According to the latest estimate from the Congressional Budget Office, the Affordable Care Act (ACA) will leave 31 million Americans without insurance in 2023, about 5 million more than would have remained uninsured if the ACA’s Medicaid expansion had not been made voluntary. The demographic composition of the uninsured won’t change much under the ACA; most will be non-Hispanic, white, low-income working-age adults. The majority (around 80 percent) will be U.S. citizens. 4.3 million children and nearly 1 million veterans will remain uninsured (Congressional Budget Office, May 14, 2013; Nardin et al, “The Uninsured After Implementation Of The Affordable Care Act: A Demographic And Geographic Analysis,” Health Affairs, 6/6/13, reprinted on page 13).
• In 2012, 84 million adults – 46 percent of those aged 19 to 64 – did not have health insurance coverage for the entire year or had such high out-of-pocket costs that they were considered underinsured, up from 61 million in 2003. Underinsurance was deﬁned as being insured all year but experiencing one of the following: out-of-pocket expenses of 10 percent or more of income; out-of-pocket expenses equal to 5 percent or more of income if low income (<200 percent of poverty); or deductibles equal to 5 percent or more of income.
Three-fourths of working-age adults with incomes less than 133 percent of poverty (i.e. less than $14,856 a year for an individual or $30,657 for a family of four) – an estimated 40 million people – were uninsured or underinsured in 2012. Fifty-nine percent of adults earning between 133 percent and 249 percent of poverty (between $14,856 and $27,925 for an individual or between $30,657 and $57,625 for a family of four) – 21 million people – were uninsured or underinsured. People with incomes under 250 percent of poverty accounted for 72 percent of the total number of Americans who were uninsured or underinsured in 2012.
On the plus side, the proportion of young adults ages 19–25 who were uninsured fell from 48 percent to 41 percent between 2010 and 2012, due to a provision in the 2010 Affordable Care Act allowing young adults to stay on a parent’s health insurance until age 26.
In 2012, 80 million people reported that, during the past year, they did not go to the doctor when sick or did not fill a prescription due to cost, up from 63 million in 2003. In 2012, 41 percent of working-age adults, or 75 million people, had problems paying their medical bills or were paying off medical bills over time, up from 58 million in 2005. In addition, an estimated 28 million adults used all of their savings to pay off bills and 4 million adults had to declare bankruptcy in the previous two years. (2012 Biennial Health Insurance Survey, Commonwealth Fund)
• High and rising deductibles are driving up underinsurance. Five years ago, 12 percent of workers faced a deductible of at least $1,000 for single coverage. Today more than one-third of workers do, according to the Kaiser Family Foundation’s 2012 survey of employer-sponsored plans. Increasingly, a high-deductible plan is the only insurance offered on the job, even at big firms (Andrews, Kaiser Health News, 5/20/13).
In one of the largest studies of its kind, 36.3 percent of the uninsured reported problems with medical bills in the first half of 2012. Overall, 20.3 percent of families, 54.2 million people, had difficulty covering their medical expenses. (Cohen et al, “Problems Paying Medical Bills: Early Release of Estimates From the National Center for Health Statistics,” June 2013).
• Fifty-eight percent of patients who use an out-of-network provider in the hospital do so involuntarily, according to a recent survey. A visit was considered involuntary if it was due to a medical emergency (68 percent of involuntary contacts) or the physician’s out-of-network status was unknown at the time of contact (31 percent of involuntary contacts). Fifteen percent of patients who saw an out-of-network physician as an outpatient did so involuntarily, but this is likely an underestimate because it didn’t include people for whom an in-network provider was unavailable. Out-of-network care is costly and is only minimally covered by private insurance, adding to already burdensome expenditures for high-deductibles and coinsurance (Kyanko et al, “Out-of-Network Physicians: How Prevalent are Involuntary Use and Cost Transparency,” HSR, June 2013).
• Uninsured hospitalized neonates have mortality 2.6 times higher than their insured counterparts, according to a new study. Of 4,318,121 neonates discharged in 2006, 5.4 percent were uninsured. 9.5 percent of all neonates who died were uninsured. Not surprisingly, five serious conditions, low birth weight, intraventricular hemorrhage, hypoxia, necrotizing enterocolitis, and congenital malformation, were the strongest predictors of mortality (adjusted odds ratio from 13.7 – 3.1). Lack of insurance had an adjusted odds ratio of 2.6, greater than most other clinical conditions. Compared with insured neonates, uninsured neonates received significantly fewer inpatient resources. Similar death outcome results were observed using data from 2003 and 2009 (Morris, F. “Increased Risk of Death among Uninsured Neonates,” Health Services Research, August 2013).
RACIAL AND SOCIOECONOMIC INEQUALiTY
• Although black seniors live, on average, half as far from a high-quality hospital as white seniors, they are between 25 percent and 58 percent more likely to receive surgery at lower-quality hospitals. Additionally, black seniors in the most segregated areas are between 41 percent and 96 percent more likely than white seniors to have surgery at the lower-quality hospitals, an analysis of Medicare data from 2005 to 2008 found. For coronary artery bypass, the odds were 48 percent higher; for lung cancer resection, 41 percent higher; and for abdominal aortic aneurysm repair, 96 percent higher. Blacks living in regions with more residential racial integration are no more likely than whites to receive care in low-quality hospitals. The authors note that lack of resources may cause low-quality and that policies such as pay-for-performance, bundled payments, and nonpayment for adverse events may divert resources away from low-quality hospitals, further reduce quality, and exacerbate racial disparities (Dimick et al, “Black Patients More Likely Than Whites To Undergo Surgery At Low-Quality Hospitals In Segregated Regions,” Health Affairs, June 2013).
• A new measure of poverty that takes medical expenses and social programs into account – the Supplemental Poverty Measure (SPM) – found that seniors are much worse off than previously thought. The SPM poverty rate for seniors is 15 percent compared to the standard rate of 9 percent, mostly due to the shrinking proportion of seniors’ health care costs covered by Medicare (Matthews, “Senior poverty is much worse than you think,” Washington Post, 5/20/13).
• A study of Florida’s “Welfare-to-Work” social experiment found a higher mortality rate among recipients whose welfare benefits were limited to 24-36 months than among recipients of traditional, non-time-limited welfare. Among the 1,611 participants in the group pressured to get jobs, 4.7 percent died by 2011 versus 4.2 percent among the 1,613 people who remained on traditional welfare, a statistically significant 20 percent difference. Earlier studies had reported that time limits led to higher employment but had not looked at health outcomes (Muennig et al, “Welfare Programs That Target Workforce Participation May Negatively Affect Mortality,” Health Affairs, June 2013).
The U.S. poverty rate increased from 11.3 percent in 2000 to 15.1 percent (50 million people) in 2010. The federal poverty limit in 2012 was $11,170 for an individual and $23,050 for a family of four.
In 2011, 1.65 million U.S. households were living in extreme poverty, defined as less than $2 a day per person. Those households include 3.55 million children, and account for 4.3 percent of all non-elderly households with children, up from 1.7 percent in 1996. Increasing extreme poverty is a long-term trend (“Safety Net Hospitals at Risk Report,” Alvarez & Marsal Healthcare, 4/16/13; Matthews, Millions of Americans live in extreme poverty. Here’s how they get by,” Washington Post, 5/13/13).
• Between 2000 and 2009, only 7.9 percent of unauthorized immigrants benefited from public-sector health care expenditures (receiving an average of $140 in benefits per person per year), compared to 30.1 percent of U.S. natives (who received an average of $1,385) (Stimpson et al, “Unauthorized Immigrants Spend Less Than Other Immigrants And US Natives On Health Care,” Health Affairs, 6/12/13).
• Between 2009 and 2011, average real income per family grew modestly by 1.7 percent but the gains were uneven. The incomes of the top 1 percent grew by 11.2 percent while the incomes of the bottom 99 percent shrunk by 0.4 percent. This has troubling health implications because there is substantial evidence that income inequality is associated with worse population health (Saez, “Striking it Richer: The Evolution of Top Incomes in the United States,” Econometric Laboratory Software Archive, 1/23/13).
• Health spending for 2013 is projected to total $2.92 trillion, 18.2 percent of GDP, or $9,807 per capita, up 4.0 percent from 2012. Health inflation dropped to a historic low of 3.9 percent in 2009, and is expected to average 5.7 percent between 2014-2021 as the ACA is implemented (Keehan et al, “National Health Expenditure Projections: Modest Annual Growth Until Coverage Expands And Economic Growth Accelerates,” Health Affairs, June 2012).
The Milliman Medical Index estimated that the cost of health care services for a typical family of four with an employer-sponsored preferred provider plan, is $22,030 in 2013, up 6.3 percent since 2012. That includes an employee contribution to the premium of $5,544 and out-of-pocket expenses of $3,600, for a total employee share of $9,144, up 6.5 percent from 2012. It also includes an employer contribution of $12,886 which is indirectly paid by the employee through forgone wage increases (“Milliman Research Report,” Milliman Medical Index, 5/23/13).
• For-profit hospitals typically submit higher bills to Medicare than do nonprofit facilities. In contrast, public hospitals typically bill Medicare less than either nonprofit or for-profit hospitals, according to data released by Medicare on the costs of hospital procedures at 3,300 hospitals (Meier, McGinty and Creswell, “Hospital Billing Varies Wildly, Government Data Shows,” New York Times 5/8/13).
• Forty-three percent of the Massachusetts state budget is going to health care this year. The $15.1 billion health tab funds the Medicaid program, subsidized insurance under the 2006 health care reform law, premiums for state employees’ health insurance, and public health programs (Norton, “Health care, education consume 63 percent of planned state budget,” State House News Service, July 6, 2012)
• A record 14.4 million Medicare beneficiaries, 28 percent of all beneficiaries, are enrolled in Medicare Advantage (MA) plans in 2013, up nearly 10 percent from 2012. Since 2010, enrollment in Medicare Advantage plans has grown by 30 percent in spite of predictions that the payment reductions enacted under the ACA would reduce enrollment. Why didn’t enrollment fall? CMS subsequent awarded “quality bonuses” to nearly all plans plus a 5.5 percent upward “adjustment” to MA payment rates. These actions have offset ACA mandated payment reductions and kept MA plans profitable (Kaiser Family Foundation, “Medicare Advantage 2013 Spotlight: Enrollment Market Update,” 6/10/13).
• Medicare Advantage plans profit by selectively enrolling and retaining healthy beneficiaries and disenrolling the expensively ill (“cherry-picking and spitting out the pits”). A new study finds that disenrollment to traditional fee-for-service (FFS) Medicare from Medicare Advantage plans continues to occur disproportionately among high-cost beneficiaries. Disenrollees incurred $1,021 per month in Medicare payments, compared with $798 in predicted payments (ratio of actual/predicted=1.28, p < 0.001 (Riley, “Impact of Continued Biased Disenrollment from the Medicare Advantage Program to Fee-for-Service,” Medicare & Medicaid Research Review, 2012: Vol. 2, No. 4).
• Insurers that sell Medicare Advantage plans received $5.1 billion in overpayments between 2010 and 2012 due to upcoding, according to a new report from the Government Accountability Office. The insurers receive higher payments for members with certain medical diagnoses, so Medicare Advantage plans have an incentive to maximize their members’ diagnoses (Overland, “CMS overpaid Medicare Advantage plans by $5.1B,” FierceHealthPayer, 3/6/13).
The ACA is cutting $36.2 billion in funding for safety-net hospitals over the next five years on the premise that the ACA will result in fewer individuals receiving uncompensated care. Medicaid Disproportionate Share Hospital (DSH) payments are the largest source of federal funding for uncompensated care, with fiscal year 2011 allotments totaling nearly $11.3 billion. The ACA cuts $14.1 billion from Medicaid DSH payments between 2014 and 2019, resulting in a 50 percent reduction by 2019 compared to the baseline.
Medicare DSH payments are somewhat smaller, totaling $10.8 billion in 2010. Between 2014 and 2019, Medicare DSH payments to hospitals are being cut by $22.1 billion, a 28 percent reduction. Hospitals qualify for Medicare DSH payments through a complex formula that assesses the share of a hospital’s patients who are low income. Beginning in FY 2014, base Medicare DSH payments to hospitals are being cut by 75 percent. Hospitals that continue to treat large number of uninsured individuals are supposed to see smaller cuts (Davis, “Q & A Disproportionate Share Hospital Payments and the Medicaid Expansion,” National Health Law Program, July 2012).
• In 2008, Oregon held a lottery for uninsured low-income adults to determine eligibility for Medicaid coverage. It accepted only 10,000 out of 89,824 applicants on a waiting list, launching the first randomized controlled trial of Medicaid coverage. The most recent results show that Medicaid provides partial financial protection. The incidence of catastrophic expenditures (over 30 percent of household income) for families was reduced from 5.5 percent in the uninsured group to 1.0 percent in the Medicaid group, while the proportion having to borrow money to pay medical bills or to walk away from the bills was reduced from 24 percent to 10 percent. However, the proportion reporting any medical debt was only reduced from 57 percent to 44 percent. Those receiving Medicaid used more health care, especially preventive services, and had a 30 percent reduction in depression. Blood pressure was also reduced, although that improvement did not achieve statistical significance, perhaps because fewer than 400 hypertensives were in the study (Baicker et al, “The Oregon Experiment – Effects of Medicaid on Clinical Outcomes,” New England Journal of Medicine, 5/2/13).
• The largest Medicaid managed-care operator in D.C., Chartered Health Plan, which was responsible for providing care for over 100,000 AmeriHealth enrollees, collapsed in May. The plan leaves more than $60 million of unpaid medical bills and leftover claims, about 70 percent of which is owed to hospitals. AmeriHealth enrollees and providers in Chartered are being shifted to a new plan, Thrive Health Plan. The city has proposed settling at around $18 million, meaning providers would receive less than 30 cents of every dollar owed (DeBonis, “D.C.’s Medicaid upheaval puts health-care providers in a tight spot,” Washington Post, 5/25/13).
• HHS Secretary Kathleen Sebelius has been asking health industry executives for large donations to assist in the ACA’s implementation. Operating on what officials have described as a “shoestring budget,” HHS has given 11 states more than $1.5 billion to help set up their exchanges as well as invested, as of March 2013, $394 million in information technology services to run “federally facilitated exchanges” in 25 more states. The Congressional Budget Office estimates that federal agencies will need between $5 billion and $10 billion to get the law up and running over the next decade (Kliff, “Budget request denied, Sebelius turns to health executives to finance Obamacare,” Kaiser Health News, 5/10/13. GAO-13-601 Federally Facilitated Health Insurance Exchanges; RWJ Health Policy Brief, “Federally Facilitated Exchanges,” 1/13).
Big business may get off the hook for some ACA mandates
• Under pressure from the business community, a key feature of the ACA, the employer mandate (the requirement that employers with 50 or more employees provide health coverage to employees who work 30 or more hours per week or pay a $2,000 per-employee fine) has been delayed until 2015. The Obama administration said the delay was necessary in order to simplify the complicated reporting requirements under the law, and give businesses more time to adjust coverage. During the delay, employers will also be exempt from the $3,000 per-employee fine for each worker who receives a subsidy to purchase coverage on the health exchanges. Although most large firms either self-insure or provide insurance already, workers at firms that don’t provide coverage will be forced to apply for Medicaid or subsidies on the exchanges. The individual mandate, the requirement that individuals purchase coverage or pay a fine of $95 or 1 percent of income, whichever is greater, is still due to go into effect January 1, 2014 (The penalty rises to $695 or 2.5 percent of income in 2016). Since data on employment and insurance coverage will be unavailable in 2014, the government will not be able to verify applicants’ incomes, needed to determine subsidies on the health exchanges, or tell if someone is being honest when they say they have employer sponsored health insurance on their taxes.
According to The Wall Street Journal, large employers are not subject to the ACA’s requirement that employers offer “minimum essential benefits.” According to a strict reading of the ACA, only policies sold on the health exchanges to individuals and small businesses must meet the minimum essential benefits requirement, leaving out 130 million of the more than 160 million people with private insurance. A few large firms in the restaurant, retail and hospitality industries are working with insurers to design inexpensive “skinny” plans, with premiums under $50 a month, to replace their old “mini-med” plans, which had benefit caps as low as $2,000. The new plans won’t have caps but may only cover preventive services and a few doctors’ visits, excluding coverage for hospitalization, emergency care, prescription drugs, and other essential benefits.
Though firms could still face a $3,000 per employee fee – starting in 2015 – if any employees opt-out of their employer plan to get subsidized coverage through the exchanges, the risk of massive opt outs is minimal because even with federal subsidies those policies are expensive. A full-time worker earning $9 an hour would have to pay as much as $70 a month for a “silver” plan, even with the subsidies, according to the Kaiser Family Foundation. At $12 an hour, the workers’ share of the premium would rise to as much as $140 a month. At this point it is still unclear how many employers will try the “skinny plan” strategy and whether or not regulators will outlaw it (Weaver and Mathews, “Employers Eye Bare-Bones Health Plans Under New Law,” The Wall Street Journal, 5/19/13).
• Another strategy that large employers could use to circumvent the mandate is to shift workers to part-time status (defined as working less than 30 hours a week). Already the nation’s largest movie chain, Regal Entertainment Group, with more than 500 theaters in 38 states, is cutting back workers’ hours to avoid paying for health care. Similarly, the state of Virginia mandated that all part-time state employees (many of whom teach in community colleges) work no more than 29 hours per week. Youngstown State University in Ohio recently announced a 29 hour per-week part-time limit and placed employees on notice that they would be fired if they worked more than the maximum (Pollack, “States Cutting Employee Hours To Avoid Obamacare Costs,” Fox News, 2/9/13; Chiaramonte, “Nation’s Biggest Movie Theater Chain Cuts Workweek, Blaming Obamacare,” Fox News, 4/15/13).
In a letter to Democratic leaders, the presidents of three large unions, the Teamsters, the United Food and Commercial Workers, and UNITE HERE wrote that the ACA will destroy “the foundation of the 40 hour work week that is the backbone of the American middle class” and “the very health and well-being of our members.” Union-run multi-employer insurance plans (also known as Taft-Hartley plans) provide continuity of coverage in industries where job turnover is high and employment is often intermittent. The plans, which cover about 26 million people, are at risk of destabilization if employers cut workers’ hours to avoid the employer mandate or shift them into lower-cost, subsidized plans sold on the exchanges. Under the ACA’s current provisions, multi-employer plans are not eligible for the subsidies for coverage available to working people (138 percent to 400 percent of poverty). Hence the union plans won’t be able to compete to cover workers in their industry with incomes under 400 percent of poverty. Although their multi-employer plans aren’t eligible for federal subsidies, they will be subject to the same taxes as other private plans, such as the $63 per-person tax to support the reinsurance pool for the exchanges (each year for three years) and the “Cadillac” tax (see below). Two more unions, the International Brotherhood of Electrical Workers and the Laborers’ International Union of North America, are also speaking out about the need for an “equitable fix” to the ACA (Single Payer News, 7/17/13, www.unionsforsinglepayer.org; Bogardus, “Unions break ranks on ObamaCare,” The Hill, 5/21/13).
• Beginning in 2018, a new 40 percent excise tax, the “Cadillac Tax” will be levied on employers that offer plans that cost more than $10,200 for an individual or $27,500 for a family. Citing the threat of the tax, large employers are cutting benefits and raising co-pays and deductibles. Since 2009, the percentage of workers in plans with a deductible of at least $2,000 has doubled to 14 percent. Now more than a third of workers are in plans with an annual deductible of at least $1,000. Although the tax doesn’t begin until 2018, employees are starting to feel the squeeze with some deductibles as high $6,000. The Congressional Budget Office estimates that the government will collect $80 billion in taxes on high premium plans between 2018 and 2023 (Abelson, “High-End Health Plans Scale Back to Avoid ‘Cadillac Tax,’” New York Times, 5/27/13).
• Meanwhile, the administration says the small business exchanges, which offer tax credits to qualifying companies, are still on schedule, although they have delayed a rule that required the exchanges to offer more than one plan. Workers at small businesses were supposed to be able to select from two or more plans. (Mary Agnes Carey, KHN, 7/2/13).
Medicaid expansion won’t remedy access problems
Only 23 states are currently committed to expanding their Medicaid programs under the ACA (a 2012 Supreme Court ruling on the ACA made the Medicaid expansion optional). Arkansas received approval to use its Medicaid funds to buy private insurance policies for Medicaid beneficiaries on the exchange, a move that will divert funds to overhead and profits and away from care; several other states are interested in following suit. Some 5.7 million low-income residents in states that are not expanding their Medicaid programs won’t be eligible for any assistance gaining health coverage. They make too much to qualify for their state’s current Medicaid program and too little to qualify for a federal subsidy on the exchanges, available to people making 138 percent to 400 percent of poverty. A person supporting a family of four who works full time at a job that pays $14 hour will qualify for a subsidy, but if they make $10 an hour, under current law, they will not (Pear, “States’ Policies on Health Care Exclude Some of the Poorest,” New York Times, 5/24/13).
• The ACA was supposed to hike Medicaid primary care payments nationally by an average of 73 percent, to the same level as Medicare’s, in 2013 and 2014. Due to administrative delays, only a handful of states, including Maryland, have begun paying doctors at the higher rates. However, the increase may not draw many new physicians into the program. In 2009, Washington, D.C., increased Medicaid rates to all doctors to the same level as Medicare but failed to see a major increase in participation, possibly because poor people are concentrated in neighborhoods where few doctors practice (Pugh, “Most doctors still reject Medicaid as program expansion nears,” McClatchy News, 5/13/13; Galewitz, “Increase in doctors’ pay for Medicaid services off to a slow start,” Washington Post, 5/18/13).
Exchanges – Failing to fix the insurance market
• The majority of the $1.8 trillion cost of the ACA over the next decade, $1.1 trillion, is going to subsidize the purchase of private insurance (the rest is for the Medicaid expansion) (CBO, “May 2013 estimate of the effects of the Affordable Care Act on Health Insurance Coverage,” Table 1 and Table 2).
• Twenty-seven percent of uninsured, non-elderly adults with incomes in the tax credit range (138 percent to 400 percent of poverty) lack checking accounts. But most health plans on the exchanges will only be able to accept electronic transfers to pay premiums, setting up an access barrier for the “unbanked.” African Americans and Hispanic Americans are over 40 percent more likely to be without checking accounts relative to whites of similar income. Also, as many as 5 million veterans and other Americans who receive federal benefits on prepaid debit cards may not be able use those same cards to pay their premiums for federally subsidized insurance (Varney, “How Will The ‘Unbanked’ Buy Insurance On The Exchanges?” Kaiser Health News, 5/20/13).
The ACA is supposed to limit out-of-pocket costs to $6,350 for an individual and $12,700 for a family (excluding premiums and spending on uncovered services, e.g. more than a few visits of physical therapy). But many plans have separate administrators for pharmacy and other benefits, and they will not be required to combine their tallies of members’ out-of-pocket spending until 2015. Plans with no drug spending limit – the norm – won’t have to cap out-of-pocket drug costs at all (Andrews, “Federal Rule Allows Higher Out-Of-Pocket Spending For One Year,” Kaiser Health News, 6/11/13).
• The three lowest-priced silver plans available on California’s exchange will cost $321 monthly. The bronze plan’s price is less steep (depending on where you live, see below) but it comes with a $5,000 deductible for an individual ($10,000 for a family) and very high (50 percent) cost-sharing for many services. For example, a person would have to pay 50 percent of the bill for an inpatient stay, even to have a baby; 50 percent for emergency care, unless it resulted in an admission; 50 percent for diagnostic tests like CT scans and MRIs; and $120 for an urgent care visit (Lieberman, “Obamacare Exchange Watch: Low Healthcare Costs or California Dreaming?” OpEd News, 6/7/13).
Premiums on the California exchange vary dramatically by location. For the same health coverage from the same insurer, a 40-year-old resident in rural Mono County will pay $150 a month more in premiums (nearly 60 percent more) than an individual in Los Angeles County. The cost of the lowest level of coverage, bronze, for a 25-year-old ranges from $147 to $274 per month depending on location (Sanders, “Geography affects premiums on California health insurance exchange,” The Sacramento Bee, 6/5/13).
• Many plans sold on state health exchanges won’t cover bariatric surgery or other treatments for weight loss. Although Medicare and two-thirds of large employers in the U.S. cover bariatric surgery, the states have signaled insurance companies in over two dozen states to exclude the treatment (Varney, “Obamacare Insurance Won’t Cover Weight-Loss Surgery In Many States,” Kaiser Health News, 5/27/13).
• In a recent poll, 65 percent of the Swiss population favored single payer over their current system in which about 60 highly regulated private insurers sell “basic coverage” on a nonprofit basis. A referendum on single payer is likely in 2014 or 2015 (Daily Kos, “Swiss voters want to ditch their ObamaCare, replace with single payer,” 6/24/13).
• Per capita spending increased during 2000–10 by 1.2 percentage points of gross domestic product (GDP) in Germany, 1.5 percentage points in France, 2.6 percentage points in the U.K. and Canada, and 3.9 percentage points in the United States (“Health Care Cost Containment Strategies Used In Four Other High-Income Countries Hold Lessons For The United States,” Health Affairs, April 2013).
• The Gini coefficient, which measures relative inequality within a nation (higher means greater inequality), was 0.499 for the U.S. before taxes and transfers, and 0.380 after taxes and transfers, in 2010. The average Gini coefficient for OECD countries after taxes and transfers (0.316) was substantially lower than in the U.S. but still alarming. Between 2007 and 2010, income inequality in OECD countries increased by more than it had in the previous 12 years. The welfare state cushioned the impact of the global economic crisis for many, but spending cuts on health and social programs risk causing greater inequality and poverty in the years ahead. (“Growing risk of inequality and poverty as crisis hits the poor hardest,” OECD Publishing, http://bit.ly/18Kba0d, 5/15/13).
• An average of 73 percent of all health spending was publicly financed in EU member states in 2010. Public financing accounted for over 80 percent in Sweden, Denmark, Norway, the Netherlands, and the U.K. (“Health at a Glance: Europe 2012,” OECD, 11/16/12, http://www.oecd.org/health/healthataglance/europe).
Over a lifetime, tax payments to fund the Canadian health system are modestly progressive, with the most affluent quintile paying a slightly higher share of their income (8 percent) than the least affluent quintile (6 percent). Only the highest income group pays substantially more in taxes than they receive in care (3 percent of average income). Taxes for care paid by middle- and upper-middle-income groups were very close to their health care utilization costs. Health care utilization costs for the lowest quintile were equivalent to 24 percent of average income, demonstrating that this group would face hardship paying for care without Canada’s single-payer health program (“Publicly Financed Health Care in Canada: Who Pays and Who Benefits Over a Lifetime?” Canadian Institute for Health Information, May 2013).
CORPORATE MONEY AND CARE
• Aetna’s CEO Mark Bertolini announced that the firm intends to reduce its already limited provider networks by one-half to three-fourths for plans they market on the exchanges. The firm will also continue to favor “margins over membership” and will pull out of the exchanges if they do not “develop favorably” or if “they ask for unreasonable rates” (Quote of the Day, Don McCanne, on 2013 Q1 Earnings Conference Call with Mark Bertolini – Chairman, CEO and President of Aetna, and Shawn Guertin – Chief Financial Officer of Aetna, 4/30/13).
• Private equity firms invested $4 billion in 2012 in health and medical services, including urgent care clinics, up from $3.5 billion in 2011. Urgent care clinics, one of the fastest growing areas of investment, generate average EBITDA (earnings before interest, tax, depreciation, and amortization) margins of about 20 percent (Abrahamian, “Analysis: Private equity funds rapid growth of walk-in clinic,” Reuters, 5/21/13).
• The Department of Justice is suing Vitas Healthcare and Vitas Hospice, the nation’s largest hospice chain, for submitting tens of millions of dollars in fraudulent Medicare claims over than a decade. In 2011, Vitas Hospice, founded by Florida Senate president Dan Gaetz, received $856 per patient per day from Medicare, compared to the usual rate of $652 per day (Kennedy, “Florida Senate president’s former hospice company sued by feds for alleged Medicare fraud,” Associated Press, 5/9/13).
In 2012, CEOs at the nation’s six largest insurance companies received $83.3 million in pay. WellPoint’s Angela Braly topped the list with $20.6 million, followed by UnitedHealth Group’s Stephen Hemsley ($13.9 million), Aetna’s Mark Bertolini ($13.3 million), Coventry Health Care’s Allen Wise ($13 million), Cigna’s David Cordani ($12.9 million), and Health Net’s Jay Gellert ($10.2 million). Aetna also spent $201,093 on Bertolini’s personal use of corporate aircraft and around $16,000 to upgrade the executive’s home security system. The company said it did this “in light of concerns regarding the safety of Mr. Bertolini and his family as a result of the national health care debate” (AFL-CIO Executive Pay Watch, accessed on 6/25/13; Murphy, “Aetna Chairman CEO Compensation Climbs 26 percent,” ABC News, 4/8/13).
Richard Bracken, the CEO of Hospital Corporation of America (HCA), a chain of 135 for-profit hospitals, was the second highest paid CEO in 2012. His compensation was $38.6 million (“The Highest Paid C.E.O.’s,” New York Times, 4/5/13).
• For-profit hospices are twice as likely as nonprofit hospices to have at least one restrictive enrollment policy to avoid potentially high-cost patients. Patients with serious illnesses may need complex and expensive palliative treatments, but only one-third of hospices will enroll patients who are receiving palliative chemotherapy, and only one-half will enroll patients receiving total parenteral nutrition. (Carlson, “Unusual billing patterns spur probe of inpatient hospice care,” Modern Healthcare, 5/6/13; Carlson et al, “Hospices’ Enrollment Policies May Contribute to Underuse of Hospice Care in The United States,” Health Affairs, December 2012).
• The 11 largest global pharmaceutical companies made a combined $711 billion in profits over the last decade and paid their CEOs a total of $1.57 billion, according to corporate filings. In 2012 alone the drug companies’ CEOs drew total compensation of $199.2 million. In 2006, the first year of the Medicare prescription drug law, the pay of the CEOs jumped by $58.9 million. The top earners in 2012 were Johnson & Johnson’s William Weldon, who took in $29.8 million, and Pfizer’s Ian Read, who received $25.6 million. By comparison, half of all Medicare beneficiaries had less than $22,500 in annual income (Rome, “Big Pharma CEOs Rake in $1.57 Billion in Pay,” Health Care for America Now, 5/8/13).
• The CEO of the giant drug distributor McKesson, John Hammergren, has a pension worth $159 million. The Wall Street Journal called it “almost certainly the largest in corporate America.” Hammergren has been one of the highest-paid executives in the U.S. in recent years, receiving over $130 million in 2011 alone, and more than $355 million in cash and stock over the past seven years (Mark Maremont, Wall Street Journal, 6/24/13).
• Federal prosecutors have charged Novartis with providing illegal kickbacks to over 20 pharmacies to promote the use of Myfortic (mycophenolate sodium), an immune suppressant used to help prevent rejection of transplanted kidneys. Myfortic competes with the Roche drug CellCept (mycophenolate mofetil) and, since 2009, with generic versions of CellCept. Prosecutors say in their lawsuit that Medicare and Medicaid paid tens of millions of dollars in claims for Myfortic that were influenced by kickbacks. In one example, Novartis paid $650,000 to Bryant’s Pharmacy in Batesville, Ark. Bryant’s submitted 8,300 claims for more than $3.2 million to Medicare Part B. Myfortic sales in the United States were $239 million in 2012, up 20 percent from 2011 (Pollack, “U.S. Accuses Novartis of Providing Kickbacks,” New York Times, 4/23/13).
• The U.S. Supreme Court ruled that drug companies that pay a competitor to delay marketing copies of their products to settle a patent dispute, a practice known as “pay for delay,” can be sued for violating antitrust laws. The Federal Trade Commission estimates that pay-for-delay deals raise health care costs by $3.5 billion annually. There were 40 “pay for delay” deals over patent disputes in 2012, up from 28 the year before, involving brand-name drugs with over $8.3 billion in sales, according to the FTC. Patent disputes often arise when brand-name drug companies seek to extend their 20-year patent monopolies for another 20 years by obtaining “secondary” patents on slightly modified versions of the drug or a change in how the drug is administered (Savage, Los Angeles Times, 6/18/13; Norman, Politico, 3/12/13).
• The Office of Fair Trading in London has accused GlaxoSmithKline of market abuse in a “pay for delay” scheme. The firm is accused of making substantial payments to three generic drugmakers to delay introducing generic versions of its antidepressant paroxetine between 2001 and 2004. If convicted, the firm could be fined up to 10 percent of its worldwide sales of the drug, which amounted to 26.4 billion pounds in 2012 (Hirschler, “OFT accuses GSK over ‘pay-for-delay’ drug deals,” Reuters, 4/19/13).
• Fraud by pharmaceutical firms is accelerating. In the first half of 2012, drug companies paid penalties of $6.6 billion to settle 19 cases of illegal marketing, price-gouging, and other violations. Between 2002 and 2011, drug manufacturers paid $22.1 billion to settle 202 allegations of illegal marketing, price-gouging of government programs and other violations, most of them in the past five years (Almashat S. and Wolfe S., “Pharmaceutical Industry Criminal and Civil Penalties: An Update,” Public Citizen, 9/12).
Big Brother Health Care
Workplace wellness programs, a $6 billion industry, are not effective either financially or clinically, according to an evaluation by RAND. Researchers analyzed data from about 600 large employers, and medical claims data from the Care Continuum Alliance. Participants in wellness programs lost an average of only 1 pound over three years, saw no significant reductions in cholesterol levels, and did not generate any significant reduction in health care costs. Nonetheless, under the ACA, employers can penalize workers up to 30 percent of premiums based on their lack of participation in a corporate wellness program. Penalties can rise up to 50 percent for smokers who don’t participate in tobacco cessation programs (Munro, “RAND Corporation Briefly Publishes Sobering Report On Workplace Wellness Programs,” Forbes, 5/28/13; Jost, “Implementing Health Reform: Workplace Wellness Programs,” Health Affairs, 5/29/13).
Employees of CVS Caremark, the nation’s largest drugstore chain, must disclose their weight, height, body fat and blood pressure or pay a $600-a-year fine. CVS says they need the information to improve their employees’ health through preventive measures and providing incentives to be healthier, but critics fear that the data could be used to discriminate against unhealthy or disabled workers (Hamilton, “Report: CVS Caremark demands workers disclose weight and health info,” Los Angeles Times, 3/20/13).
HOSPITALS AND ACOs, INC.
• As part of the ACO movement, health systems are increasingly buying or developing their own insurance plans to sell directly to employers. One of the nation’s largest nonprofit hospital operators, Englewood, Colo.-based Catholic Health Initiatives (CHI), which operates over six dozen hospitals in 17 states, has acquired a majority stake in Soundpath Health, a Washington-state-based insurer for $24 million, and is looking for other insurers to acquire.
CHI is not alone in jumping into the insurance game. The Detroit Medical Center and its nonprofit parent Vanguard Health Systems recently acquired ProCare Health Plan, a Detroit-based Medicaid HMO, for $6 million. Massachusetts’ largest (and most expensive) hospital and physician network, Partners HealthCare System, acquired Neighborhood Health Plan, a nonprofit insurer with 240,000 enrollees. Partners is providing grants to more than 50 community health centers affiliated with the insurer. Another Massachusetts health system, Steward Health Care System, is planning to sell a health plan called “Steward Community Choice.” The plan will be administered by a nonprofit HMO, Tufts Health Plans, and will target small businesses. Two of Atlanta’s largest health care providers, Piedmont Healthcare and WellStar Health System, are planning to jointly launch an insurer by the end of 2013 (Evans, “Cutting out the middleman,” Modern Healthcare, 3/25/13, Patricia Kirk, “As ACO movement gathers momentum, hospitals and health systems see opportunities in providing health insurance,” Dark Daily.com, 7/13/13).
• The nonprofit Cleveland Clinic, which owns eight hospitals in Ohio along with several out-of-state facilities, is forming an “alliance” with one of the nation’s largest for-profit hospital operators, the 135-hospital chain Community Health Systems Inc. (CHS), based in Franklin, Tenn. The Cleveland Clinic will help some CHS hospitals with their cardiovascular services – and allow CHS to use their famous name in advertising – while CHS will help the Cleveland Clinic with the “operational efficiency” of their nonprofit hospitals. The two companies said they will share data for research and also participate in future joint ventures that could include acquisitions. The Mayo Clinic created the Mayo Clinic Care Network in 2011 which now includes 16 member hospitals and health centers while the MD Anderson Cancer Center now has 11 members in an ever-growing network. It’s a “health care version of the franchise arrangements common in other industries” according to The Wall Street Journal (Mathews, WSJ, 3/11/13).
• The Centers for Medicare and Medicaid Services flagship cost-control effort, the Pioneer Accountable Care Organization
(ACO) Model, produced negligible savings in its first year. Of 32 participating organizations with 670,000 beneficiaries (out of 425 ACOs nationally), only 13 produced savings, 2 lost money, 2 dropped out, and 7 more are planning to switch to another Medicare program with no risk attached to it (the Medicare Shared Savings Program). Some quality gains were reported, such as improved cholesterol control for diabetes patients, but given that the organizations were told in advance about the 15 measures that would be used to determine if they met quality standards, they may simply represent teach-to-the-test gains. Cigna, Aetna and United, along with other insurers, have announced they expect to develop hundreds more ACOs in the future (Don McCanne, “Pioneer Accountable Care Organizations Disappoint,” Quote of the Day, 7/16/13, archived at www.pnhp.org)
Tenet is acquiring Vanguard Health Systems for $4.3 billion, including the assumption of $2.5 billion in Vanguard debt. The acquisition will boost the number of Tenet hospitals from 49 to 79 and add new markets such as Chicago and Detroit as well as deepen its reach into Texas. Tenet, which paid nearly $1 billion in fines for fraud and patient abuse in the mid-1990s while operating as National Medical Enterprises, and paid another $1.7 billion in penalties between 2002 and 2006 to settle charges of improper Medicare billing, unnecessary cardiac procedures, kickbacks, and other claims, says it is going to step-up its acquisitions of hospitals in the coming period (Mathews, Wall Street Journal 6/24/13; “Lest We Forget: Tenet Healthcare Settlement Payments, 1994-2007,” http://bit.ly/14ScVHi, accessed on July 18, 2013).
• Studies show that hospital mergers significantly increase hospital prices. According to a report by the Robert Wood Johnson Foundation, “the magnitude of price increases when hospitals merge in concentrated markets is typically quite large, most exceeding 20 percent.” A chart of some recent studies is reprinted below. (Gaynor and Town, “The Synthesis Project, The Impact of Hospital Consolidation – Update,” Robert Wood Johnson Foundation, 6/9/12).