Economist bashes Bush HSA proposal
United Press International
February 6, 2006

President Bush’s health savings account (HSA) plan will mean income-based healthcare rationing, an economist said Tuesday.

“Should healthcare be cheaper for high-income people?” asked Princeton economics professor Uwe Reinhart at the National Health Policy Conference in Washington. “Is this a faithful reflection of America’s social ethic?”

Assuming a premium rise of 8 to 10 percent over the next 10 years, the cost of keeping an average family healthy–including insurance premiums, deductibles and co-payments–will be $21,000 per year, far more than low-income families can afford, he said.

And giving a tax break for HSAs will help the wealthy, who pay a relatively high tax rate, but do little to alleviate the problem of soaring healthcare costs for the poor, who will likely be forced to forego medical treatment.

Saving the maximum allowed by HSAs, which could be increased to as much as $10,000 per year, is “easy when you make $200,000, harder if you make $30,000,” he said.

It is also not clear if patients will be willing and able to gather information and make informed decisions about treatments, as they would be called on to do in a transition to a system of individually-based health savings accounts and high-deductible insurance, Reinhart added.

Finally, if paying for medical expenses out of pocket is really about consumers taking charge, he asked, why do corporate executives always negotiate for excellent insurance as part of their compensation packages?

“I propose that coronary bypasses for corporate executives cost $1 million,” he said, “so they can have skin in the game and be empowered.”

http://www.upi.com/

Comment: By Don McCanne, M.D.

You hear it everywhere. Health care consumers need to have “skin in the game.” HSA advocates from the very highest levels, even The White House, are calling for empowering patients by requiring them to have more “skin in the game.” Every time I hear that, I cringe.

The greatest crisis in health care today is affordability, for the uninsured and many of the insured as well. A significant number of the 20 percent or so of people who have significant health care needs have already depleted their reserves. To suggest that they need “skin in the game” conjures up thoughts in me of, “Oh my God, they’re going to skin them alive before they get more health care.” I don’t actually envision much blood and gore, but I do see hapless people stretched to their limits, having to make choices about which of life’s basics should be forgone.

I am grateful to Professor Reinhardt for giving me a new mental image that appears in response to having “skin in the game.” My image actually goes further than the million dollar coronary bypasses for the corporate executives. I see a new health-care funding system tailored to the policies supported by the leaders of the consumer-directed health care movement. To be sure that everyone with health care needs would have “skin in the game,” we’ll make fees flexible and set them at a level that would deplete a person’s assets, leaving them with just enough so they have to make decisions about such basics as food and housing.

What a relief. A vision of Uwe Reinhardt is so much more pleasant than a vision of Hannibal Lecter!

By Don McCanne, M.D.

In a KPBS debate between James Knight and Don McCanne on consumer-directed health care and health savings accounts, Dr. Knight stated, “… the Rand Health Insurance Experiment… shows that people who pay for their own health care services themselves… will spend about 45 percent less on health care with no significant change in their health care status…”

Actually, the study showed that people who paid 95 percent of their health care costs out-of-pocket had annual expenditures that were 28 percent lower than those who paid nothing for health care. But the much more important point to be challenged is the implication that reduced utilization due to out-of-pocket spending never impacts health status.

Dr. Knight’s statement requires a response which the structured radio format did not permit. Below, internal and external validity are defined, followed by my response to Dr. Knight.

The KPBS debate:
http://www.publicbroadcasting.net/kpbs/news.newsmain?action=article&ARTICLE_ID=873506

The Economics of Health Reconsidered, Second Edition
By Thomas Rice, Ph.D.
Health Administration Press

Two major classifications designate the validity of research studies: internal validity and external validity. Internal validity refers to how well study results accurately represent what actually occurred in the specific setting being examined. External validity refers to how well the results from a particular study can be generalized to other settings and/or populations.

It is generally agreed among the health services research community that the RAND Health Insurance Experiment was very strong in terms of its internal validity. External validity is more of a concern, however.

http://www.ache.org/pubs/rice2.cfm

Email message from Don McCanne (not always known for his diplomacy):

Dr. Knight,

It was a pleasure to debate you on KPBS on the issues of CDHC and HSAs.
We’ll certainly never agree on health care reform, but we really should agree on the objective data in the health policy literature. Bending or breaking the data does not advance the dialogue on reform.

As with other CDHC supporters, you cited the RAND HIE as demonstrating that the decreased utilization due to patient cost sharing did not change health care status. But you are likely aware that economists rightfully have questioned the external validity of this study. Innumerable other studies have demonstrated a significant impairment in access and outcomes resulting from cost sharing. Even a closer look at the RAND HIE data confirmed that cost sharing did have a negative impact on sub-sectors such as hypertensives. The internal validity of the RAND HIE study would apply only to very healthy populations followed for a short enough period of time such that chronic disease would continue to have a very low prevalence in that population.

Applying the RAND HIE results to a cross section of our entire population with its high prevalence of chronic disease is not appropriate, and if done so deliberately to deceive, then is even dishonest.

Though you won’t enjoy it, you should read my Quote of the Day from yesterday that discusses the new RAND study which demonstrates that elimination of cost sharing reduces health care spending.

Based on what I said above, you should immediately challenge my statement. It has very high internal validity for the population using cholesterol-lowering drugs, but its external validity is very limited. Instead of stating, “reduces,” it should have stated, “can reduce.”

If you wish to read more, my message on the new RAND study is at the following link:
https://pnhp.org/news/2006/february/rand_eliminating_cop.php

We’ll certainly continue the debate over single payer, CDHC, and the various incremental approaches. At PNHP we pride ourselves on the fact that our single payer advocacy is based on an honest, comprehensive assessment of the health policy literature. If CDHC is to have any credibility, you’ll have to show us solid data demonstrating that your model will not have the negative impact that has been predicted and is already being confirmed. Your task will not be easy because you are beginning with highly flawed policy theory.

Peace,
Don

Don McCanne, M.D.
Senior Health Policy Fellow
Physicians for a National Health Program www.pnhp.org

Varying Pharmacy Benefits With Clinical Status: The Case of Cholesterol-lowering Therapy
By Dana P. Goldman, PhD; Geoffrey F. Joyce, PhD; and Pinar Karaca-Mandic, PhD (From the RAND Corporation, Santa Monica, Calif.)
The American Journal of Managed Care
January 2006

Methods: Using claims data from 88 health plans, we studied 62 274 patients aged 20 years and older who initiated CL (cholesterol-lowering) therapy between 1997 and 2001. We examined the association between copayments and compliance in the year after initiation of therapy, and the association between compliance and subsequent hospital and emergency department (ED) use for up to 4 years after initiation.

Benefit Scenarios: We used estimates from both the compliance and service-use models to estimate the impact of 2 alternative BBC (benefit-based-copayment) designs relative to a base case of a $10 copayment for all patients (the modal copayment). We derived the predictions by first estimating compliance using our copayment and compliance model, and then predicting hospitalizations and ED visits with the compliance and service-use models. The first scenario was chosen to keep total pharmacy payments unchanged. Patients at high and medium risk had no copayments while copayments for low-risk individuals were increased from $10 to $22. In the second scenario, medium-and high-risk patients received the medication for free, while low-risk patients still paid $10. The estimates were computed assuming 6.3 million privately insured or Medicare-insured adults on CL therapy in the United States, as calculated using the 1999-2000 National Health and Nutrition Examination Survey.

Results: Table 3 (available at link below, though this text explains the findings in the table) shows the effects on the sample of 6.3 million CL users of 2 designs for BBCs. The base case is a $10 copayment for all patients. Under scenario 1, high- and medium-risk patients faced no copayment and low-risk patients had copayments of $22. Compared with the base case, full compliance increased 9 percentage points among the high-risk group (62% to 71%) and 10 percentage points among the medium-risk group (59% to 69%), and decreased from 52% to 44% among the low-risk group. There was no change in aggregate health plan payments for drugs because reduced use by the low-risk group was offset by increased use by the high-risk group. The high-and medium-risk groups had no out-of-pocket payments, but out-of-pocket payments by the low-risk group increased $280 million (from $272 million to $552 million). This scenario averted 79 837 hospitalizations overall, even after accounting for an additional 10 406 hospitalizations among the low-risk group. Similarly, ED use was reduced in aggregate by 31 411.

Scenario 2 eliminated copayments for high- and medium-risk patients with no change in copayments for low-risk patients. This benefit increased prescription drug spending by health plans ($486 million) and lowered spending by patients ($311 million). Scenario 2 resulted in 90 243 fewer hospitalizations and 36 493 fewer ED admissions compared with the base case.

Our scenarios with BBCs (Table 3) reduced the number of hospitalizations by approximately 80 000 to 90 000 annually and the number of ED visits by 30 000 to 35 000, resulting in net aggregate savings of more than $1 billion.

Conclusion: The challenge for the healthcare system is to make patients more sensitive to the cost of treatment without encouraging them to forego cost-effective care. Health plans increasingly recognize the need to differentiate coverage based on demonstrated value. For example, some health plans have eliminated copayments for some generic drugs, while others now assign drugs to tiers based on their cost effectiveness. The problem with these approaches is that clinical efficacy of any drug varies across patients.

We showed that strategically reducing copayments for patients who are most at risk can improve overall compliance and reduce use of other expensive services. In an era of consumer-directed healthcare and improved information technology, tailoring copayments to a patient’s expected therapeutic benefit can increase the clinical and economic efficacy of prescription medications.

http://www.ajmc.com/Article.cfm?Menu=1&ID=3072

Comment: By Don McCanne, M.D.

The RAND Health Insurance Experiment (RAND HIE), completed over twenty years ago, demonstrated that patient cost sharing (coinsurance) reduces the utilization of health services and thereby reduces total health care spending. It is the study most commonly cited by supporters of consumer-directed health care (CDHC), because it makes their case that health care spending will decline if patients are required to use some of their own funds whenever health care services are accessed.

Further analysis of the RAND data confirmed that patient cost sharing does decrease use of beneficial services. In conceding this point, the CDHC advocates have called for greater transparency so that patients can select beneficial services that provide value and reject services that are of little or no benefit. Although this trend may lead to posting of price lists and primitive measures of quality, the complexities of medical decisions over which are truly beneficial services are difficult enough for the physician and will never be within the purview of the patient. Deductibles, copayments, and coinsurance will always result in decreased use of beneficial services.

This new RAND study is interesting because it almost seems to be a flip of the prior RAND conclusions. In this study, eliminating copayments reduced total health care spending. However, this principle would apply only in instances wherein the intervention encouraged (e.g., cholesterol-lowering therapy) is less expensive than the consequences of not intervening (e.g., hospitalizations and ED visits).

The concept of adjusting cost sharing based on potential health care cost reductions does have some serious flaws. Just reading this study demonstrates that the administrative complexities are great even with the simple intervention of cholesterol-lowering drugs. It is unlikely that the data required for more complex clinical situations would be readily forthcoming, not to mention the complexity of pre-assigning patients in variable cost-sharing categories. This bird likely will never fly.

Another serious concern is that this study, by design, looked at the financial impact of benefit-based-copayments while seemingly dismissing, as a trade-off, the negative clinical impact that a drug-spending-neutral shift in copayments would produce. That is, in eliminating copayments for high- and medium-risk groups, the copayments for the low-risk group were increased from $10 to $22 in order to keep the total spending for this drug benefit budget-neutral. That $12 increase in copayments saves the health plan $280 million, but for this low-risk group, it results in 10,406 additional hospitalizations and 5,082 additional ED visits. That doesn’t even include additional morbidity and mortality.

As to the focus of the study, the authors state, “…more importantly, these benefits can be achieved without increasing a health plan’s pharmacy costs.”

They didn’t even look at a scenario that would have eliminated copayments for the low risk group. That would have increased plan costs even more, but how many hospitalizations would it have prevented?

The most fundamental flaw of consumer-directed health care is that it depends on demand-side spending control that reduces utilization of truly beneficial services. A single-payer national health insurance program would depend on more carefully targeted and patient-friendly supply-side mechanisms of containing health care costs.

For their next study, instead of defining demand-side mechanisms that would reduce health plan spending at a cost of reduced patient access, RAND should study supply-side mechanisms that would improve resource allocation for all of us, perhaps starting with the reduction of detrimental high-tech excesses that impair both quality and outcomes. Reducing costs while improving outcomes would certainly provide us with greater health care value.

Federal Employees Health Benefits Program First-Year Experience with High-Deductible Health Plans and Health Savings Accounts
GAO
January 2006

Like many large employers, the FEHBP has expanded enrollee health plan choices by offering HDHPs combined with HSAs.

Forty-three percent of actively employed HDHP enrollees earned federal salaries of $75,000 or more compared to 14 percent of the other new plan enrollees and 23 percent of all FEHBP plan enrollees.

http://www.gao.gov/new.items/d06271.pdf

Comment: By Don McCanne, M.D.

Proponents of HDHPs (high deductible health plans) and HSAs (health savings accounts) have contended that these products are not only for the healthy and wealthy, but work well for everyone. As proof, they cite statistics showing that many enrollees were previously uninsured. They fail to mention that these plans with very high deductibles were the only ones with premiums that the uninsured could afford. Many enrollees have not been able to put any funds in their HSAs, and there is a much lower level of satisfaction with this coverage. Although the previously uninsured recognize that this coverage is better than nothing at all, they do understand their financial vulnerability if they were to develop significant health care needs.

Federal employees have a large number of health care coverage options available through FEHBP (Federal Employees Health Benefits Program). It is instructive to see who chooses HDHPs with HSAs when a range of options is available. This study by the GAO (Government Accountability Office) confirms that higher income individuals are much more likely to select these plans.

That should come as no surprise since these plans, by design, are particularly well suited for higher income individuals to benefit from the tax and pension benefits of these plans.

The policy lesson: It is not who is buying these plans, but rather it is who is benefiting from theses plans that is important. High income individuals who can easily afford the out-of-pocket costs benefit from the regressive tax policies that these plans represent. Modest and low income individuals are on the losing end of these regressive policies, and they lose even more when they can’t afford the out-of-pocket expenses to which the HDHPs leave them exposed.

So why don’t we simply let the wealthy have these plans, and the rest of us can look for other solutions? Lower income individuals will never be able to fund their share of health care. That means that funding of a health care system that covers everyone must be progressive. Perpetuating a regressive system exclusively for the benefit of the wealthy only magnifies the affordability issues for the rest of us.

These Days:
What is consumer-directed health care?
Tom Fudge
KPBS
Feb. 1, 2006

In his State of the Union address, President Bush pushed for the expansion of tax-free health savings accounts. Host Tom Fudge talks with two doctors on opposing sides of the issue to debate the pros and cons of consumer-directed health care.

Guests:

Dr. James Knight. A local urologist and CEO of Consumer Directed Health Care Incorporated.

Dr. Don McCanne. Senior health policy fellow of Physicians for a National Health Program.

For the KPBS archived audio of this 14 minute debate on HSAs:
http://www.publicbroadcasting.net/kpbs/news.newsmain?action=article&ARTICLE_ID=873506

Comment: Activists in the health care reform movement may want to save this link since it can be used to educate the public on health savings accounts (HSAs). The debate centers around what HSAs pretend to be and what they really are.

State of the Union Address
President George W. Bush
The White House
January 31, 2006

Keeping America competitive requires affordable health care. (Applause.) Our government has a responsibility to provide health care for the poor and the elderly, and we are meeting that responsibility. (Applause.) For all Americans — for all Americans, we must confront the rising cost of care, strengthen the doctor-patient relationship, and help people afford the insurance coverage they need. (Applause.)

We will make wider use of electronic records and other health information technology, to help control costs and reduce dangerous medical errors. We will strengthen health savings accounts — making sure individuals and small business employees can buy insurance with the same advantages that people working for big businesses now get. (Applause.) We will do more to make this coverage portable, so workers can switch jobs without having to worry about losing their health insurance. (Applause.) And because lawsuits are driving many good doctors out of practice — leaving women in nearly 1,500 American counties without a single OB/GYN — I ask the Congress to pass medical liability reform this year. (Applause.)

http://www.whitehouse.gov/stateoftheunion/2006/

Comment: By Don McCanne, M.D.

Unfortunately, President Bush once again has failed to address one of the more pressing issues in health care today. How can we continue to pay for the 80% of health care costs consumed by the 20% of individuals with greater health care needs?

Everyone understands that pooling risk is the answer; the large number of healthy individuals pay into the insurance pool so that those with needs can afford health care. The simplest, most equitable and most efficient method of doing this would be to establish a national health insurance program.

It is understandable that the President, as a conservative, is opposed to national health insurance since he believes that funding sources should be private rather than through the tax system. So it seems that the President would support private solutions to pooling risk, but does he?

Health savings accounts break up portions of the pools into individual accounts. High deductible plans remove large amounts of up-front costs from the pools. Association health plans strip out state mandated benefits thereby pulling more funds out of the risk pools. Cost sharing reduces demands on pools by making health care access unaffordable for many.

While ignoring the dramatic increases in actual health care costs, attention has been directed toward making health insurance premiums more affordable. Premiums are lower when the pool has to pay out less. The pool pays out less when the responsibilities are shifted from the pools to the individual participants. The healthy pay less, and the sick pay more. It’s as simple as that.

President Bush’s policies are not designed to encourage risk pooling in the private sector. Just the opposite. His policies are designed to break up risk pools and shift the responsibility to individuals, even if that makes care unaffordable. His policies insulate the healthy from the costs of the sick.

Though the President’s ideology prevents him from supporting national health insurance, why is he supporting policies that inhibit us from joining together, in the private sector, to share health care risks in common pools, so that everyone would always have affordable access to health care?

Private solutions don’t work anyway. The private insurers are doing everything in their power to avoid the market segment that requires more health care. Government programs such as Medicare and Medicaid cover the elderly and poor in that high-cost sector. It’s time for us to enact a single government program that would cover the entire high-cost sector, and the rest of us as well.

The Impending Collapse of Primary Care Medicine and Its Implications for the State of the Nation’s Health Care
American College of Physicians
January 30, 2006

Conclusion

Unless immediate and comprehensive reforms are implemented by Congress and CMS, primary care-the backbone of the U.S. health care system-will collapse.

The consequences will be higher costs and lower quality as patients find themselves in a confusing, fragmented and over-specialized system in which no one physician accepts responsibility for their care, and no one physician is accountable to them for the quality of care provided. The state of the nation’s health care in 2006 already is deficient, as evidenced by increasing costs, more uninsured persons, persistent gaps in quality, and the decline in the numbers of physicians going into primary care. But the state of the nation’s health care in the near future will be far worse if the collapse of primary care is allowed to happen.

The recommendations being advanced today by the American College of Physicians offer a comprehensive strategy to redesign how primary care is financed and delivered to allow physicians to provide care that is centered on the needs of patients. ACP believes that our recommendations, coupled with reforms in medical education and relief from student debt, can reverse the decline in the number of physicians going into primary care. The federal government must accept its responsibility to redesign Medicare payment policies to recognize the value of physician-guided care coordination through an advanced medical home, to increase reimbursement for undervalued evaluation and management services, to expand coverage and provide reimbursement for health information technology, and to link payments to quality in a way that is non-punitive and provides substantial increases–commensurate with effort-to those physicians who participate in quality improvement, measurement and reporting focused on the top 20 conditions described in the IOM’s Crossing the Quality Chasm report.

Such reform will help strengthen the state of the nation’s health care, now and in the future, by acknowledging and supporting the value and role of primary care physicians in delivering better care at lower cost.

http://www.acponline.org/hpp/statehc06_1.pdf

ACP Policy Monograph on The Advanced Medical Home:
http://www.acponline.org/hpp/statehc06_5.pdf

Comment: By Don McCanne, M.D.

One of the greatest crises in health care today is the accelerating deterioration of our primary care infrastructure. Shifting to a fragmented primary system of multiple specialized services, the current trend in the United States, has been well documented to increase costs and result in lower quality outcomes.

The concept of the advanced medical home will not be addressed here other than to say that it is important that we improve the way that health care services are delivered, especially with current demographic shifts and evolving needs. The policy monograph accessible through the link above can provide more information on this important concept.

Although there are many reasons for the decline in primary care, two of the most important are comparatively low pay, and very long, labor-intensive hours. Concern about the latter can be reduced by improving the practice environment through application of innovative thinking of the type that led to the advanced medical home model. A gratifying practice environment would certainly make primary care a more attractive practice choice.

What about compensation? Most would agree that, by U.S. standards, primary physicians are under-compensated. Most would also agree that the amount of our GDP delegated to physicians is about right. The obvious conclusion is that some of the compensation directed to specialists should be shifted to generalists. Specialist compensation would still be adequate to provide for a very comfortable lifestyle, and would meet needs such as college expenses for the children and very comfortable pensions. If a physician really needs a fleet of luxury automobiles and a condo in every climate, then medicine might not be a good career choice.

Under a single payer system, physician compensation would be negotiated. The playing field would be leveled wherein primary care representatives would advocate for a more appropriate generalist/specialist compensation ratio. It would be beneficial to remove money as a major factor in the decision of a physician-in-training on whether to enter primary care or a specialty.

The process of negotiating compensation with the single payer administrators should be contrasted with our current system of paying physicians. The ACP report, as an example, is appropriately critical of the SGR (sustainable growth rate) method used by Medicare. With rigid fee schedules, physicians increase the frequency and intensity of services. The SGR is designed to keep the growth of spending in line with inflation and demographic changes.

As some physicians siphon off more funds by increases in frequency and intensity, downward adjustments must be made in the per unit payments. This penalizes physicians who make greater efforts to ensure that services are appropriate and efficient.

Although total Medicare spending for physicians is adjusted upwards, the per unit payments were reduced 4.4% this year. In the budget reconciliation process taking place now, these cuts will be restored. But look at what is happening.

S. 1932 – Deficit Reduction Act of 2005
Cost Estimate
Congressional Budget Office
January 27, 2006

“The act would increase payment rates for physicians’ services to the 2005 level (those payment rates were reduced by 4.4 percent on January 1, 2006).

That provision would increase outlays during the 2006-2009 period, and would reduce Medicare’s payments to physicians below current-law levels in subsequent years.”

http://www.cbo.gov/ftpdocs/70xx/doc7028/s1932conf.pdf

Further comment: You probably read that too fast, so let’s stop and see what it says. It was anticipated that the same dynamics would continue and that additional cuts beyond this year’s 4.4% would eventually add up to about a 25% reduction. Those reductions are being eliminated through 2009, but in 2010, the full level of reductions will be reinstituted with one dramatic drop in rates. But wait, there’s more! The funds that will be used to reestablish 2005 rates through 2009 are only a loan. As of 2010, the repayment of the loan will be added to the scheduled reductions resulting in a drop in Medicare compensation rates that virtually no physician will tolerate. By coincidence, that is the same year that Congress has called for the beginning of the process to entice physicians to exit the traditional Medicare program and provide their services through the private Medicare Advantage plans. What a nefarious plot! (In fairness, the reconciliation act does call for a report from the Medicare Payment Advisory Commission for suggestions on replacement of the SGR system, though primarily through methods of controlling volume growth – another problematic approach.)

The $2 trillion that we are spending is enough to provide high quality care for everyone, but it will never happen under our current flawed system. We won’t get it right until we establish a single national health insurance program. Once we have that in place then we will have the ability to allocate sufficient resources to our primary care infrastructure to ensure higher quality, more cost-effective care for everyone.