PNHP

Experts try to define affordable health insurance

Experts try to define affordable health insurance

We All Want It, but We Don’t Know What It Is: Toward a Standard of Affordability for Health Insurance Premiums

By Peter Muennig, Bhaven Sampat, Nicholas Tilipman, Lawrence D. Brown and Sherry A. Glied
Journal of Health Politics, Policy and Law, October 2011

Abstract

The 2010 Patient Protection and Affordable Care Act (P.L. 111-148), or ACA, requires that U.S. citizens either purchase health insurance or pay a fine. To offset the financial burden for lower-income households, it also provides subsidies to ensure that health insurance premiums are affordable. However, relatively little work has been done on how such affordability standards should be set. The existing literature on affordability is not grounded in social norms and has methodological and theoretical flaws. To address these issues, we developed a series of hypothetical vignettes in which individual and household sociodemographic characteristics were varied. We then convened a panel of eighteen experts with extensive experience in affordability standards to evaluate the extent to which each vignette character could afford to pay for one of two health insurance plans. The panel varied with respect to political ideology and discipline. We find that there was considerable disagreement about how affordability is defined. There was also disagreement about what might be included in an affordability standard, with substantive debate surrounding whether savings, debt, education, or single parenthood is relevant. There was also substantial variation in experts’ assessed affordability scores. Nevertheless, median expert affordability assessments were not far from those of ACA.

In-Person Discussion

The discussion started in earnest with a review of the vignettes, beginning with Sarah (age 25, single, no children, college graduate, working for a non-profit), a vignette character who earns $1,610 per month, just under 200 percent of the FPL. In the case of characters with very low earnings, such as Sarah, there was considerable agreement among the panelists. All but one of the experts thought that she should pay something for health insurance, and all agreed that it should be very little.

The discussion heated up when participants considered Jessica, who earns $2,210 per month (age 25, single, no children, lives in Chicago, and pays rent of $1160 monthly). Here it was revealed that some participants interpreted affordability as what the person should pay and others as what they could pay. This provided a jumping-off point to a broader discussion of what affordability means.

One participant suggested that Jessica could “literally” afford $800 per month, and denounced affordability as “a lousy policy where you impoverish people so they can buy a minimal set of other goods after they end up paying for health insurance.” Another respondent who also gave a very high affordability threshold noted, “I’m not saying it would be worth it for her to pay this much, but she could still manage reasonably well if she [did] . . . so.” Many others disagreed with this literal interpretation, noting, “I don’t think literal affordability is an interesting policy.” One respondent described affordability as “asking really, ‘How much could one reasonably pay for health insurance.'” Several others argued that a policy would be affordable for beneficiaries if there would “be no adverse consequences by pushing them to that limit.”

One participant, who argued that the standard should be $100 to $150, said, “I’m a low-ball guy because [I take into account] the real costs of living, the fact that the poverty line is too low, etc.”

Conclusion

There is not a natural, objective standard of affordable health insurance coverage. Of course this is true for most (if not all) policies that require government subsidies. Reasonable people disagree about how much a given household can be expected to put aside to spend on health insurance and health care. That there is considerable disagreement even among distinguished experts in social policy on this issue suggests that the concept is mainly a subjective one and that any specific affordability threshold or subsidy structure is likely to be contentious and contested. In this area, as with many others, even highly qualified experts are unlikely to provide scientific answers to guide policy.

http://jhppl.dukejournals.org/content/36/5/829.full.pdf+html

Comment: 

By Don McCanne, MD

This study was designed to demonstrate what well qualified policy experts, from across the political and academic spectra, would conclude should be the standard for determining affordability of health insurance premiums. So what is that standard?

After analyzing a great many vignettes, each expert then devised their own rules of thumb for determining appropriate premium contributions. Although the rules were quite varied, the mean calculations for premium contributions were close to those specified in the Affordable Care Act (ACA). Does this mean that members of Congress and their staffs were quite astute in their calculations of premium subsidies for the exchange plans?

Although the mean calculations were close to those of ACA, there was a very wide variation in the experts’ assessed affordability scores. In the vignette for “Jessica” ($2210 per month income with a Chicago rent of $1160, leaving $1050 for all of her expenses other than rent), expert estimates of affordable health insurance premiums ranged from $100 or $150 per month up to $800 per month. At $800 per month, that leaves $250 for all expenses other than rent and health insurance (e.g., food, clothing, utilities, transportation, education expenses, retirement fund, and “luxuries” such as a cellphone, TV, vacations, holiday gifts, etc.). That $250 must also cover out-of-pocket medical expenses such as deductibles, copayments, and out-of-network services. Even the “low-ball” estimate leaves only $900 to $950 per month for everything beyond rent and health insurance.

The fundamental defect here is that we keep trying to match payment for a specified package of medical benefits to the incomes of specific individuals. Since a reasonable package is no longer affordable by median-income individuals, some form of subsidization is required for the majority of us. Yet recognized experts in the policy community have very different concepts as to how much and in what form the subsidies should be.

Averaging these wide ranges of opinions on how much each person should pay is not a satisfactory solution since the averages or medians place too much of the burden of health care costs on those with modest incomes. These averages also would not satisfy those dispassionate experts who believe that individuals should pay dearly for their health insurance and health care, so they won’t waste their money on things like flat-screen TVs (or really, “wasting” it on healthier foods, transportation to their employment, 401k plans, and so forth).

Financing health care and providing health benefits need to be totally separated. The correlation between ability to pay and medical need is negative, not positive. Payments based on ability to pay should be made into a common risk pool covering everyone, most easily accomplished through the tax system. Health care benefits should be provided to everyone out of that risk pool based on medical need. That is sort of the way Medicare works now for selected populations, but it could be improved.

That sounds like a good idea. Let’s improve Medicare and then provide it for everyone.

Cutting Health Costs by Reducing the Bureaucracy

Letter to the Editor
The New York Times, Nov. 20, 2011

To the Editor:

Ezekiel J. Emanuel lowballs estimates of the current costs and potential savings on medical bureaucracy, and raises vain hope that health reforms short of a single-payer system will realize substantial savings (“Billions Wasted on Billing,” Sunday Review, Nov. 13).

Peer-reviewed studies in The New England Journal of Medicine by two colleagues and me document that administrative costs account for 31 percent of health spending in the United States versus 17 percent in Canada. The 14 percentage-point difference translates to $380 billion in potential savings in 2011. Other researchers have reached similar conclusions.

A single-payer reform could realize these savings by eliminating insurance middlemen and radically simplifying payments to doctors and hospitals. The lesser measures that Dr. Emanuel champions — computerized and standardized billing — won’t do the job.

Hospital billing has been computerized for decades, and bureaucratic costs have skyrocketed since the adoption of the standard hospital billing form in 1982.

Combat over who pays and who profits underlies health administration’s overgrowth. A nonprofit single-payer system makes those issues moot.

STEFFIE WOOLHANDLER
New York, Nov. 14, 2011

The writer, an internist, is a professor of public health at the City University of New York.

http://www.nytimes.com/2011/11/21/opinion/cutting-health-costs-by-reducing-the-bureaucracy.html?_r=1&ref=opinion

Pay Attention To Health Insurance Non-Benefit Costs!

By Merton Bernstein
Health Affairs Blog, November 16th, 2011

The McKinsey Global Institute reported in 2007 and 2008 that the United States spends twice as much for health care as for food. According to Census and Department of Agriculture data that pattern continues. Yet millions remain outside the protection of health insurance and many nominally within its bounds are seriously underinsured. Millions of individuals and thousands of businesses stagger under the cost of health care, many state and local communities find them unmanageable and some businesses find them a handicap or unaffordable. Alas, health insurance premiums continue to rise – on average another 9 percent in 2011. Medical care costs can change direction if policy makers stop whistling past a significant contributor – non-benefit costs.

These very substantial outlays include: payments by providers and insurers to prepare and process about a billion non-Medicare bills a year; pay to health provider personnel preparing records of services rendered as a prelude to billing; fees providers pay contractors to assemble their bills; fees that large employers pay contractors to administer their plans; provider payments to bill collection companies, largely in vain, to squeeze past due payments from patients, many already wrung dry by the costs of illness and income lost by family caregivers; lost time and pay for dickering with insurers seeking to minimize reimbursements; efforts by insurers and self-insurers to shift the duty to pay to other insurers and entities; and expenses for seeking reimbursement from other plans (a zero-sum endeavor which adds to costs without any overall savings).

Non-benefit costs also include fees, usually not counted in the total cost of care but nonetheless real, that employers pay consultants and the time executives expend in selecting plans; insurer Wall-Street-style executive pay and bonuses; commissions to sales agents, with repeat payments on renewal; advertising and other promotional activities like payments to physicians for speeches and “consulting;” reinsurance fees to hedge against large “losses;” investment expenses; and, not least, insurer profits. Don’t omit provider and insurer outlays to promote and protect tax breaks and other arrangements favorable to private plans.

All such expenditures end up, in whole or considerable part, some with a mark up, in the prices charged by providers and insurers and then folded into the prices of what we buy or increasingly cannot afford – for example, home heating and higher education. Moreover, when U.S. companies pay up to twice as much for medical care than their foreign competitors, as they typically do, they lose business and American workers lose jobs.

The Factors Behind Non-Benefit Costs

Those costs are larger than necessary due to how we arrange (I almost wrote “organize”) health care. Over 1,300 enterprises sell or administer employment-based medical care insurance or medical benefit plans. The thousands of plans covering tens of millions employees vary in countless ways that must be taken into account in the labor intensive activities of preparing bills and processing them. The bills themselves consist of charges for innumerable procedures, services and supplies. Bill preparation and processing may be even more complicated and costly than many realize, not least because providers and insurers negotiate a variety of price lists.

But “variety” doesn’t capture the multiplicity of plan provisions; “unnumbered,” “countless,” “unknown, possibly unknowable,” or “lots” are more like it. A Health Affairs article by Uwe Reinhardt calls medical care pricing “cockamamie” and “madness.” One experienced administrator notes, “The average provider – doctors or hospitals – has between 5 and 10 reimbursement rates for the exact same procedure… [A] hospital chain may have 150 rates for the same procedure.” A highly regarded expert, Paul Ginsburg, comments that “observers outside of health care would be stunned by the degree of price variation.”

How come? Providers and insurers seek to attract profitable groups, that is, employers with large numbers and low-risk employees. They offer advantageous rates to such clients whose own bargaining power varies and so the rates charged them vary. Less desirable customers – such as small employers, high risk people like women of child- bearing years and older people – get higher prices. The resulting potpourri of prices introduces another complicating dimension for legions of clericals preparing provider bills who must apply the details of the deal reached by the particular provider/insurer/employer/client involved.

Insurers with their multiple negotiated price lists go through the same process, but in reverse, when they process bills, sometimes seeking mistakes so as to deny or delay payment. Computerization does not solve the problems that arise in processing bills submitted electronically when, as can frequently happen, the recipient computer program finds errors and objections to bills submitted. The provider staff or contractor must address the problems individually. The bill preparing process is slower, more complicated, more error prone and costly than if rates were uniform for each particular service. The plethora of plan variations prevents preparers from becoming sufficiently familiar with plan provisions to readily recognize and avoid errors.

The Magnitude Of Non-Benefit Costs

Non-benefit costs of private arrangements consume 8 percent to 30 percent of private plan total costs. In contrast, the simpler, more standardized coverage and pricing provisions of Medicare, Medicaid and the Children’s Health Insurance Program (CHIP) result in lower non-benefit costs. Medicare’s administrative costs are regularly in the 3 percent range; Medicaid’s and CHIP’s costs are somewhat higher due to the periodic application of means testing needed to repeatedly determine the eligibility of millions of patients. But both programs incur lower non-benefit costs than private insurers. Non-benefit costs merit serious attention – about the only thing not now paid.

The 2007 McKinsey analysis concluded that the U.S. non-system is “intrinsically more expensive” than those of many of the 34 OECD [Organization for Economic and Cooperative Development] countries. And McKinsey’s 2008 version observed that “multi-payer systems (and a multi-state regulated system) create extra costs and inefficiencies in the form of redundant marketing and management overhead tha[n]…countries which have a less fragmented payment system…” (Page 21) Non-benefit costs, though largely hidden in prices, count in what must be paid. The multiplicity of public programs, though less numerous and varied than private programs, also increase non-benefit costs. They too could and should be simplified.

The 2007 McKinsey analysis assigned $147 billion of the cost above the expected level based on our country’s comparative wealth “to operational expenses and support functions” and “$98 billion …in administration and insurance” out of 2006 total health car
e outlays of $1.9 trillion. Given our larger totals since then, most recently $2.48 trillion, those excessive costs now must be significantly higher.

We pay more than necessary for health insurance while too many people get left out, primarily because of costs. Even many with “coverage” do not seek benefits because discouraged by deductibles and co-insurance. Many pay for non -benefit costs in more than money.

We should cease being distracted by ideological debate and start paying attention to the realities of non-benefit health insurance costs. Until we do, we will not fully understand how health care costs are savaging our economy, federal and state treasuries and personal budgets. Until we have a realistic diagnosis of the dimensions and characteristics of non-benefit costs, we will not have a practicable prescription to reduce them.

Addendum – The Volume Of Non-Medicare Claims

Despite long and extensive efforts, I did not find any studies or reports showing the number of claims made by providers and processed by insurers or other plan administrators. Inquiries to friendly experts yielded responses that did not have such information. Then I came upon Best’s Aggregates and Averages, Life/Health 2008 edition (page 309). Exhibit of Premiums, Enrollment and Utilization, for the U.S. Health and HMO Industry. That reports over a billion “Ambulatory Encounters” in 2007. The total of 1,042,811,297, was composed of 707,834,804 physician encounters and 334,976,492 non-physician encounters. After subtracting the 195,145,992 Medicare Supplemental and Medicare events, 564,046,655 non-Medicare physician encounters and 343,618,451 non-Medicare non-physician encounters remained. In addition there were 75,985,336 non-Medicare in-patient admissions.

It is reasonable to deduce that each of the non-Medicare physician encounters resulted in at least one billable event and that all of the Inpatient admissions resulted in at least one billable event, for an assured total of 564,046,655 billing events for physicians and 6,185,316 hospital event billings. – totaling 570,231,971. In addition, the likelihood is that most of the 343,618,451 non-Physician encounters (lab tests and rehab) also generated bills, producing a total of at least 913,800,000 bills in 2007. Many of the physician encounters probably generated more than one bill because, it is likely that some significant number of the initial bills were found wanting in some respect (a common occurrence) and so led to at least one additional billing episode for many of them.

Moreover, the unexpectedly small number of Medicare bills strongly suggests that the Best’s data do not represent the universe of non-Medicare bills. It follows that about one billion non-Medicare bills are generated and processed each year, very possibly more.

A note about insurance company profits. They usually result, not from insuring, but from investment of premiums and other income that remain on hand and thus available for investment. Insurance companies quite often set premiums and other charges quite low, often at a “loss” on underwriting, so as to maximize investment when investment returns are good. When investment returns shrink, insurers quite often raise premiums and other charges to offset the lower investment income when other prices rise but incomes lag. As a result, insurers raise charges at an inopportune time for the rest of the economy.

Experts try to define affordable health insurance

We All Want It, but We Don’t Know What It Is: Toward a Standard of Affordability for Health Insurance Premiums

By Peter Muennig, Bhaven Sampat, Nicholas Tilipman, Lawrence D. Brown and Sherry A. Glied
Journal of Health Politics, Policy and Law, October 2011

Abstract

The 2010 Patient Protection and Affordable Care Act (P.L. 111-148), or ACA, requires that U.S. citizens either purchase health insurance or pay a fine. To offset the financial burden for lower-income households, it also provides subsidies to ensure that health insurance premiums are affordable. However, relatively little work has been done on how such affordability standards should be set. The existing literature on affordability is not grounded in social norms and has methodological and theoretical flaws. To address these issues, we developed a series of hypothetical vignettes in which individual and household sociodemographic characteristics were varied. We then convened a panel of eighteen experts with extensive experience in affordability standards to evaluate the extent to which each vignette character could afford to pay for one of two health insurance plans. The panel varied with respect to political ideology and discipline. We find that there was considerable disagreement about how affordability is defined. There was also disagreement about what might be included in an affordability standard, with substantive debate surrounding whether savings, debt, education, or single parenthood is relevant. There was also substantial variation in experts’ assessed affordability scores. Nevertheless, median expert affordability assessments were not far from those of ACA.

In-Person Discussion

The discussion started in earnest with a review of the vignettes, beginning with Sarah (age 25, single, no children, college graduate, working for a non-profit), a vignette character who earns $1,610 per month, just under 200 percent of the FPL. In the case of characters with very low earnings, such as Sarah, there was considerable agreement among the panelists. All but one of the experts thought that she should pay something for health insurance, and all agreed that it should be very little.

The discussion heated up when participants considered Jessica, who earns $2,210 per month (age 25, single, no children, lives in Chicago, and pays rent of $1160 monthly). Here it was revealed that some participants interpreted affordability as what the person should pay and others as what they could pay. This provided a jumping-off point to a broader discussion of what affordability means.

One participant suggested that Jessica could “literally” afford $800 per month, and denounced affordability as “a lousy policy where you impoverish people so they can buy a minimal set of other goods after they end up paying for health insurance.” Another respondent who also gave a very high affordability threshold noted, “I’m not saying it would be worth it for her to pay this much, but she could still manage reasonably well if she [did] . . . so.” Many others disagreed with this literal interpretation, noting, “I don’t think literal affordability is an interesting policy.” One respondent described affordability as “asking really, ‘How much could one reasonably pay for health insurance.'” Several others argued that a policy would be affordable for beneficiaries if there would “be no adverse consequences by pushing them to that limit.”

One participant, who argued that the standard should be $100 to $150, said, “I’m a low-ball guy because [I take into account] the real costs of living, the fact that the poverty line is too low, etc.”

Conclusion

There is not a natural, objective standard of affordable health insurance coverage. Of course this is true for most (if not all) policies that require government subsidies. Reasonable people disagree about how much a given household can be expected to put aside to spend on health insurance and health care. That there is considerable disagreement even among distinguished experts in social policy on this issue suggests that the concept is mainly a subjective one and that any specific affordability threshold or subsidy structure is likely to be contentious and contested. In this area, as with many others, even highly qualified experts are unlikely to provide scientific answers to guide policy.

http://jhppl.dukejournals.org/content/36/5/829.full.pdf+html

This study was designed to demonstrate what well qualified policy experts, from across the political and academic spectra, would conclude should be the standard for determining affordability of health insurance premiums. So what is that standard?

After analyzing a great many vignettes, each expert then devised their own rules of thumb for determining appropriate premium contributions. Although the rules were quite varied, the mean calculations for premium contributions were close to those specified in the Affordable Care Act (ACA). Does this mean that members of Congress and their staffs were quite astute in their calculations of premium subsidies for the exchange plans?

Although the mean calculations were close to those of ACA, there was a very wide variation in the experts’ assessed affordability scores. In the vignette for “Jessica” ($2210 per month income with a Chicago rent of $1160, leaving $1050 for all of her expenses other than rent), expert estimates of affordable health insurance premiums ranged from $100 or $150 per month up to $800 per month. At $800 per month, that leaves $250 for all expenses other than rent and health insurance (e.g., food, clothing, utilities, transportation, education expenses, retirement fund, and “luxuries” such as a cellphone, TV, vacations, holiday gifts, etc.). That $250 must also cover out-of-pocket medical expenses such as deductibles, copayments, and out-of-network services. Even the “low-ball” estimate leaves only $900 to $950 per month for everything beyond rent and health insurance.

The fundamental defect here is that we keep trying to match payment for a specified package of medical benefits to the incomes of specific individuals. Since a reasonable package is no longer affordable by median-income individuals, some form of subsidization is required for the majority of us. Yet recognized experts in the policy community have very different concepts as to how much and in what form the subsidies should be.

Averaging these wide ranges of opinions on how much each person should pay is not a satisfactory solution since the averages or medians place too much of the burden of health care costs on those with modest incomes. These averages also would not satisfy those dispassionate experts who believe that individuals should pay dearly for their health insurance and health care, so they won’t waste their money on things like flat-screen TVs (or really, “wasting” it on healthier foods, transportation to their employment, 401k plans, and so forth).

Financing health care and providing health benefits need to be totally separated. The correlation between ability to pay and medical need is negative, not positive. Payments based on ability to pay should be made into a common risk pool covering everyone, most easily accomplished through the tax system. Health care benefits should be provided to everyone out of that risk pool based on medical need. That is sort of the way Medicare works now for selected populations, but it could be improved.

That sounds like a good idea. Let’s improve Medicare and then provide it for everyone.

CDHP-induced death spiral in Indiana

Indiana places a big bet on consumer-driven health insurance

By Christine Vestal
Stateline, November 17, 2011

One thing Mitch Daniels believes with absolute conviction is that consumers need to pay more of the cost of their health care.

“The prevalent model of health plans in this country,” the Republican Daniels argued recently in a Wall Street Journal commentary, “signals individuals they can buy health care on someone else’s credit card.” He called today’s health care system “a machine perfectly designed to overconsume and overspend.”

No one can say Daniels isn’t practicing what he preaches. Indiana has been using a version of consumer-driven health care for state employees since 2006. Starting next year, 90 percent of Indiana state workers will be covered by a consumer-driven plan with low premiums and high out-of-pocket expenses for actual care.

Indiana has attracted customers to its consumer-driven system by adding quite a few sweeteners. Starting in 2006, Indiana state employees were given the option to sign up for a consumer-driven plan with no monthly premiums. The plan paid 80 percent of all doctor bills, but only after a $5,000 deductible was met. The maximum out-of-pocket exposure was $8,000.

The traditional plan — with a $1,500 deductible and $2,000 total exposure — remained available at a cost of $3,500 in annual premiums for family coverage.

To make the consumer-directed plan even more attractive, Indiana did other things that most states haven’t done. It paid 60 percent of the $5,000 deductible through a contribution to an employee-owned health savings account. The entire $3,000 contribution was deposited on January 1, reducing much of the risk that a catastrophic event early in the year would leave an employee with a huge medical bill and not enough money set aside to pay for it.

At first, state employees were slow to adopt the scheme; only 4 percent signed up the first year. But it gradually caught on — partly through word-of-mouth and partly through an intensive education program. By the third year, 30 percent of the state’s 28,000 civil servants had signed up, and the numbers have steadily increased.

As more of the state workers opted for a consumer-driven plan, premium costs in the traditional plan started rising. An employee’s annual premium for family coverage in the traditional system started out at $3,500 in 2006, rose to nearly $5,000 within three years, and next year will exceed $9,000. The consumer option generated something of a snowball effect.

The reason for the premium increase in the traditional plan is what is known as “adverse selection.” When an insurance pool shrinks, fewer healthy people remain to cover the costs for those who have high medical bills. At this point, the math on the traditional plan no longer makes sense for anyone. “It defies logic that anyone would continue to stay in the traditional plan,” says Indiana’s personnel director, Daniel Hackler.

In Indiana’s case, the state contribution for health insurance is about $15,000 per employee for both consumer-driven and traditional plans. The savings come from reduced use of the health care system and from cheaper prescription drugs.

In part, it is Indiana’s intensive education and outreach program that has overcome the barriers to acceptance that most states face.

But Indiana’s generous health savings account contribution is likely the biggest reason for the plan’s extraordinary growth.

So is it time to declare Mitch Daniels’ experiment a success? Possibly. Experts say that the state’s traditional plan is close to what they call a “death spiral,” in which the cost of covering a small pool of subscribers exceeds the price any given employee is able to pay. Once the remaining traditional plan subscribers are added to the consumer-driven pool, the price tag is likely to go up, and customer dissatisfaction is likely to go up with it.

For now, though, it seems to be working. In addition to other advantages, each of Indiana’s current consumer-driven subscribers has a sizeable health savings nest egg to fall back on. Overall, the savings account fund exceeds $49 million, and many individual subscribers have more than $10,000 in their accounts.

http://www.stateline.org/live/details/story?contentId=614068

Comment: 

By Don McCanne, MD

Although there has been continued slow growth in consumer-driven health plans (CDHP) – high-deductible health insurance plans (HDHP) paired with health savings accounts (HSA) – the take-up by public employees in Indiana has been phenomenal – 90 percent of state workers. What drove this success? Or is it a success?

It is easy to understand why CDHPs would appeal to healthy, wealthy individuals. The high-deductible plans have significantly lower premiums than traditional plans. The money saved by purchasing these lower cost plans can be placed in an HSA, using pre-tax income. If the person remains healthy, the funds that accumulate in the savings account, including any tax-deferred earnings, can be drawn out in retirement without paying a penalty. It’s a great plan for those who stay healthy and have the extra funds to deposit into these accounts.

But what about those who rapidly deplete their savings accounts because of significant medical problems? They must then rely on a high-deductible plan that potentially subjects them to financial hardship because of high out-of-pocket expenses. Thus CDHPs are a poor choice for those who need more health care. This defeats the purpose of pooling risk in which the many who are healthy pay the bills for the few with greater needs.

The funds from the HSAs that are drawn out in the retirement years of the many who are healthy have been omitted from the collective pooling of funds that are needed to take care of the sick (i.e., the lower premiums of the high-deductible plans underfund the collective need of everyone, and the difference is made up by shifting the responsibility for payment directly to the patients who need more health care). It is not only the HSA money that has been diverted from the pools, but also the money that was saved by paying lower premiums yet was never deposited into the HSAs (the most common circumstance).

It is interesting what Indiana Gov. Mitch Daniels did with the state employees’ health benefit program. Most employers that switch to a CDHP do so to save money by paying the lower premium of the HDHP. Some employers will even use a portion of the savings, but not all, to provide seed money for the HSAs. Gov. Daniels decided to put all of the savings in the HSAs so that the cost of the CDHP (HDHP plus HSA contribution) was about the same as the traditional health plan. His ideological drive to make employees sensitive to health care costs was greater than his desire to save the state money.

Imagine the response of the healthy employees, which is most of them. In exchange for agreeing to change to a high-deductible plan – a plan that they probably wouldn’t use much anyway because they are healthy – they are given a cash contribution of $3,000 each year for their own savings accounts, which can be used for health care now or for their retirement later on. If they were to stay healthy and didn’t draw on these accounts, they could have perhaps another $100,000 for retirement!

The healthy employees were sold on the concept, and made the transition. Employees with medical problems in their families were more reluctant to change. They did not want to give up their established health care relationships, plus they didn’t want to be exposed to high-deductibles with depleted HSAs. They stayed in the traditional plan.

Most who have been following health policy recognize that this is ”
adverse selection.” The healthy leave the insurance pool and the sick stay in. That can only drive premiums up. The employees share of the premium for a family plan went from $3,500 to $9,000. Ouch!

Many of you recognize this as the “death spiral” of premiums. With higher premiums, more leave the plan, and then it eventually has to shut down because nobody could pay the even higher premiums that would have to be charged.

So now this concentration of employees and their families with higher health care needs moves into the CDHPs. What will the insurers do when they have a large influx of expensive patients signing up with the high-deductible plans? Obviously, they’ll have to jack up the premiums to levels that will displease everyone.

Those hurt the most will be those with health care needs, who have depleted HSAs, who will have higher premiums, and who will have greater out-of-pocket costs because of the high deductibles – the very people who have the greatest need for insurance protection. This is hardly a “success.”

By now, you can write your own closing lines about how we can do it right.

CDHP-induced death spiral in Indiana

Indiana places a big bet on consumer-driven health insurance

By Christine Vestal
Stateline, November 17, 2011

One thing Mitch Daniels believes with absolute conviction is that consumers need to pay more of the cost of their health care.

“The prevalent model of health plans in this country,” the Republican Daniels argued recently in a Wall Street Journal commentary, “signals individuals they can buy health care on someone else’s credit card.” He called today’s health care system “a machine perfectly designed to overconsume and overspend.”

No one can say Daniels isn’t practicing what he preaches. Indiana has been using a version of consumer-driven health care for state employees since 2006. Starting next year, 90 percent of Indiana state workers will be covered by a consumer-driven plan with low premiums and high out-of-pocket expenses for actual care.

Indiana has attracted customers to its consumer-driven system by adding quite a few sweeteners. Starting in 2006, Indiana state employees were given the option to sign up for a consumer-driven plan with no monthly premiums. The plan paid 80 percent of all doctor bills, but only after a $5,000 deductible was met. The maximum out-of-pocket exposure was $8,000.

The traditional plan — with a $1,500 deductible and $2,000 total exposure — remained available at a cost of $3,500 in annual premiums for family coverage.

To make the consumer-directed plan even more attractive, Indiana did other things that most states haven’t done. It paid 60 percent of the $5,000 deductible through a contribution to an employee-owned health savings account. The entire $3,000 contribution was deposited on January 1, reducing much of the risk that a catastrophic event early in the year would leave an employee with a huge medical bill and not enough money set aside to pay for it.

At first, state employees were slow to adopt the scheme; only 4 percent signed up the first year. But it gradually caught on — partly through word-of-mouth and partly through an intensive education program. By the third year, 30 percent of the state’s 28,000 civil servants had signed up, and the numbers have steadily increased.

As more of the state workers opted for a consumer-driven plan, premium costs in the traditional plan started rising. An employee’s annual premium for family coverage in the traditional system started out at $3,500 in 2006, rose to nearly $5,000 within three years, and next year will exceed $9,000. The consumer option generated something of a snowball effect.

The reason for the premium increase in the traditional plan is what is known as “adverse selection.” When an insurance pool shrinks, fewer healthy people remain to cover the costs for those who have high medical bills. At this point, the math on the traditional plan no longer makes sense for anyone. “It defies logic that anyone would continue to stay in the traditional plan,” says Indiana’s personnel director, Daniel Hackler.

In Indiana’s case, the state contribution for health insurance is about $15,000 per employee for both consumer-driven and traditional plans. The savings come from reduced use of the health care system and from cheaper prescription drugs.

In part, it is Indiana’s intensive education and outreach program that has overcome the barriers to acceptance that most states face.

But Indiana’s generous health savings account contribution is likely the biggest reason for the plan’s extraordinary growth.

So is it time to declare Mitch Daniels’ experiment a success? Possibly. Experts say that the state’s traditional plan is close to what they call a “death spiral,” in which the cost of covering a small pool of subscribers exceeds the price any given employee is able to pay. Once the remaining traditional plan subscribers are added to the consumer-driven pool, the price tag is likely to go up, and customer dissatisfaction is likely to go up with it.

For now, though, it seems to be working. In addition to other advantages, each of Indiana’s current consumer-driven subscribers has a sizeable health savings nest egg to fall back on. Overall, the savings account fund exceeds $49 million, and many individual subscribers have more than $10,000 in their accounts.

http://www.stateline.org/live/details/story?contentId=614068

Although there has been continued slow growth in consumer-driven health plans (CDHP) – high-deductible health insurance plans (HDHP) paired with health savings accounts (HSA) – the take-up by public employees in Indiana has been phenomenal – 90 percent of state workers. What drove this success? Or is it a success?

It is easy to understand why CDHPs would appeal to healthy, wealthy individuals. The high-deductible plans have significantly lower premiums than traditional plans. The money saved by purchasing these lower cost plans can be placed in an HSA, using pre-tax income. If the person remains healthy, the funds that accumulate in the savings account, including any tax-deferred earnings, can be drawn out in retirement without paying a penalty. It’s a great plan for those who stay healthy and have the extra funds to deposit into these accounts.

But what about those who rapidly deplete their savings accounts because of significant medical problems? They must then rely on a high-deductible plan that potentially subjects them to financial hardship because of high out-of-pocket expenses. Thus CDHPs are a poor choice for those who need more health care. This defeats the purpose of pooling risk in which the many who are healthy pay the bills for the few with greater needs.

The funds from the HSAs that are drawn out in the retirement years of the many who are healthy have been omitted from the collective pooling of funds that are needed to take care of the sick (i.e., the lower premiums of the high-deductible plans underfund the collective need of everyone, and the difference is made up by shifting the responsibility for payment directly to the patients who need more health care). It is not only the HSA money that has been diverted from the pools, but also the money that was saved by paying lower premiums yet was never deposited into the HSAs (the most common circumstance).

It is interesting what Indiana Gov. Mitch Daniels did with the state employees’ health benefit program. Most employers that switch to a CDHP do so to save money by paying the lower premium of the HDHP. Some employers will even use a portion of the savings, but not all, to provide seed money for the HSAs. Gov. Daniels decided to put all of the savings in the HSAs so that the cost of the CDHP (HDHP plus HSA contribution) was about the same as the traditional health plan. His ideological drive to make employees sensitive to health care costs was greater than his desire to save the state money.

Imagine the response of the healthy employees, which is most of them. In exchange for agreeing to change to a high-deductible plan – a plan that they probably wouldn’t use much anyway because they are healthy – they are given a cash contribution of $3,000 each year for their own savings accounts, which can be used for health care now or for their retirement later on. If they were to stay healthy and didn’t draw on these accounts, they could have perhaps another $100,000 for retirement!

The healthy employees were sold on the concept, and made the transition. Employees with medical problems in their families were more reluctant to change. They did not want to give up their established health care relationships, plus they didn’t want to be exposed to high-deductibles with depleted HSAs. They stayed in the traditional plan.

Most who have been following health policy recognize that this is “adverse selection.” The healthy leave the insurance pool and the sick stay in. That can only drive premiums up. The employees share of the premium for a family plan went from $3,500 to $9,000. Ouch!

Many of you recognize this as the “death spiral” of premiums. With higher premiums, more leave the plan, and then it eventually has to shut down because nobody could pay the even higher premiums that would have to be charged.

So now this concentration of employees and their families with higher health care needs moves into the CDHPs. What will the insurers do when they have a large influx of expensive patients signing up with the high-deductible plans? Obviously, they’ll have to jack up the premiums to levels that will displease everyone.

Those hurt the most will be those with health care needs, who have depleted HSAs, who will have higher premiums, and who will have greater out-of-pocket costs because of the high deductibles – the very people who have the greatest need for insurance protection. This is hardly a “success.”

By now, you can write your own closing lines about how we can do it right.

Jonathan Gruber: "best… you know, short of single payer"

Architect of Obama's health care plan fears a 'political' decision by the Supreme Court, says Romney's lying

By Reid Pillifant
Capital, November 16, 2011

Jonathan Gruber, an M.I.T. professor and a key intellectual architect of President Obama’s overhaul of the American health care system, said, “You know, I think basically, what they’ve constructed, the Affordable Health Act, is the best possible private-sector solution to our problem of the uninsured that we have available, you know, short of single-payer.”

“Basically, this is the last hope for a free-market solution for covering the uninsured. If this fails, then you either give up on the uninsured or you go to single-payer. Those are the only two options left. And the Republicans, if they’re willing to stand up and say, ‘We give up on the uninsured,’ then great, let them say that and let the voters come to the polls and decide, but they won’t say that.”

http://www.capitalnewyork.com/article/culture/2011/11/4156059/architect-obamas-health-care-plan-fears-political-decision-supreme-c

Comment: 

By Don McCanne, MD

“Best possible solution… you know, short of single payer.” If the Affordable Care Act fails (which it clearly will because it’s only more of the same), then either we “give up,” or we “go to single payer.” It’s too bad that Jonathan Gruber was distracted by concerns about feasibility when he was assisting with the design of the Romney and Obama plans. The only plan that’s really feasible is one that works – single payer.

OccupyWashingtonDC's deficit proposal includes improved Medicare for all

By OccupyWashingtonDC
OccupyWashingtonDC.org, Nov. 17, 2011

[Note: The following is an excerpt from a much longer report titled “The 99%’s Deficit Proposal: How to create jobs, reduce the wealth divide and control spending,” which is available in full here. The authors write, “This report should not be considered the demand of the Occupy Movement. It was prepared by one occupation, Freedom Plaza in Washington, D.C., and it does not reflect even that occupation’s full demands.” Among those coordinating activities at  Freedom Plaza are Dr. Margaret Flowers, PNHP’s congressional fellow, and Kevin Zeese.]

Improving Medicare and Expanding it to Provide Health Care to All in the United States

  • Former Labor Secretary Robert Reich writes “Medicare isn’t the nation’s budgetary problems. It’s the solution. The real problem is the soaring costs of health care that lie beneath Medicare. They’re costs all of us are bearing in the form of soaring premiums, co-payments, and deductibles. Medicare offers a means of reducing these costs.”
  • Medicare bears the burdens of existing within an insurance-based health care that fails to control costs and creates tremendous bureaucracy. While there are short-term fixes to Medicare, what is needed is an end to the current insurance-based approach. The United States spends the most per capita per year on health care yet a third of the population is either uninsured or underinsured so that they face financial ruin if a serious accident or illness occurs. Health care spending in the U.S. is rising 2.5% faster than GDP.
  • Expanding and improving Medicare so it covers all in the United States is a key component to controlling health care costs and government spending; as well as ending the deficit problem of state and federal budgets. Estimates of how much would be saved on administrative costs alone by extending Medicare to cover the entire population range up to $400 billion a year. This savings plus the inherent cost-controls of a single payer health system would offset the cost of providing everyone in the United States with access to lifelong, comprehensive, quality health care. Controlling health care costs would sharply reduce the long-term budget crisis, as well as foreclosures and bankruptcy.
  • Even without improving and expanding Medicare to cover all, the program is not in crisis. The Medicare Trustees say that the program faces a modest shortfall over its 75-year planning horizon. The projected shortfall is around 0.3% of GDP or less than one-fifth of the amount that annual military spending was increased since September 11th, 2000.
  • Economist Jack Rasmus points out that all it takes to cover the Medicare shortfall is a mere 0.25% increase in the Medicare share of the payroll tax for the next ten years and another 0.25% starting in the eleventh year. The Medicare tax rate is currently 2.9% for the employee and the employer.  These tiny tax increases would make Medicare secure.
  • In fact, the Congressional Budget Office (CBO) calculates that the Medicare system in its current form is far more efficient than the privatized system advocated by a bi-partisan consensus of political elites. CBO’s projections show that switching from Medicare to a privatized system would add $34 trillion to the cost of buying Medicare-equivalent policies over the program’s 75-year planning period.
  • Medicare provides efficiency. Reich reports: “Medicare’s administrative costs are in the range of 3%. That’s well below the 5% to 10% costs borne by large companies that self-insure. It’s even further below the administrative costs of companies in the small-group market (amounting to 25% to 27% of premiums). And it’s way, way lower than the administrative costs of individual insurance (40%). It’s even far below the 11% costs of private plans under Medicare Advantage, the current private-insurance option under Medicare.”

http://october2011.org/blogs/kevin-zeese/99-s-deficit-proposal-how-create-jobs-reduce-wealth-divide-and-control-spending

U.S. Health Care Spending: Where Is the Waste?

By Stephen Kemble
OpEd News, November 16, 2011

Many still assume universal health care must mean higher costs, but other countries prove this assumption false. The US spends about twice as much per capita on health care as other industrialized countries, yet others are able to cover everyone and have better health outcomes. If we are to succeed in health care reform, we must ask the question, “What are we spending on health care that other countries are not, and that does not add value to health care?” We are now spending about 18% of our gross domestic product on health care and rising. If we do not correctly identify wasted spending and take steps to reduce it, health care spending will continue to break the budget. Contrary to what some assume, all evidence indicates that government financing in health care is actually far more efficient than the private insurance industry. The “Patient Protection and Affordable Care Act” (PPACA) is built around the private insurance model with government subsidies to fill in some of the gaps. It will not reduce total national health spending or waste, and we will face escalating pressure to restrict necessary care.1,2

This Pie Chart is based on evidence from comparison with other countries that have well functioning national health plans, 3,4 from cost analyses of various national and state level health reform proposals, including the PPACA, done by The Lewin Group,2 the Congressional Budget Office (CBO), and Centers for Medicare and Medicaid Services (CMS),1 and from studies on regional variations in health care spending in the US. 5 The percentages are estimates, but based on available evidence they are “in the ballpark.” The data is much firmer for administrative costs than for unnecessary and inappropriate care.

Administrative Waste (est. 24%)

Administrative waste is the difference between what the U.S. spends on health care administration and what countries with efficient universal systems spend.3,4 Administrative costs include health insurance administration (premiums collected minus payments to health care providers), and administrative costs for doctors, hospitals, employers, and the public.

The “waste” includes marketing and advertising, underwriting, multiple private bureaucracies, highly paid executives, managed care costs, pharmacy benefit manager costs, maintenance of insurance reserves, profit, lobbying and “government relations,” employer and broker costs, costs to doctors and hospitals to deal with billing and insurance, and physician time lost to dealing with prior authorizations and formulary restrictions.

All of these are directly attributable to use of competing private insurance plans, and especially for-profit insurance companies, to finance health care. None add any measurable value to health care.

Unnecessary and Inappropriate Care (est. 20%)

Unnecessary and inappropriate care is due to inadequate access to necessary care (under-treatment), or to various forms of over-treatment. There is actually far more under-treatment than over-treatment in the U.S.,6 but much of it is in the form of unnecessary suffering and death due to lack of access to care that does not show up in cost figures.

Under-treatment results from lack of insurance, under-insurance, and inadequate access to primary care, leading to excessive use of emergency services and delay in disease treatment resulting in expensive complications and preventable hospitalizations. It also includes medical errors and inefficient care due to pressure on physicians to spend inadequate time with patients, leading to failure to listen and think through problems to provide the best care.

Over-treatment includes procedures and services driven by provider profit motive, rather than the best interest of the patient, and irrational reimbursement policies and misallocation of health care resources according to profit incentives rather than health care needs of the population. It includes direct to consumer advertising leading to inappropriate patient demand for care, especially for drugs. It includes defensive medicine due to fear of lawsuits. It also includes provider fraud.

All of these are much more difficult or impossible to address in a fragmented health care market. In health care, the evidence shows that competition among insurance companies and fragmentation of health care financing add administrative costs, drive up health care prices, impede access to necessary care, fail to reduce unnecessary care, impede detection of errors and fraud, and do not provide fiscal efficiency or add value to health care.7 The insurance exchanges in the PPACA may increase coverage, but add substantial administrative costs and cannot solve our cost problems.8,9

Other proposals to control costs, including health information technology, prevention, and comparative effectiveness research, may improve health care but are likely to cost as much as they save and will not “bend the curve” of escalating health care costs.10 Reorganization of doctors and hospitals into “accountable care organizations” and pay for performance schemes that shift insurance risk onto providers may reduce over-treatment, but bring an equally problematic and costly incentive for providers to under-treat and avoid taking on sicker and more complex patients. Reforms that target unnecessary care but rely on new layers of administration or use blunt strategies that restrict necessary as well as unnecessary care cannot make health care more cost-effective. Neither can reforms that push increasingly unaffordable costs onto those needing care, deterring more necessary than unnecessary care.

According to the CBO, malpractice costs are less than 3% of the US health care dollar. Tort reform proposals touted by the AMA are not likely to save more than 1% of health care costs at best.11

Only a universal publicly financed healthcare system could actually provide comprehensive coverage to all, free choice of doctors and hospitals, and reduced cost. Administrative waste could be eliminated off the top, and access to necessary care would improve substantially. The experience of other countries shows that a universal system would reduce or eliminate many of our perverse incentives for over-treatment, even if doctors are paid with fee-for-service. A system-wide quality improvement program with physician leadership could reduce unnecessary care more effectively than strategies now employed by insurance companies or proposed under the PPACA. Health care prices could be reduced in proportion to administrative savings without harming providers of care, and eliminating fiscal waste would greatly reduce pressure to limit benefits and deny and ration care. With a universal system, health care could be removed from injury litigation, markedly reducing both the size of judgments and the necessity to sue for access to injury related health care, eliminating more than half the cost of medical malpractice, worker’s compensation, and automobile insurance.

We are told that universal publicly financed health care is “off the table.” We need to get it back on.

Dr. Stephen Kemble is assistant professor of medicine at the University of Hawaii John A. Burns School of Medicine, and also in private practice as a general adult psychiatrist. He is a member of Physicians for a National Health Program. In September he was appointed by Hawaii’s Gov. Neil Abercrombie to the Hawaii Health Authority, charged with designing and then running a universal health care system for Hawaii.

References

1. Foster RS. Estimated Financial Effects of the “Patient Protection and Affordable Care Act,” as Amended. Centers for Medicare & Medicaid Services, O
ffice of the Actuary. April 22, 2010.
2. The Lewin Group. Patient Protection and Affordable Care Act (PPACA): Long Term Costs for Governments, Employers, Families and Providers. June 2010. http://www.lewin.com/publications/Publication/409/
3. 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.
4. Morra D, Nicholson S, Levinson W, Gans DN, Hammons T, Casalino LP. US Physician Practices vs. Canadians: Spending Nearly Four Times as Much Money Interacting With Payers. Health Affairs 30 , no. 8 (2011): doi: 10.1377/hlthaff.2010.0893
5. Fisher ES, Bynum JP, Skinner JS. Slowing the Growth of Health Care Costs — Lessons From Regional Variation. N Engl J Med. 2009 Feb 26;360(9):849-52.
6. Elizabeth A. McGlynn et al., The Quality of Health Care Delivered to Adults in the United States. N Engl J Med 2003;348:2635-2645, 2641.
7. Kuttner R. Market-Based Failure – A Second Opinion on U.S. Health Care Costs. N Eng J Med 2008;358:549-551.
8. Jost TS. Health Exchanges and the Affordable Care Act: Key Policy Issues. The Commonwealth Fund, July 2010.
9. Nardin R, Himmelstein D, Woolhandler S. Massachusetts’ Plan: A Failed Model for Health Care Reform. PNHP, Feb 18, 2009. https://pnhp.org/mass_report/mass_report_Final.pdf
10. The Obama Administration’s Options for Health Care Cost Control: Hope versus Reality. Ann Int Med 2009;150:485-489.
11. Mello MM, Chandra A, Gawande AA, Studdert DM. National Costs Of The Medical Liability System. Health Affairs 29, No. 9 (2010): 1569–1577.

http://www.opednews.com/articles/1/U-S-Health-Care-Spending-by-Stephen-Kemble-111116-331.html

Jonathan Gruber: “best… you know, short of single payer”

Architect of Obama’s health care plan fears a ‘political’ decision by the Supreme Court, says Romney’s lying

By Reid Pillifant
Capital, November 16, 2011

Jonathan Gruber, an M.I.T. professor and a key intellectual architect of President Obama’s overhaul of the American health care system, said, “You know, I think basically, what they’ve constructed, the Affordable Health Act, is the best possible private-sector solution to our problem of the uninsured that we have available, you know, short of single-payer.”

“Basically, this is the last hope for a free-market solution for covering the uninsured. If this fails, then you either give up on the uninsured or you go to single-payer. Those are the only two options left. And the Republicans, if they’re willing to stand up and say, ‘We give up on the uninsured,’ then great, let them say that and let the voters come to the polls and decide, but they won’t say that.”

http://www.capitalnewyork.com/article/culture/2011/11/4156059/architect-obamas-health-care-plan-fears-political-decision-supreme-c

“Best possible solution… you know, short of single payer.” If the Affordable Care Act fails (which it clearly will because it’s only more of the same), then either we “give up,” or we “go to single payer.” It’s too bad that Jonathan Gruber was distracted by concerns about feasibility when he was assisting with the design of the Romney and Obama plans. The only plan that’s really feasible is one that works – single payer.

The Tufts/Blue Cross Blue Shield contract dispute that didn't have to be

Tufts, Blue Cross contract row threatens members

By Robert Weisman and Liz Kowalczyk
The Boston Globe, November 16, 2011

Tufts Medical Center and its doctors group say they will stop doing business with Blue Cross Blue Shield of Massachusetts on Jan. 17 because the two sides can’t agree on a new contract. The move could force tens of thousands of Blue Cross members to change doctors and compel employers across Massachusetts to consider switching to another insurer.

Blue Cross disclosed the termination notice yesterday as it prepared to send letters to about 55,000 employers and other customers alerting them to the Tufts threat, which came as increasingly tense contract negotiations stalled Monday night.

“This is confusing and disruptive,” said Amy Whitcomb Slemmer, executive director of Health Care for All, a Boston advocacy group. “We have essentially a train wreck that has nothing to do with the quality of health care, but is all about escalating costs. In their failure to reach agreement, Tufts and Blue Cross are affecting people’s care.”

Nancy Turnbull, associate dean at the Harvard School of Public Health, said Tufts’ request for 3 percent increases seems “very much in line” with what other providers such as Partners HealthCare System and Children’s Hospital have received in recent contracts. And she noted that those providers already were getting higher reimbursements than Tufts.

Turnbull said the dispute underscores why the government needs to get more involved in setting payment rates.

http://www.bostonglobe.com/business/2011/11/16/tufts-blue-cross-contract-row-threatens-members/nXlTQithkVWpK99zinq5FL/story.html

And…

Blue Cross, Fallon post big earnings

By Robert Weisman
The Boston Globe, November 16, 2011

The state’s largest commercial health insurance companies, citing seasonal improvements in their business and a decline in medical claims tied to the sluggish economy, yesterday posted robust financial results for the three months ending Sept. 30.

Blue Cross Blue Shield of Massachusetts, the state’s largest health plan, led the pack in the most recent quarter, ringing up net income of $78.9 million compared with the $75.8 million it earned a year ago.

http://www.bostonglobe.com/business/2011/11/16/health-insurers-post-third-quarter-gains/rrCFQiA8HtYTSGhf40ylCP/story.html

Comment: 

By Don McCanne, MD

By reading the first article in full (available at the link), you can learn some of the details behind the contract dispute between Tufts Medical Center and Blue Cross Blue Shield of Massachusetts. But that isn’t the important issue. What is important is that a very profitable, “non-profit” private insurer, that is able to restrict patient choices in health care providers, is using the threat of disrupting patients’ care as leverage in negotiations over health care payment rates.

Tufts Medical Center is also a party in this dispute. They are also in a position to make a decision that can be very disruptive to the care of their patients.

The problem is in the way we finance health care. We continue to perpetuate a system in which we grant the power to control health care dollars to private financial intermediaries that must consider their own interests first. Health care providers are then placed in a position that a decision must be made on whether or not to participate in the proposed contract with the intermediary.

Contrast that with a single payer system in which the government sets payment rates based on legitimate costs of providing health care. The government pays enough to maintain the operations of the providers, along with separate disbursements for appropriate capital improvements. The providers are not faced with a decision on whether or not to accept the government contract. The only decision they might consider would be whether or not they would want to shut down operations. The government single payer would not allow that to happen merely because of an actual shortage of funds for necessary expenses, as long as essential services were being provided.

It really is time to get the private intermediaries out of our health care. They cost too much, and they take away our choices. An improved version of our own Medicare program would provide the necessary administrative services for us far more efficiently and at a considerably lower cost.

Troubled hospitals, troubled health care system: Not just in Brooklyn

By Joshua Freeman, M.D.
Medicine and Social Justice blog, Nov. 15, 2011

In Seeking a Cure for Troubled Hospitals in Brooklyn (New York Times, Nov. 10), Nina Bernstein reports on the challenges faced by not-for-profit hospitals in that part of New York City.

In 1980, she notes, Brooklyn had 26 hospitals, while now it has 15. It has 41 percent fewer acute-care beds, with a ratio of 2.1/1,000 people (national average: 2.6, NY State 3.1, Manhattan 4.7). Five of the largest remaining hospitals are in danger of closing; these hospitals account for 83,000 admissions, 325,000 emergency room visits, and 760,000 clinic visits per year.

There is no way, the article makes clear, that the three public (2 city and 1 state) hospitals in the borough can come close to making up this deficit should those hospitals close. But they may, because they are running in the red, and there is no reason to think that, even if President Obama’s health reform stays intact, this will change. They largely care for Medicaid patients, and Medicaid both doesn’t pay enough to cover a hospital’s costs, and is targeted for cuts because it accounts for such a large portion of state budgets.

The reason is that these hospitals care for poor people, as the original title of the article in the Times’ print edition, “Brooklyn’s ailing hospitals and care for the poor,” made clear. The problem, however, is not unique to Brooklyn; it confronts hospitals all over the country.

“Brooklyn shows the acute stage of a problem that has vexed the nation for years: how to sustain delivery of major medical care to the poor,” Bernstein writes. Even more, the fact that increasing portions of the population are uninsured or poorly insured, and that the focus in of the federal deficit reduction process is to further cut payments for Medicare as well as Medicaid, the trend is likely to continue and to increase.

From the point of view of hospitals, the issue is whether they will survive or not survive, largely dependent upon where they are located and their ability to attract the decreasing number of well-insured patients. While those who run successful hospitals like to congratulate themselves on being such good managers, the article notes the observations of Alan Sager of Boston University, a longtime student of hospital closings across the country, that “what best predicted that a hospital would be closed was not inefficiency, but location in a minority neighborhood.”

This is not at all surprising; indeed, it tracks with everything else that has been going on in our society: services for the most needy are cut back and ultimately disappear, while services for the least needy get more and more available, marketed, extensive (and expensive) as providers of those service seek to make themselves attractive to a shrinking, privileged market.

The problem is that for this to be OK, one has to accept the idea that health care access should be determined by the market, rather than that they should be available for everyone in the society. This means that hospitals will close, and providers will not practice, in areas that have high concentrations of people who are poor, uninsured, underinsured, and members of minority groups.

But those hospitals that do survive, in higher-income neighborhoods, will compete in the areas that are high-profit “product lines” so that they, and not their competitors, will attract that market segment.

Such product lines can include elective and cosmetic surgery, but they also include areas such as heart disease and cancer care because payers (driven by the federal payer, Medicare) reimburse hospitals at rates far above their costs for providing care for these conditions, but not for others. Thus, capacity is overbuilt, resulting in greater capacity (for example, for cancer treatment for the insured) than is needed for the population because each hospital wants to be the one who makes the big markup on chemotherapy drugs.

But, of course, there is much less access to care for the same conditions for people without insurance, or even for those whose conditions are not in the “high profit” group. And the lack of access to preventive care, to primary care, to care of conditions in their more treatable stages, means that the people who enter the “ailing hospitals” of Brooklyn or elsewhere, are farther along in their diseases and more expensive to treat, so that caring for them drives the hospitals deeper into debt. And this creates a downward spiral.

For a patient described in the article, “surgery revealed a strangulated hernia so far gone that cutting out life-threatening infected tissue left an open wound…but before Mr. Hutchins could be released, the hospital had to get him a portable wound pump. At hospitals that pay suppliers promptly, administrators say, the device typically gets same-day delivery. At Wyckoff, it took a week.” And, since “last year, Medicaid cut by 31 percent what it would pay for a case like his,” the hospital loses even more money providing his care for an extra week.

In poor neighborhoods, almost all services have more limited availability. This may make sense, say, for upscale restaurants, or clothing stores. It is much more problematic when those communities do not have food stores. Or health care.

It is, however, the result of applying a competitive market model to health care, leading to overcapacity for a portion of the population and a deficit or absence of care for another part of the population (based on wealth, location, and type of condition).

This is why most other countries with the resources have made the decision to provide access to health care to all their people, rather than ration based on the market, which by definition leaves out the people at the bottom who cannot pay. Our health care non-system reinforces these inequities, which are more than unfair – they sap the ability of our country to have a healthy and productive workforce.

There are solutions, but not the ones being suggested by some for Brooklyn (“expunge the hospitals’ debt of more than $1 billion, partly at taxpayer expense, and then let large for-profit companies take over the facilities and restructure patients’ care”), which sounds an awful lot like “bail out the bankers and financiers with public funds.”

The solutions are to create a national health system, a system which guarantees health care access for everyone. Most cost effectively, a single-payer system. It can be done, for not much more than we now spend, because of the excess waste and profit built into our reimbursement methodology. It can be driven by the federal government because the federal government is the largest payer for health care.

In an article on the reopening of the national physician database (After protests, national doctor database reopens — with a catch), Alan Bavley of the Kansas City Star quotes Senator Chuck Grassley, an Iowa Republican, as saying “This agency needs to remember that half of all health care dollars in the United States comes from taxpayers, so the interpretation of the law ought to be for public benefit.”

That half of all health care dollars is as much, on a per-capita basis, as most other OECD countries spend altogether, and it is what drives reimbursement (for cancer chemotherapy or diabetes or asthma) in this country. It would be great if Sen. Grassley would take the lead in ensuring that not only the physician database, but all of health care services provided with dollars from taxpayers, is “for public benefit” and not private profit.

The general counsel for one of the threatened Brooklyn hospitals is quoted by Bernstein as saying, “We stay open at the grace and generosity of our vendors. They know it will eventually get better, because we have to have hospitals. Otherwise, we’ll have sick and dying people lying in the stre
ets, and nobody wants that.”

But the solution is not just to patch up Brooklyn’s, or anywhere else’s, acute problems; it is to fix the broken system and perverted incentives.

Dr. Joshua Freeman is chairman of the department of family medicine at the University of Kansas School of Medicine and a member of Physicians for a National Health Program (www.pnhp.org). This is a slightly revised version of Dr. Freeman’s blog at http://medicinesocialjustice.blogspot.com/2011/11/troubled-hospitals-troubled-health-care.html