The Changing Role of Government in Financing Health Care: An International Perspective

By Mark Stabile (University of Toronto) and Sarah Thomson (London School of Economics and Political Science)
National Bureau of Economic Research, September 2013 7. Implications for health system efficiency, costs, quality Lessons Learned What lessons can we draw from the evidence summarized above and what questions remained unanswered? In terms of collection, many countries are exploring new ways of generating revenues for health care to enable them to cope with significant cost growth. However, there is little evidence to suggest that collection mechanisms alone are effective in managing the cost or quality of care. First, the traditional classification of tax‐financed versus social insurance systems does not determine how countries organize health financing functions to achieve policy goals (the authors use a narrower definition of “social insurance” to differentiate it from “tax-financed” systems – DMc). The evidence available on the relationship between financing and outcomes suggests that health systems financed through social insurance (as opposed to general tax revenues) tend to be more regressive and have smaller tax bases. Some evidence suggests that financing through social insurance versus general tax revenues is associated with higher cost growth over time, although it is difficult, using such a broad classification, to separate collection mechanisms from other characteristics more often found in tax‐financed jurisdictions such as budget and price controls and quasi‐hard budget constraints. Public health care funding in tax‐based systems tends to track GDP more closely than in countries that collect funds through social insurance. Perhaps unsurprisingly, many jurisdictions are moving towards a diversity of funding streams (adding tax‐based funding to social insurance) to manage health care expenditure growth and maintain universality. Theory and evidence on cost sharing through standard user fees suggests that for the purpose of revenue collection it is not clear, given the administrative costs involved, that user fees are an optimal means of supplementing taxes and contributions in developed health systems. The evidence on value‐based cost sharing (using cost sharing selectively to encourage patients to use medication, services, and providers that offer better value than other options, rather than simply applying user fees across the board) suggests some efficiency improvements in use of care. European systems with competitive health insurance (historically only found in countries that use social insurance to finance health care) have multiple risk pools, which can lead to selection issues and inefficiencies. All have significantly improved their risk equalization schemes in the last ten years and many now have relatively sophisticated formulas that include health‐based risk adjusters. In spite of this, insurers’ incentives to select risks are substantial and there continues to be (largely circumstantial) evidence of risk selection and hence potential inefficiencies in risk pooling. In some cases such as Switzerland, the voluntary insurance market seems to exacerbate risk selection and it would make sense to segment these markets to avoid this behavior. Recent evidence from the United States offers two reasons for optimism on this front. The first is that risk adjustment continues to improve and there is evidence that more detailed data on use, coupled with restrictions on ability to change insurer, can significantly mitigate risk selection. As a result, there is likely to continue to be convergence across countries towards better risk selection strategies. Second, recent empirical evidence examining insurance choice by individuals in the United States has found that preferences, in addition to risk, are important determinants of insurance choice, so the welfare implications of adverse selection by individuals in many markets may be smaller than previously thought. Where purchasing is concerned, there has been some convergence among OECD health systems towards more use of market‐like mechanisms, particularly the adoption of DRGs to pay hospitals (keep in mind that DRG is a creation of our public Medicare program, hardly “market-like” – DMc). Some countries have also attempted to encourage hospital competition and, more recently, a growing number of countries have tried to link provider payment to performance. The evidence on hospital competition suggests that where outcomes are easily observable or targeted (such as wait times) hospitals compete on price and quality (wait times), leading to improved outcomes. In some cases improvements have been at the expense of quality measures that are more difficult to observe, suggesting that it would be useful to have further comparable, well‐defined measures of quality beyond wait times. However, where prices are set administratively, competition has improved productivity and quality. DRG payment also appears to have improved productivity and quality, although its effect on overall system costs is mixed. There is some evidence (mainly from the United Kingdom) of improved physician productivity and patient outcomes following the introduction of P4P, although the evidence also suggests a degree of gaming to maximize financial incentives. A number of the health systems we explore continue to use wait times as a source of non‐price rationing. The evidence on the effects of wait times on health outcomes is mixed, with more recent studies finding negative effects on patient health and readmission rates, and older studies finding little effect on health outcomes. The United Kingdom in particular, and to some extent Canada, have significantly reduced wait times by increasing volumes using forms of DRG funding loosely modeled on US Medicare and through targeted budgets. Wait times are therefore not inherent in tax‐financed systems but can be fairly successfully manipulated by policy levers such as targets, DRGs, and non‐price competition between hospitals. Unresolved Questions Our review has revealed some areas where there is a need for a greater evidence base. First, while efforts to be more systematic about defining the publicly provided or mandated benefits package have increased over the past decade, there is a lack of evidence on how effective these changes have been. Organizations such as NICE in the United Kingdom, the Canadian Agency for Drugs and Technologies, the German Institute for Quality and Efficiency in Health Care, or the French National Health Authority, have emerged in many countries in the last decade, showing how jurisdictions increasingly recognize the importance of economic evaluation of best practice and technologies. However, we found little evidence on the extent to which these bodies have achieved their goals and some evidence to suggest they struggle with implementation. Efforts in systems such as Canada’s to expand coverage beyond hospital and physician services, or to promote voluntary insurance through tax subsidies have been mixed. A combination of tax deductions and subsidies has resulted in high levels of voluntary private insurance coverage for non‐publicly financed services but these subsidies have led to substantial and poorly targeted tax expenditures and continued reliance on the firm as the provider of voluntary coverage. Attempts to provide public coverage selectively to older people have also been expensive, while reforms aimed at re‐targeting benefits based on income have lowered public costs and had some positive redistributive consequences. The countries we examine therefore provide evidence of the inefficiencies of tax subsidies and of inefficiencies associated with voluntary insurance alongside publicly financed coverage, but do not provide particularly helpful evidence on the efficient mix of public and p rivate finance. The past ten to fifteen years have seen high health care cost growth in many countries, including all those reviewed here, with average health care cost growth exceeding the average growth in GDP (Haigst and Kotlikoff, 2005). In considering the success of different health systems in controlling costs, the evidence suggests that while policies that effectively limit demand through rationing and fixed budgets appear still to be effective at holding down costs at a point in time, there has been a discernible shift in policies employed by the countries we review away from these types of cost containment strategies, and away from other strategies that simply shift costs to households, towards policies that focus more on the cost‐benefit ratio and efficiency, such as greater use of health technology assessment and activity‐based funding with administratively set prices. While there are high hopes that these strategies will produce a more efficient use of health care resource and, ideally, control cost growth, further research is needed to determine the extent to which these policies achieve their goals. http://www.nber.org/papers/w19439?utm_campaign=ntw&utm_medium=email&utm_source=ntw

Comment:

By Don McCanne, M.D. Although this paper from Canada and England is very heavy reading and frames some of the issues differently from what we might, nevertheless, the authors conclude that “while the United States remains an outlier among OECD countries, a number of policy changes across jurisdictions suggest significant convergence in the role of the state in financing health care.” When you read the nature of the improvements, they are quite meager compared to what we need, but they did come predominantly from the government rather than from the private sector. More than a convergence, we need a new infrastructure in the United States – a single payer national health program.

Understanding State Variation In Health Insurance Dynamics Can Help Tailor Enrollment Strategies For ACA Expansion

By John A. Graves and Katherine Swartz
Health Affairs, September 2013 (online) Abstract The number and types of people who become eligible for and enroll in the Affordable Care Act’s (ACA’s) health insurance expansions will depend in part on the factors that cause people to become uninsured for different lengths of time. We used a small-area estimation approach to estimate differences across states in percentages of adults losing health insurance and in lengths of their uninsured spells. We found that nearly 50 percent of the nonelderly adult population in Florida, Nevada, New Mexico, and Texas—but only 18 percent in Massachusetts and 22 percent in Vermont—experienced an uninsured spell between 2009 and 2012. Compared to people who lost private coverage, those with public insurance were more likely to experience an uninsured spell, but their spells of uninsurance were shorter. We categorized states based on estimated incidence of uninsured spells and the spells’ duration. States should tailor their enrollment outreach and retention efforts for the ACA’s coverage expansions to address their own mix of types of coverage lost and durations of uninsured spells. Policy Implications The planning for implementing the ACA’s coverage expansions has largely focused on the percentage of people in each state who are uninsured at a certain point in time. In particular, attention has centered on decomposing these state percentages into people eligible for Medicaid coverage and people eligible for premium subsidies if they purchase plans in an exchange. Two states with the same percentage of uninsured people could have quite different proportions of people who are eligible for Medicaid, for premium subsidies, or neither. Two states with similar uninsurance rates could also have very different uninsured populations in terms of how long adults had been without coverage. Differences in length of time without insurance are just as important as differences in income for policy makers. They must determine whether to focus more on efforts to minimize possible Medicaid churning or on efforts to reduce potential adverse selection—that is, efforts to encourage healthy uninsured people to buy exchange plans, so the plans do not have a disproportionate share of enrollees who require expensive medical care in the near future. States with a high incidence of people losing public coverage, for example, could have more reason to worry about Medicaid churning than states with a high proportion of uninsured spells that last more than two years, where possible adverse selection in their exchanges would be a more likely problem. http://content.healthaffairs.org/content/early/2013/09/19/hlthaff.2013.0327.abstract

Comment:

By Don McCanne, M.D. This study shows that it is not only the income level but it is also the length of time that an individual has been uninsured that affects the probability of whether the individual would be eligible for Medicaid or for the state insurance exchanges instead. Since there is considerable variation between states, the authors suggest that enrollment strategies be tailored to target the uninsured based not just on the types of coverage lost but also on the duration of being uninsured. What? The dynamics of public or private insurance eligibility are forever changing. Eligibility depends on employment, income, age, geographical location, level of state participation in Medicaid, immigration status, and other factors that are frequently in flux. The navigator program was established to help individuals sort out the eligibility criteria in order to move them into appropriate health care coverage. It does not seem logical that states should measure durations of being uninsured and then change enrollment strategies simply because people who previously had been in public programs had shorter periods of being uninsured. Navigators help all uninsured (except the tens of millions not able to enroll in any program) whereas targeted programs are aimed at only selected populations of the uninsured, tacitly acknowledging the difficulties of getting everyone covered and retaining that coverage. We are making this too complicated. Much of this is due to the fact that we are merely expanding a highly fragmented and dysfunctional system of financing health care that is too costly and doesn’t work very well. It is ridiculous that we should consider looking at all of the fluid variables and then target some individuals while leaving others behind. Instead of trying to sort all of this out we should merely switch to a single payer national health program in which everyone is simply enrolled once, for life.

First Obamacare, Then a Single Payer System

By Peter Morici
Breitbart, September 27, 2013 Republicans must live with Obamacare. They have few prospects for electing 60 senators needed to repeal the law, and unless they work to make it more palatable — something they have few ideas to accomplish — the nation is headed for socialized medicine. The burden to find solutions will take congress to places that Republicans are very reluctant to go. The German and other European systems accomplish lower costs and universal coverage by imposing tight controls on prices for services, drugs, and devices. Britain’s National Health Service doesn’t bother with insurance companies and claims forms — by eliminating insurance company overhead it accomplishes much lower costs than even the German system. Even before Obamacare, federal and state governments, through Medicare, Medicaid, and other programs, paid more than 50 percent of U.S. health care bills. That was more than the 9 percent of GDP, and the amount Britain spends to accomplish universal coverage — without the additional $4,600 per person American businesses and individuals pony up. Reducing U.S. doctors fees and drug and device prices down to German levels won’t be easy or likely possible, but politicians, providers, and businesses still providing health insurance will need a solution — likely a scapegoat. Enter the insurance companies that have been screwing down doctor’s fees, hassling everyone with mindless paperwork, and paying executives like royalty. The federal government could probably pay doctors, drug companies, and device manufactures pretty reasonably directly, and without the insurance company middlemen, through an American National Health Service. (Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and a widely published columnist.) http://www.breitbart.com/Big-Government/2013/09/27/First-ObamaCare-Then-a-Single-Payer-System

Comment:

By Don McCanne, M.D. Professor Peter Morici, an expert on international trade, is known for holding no punches. Here he suggests that Republican intransigence could lead us to an American National Health Service – true socialized medicine. In the full article, available at the link above, he explains why Obamacare is unsatisfactory, likely with the intent of cajoling Republicans into working with Democrats to improve it. He seems to be using the prospect of a national health service as a threat to Republicans as to what could happen if they failed to cooperate. In doing so, he does present some very persuasive arguments for making the change. Maybe he’s serious. He does make private insurance companies the scapegoat. Get rid of them and then what options do we really have?

Crossing Boundaries—Violation or Obligation?

By Gordon D. Schiff, MD
JAMA, September 25, 2013 It is 5 pm on Friday afternoon. After 2 hours on the telephone trying (and failing) to get her insurance plan to pay for her medication refill, I reached into my pocket and handed the patient $30 so she could fill the prescription. It seemed both kinder and more honest than sending her away saying, “I’m sorry I can’t help you.” While I hardly expected a commendation for such a simple act of kindness, I was completely surprised to find myself being reprimanded for my “unprofessional boundary-crossing behavior” after the resident I was supervising shared this incident with the clinic directors. This allegation of an ethics violation was not only personally painful; it also raised important, controversial, and timely questions about appropriate professional roles. Physicians must indeed respect certain boundaries. A growing literature and guidelines have admonished physicians and other health professionals to strictly respect boundaries to avoid improper expectations, dependency, legal liabilities, and confusion of personal and professional relationships. Most concerning were data documenting sexual relationships between physicians (often psychiatrists) and their patients. However, some interpretations of these restrictions risk constructing a misguided model—one that discourages physicians from humanly caring for and about their patients. This new paradigm risks encouraging detached, arms-length, uncaring relationships. When do “boundaries” become barriers to meaningful caring relationships? And will such bounded thinking serve to rationalize abdication of our professional and personal responsibilities to humanely respond to patient suffering and underlying injustices? While I had rarely paid for a patient’s medication as I did on that Friday afternoon, in this situation it seemed reasonable and appropriate. Various ethics and conflict of interest rules prohibiting physicians from having “financial relationships” with patients may be appropriate when it comes to physicians taking or soliciting money from patients. But what about the propriety of giving money to a needy patient in this particular situation? While other alternatives such as using a special fund might be preferable, when I found that no such fund existed at my hospital (and the drug insurance plan denied coverage due to a technical glitch in the patient’s enrollment), was it wrong to personally help a patient in such a moment of need? Everything we do in medicine has risks. Whether prescribing a medication or performing surgery, we, in consultation with the patient and family, must weigh potential benefits and risks. When considering reaching out to help patients in need, possible adverse effects should be weighed against the benefits in that particular context and situation. In weighing such risks, however, we need to be clear whose risks we are considering. Many of these risks are actually more risks to physicians, rather than to patients. Thus, those insisting on stricter boundaries need to rethink what they mean by “limits.” Who are those limits designed to protect? Are “limits” protecting the patient, or are they protecting us—protecting our time or even protecting our consciences, allowing us to avoid painful questions of inequality or taking needed moral action? While there is nothing inherently wrong with protecting caregivers against overwhelming time demands or burnout, let’s not pretend we are imposing limits for patients rather than our own best interests. The American Medical Association’s Code of Medical Ethics states: “The practice of medicine … is fundamentally a moral activity that arises from the imperative to care for patients and to alleviate suffering. … The relationship between patient and physician is based on trust and gives rise to physicians’ ethical obligations to place patients’ welfare above their own self-interest … and to advocate for their patients’ welfare.” The type of caring relationships embodied in this statement, and the kindness I believe most patients and physicians yearn for, has been pejoratively dubbed “nostalgic professionalism.” This outmoded model of professionalism, it is argued, needs to be replaced by a more dispassionate business-like model where limitations and boundaries are more circumscribed and it is clear that we are not our patients’ friends, neighbors, or personal advocates for issues beyond their medical problems. Short of avoiding caring for poor patients entirely or not being part of the community in which our patients live and work (both unfortunately not rare), personal engagement with patients as people, not just as “clients” or “consumers,” is inevitable, and even desirable. For many of us (particularly primary care physicians), more than any P4P (pay-for-performance) financial incentives, our most fulfilling rewards and professional satisfactions come from having meaningful relationships with our patients, as well as our ability to broadly ameliorate their problems and suffering. Of course we have to make daily compromises with reality, especially the realities of suffering and hardships poor and underserved patients face—problems we obviously can’t personally cure. Nonetheless, we should try within the limitations of our time, resources, and abilities to help where we can. The real danger of personal engagement is not that we further complicate already complicated relationships with our patients by doing too much. Rather it is that of tokenism—of doing too little and feeling satisfied and excused from addressing the social and economic injustices that underlie poor patients’ suffering. It is here we have to be mindful of the fundamental distinction between charity and solidarity. Yes, we need to be charitable in every way possible, but we also need to stand alongside our patients in striving for a fairer, more caring world. If physicians want to stand aloof, addressing only the biomedical problems, ignoring and seemingly indifferent to the social circumstances of our patients, then patient/relation-centered medical homes are likely to feel more like gated communities than places where people live and work together. Fortunately, the two strands of genuine “caring DNA” are closely intertwined. Collective advocacy for societal change and personal advocacy and helping of individual patients cross-fertilize and nourish each other. Minimizing barriers for professionals and patients working together for this shared agenda represents true patient-centered medical care. http://jama.jamanetwork.com/article.aspx?articleid=1741827

Comment:

By Don McCanne, M.D. For my home office that I use for my health reform advocacy work, I had put away all of my credentials and hung on the wall only one item: The Oath of Hippocrates. Regarding today’s message, one sentence stands out: “Into whatever houses I enter, I will go into them for the benefit of the sick, and will abstain from every voluntary act of mischief and corruption; and, further, from the seduction of females or males, of freemen and slaves.” Boundaries are as old as the profession. But what has happened with boundaries now that we seem to have transitioned from the profession of medicine to the business of medicine? “Care providers” are to turn to the clinic directors or whatever entity is representing the business to learn about redefined boundaries that are best for… the business? What about establishing boundaries between the healing arts professions and the financial accounting functions for health care that should be relegated to the virtual back office? How about allowing the health care professionals to revert to the traditional Hippocratic concepts of boundaries? In fact, instead of limiting boundary considerations strictly to the one-o n-one interaction between patients and professionals, shouldn’t we be exploring the boundaries that Gordon Schiff implies when he refers to “collective advocacy for societal change and personal advocacy and helping of individual patients”? If we were to use that collective advocacy for societal change to establish a single payer system, we could break down barriers, allowing us to come closer to achieving optimal care for all patients. As Schiff says, “Minimizing barriers for professionals and patients working together for this shared agenda represents true patient-centered medical care.” After reading Gordy Schiff’s commentary and seeing that his moral compass is set on the primacy of the patient, it should come as no surprise to readers that he has been very active in Physicians for a National Health Program, having served as its president. Thank goodness he understands as much as anyone where our professional boundaries should be. Sadly, the stewards of the new business world of medicine will never understand.

Canadians don’t understand Ted Cruz’s health care battle

By Matt Miller
The Washington Post, September 25, 2013

When you’re being forced to endure another rabid Sen. Ted Cruz (R-Tex.) soliloquy on Obamacare’s threat to human freedom, it’s easy to forget how absurd our health-care debate seems to the rest of the civilized world. That’s why it’s bracing to check in with red-blooded, high testosterone capitalists north of the border in Canada — business leaders who love Canada’s single-payer system (a regime far to the “left” of Obamacare) and see it as perfectly consistent with free market capitalism.

Take David Beatty, a 70-year-old Toronto native who ran food processing giant Weston Foods and a holding company called the Gardiner Group during a career that has included service on more than 30 corporate boards and a recent appointment to the Order of Canada, one of the nation’s highest honors. By temperament and demeanor, Beatty is the kind of tough-minded, suffer-no-fools wealth creator who conservatives typically cheer.

Yet over breakfast in Toronto not long ago, Beatty told me how baffled he and Canadian business colleagues are when they listen to the U.S. health-care debate. He cherishes Canada’s single-payer system for its quality and cost-effectiveness (Canada boasts much lower costs per person than the United States). And don’t get him started on the system’s administrative simplicity — you just show your card at the point of service, and that’s it. Though he’s a well-to-do man who can pay for whatever care he wants, Beatty told me he’s relied on the system just as ordinary Canadians do, including for a recent knee replacement operation. The one time he went outside the system was to pay extra for a physical therapist closer to his home than the one to which he’d been assigned.

It’s just “common sense” in Beatty’s view that government takes the lead in assuring basic health security for its citizens. He’s amazed at the contortions of the debate in the United States, and wonders why big U.S. companies “want to be in the business of providing health care anyway” (“that’s a government function,” he says simply). Beatty also marvels at the way the U.S. regime’s dysfunction comes to dominate everyday conversation. He shakes his head recalling how much time and passion American friends devoted one evening to comparing notes on their various supplemental Medicare plans. Talk about your sparkling dinner conversation.

Roger Martin, another Toronto native and avowed capitalist, spent years as a senior partner at the consulting firm Monitor before becoming dean of the Rotman School of Management at the University of Toronto, where he recently completed a 15-year stint. He advises U.S. corporate icons like Proctor & Gamble and Steelcase. He lived in the United States for years and has experienced both systems first hand.

Martin told me that Canada’s lower spending, better outcomes and universal coverage make it superior by definition. Plus, it’s “incredibly hassle-free.” In the United States every time he took his kids in for an earache his wife spent hours fighting with the health plan or filling out reams of paperwork. In Canada, he says, “the entire administrative cost is pulling your card out of your pocket, giving it to them and putting it back.”

There’s more. Canadian divisions of multinational firms love Canada’s system because when they bid on projects they have no health costs to load in. Also, there’s no crazy “job lock” as with the employer-based system in the United States — where people with (say) a sick child cling to their job for fear of being pronounced uninsurable. His peers, he says, view the U.S. debate as “ideological and not based on economics.”

“The whole single payer thing just makes sense,” Martin adds. “You don’t spend time trying to shift costs.” It’s hardly perfect: a few folks go to the United States to jump the line on certain elective procedures, and Canada, like others, free rides on American’s investment in pharmaceutical innovation (funded by higher U.S. drug prices). But, he adds, “I literally have a hard time thinking of what would be better than a single-payer system.”

The moral of the story? Don’t let the rants of cynical demagogues like Cruz confuse you — it is entirely possible to be a freedom loving capitalist and also believe in a strong government role in health care. Remember, Obamacare features a much smaller such role than does Canada’s approach — or England’s, where Margaret Thatcher would have been chased from office for proposing anything as radically conservative as the Affordable Care Act.

One well-known billionaire told me a few years back that the right answer for the United States was single payer for basic coverage, with the ability for folks to buy additional private supplements atop that. But he won’t say this in public; the gang at the club just wouldn’t understand. Maybe when U.S. business leaders muster the common sense of their Canadian counterparts, they’ll deliver the message the Ted Cruzes of the world need to hear: sit down and shut up. 

Matt Miller writes a weekly column on economic and other domestic policy issues. He is a senior fellow at the Center for American Progress, the voice of the political “center” on public radio’s “Left, Right & Center,” the host of the new podcast “This…Is Interesting.” 

http://www.washingtonpost.com/opinions/matt-miller-canadians-dont-understand-ted-cruzs-health-care-battle/2013/09/25/ee2d6e6e-25d9-11e3-b75d-5b7f66349852_story.html

Comment:

By Don McCanne, M.D.

Businessmen in the United States need to listen to their colleagues in Canada.  They see single payer as being “perfectly consistent with free market capitalism.” “The whole single payer thing just makes sense.”

It should be noted that this Washington Post article was written by a “voice of the political center” – Matt Miller. That single payer is appropriately a centrist concept is demonstrated by the fact that it fulfills the fundamental business principles of being efficient (lower costs per person), effective (everyone is included), and of high quality (better health outcomes).

(As an aside, regarding the well-known billionaire who recommended single payer for basic coverage with private supplementary coverage for other care, I should say that I wrote such a proposal right after the failure of the Clinton reform effort. I submitted it to Claudia Fegan, then president of PNHP, and she returned it smothered in red ink. That is when I learned that I knew very little about health policy, so I have studied it on a daily basis since. Simply stated, single payer needs to be comprehensive enough such that no supplemental coverage would be necessary.)

Incidentally, the hotlinks in the article on “Canada’s single payer system” and “lower costs per person” lead to two great articles on these topics. If the links are not live in this email, they can be acc essed in the original article at the link above.

Analysis: Benefit firms create tremors for insurers in U.S. healthcare shakeup

By Caroline Humer and Lewis Krauskopf
Reuters, September 20, 2013 American companies are sending shockwaves through the healthcare industry by moving a rapidly growing number of employees onto privately run online exchanges for their medical coverage. In a business already bracing for major change because of President Barack Obama’s healthcare reforms, the decisions are threatening to shift more power in the market to the benefit consulting firms opening many of the exchanges. “It’s important to the insurance companies to sell through the private exchanges to maintain their biggest customers,” said Mike Nugent, managing director of the healthcare practice at business consulting firm Navigant Consulting. The exchanges received their biggest boost yet when Aon Plc insurance broker said on Wednesday it signed up 18 companies to participate in its Aon Hewitt Corporate Health Exchange, including the country’s largest drug store operator Walgreen Co, resulting in coverage for an estimated 600,000 people next year. The announcement drove up the shares of Aon and other benefits consulting firms, such as Towers Watson and Marsh & McLennan, which owns Mercer, one of the largest consulting firms in the world. All three have easily outpaced the broader market in the past year, with Towers Watson shares up 79 percent and Aon up 42 percent. Corporations are hoping the move to the private exchanges will keep healthcare spending in check and force employees to manage more of their own healthcare costs. Companies still directly pay a portion of the premium and deduct premium payments from employee wages for the difference between the employer contribution and the cost of a plan, but employees can choose a plan from a menu of low to high cost offerings. Insurers have been preparing for this possible shift to private exchanges. In some cases they are investors and in other cases, like Aetna Inc, they are building their own. But plans offered by large, household name insurers such as UnitedHealth Group, Aetna and WellPoint Inc are likely to be among the most prominent choices for consumers selecting a plan on a private exchange, Windley said. Some experts say moving to an exchange prevents companies from “over-buying” insurance. Alan Cohen, chief strategy officer of private exchange company Liazon, said that based on the 200,000 transactions processed at his companies, employees spent on average 25-30 percent less when they chose the plan compared with what the company would have spent. On the other hand, the Aon exchange and others shift the risk associated with providing health insurance to the insurers from the large companies that have traditionally being bearing the risk, or self-insuring, which can be more profitable. Self-insured members generate $4 of pre-tax profit monthly, compared to $18 in pre-tax profit for each fully insured member, according to Credit Suisse analyst Ralph Giacobbe. The coming year is the first time in which a significant number of larger employers will use private exchanges for their workers’ benefits. Companies, which start unveiling benefit plans this month, are sending at least 1 million employees to private exchanges in 2014 versus a few hundred thousand now. More growth is expected in 2015 with nearly 1 in 3 large companies saying they were considering a move. By 2015, 6.5 million people could be on these exchanges for active employees, according to forecasts by analysts at William Blair. The possible market is much larger. About 170 million people received employer-based health insurance in 2012, 156 million of whom were under 65. Aon, Towers Watson and Mercer already dominate the market for consulting for the top 1,000 U.S. companies about benefits, putting them in a position to promote their exchanges. The expansion of private exchanges is expected to add significantly to revenues of the benefit companies. Rates from exchange contracts bring in more revenue per employee than current administrative ones, according to William Blair analysts. Also, once the exchanges are established with a fixed cost base, new corporate clients become highly profitable, according to William Blair. http://www.reuters.com/article/2013/09/21/us-usa-healthcare-exchanges-analysis-idUSBRE98J0W620130921

Comment:

By Don McCanne, M.D. Although these private insurance exchanges which resemble Obamacare’s state insurance exchanges are just getting off the ground, they seem to be providing an out for employers who are tired of managing their employee health benefit programs and who want relief from the seemingly uncontrollable increases in health care costs. What an opportunity this provides for the benefits consulting firms. These consulting firms are not replacing the insurers, but they are inserting themselves as another layer of administration in our system already greatly overburdened with administrative waste. Their administrative costs are not counted in the 15 to 20 percent allowed for the insurers under Obamacare. No, these costs are in addition to the administrative waste of the insurers and the waste of the administrative burden that insurers place on physicians, hospitals and other health care providers. It is part of our uniquely American health care system that is designed to finance administrative services while seeming to pay for health care services only as an aside – an exaggeration but it does emphasize the priorities of these administrative corporations. Since health care policies should be designed to take care of patients, in this case employees who are moved from employer benefit plans to these private exchanges, we should look at the impact that this will have on the employees. *  Since employee health benefits and the costs to administer them are paid by employees in the form of forgone wage increases, this additional layer of administrative costs will be borne by employees with no commensurate increase in health care services. *  This shift from defined benefit health plans to defined contributions is one more example of our current trend of shifting risk and costs onto the backs of employees. *  When employees select their own plans, they will buy the plans with the lowest premiums since most of them and their families are healthy. That means plans with high deductibles and spartan health benefits. For those who develop serious medical problems, financial hardship will be an inevitability because of excessive out-of-pocket costs, and impaired access is very likely because of the shift to narrow networks of providers. *  The private exchanges will not be eligible for the subsidies provided for plans in the state-run Obamacare exchanges, so low and moderate income individuals will not be receiving the same help that those who enroll through the state exchanges will have. Those employers now selecting the private exchange option will be contributing to the employees’ premiums, though, unlike the state exchanges, that contribution will not be equitable since it is not based on income. *  For employers who currently self insure and thus have lower administrative costs, the administrative costs will be much greater in the private exchanges, but those extra costs will be borne by the employees, either directly of indirectly. *  The benefit consulting firms are entering these ventures with visions of great profits. This is one more sad saga of the American approach of scooping up profits from patient care dollars while designing health coverage to maximize business goals and minimize health care services. *  These business intermediaries seek even more profits by catering to Wall Street investors, pushing up the price of their shares while appeasing Wall Street by demonstrating that they will limit as much as possible the diversion of revenues to patient care. Not only do we need to remove private insurers from their nefarious role in all of this, it appears that it is time to remove the employers and their benefit managers as well. By switching to a single payer financing system and funding it through equitable taxes, we can be sure that everyone would be paying their fair share, including members of the business community, while nobody is wasting funds on the middleman money managers.

Lower Health Insurance Premiums to Come at Cost of Fewer Choices

By Robert Pear
The New York Times, September 22, 2013 Federal officials often say that health insurance will cost consumers less than expected under President Obama’s health care law. But they rarely mention one big reason: many insurers are significantly limiting the choices of doctors and hospitals available to consumers. From California to Illinois to New Hampshire, and in many states in between, insurers are driving down premiums by restricting the number of providers who will treat patients in their new health plans. Some consumer advocates and health care providers are increasingly concerned. Decades of experience with Medicaid, the program for low-income people, show that having an insurance card does not guarantee access to specialists or other providers. Consumers should be prepared for “much tighter, narrower networks” of doctors and hospitals, said Adam M. Linker, a health policy analyst at the North Carolina Justice Center, a statewide advocacy group. Insurers say that with a smaller array of doctors and hospitals, they can offer lower-cost policies and have more control over the quality of health care providers. They also say that having insurance with a limited network of providers is better than having no coverage at all. In a new study, the Health Research Institute of PricewaterhouseCoopers, the consulting company, says that “insurers passed over major medical centers” when selecting providers in California, Illinois, Indiana, Kentucky and Tennessee, among other states. “Doing so enables health plans to offer lower premiums,” the study said. “But the use of narrow networks may also lead to higher out-of-pocket expenses, especially if a patient has a complex medical problem that’s being treated at a hospital that has been excluded from their health plan.” In California, the statewide Blue Shield plan has developed a network specifically for consumers shopping in the insurance exchange. Juan Carlos Davila, an executive vice president of Blue Shield of California… said the new network did not include the five medical centers of the University of California or the Cedars-Sinai Medical Center near Beverly Hills. Daniel R. Hawkins Jr., a senior vice president of the National Association of Community Health Centers, which represents 9,000 clinics around the country, said: “We serve the very population that will gain coverage — low-income, working class uninsured people. But insurers have shown little interest in including us in their provider networks.” Dr. Bruce Siegel, the president of America’s Essential Hospitals, formerly known as the National Association of Public Hospitals and Health Systems, said insurers were telling his members: “We don’t want you in our network. We are worried about having your patients, who are sick and have complicated conditions.” “If a health plan has a narrow network that excludes many doctors, that may shoo away patients with expensive pre-existing conditions who have established relationships with doctors,” said Mark E. Rust, the chairman of the national health care practice at Barnes & Thornburg, a law firm. “Some insurers do not want those patients who, for medical reasons, require a broad network of providers.” NYT reader response: Don McCanne
San Juan Capistrano, CA By designing reform that leaves the private insurers in charge, it was inevitable that their business model would be directed to selling their own insurance product by trying to keep their premiums competitive. Instead of controlling health care costs, they are shifting the costs to people who actually need health care – defeating the purpose of insurance. Private insurers will continue to search for innovative ways to keep their premiums competitive, such as narrow networks, high deductibles, and selling in only healthy, profitable markets. Their waste of our health care dollars can be demonstrated by last week’s report from the Office of the Actuary of CMS that projects that, in 2022, government administrative costs for health care (Medicare, Medicaid, CHIP, VA, IHS, Department of Defense, etc.) will be $70 billion, whereas the administrative costs of the private insurers will be $313 billion! (That doesn’t even include the cost of the tremendous administrative burden placed on the health care delivery system.) What a waste! We need to throw out the outrageously priced and administratively burdensome private insurance industry that merely screws up our health care and replace it with an improved version of Medicare that covers everyone. http://www.nytimes.com/2013/09/23/health/lower-health-insurance-premiums-to-come-at-cost-of-fewer-choices.html?hp&pagewanted=all

Comment:

By Don McCanne, M.D. This article featured prominently in The New York Times explains the adverse consequences of the private insurers’ decisions to restrict access to narrow networks of physicians and hospitals. When you look at the very large number of responses to this article, it is somewhat reassuring that the responses endorsed by the readers acknowledge that we need to replace the private insurers with a single payer system. Use the link above to read the full article, and then clink on “Reader Picks.” We need to translate this into citizen action.