effective competitor to the private insurance firms, and then it was totally eliminated from ACA by political chicanery. That led to support for including “Consumer Operated and Oriented Plans” (co-ops) – nonprofit insurers controlled by directors elected by the enrollees – as a substitute for the public option.
The private insurers were not through. Obviously they did not want competition from a nonprofit consumer-operated system that should have significantly lower expenses than do the private insurers. Insurers require capital – both for start-up expenses and for establishing reserves from which to pay claims. Although the original intent was to provide government grants to the co-ops, these were changed to government loans which the co-ops would have to pay back (not to mention that borrowing to fund reserves is a shell game – the net reserves are zero). Adding the burden of debt service onto the backs of these co-ops basically destroyed their competitive advantage, especially at a time that they were facing high start-up costs. Further, as an extra measure, the insurers had included in ACA a rule that prohibited the co-ops from advertising. Thus the insurers saw to it that the co-ops were placed at a competitive disadvantage.
And what help did the co-ops receive from the government? First the government cut way back on the funds that were made available as loans to satisfy capital requirements. When co-ops were successful in their enrollment efforts, the government did not make further loans available to satisfy increased reserve requirements (larger member rolls require greater reserves). Then the feds reneged on their requirement to pay the co-ops losses above the risk corridor (a form of reinsurance for excessive losses by the co-ops). Finally, the feds have become hard-nosed and have begun shutting down the co-ops because of failure to maintain adequate reserves. Surprise! How were they supposed to build reserves in a year with high start-up costs, high debt service, and increased reserve requirements because of greater than expected enrollment?
It is clear that HHS, from the beginning, has been in bed with the private insurers. This experience with the co-ops is not the only example of their effort to relieve the insurers of competition from government programs. They have been supporting the private Medicare Advantage (MA) plans through administrative manipulations that offset the required reductions in overpayments to these plans. Also, they are now greatly increasing Part B premiums for about one-third of Medicare beneficiaries, especially for those with high incomes – a measure bound to diminish support for the traditional Medicare program, chasing irked beneficiaries into the private MA plans.
This unfortunate outcome for the co-ops was not exactly unanticipated. It was inevitable based on the design features dictated by the private insurers (see our Quote of the Day of July 18, 2011). What is particularly sad is that our own government has not been a reliable partner with our citizens and their organizations. They have gotten into bed with the private insurers instead.
Single payer would fix this, but we would need new public administrators.
Less Physician Practice Competition Is Associated With Higher Prices Paid For Common Procedures
By Daniel R. Austin and Laurence C. Baker
Health Affairs, October 2015
Concentration among physician groups has been steadily increasing, which may affect prices for physician services. We assessed the relationship in 2010 between physician competition and prices paid by private preferred provider organizations for fifteen common, high-cost procedures to understand whether higher concentration of physician practices and accompanying increased market power were associated with higher prices for services. Using county-level measures of the concentration of physician practices and county average prices, and statistically controlling for a range of other regional characteristics, we found that physician practice concentration and prices were significantly associated for twelve of the fifteen procedures we studied. For these procedures, counties with the highest average physician concentrations had prices 8–26 percent higher than prices in the lowest counties. We concluded that physician competition is frequently associated with prices. Policies that would influence physician practice organization should take this into consideration.
The existence of an association between concentration and prices should underscore the importance of continued attention to the challenges posed by provider consolidation, especially given that consolidation among physician groups is likely to continue. Increased health care expenditures attributable to higher prices without improved outcomes for patients would generate inefficiency in the US health care system at a time when the opposite is badly needed. Policies that balance any benefits of larger organizations with the potential for problematic price increases, possibly including appropriate antitrust oversight, are needed as the country seeks to ensure efficient, high-quality patient care.
Consolidation of physician practices has been promoted as a means of improving efficiency and quality of care by means of integrating health care services. But this has raised the concern that concentration is anticompetitive and thus may result in higher health care prices. This study looks at that possibility.
Although outrage is often expressed at some of the very high prices that physicians charge for procedures, those prices are rarely paid since Medicare and Medicaid dictate the actual amount they pay, and private insurers contract for allowable charges for their network providers. Only patients who are uninsured or who are using out-of-network providers face the full charges, but, even then, lower prices are often negotiated on an individual basis, or sometimes the patient simply defaults on the bill. So in considering health care costs in general, it is the authorized payments that count and not the list prices.
This study, in fact, confirmed that where physician practices are more concentrated, prices insurers paid for health care are higher. So physician concentration is anticompetitive and results in higher payments. But are physicians the bad guys who are making us pay more for health care than we should be?
Looking closer at this study, the prices analyzed were those paid to in-network physicians in preferred provider organizations (PPOs) representing larger employers. This is where insurers should be able to deliver on their promises of lower prices. By representing larger employers, the insurers contracting with the physicians who would be included in the networks should be able to extract from them their most competitive prices.
But that didn’t happen. The insurers were not able to drive a better bargain in markets with physician concentration. Physicians in less concentrated markets were able to provide their services for lower prices, so that means that insurers actually were paying excessive prices in the concentrated markets.
Some say that the costs of large integrated systems are higher, so the prices had to be higher. But this belies the claim that integration of services increases efficiency, thereby reducing prices. What this actually shows is that the PPOs were not as effective negotiators when faced with provider concentration.
Compare that with the publicly-administered pricing that takes place in a single payer national health program. The amount paid is based on actual costs with fair margins, not on whatever the market will bear. What we don’t need are wimpish insurers who charge us outrageous administrative fees for a job they don’t even do well. Let’s get rid of them.
U.S. Health Care from a Global Perspective: Spending, Use of Services, Prices, and Health in 13 Countries
By David Squires, Chloe Anderson
The Commonwealth Fund, October 8, 2015
This analysis draws upon data from the Organization for Economic Cooperation and Development and other cross-national analyses to compare health care spending, supply, utilization, prices, and health outcomes across 13 high-income countries: Australia, Canada, Denmark, France, Germany, Japan, Netherlands, New Zealand, Norway, Sweden, Switzerland, the United Kingdom, and the United States.
- The United States is the highest spender on health care.
Data from the OECD show that the U.S. spent 17.1 percent of its gross domestic product (GDP) on health care in 2013. This was almost 50 percent more than the next-highest spender (France, 11.6% of GDP) and almost double what was spent in the U.K. (8.8%). U.S. spending per person was equivalent to $9,086 (not adjusted for inflation).
- Private spending on health care is highest in the U.S.
In 2013, the average U.S. resident spent $1,074 out-of-pocket on health care, for things like copayments for doctor’s office visits and prescription drugs and health insurance deductibles. Only the Swiss spent more at $1,630, while France and the Netherlands spent less than one-fourth as much ($277 and $270, respectively). As for other private health spending, including on private insurance premiums, U.S. spending towered over that of the other countries at $3,442 per capita—more than five times what was spent in Canada ($654), the second-highest spending country.
- U.S. public spending on health care is high, despite covering fewer residents.
Public spending on health care amounted to $4,197 per capita in the U.S. in 2013, more than in any other country except Norway ($4,981) and the Netherlands ($4,495), despite the fact that the U.S. was the only country studied that did not have a universal health care system. In the U.S., about 34 percent of residents were covered by public programs in 2013, including Medicare and Medicaid.7 By comparison, every resident in the United Kingdom is covered by the public system and spending was $2,802 per capita. Public spending on health care would be even greater in the U.S. if the tax exclusion for employer-sponsored health insurance (amounting to about $250 billion each year) was counted as a public expenditure.
- Despite spending more on health care, Americans have fewer hospital and physician visits.
The U.S. had fewer practicing physicians in 2013 than in the median OECD country (2.6 versus 3.2 physicians per 1,000 population). With only four per year, Americans also had fewer physician visits than the OECD median (6.5 visits). In the U.S., there were also fewer hospital beds and fewer discharges per capita than in the median OECD country.
- Americans appear to be greater consumers of medical technology, including diagnostic imaging and pharmaceuticals.
The U.S. stood out as a top consumer of sophisticated diagnostic imaging technology. Americans had the highest per capita rates of MRI, computed tomography (CT), and positron emission tomography (PET) exams among the countries where data were available. In addition, Americans were top consumers of prescription drugs.
- Health care prices are higher in the U.S. compared with other countries.
Data published by the International Federation of Health Plans suggest that hospital and physician prices for procedures were highest in the U.S. in 2013. Other studies have observed high U.S. prices for pharmaceuticals.
- The U.S. invests the smallest share of its economy on social services.
A 2013 study by Bradley and Taylor found that the U.S. spent the least on social services—such as retirement and disability benefits, employment programs, and supportive housing—among the countries studied in this report, at just 9 percent of GDP.12 Canada, Australia and New Zealand had similarly low rates of spending, while France, Sweden, Switzerland, and Germany devoted roughly twice as large a share of their economy to social services as did the U.S.
The U.S. was also the only country studied where health care spending accounted for a greater share of GDP than social services spending. In aggregate, U.S. health and social services spending rank near the middle of the pack.
- Despite its high spending on health care, the U.S. has poor population health.
On several measures of population health, Americans had worse outcomes than their international peers. The U.S. had the lowest life expectancy at birth of the countries studied, at 78.8 years in 2013, compared with the OECD median of 81.2 years. Additionally, the U.S. had the highest infant mortality rate among the countries studied, at 6.1 deaths per 1,000 live births in 2011; the rate in the OECD median country was 3.5 deaths. The prevalence of chronic diseases also appeared to be higher in the U.S.
A 2013 report from the Institute of Medicine reviewed the literature about the health disadvantages of Americans relative to residents of other high-income countries. It found the U.S. performed poorly on several important determinants of health. The Institute of Medicine found that poorer health in the U.S. was not simply the result of economic, social, or racial and ethnic disadvantages—even well-off, nonsmoking, nonobese Americans appear in worse health than their counterparts abroad.
- The U.S. performs well on cancer care but has high rates of mortality from heart disease and amputations as a result of diabetes
One area where the U.S. appeared to have comparatively good health outcomes was cancer care. The opposite trend appears for ischemic heart disease, where the U.S. had among the highest mortality rates in 2013—128 per 100,000 population compared with 95 in the median OECD country. The U.S. also had high rates of adverse outcomes from diabetes, with 17.1 lower extremity amputations per 100,000 population in 2011. Rates in Sweden, Australia and the U.K. were less than one-third as high.
From the Discussion
Health care spending in the U.S. far exceeds that in other countries, despite a global slowdown in spending growth in recent years. At 17.1 percent of GDP, the U.S. devotes at least 50 percent more of its economy to health care than do other countries. Even public spending on health care, on a per capita basis, is higher in the U.S. than in most other countries with universal public coverage.
How can we explain the higher U.S. spending? In line with previous studies, the results of this analysis suggest that the excess is likely driven by greater utilization of medical technology and higher prices, rather than use of routine services, such as more frequent visits to physicians and hospitals.
High health care spending has far-reaching consequences in the U.S. economy, contributing to wage stagnation, personal bankruptcy, and budget deficits, and creating a competitive disadvantage relative to other nations. One potential consequence of high health spending is that it may crowd out other forms of social spending that support health. In the U.S., health care spending substantially outweighs spending on social services. This imbalance may contribute to the country’s poor health outcomes. A growing body of evidence suggests that social services play an important role in shaping health trajectories and mitigating health disparities.
Exhibit 8. Health and social care spending as a percentage of GDP
(The first number is the percent of GDP spent on health care, the second is the percent spent on social care, and the third is the percent spent on both combined)
12 21 33 France
12 21 33 Sweden
11 20 31 Switzerland
11 18 29 Germany
12 15 27 Netherlands
16 09 25 United States
09 16 25 Norway
08 15 23 United Kingdom
09 11 20 New Zealand
10 10 20 Canada
09 11 20 Australia
This update, comparing us with 13 high-income countries, confirms that we still spend far more than any other nation on health care, partly because of our very high prices, even though we are not using more health care. Worse, in spite of our high levels of spending, our population health remains relatively poor.
One exhibit in this report shows that our combined spending on health care and on social care (retirement and disability benefits, employment programs, and supportive housing) is about average (see Exhibit 8, above). Considering that our health care spending is so high, it may be that the comparatively low spending on social services is a significant contributor to our poor population health.
We do need to improve the way we spend our health care dollars so that everyone has affordable access to high quality care, and a single payer system would do that. However, since we are a very wealthy nation, we should be able to increase spending on social services as well. The progressive taxes required to do that would also help to address our crisis in income inequality.
Risk Selection Threatens Quality Of Care For Certain Patients: Lessons From Europe’s Health Insurance Exchanges
By Wynand P. M. M. van de Ven, Richard C. van Kleef and Rene C. J. A. van Vliet
Health Affairs, October 2015
Experience in European health insurance exchanges indicates that even with the best risk-adjustment formulas, insurers have substantial incentives to engage in risk selection. The potentially most worrisome form of risk selection is skimping on the quality of care for underpriced high-cost patients—that is, patients for whom insurers are compensated at a rate lower than the predicted health care expenses of these patients. In this article we draw lessons for the United States from twenty years of experience with health insurance exchanges in Europe, where risk selection is a serious problem. Mistakes by European legislators and inadequate evaluation criteria for risk selection incentives are discussed, as well as strategies to reduce risk selection and the complex trade-off among selection (through quality skimping), efficiency, and affordability. Recommended improvements to the risk-adjustment process in the United States include considering the adoption of risk adjusters used in Europe, investing in the collection of data, using a permanent form of risk sharing, and replacing the current premium “band” restrictions with more flexible restrictions. Policy makers need to understand the complexities of regulating competitive health insurance markets and to prevent risk selection that threatens the provision of good-quality care for underpriced high-cost patients.
Lessons from Europe:
Risk Selection Is A Serious Problem
Examples of selection activities include offering health plans attuned to the preferences of the under- and overpriced insured, opening clinics in regions with healthy populations, closing offices in areas with underpriced high-cost populations, selective marketing to preferred groups, the use of group contracts, and selection of favorable applicants by insurance agents.
The situation is more critical in the United States than in Europe in the short run, because in the United States there are many competing managed care organizations that deliver care themselves and therefore, compared to European insurers, have much more effective and subtle tools to use to distort the level of quality of care. In addition, for-profit insurers in the United States have extensive experience with risk selection.
Risk Adjustment Should Be Improved
Because risk adjusters ideally should fulfill criteria such as appropriateness of incentives, fairness, and feasibility, adding new risk adjusters may involve trade-offs. For example, using a patient’s health care expenses in the previous year as a risk adjuster effectively reduces selection by insurers, but it also reduces the insurers’ incentives for efficiency.
The United States might consider adopting the following risk adjusters that are currently used in Europe: disability, pharmacy-based cost groups, previous use of durable medical equipment, and high costs from multiple prior years.
Invest In Collecting Data
Another lesson for US policy makers is that it is worthwhile to invest in collecting appropriate data. Several of the risk adjusters currently used in Europe required many years of investment in building up appropriate data systems.
Risk Sharing Is An Effective Strategy
Given imperfect risk adjustment, which seems inevitable to a certain extent, an effective strategy for reducing selection incentives is risk sharing. There are several forms of risk sharing. One form is mandatory risk sharing among insurers, which is sometimes referred to as mandatory reinsurance with a community-rated reinsurance premium. Another form is risk sharing between the regulator and the insurers — for example, when a regulator provides cost-based compensations to the insurers for high-cost patients. Because risk sharing also reduces an insurer’s incentive for efficiency, it confronts the regulator with a trade-off between selection and efficiency.
Adopt A Generic Premium Rate Band
Another effective strategy for US policy makers to use in reducing risk selection is to allow insurers to charge their enrollees, within a band or range of acceptable charges, risk-adjusted health insurance premium rates. As a result, the information surplus about enrollees that insurers have over the regulator might be focused on premium rate variation rather than on risk selection.
Understand The Complexities
An important lesson from European experience with health exchanges is that there are no easy solutions and that regulating competitive health insurance markets involves complex trade-offs among selection (through quality skimping), efficiency, and affordability. Another lesson from Europe is that legislators and policy makers can easily make serious mistakes and be misled by incorrect arguments.
Risk Selection Threatens Quality of Care for Certain Patients: Lessons from Europe’s Health Insurance Exchanges
The Commonwealth Fund, October 6, 2015
Beginning in the early 1990s, several European countries, along with Israel, established health insurance exchanges similar to those launched in the U.S. as part of the ACA. For a Commonwealth Fund–supported study in Health Affairs, researchers gleaned lessons from those countries on how to reduce incentives to engage in risk selection. Insurers can engage in risk selection by steering away high-risk patients in a variety of ways, including purposefully contracting with doctors or hospitals that offer mediocre or substandard care or excluding providers with the best reputations for treating certain diseases.
The Big Picture
Risk selection may be a more critical issue in the U.S. over the short run. “[I]n the United States there are many competing managed care organizations that deliver care themselves and therefore, compared to European insurers, have much more effective and subtle tools to use to distort the level of quality of care,” the authors write. U.S. insurers also are experienced at identifying medical risk and may use the information at their disposal to design products that are unattractive to high-risk patients—including those with cancer and substance abuse disorders. The high number of consumers choosing health plans in the insurance exchanges may exacerbate the problem. Solving these vexing issues, the authors say, must be made a priority to prevent sick patients from receiving poorer-quality services or reduced access to care.
This report, supported by the Commonwealth Fund and published in Health Affairs, looks at European nations that use variations of market exchanges of private insurance plans (Belgium, Germany, Ireland, Switzerland and, especially, the Netherlands) to see what lessons on risk selection they may have for the United States. But are these the right lessons for us?
Private insurers in the United States have long been masters at figuring out ways of insuring the healthy, with their relatively low health care costs, while avoiding insuring individuals with greater health care needs. Although the Affordable Care Act prohibits insurers from refusing to cover individuals anticipated to have higher health care costs, we are seeing insurance innovations in gaming risk selection that substitute for medical underwriting, which sometimes still prevents patients from receiving the care that they should have.
The multi-payer system in the United States is infamous for the very high costs of the wasteful administrative excesses in our health care financing. In fact, some of these excesses are for the very purpose of ensuring the business success of the private insurers. So what efficiencies do the European systems that use marketplace exchanges of private plans have that might help the United States avoid the perversities of favorable risk selection on the part of the insurers?
The authors suggest the introduction of additional risk adjusters (more administration), systems to collect yet more data (more administration), introduction of risk-sharing strategies such as mandatory community-rated reinsurance or risk sharing between the regulator and the insurers (more administration), allowing insurers to charge their enrollees, within a band or range of acceptable charges, risk-adjusted health insurance premium rates (more administration), and balancing trade-offs of quality-skimping selection, efficiency, and affordability (more administration).
Not only would these “lessons” expand the administrative excesses of our system, but because of the trade-offs involved, further compromises in quality and equity would result. No matter what strategies are used, the private insurers will always find a way around them. That is inherent in their business-model DNA.
Instead of us looking for lessons in the European private insurance markets, it seems that these European nations should be looking for lessons from our neighbor to the North: Canada and its single payer model of health care financing. We would do well to do the same.
High-Cost Patients Had Substantial Rates Of Leaving Medicare Advantage And Joining Traditional Medicare
By Momotazur Rahman, Laura Keohane, Amal N. Trivedi and Vincent Mor
Health Affairs, October 2015
Medicare Advantage payment regulations include risk-adjusted capitated reimbursement, which was implemented to discourage favorable risk selection and encourage the retention of members who incur high costs. However, the extent to which risk-adjusted capitation has succeeded is not clear, especially for members using high-cost services not previously considered in assessments of risk selection. We examined the rates at which participants who used three high-cost services switched between Medicare Advantage and traditional Medicare. We found that the switching rate from 2010 to 2011 away from Medicare Advantage and to traditional Medicare exceeded the switching rate in the opposite direction for participants who used long-term nursing home care (17 percent versus 3 percent), short-term nursing home care (9 percent versus 4 percent), and home health care (8 percent versus 3 percent). These results were magnified among people who were enrolled in both Medicare and Medicaid. Our findings raise questions about the role of Medicare Advantage plans in serving high-cost patients with complex care needs, who account for a disproportionately high amount of total health care spending.
From the Introduction
Each year Medicare beneficiaries can choose between two options for health coverage: traditional Medicare and Medicare Advantage. Although each option covers the same core set of benefits, the two may differ in terms of beneficiaries’ out-of-pocket expenses, choice of providers, and access to additional services. Approximately 30 percent of Medicare beneficiaries in 2014 were enrolled in Medicare Advantage plans.
Because Medicare Advantage plans receive prospective, capitated payments to finance and deliver services for their enrollees, they operate under strong incentives to manage their members’ health care costs. Policy makers have been concerned that capitated payments give Medicare Advantage plans an incentive to enroll healthier beneficiaries and to avoid enrolling those with chronic conditions. Indeed, a large body of literature based on data from the 1990s and early 2000s found that Medicare Advantage plans disproportionately enrolled healthier beneficiaries. This phenomenon, known as favorable risk selection, has historically yielded substantial overpayments to Medicare Advantage plans.
From the Discussion
We examined the relationship between use of hospital, nursing home, and home health care in 2010 and beneficiaries’ switching between Medicare Advantage and traditional Medicare by January 2011. Among traditional Medicare beneficiaries, we observed lower rates of switching into Medicare Advantage among people who used nursing home, home health, or acute inpatient care, compared with beneficiaries who did not use these services. In contrast, among Medicare Advantage beneficiaries, we found increased rates of switching into traditional Medicare among people who used nursing home and home health care, compared with beneficiaries who did not use these services.
Our results are consistent with other studies reporting that beneficiaries who report poorer health, use more health services, and have higher health care spending are more likely than their counterpart Medicare Advantage beneficiaries to leave Medicare Advantage plans, despite the recent reforms to the Medicare Advantage payment formula.
Our results raise questions about whether current Medicare Advantage regulations and payment formulas are designed to meet the needs of Medicare Advantage members who use postacute and long-term care. First, the enhanced payments to Medicare Advantage plans for dual eligibles or people who receive extended nursing home care do not appear to be effective in retaining these beneficiaries in Medicare Advantage plans. The unidirectional flow of these high-risk and often high-spending patients from Medicare Advantage to traditional Medicare appears to transfer responsibility to traditional Medicare just as patients enter a period of intensive health care needs.
There could be several reasons for the switching of high-risk Medicare Advantage enrollees. One possibility is that Medicare Advantage plans may not have sufficient incentives to spend their enhanced payments on better services for their beneficiaries.
Second, our findings suggest that Medicare Advantage members who use home health or nursing home services might be dissatisfied with the Medicare Advantage program. Medicare Advantage beneficiaries may find that their plans’ network restrictions make it harder to access these services that would be the case in traditional Medicare, creating an incentive to switch.
Additionally, some Medicare Advantage plans have been criticized for imposing high cost sharing for services such as the skilled nursing facility care that can be necessary for seriously ill beneficiaries.
We observed substantial switching from Medicare Advantage to traditional Medicare by beneficiaries who used nursing home and home health care, particularly those who were also eligible for Medicaid, and virtually no entry into Medicare Advantage plans by traditional Medicare beneficiaries who used these services or acquired dual eligibility. We found that a high proportion of beneficiaries with nursing home or home health care use choose to exit the Medicare Advantage program by the start of the next plan year. Thus, our study raises questions about the role of Medicare Advantage plans in serving high-cost patients with complex health care needs that span acute, postacute, and long-term care settings.
The Medicare-HMO Revolving Door — The Healthy Go in and the Sick Go Out
By Robert O. Morgan, Ph.D., Beth A. Virnig, Ph.D., M.P.H., Carolee A. DeVito, Ph.D., M.P.H., and Nancy A. Persily, M.P.H.
The New England Journal of Medicine, July 17, 1997
Enrollment in Medicare health maintenance organizations (HMOs) is encouraged because of the expectation that HMOs can help slow the growth of Medicare costs.
The rate of use of inpatient services in the HMO-enrollment group during the year before enrollment was 66 percent of the rate in the fee-for-service group, whereas the rate in the HMO-disenrollment group after disenrollment was 180 percent of that in the fee-for-service group.
In 1997, The New England Journal of Medicine published a landmark article that showed that Medicare patients who enrolled in private Medicare HMOs exited them when they developed a need for a greater amount of health care: “The Medicare-HMO Revolving Door — The Healthy Go in and the Sick Go Out”
After nearly two decades of refinement of payment methods for the private Medicare Advantage plans, this new study from Health Affairs shows that “a high proportion of beneficiaries with nursing home or home health care use choose to exit the Medicare Advantage program.” Specifically, “Our results are consistent with other studies reporting that beneficiaries who report poorer health, use more health services, and have higher health care spending are more likely than their counterpart Medicare Advantage beneficiaries to leave Medicare Advantage plans, despite the recent reforms to the Medicare Advantage payment formula.”
The healthy go in and the sick go out. With Medicare Advantage plans, the patients and the taxpayers end up as losers.
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