Report to the Congress: Medicare Payment Policy

Medicare Payment Advisory Commission (MedPAC)
March 1, 2010

The goal of Medicare payment policy is to get good value for the program’s expenditures, which means maintaining beneficiaries’ access to high-quality services while encouraging efficient use of resources.

Managing base rates will not solve the fundamental problem with current Medicare payment systems, discussed in our June 2008 report, that providers are paid more when they deliver more services (fee-for-service), without regard to the quality or value of those additional services. To address that problem directly, the Commission was an early proponent of payment reforms now widely discussed, including “medical homes,” “bundling,” and “accountable care organizations.”

For two reasons, however, comprehensive reform of Medicare’s payment systems is not a ready panacea. First, the new payment models need to be tested and refined; it is one thing to conceptualize a new model but quite another to implement it on a broad scale. Second, reorganization of how care is delivered may be necessary for payment reform to work. For example, “bundling” would pay a lump sum to the hospital, physicians, and post-acute providers caring for a patient during an inpatient admission plus some interval post-discharge (e.g., 30 days). Currently, those providers often act independently of one another and have no formalized means for collaborating, much less for sharing financial risk. Payment reform will often require reorganizing the delivery of care, a complex and time-consuming activity in its own right.

As much as reformers – including the Commission – may wish to hasten a sweeping overhaul of Medicare payment systems, Medicare is likely to continue using its current payment systems for some years into the future. This fact alone makes unit prices – both their overall level and the relative prices of different services – an important topic. In addition, unit prices under the current payment systems could affect the prospects for payment reform for the following reasons:

• The level of unit prices has an immediate and direct effect on Medicare expenditures. By limiting unnecessary updates, the Congress can achieve budget savings and lower beneficiary premiums and cost sharing. Although some critics of Medicare claim that it pays too little for each unit of service, in their 2003 Health Affairs article, Uwe Reinhardt, Gerard Anderson, and others found that high unit prices are one of the most important reasons that total U.S. health expenditures per capita are the highest in the world.

• By limiting and altering Medicare’s unit prices, Medicare provides an impetus for providers to volunteer for experiments with new payment methods. Medicare payment reform will often require changes in how providers are organized. Therefore, payment reform will likely need to proceed, at least initially, on a voluntary basis. Voluntary reform poses two challenges: First is the challenge of getting enough volunteers; after all, reorganizing can be difficult work since it may well entail a redistribution of income among participants. A physician subspecialist, for example, is unlikely to volunteer to participate in an accountable care organization that intends to redistribute income from subspecialists to primary-care providers – unless the subspecialist believes that redistribution is likely to happen under the current payment system. The second challenge is that if there is no financial pressure on providers that choose to stay in the current fee-for-service payment systems, their incentive to take a risk on a new system will be limited – and only providers who expect that they will fare better financially under the new payment method will volunteer. As a result, all other things being equal, voluntary payment reform could increase, not decrease, Medicare expenditures. Steady pressure on unit prices under Medicare’s current payment systems, coupled with appropriate redistribution of payments, will help address both of these challenges.

• The relative values used in Medicare’s payment systems signal what the program values and can, by themselves, shape the delivery system. On the one hand, inappropriately high unit prices may encourage heavy investment in equipment (e.g., MRI or computed tomography scanners) or programs and facilities (e.g., cardiac specialty hospitals and programs) that institutional providers are then reluctant to abandon. In extreme cases, badly mispriced services may leave the program vulnerable to fraud and abuse. On the other hand, comparatively low unit prices may discourage providers from delivering certain services. Take, for example, the relatively low amount paid for primary care services as opposed to subspecialty services. The comparatively low compensation for primary care has contributed to the dramatic decline in the number of U.S. medical school graduates choosing careers in primary care.

In conclusion, changing Medicare’s payment methods is essential to improving efficiency and value in health-care delivery. But such payment reform is unlikely to happen – or at least will not happen as quickly – without steady pressure on the level of prices paid by Medicare as well as attention to the relative values assigned to different services. We hope this report contributes to that effort.

MedPAC Report to the Congress (381 pages):
http://www.medpac.gov/documents/Mar10_EntireReport.pdf

And…

Patient Protection and Affordable Care Act

U.S. Senate
December 24, 2009

SEC. 3403. INDEPENDENT MEDICARE ADVISORY BOARD.

There is established an independent board to be known as the ‘Independent Medicare Advisory Board’.

PURPOSE.—It is the purpose of this section to, in accordance with the following provisions of this section, reduce the per capita rate of growth in Medicare spending.

http://thomas.loc.gov/ Click Bill Number; Insert H.R. 3590; Click Search; Click Text of Legislation; At end of version 5 click PDF (2409 pages); Go to pages 982-1033 for SEC. 3403 on the Independent Medicare Advisory Board.

Wake up! Big changes are coming in health care financing!

For those who are upset about the 21 percent cut in Medicare payments instituted yesterday, this provides you with hardly an inkling of what may be ahead.

The sustainable growth rate (SGR) was a well intentioned effort to slow the increase in Medicare payments to more closely match the rate of inflation. MedPAC (Medicare Payment Advisory Commission) played an advisory role in establishing SGR, but it required the action of Congress to institute it.

Because physicians then increased the frequency and intensity of services, the SGR formula required a very modest rate reduction – each year. Congress was reluctant to approve the rate reductions and so they postponed them – each year. But the reductions were cumulative and have remained on the books. This year Congress has failed to act so the cumulative 21 percent reduction was applied as of yesterday. HHS is withholding payments for the next ten days to give Congress one more chance to halt the reductions for this year, but no definitive resolution is in sight.

If this is what has happened when MedPAC has had only an advisory role, just think of the possibilities of an empowered MedPAC. The Independent Medicare Advisory Board (IMAC) that would be established by the enactment of the Senate health care reform legislation has tremendous powers to move forward with their recommendations, with Congress being relegated to having only limited veto powers on their actions.

When you read MedPAC’s Medicare Payment Policy report presented to Congress yesterday, you can begin to imagine the potential of IMAC as an empowered MedPAC. It is likely that we would be moving ahead with the initial phases of accountable care organizations (ACOs) and bundled payments. A recent qotd discussed how these concepts might actually increase spending instead of achieving their goal of reducing spending, that is for private insurers negotiating with a more highly consolidated delivery system. But the IMAC rules would apply to Medicare exclusively, and Medicare doesn’t have to negotiate.

Health care cost increases must be contained. I’m not as concerned about those who can afford the high prices of health insurance and health care as I am about those who will not be receiving the health care that they need because they can’t pay for it and government support will be inadequate to remove the financial barriers to care.

The private insurers have proven to be incapable of controlling spending. The government has been effective, but in what way? For Medicaid, they have simply underfunded the program. The government is depending on both captive providers and provider charity to absorb the losses on Medicaid.

What about Medicare? Actually Medicare has been very effective in using innovations to slow cost increases, including some innovations recommended by MedPAC. The problem is that there is now a perception on the part of many providers that Medicare has been too aggressive in slowing spending, and there are early signs that access may become impaired for Medicare beneficiaries because of a lack of willing providers. It is crucial that Medicare maintains a balance between fair compensation for the providers while at the same time not supporting today’s excesses in health care pricing.

Are you still awake? Here’s where I’m going to lose some of you.

We do need an Independent Medicare Advisory Board, but not for Medicare as we know it. Letting the private insurance industry have free rein while allowing Medicare to ratchet down rates risks converting Medicare into another underfunded Medicaid program.

What we need instead is an Independent Medicare Advisory Board (or a public administrative equivalent) that strives for optimal payment policies for our entire health care system, i.e., for a single payer Medicare for all program. Patient and provider push back would ensure that we would have the balanced compensation rules that we need.

It’s too bad that we can’t use reconciliation to enact an improved Medicare for all. Or can we?

What do we need health insurers for anyway?

By Michael Hiltzik
Los Angeles Times
February 28, 2010

(Before a congressional subcommittee, WellPoint’s chief executive Angela) Braly was forced to make an implicit admission that her industry almost never makes explicitly: The nation’s health coverage system is so hopelessly broken that even the health insurance industry can’t handle it anymore.

Her testimony, and other statements she and other WellPoint executives have made, suggests that insurers can’t profitably manage through periods of high unemployment. They can’t price policies in a way that keeps healthy young people in the same pool as older people, producing a mockery of the very point of indemnity insurance. Despite a decade of unobstructed consolidation, which was sold to regulators as a way to control healthcare costs by creating mega-insurers like hers, her industry can’t control healthcare costs.

Braly’s words are a reminder of the most important unasked question in the entire healthcare debate: What do we need insurance companies for, anyway?

The only way insurers can remain profitable at all is by selling healthy people on policies that don’t offer much coverage at all, while squeezing older, less healthy people remorselessly so they either pay for most of their care out of pocket or get priced out of the insurance market completely (thus becoming a burden for taxpayers).

Braly in her testimony assured the subcommittee that even with the latest California rate increases, “a 40-year-old woman in Los Angeles can obtain coverage with a $1,500 deductible for as low as $156 per month.”

She didn’t specify what kind of coverage. So let’s check out what her company offers. Leaving aside whether that 40-year-old woman might have a preexisting condition that would drive up her premium or make her uninsurable — anything from diabetes to a history of hay fever — the insurer’s California package with a $1,500 deductible requires the customer to pay up to 70% of the cost of “covered services,” including routine mammograms and Pap tests, plus as much as $500 a day for hospital stays.

Maternity isn’t covered at all, so our 40-year-old Angelena better have gotten her lifetime childbearing out of the way before picking up the phone to sign up.

“Our plans fit the way you live,” the CoreGuard brochure says. What it really means is: You better fit the plan, or you’re out of luck.

Shouldn’t that have been on the agenda at the Washington summit?

http://www.latimes.com/business/la-fi-hiltzik28-2010feb28,0,1011707.column

And…

Our plans fit your plans

Anthem Blue Cross

Anthem Blue Cross CoreGuard Benefits for California

Deductible: choices of $750 to $20,000 (with a second deductible for Out-of-Network services)

Coinsurance (In-Network): 50%
Coinsurance (Out-of-Network): 70%

Inpatient Services (In-Network): 50% Coinsurance plus $500 Copay per day (3 days)
Inpatient Services (Out-of-Network): 70% Coinsurance plus $500 Copay per day (3 days)

http://www.ehealthinsurance.com/ehealthinsurance/benefits/ifp/CA/CAAthem_CoreGuard.pdf

When WellPoint’s CEO Angela Braly boasts that a 40 year old woman can purchase $1,500 deductible coverage from them for only $156 per month, it’s important to see how they define that coverage.

Although Angela Braly didn’t state which $1,500 deductible plan has a premium “as low as $156,” let’s look at the Anthem Blue Cross $1,500 deductible CoreGuard plan as an example. Under that coverage, a 40 year old woman would have to pay twelve monthly premiums, the first $1,500 of In-Network care, the first $1,500 of Out-of-Network care, one-half of allowed In-Network charges after the deductible (coinsurance), 70% of allowed Out-of-Network charges after the second deductible (coinsurance) (Anthem Blue Cross paying only 30% of allowed charges!), an additional $500 per day for up to three days for hospitalization (a copayment on top of the coinsurance!), all maternity care (Anthem Blue Cross paying nothing!), and… well… you get it.

When Anthem Blue Cross promotes this product as a $1,500 deductible plan, they are being so deceptive that it is dishonest. They call these “look alike plans” – it looks like a $1,500 deductible plan, but it isn’t. The patient is paying most of the health care costs while Anthem Blue Cross pretends that this is insurance.

The more sophisticated insurance purchaser might look at this plan and recognize that it is almost worthless except that it has an out-of-pocket maximum of $3,500 for the year. So maybe it is worth the premium as a catastrophic plan, limiting losses to $3,500. But look closer. The fine print excludes the deductible from counting towards the out-of-pocket costs, so it is really $5,000, but only for In-Network services. Another $9,000 ($7,500 plus $1,500 deductible) has to be paid for Out-of-Network services as well. So the exposure is the total of monthly premiums, the In-Network $5,000, the Out-of-Network $9,000, all Out-of-Network costs in excess of the allowable charges, and any services, such as maternity care, that are not a benefit of the plan. This is another one of those you’re-covered-if-you-don’t-get-sick plans.

To show how ridiculous this can be, using the same benefit guide (link above) for a family with a $10,000 deductible plan, the out-of-pocket maximum looks like it is $7,000, but it is actually $17,000 for In-Network services ($7,000 plus $10,000 deductible), plus $25,000 for Out-of-Network ($15,000 plus $10,000 deductible). In addition to this $42,000, the family must pay monthly premiums, all Out-of-Network costs in excess of the allowable charges, and any services that are not a benefit of the plan (no maternity benefits for a young family!).

Angela Braly admits that WellPoint, the largest mega-insurer in the nation in terms of enrollees, cannot control health care costs, and neither can the rest of their industry. Their solution to keeping premiums affordable is to shift more of the health care costs to the individuals and families who need care, defeating the purpose of risk pooling.

Michael Hiltzik has asked the right question: What do we need insurance companies for, anyway?

Unchecked Provider Clout In California Foreshadows Challenges To Health Reform

By Robert A. Berenson, Paul B. Ginsburg and Nicole Kemper
Health Affairs
February 25, 2010

Abstract

Faced with declining payment rates, California providers have implemented various strategies that have strengthened their leverage in negotiating prices with private health plans. When negotiating together, hospitals and physicians enhance their already significant bargaining clout. California’s experience is a cautionary tale for national health reform: It suggests that proposals to promote integrated care through models such as accountable care organizations (ACOs) could lead to higher rates for private payers. Because antitrust policy has proved ineffective in curbing most provider strategies that capitalize on providers’ market power to win higher payments, policy makers need to consider approaches including price caps and all-payer rate setting.

Excerpts

As the dominant payer for the elderly and disabled, Medicare sets prices and is generally indifferent to providers’ negotiating clout. Private payers, which must negotiate with all hospitals and large physician practices, generally agree to pay much higher rates than Medicare pays to persuade providers to enter into a contract with them.

If accountable care organizations lead to more integrated provider groups that are able to exert market power in negotiations — both by encouraging providers to join organizations and by expanding the proportion of patients for whom provider groups can negotiate rates — private insurers could wind up paying more, even if care is delivered more efficiently.

Lessons from California, then, can inform current discussions about whether health delivery and payment reforms would reduce the rate of health care spending growth, not only in Medicare but overall. Our findings suggest the opposite: a definite shift in negotiating strength toward providers, resulting in higher payment rates and premiums. As one medical group executive said, “We are making out hand over fist.” In some cases, payment rates to hospitals and powerful physician groups approach and exceed 200 percent of what Medicare pays, with annual negotiated double-digit increases in recent years.

From the Discussion

The shift in who holds the upper hand in negotiating payments — once held by health insurance plans but now resting with health care providers — has had a major impact on California premium trends. According to some survey respondents, the dynamic needs urgent policy attention. “I am shocked there isn’t an outcry over the fact that our costs are driven out of control,” a health plan executive complained. “We would like to establish some sort of boundary, beyond which these guys can’t go. We’d welcome some regulatory intervention to break up these monopolies, because they are just killing us.”

A single “must-have” hospital can develop enough clout to obtain payment rates much higher than Medicare’s, acknowledging that many providers believe Medicare payments to be inadequate. Indeed, across other markets studied by the Center for Studying Health System Change, providers are developing increased leverage through single-specialty group formation and merger-and-acquisition strategies that do not involve integration. Nevertheless, given the push in Congress and elsewhere to restructure health care delivery with accountable care organizations, it is instructive that whatever their merits in improving quality and efficiency, California-style integrated care systems currently produce higher prices that undermine cost containment.

Unless market mechanisms can be found to discipline providers’ use of their growing market power, it seems inevitable that policy makers will need to turn to regulatory approaches, such as putting price caps on negotiated private-sector rates and adopting all-payer rate setting. Indeed, some purchasers who believe strongly in the long-term merits of increased integration of care delivery believe that price regulation may be a prerequisite for payment reforms that encourage integration.

http://content.healthaffairs.org/cgi/reprint/hlthaff.2009.0715v1?ijkey=p3Di/BAt8Oh0w&keytype=ref&siteid=healthaff

And…

AHIP Statement on Premium Increases

America’s Health Insurance Plans (AHIP)
Press Release
February 18, 2010

AHIP recently sent a letter to Capitol Hill to highlight the key factors contributing to increases in health insurance premiums. These factors include:
* sharp increases in provider rates;
* increased cost-shifting as providers seek to offset the costs of treating more Medicaid patients;
* an increase in uncompensated care costs;
* consolidation among hospitals and other health care providers;
* a wide range of new state laws, including benefit mandates, regulations, and premium taxes; and
* economic factors that have caused some people to drop coverage resulting in a risk pool that is more heavily weighted with older, less healthy persons.

http://www.ahip.org/content/pressrelease.aspx?docid=29497

And…

White House says health-care bills contain cost-cutting remedies

By Shailagh Murray
The Washington Post
November 26, 2009

Unless lawmakers institute changes across the entire system, (AHIP’s Karen) Ignagni said in a statement Wednesday, “Health costs will continue to weigh down the economy and place a crushing burden on employers and families.”

http://www.washingtonpost.com/wp-dyn/content/article/2009/11/25/AR2009112503474.html

The private insurers claim that health care costs are the major cause of high health insurance premiums. That is true. So where do we place the blame for failure to slow cost escalation?

The private insurers can be blamed for their despicable policies that prevent patients from receiving the care that they should have, but they can’t really be blamed for the fact that health care prices in the United States are much higher than in any other nation. So should they share some of the blame for failing to use their clout to slow down health care spending? Or is it that the private insurers really have no clout?

Are the health care providers to blame? The Health Affairs article by Robert Berenson and his colleagues at the Center for Studying Health System Change should be read by everyone interested in health system reform. They show that some California physicians and hospitals have been able to reverse the cost restraints that characterized the managed care revolution by using consolidation to greatly increase their negotiating clout. As an example of the impact, California hospitals were able to increase their prices for privately insured patients by 10.6 percent per year during 1999-2005.

Some may want to point to the greed and profit motives of the health care providers as being the primary problem. So which nefarious organizations are these? Sutter Health. Catholic Healthcare West. Hospitals in the University of California system. Ceders-Sinai Medical Center. These are not evil investor-owned institutions that take their directions from Wall Street. Since we can’t really blame Wall Street for high prices in California, do we blame the providers for failing to contain their own excesses? Or are they merely trying to meet the demand of patients who want the very latest and best in health care?

The current reform proposal before Congress calls for accountable care organizations (ACOs) and bundled payments as means to slow the growth in health care spending. That might work for Medicare though it wouldn’t save much, but, as explained in this Health Affairs article, it would likely lead to higher private insurance costs through the market impact of provider consolidation.

When we’re deciding where to place the blame, we should keep in mind a very important declaration from this article: “As the dominant payer for the elderly and disabled, Medicare sets prices and is generally indifferent to providers’ negotiating clout. Private payers, which must negotiate with all hospitals and large physician practices, generally agree to pay much higher rates than Medicare pays to persuade providers to enter into a contract with them.”

Private insurers do not have the clout to obtain best pricing, but a single payer such as Medicare does. Best prices are prices that are adequate to ensure that physicians and hospitals will be there when you need them but are not so high that they result in waste on non-beneficial excesses. If a universal public payer were to exercise too much clout, push back by patients and providers would moderate it.

So where should we place the blame for the failure to slow our excessive cost escalation? It is President Obama and Congress who have refused to consider a publicly financed and publicly administered program such as an improved Medicare for all that would finally allow us to receive the care that we need while still being able to pay for it.

But the real culprits? We, the people. We have failed to let our leaders know how truly passionate we are about achieving honest-to-goodness health care justice for all. We can change that.

Letter to the President
by David V. Clough, MD

Dear President Obama:

Health care reform is necessary for the maintenance of a productive society. Modern medicine has advanced so rapidly during 50 years since I began Family Practice that much of what I learned as a medical student and Resident is out of date and technically non existent. The advances are truly amazing and expensive.

I am a member of PNHP (Physicians for a National Health Program). The cost savings of a single system would easily exceed the expense of covering everyone, lower the administrative cost burden for the practicing physician, while decreasing the National tax payer burden. The current proposals fall short due to their complexity.

In 1963, I opened a private Family Practice. I needed a part-time nurse, and a part time receptionist/billing clerk—Today insurance billing, prior approval, varying and often conflicting rules and reports, require at least four full time employees to support one physician.

Primary Care cannot be forced into 10-15 minute time slots to “improve productivity” without destroying good Doctor-Patient relationships, and most likely produce serious errors of omission. If we were to remove all of the unnecessary paper work, the practice of medicine could again become the best of Professions with superior productivity. Primary care would remain attractive to more doctors, be highly effective and reduce the need for excessive dependency on technology and frequent referrals to specialists.

I urge you to abandon the current health reform proposals and return to consider a uniform system that would save money and produce superior care. Please give serious attention to PNHP, Doctor Flowers, and other supporters. Consider their plan – you said, if you have a better plan let me hear it – over 50% of Doctors, and 60% of the public agree.

Sincerely,
David V. Clough, MD
Gloversville, NY

Copy to Congressmen Paul Tonko and Nancy Pelosi. Senators Max Baucus, Harry Reid, Kirsten Gillibrand and Charles Schumer.

U.S. House of Representatives

Committee on Energy and Commerce
February 24, 2010

Memorandum
From: Committee on Energy and Commerce Majority Staff
Re: Questions Raised by Internal WellPoint Documents

As part of the Committee’s investigation into premium increases proposed by Anthem Blue Cross, a subsidiary of WellPoint, Inc., the Committee has received over 3,000 documents from WellPoint and its regulators, including internal WellPoint correspondence, presentations to senior corporate management, company-produced actuarial assessments, and regulatory filings. Committee staff also spoke to representatives of the company; received briefings from regulators, including the California Department of Insurance and the National Association of Insurance Commissioners; and spoke to outside experts in the field of health finance.

As summarized below, a review of the documents provided to the Committee and the other information received by the Committee raises multiple questions that members may wish to pursue during today’s hearing.

Question 4: Is WellPoint pushing people into less generous plans?

According to Ms. Braly’s testimony (Angela Braly, WellPoint President and CEO), “Another dynamic in our current challenging economy is that a higher proportion of healthy individuals move to lower cost coverage, such as coverage with a higher deductible, than in more robust economic times.”

Internal documents suggest that WellPoint’s business plan includes moving consumers into less generous plans. This strategy appears to have three components.

First, WellPoint’s highest rate increases seem to apply to their most comprehensive insurance plans. Maternity care is a marker for a more comprehensive package of benefits. A chart of proposed rates shows that WellPoint’s highest rate increases apply to the only two product families regulated by the Department of Insurance with maternity coverage. The chart also shows that for the most part, WellPoint proposed lower increases within specific product lines for the versions with higher deductibles than for the versions with lower deductibles.

Second, WellPoint is developing new products, called “downgrade options,” to promote to consumers facing the high rate increases. In one e-mail, David Shea, the Vice President for Individual Pricing, states: “Jim has asked Bryan to price 5-6 downgrade options to be made available in conjunction with the upcoming rate action.” In another internal e-mail, Mr. Curley, the Regional Vice President and Actuary, proposed that WellPoint “create 5-6 CA look-alike plans for CA with a benefit or two removed to create a downgrade option upon renewal.”

WellPoint also introduced a completely new product line called CoreGuard, advertised to have “some of our lowest monthly rates” and a “higher percentage of member cost-sharing in exchange for lower premiums.” One of the CoreGuard plans has a $20,000 deductible for a family for in-network services and a separate $20,000 deductible for non-network services. On top of that, a family can spend an additional $15,000 for co-payments for non-network services. Enrollees can be liable for another $4,500 in prescription drug costs. This adds up to a potential $59,500 out-of-pocket maximum for a family, who are still liable for the cost of drugs not on the formulary and maternity services.

Third, company officials discussed scaling back benefits for existing plans. In an e-mail, Mr. Shea states: “During our Plan review this morning Brian was mentioning that, in CA in the past, we mitigated rate increases by introducing product changes for existing members. We brought up the introduction of new products but he wanted to pursue existing product changes.” In another e-mail, Mr. Curley described scenarios that would produce a 6% to 10% reduction in benefits for four plans. The options included raising deductibles in three of the four plans and adding 25% coinsurance payments.

http://energycommerce.house.gov/Press_111/20100224/Questions.Raised.by.Internal.WellPoint.Documents.pdf

Testimony of Angela Braly, WellPoint President and CEO:
http://energycommerce.house.gov/Press_111/20100224/Braly.Miller.Testimony.pdf

When most of us are concerned about skyrocketing health care costs, the private insurers have concentrated on their more immediate concern: How can they maintain a market presence by making their health plans more affordable?

To keep premiums at a level that maintains their market, the insurers have reduced benefits and and have increased cost sharing, especially through much higher deductibles and greater coinsurance. Compared to copayments, coinsurance, as a percentage of charges, shifts much more of the costs to those who need a greater amount of health care.

These innovations are resulting in a transformation of the market into a choice of new options, referred to internally by the insurance industry as “downgrade options.” The consumer facing outrageous premium increases would have new choices – either deceptive “look-alike” plans with reduced benefits, or new innovative products such as CoreGuard. With CoreGuard, for a reduced premium, you can have a plan with family cost sharing of only $59,500 plus the cost of products and services that are not included as a benefit.

Of course, these downgrade options represent an expansion in the market of underinsurance products. Downgrade options are a devious method of shifting health care cost increases to those individuals who need health care. It is bad enough to be sick or injured without having to face intensifying financial hardship and perhaps bankruptcy, even if insured.

What will President Obama’s proposal do to rectify the injustices of these downgrade options? For most individuals, almost nothing. They will remain in their employer-sponsored plans or other programs such as Medicare or Medicaid. For the minority who will be able to purchase plans through state insurance exchanges, the plans will have prescribed benefits and an actuarial value at a relatively low 70 percent (60 percent for some), meaning that cost sharing can still pose a major burden. Because these relatively Spartan plans will still be more generous than the downgrade options, the premiums will be higher.

The Obama plan specifies that a family will not have to contribute more than 9.5 percent of income to the premium (less for lower income families), as long as they don’t upgrade to a plan with the benefits that they should have. If they upgrade, they pay the entire difference. Obama’s plan also would limit cost sharing to current HSA limits ($11,900 per family in 2010), but that is misleading since considerable costs can be racked up outside of the plan.

With higher premiums than current individual plans, with some limits placed on the exposure of the family to costs, and with impotent measures to slow cost escalation, an increasing burden will be placed on the taxpayers who are subsidizing this system. That’s us. So we’ll pay, one way or another.

Why is President Obama forcing on us this profoundly expensive, administratively complex, and comparatively ineffectual system when we could have an improved Medicare for all of us that would ensure that we get the care we need while keeping it affordable? More to the point, why aren’t we mounting a rebellion (with civility)?

Purchasing Value in Health Care

Selected Findings From the 15th Annual National Business Group on Health/Towers Watson Survey Report — 2010

Towers Watson
February, 2010

The prolonged economic downturn is putting additional pressure on companies to change their health care programs to help relieve financial strain. The results of this year’s survey also show employers are frustrated by employees’ poor health habits and are struggling to effectively motivate behavior change. Additionally, they are uncertain about the future of employer-sponsored benefits, especially in light of the potential for health care reform legislation. Against this backdrop, employers are doing more to hold the line on costs and achieve better health and productivity outcomes.

Key Findings

* Annual median health care cost increases rose slightly in 2009 to 7%, compared with 6% in 2008. This pace is still more than twice the rate of inflation.

* Fifty-seven percent of respondents are very confident that employers will continue to offer health care benefits 10 years from now. This figure is down from 2009, when 62% of employers expressed a high level of confidence.

* Employers report that lack of employee engagement is the biggest obstacle to changing health behaviors. Still, they are trying new ways to encourage employees to become healthier and buy health care services more efficiently.

* There is considerable room for improvement in vendor programs designed to change member health habits and encourage efficient use of health care services. Employers rate these programs as ineffective.

* Today, 54% of companies have a consumer-driven health plan (CDHP) in place – a 6% increase over last year’s findings – and is expected to increase to 61% in 2011.

http://www.towerswatson.com/assets/pdf/1258/WT-2010-15571.pdf

Everyone agrees that it is better to practice good health habits. So who could object to employers providing incentives for their employees to improve their health behaviors?

During the national health reform dialogue, opponents of comprehensive reform frequently attempt to reframe the problem as a lack of individual responsibility for personal health. If people would eat better, exercise, and not smoke, many of the reform proposals would not be necessary.

This concept has now been co-opted by many of the nation’s large employers as they introduce wellness programs into their companies. What has been their experience?

According to this Towers Watson survey (a consolidation of Towers Perrin and Watson Wyatt), “employers are frustrated by employees’ poor health habits.” Employers report that “lack of employee engagement is the biggest obstacle to changing health behaviors.” Regarding their vendor programs that are designed to change employees’ health habits, “employers rate these programs as ineffective.”

Though they rate their wellness programs as ineffective, the sister programs that actually have slowed the growth in employer costs have been the consumer-driven health plans (CHDPs). A majority of large employers have now introduced CHDPs. Although the supporters of CHDPs use the rhetoric of placing the consumer in charge, these plans are nothing more than very high deductible plans which shift more of the responsibility of paying for health care from the employer to the employee.

During the period of employment, most injuries and illnesses for which the employee would require care would not be prevented by the wellness interventions. Employers who shift costs to employees who are unfortunate enough to need health care are being dishonest when they claim that they are doing this to enhance wellness.

During the reform dialogue, we cannot allow the opponents to reframe the debate as the need for wellness programs to address employees’ lack of engagement in correcting poor health habits, while these opponents in truth are supporting passing more costs onto the infirm.

Keep the framing on target. We need to remove financial barriers to care so that absolutely everyone can have the health care that they need. Properly designed wellness programs are fine, but we cannot let them distract us in our efforts to enact a single payer national health program – an improved Medicare for everyone.

The President’s Proposal

The White House
February 22, 2010

Policies to Improve Affordability and Accountability

Example for a family of four with income of $66,000:

Maximum percent of income paid for premiums: 9.5%

Percent of costs paid by health insurance plan: 70%

Penalty for remaining uninsured: (in 2016) the higher of $695 (with indexed increases) or 2.5% of income

Hardship exemption – threshold income below which the penalty is waived: The income tax filing threshold ($9,350 for a single or $18,700 for a married couple in 2009)

http://www.whitehouse.gov/health-care-meeting/proposal

The greatest significance of President Obama’s health care reform proposal released today is that he has now formally placed his stamp of approval on the fundamental policies already contained in the House and Senate reform bills. While remaining silent on some of the third rail issues (public option, Medicare buy-in, pregnancy termination, etc.), he and his staff merely tweaked the bills and added insurance premium rate review, whatever that’s worth, and some rhetoric on waste, fraud, and abuse.

His proposal still falls far short on two of the most important goals of reform: 1) insuring everyone, and 2) ensuring that health care is affordable for each of us. Merely tweaking the Senate version, which is what they did, could not have attained these goals since the most effective policies were already traded away before serious negotiations began.

That said, let’s look at what the President expects a family of four with an income of $66,000 to pay for health care. The premium contribution would be 9.5% of income, or $6270 for the basic plan with an actuarial value of 70%. If they wanted or needed a better plan, they would have to pay the full difference in the premium. At an actuarial value of 70%, they would also have to pay an average of 30% of all health care costs. This can vary considerably because of plan design in the form of deductibles, copayments, coinsurance, non-covered benefits, stop loss, out-of-network care exempt from stop loss, and other factors. If they either elected not to or were unable to pay the premium, they would have to pay a penalty of $1650, but then, of course, they would have no protection at all against potential health care costs.

Clearly, President Obama has not done any better than Congress in protecting families from financial hardship should they have the misfortune of developing significant medical problems. Unaffordable underinsurance is not the change that we needed.

Do Not Resuscitate the ‘Public Option’
by Andy Coates

Like initiating CPR on a patient who was dead in the field and remained dead on arrival, the effort to resuscitate the “public option” is mistaken and futile.

Once upon a time, proponents of the “public plan option” sought a “Medicare-like” program that might enroll every other person in the nation and thus run private insurers out of business.

“A roadblock to reform” cried the insurance companies.

Now nothing in the bills passed by the House and the Senate bills would erect a public insurer that could possibly influence the insurance market.

The House bill included a feeble government plan, to start in 2013, that would enroll perhaps 2 percent of the nation by 2019. The Senate bill simply nixed the idea altogether.

In reality the “public option” was never much more than a K-street phrase, a shadow-puppet, a political posture. All along proponents of adding a new government-sponsored insurer boasted “talking points” but never offered workable health reform.

But the insurance companies oppose the “public option” and that proves its virtue, its supporters exclaim.

Hello? Of course the insurers oppose it.

Why would the insurers want to yield even 2 percent of the market to a public plan (House bill) when they’ve been given the “option” (Senate bill) of keeping 100 percent of the market? Why would the insurance companies not fight for the whole pie when the White House let slip that it saw the “public option” as simply a bargaining chip in private dealmaking?

But there is something else here.

With its reliance on the magic of the marketplace, the “public option” is simply not a progressive idea.

Consider two examples of how the market performs when private insurers compete with a public plan. Example 1: under Medicare Advantage the private insurers enroll the healthy and dis-enroll the sick and yet cost more per patient than traditional Medicare. Example 2: in Maine, a “public option” insurer known as DirigoChoice, was established in 2003. Thus far it has failed to enroll but a tiny percent of the uninsured, has not reduced costs for insurance, nor reduced overall health spending, nor lessened disparities in care – and this year it has fatally tanked.

In the United States a corporate oligopoly of huge insurers, with near-monopoly control in most locales, dominate the market. A government insurer of any size would simply add yet another bureaucracy to the present byzantine insurance mess.

Does it really make any sense to think that a government plan could give the private insurance companies a run for their money – within the contemporary corporate marketplace – without draconian regulation upon the industry? Even with regulation, as former Cigna executive Wendell Potter explained at the PNHP annual meeting this year, insurance companies simply “flaunt regulations.”

The insurance market cannot be tricked into reforming itself. The health insurance company that wins at the marketplace avoids and jettisons sick and poor patients and enrolls the healthy and the wealthy – and a “public option” will not change this fact. The market that serves the private interests – profiteering at the expense of the sick – would continue to do so.

The proper name for this kind of “market magic” is the race to the bottom. Adding a public plan into the private mix can not and will not change the character of this cruel game.

Any successful “public option” insurance plan would wind up covering the sick and the poor. It would be designed to lose, not win, the market competition. It would not prove affordable or comprehensive. Worst of all, a highly successful “public plan option” could put our nation on a fast-track to permanent two-tiered health services, exacerbating deplorable disparities that plague us.

Regrettably, that the “public option” has been given attention at all is but a measure of how deeply our culture has surrendered to neoliberal ideology, the ideas popularized by Ronald Reagan. It is a lie that the market will always provide, most especially when it comes to health care. So why would some of our friends still seek to revive the false promise of the “public option”?

Marie Gottschalk, University of Pennsylvania Professor of Political Science, identified the psychology at work. In a remarkably prescient essay written in late 2009, she compared health reformers in the United States to victims of the Stockholm Syndrome, in which hostages identify with – and even defend – the hostage-takers.

We ought to reach out with sympathy to our friends who have fallen captive to Ronald Reagan ideology and say – Do not resuscitate the “public option.” It is time to let it go.

All along, adding a feeble public insurance plan to the insurance market has been but a very poor excuse to support “insurance reform” that will criminalize the uninsured, divert billions of tax dollars to subsidize unaffordable private insurance premiums and protect pharmaceutical industry super-profits.

Another world is still possible. It is called Medicare-for-all, expanded and improved.

[An earlier version of this essay appeared at The Progressive and in McClatchy newspapers around the nation.]

Insurance Companies Prosper, Families Suffer: Our Broken Health Insurance System

HealthReform.gov, U.S. Department of Health & Human Services
February 18, 2010

Recently, Anthem Blue Cross of California, an insurance company owned by the for-profit company WellPoint, Incorporated, announced that its individual market premiums would rise by as much as 39 percent in the coming months. This shocking increase isn’t unique. Across the country, families have seen their premiums skyrocket in recent years, and experts predict these increases will continue.

A Broken Health Insurance System Works for Insurance Companies – Not Families

The “value gap” in the health insurance market is evident not just in overall premium hikes, but also in the use of those premium dollars. Over the past decade, the amount private insurance companies spent on administrative costs grew faster than the amount spent on prescription drugs, a trend that is projected to continue through the next decade. Three of the top five insurers cut the proportion of premiums they spent on customers’ medical care last year, committing more to salaries, administrative expenses, and profits.

Lower Premiums.

The Congressional Budget Office estimates that reform will streamline administrative costs of insurance companies and bring more people into the insurance market, lowering premiums of a comparable plan in the individual market by 14 to 20 percent. (25)

(25) Congressional Budget Office. Letter to Senator Bayh. November 30, 2009.

http://www.healthreform.gov/reports/insuranceprospers/index.html

And…

Letter to Senator Bayh

Congressional Budget Office
November 30, 2009.
(Reference 25, above)

Nongroup Policies

CBO and JCT estimate that the average premium per person covered (including dependents) for new nongroup policies would be about 10 percent to 13 percent higher in 2016 than the average premium for nongroup coverage in that same year under current law.

• Average premiums would be 27 percent to 30 percent higher because a greater amount of coverage would be obtained.

• Average premiums would be 7 percent to 10 percent lower because of a net reduction in costs that insurers incurred to deliver the same amount of insurance coverage to the same group of enrollees. Most of that net reduction would stem from the changes in the rules governing the nongroup market.

• Average premiums would be 7 percent to 10 percent lower because of a shift in the types of people obtaining coverage. Most of that change would stem from an influx of enrollees with below-average spending for health care, who would purchase coverage because of the new subsidies to be provided and the individual mandate to be imposed.

New Market Rules Would Reduce Administrative Costs

Compared with plans that would be available in the nongroup market under current law, nongroup policies under the proposal would have lower administrative costs, largely because of the new market rules:

• The influx of new enrollees in response to the individual mandate and new subsidies—combined with the creation of new insurance exchanges—would create larger purchasing pools that would achieve some economies of scale.

• Administrative costs would be reduced by provisions that require some standardization of benefits—for example, by limiting variation in the types of policies that could be offered and prohibiting “riders” to insurance policies (which are amendments to a policy’s terms, such as coverage exclusions for preexisting conditions); insurers incur administrative costs to implement those exclusions.

• Administrative costs would be reduced slightly by the general prohibition on medical underwriting, which is the practice of varying premiums or coverage terms to reflect the applicant’s health status; nongroup insurers incur some administrative costs to implement underwriting.

• Partly offsetting those reductions in administrative costs would be a surcharge that exchange plans would have to pay under the proposal to cover the operating costs of the exchanges.

http://www.cbo.gov/ftpdocs/107xx/doc10781/11-30-Premiums.pdf

Although the Obama administration continues to advocate for reform based on private health plans, they have seized on the current outrage over skyrocketing insurance premium increases to to demonstrate why reform is essential. Although they are attacking the private insurance industry, they continue to push for a reform model that provides this market with tens of millions of new customers.

Do the proposed reforms of the insurance market really provide us with the assurance that everyone will have access to affordable health care? We already know that they could not achieve the goal of covering everyone, and will leave about 25 million with no coverage (RAND 2/10). Also there is doubt that other measures in the legislation will have much impact in containing costs. But what about the egregious administrative waste in our dysfunctional financing system?

In their report released yesterday, the administration claims that “reform will streamline administrative costs of insurance companies and bring more people into the insurance market, lowering premiums of a comparable plan in the individual market by 14 to 20 percent.” They cite the CBO letter to Sen. Bayh as their source for this statement.

And what does the CBO say? First, the premiums will actually be 10 to 13 percent higher because of the offsetting requirement for increased benefits in these plans that would increase premiums by 27 to 30 percent. For those who say that the improved benefits are worth this increase, keep in mind that the benefits move from the current actuarial value of 60 percent to an actuarial value of 70 percent. That is still significantly below the 80 percent actuarial value of current employer-sponsored plans. These individual plans will continue to leave many people who need health care exposed to unaffordable out-of-pocket expenses.

What does CBO say about the 14 to 20 percent administrative savings claimed by the Obama administration? Half of it (7 to 10 percent) isn’t even administrative savings but merely represents a dilution of the risk pool with healthy individuals mandated to purchase private health plans.

The other half of the premium savings, also 7 to 10 percent, stems from a slight reduction of administrative costs since the plans would be sold through an insurance exchange eliminating some of the costs such as underwriting and brokers’ fees. When you look at the CBO explanation of where the administrative savings would occur, it is clear that there is not much there, and some of it would be offset by the additional administrative costs of the new exchanges.

Although the Obama administration is using this to claim administrative savings, the total reduction in our national health expenditures (NHE) would be so infinitesimal that it wouldn’t even warrant a footnote in the annual NHE report.

The profound administrative waste in our system is not limited to the outrageous excesses of the private insurers but it permeates the entire system, including the very high costs of the burden that private insurers place on physicians, hospitals and other sectors of the health care delivery system.

Although the amount of the recoverable waste is disputed, everyone agrees that it is profound. Very solid data demonstrates that somewhere around $4 trillion could be recovered over the next decade merely by changing to a single payer national health program – an improved Medicare that covered everyone. Those who argue that it is only half that need to explain why we should therefore refuse the $2 trillion in savings ($ 2,000,000,000,000).

Most of us have tired of conspiracy theories. But think about this. The Obama plan (to be formally released Feb. 22) is a gift of our tax funds to the private insurance industry. Recent events have suggested that the plan may not survive the legislative process. Polls and focus groups show that the public is outraged by insurance company abuses. The insurers have chosen the most inopportune time in the reform process to cram outrageous premiums into the faces of their customers. Or is it inopportune? Look at the platform that it has given President Obama and the cover that it provides for members of Congress. It is giving them an avenue that will allow them to push through this program that the insurance industry understands that it must have for its own survival.

The Obama plan will leave tens of millions uninsured. It will not adequately control health care spending. It will perpetuate the profound administrative waste in our system. Above all, it will revitalize the private insurance industry for decades to come. If we’re not going to react, then we’re simply going to have to learn to live with it.

L.A. County slashes doctors’ reimbursement rate

By Molly Hennessy-Fiske and Ron-Gong Lin II
Los Angeles Times
February 17, 2010

Emergency room doctors and on-call specialists treating poor, uninsured patients at private hospitals in Los Angeles County saw their reimbursement rate slashed by county supervisors Tuesday.

The rate cut could lead private hospitals to close emergency rooms and send more patients to crowded county hospitals, officials said.

L.A. County reimburses doctors 27% of estimated fees for patients’ first three days of care at private hospitals under the Physician Services for Indigents Program. Supervisors voted unanimously Tuesday to reduce the rate to 18% as of July 1.

The county had expected to pay doctors with $9 million from the state’s Emergency Medical Services Appropriation. But state lawmakers eliminated the fund, and as the number of uninsured grows, private doctors are expected to file more claims than ever with the county this year, Meyer said.

More than half of Los Angeles County’s 72 hospitals are operating at a deficit and two are in bankruptcy, Lott said (Jim Lott, executive vice president of the Hospital Assn. of Southern California). Countywide, 11 hospitals have closed since 2002, all of which had emergency rooms, he said.

http://articles.latimes.com/2010/feb/17/local/la-me-supes-uninsured17-2010feb17

“The County” – a hospital to which emergency patients with no money and no insurance are shipped. Most of us remember when The County was always the provider of last resort.

No longer. Any hospital with an emergency room, for humane reasons, must now provide emergency services to any person who presents with a bona fide emergency, regardless of the ability to pay. Unfortunately, the change in attitude of some occurred only after it became a criminal offense to fail to recognize that “ship ‘em to The County” fell short of a humane response. The fact that this legislation was needed should not reflect on the great many dedicated professionals who have always been ready to help, without any regard to the financial status of the patient.

But what about paying for this care? Should the private hospitals and physicians write this off as charity? When operating at a deficit with bankruptcy around the corner, that won’t work. Should the county, as the health care provider of last resort, pay for at least the costs of the care? State and local governments are struggling with deficits in their budgets. The 18 percent payment by Los Angeles County’s Physician Services for Indigents Program obviously won’t cover costs. And the state certainly is not helping by eliminating their Emergency Medical Services Appropriation.

There is a way we could do this. We could establish a single payer national health program – an improved and expanded Medicare that includes everyone. Under such a system, even those physicians who have had difficulty understanding a humane health care system would change their response. When that emergency call comes in that always means another paying patient, it will become natural for those physicians to say, “Ship ‘em here!”