PNHP

Why Competition Among Health Plans Can't Help Us

Why Competition Among Health Plans Can't Help Us

By Stephen Kemble, M.D.
OpEdNews, Nov. 17, 2011

With or without with the Affordable Care Act (ACA), the total national cost of U.S. health care is rising unsustainably, with an increasingly unaffordable share pushed onto patients.1,2 CMS projections of total national health expenditures show a rise from 17.8% of gross domestic product in 2010 to 21% in 2019 under the ACA, compared to 20.8% in 2019 under prior law, both far higher than any other country.2 Problems with access to care are widespread and increasing. Doctors and hospitals are seeing reimbursement cut while administrative burdens escalate. Unwarranted regional variations in health spending point to large amounts of money wasted on unnecessary care.3

Even with advanced planning via a health savings account, expecting individuals to pay for modern health care out of pocket is only possible for the relatively healthy and wealthy. If we are to have health care financing that can cover those with serious or chronic illnesses, we must choose between the private health insurance industry and government-funded health care. We are inclined to believe that government is always inefficient and that the solution to problems with excessive cost and waste is to use competition to bring fiscal discipline and efficiency to an otherwise dysfunctional “market.” However, there are fundamental structural reasons why this assumption does not apply to U.S. health care.

Private Health Insurance Industry

The U.S. private insurance business model aligns economic incentives against providers and recipients of health care, rewarding denial of care. Accountability is first to the fiscal health of the plan, and only secondarily to quality health care.4 Medicare has obvious administrative problems, but competing private insurance plans still carry approximately six times higher administrative costs than non-privatized government health care programs.5

Risk Pooling

The core idea of insurance is risk pooling. We must have some mechanism for the younger and healthier to subsidize the cost of health care for the elderly and chronically ill. Insurance is a system to manage risk, and it works best in the case of risks that are infrequent, expensive, and unpredictable, in which case risk pooling is the primary means of risk management.

Adverse Selection and Underwriting

What happens when the risk is predictable? When those purchasing insurance know their risk is higher than average, then insurance plans are exposed to adverse selection, and they counter this with underwriting.

A high proportion of the population knows their health risk because they have pre-existing conditions. Without an individual mandate, those with health problems are highly motivated to purchase insurance, but the healthy will often decide to save their money and take their chances. This leaves a sicker than average pool of subscribers, driving the cost of insurance up. With higher cost, more of the relatively healthy will forego insurance, leaving an even sicker insured pool, and even higher costs, until almost no one can afford health insurance and the advantages of risk pooling are lost.

Underwriting is the analysis of risk for the purpose of pricing or determination of coverage. Use of underwriting strategies means denial of coverage or care, especially for those with serious or chronic illness, which runs counter to the whole purpose of health insurance. Underwriting also carries substantial administrative costs.

Competition among Health Plans

The private insurance model assumes competition among plans. No competition means an unaccountable monopoly, or a government controlled plan. However, when plans are allowed to compete for the best risk pool, then competition rewards covering the healthy and avoiding the sick, and does not work to improve health care quality or reduce its cost.

The Individual Insurance Market

Individuals often know their own health risk, so the individual health insurance market has a severe adverse selection problem. Under the ACA, an individual mandate requiring everyone to purchase insurance and restrictions on underwriting mitigate adverse selection, but since some differential pricing of risk pools is still allowed, plans still have an incentive to compete for the healthiest risk pools and to minimize covering those with chronic illnesses.

Adverse selection gives a competitive advantage to plans with poorer benefits, lower provider reimbursement, and minimal customer service. Those with chronic health conditions will choose plans based on quality of coverage and doctor recommendations, but the healthy will often choose on price alone. Bad plans therefore get the healthiest risk pool, and good plans will be stuck with a sicker risk pool and forced to raise prices. Under the ACA, they will be penalized for this. This will create a “race to the bottom” among insurance plans.

The Group Insurance Market

Employers and groups provide a basis for choice of plan based on group membership, rather than risk status. This reduces but does not eliminate adverse selection, which remains problematic for small groups or employers with older work forces. The group insurance market actually works best with an employer mandate, minimal competition, and non-profit plans, as in Hawaii, allowing maximum risk pooling and minimizing heavy-handed underwriting. However, group insurance leaves too many out, including part-time workers and the unemployed.

More competition forces plans, for their fiscal survival, to try to avoid sicker risk pools. As in the individual market, use of underwriting by health plans means smaller businesses whose employees have chronic illnesses may be priced out of the insurance market, or offered deficient plans that fail to protect against financial devastation in the event of serious or chronic illness. Individuals with chronic illness often become unemployable and are pushed into medical bankruptcy, disability, and government plans (Medicaid and Medicare), driving up the cost of these programs.

To cap it off, more competition does not bring the price of health insurance down. There is no correlation between the competitiveness of health insurance markets by state, and the average cost of health insurance by state.6,7

Privatization of Government Programs

Government already pays for over half of U.S. health care from tax revenues.8 Efforts to break up government programs into competing plans have led to higher cost (Medicare Advantage), or much more restricted benefits and provider participation (Medicaid managed care), or senseless administrative complexity (Medicare D), and have not added any actual value to health care delivery.9

Therefore, more competition among plans will not reduce total health care costs, but will push plans to exclude the sick from coverage, reduce benefits, and increase administrative burdens, all of which are destructive to health care.

References
1.      Chernew ME, Baiker K, Hsu J. The Specter of Financial Armageddon — Health Care and Federal Debt in the United States . N Engl J Med 2010;362;13:1166-1168.
2.      Foster RS. Estimated Financial Effects of the “Patient Protection and Affordable Care Act,” as Amended. Office of the Actuary, Centers for Medicare and Medicaid Services. April 22, 2010.
3.      Fisher ES, Bynum JP, Skinner JS. Slowing the Growt
h of Health Care Costs – Lessons from Regional Variation . N Engl J Med 2009;360;9:849-852.
4.      Kuttner R. Market-Based Failure – A Second Opinion on U.S. Health Care Costs . N Eng J Med 2008;358:549-551.
5.      Woolhandler S, Campbell T, Himmelstein D. Costs of Health Care Administration in the United States and Canada. N Engl J Med 2003;349:768-75.
6.      C. Schoen, J. L. Nicholson, and S. D. Rustgi, Paying the Price: How Health Insurance Premiums Are Eating Up Middle-Class Incomes–State Health Insurance Premium Trends and the Potential of National Reform. The Commonwealth Fund, August 2009.
7.      American Medical Association, “Competition in Health Insurance, A Comprehensive Study of US Markets: 2008 Update.”
8.      Woolhandler S and Himmelstein D. Paying for National Health Insurance and Not Getting It. Health Affairs 2002;21;4:88-98.
9.      Woolhandler S and Himmelstein DU. Competition in a publicly funded healthcare system. BMJ 2007;335:1126-1129.

Uwe Reinhardt on social insurance and individual freedom

Social Insurance and Individual Freedom

By Uwe E. Reinhardt
The New York Times, December 9, 2011

The continuing debate over the Affordable Care Act and the commentary on this blog have convinced me that nothing can ever unite Americans on their vision of an ideal health system.

We need different health insurance systems for different Americans. I mean by this not Americans who differ by age or ability to pay but Americans with different notions of a just society.

Closing the Door to Statutory Insurance

By law, every German must have coverage for a prescribed benefit package. German employees and pensioners earning less than 49,500 euros ($66,350) per year (in 2011) are compulsorily insured under the statutory system.

Employees and pensioners above that threshold are free to opt out of the statutory system and purchase private, commercial coverage, but if they do, they cannot ever return to the statutory system unless they are paupers. The intent is to minimize gaming of the insurance system by individuals.

It is this feature that intrigues me, as it has my colleague Paul Starr, in his proposed alternative to an individual mandate to be insured.

What if Americans at, say, age 26 (beyond which they can no longer be included on their parents’ insurance policy) or even as late as age 30 were offered the choice of:

1. joining the community-rated health insurance offered through the insurance exchanges called for in the Affordable Care Act;

2. remaining in a private insurance system that is free to charge in any year “actuarially fair” premiums, that is, premiums that reflect the applicant’s projected health status and spending for that year and is free to refuse issuing a policy altogether;

3. simply self-insuring, by remaining uninsured?

For want of better terms, we might call the exchange system the “social insurance track” (because it leans heavily toward social insurance) and the second and third options the “rugged individualist tracks,” because they cater to Americans with individualist preferences.

For people choosing the rugged individualist tracks, Professor Starr proposes to shut the door to the social insurance track for only five years.

I believe his stricture is too weak and propose instead to follow the German example by shutting the door permanently to social insurance to any individual who chose one of the two rugged individualist tracks, unless such individuals were truly pauperized. A return then would have to be allowed, because, for better or for worse, our civic sentiments preclude letting anyone – even a myopic rugged individualist — die for want of critically needed health care.

Admittedly, this approach would confront young Americans with a serious life-cycle choice. But life-cycle choices are made all the time, and choices do have consequences that people in their mid-20s should be mature enough to think about. Adults must realize that individual freedom has its price.

The American health insurance system now is structured as a paradise for clever adolescents, inviting gaming of many sorts that makes sensible health policy almost impossible. It is time to move away from such a system.

http://economix.blogs.nytimes.com/2011/12/09/social-insurance-and-individual-freedom/

Published comment:

Don McCanne, San Juan Capistrano, CA

Those of us who have great admiration for Paul Starr were disappointed by his recommendation to require anyone who opted out of coverage to be prohibited from having coverage for the next five years.

Under this policy, many of these very healthy young people will decide to take the chance that they will not need expensive care, and most will win that bet.

There are two problems with this. Some will have major trauma, some will develop serious disorders such as cancer, and some will develop severe chronic problems such as type I diabetes. These people should receive the care that they need regardless of the fact that they made the unwise decision to decline insurance. Who pays for that care?

The other problem is that we do need the many who are healthy to pay into the risk pools to cover the fewer with greater health care needs. Otherwise those pools end up with a death spiral of ever higher premiums.

Just as our nation does not allow me, a pacifist, to not pay through my taxes the costs of our ill-considered wars, our nation should also prohibit the rugged individualists from not paying their share of our collective national health expenditures.

The nation will continue to disagree on this, which is precisely Professor Reinhardt’s point. But that won’t stop some of us from continuing to advocate for what is right.

http://economix.blogs.nytimes.com/2011/12/09/social-insurance-and-individual-freedom/?comments#permid=1

Uwe Reinhardt on social insurance and individual freedom

Social Insurance and Individual Freedom

By Uwe E. Reinhardt
The New York Times, December 9, 2011

The continuing debate over the Affordable Care Act and the commentary on this blog have convinced me that nothing can ever unite Americans on their vision of an ideal health system.

We need different health insurance systems for different Americans. I mean by this not Americans who differ by age or ability to pay but Americans with different notions of a just society.

Closing the Door to Statutory Insurance

By law, every German must have coverage for a prescribed benefit package. German employees and pensioners earning less than 49,500 euros ($66,350) per year (in 2011) are compulsorily insured under the statutory system.

Employees and pensioners above that threshold are free to opt out of the statutory system and purchase private, commercial coverage, but if they do, they cannot ever return to the statutory system unless they are paupers. The intent is to minimize gaming of the insurance system by individuals.

It is this feature that intrigues me, as it has my colleague Paul Starr, in his proposed alternative to an individual mandate to be insured.

What if Americans at, say, age 26 (beyond which they can no longer be included on their parents’ insurance policy) or even as late as age 30 were offered the choice of:

1. joining the community-rated health insurance offered through the insurance exchanges called for in the Affordable Care Act;

2. remaining in a private insurance system that is free to charge in any year “actuarially fair” premiums, that is, premiums that reflect the applicant’s projected health status and spending for that year and is free to refuse issuing a policy altogether;

3. simply self-insuring, by remaining uninsured?

For want of better terms, we might call the exchange system the “social insurance track” (because it leans heavily toward social insurance) and the second and third options the “rugged individualist tracks,” because they cater to Americans with individualist preferences.

For people choosing the rugged individualist tracks, Professor Starr proposes to shut the door to the social insurance track for only five years.

I believe his stricture is too weak and propose instead to follow the German example by shutting the door permanently to social insurance to any individual who chose one of the two rugged individualist tracks, unless such individuals were truly pauperized. A return then would have to be allowed, because, for better or for worse, our civic sentiments preclude letting anyone – even a myopic rugged individualist — die for want of critically needed health care.

Admittedly, this approach would confront young Americans with a serious life-cycle choice. But life-cycle choices are made all the time, and choices do have consequences that people in their mid-20s should be mature enough to think about. Adults must realize that individual freedom has its price.

The American health insurance system now is structured as a paradise for clever adolescents, inviting gaming of many sorts that makes sensible health policy almost impossible. It is time to move away from such a system.

http://economix.blogs.nytimes.com/2011/12/09/social-insurance-and-individual-freedom/

Those of us who have great admiration for Paul Starr were disappointed by his recommendation to require anyone who opted out of coverage to be prohibited from having coverage for the next five years.

Under this policy, many of these very healthy young people will decide to take the chance that they will not need expensive care, and most will win that bet.

There are two problems with this. Some will have major trauma, some will develop serious disorders such as cancer, and some will develop severe chronic problems such as type I diabetes. These people should receive the care that they need regardless of the fact that they made the unwise decision to decline insurance. Who pays for that care?

The other problem is that we do need the many who are healthy to pay into the risk pools to cover the fewer with greater health care needs. Otherwise those pools end up with a death spiral of ever higher premiums.

Just as our nation does not allow me, a pacifist, to not pay through my taxes the costs of our ill-considered wars, our nation should also prohibit the rugged individualists from not paying their share of our collective national health expenditures.

The nation will continue to disagree on this, which is precisely Professor Reinhardt’s point. But that won’t stop some of us from continuing to advocate for what is right.

Comment originally published on the NYTimes Blog: http://economix.blogs.nytimes.com/2011/12/09/social-insurance-and-individual-freedom/?comments#permid=1

Students Occupy for Health Justice

By Danielle Alexander
AMSA On Call blog, Dec. 7, 2011

I met a patient last week who stopped taking her antidepressant medications because she had been denied long-term health insurance and thought it would improve her chances of eligibility. Unfortunately this obviously wasn’t in the best interest of her health.

I had another patient who presented to the emergency department with metastatic lung cancer. He had not been to the doctor in over 30 years because he couldn’t afford it. If he had sought treatment earlier he may have been cured.

Everywhere I look private health insurance companies are making our patients sicker.

I was proud to be at in Lafayette Park in Albany, N.Y., last Sunday for the Health Professional Students Day of Action for the 99%. We carried a banner that said “Health Professional Students Occupy for Health Justice and Single Payer.”

I support the occupy movement because I feel that powerful and profiting insurance companies get in the way of my practice of medicine. Treatment should be the same high quality for everyone; instead, we have to consider what someone can afford.

It too often becomes treatment for the “haves” and neglect for the “have nots.” But the thing is, these days you may not know which group you fall into. Insurance plans are so spotty, with major gaps in coverage, that you don’t even realize it until you need medical attention, and you find your plan does not cover it.

I see it every day in the clinic – treatment is designed around what the insurance will pay (or not) instead of what is best for the patient first and foremost. It’s no fault of the medical team; we want to give the patients the best care, but the insurance industry has our hands tied.

Today’s future doctors realize that health care is more than physical health, social determinants of health are equally as important. The schools our kids attend, the neighborhoods we grow up in, the cleanliness of the environment, joblessness, and poverty all deeply impact our health.

A classmate said today, “There is so much inequity and injustice, it cuts into everything, including caring for patients. If you really want to care for patients you’ve got to care about everything, not just their liver.”

I asked some of the other attendees why they support the Occupy movement. “Health care is a fundamental human right and by increasing access to health care we can reduce some of the inequality,” said one medical student. Another classmate agreed: “We’re here for health care because you can’t do anything if you’re not healthy.” Yet another: “As a future physician, it’s disconcerting that patients can’t get into my exam room, and I want to change that.”

Even early in their medical careers, these students see that there are major problems with the health of our nation.

As I talked with my classmates, I found that we were all there for slightly different reasons. “I feel like too much of our country’s infrastructure has been diverted away from the important stuff like health and well-being,” said another student. His peer believes “the system is broken and change needs to start somewhere.”

The United States is the only industrialized country that does not provide health care to all its citizens regardless of employment status or economic class. Our profit-driven health care industry raises costs and inequality.

But our political system has been corrupted by corporate money and power, and the 1% have rejected evidence-based health policy that save lives and money, namely expanded and improved Medicare for all. We support Occupy Wall Street because economic and social inequality makes our patients sick.

Danielle Alexander is a medical student in Albany, N.Y.

http://www.amsa.org/AMSA/Homepage/TakeAction/AMSAOnCall/11-12-07/Students_Occupy_for_Health_Justice.aspx

Occupying the health care industry

By Jordan Green
Yes! Weekly (Greensboro, N.C.), Dec. 7, 2011

The Cone Health Family Medicine Center on North Church Street in Greensboro might seem an unlikely place for a revolt to stir, but that’s exactly what was happening as Health Care for All North Carolina gathered for its annual meeting on a recent Saturday afternoon.

At the 1 p.m., about nine people — mostly physicians — had assembled.

Their number more than doubled when organization president Dr. Jonathan Kotch escorted Dr. Steve Auerbach, the keynote speaker, into the room. They were running late because Auerbach’s meeting with Occupy Durham had run over.

Auerbach fiddled with an overhead projector and showed some footage of New York City health care workers marching with Occupy Wall Street, but couldn’t get the audio to work, so he went right to his slide show.

“It’s really, really bad right now,” said Auerbach, a pediatrician who is a member of the N.Y. board of directors of Physicians for a National Health Program. “Also, it’s gotten worse. It’s gotten worse for awhile, and in the past couple of years it’s been getting worse a lot faster. It used to be better, which suggests it doesn’t have to be this way.”

Auerbach, who wore a blue dress shirt, tie and blue jeans, spoke in a raspy, direct manner, conveying by turns outrage, compassion and flashes of black humor with wit and occasional profanity, in contrast to the more reserved docs from North Carolina.

“What’s the it?” he asked. “Anything you want: Income, income inequality … hollowing out of the middle class….”

Auerbach has been presenting a slide show about single-payer health care to Occupy groups. Explicit in Health Care for All NC’s name is advocacy for the idea that “health care is an essential safeguard of human life and dignity,” and that the state has an obligation to ensure that everyone has access to it. This audience was already pretty well versed in the fine points of single-payer, so Auerbach focused his remarks on income inequality.

The tea party pinpoints the historical moment when everything went wrong to 1913, when Congress ratified the 16th Amendment, allowing the federal government to collect income tax.

For Auerbach, it goes back to 1971, when the so-called “Powell Memo” was drafted. Charting economic history, Auerbach told the North Carolina physicians that prior to his confirmation to the U.S. Supreme Court, a corporate lawyer who worked for the tobacco industry named Lewis Powell drafted a secret memo to the U.S. Chamber of Commerce arguing for an aggressive effort to shape public opinion to counteract mainstream support for regulation.

Auerbach displayed a line graph representing the share of national income commanded by the wealthiest 10 percent beginning in 1917. The line lurched upward through the 1920s. “We still have the gilded era,” Auerbach said, noting that the wealthiest 10 percent received more than 50 percent of income at that time. Then, around the time of World War II, the line plunged into the 30s – “the great moderation,” as Auerbach described it – where it remained through the 1960s.

“Starting in the early ’70s, we go right back up to the gilded era – plutocracy,” he said. Now, based on widely published statistics, wealth distribution is back to 1920s levels, with the richest 10 percent earning almost half of the national income.

Among the policy decisions of the past 30 years cited by Auerbach and other progressives as responsible for the widening income gap are deregulation, reductions of the effective tax rate on the wealthy including capital gains and attacks on unionization.

“If you want to talk about a sin, it’s a sin that you work for minimum wage, and you do all the right things, and you still can’t make ends meet,” Auerbach said. “That doesn’t even include waitresses and farm workers, who are exempt from minimum wage. You know, you have to earn at least $12 per hour to live above the official poverty level.”

Auerbach, who describes himself as part of the “2 percent,” told his fellow physicians, “We’re doctors; we make a lot of money.”

For Auerbach, that means a home in the Upper West Side of Manhattan with ample square footage. It means his kids are enrolled in good schools, and “a certain high lifestyle.” He added that he makes his money through earned income, and his earnings are taxed at 33 percent of his income, as opposed to those whose income from capital gains is taxed at 15 percent.

Auerbach’s animated presence conveyed a conviction that not only is change desirable but also attainable as a matter of citizens taking responsibility for shaping the course of human events. And he seemed pretty confident in sizing up the opposition.

“I think this is where the anger of the pretty well to do is coming from,” he said. “That may be where the anger of the tea party is coming from, to the extent that it’s not a phony, cooked-up thing completely.”

Tax policy is not typically the domain of the medical establishment, but Wayne A. Hale, coordinator of geriatrics at Cone Health’s family medicine residency program, seemed willing to grapple with it.

“This reminds me of the obesity epidemic,” Hale said. “We’re trying to change individual behavior, but we have so much advertising money stacked against us.”

Auerbach presented a set of statistics indicating that poor people pay a higher share of their income to health care than other cohorts and that the portion of their income eaten up by sickness and disease is creeping up.

“Before the 2007 meltdown, 62 percent of personal bankruptcies were due to medical causes,” Auerbach told me after his presentation. “Of those, 78 percent had medical insurance but they ran into trouble because of high co-pays and benefit caps. That doesn’t happen in other countries. It’s unimaginable. It can’t happen.”

As evidence that income inequality is affecting health, Auerbach told me the greatest predictor of health is family income and wealth, followed by race. Poor people are sicker, he said, and they have less money to pay for it.

“As a physician, I have an oath to do no harm,” Auerbach said. “Corporations are doing harm. My patients are people. Corporations are not people. My duty is to my patients.”

http://www.yesweekly.com/triad/article-13217-occupying-the-healthcare-industry.html

Don McCanne on "unaffordable under-insurance"

Health Reform Devolves Into 'Unaffordable Under-Insurance'

By Roger Bybee
In These Times, December 7, 2011

Healthcare reform in the shape of the 2010 Affordable Care Act (aka “Obamacare”) was supposed to relieve working Americans of the burdens of rising healthcare costs as they struggle to survive the jobless recovery.

Instead, working Americans are being confronted with the emergence of a new stage in America’s downward slide on healthcare. “‘Unaffordable under-insurance’ is rapidly becoming the new standard in the United States,” Dr. Don McCanne, senior health policy fellow for Physicians for a National Health Program (PNHP), told In These Times.

For McCanne and fellow health professionals in PNHP, the downward spiral in healthcare will finally end only with the United States installing a Canadian-style “Medicare for all” single-payer system that puts a halt to the machinations of for-profit insurers.

http://inthesetimes.com/working/entry/12348/health_reform_runs_into_unaffordable_under-insurance

Comment: 

By Don McCanne, MD

This brief article from In These Times, available at the link above, explains how the Affordable Care Act is bringing us a new national standard of “unaffordable under-insurance.” It’s not simply that we can do better, we have to do better.

Don McCanne on “unaffordable under-insurance”

Health Reform Devolves Into ‘Unaffordable Under-Insurance’

By Roger Bybee
In These Times, December 7, 2011

Healthcare reform in the shape of the 2010 Affordable Care Act (aka “Obamacare”) was supposed to relieve working Americans of the burdens of rising healthcare costs as they struggle to survive the jobless recovery.

Instead, working Americans are being confronted with the emergence of a new stage in America’s downward slide on healthcare. “‘Unaffordable under-insurance’ is rapidly becoming the new standard in the United States,” Dr. Don McCanne, senior health policy fellow for Physicians for a National Health Program (PNHP), told In These Times.

For McCanne and fellow health professionals in PNHP, the downward spiral in healthcare will finally end only with the United States installing a Canadian-style “Medicare for all” single-payer system that puts a halt to the machinations of for-profit insurers.

http://inthesetimes.com/working/entry/12348/health_reform_runs_into_unaffordable_under-insurance

This brief article from In These Times, available at the link above, explains how the Affordable Care Act is bringing us a new national standard of “unaffordable under-insurance.” It’s not simply that we can do better, we have to do better.

British physicians to government: ‘Withdraw the health bill’

British Medical Association
Press release, Dec. 7, 2011

Chaotic and poorly coordinated structural change currently taking place throughout the National Health Service in England before the Health and Social Care Bill is even law continues to threaten service stability, the British Medical Association said Wednesday in its latest briefing for peers currently debating the legislation.

At its November meeting, the BMA Council voted to change its position to outright opposition to the bill in its entirety. The briefing paper sets out why doctors have hardened their position on the bill in the context of the wider NHS reform agenda.

Commenting, Dr. Hamish Meldrum, chairman of the BMA Council, said:

“There has been a growing level of unease about how the reforms are panning out – we hear repeated concerns from doctors about mounting chaos on the ground. For example, Clinical Commissioning Groups (CCGs), that had initially been told they’d have freedom to form to suit their local communities, are now being told they’re too small and have to re-form. People are still unclear how primary care will be managed as we don’t yet know where staff currently working in Primary Care Trust ‘clusters’ will eventually be based or if they’ll have jobs at all. Even at this stage, there are still unanswered questions about what statutory functions some bodies will have, making planning very difficult.

“Guidance is being issued that is overly restrictive and more and more bureaucracy is being created to try to deal with issues which should have been dealt with at the beginning. A huge amount of time, energy, money and commitment has been wasted because of a lack of a clear plan from the outset.”

The BMA’s main concerns with the current approach include:

· An overambitious timetable: although the legislation has not yet been agreed, changes are already taking place both nationally and locally and assumptions are having to be made about the final architecture. The end result has been chaos on the ground.

· Complexity: the stated aim of reducing bureaucracy now looks meaningless as new bodies and structures are being created, all with complex interrelationships.

· Knock-on effects: much greater thought needs to be given to how the knock-on [secondary, often unintended] effects from the structural changes in the bill will impact on other strands in the Government’s wider NHS reform plans.

· Rhetoric not matching the reality: the Government has said it wants to empower clinicians to commission on behalf of patients, however many of the powers of the NHS Commissioning Board set out in the bill seem overly restrictive.

Dr. Meldrum added:

“We want the Government to rethink its reform package and withdraw the bill. It should be focusing on delivering high-quality, coordinated and integrated health care, not sidetracking staff with major structural reform. Continuing with this legislation, especially in a period of huge financial constraint, is an enormous risk.”

Read the briefing paper here: http://www.bma.org.uk/images/nhsreformbriefingbmaopposesbilldec2011_tcm41-210946.pdf

Related press release of 24 November: http://web2.bma.org.uk/pressrel.nsf/wlu/SGOY-8NWPUQ?OpenDocument&vw=wfmm

Defined contributions future for health care

Orszag: Defined Contributions Define Health-Care Future

By Peter Orszag
Bloomberg, December 6, 2011

Over the next decade, we are likely to see a shift in health insurance in the U.S.: So-called defined-contribution plans will gradually take over the market, shifting the residual risk of incurring high health-care costs from employers to workers.

The market today is dominated by “defined-benefit” plans, under which companies determine a set of health-insurance benefits that are provided for employees. These will gradually be replaced by defined-contribution plans, under which companies pay a fixed amount, and employees use the money to buy or help pay for insurance they choose themselves.

The fundamental driver of this shift is the effort by American businesses to reduce their exposure to health-care costs. But the recent health-care-reform law may accelerate the shift.

The change in health insurance is already well under way in coverage for retirees. In the early 1990s, in response to accounting changes and rising costs, companies began to re- evaluate retiree health plans, and some capped the amount they were willing to pay at a multiple of existing costs. Over time, as those limits were reached, most companies declined to raise them, thereby effectively creating defined-contribution retiree health-insurance plans, with the company’s contribution set by the cap. Exchanges have been created to allow retirees to use these employer contributions to purchase their own health insurance.

For current workers, the precursor to a defined- contribution approach is the “consumer-driven” health plan. This typically has higher deductibles and co-payments than a traditional plan has, and it is often tied to a health savings account. It typically still provides generous insurance for catastrophic cases.

Some insurers are already anticipating the shift. Bloom Health Corp. will begin offering defined-contribution exchanges in 2012. Bloom, based in Minneapolis describes itself as “a leader in the defined-contribution health benefits marketplace,” and says it is “committed to assisting employers of all sizes move toward an employer-sponsored system that has effective cost predictability for employers and increased choice and personalization for employees.” In September, the company announced that Health Care Service Corp., Blue Cross Blue Shield of Michigan and WellPoint (WLP) Inc. had purchased a majority of its equity.

The inevitable transition to defined-contribution health insurance may get a little push from the new health-care-reform law. Indeed, the legislation may have a larger impact on the type of health-insurance plan that employers offer than on their decision about whether to drop health-care benefits altogether.

If most employers do retain their health plans, the state insurance exchanges created under the new federal health-care law will make the basic idea of a defined-contribution health plan more prevalent, and thus may speed its adoption. The regulations written to carry out the new law will determine how things play out. If defined-contribution plans that are sufficiently generous count as employer-based coverage – as is generally expected – the trend toward such plans will probably accelerate.

In any case, the bottom line is that a shift toward defined-contribution plans seems likely. I’d be willing to bet $1 that most large U.S. employer health-care offerings in 2020 will be defined-contribution plans. Any takers?

(Peter Orszag is vice chairman of global banking at Citigroup Inc. and a former director of the Office of Management and Budget in the Obama administration. The opinions expressed are his own.)

http://www.bloomberg.com/news/2011-12-07/defined-contributions-define-health-care-ahead-commentary-by-peter-orszag.html

Comment:  

By Don McCanne, MD

One of the more important tools to enable the transfer wealth up the income ladder is to shift from defined benefit programs to defined contributions. With a defined contribution, a set dollar amount is contributed to the program regardless of what the future benefits may cost, whereas with a defined benefit program, the projected costs of the program must be fully funded so the benefits will always be there when needed.

In the case of pension plans, a defined contribution allows the employer to shift the risk of wage inflation and the risk of living longer from the employer to the employee. The latter is particularly a problem since many individuals will outlive the funds accumulated in their defined contribution pension plan. It is true that they could use those funds to buy an annuity, but fewer funds would be available because it is not a defined benefit plan, and converting to an annuity burns up even more of the retirement funds to pay for sales and administrative costs plus the costs of insuring against the risk of living longer.

How does this move wealth up the income ladder? Defined benefit pension plans were considered to be a standard part of the well-earned employee benefit package. These defined benefit plans were actually paid for by foregone wage increases. In the last couple of decades, contributions to the pension plans were limited by changing to defined contribution, yet wages remained flat. The foregone wages never came back. Workers suffered a net loss, while employer/owners kept the difference, thus an upward transfer of wealth.

Now we are seeing this same inequitable concept being applied to employer-sponsored health plans. Traditional health plans provided generous benefits and often had an actuarial value of 90 percent (the plan paid 90 percent of health care costs and the worker paid 10 percent). We are now seeing a decline in actuarial value. The most obvious contributing factor is the relatively abrupt increase in the adoption of high-deductibles for employer-sponsored plans, but also benefits covered are diminishing, often through less transparent, innovative changes to the plans. Once again, benefits are being reduced but without a commensurate return of forgone wages.

Particularly alarming in Peter Orszag’s article is the investment of WellPoint and Blue Cross Blue Shield of Michigan in Bloom Health Corporation. Bloom Health is “a leader in the defined-contribution health benefits marketplace.” They are committed to a system that has “effective cost predictability for employers,” but exposes employees to the ever higher costs and risks of health care.

This ongoing shift to defined contribution in health care is not limited to businesses. In a recent message, we reported that the Institute of Medicine is recommending that the essential health benefits for the state insurance exchanges under the Affordable Care Act “should be defined as a package that will fall under a predefined cost target rather than building a package and then finding out what it would cost.” “Predefined cost target” is a defined contribution.

Even Medicare is vulnerable. The New York Times, in a recent editorial, stated that for Medicare, “serious analysis and testing of premium support are clearly worth pursuing.” Premium support is a defined contribution that would be used to purchase a private Medicare plan. Medicare beneficiaries would be responsible for paying for the balance of the premium for whatever coverage they could get. Further, with tight control of the defined contribution, an increasing percentage of health care costs would be shifted to Medicare patients in the form of higher out-of-pocket spending.

What do all of these have in common? They are all methods of perpetuating the private insurance industry, while shifting risks from the insurers to the insured individuals. They reduce the financial commitment of employers and the government, but increase the financial burden for workers, their families, and reti
rees – most of us. However, it is a jobs program – for personal bankruptcy attorneys, as if our health care system didn’t give them enough work already.

Defined contribution is a nefarious conspiracy directed at the masses to benefit the well off. We can counter by demanding an end to a system dominated by private insurers and replacing it with a single, publicly-financed and publicly-administered national health program – an improved Medicare for everyone.

(After we fix Medicare, we may want to think about greatly reinforcing our publicly-financed, publicly-administered, defined benefit Social Security program so we wouldn’t have to put up with the abuses of our private, defined contribution pension plans. Really.)

Defined contributions future for health care

Orszag: Defined Contributions Define Health-Care Future

By Peter Orszag
Bloomberg, December 6, 2011

Over the next decade, we are likely to see a shift in health insurance in the U.S.: So-called defined-contribution plans will gradually take over the market, shifting the residual risk of incurring high health-care costs from employers to workers.

The market today is dominated by “defined-benefit” plans, under which companies determine a set of health-insurance benefits that are provided for employees. These will gradually be replaced by defined-contribution plans, under which companies pay a fixed amount, and employees use the money to buy or help pay for insurance they choose themselves.

The fundamental driver of this shift is the effort by American businesses to reduce their exposure to health-care costs. But the recent health-care-reform law may accelerate the shift.

The change in health insurance is already well under way in coverage for retirees. In the early 1990s, in response to accounting changes and rising costs, companies began to re- evaluate retiree health plans, and some capped the amount they were willing to pay at a multiple of existing costs. Over time, as those limits were reached, most companies declined to raise them, thereby effectively creating defined-contribution retiree health-insurance plans, with the company’s contribution set by the cap. Exchanges have been created to allow retirees to use these employer contributions to purchase their own health insurance.

For current workers, the precursor to a defined- contribution approach is the “consumer-driven” health plan. This typically has higher deductibles and co-payments than a traditional plan has, and it is often tied to a health savings account. It typically still provides generous insurance for catastrophic cases.

Some insurers are already anticipating the shift. Bloom Health Corp. will begin offering defined-contribution exchanges in 2012. Bloom, based in Minneapolis describes itself as “a leader in the defined-contribution health benefits marketplace,” and says it is “committed to assisting employers of all sizes move toward an employer-sponsored system that has effective cost predictability for employers and increased choice and personalization for employees.” In September, the company announced that Health Care Service Corp., Blue Cross Blue Shield of Michigan and WellPoint (WLP) Inc. had purchased a majority of its equity.

The inevitable transition to defined-contribution health insurance may get a little push from the new health-care-reform law. Indeed, the legislation may have a larger impact on the type of health-insurance plan that employers offer than on their decision about whether to drop health-care benefits altogether.

If most employers do retain their health plans, the state insurance exchanges created under the new federal health-care law will make the basic idea of a defined-contribution health plan more prevalent, and thus may speed its adoption. The regulations written to carry out the new law will determine how things play out. If defined-contribution plans that are sufficiently generous count as employer-based coverage – as is generally expected – the trend toward such plans will probably accelerate.

In any case, the bottom line is that a shift toward defined-contribution plans seems likely. I’d be willing to bet $1 that most large U.S. employer health-care offerings in 2020 will be defined-contribution plans. Any takers?

(Peter Orszag is vice chairman of global banking at Citigroup Inc. and a former director of the Office of Management and Budget in the Obama administration. The opinions expressed are his own.)

http://www.bloomberg.com/news/2011-12-07/defined-contributions-define-health-care-ahead-commentary-by-peter-orszag.html

One of the more important tools to enable the transfer wealth up the income ladder is to shift from defined benefit programs to defined contributions. With a defined contribution, a set dollar amount is contributed to the program regardless of what the future benefits may cost, whereas with a defined benefit program, the projected costs of the program must be fully funded so the benefits will always be there when needed.

In the case of pension plans, a defined contribution allows the employer to shift the risk of wage inflation and the risk of living longer from the employer to the employee. The latter is particularly a problem since many individuals will outlive the funds accumulated in their defined contribution pension plan. It is true that they could use those funds to buy an annuity, but fewer funds would be available because it is not a defined benefit plan, and converting to an annuity burns up even more of the retirement funds to pay for sales and administrative costs plus the costs of insuring against the risk of living longer.

How does this move wealth up the income ladder? Defined benefit pension plans were considered to be a standard part of the well-earned employee benefit package. These defined benefit plans were actually paid for by foregone wage increases. In the last couple of decades, contributions to the pension plans were limited by changing to defined contribution, yet wages remained flat. The foregone wages never came back. Workers suffered a net loss, while employer/owners kept the difference, thus an upward transfer of wealth.

Now we are seeing this same inequitable concept being applied to employer-sponsored health plans. Traditional health plans provided generous benefits and often had an actuarial value of 90 percent (the plan paid 90 percent of health care costs and the worker paid 10 percent). We are now seeing a decline in actuarial value. The most obvious contributing factor is the relatively abrupt increase in the adoption of high-deductibles for employer-sponsored plans, but also benefits covered are diminishing, often through less transparent, innovative changes to the plans. Once again, benefits are being reduced but without a commensurate return of forgone wages.

Particularly alarming in Peter Orszag’s article is the investment of WellPoint and Blue Cross Blue Shield of Michigan in Bloom Health Corporation. Bloom Health is “a leader in the defined-contribution health benefits marketplace.” They are committed to a system that has “effective cost predictability for employers,” but exposes employees to the ever higher costs and risks of health care.

This ongoing shift to defined contribution in health care is not limited to businesses. In a recent message, we reported that the Institute of Medicine is recommending that the essential health benefits for the state insurance exchanges under the Affordable Care Act “should be defined as a package that will fall under a predefined cost target rather than building a package and then finding out what it would cost.” “Predefined cost target” is a defined contribution.

Even Medicare is vulnerable. The New York Times, in a recent editorial, stated that for Medicare, “serious analysis and testing of premium support are clearly worth pursuing.” Premium support is a defined contribution that would be used to purchase a private Medicare plan. Medicare beneficiaries would be responsible for paying for the balance of the premium for whatever coverage they could get. Further, with tight control of the defined contribution, an increasing percentage of health care costs would be shifted to Medicare patients in the form of higher out-of-pocket spending.

What do all of these have in common? They are all methods of perpetuating the private insurance industry, while shifting risks from the insurers to the insured individuals. They reduce the financial commitment of employers and the government, but increase the financial burden for workers, their families, and retirees – most of us. However, it is a jobs program – for personal bankruptcy attorneys, as if our health care system didn’t give them enough work already.

Defined contribution is a nefarious conspiracy directed at the masses to benefit the well off. We can counter by demanding an end to a system dominated by private insurers and replacing it with a single, publicly-financed and publicly-administered national health program – an improved Medicare for everyone.

(After we fix Medicare, we may want to think about greatly reinforcing our publicly-financed, publicly-administered, defined benefit Social Security program so we wouldn’t have to put up with the abuses of our private, defined contribution pension plans. Really.)

List of essential services under U.S. health reforms is ‘skimpy’ and dangerous, say doctors

By Jeanne Lenzer
BMJ, Dec. 5, 2011

A national doctors’ organization says that most of the authors of a federally sponsored report on recommended health insurance coverage have financial ties to insurers and drug companies and that the insurance scheme will leave many U.S. citizens without access to health care.

The Institute of Medicine, which was contracted by the federal government to write the report, brought in security guards at the institute’s annual meeting to prevent doctors from distributing leaflets outlining the financial conflicts of interest of the report’s authors. The doctors, former institute fellows and members of Physicians for a National Health Program, were registered at the meeting and tried to give the leaflets to colleagues attending it.

Danny McCormick, assistant professor at Harvard Medical School and a former fellow of the institute, distributed leaflets at the meeting. He has signed a protest letter sent to the U.S. secretary of health and human services, Kathleen Sebelius, along with more than 2,400 doctors, nurses, and health advocates, stating that the recommendations for “essential benefits” to be provided under the Affordable Care Act will provide “skimpy” care that would endanger the health of many citizens.

Although the report outlines 10 categories of benefits that insurers must cover, such as costs of hospitalization, preventive care, and ambulance transport, it does not prohibit insurers from shifting costs to patients through premiums, co-payments, deductibles, and cost sharing. In the event of a catastrophic illness or injury, patients could be hundreds of thousands of dollars in debt.

Dr. McCormick said that a serious pitfall of the recommended essential benefits is that they would give patients the illusion that they have “real insurance.” He said, “Most patients, no matter how well informed, have no idea what their insurance policy covers. It’s only when some catastrophic event occurs that they find out that they are not fully covered.”

Nor would the insurance scheme necessarily cut over-testing and over-treatment, which Dr. McCormick says should be cut. Although the report panel recommends establishing an independent “national health benefits council” to review scientific evidence regarding new technologies, the plan does not task the council with assessing current testing and treatment strategies that might be unnecessary or dangerous.

Howard Brody, a member of the Institute of Medicine and Physicians for a National Health Program, told the BMJ that the Affordable Care Act “is truly a game changer” that will extend coverage to more people. Nevertheless, he added, “It’s not enough.”

Dr. Brody called the act a “sop to the insurance industry” and a “political decision, not a scientific decision,” since a single-payer system is considered unacceptable in the United States. He said that the institute was assigned a narrow task of defining only “what absolutely must be covered.” Unfortunately, he said, nothing in the recommendations would prevent insurers from providing “shoddy” coverage.

Dr. Brody said that the institute’s actions to prevent doctors from leafleting about the panelists’ conflicts of interest were “indefensible.” He said, “The institute is supposed to be an educational organization, the elite of American medicine, yet they treat their own members as if they were children incapable of assessing the information for themselves.”

The institute said that it complied with its policy on conflicts of interest by promptly disclosing committee members with a conflict of interest but whose expertise was needed to fulfill the committee’s charge.

BMJ 2011; 343 doi: 10.1136/bmj.d7932 (Published 5 December 2011)

Cite ths as: BMJ 2011;343:d7932
http://www.bmj.com/content/343/bmj.d7932

Shocking growth of premiums – in a single interactive visualization

State Trends in Premiums and Deductibles, 2003–2010: The Need for Action to Address Rising Costs

By Cathy Schoen, M.S., Ashley-Kay Fryer, Sara R. Collins, Ph.D., and David C. Radley, Ph.D., M.P.H.
The Commonwealth Fund, November 17, 2011

INCREASE IN PREMIUMS

Click on this link:
http://www.commonwealthfund.org/usr_doc/site_docs/slideshows/PremiumTrends2011/PremiumTrends2011.html

You will see an interactive map of “Employer Premiums as Percentage of Median Household Income for Under-65 Population, 2003 and 2010”

Near the top of the page, slowly drag the slider from 2003 to 2010.

In dark blue you now see the states in which employer health insurance premiums average over 20% of median household income. Over 20%! In 2010, 62% of the population lived in states where total premiums amounted to 20% or more of middle incomes!

A static slide of this change, showing the U.S. side by side in 2003 and 2010, can be downloaded at this link (slide number 2):
http://www.commonwealthfund.org/~/media/Files/Publications/Issue%20Brief/2011/Nov/State%20Trends/PDF_Schoen_state_trends_premiums_deductibles_2003_2010_exhibits.pdf

INCREASE IN DEDUCTIBLES

In slide 4 at the same link, you will see that, in 2010, average deductibles for employer sponsored plans are $1,025 for a single-person plan and $1,975 for a family plan, nearly double that of 2003.

For the full Commonwealth Fund report, “State Trends in Premiums and Deductibles, 2003–2010: The Need for Action to Address Rising Costs”:
http://www.commonwealthfund.org/~/media/Files/Publications/Issue%20Brief/2011/Nov/State%20Trends/1561_Schoen_state_trends_premiums_deductibles_2003_2010.pdf

Comment: 

By Don McCanne, MD

More people receive their health insurance through their work than from any other source. The costs of employer-sponsored plans have been skyrocketing, as demonstrated by the increase in premiums. The coverage has eroded, as demonstrated by the increase in deductibles. The Office of the Actuary has predicted that “private insurance spending per person will increase faster than public programs over the next decade.” Yet the Affordable Care Act failed to provide measures which would have any significant impact on these trends in employer-sponsored plans.

Let’s restart the reform process, but this time let’s do it right. Let’s have only single payer at the table.