By John Cochrane
The Grumpy Economist, July 29, 2018

A July 30 2018 Op-Ed in the Wall Street Journal, titled “The tax and spend health care solution”:

Why is paying for health care such a mess in America? Why is it so hard to fix? Cross-subsidies are the original sin. The government wants to subsidize health care for poor people, chronically sick people, and people who have money but choose to spend less of it on health care than officials find sufficient. These are worthy goals, easily achieved in a completely free-market system by raising taxes and then subsidizing health care or insurance, at market prices, for people the government wishes to help.

But lawmakers do not want to be seen taxing and spending, so they hide transfers in cross-subsidies. They require emergency rooms to treat everyone who comes along, and then hospitals must overcharge everybody else. Medicare and Medicaid do not pay the full amount their services cost. Hospitals then overcharge private insurance and the few remaining cash customers.

Overcharging paying customers and providing free care in an emergency room is economically equivalent to a tax on emergency-room services that funds subsidies for others. But the effective tax and expenditure of a forced cross-subsidy do not show up on the federal budget.

Over the long term, cross-subsidies are far more inefficient than forthright taxing and spending. If the hospital is going to overcharge private insurance and paying customers to cross-subsidize the poor, the uninsured, Medicare, Medicaid and, increasingly, victims of limited exchange policies, then the hospital must be protected from competition. If competitors can come in and offer services to the paying customers, the scheme unravels.

No competition means no pressure to innovate for better service and lower costs.

As usual, I (John Cochrane) have to wait 30 days to post the whole thing. It synthesizes some of my earlier blog posts on how cross subsidies are worse than straightforward, on budget, taxing and spending.

Let me here admit to one of the implications of this view. Single payer might not be so bad — it might not be as bad as the current Medicare, Medicaid, Obamacare, VA, etc. mess.

But before you quote that, let’s be careful to define what we mean by “single payer,” which has become a mantra and litmus test on the left. There is a huge difference between “there is a single payer that everyone can use,” and “there is a single payer that everyone must use.”

Most on the left promise the former and mean the latter. Not only is there some sort of single easy to access health care and insurance scheme for poor or unfortunate people, but you and I are forbidden to escape it, to have private doctors, private hospitals, or private insurance outside the scheme. Doctors are forbidden to have private cash paying customers. That truly is a nightmare, and it will mean the allocation of good medical care by connections and bribes.

But a single provider or payer that anyone in trouble can use, supported by taxes, not cross-subsidized by restrictions on your and my health care — not underpaying in a private system and forcing that system to overcharge others — while allowing a vibrant completely competitive free market in private health care on top of that, is not such a terrible idea, and follows from my Op-Ed. A single bureaucracy that hands out vouchers, pays full market costs, or pays partially but allows doctors to charge whatever they want on top of that would work. A VA like system of public hospitals and clinics would work too.  Like public schools, or public restrooms, you can use them, but you don’t have to; you’re free to spend your money on better options if you like, and people are free to start businesses to serve you. And no cross-subisides.

Whether we restrict provision with income and other tests, and thus introduce another marginal disincentive to work, or give everyone access and count on most working people to choose a better product, I leave for another day. It would always be an inefficient bureaucratic problem, but it might not be the nightmare of anti-competitive inefficiency of the current system.

The free market describes well how your and my health care and insurance should work. It does not offer nearly so clear advice on how the government should manage the finances and bureaucracy that provide subsidies (if we want to provide them). There are always tradeoffs, generosity vs. moral hazard and disincentives. Economics is crucial to understanding those tradeoffs, of course, but the answer will always be a muddy middle of tradeoffs. I have offered that taxing and spending — on budget and appropriated — to provide those subsidies may be better than the current mandated cross subsidies. We already have a “single payer” — the federal government. The argument that a single point of entry, a single payer, or a single provider, may be more rational and cost effective than the current system for the purpose of providing subsidized care is not as crazy as it sounds — if it allows a free market for the majority of Americans who own cars, houses, TVs and cell phones and can pay for better services in that free market.

“Single payer” also usually means “single price-setter.” It means a gargantuan Federal bureaucracy that will somehow produce health care cost savings by simply decreeing that doctors and hospitals be paid less. Good luck with that.

Both left and right forget that “negotiation” means only you pay less and somebody else pays more. We can’t all pay less by negotiation. Price controls mean rationing. Period. This is the heart of current “single payer” proposals, and they are doomed.

My “single payer” is just that, a “payer,” operating in a completely free market.

Still, when a politician endorses “single payer,” ask “does that mean we all can use a single payer? Or does that mean we all must use a single payer?”

John H. Cochrane is a Senior Fellow of the Hoover Institution at Stanford, an adjunct scholar of the Cato Institute, and formerly a professor at the University of Chicago Booth School of Business.

https://johnhcochrane.blogspot.com…

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Comment:

By Don McCanne, M.D.

The single payer policy community certainly would dispute that there are two types of single payer – one that allows individuals to opt out and one that mandates participation. In a well designed single payer system there is only one payer for everyone. That does not mean that there are not other systems that allow individuals to opt out of the public program, but those multi-payer systems should not be labeled single payer.

Nevertheless, the comments of conservative economist John Cochrane are interesting. He recognizes that there are enough sound economic policies in a single payer system that it “might not be as bad as the current Medicare, Medicaid, Obamacare, VA, etc. mess.” On that we can agree. However our ideological differences leave us far apart. Cochrane’s insistence that the market must still play a prominent role calls for design features that prevent realization of the single payer goals of true universality, equity, affordability, and universal access.

Many of his comments warrant a response which we won’t bother with now, except one that stands out and that is his statement that a single payer system that does not allow other options is one in which, “you and I are forbidden to escape it, to have private doctors, private hospitals, or private insurance outside the scheme.” Of course, the single payer system supported by Physicians for a National Health Program does allow free choice of private doctors and hospitals. Following is the comment that I submitted in response to his blog:

Under a single payer that everyone must use you are forbidden to have private doctors and private hospitals? But look at the traditional Medicare program. Patients have free choice of their physicians and hospitals. They also can elect to enroll in the private Medicare Advantage (MA) plans, but then they lose their their health care choices by being restricted to provider networks. Not only that, but “MA insurer revenues are 30 percent higher than their healthcare spending,” demonstrating the surplus that the private insurers are receiving from the taxpayers (NBER No. 23090) – a cross subsidy of sorts, but benefiting the insurer rather than the patients.

Of course, single payer advocates also support tax and spend, but we want our tax funds to be used wisely. Providing excess public funding to private insurers while they take away health care choices from patients is not a wise use of our tax dollars. It would be far better to improve the traditional Medicare program and then cover everyone with it, and then let the health care delivery system compete on the basis of service, access, and quality.

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A Libertarian’s Case Against Free Markets in Health Care

By Roman Zamishka
The Health Care Blog, August 2, 2018

This presumably arbitrary nature of prices should be the first thing about the US healthcare market that catches the attention of any student of economics. Prices for the same procedure vary greatly between hospitals on opposite sides of the street and even then appear to have no basis in reality. Further investigation reveals many other features of the healthcare market that economics teaches us will increase transaction costs and the misallocation of resources. The prices we discussed are generally not paid by the patient, but by a third party insurer. Often the patient isn’t even able to select the insurer but is assigned one by his or her employer. What the patient thinks of the insurer’s ability as a steward of his or her premiums is irrelevant. Further, contracts between providers or pharmacies and the insurer completely hide the true price from the patient’s view. In addition, anti-competitive certificate of need laws limit competition between providers and expensive regulations compel providers to merge to compete in a nuclear arms race with the insurers, although the real victim is the patient’s wallet over which the providers and insurers fight their proxy wars. The best way to explain the US healthcare system is if you took every economic best practice and then did the opposite.

Academics and physicians from places like Boston and San Francisco often argue that this situation is proof that free market healthcare has failed in America and that the only solution is to implement a nationalized single-payer model.

(Zamishka here provides a discussion of Kenneth Arrow’s “Uncertainty and the Welfare Economics of Medical Care,“ and then discusses how markets do not work in the various institutions and disciplines of medicine.)

The broader problem that I see is that much of the health insurance market is already nationalized through Medicaid, Medicare and the VA. The reality is that it is politically impossible to reverse from this position. If we then add to this list emergency medicine, perinatal healthcare, child healthcare, genetic diseases, mental health and chronic disease management, all of which I earnestly believe have a legitimate case to be nationalized, then what are we left with for free market shopping? Surgeries and generic drugs? At that point, you might as well nationalize the rest just to simplify things and remove any regulatory asymmetries. I hate to say it, but it’s not clear to me as a conservative that single payer (or at least universal coverage + optional private supplemental insurance) isn’t the right solution.

Roman Zamishka is a healthcare policy student at NYU focused on comparative analysis of healthcare systems.

http://thehealthcareblog.com…

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Comment:

By Don McCanne, M.D.

These articles express the views of two libertarians who recognize the benefits of the single payer model of health care financing, though both would maintain a role for private insurance.

The Cochrane article is reproduced in its entirety. The Zamishka article is quite long and so only brief excerpts are provided. However it might be worth wile to save the link for reading the full article this weekend. He presents a case that we should consider using when discussing single payer with libertarians or conservatives who truly do care and would like to see our health care financing system function better for all of us.

Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.

By David U. Himmelstein, M.D., and Steffie Woolhandler, M.D., M.P.H.
Physicians for a National Health Program, August 2, 2018

The Mercatus Center’s estimate of the cost of implementing Sen. Bernie Sanders’ Medicare for All Act (M4A) projects outlandish increases in the utilization of medical care, ignores vast savings under single-payer reform, and fails to even mention the extensive and well-documented evidence on single-payer systems in other nations – which all spend far less per person on health care than we do. But despite adopting a raft of faulty assumptions that inflate the estimated cost of implementing single payer, the Mercatus Center’s report concludes that universal first dollar coverage under Sen. Sanders’ bill would actually decrease the nation’s total health expenditures, saving the average American about $6,000 over ten years.

We outline below some of the most glaring errors in the Mercatus Center analysis of Medicare for All, which was led by Charles Blahous.

1. Administrative savings, Part 1: Blahous assumes that insurance overhead would be reduced to 6 percent of total health spending from the current level of 13 percent in private insurance. Although overhead in Canada’s single payer system is only 1.8%, Blahous justifies his 6 percent estimate by citing Medicare’s current overhead, which includes the extraordinarily high overhead costs of private Medicare HMOs run by UnitedHealthcare and other insurance firms. However, Sen. Sanders’ proposal would exclude these for-profit insurers, and instead build on the traditional Medicare program, whose overhead is less than 3 percent. Moreover, by simplifying hospital payments by funding them through global budgets (similar to the way fire departments are paid), rather than the current patient-by-patient payments, a well-designed single-payer program could fully reduce overhead to Canada’s level of about 1.8 percent. Cutting insurance overhead to less than 2 percent (rather than the 6 percent that Blahous projects) would save approximately $2.9 trillion more than Blahous estimates over a 10 year period.

2. Administrative savings, Part 2: Blahous seems unaware of the extensive literature documenting the huge administrative burden – and resulting costs – borne by U.S. doctors and hospitals, and the savings that would be realized under a streamlined single-payer system. Every serious analyst of single-payer reform has acknowledged these savings, including the Congressional Budget Office, the Government Accountability Office, the Lewin Group (a consulting firm owned by UnitedHealth Group), and Prof. Kenneth Thorpe.

These provider savings on paperwork would, in fact, be much larger than the savings on insurance overhead. At present, U.S. hospitals spend one-quarter of their total budgets on billing and administration, more than twice as much as hospitals spend in single payer systems like Canada’s or Scotland’s. Similarly, U.S. physicians, who must bill hundreds of different insurance plans with varying payment and coverage rules, spend two to three times as much as our Canadian colleagues on billing.

Overall, these administrative savings for doctors and hospitals would amount to about $3.4 trillion over 10 years. Additional savings of almost $2.0 trillion from streamlined billing and administration would accrue to nursing homes, home care agencies, ambulance companies, drug stores, and other health care providers.

In total, the Blahous analysis underestimates administrative savings by about $8.3 trillion over 10 years.

3. Drug costs: Blahous projects that the only drug savings achievable through a single-payer plan would come from switching patients from brand name drugs to generics. He assumes that the prices of drugs – both generics and brand name drugs – could not be lowered through the price negotiations called for in Sen. Sander’s bill. Blahous claims that the savings achievable through negotiations cannot be estimated, ignoring the price reductions of about 40-50% that have been achieved by the VA and by many other nations that use the methods called for in the Sanders legislation.

Reducing drug prices to the levels currently paid by European nations would save at least $1.7 trillion more than Blahous posits over 10 years.

4. Utilization of care: Blahous projects a massive increase in acute care utilization, but does not provide detailed breakdowns of how big an increase he foresees for specific services like doctor visits or hospital care. However, it is clear that the medical care system does not have the capacity to provide the huge surge in care that he posits.

For instance Blahous’ figures for the increase in acute care suggest that Sanders’ plan would result in more than 100 million additional doctor visits and several million more hospitalizations each year. But there just aren’t enough doctors and hospital beds to deliver that much care. Doctors are already working 53 hours per week, and experience from past reforms tells us that they won’t increase their hours, nor will they see many more patients per hour.

Instead of a huge surge in utilization, more realistic projections would assume that doctors and hospitals would reduce the amount of unnecessary care they’re now delivering in order to deliver needed care to those who are currently not getting what they need. That’s what happened in Canada. Doctors and hospitals can adjust care to meet increasing demand, as happens every year during flu season.

Moreover, no surge materialized when Medicare was implemented and millions of previously uninsured seniors got coverage. Between 1964 (before Medicare) and 1966 (the year when Medicare was fully functioning) there was absolutely no increase in the total number of doctor visit in the U.S.; Americans averaged 4.3 visits per person in 1964 and 4.3 visits per person in 1966. Instead, the number of visits by poor seniors went up, while the number of visits by healthy and wealthy patients went down slightly. The same thing happened in hospitals. There were no waiting lists, just a reduction in the utilization of unneeded elective care by wealthier patients, and the delivery of more care to sick people who needed it.

Bizarrely, despite projecting a $2.213 trillion increase in total payments to providers over 10 years, Blahous claims that the program would lead to massive financial losses for doctors and hospitals (top of page 19).

5. Long Term Care: The original version of Blahous’ report estimated that the Sanders bill would increase expenditures for long term care by $1.849 trillion over 10 years. He was apparently unaware that the Sanders bill would not immediately implement major changes in the long term care financing system. When informed of this error he deleted this section of the report, and recalculated his figures.

In summary, Blahous grossly underestimates the administrative savings under single payer; projects increases in the number of doctor visits and hospitalizations that far exceed the capacity of doctors and hospitals to provide this added care; and posits that our country would continue to pay much more for drugs and medical equipment than people in every other nation with national health insurance. He thus overestimates national health expenditures by about $10 trillion over 10 years.

Blahous also neglects to mention that massive savings would accrue to businesses, households, and state and local governments that would no longer be saddled with health insurance premiums or out-of-pocket costs. These savings would more than compensate for the increased federal government expenditures. The Sanders bill would, in reality, shift spending from private to public sources, and from state and local governments to the federal government. Over 10 years, our nation would surely pay less overall under Sen. Sanders bill than under current arrangements.

Moreover, despite overestimating new costs and underestimating savings Blahous admits that Sanders’ program would cover all of the uninsured, and upgrade coverage for the vast majority of Americans who currently have private insurance or Medicare, while decreasing total health expenditures by $2 trillion over ten years.

Blahous’ biased, anti-single payer estimate inadvertently bolsters the evidence that a single payer reform would greatly increase the efficiency and fairness of the U.S. health care system.

Drs. Himmelstein and Woolhandler are distinguished professors of health policy at the City University of New York at Hunter College and lecturers in medicine at Harvard Medical School. The opinions expressed do not necessarily reflect those institutions’.

https://www.pnhp.org…

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Comment:

By Don McCanne, M.D.

Res ipsa loquitur.

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Distributed as Quote of the Day on August 1, 2018

This morning the RAND study on the single payer New York Health Act was sent out primarily to demonstrate another study showing that the single payer model is effective for ensuring that everyone is covered while containing health care costs. However, a critique of the RAND analysis was not distributed, even though there are some significant deficiencies in the study.

One of the most important policies that characterizes a well designed single payer system is the recovery of a tremendous amount of administrative waste. Many of the studies minimize the amount of waste that exists and that can be recovered, in spite of the abundance of evidence published in the academic policy literature. This is crucial because that concept is often omitted from reports in the lay literature, and so the public is not well informed on this exceedingly important feature of the single payer model. In your single payer advocacy, always be sure that the magnitude of the recoverable administrative waste is not omitted from the discussions.

David Himmelstein and Steffie Woolhandler, distinguished professors of health policy at the City University of New York at Hunter College and co-founders of PNHP, have provided the following brief critique of the RAND study. In it they show that the benefit of single payer is far greater that that reported by the RAND authors, especially regarding the administrative savings.

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Comments on the Rand Estimates of the Costs of the New York Health Act

By David U. Himmelstein, M.D. and Steffie Woolhandler, M.D., M.P.H.

1) The projected net changes in utilization given supply constraints are in the ballpark, although the portrayal of the supply constraints as implying waits is unduly negative. Supply constraints limited utilization increases with the implementation of Medicare and the ACA, yet there was no perceptible increase in waits for care. Rather, there was probably a reduction in unnecessary care for the previously well insured.

2) The estimate of reductions in drug prices is too low given the experience in other nations. In particular, the assumption that prices of drugs delivered in physicians’ offices would be reduced by a smaller percentage than other drug prices seems unjustified.

3) The estimates of administrative savings are absurdly low.

a) The assumption that health plan administrative overhead would only be reduced to 6% is completely unjustified. FFS Medicare’s administrative overhead is under 3%, while Canada’s single payer programs averaged overhead of 1.6% in 2017 – a total of $2.7 billion (Canadian). (Canada’s overhead costs are lower, at least in part, because it pays hospitals global budgets rather than FFS, as Medicare does. It seems likely that the NYH act would also globally budget hospitals, and hence achieve savings comparable to those in Canada). As the Rand authors note, the overhead rates for Medicare as a whole (7%), and for Medicaid (7%) are inflated because they include the extremely high overhead of managed care plans in those programs.

Rand claims that health plan administrative costs would be driven up by the need to verify residency, deal with out-of-state services, and track Medicaid and Medicare eligibility in order to draw down federal matching funds. The Canadian provincial programs perform the first two of these functions. Tracking Medicaid eligibility should take trivial resources – essentially just verifying income, which can largely be gleaned from income tax and Social Security records. The Social Security Administration should be able to provide information on Medicare eligibility at virtually no cost to the state.

In sum, there is no justification for the claim that it would cost $16.6 billion to administer coverage for 20 million New Yorkers – $830 per person, more than 8-fold higher than Canada’s cost. A more reasonable estimate would be 2%, or at most 3%.

b) It is hard to decipher exactly how the Rand authors estimated provider administrative savings. In Table 4.1 they indicate that at present, administrative costs account for 13% of physician and clinical service expenditures, 12% of hospital expenditures in New York and 10% of other service expenditures. They then estimate that provider administrative spending could be reduced by 13%, i.e. equivalent to a savings of less than 2% of total revenues.

While they list several references to support this estimate (and provide some further description in footnote 16 on page 33), it is unclear how they arrived at these figures, which are at odds with the actual findings of several of the references they cite. For instance, the Blanchfield paper they cite estimated that “excess” administrative costs in physician practices accounted for 11.9% of total net revenues, or about $50,250 per physician. The Himmelstein, Campbell and Woolhandler paper that they cite, found that administrative costs consumed about 26.9% of physicians’ revenues and  24.3% of hospital revenues, while these costs were 16.1% and 12.9% respectively in Canada. (Himmelstein et al’s more recent analysis of hospital administrative costs in 8 nations, which appeared in Health Affairs in 2014 reached virtually identical conclusions regarding hospital administrative costs and savings.) Both the Jiwani study and the Pozen and Cutler papers reached virtually identical conclusions as the Himmelstein, Campbell, Woolhandler study regarding administrative savings under single payer. The Mora et al study they cite concluded that physicians’ administrative costs totaled about $83,000 per physician in the US vs. about $27,000 per doctor in Canada, far larger savings than Rand assumes.

They reference Rand hospital data, which apparently relies on the same data source as the Himmelstein analyses of hospital administrative costs (which have undergone extensive peer review), but provide no information on how they derived administrative cost estimates from these data, and as far as we can tell their methods have neither been published nor peer reviewed. They cite their analysis of hospital administrative costs in Maryland’s all-payer system, which is irrelevant to an analysis of single payer, then use this paper as a “low estimate” in order to justify excluding a high estimate from a study that is clearly relevant.

In sum, according to the documentation in the report, it appears that the Rand authors  have made an error in interpreting previous studies’ figures for administrative costs and savings for providers under single payer. These studies generally estimate that administrative SAVINGS under single payer would amount to 12%-13% of providers’ TOTAL REVENUES. The Rand authors appear to have mistakenly concluded that these figures are estimates of the total costs of administration (rather than potential savings), and have then assumed that 12% of administrative costs (rather than 12% of total revenues) would be saved. As a result they estimate that providers’ would achieve administrative savings of about 1% of total revenues, rather than about 12% – a very large difference.

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Richard N. Gottfried, New York Assembly District 75
Chair, Assembly Health Committee

Gustavo Rivera, New York Senate District 33
Ranking Member, Senate Health Committee

August 1, 2018

State Senator Gustavo Rivera and Assembly Health Committee Chair Richard Gottfried, sponsors of the New York Health Act in the New York State Legislature, welcomed the findings of a study of the bill by the highly-regarded, independent, non-profit RAND Corporation. The study confirms that New York Health would reduce total health care costs, while increasing spending on actual care rather than administration and insurance company profit; provide full health coverage to every New Yorker; save substantial money for almost all New Yorkers; and generate a net increase in employment due to increases in disposable income. 

In December 2017, the New York State Health Foundation commissioned the RAND Corporation to assess the savings, costs, and feasibility of the New York Health Act. Using conservative estimates, the RAND study establishes that New Yorkers would use more health care services under the new single-payer plan than under the current system, even as total health care spending would be slightly lower in 2022 growing to a savings of $15 billion annually by 2031 due to administrative efficiencies. 

The study highlights that the majority of New Yorkers would pay less under the New York Health Plan – New Yorkers in the bottom 90% of household incomes would save an average of $2,800 per person annually – thanks to an equitable distribution of taxation based on the ability to pay. In addition, premiums, deductibles, copays, out-of-pocket payments, and out-of-network charges would be eliminated.

“This is an important validation of the New York Health Act by one of the most prestigious analytical firms in the country,” said Assembly Health Committee Chair Gottfried.  “RAND shows we can make sure every New Yorker gets the care they need and does not suffer financially to get it; save billions of dollars a year by cutting administrative costs, insurance company profit, and outrageous drug prices; and pay for it all more fairly.  Even though RAND thinks the net savings back in the pockets of New Yorkers will be less than I think we’d actually get, this is still a terrific deal for New York.  The study also shows it’s feasible to include long term care – home health care and nursing homes – in the bill.

“The RAND study makes it clear that the New York Health Act is not only feasible, but the most fiscally responsible option for our State”, said State Senator Gustavo Rivera, Ranking Member of State Senate Health Committee. “While we estimate that the benefits to New York State will be greater than those outlined in the study, we all agree that the implementation of the New York Health Act translates into more savings and jobs, while expanding critical health care coverage and access for all New Yorkers regardless of their wealth. I will continue to work with Assembly Member Gottfried and the many advocate organizations that support the bill as we stand up for what is right and work to implement an efficient and universal healthcare system in New York State.”

http://nyassembly.gov…

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Estimating the Effects of a Single-Payer Proposal in New York State

By Jodi L. Liu, Chapin White, Sarah A. Nowak, Asa Wilks, Jamie Ryan, Christine Eibner
RAND, Research Brief, August 1, 2018

Key Findings

1. The New York Health Act could expand insurance coverage in New York without increasing overall health spending, if administrative costs are reduced and growth in provider payment rates is restrained.

2. Health care would be financed by taxes rather than by premiums and patient out-of-pocket payments. Substantial new taxes would be required.

3. Depending on how progressive new tax rates are, health care payments would decrease among most residents and would increase among the highest-income residents.

RAND Research Brief (6 pages):
https://www.rand.org…

RAND Full Research Report (125 pages):
https://www.rand.org…

RAND News Release:
https://www.rand.org…

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Comment:

By Don McCanne, M.D.

This RAND study provides us with yet one more credible analysis that shows that single payer is a valid concept demonstrating that we can expand coverage to include everyone while controlling health care spending. This report should be particularly useful for health care reform advocates since it not only discusses single payer issues in general, but it also discusses the single payer concept as applied to one state, in this case New York.

Temporary political hurdles for New York include a Democrat in the state Senate who has shifted control to the Republicans by caucusing with them, and a CMS administrator in the Trump administration who has indicated that she will not cooperate with the waiver processes that would enable implementation of a single payer system at the state level.

Politics can change. It will be interesting to watch how New York does. But we must not let up on our efforts to enact a national single payer improved Medicare for all since our goal must remain one of achieving health care justice for all. If New York can get there first, then great for them. But let’s try to get the job done nationally as soon as possible so the states won’t have to act individually.

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By Karen E. Joynt Maddox, M.D., M.P.H., E. John Orav, Ph.D., Jie Zheng, Ph.D., and Arnold M. By Epstein, M.D.
The New England Journal of Medicine, July 19, 2018

Abstract:

Background

The Center for Medicare and Medicaid Innovation (CMMI) launched the Bundled Payments for Care Improvement (BPCI) initiative in 2013. A subsequent study showed that the initiative was associated with reductions in Medicare payments for total joint replacement, but little is known about the effect of BPCI on medical conditions.

Methods

We used Medicare claims from 2013 through 2015 to identify admissions for the five most commonly selected medical conditions in BPCI: congestive heart failure (CHF), pneumonia, chronic obstructive pulmonary disease (COPD), sepsis, and acute myocardial infarction (AMI). We used difference-in-differences analyses to assess changes in standardized Medicare payments per episode of care (defined as the hospitalization plus 90 days after discharge) for these conditions at BPCI hospitals and matched control hospitals.

Results

A total of 125 hospitals participated in BPCI for CHF, 105 hospitals for pneumonia, 101 hospitals for COPD, 88 hospitals for sepsis, and 73 hospitals for AMI. At baseline, the average Medicare payment per episode of care across the five conditions at BPCI hospitals was $24,280, which decreased to $23,993 during the intervention period (difference, −$286; P=0.41). Control hospitals had an average payment for all episodes of $23,901, which decreased to $23,503 during the intervention period (difference, −$398; P=0.08; difference in differences, $112; P=0.79). Changes from baseline to the intervention period in clinical complexity, length of stay, emergency department use or readmission within 30 or 90 days after hospital discharge, or death within 30 or 90 days after admission did not differ significantly between the intervention and control hospitals.

Conclusions

Hospital participation in five common medical bundles under BPCI was not associated with significant changes in Medicare payments, clinical complexity, length of stay, emergency department use, hospital readmission, or mortality. (Funded by the Commonwealth Fund.)

From the Discussion

In summary, hospital participation in five common medical bundles under BPCI, as compared with nonparticipation, was not associated with changes from baseline in total Medicare payments per episode, case complexity, length of stay, emergency department use, hospital readmission, or mortality. Bundling of services to encourage more efficient care has great face validity and enjoys bipartisan support. For such bundling to work for medical conditions, however, more time, new care strategies and partnerships, or additional incentives may be required.

https://www.nejm.org…

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Comment:

By Don McCanne, M.D.

In discussions of the disappointing results of experiments with alternative payment models, especially accountable care organizations, frequently advocates of these models recommend continuing to tweak them and study them further, but, at the same time, they also express enthusiasm for bundled payments as a promising cost saving and quality improvement tool.

Some surgical interventions, such as joint replacement, bundle into a neat package, and initial results suggest that these bundles can save money (although it remains unclear as to how much cost shifting takes place in the background of an institution offering a great variety of services of varying complexity – how do you allocate the multitude of other operational costs of the institution?).

For bundling to have a significant impact on costs, it would be important to include common major medical disorders since they account for a considerable portion of hospital admissions. This study of five five such disorders showed that bundling “was not associated with changes from baseline in total Medicare payments per episode, case complexity, length of stay, emergency department use, hospital readmission, or mortality.”

As with other reports of failures in innovative payment models the authors suggest “more time, new care strategies and partnerships, or additional incentives” i.e., more tweaking, and study the responses.

All of this is simply resulting in further delay in implementing a model that would actually accomplish the goals of efficiency and cost containment with the additional benefits of true universality, equity, and accessibility – a well designed, single payer, improved Medicare for all. Just think of the difference it would have made if we did this a quarter of a century ago when we began our advocacy. How much longer do we have to diddle around before we finally make our move?

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By Charles Blahous
Mercatus Center, July 30, 2018

Abstract

The leading current bill to establish single-payer health insurance, the Medicare for All Act (M4A – Senator Bernie Sanders), would, under conservative estimates, increase federal budget commitments by approximately $32.6 trillion during its first 10 years of full implementation (2022–2031), assuming enactment in 2018. This projected increase in federal healthcare commitments would equal approximately 10.7 percent of GDP in 2022, rising to nearly 12.7 percent of GDP in 2031 and further thereafter. Doubling all currently projected federal individual and corporate income tax collections would be insufficient to finance the added federal costs of the plan. It is likely that the actual cost of M4A would be substantially greater than these estimates, which assume significant administrative and drug cost savings under the plan, and also assume that healthcare providers operating under M4A will be reimbursed at rates more than 40 percent lower than those currently paid by private health insurance.

Increased Demand and Utilization

M4A would increase healthcare demand and utilization in at least three important ways. First, the plan would provide health insurance coverage to all Americans who are currently uninsured, greatly increasing their utilization of healthcare services. Coverage of the currently uninsured is estimated to increase their health service costs by roughly 89 percent.

Second, the plan would expand the range of services covered by existing insurance, explicitly covering dental, vision, and hearing care for all participants. This, too, would increase utilization of such services in addition to shifting their financing from private to public spending, especially for those now reliant on traditional Medicare.

Finally, the plan’s requirement that “no cost-sharing, including deductibles, coinsurance, copayments, or similar charges, be imposed on an individual” would also significantly increase healthcare utilization. Providing this first-dollar coverage is estimated to induce 11 percent additional demand for those currently covered by private insurance and 16 percent for those now in traditional Medicare without supplemental coverage.

Provider Payment Reductions

To offset the substantial cost increases created by stimulating additional consumer demand for and utilization of healthcare, the M4A bill would constrain expenditures by subjecting healthcare providers—including hospitals, physicians, and others—to Medicare payment rates. Under current law, Medicare reimburses healthcare providers at much lower rates than private health insurance does. In 2014, Medicare hospital payment rates were 62 percent of private insurance payment rates and are currently projected to decline to below 60 percent by the time M4A would be implemented, and to decline further afterward. Medicare physician payment rates were 75 percent of private insurance rates in 2016 and, per the terms of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), are projected to decline sharply in relative terms in future years, also falling below 60 percent within the first full decade of M4A.

The adoption of Medicare payment rates would represent a substantial reduction in provider reimbursements for care provided to everyone now covered by private insurance (though it would also be a temporary increase in physician payments for those now covered by Medicaid, which currently pays physicians at lower rates than does Medicare).

Drug Costs

This analysis credits the M4A proposal with approximately $846 billion in additional savings over the 2022–2031 period from negotiating lower prices for prescription drugs.

Administrative Savings

This analysis assumes substantial administrative cost savings generated by replacing private insurance with national single-payer insurance, specifically a reduction of seven percentage points (from an estimated 13 percent to 6 percent) in the administrative cost of covering those now holding private insurance.

Current administrative cost rates for Medicare as a whole are cited as being roughly 4 percent, though closer to 6 percent for Medicare Advantage. It is unlikely that the population now privately insured could be covered by M4A with administrative costs as low as 4 percent.

Long-Term Services and Supports

The M4A bill contains a “maintenance of effort” provision requiring states to continue their LTSS expenditures under Medicaid at current-law levels, automatically indexing the growth of these commitments going forward.

Effects on National Health Expenditures and the Federal Budget

Table 2 summarizes the financial effects of the M4A bill over its first 10 years of full implementation, which would be 2022 through 2031 if enacted in 2018. One striking finding evident in the table is that, even under the assumption that provider payments for treating patients now covered by private insurance are reduced by over 40 percent, aggregate health expenditures remain virtually unchanged: national personal healthcare costs decrease by less than 2 percent, while total health expenditures decrease by only 4 percent, even after assuming substantial administrative cost savings. The additional healthcare demand that arises from eliminating copayments, providing additional categories of benefits, and covering the currently uninsured nearly offsets potential savings associated with cutting provider payments and achieving lower drug costs. Thus, the essential expenditure change wrought by movement to a single-payer system would be to replace private spending on healthcare with government spending financed by taxpayers. At the same time, more generous healthcare insurance would be provided to everyone at the expense of healthcare providers, who would face reimbursements substantially below their service costs.

While these estimates show little net change in NHE, the same cannot be said of the projected effects on the federal budget. Table 2 includes an estimate for the net increase in federal health budget commitments of $32.6 trillion from 2022 through 2031, which, by itself, is more than all federal individual and corporate income taxes projected to be collected during that time period.

It should be noted that M4A’s elimination of employer-sponsored insurance, including the federal tax preferences now accorded to it, should increase worker wages net of employer- provided health benefits. These estimates incorporate the increased federal revenues CBO projects to arise from subjecting these higher expected wages to federal taxation. Thus, at the same time that M4A would dramatically increase federal spending, it would increase taxable worker wages net of employer-provided benefits, while also relieving individuals, families, and employers of the substantial health expenditures they would experience under current law. It would also relieve states of such Medicaid expenditure obligations as are transferred to the federal government. These offsetting effects should be considered when weighing the implications of requiring federal taxpayers to finance the enormous federal expenditure increases under M4A. These estimates should be understood as projecting the added federal cost commitments under M4A, as distinct from its net effect on the federal deficit. To the extent that the cost of M4A is financed by new payroll taxes, premium collections, or other revenue increases, the net effect on the federal budget deficit would be substantially less.

https://www.mercatus.org…

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Comment:

By Don McCanne, M.D.

This and other analyses of Senator Bernie Sanders’ Medicare for All Act should not be considered definitive since the bill is not complete and there still is considerable disagreement on the specifics of the bill. The bill will certainly not become law in its present form.

That said, this analysis is not that much different from previous analyses from the Urban Institute and from Emory’s Kenneth Thorpe, both of which contain disputed assumptions, as does this analysis. Considering the similarities, it is interesting that this was done by the Mercatus Center’s Charles Blahous. The mission of Mercatus is “to generate knowledge and understanding of the institutions that affect the freedom to prosper.” Charles Koch is a member of its board.

The media is covering this analysis with headlines that Medicare for All would cost a “stunning $32.6 trillion,” “ridiculously expensive,” “over $32 trillion with a T,” “massive tax increases,” etc. The Mercatus release and the paper’s abstract also emphasize the resulting federal budget commitments. The $32.6 trillion federal spending is for the entire decade of 2022-2031.

Much more important is the total national health expenditures (NHE). Buried in the report, but left out of the media coverage, is this statement: “aggregate health expenditures remain virtually unchanged: national personal healthcare costs decrease by less than 2 percent, while total health expenditures decrease by only 4 percent.” Also, “the essential expenditure change wrought by movement to a single-payer system would be to replace private spending on healthcare with government spending financed by taxpayers. At the same time, more generous healthcare insurance would be provided to everyone.”

Thus they are not claiming that total national health expenditures will increase when compared to current projections, but only that much of our current private spending will shift to the government-administered Medicare for All with the benefit that everyone will be covered with a more generous program. That is a tremendous plus.

There are several problems with this study, but here I’ll mention just a couple.

Blahous predicts an 89 percent increase in costs for the previously uninsured. But he leaves out the fact that other transitions to single payer, such as that in Canada, resulted in a shift of care to those with greater needs. Excess care that was of little value that was provided to the wealthier “worried well” declined, but without any decrease in truly beneficial health care services and thus without adverse outcomes. Attention must still be given to ensuring adequate capacity in the system while avoiding wasteful excess capacity, but we can be assured that there will not be an abrupt increase in excessive queues for essential health care services. Or to Blahous’ point, because of this offset, increased access for the uninsured and underinsured will not result in a dramatic increase in health care spending.

Blahous states that there will be a 40 percent reduction in physician and hospital payment rates compared to private insurance. (He does provide an alternate analysis in which this reduction does not take place.) Although rates will be negotiated and publicly administered (ideally with global budgeting of hospitals), and there should be some increased efficiency in allocation of services (see prior paragraph), we can look to Canada to see what would likely happen. In actuality, there was little net change in income due to the implementation of the provincial single payer systems. We can expect the same here (though eight figure physician incomes will likely not be tolerated).

For an analysis of single payer, Blahous really misses the boat on recovery of administrative waste. He credits a savings of 7 percent of only the administrative cost of covering those now holding private insurance, but ignores all of the other profound administrative excesses that characterize our fragmented, dysfunctional health care financing system. For the first year of full implementation of Medicare for All (2022), he calculates a mere $78 billion in administrative savings, far less than the hundreds of billions that likely would be saved if the ultimate legislation were designed properly.

The link above is to the full Blahous analysis. You may want to save it to be able to show Medicare for All opponents what he actually concluded. Blahous, a conservative/libertarian economist, tells us that Medicare for All will not increase our spending and yet will include everyone and provide them with a much more generous program. Both Republicans and Democrats need to hear this message.

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