Donald W. Light, Ph.D. responds on Enthoven’s managed competition model:

Hope springs eternal for Enthoven. He forgets his own previous analyses, where he describes how for-profit HMOs did not set themselves up as group models that would allow such plan – plan competition, but instead all signed up a large proportion of the same physician pools in order to maximize appeal to policy-holders, thereby emasculating his competition model. If only HMOs would behave as the competition model says they are supposed to behave!

Health Affairs
Web Exclusive
11 June 2003
Tracking Health Care Costs: Trends Stabilize But Remain High In 2002
by Bradley C. Strunk and Paul B. Ginsburg

Health care spending per privately insured person increased 9.6 percent in 2002, a slight reduction from the 10 percent increase in 2001. This is the first time in five years that the spending trend did not accelerate. Nonetheless, health care spending grew nearly four times faster than the U.S. economy grew in 2002 (2.7 percent per capita in nominal terms).

Consumers appear to be facing a second round of sizable increases to cost-sharing requirements in 2003. Recent reports of insurers to Wall Street suggest that employers “bought down” their insurance premiums by an average of roughly 3 percent in 2003. This means that insurance premiums would have increased 3 percent more than they did had employers made no changes to their benefit structures. This increase in cost sharing comes on the heels of a 2-3 percent buy-down in 2002.

http://www.healthaffairs.org/WebExclusives/Strunk_Web_Excl_061103.htm

Comment: Health care spending growth under private health insurance is four times the growth of the U.S. economy. That hardly represents stabilization of health care costs. The fact that private health plans remain incapable of containing health care costs is certainly no reason to celebrate. And the current trend to make health care less affordable by shifting more costs to patients is a sick, perverse solution.

Donald W. Light, Ph.D. responds on Enthoven’s managed competition model:

Hope springs eternal for Enthoven. He forgets his own previous analyses, where he describes how for-profit HMOs did not set themselves up as group models that would allow such plan – plan competition, but instead all signed up a large proportion of the same physician pools in order to maximize appeal to policy-holders, thereby emasculating his competition model. If only HMOs would behave as the competition model says they are supposed to behave!

Health Affairs
Web Exclusive
28 May 2003
Employment-Based Health Insurance Is Failing: Now What?
A strategy, based on managed competition, to free employers from the health
care cost spiral and produce effective managed care.
By Alain C. Enthoven

There are two types of HMOs existing today. “Carrier HMOs” are insurance companies that offer a comprehensive benefit package, characteristic of HMOs, but deliver the services by contracting with independent doctors or medical groups whose main mode of payment remains fee-for-service (FFS). This is in contradistinction to “delivery system HMOs” that are based on their own dedicated medical groups and working mainly under per capita prepayment. The latter are a much more powerful lever for reshaping health care.

“Managed competition” is an alternative to… (current) employer policies. The idea is for the employer to increase competition by offering employees a wide choice of carriers and plan designs, a responsible choice (employees are fully responsible for premium differences), individual choice, informed choice, and multiple choices of delivery systems. If a critical mass of employers were to do this in a market, they could create conditions in which efficient delivery systems could enter, market their superior value for money, and achieve economies of scale. In managed competition, insurers need to be linked with specific, geographically overlapping delivery systems. (Six carrier HMOs, each offering practically every provider in town, would not be “competition” in this sense. The point is competition among delivery systems, not just carriers.)

http://www.healthaffairs.org/WebExclusives/Enthoven_Web_Excl_052803.htm

Comment: In this article, Professor Enthoven identifies many of the problems inherent in the current employment-sponsored, managed care system. He continues to support his model of managed competition as the solution to our wasteful, dysfunctional system. But his model is dependent on the voluntary initiative of a “critical mass” of employers to create a market in which “geographically overlapping” delivery systems, with “economies of scale,” would compete.

Although perhaps an oversimplification, his model suggests that almost all physicians, hospitals, and other providers be placed in several Kaiser-type HMOs within the same community, without significant provider overlap. Even densely-populated urban regions would find difficulties supporting multiple, large, integrated delivery systems. And experience has shown that many suburban and almost all rural areas cannot support even a single integrated delivery system. This does not mean that integrated delivery systems should be excluded as a form of health care delivery, but they can never be relied on as the dominant model in all communities, unless as a universal, public health service model.

There are critical issues that must be addressed during our efforts to reform the funding of health care. Ensuring affordable access to comprehensive services for everyone must be our primary mission. A mission of establishing an artificial business model designed specifically to enhance marketplace competition, regardless of the negative impact on patients, misses our priorities for reform, and should be discarded as the inadequate and highly flawed concept that it is.

Health Affairs
May/June 2003
Taiwan’s New National Health Insurance Program: Genesis And Experience So
Far
by Tsung-Mei Cheng

Taiwan’s NHI is a government-run, single-payer national health insurance scheme, financed through a mix of premiums and taxes, that compensates a mixed public and private delivery system predominantly on a fee-for-service basis. NHI enrollment is mandatory, to ensure adequate risk pooling and the broad-based collection of funds to finance the NHI.

Taiwan’s health care providers obtain their revenues from three sources: (1) payments by the NHI, (2) patient user fees and copayments, and (3) proceeds from the sale of products and services not covered by the NHI.

Experts in Taiwan appear to believe that the absolute level of fees paid by the NHI is too low and that many fees are considered to be below cost. In the absence of effective volume controls, providers’ simplest response to low fees is to expand the volume of services they provide while reducing the resources going into each unit of service (for example, shortened visit length). The BNHI’s chief executive officer, Hong-Jen Chang, remarked that “Taiwan’s doctors are well paid. But they work very, very hard to use volume to make up for the low fees.” Ta-Fu Huang, chairman of the DoH’s Quality Commission, has written extensively about Taiwan’s medical culture of the “three-minute patient visit” with physicians that is typical of doctors in Taiwan. That fee-driven practice style may lead to misdiagnosis, improper treatment, or delays in proper treatment.

A feature that Taiwan’s health system shares with other health systems in Asia is that hospitals are allowed to sell patients drugs at prices far above their acquisition cost, which they negotiate with the drug companies. In the Taiwan vernacular, the resulting profit margins are known as the “drug price black hole.” The U.S. analogue of this practice is the profits oncologists serving Medicare patients can earn on drugs they use in outpatient chemotherapy. Coupled with the PF system of rewarding hospital-based doctors, permitting hospitals to profit from the sale of drugs leads to a serious conflicts of interest, as it invites the overmedication of patients, including a perilous overmedication with antibiotics. According to a December 2002 study report by the DoH, close to half of the doctors in Taiwan prescribe four to five drugs per visit for upper respiratory infections, and 10 percent prescribe more than eight drugs; in only fourteen of 103,024 outpatient visits did the doctor not prescribe any drugs. The CEO of a large private hospital told me that 44 percent of his hospital’s income is derived from the prescription and sale of drugs to patients.

To the detached observer, Taiwan’s current health system conveys a confusing picture. The nation spends only 5.44 percent of its GDP on health care from all sources (or about 6 percent on a more inclusive measure). By the benchmark of the OECD countries, a nation with Taiwan’s current GDP per capita (US $14,188) would be expected to spend somewhere around 7.3 percent of its GDP on health care, give or take half a percentage point. This estimate could be taken to mean that Taiwan’s health system is underfunded. Not surprisingly, there have been calls for increased spending to improve equity and quality.

On the other hand, however, the accusation of widespread supply side-driven, provider-induced use of health care suggests a surplus of capacity, even at the relatively low spending level of only 5.44 percent of GDP. It leads critics of Taiwan’s provider community to argue that allocating a higher percentage of GDP to health care might make the problem of excess capacity even worse and merely increase the profits of providers.

A reconciliation of these contradictory perspectives may be to argue that what is actually in surplus is relatively low-quality care, whose expansion should not be encouraged with added funds. At the same time, it probably is true that a high quality, state-of-the art health system with longer patient visits, more accurate diagnoses, better-equipped hospitals, timely introduction of new drugs and technology, a better information infrastructure, and superior quality all around probably would require more than the current 5.44 percent of GDP. If that interpretation is valid, any move to a higher level of spending should be carefully targeted.

… additional funding should be directed to the development of an IT infrastructure capable of identifying waste, fraud, and abuse and, at the same time, inducing the delivery system to practice high-quality, evidence-based medicine.

http://www.healthaffairs.org/readeragent.php?ID=/usr/local/apache/sites/healthaffairs.org/htdocs/Library/v22n3/s14.pdf

Comment: As we advocate for reform, it is important to understand both the problems that can arise with single payer systems and the solutions to those problems. We need to be able to counter the criticisms of the opponents of reform, and then we will need to be certain that mechanisms will be in place to ensure efficient utilization of our health care resources.

Health Affairs
Web Exclusive
28 May 2003
Employment-Based Health Insurance Is Failing: Now What?
A strategy, based on managed competition, to free employers from the health
care cost spiral and produce effective managed care.
By Alain C. Enthoven

There are two types of HMOs existing today. “Carrier HMOs” are insurance companies that offer a comprehensive benefit package, characteristic of HMOs, but deliver the services by contracting with independent doctors or medical groups whose main mode of payment remains fee-for-service (FFS). This is in contradistinction to “delivery system HMOs” that are based on their own dedicated medical groups and working mainly under per capita prepayment. The latter are a much more powerful lever for reshaping health care.

“Managed competition” is an alternative to… (current) employer policies. The idea is for the employer to increase competition by offering employees a wide choice of carriers and plan designs, a responsible choice (employees are fully responsible for premium differences), individual choice, informed choice, and multiple choices of delivery systems. If a critical mass of employers were to do this in a market, they could create conditions in which efficient delivery systems could enter, market their superior value for money, and achieve economies of scale. In managed competition, insurers need to be linked with specific, geographically overlapping delivery systems. (Six carrier HMOs, each offering practically every provider in town, would not be “competition” in this sense. The point is competition among delivery systems, not just carriers.)

http://www.healthaffairs.org/WebExclusives/Enthoven_Web_Excl_052803.htm

Comment: In this article, Professor Enthoven identifies many of the problems inherent in the current employment-sponsored, managed care system. He continues to support his model of managed competition as the solution to our wasteful, dysfunctional system. But his model is dependent on the voluntary initiative of a “critical mass” of employers to create a market in which “geographically overlapping” delivery systems, with “economies of scale,” would compete.

Although perhaps an oversimplification, his model suggests that almost all physicians, hospitals, and other providers be placed in several Kaiser-type HMOs within the same community, without significant provider overlap. Even densely-populated urban regions would find difficulties supporting multiple, large, integrated delivery systems. And experience has shown that many suburban and almost all rural areas cannot support even a single integrated delivery system. This does not mean that integrated delivery systems should be excluded as a form of health care delivery, but they can never be relied on as the dominant model in all communities, unless as a universal, public health service model.

There are critical issues that must be addressed during our efforts to reform the funding of health care. Ensuring affordable access to comprehensive services for everyone must be our primary mission. A mission of establishing an artificial business model designed specifically to enhance marketplace competition, regardless of the negative impact on patients, misses our priorities for reform, and should be discarded as the inadequate and highly flawed concept that it is.

The Henry J. Kaiser Family Foundation
The Federal Employees Health Benefits Program: Program Design, Recent
Performance, and Implications for Medicare Reform
May 2003
Prepared by Mark Merlis

Conclusions

FEHBP (Federal Employees Health Benefits Program) has often been an attractive model for policymakers who wish to increase the roles of competition and private plans in the Medicare program. FEHBP has succeeded in offering varying degrees of health plan choice to a large and diverse population of employees and annuitants, at costs comparable to those for other large employer plans. The program is more flexible and less bureaucratic than Medicare and relies chiefly on the market, rather than regulation, to control costs and assure quality.

Still, the program is not without its shortcomings, some of which have been notable for many years. FEHBP has faced many of the same problems as the Medicare+Choice program:

* FEHBP per capita costs have risen faster than Medicare costs in recent years, though somewhat less rapidly than spending by other employer plans. Only part of the FEHBP spending growth is attributable to rising drug expenditures, and costs would have risen even faster if plans had not reduced benefits. As the OPM Director has acknowledged: “Despite its size, the FEHB Program is not immune to the inflationary pressures that have driven up costs in the health-care industry in recent years.”

* Competition under FEHBP, as under the Medicare+Choice program, has been distorted by pricing problems. Because government contributions to FEHBP plans are not adjusted for demographic factors, health risk, or geography, the net prices offered to participants may reflect enrollee characteristics or plan location, rather than the value of benefits or plan efficiency.

* While many Medicare beneficiaries have no access to Medicare+Choice plans, FEHBP nominally offers enrollees multiple health plan choices everywhere in the country. However, participants in less populous areas may have access only to the national PPO plans, and some of these plans may not always provide meaningful choices among providers. PPOs generally achieve savings by negotiating discounted rates with providers; providers in isolated areas who face limited competition may have little incentive to grant these discounts.

* FEHBP administrative costs, including OPM, agency, and plan costs, can only be estimated, but are probably in the range of 7 to 15 percent of claims, depending on the type of plan. Medicare administrative costs for the fee-for-service program are only about 2 percent of claims. Costs for the Medicare+Choice program are probably comparable to those for similar FEHBP plans.

FEHBP is a model that policymakers are examining as they consider ways of introducing more choice under Medicare or of developing new mechanisms for extending coverage to the uninsured. The FEHBP experience highlights the difficulties in developing a competitive system that operates efficiently and equitably for a nationwide program. And FEHBP’s recent performance suggests that competition alone may not resolve the ongoing dilemma of maintaining comprehensive benefits while controlling spending growth.

http://www.kff.org/content/2003/6081/6081v1.pdf

Comment: Although this report discusses the FEHBP program as a model for Medicare reform, FEHBP is also being proposed by many politicians and other advocates as a model for expanding health care coverage through employer or individual mandates.

FEHBP, “the health care coverage that members of Congress have,” has been touted by many as the ideal model of reform. Although it is the largest and most effective of existing programs that use private insurers, it is also a program with wasteful administrative excesses and with inequities that are inevitable when depending on a variety of plans with variable benefits, pricing and availability. In contrast, an equitable program of social insurance would significantly reduce administrative costs thereby making affordable truly comprehensive benefits for everyone.

Why do we continue to support extreme models of reform, such as the FEHBP proposals, when our own simple program of social insurance would provide affordable, equitable and comprehensive coverage for everyone?