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We can do better with health care

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We can do better with health care

By Glen Peterson
Mankato (Minn.) Free Press, Letters, Dec. 8, 2015

Speakers from Germany, Canada and Great Britain recently described health care systems in their respective countries at a Health Care Conversation forum in Minneapolis. Systems in the three countries use various public and private combinations for funding, and for delivery.

Despite some differences, they have much in common. Foremost is that all citizens are included and all have the same coverage, which is equal to or better than most insurance policies in the U.S.

Each of these countries produces medical and public health outcomes that are comparable or sometimes superior to those in the U.S. Each country provides patients freedom to choose medical providers. And, each of these countries spends approximately half as much money per capita when compared to the U.S.

Reforms in the U.S., including electronic medical records, medical homes, and high deductible insurance policies, are not generating the savings that policy makers hoped they would. Prohibitive out-of-pocket expenses cause an estimated 25 percent of adults with individual insurance to forgo medical treatments, according to the Families USA. Meanwhile, insurance premiums continue to rise.

We can do better. Opposed to unproven, unsuccessful reform efforts in the U.S. to date, examples from other countries and from many empirical studies conclude that a single payer system is a viable way to achieve successes similar to those described from the three countries listed above.

One study in Minnesota was produced by the Lewin Group, a health policy research subsidiary of United Health Group. In their 2012 report, Lewin concluded that a state-level single-payer system could provide comprehensive coverage for all Minnesotans while saving thousands of dollars for businesses, employers, and patients.

Glen Peterson, Ph.D., resides in Mankato.

http://www.mankatofreepress.com/opinion/we-can-do-better-with-health-care/article_a57aa7bd-241b-510b-a3eb-08fd6052ec97.html

Influential conservative policy wonks present their health care reform proposal

Improving Health And Health Care: An Agenda For Reform

By Joseph Antos, James Capretta, Lanhee Chen, Scott Gottlieb, Yuval Levin, Thomas Miller, Ramesh Ponnuru, Avik Roy, Gail R. Wilensky, and David Wilson
Health Affairs Blog, December 9, 2015

We are among those who opposed the ACA because of its heavy emphasis on federal control.

The plan we present is not confined to replacing the ACA. We propose major reforms to the tax treatment of employer-sponsored health care, Medicaid, Medicare, Health Savings Accounts, and other areas of existing policy. The cumulative effect of this comprehensive plan would be to decisively reorient health care policy away from bureaucratic regulation and toward the preferences of patients and consumers.

Overall Principles:

*  Government Subsidies Should Come In The Form Of Defined Contribution Payments

*  Reform Should Move Power And Control From The Federal Government To The States And The Empowered Patient-Consumer

*  Suppliers Of Medical Services Must Have Greater Freedom To Innovate And Provide Better Services To Empowered Patient-Consumers

*  Reform Must Improve The Federal Fiscal Outlook By Reducing Long-Term Health Obligations (reduce federal spending)

Replacing The ACA:

*  Retain The Tax Preference For Employer-Paid Premiums, With An Upper Limit

*  Provide Refundable Tax Credits To Households Without Access To Employer Coverage

*  Allow States To Regulate Insurance Offerings And To Establish Mechanisms For Consumer Choice Of Plans

*  Provide ‘Continuous Coverage Protection’ For Persons With Preexisting Conditions (lose guarantee after three months without coverage)

*  Allow States To Adopt A Default Enrollment Program

*  Allow For A Gradual Transition From ACA Subsidies (no new enrollees for ACA subsidies or Medicaid)

Reforming Medicaid To Allow More State Control And Consumer Choice:

*  Pursue Separate Reform Strategies For Medicaid’s Two Distinct Parts (healthy families vs. disabled and elderly)

*  Finance Medicaid With Fixed Federal Funding (block grants)

*  Empower The Disabled And Frail Elderly (let the states do it)

A Market-Based Reform Of The Medicare Program:

*  Adopt The Premium Support Reform Model (vouchers for private plans)

*  Promote Consumer Decision-Making

*  Modernize Medicare’s Benefits

*  Reform Medigap And Other Supplemental Coverage (more cost sharing and use limited networks)

*  Reform Medicare’s Payment Policies And Eliminate Unnecessary Bureaucratic Controls (abolish IPAB and CMMI)

*  Gradually Raise The Eligibility Age To 67

Lifelong Use Of Health Savings Accounts (HSAs):

*  Provide A One-Time Federal Tax Credit Matching Enrollee Contributions To HSAs (up to $1000 once in a lifetime)

*  Eliminate The Minimum Deductible Requirement (no HDHP required)

*  Allow Nontraditional Payment Methods (allow direct-pay, etc.)

*  Include HSAs In Medicaid Reform (high-deductible plans for Medicaid)

*  Integrate HSAs Into Medicare (high-deductible Medicare Advantage)

*  Allow Withdrawals Tax-Free After Age 75 Above A Minimum Balance (reward savers)

*  Allow Tax-Free HSA Rollovers To Designated HSAs At Death

Additional Reforms:

*  Reform Federal Funding Of Graduate Medical Education (cutting the funding substantially)

*  Reform The Federal Employees Health Benefits Program (defined contribution)

*  Integrate Veterans Into Mainstream Coverage, And Refocus VA Health Care

*  Improve The Transparency Of Useful Cost And Quality Data (stimulate better decision-making by consumers)

http://healthaffairs.org/blog/2015/12/09/improving-health-and-health-care-an-agenda-for-reform/

Full report from American Enterprise Institute, AEI (70 pages):

http://www.aei.org/wp-content/uploads/2015/12/Improving-Health-and-Health-Care-online.pdf

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Comment:

By Don McCanne, M.D.

Why should we be interested in a comprehensive health reform proposal from representatives of AEI and other conservative/libertarian organizations? Simply because the authors are prominent in the health policy arena and have considerable influence in crafting reform proposals for Republican politicians.

Speaker of the House Paul Ryan has promised this next year a comprehensive Republican plan to replace the Affordable Care Act. Although President Obama would not approve legislation containing many of the features listed in this proposal, nevertheless, the Republicans do intend to gain greater control of the political arena, and would hope to move forward with a Republican administration. It is important to understand what they would do with our health care system. By having this knowledge, we can more effectively inform the process.

Single-payer health insurance option is needed

By Joanne Leovy, M.D.
Las Vegas Sun, Dec. 10, 2015

As a physician, I applaud Bruce Gilbert’s plea for Nevadans without health insurance to use the Silver State Exchange to seek insurance and subsidies (“Too many Nevadans remain uninsured,” Las Vegas Sun, Nov. 18). Unfortunately, Mr. Gilbert glosses over the health care elephant in the room: It’s still too expensive, and we don’t get value for our money!

In the U.S., we spend nearly twice as much per person as other advanced countries, yet we have a greater chronic disease burden and are more likely to die in infancy and as young and middle­-aged adults. Obamacare did not help control excessive costs of medical tests, hospital care or medications. It certainly did not help to relieve your doctor of excessive administrative burdens­­. I and my staff still spend hours each week begging insurance companies to cover drugs and tests. It did not put an end to obscene profit-seeking in the industry.

Now that the Nevada Health Co-op is closing, consumers will be forced to enroll in a for-profit insurance plan. Did you know insurance companies ensured the failure of non­profit health cooperatives around the country by inserting language into the Affordable Care Act to prohibit the co-­ops from starting with enough capital and to prohibit them from advertising? Backroom deals have rigged Obamacare from the start. Now Americans are paying with their lives: More than 30,000 still die annually because of a lack of health insurance.

It’s time we stand up to this corporate kleptocracy and demand robust public options that control costs and administrative expenses. I urge readers to consider a single-payer health insurance option introduced in the House of Representatives, H.R. 676. More information is available from the Physicians for a National Health Program at pnhp.org.

http://lasvegassun.com/news/2015/dec/10/single-payer-health-insurance-option-is-needed/

Widening gap between private and public payments for hospital care

The Growing Difference Between Public And Private Payment Rates For Inpatient Hospital Care

By Thomas M. Selden, Zeynal Karaca, Patricia Keenan, Chapin White, and Richard Kronick
Health Affairs, December 2015

Medicare’s payment rate in 2012 for the average inpatient stay in that year was, in inflation-adjusted dollars, similar to what Medicare would have paid in 1996 for the average stay in that year.

During the period 1996–2001, differences in predicted standardized payment rates were relatively small across primary payers, and payment rate differences remained relatively constant. Since 2001, however, payment rates for stays covered by private health insurance have diverged sharply from payment rates for those covered by Medicare and Medicaid.

The predicted percentage difference between the rates of private insurers and those of Medicare has increased substantially over time. In 1996 private insurers paid 106.1 percent of Medicare payment rates, a payment rate difference of 6.1 percent. This payment difference rose to 64.1 percent in 2011 and 75.3 percent in 2012. Medicaid payment rates averaged approximately 90 percent of Medicare payment rates throughout the study period, with differences in most years that were not significantly different from zero.

Our findings can offer insights into policy prescriptions, including the recent recommendation to cap private insurance payments at 125 percent of Medicare rates. Our findings suggest that such a cap would affect far more than just the most egregious cases.

Our findings also highlight the following important questions for further research. To what extent, if at all, is the private-public differential due to cost shifting from public to private payers, given the growing body of evidence that challenges the existence of such cost shifting? Or to what extent is the differential due to hospitals’ exploiting market concentration or engaging in a technological “arms race,” in which they invest heavily in expensive diagnostic and surgical equipment? To what extent have the declines in private inpatient hospital stays between 2008 and 2012 (from 13.6 million stays to 11.2 million) contributed to the widening differential? More important, what are the impacts of the growing differential on consumers? Has the differential had any effect on access to or quality of care for public patients, or on private patients’ financial burdens?

http://content.healthaffairs.org/content/34/12/2147.full.pdf

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How Much Do Hospitals Cost Shift? A Review of the Evidence

By Austin B Frakt
The Milbank Quarterly, March 2011

From the Discussion

Cost shifting is just one of many possible responses to shortfalls in public payments to hospitals (another is cost cutting). Moreover, private payment-to-cost margins change for many reasons other than cost shifting (another is changes in the balance between hospitals’ and health plans’ market power). Indeed, the theoretical literature on the subject shows that cost shifting can take place only if hospitals both possess market power and have not fully exploited it. This limits both the conditions under which cost shifting is possible and its extent. Once market power is fully exploited, as it would be by a profit-maximizing firm, there is no more room for cost shifting. The theoretical literature also reveals the potential endogeneity of public prices in models of private ones, the role of costs and that of hospitals’ and plans’ market power.

Given these findings, what can be said about the likelihood of cost shifting in the future? Relative to the period in which cost shifting is most likely to have occurred at a relatively high rate (when indemnity plans were the norm, from 1987 to 1992), plans now are better able to resist price increases due to network-based contracting. Conversely, relative to the period in which there was likely no cost shifting (when tightly managed care dominated in the mid-1990s), price competition is now weaker because consumers are less accepting of networks with the same level of restrictions as existed then. To the extent that hospitals still have some unexploited market power, perhaps some cost shifting is possible, but given the results of papers I reviewed, it is likely to be at a rate closer to twenty cents on the dollar than the dollar-for-dollar rate suggested by industry-funded reports.

The exploitation of market power is the privilege of private industry, subject to antitrust regulation, from which our market-based health system is not immune. Plans’ and hospitals’ market power may shift again with the new health reform law. The PPACA calls for pilot programs of the accountable care organization (ACO) payment model, which will compensate integrated groups of providers on a capitated basis for all the care for a population (Gold 2010). This will encourage providers to integrate, possibly increasing their market power (Frakt 2010b; Reinhardt 2010). If plans’ market power holds constant or is weakened, it is likely that private prices will increase, even without changes in public payments.

http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3160596/

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Comment:

By Don McCanne, M.D.

Medicare has long been credited with being a more efficient purchaser of health care than has the private insurance industry. Evidence of that has been lower payments made by Medicare compared to the higher payments made by private insurers.

Private insurers have claimed that lower Medicare payments have shifted costs to the private insurers. But Austin Frakt and others have shown us that it is primarily the market power of the hospitals and provider groups that have driven up private insurer payments, while Medicare payments have held steady independently of what private insurers are paying.

The report from the Agency for Healthcare Research and Quality (AHRQ), published in the current issue of Health Affairs, confirms that Medicare payments, adjusted for inflation, have held steady for the last two decades, whereas private insurance payments have continued upwards at an increasing rate, such that, as of 2012, private insurers pay 75 percent more than Medicare.

Medicaid, another public payer, has maintained payment rates at about 90 percent of Medicare’s, also at a steady rate adjusted for inflation.

Where should the balance be? Our public payers have been able to hold rate increases at the level of inflation, and that benefits the taxpayers. Our private insurers have been able to infuse more money into the health care delivery system, and that benefits the providers of health care. But private insurers pay higher rates at the cost of higher premiums, benefit reductions, and greater patient cost sharing. The private insurers have been much less effective in moderating the high rate of health care inflation, and that harms patients financially.

We should be concerned about the movement on multiple fronts to further privatize public health insurance programs. Medicaid is being shifted to private managed care programs. Enrollment in private Medicare Advantage plans continues to expand. Efforts to convert Medicare into a premium support program (vouchers to purchase private plans) are intensifying. Of course, private plans place a very costly administrative burden on our health care system. Do we really went to do this when the private insurers have already proven to us that they cannot adequately control health care prices?

Health care providers do not think that they are being paid too much by the private insurers. But when they see how much less the public insurers – Medicare and Medicaid – are paying them, they are likely to join the chorus of demanding that our public insurers be replaced with private plans.

Under further privatization of our health care financing, it will be the patients who are stuck with the public (tax) and private (premiums and cost sharing) bills. The pain would be much less with a well designed single payer national health program.

Since enactment of ACA more than half of physicians experiencing burnout

Changes in Burnout and Satisfaction With Work-Life Balance in Physicians and the General US Working Population Between 2011 and 2014

By Tait D. Shanafelt, MD; Omar Hasan, MBBS, MPH; Lotte N. Dyrbye, MD, MHPE; Christine Sinsky, MD; Daniel Satele, MS; Jeff Sloan, PhD; and Colin P. West, MD, PhD
Mayo Clinic Proceedings, December 2015

Conclusion

Burnout and satisfaction with WLB (work-life balance) among US physicians are getting worse. American medicine appears to be at a tipping point with more than half of US physicians experiencing professional burnout. Given the extensive evidence that burnout among physicians has effects on quality of care, patient satisfaction, turnover, and patient safety, these findings have important implications for society at large. There is an urgent need for systematic application of evidence-based interventions addressing the drivers of burnout among physicians. These interventions must address contributing factors in the practice environment rather than focusing exclusively on helping physicians care for themselves and training them to be more resilient.

http://www.mayoclinicproceedings.org/article/S0025-6196(15)00716-8/pdf

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Prevalence of Depression and Depressive Symptoms Among Resident Physicians:
A Systematic Review and Meta-analysis

By Douglas A. Mata, MD, MPH; Marco A. Ramos, MPhil, MSEd; Narinder Bansal, PhD; Rida Khan, BS; Constance Guille, MD, MS; Emanuele Di Angelantonio, MD, PhD; Srijan Sen, MD, PhD
JAMA, December 8, 2015

Conclusions and Relevance

In this systematic review, the summary estimate of the prevalence of depression or depressive symptoms among resident physicians was 28.8%, ranging from 20.9% to 43.2% depending on the instrument used, and increased with calendar year. Further research is needed to identify effective strategies for preventing and treating depression among physicians in training.

http://jama.jamanetwork.com/article.aspx?articleid=2474424

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Effects of Health Care Payment Models on Physician Practice in the United States

By Mark W. Friedberg, Peggy G. Chen, Chapin White, Olivia Jung, Laura Raaen, Samuel Hirshman, Emily Hoch, Clare Stevens, Paul B. Ginsburg, Lawrence P. Casalino, Michael Tutty, Carol Vargo, Lisa Lipinski
RAND Corporation, March 19, 2015

The project reported here, sponsored by the American Medical Association (AMA), aimed to describe the effects that alternative health care payment models (i.e., models other than fee-for-service payment) have on physicians and physician practices in the United States. These payment models included capitation, episode-based and bundled payment, shared savings, pay for performance, and retainer-based practice. Accountable care organizations and medical homes, which are two recently expanding practice and organization models that feature combinations of these alternative payment models, were also included.

Within our sample, alternative payment models had not substantially changed how physicians delivered face-to-face patient care. However, the overall quantity and intensity of physician work had increased because of growing patient volume expectations and ongoing pressure for physicians to practice at the “top of license” (e.g., by delegating less intense patient encounters to allied health professionals), which was described as a potential contributor to burnout because lower-intensity patients could be an important source of respite for busy physicians.

Increased Stress and Time Pressure

New nonclinical work for physicians was almost universally disliked, especially when there was no clear link to better patient care. For example, frustration was common when physicians believed they were being asked to spend more time on documentation solely to get credit for care they had provided already. Overall, increased stress on physicians might directly harm the quality of patient care and might also serve as a marker that physicians are concerned about the quality of care they are able to provide.

http://www.rand.org/content/dam/rand/pubs/research_reports/RR800/RR869/RAND_RR869.pdf

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Comment:

By Don McCanne, M.D.

Since enactment of the Affordable Care Act (ACA), physician burnout and dissatisfaction with work-life balance have increased and now are experienced by over half of US physicians. The prevalence of depression or depressive symptoms amongst physicians in training is 29 percent and increasing. Health care payment models, which have increased under ACA, are contributing to physician burnout.

Do we really need to say it? ACA was the wrong model for reform.

We need to switch to a well designed single payer national health program which will then free us up to reform the health care delivery system so that we have contented health care professionals dedicated to providing optimal patient care. It would work for everyone.

How might the Anthem/Cigna merger affect their health plans?

Cigna CEO David Cordani: ACA Marketplace Is Still In ‘Version 1.0’

By Julie Appleby
Kaiser Health News, December 7, 2015

Cigna CEO David Cordani says the individual market created by the 2010 health law would be better off if insurers were given more flexibility in designing coverage, as well as a more compressed, focused open enrollment period.

If Cigna’s deal is approved (merger of Anthem and Cigna), Cordani is expected to remain with the new company as president and chief operating officer.

Excerpts from his interview by Julie Appleby:

“We’ll take their leading Medicaid program and our leading Medicare program and put them together to design solutions for the dual-eligible population.”

“In terms of employer marketplace, we will be able to bring population health and management programs to their employer programs and help expand the geographic footprint.”

“Societally, we are just starting to understand how the market is operating. What is the other market with some similarity? Medicare Advantage [the private alternative to traditional Medicare]. It has a one-time limited enrollment period [that is shorter than the ACA] — I think that’s a good thing. Compress the enrollment period, focus it and have a limited number of exceptions.”

“Secondly, [provide] more flexibility on how [insurers’ provider] networks are designed.”

“What Medicare Advantage shows us is by offering more choice, and choice is not necessarily different names of insurers, but benefit designs and network configurations, you get the right choice for you … as opposed to socializing things down.”

“[The market] has to also have a real focus on transparency [for consumers]. It can have more choice aided by transparency [and] network visibility for individuals to understand what they are buying before they sign up.”

“If [insurers] are allowed more flexibility in benefit and network configuration, we’re probably going to get solutions that are much more relevant to a part of the population that is not buying.”

“What we know is if [a patient is] asthmatic and more actively managed, the health outcomes and therefore the affordability can be quite different. This is a case where if you have a chronic illness, you need to be in a management program.”

Question: What is Cigna’s concern with gold products?

“Adverse selection. [It’s not that policyholders] are necessarily older or sicker. The whole way the benefits are configured and the way marketplace is working — the performance of those plans — is much less reasonable than all the other plans. Either there will be more flexibility to configure them in a way to make them sustainable or there won’t be gold plans.”

http://khn.org/news/cigna-ceo-david-cordani-aca-marketplace-is-still-in-version-1-0/

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Comment:

By Don McCanne, M.D.

Skimming through the comments of Cigna CEO David Cordani, it comes as no surprise that, with the Anthem/Cigna merger (approved by the shareholders last week), plans are being laid to enhance the business advantages of the corporation to the detriment of the plan participants.

Squeezing enrollment (favoring the healthy), reconfiguring provider networks (impairing access for the sick), reducing spending on Medi/Medi dual-eligibles, selling more patient management programs, and using benefit design to fragment risk pools are the types of policies that we have come to expect from the private insurers. Works well for them.

In this interview, there are a couple of points that demonstrate the problem described in yesterday’s Quote of the Day on information frictions and how they impact adverse selection (concentrating high-risk individuals in a single plan). The more information the purchaser of an insurance plan has, the much greater is the possibility that it will lead to adverse selection.

Cordani says that the market must have a focus on transparency for consumers. With greater transparency, patients with high health care needs will select plans that have the greatest actuarial value – plans that pay the highest percentage of the health care costs. In the exchanges, those are the gold plans. They pay 80 percent of the costs, as opposed to 60 or 70 percent for the bronze and silver plans respectively.

As we learned yesterday, it is essential to have effective risk-adjustment transfers to correct for adverse selection that results from patients understanding the benefits of the plans that they purchase. Well informed, high-risk patients will be concentrated in the gold plans, but since we do not have tools that adjust risk adequately, the insurers will be exposed to the greater risk of adverse selection impacting the gold plans.

So what is Cordani’s solution? Either provide “more flexibility to configure them in a way to make them sustainable,” or eliminate them. Configuring them to make them sustainable is, of course, code language for screwing up the benefits so they it becomes more difficult for patients to access the care that they need. If they can’t screw them up enough, then just get rid of them.

Yesterday’s message on information frictions was a challenging read, but it does show that academics with a heart, such as Benjamin Handel and his colleagues, do have something to offer the policy community. Those who might be interested but passed over yesterday’s message because of its complexity may want to take another stab at reading it. It’s an important concept to understand. It is posted at:

https://www.pnhp.org/news/2015/december/information-frictions-good-for-insurers-bad-for-patients

Dr. Oliver Fein Wins Award for Excellence in Public Health

Weill Cornell Medical College News, Dec. 4, 2015

Dr. Oliver Fein, associate dean (affiliations) and a professor of clinical medicine and of clinical healthcare policy and research, has won the 2015 Award for Excellence from the American Public Health Association.

The award honors public health professionals who have made exceptional contributions to the field through innovative organizational work for the improvement of community health. Dr. Fein, who was recognized for lifetime achievements in healthcare advocacy and activism, received his award at the association’s 143rd annual meeting on Nov. 3 in Chicago.

“It was wonderful, a really significant recognition by my peers,” said Dr. Fein, who is a past vice president of the association and has also served on its executive board. “It really causes one to reflect on what one has done and on all those who made it possible to do the things that I did.”

“For five decades, Dr. Fein’s innovative work has embodied excellence and has improved community health,” said Dr. Barry Levy ’71, chair of the association’s awards committee. “I am deeply honored to recognize Dr. Fein with the 2015 American Public Health Association Award for Excellence.”

Dr. Fein has distinguished himself in the field of public health through a lifetime of advocacy for health reform and greater community access. In the 1980’s, as director of general medicine outpatient services at NewYork-Presbyterian/Columbia University Medical Center, he helped open and staff five community health centers in the Washington Heights community. In 2009, as president of Physicians for a National Health Program, he was invited to the White House Health Care Summit, where he advocated for single-payer national health reform. In 2010, he helped a small group of medical students found the Weill Cornell Center for Human Rights, the first student-run asylum clinic at a U.S. medical school. Volunteer clinicians assist survivors of torture and other physical abuses who have fled from countries across the globe due to persecution based upon race, gender, religion, sexual orientation or political affiliation. As of 2014, the center has trained more than 150 medical students and professionals at Weill Cornell Medicine on how to conduct medical evaluations and provide affidavits to survivors of human rights violations.

As associate dean (affiliations), Dr. Fein works to expand Weill Cornell Medicine’s affiliations with institutions, both domestically and internationally, to facilitate more diverse learning opportunities for medical students. When Dr. Fein first joined the institution, his priority was to provide medical students with clinical experience off of the island of Manhattan. He established a relationship with what is now NewYork-Presbyterian/Queens, and in 2000 forged Weill Cornell Medicine’s first public hospital affiliation since 1968 with Lincoln Hospital in the South Bronx. Dr. Fein then expanded his vision beyond New York City and helped establish the Office of Global Health Education, which oversees and coordinates the global health educational electives program for Weill Cornell Medical College students.

“The idea, for me, was to give students exposure to the variety of health care systems in the world and a sense of the diversity of experiences that people have with healthcare systems,” Dr. Fein said. “Probably close to 50 percent of Weill Cornell graduates have an international medical educational experience by the time they graduate. That’s pretty fabulous, I think.”

http://weill.cornell.edu/news/awards/2015/12/awards-and-honors-across-weill-cornell-medicine—week-of-nov-20—dec-4.html

Information frictions – good for insurers, bad for patients

Information Frictions and Adverse Selection: Policy Interventions in Health Insurance Markets

By Benjamin R. Handel, Jonathan T. Kolstad, Johannes Spinnewijn
The National Bureau of Economic Research, November 2015
NBER Working Paper No. 21759

Abstract

A large literature has analyzed pricing inefficiencies in health insurance markets due to adverse selection, typically assuming informed, active consumers on the demand side of the market. However, recent evidence suggests that many consumers have information frictions that lead to suboptimal health plan choices. As a result, policies such as information provision, plan recommendations, and smart defaults to improve consumer choices are being implemented in many applied contexts. In this paper we develop a general framework to study insurance market equilibrium and evaluate policy interventions in the presence of choice frictions. Friction-reducing policies can increase welfare by facilitating better matches between consumers and plans, but can decrease welfare by increasing the correlation between willingness-to-pay and costs, exacerbating adverse selection. We identify relationships between the underlying distributions of consumer (i) costs (ii) surplus from risk protection and (iii) choice frictions that determine whether friction-reducing policies will be on net welfare increasing or reducing. We extend the analysis to study how policies to improve consumer choices interact with the supply-side policy of risk-adjustment transfers and show that the effectiveness of the latter policy can have important implications for the effectiveness of the former. We implement the model empirically using proprietary data on insurance choices, utilization, and consumer information from a large firm. We leverage structural estimates from prior work with these data and highlight how the model’s micro-foundations can be estimated in practice. In our specific setting, we find that friction-reducing policies exacerbate adverse selection, essentially leading to the market fully unraveling, and reduce welfare. Risk-adjustment transfers are complementary, substantially mitigating the negative impact of friction-reducing policies, but having little effect in their absence.

From the Conclusion

After establishing that information frictions have a substantial impact increasing demand for generous coverage, we investigate the implications of a policy that reduces the impact of information frictions (e.g. through information provision). We find that a policy that reduces the impact of information frictions by 50% reduces the market share of consumers enrolling in more generous coverage from 85% to 73%, and that a policy that fully removes information friction further reduces the market share in generous coverage to 9% (with corresponding welfare reductions). We illustrate that this negative impact of reducing frictions occurs because the mean and variance of surplus are low relative to the mean and variance of costs. We also show that as friction-reducing policies become stronger, effective insurer risk-adjustment transfers are more important. When frictions are fully present, fully effective risk-adjustment increases the market share in generous insurance from 85% to 88%, but when there are no frictions that same risk adjustment policy increases this share from 9% to 64% (with corresponding welfare increases).

http://www.nber.org/papers/w21759

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Comment:

By Don McCanne, M.D.

At the risk of losing important subtleties in this technically complex paper, I’ll try to simplify it by saying that the more information that a buyer has when deciding about the coverage of a plan (the goal of transparency in the insurance markets), the greater the risk of adverse selection (concentrating high cost patients in a plan), making risk-adjustment transfers more imperative in order to shift costs from plans enrolling more expensive high-risk patients to plans enrolling less expensive low-risk patients. Without effective risk-adjustment transfers, the market would unravel due to adverse selection.

Stated another way, information frictions (lack of information provision, plan recommendations, and smart defaults that would improve consumer choices) lead to suboptimal plan choices. More information leads to better choices but increases adverse selection. Risk-adjustment transfers have little impact when information frictions are fully present (the insurance purchaser is in the dark), but risk-adjustment transfers are essential when there are no frictions (fully informed insurance purchaser).

What can we make of this? On the face of it, shopping in the dark is bad. But the results of informed shopping require effective risk-adjustment transfers to counter adverse selection. To date, risk-adjustment processes (e.g., hierarchical condition categories) are capable of correcting only about one-tenth to one-fifth of the consequences of adverse selection. Since four-fifths or more of the excess burden cannot be transferred by today’s methods, we should be concerned about the authors’ finding that “friction-reducing policies exacerbate adverse selection, essentially leading to the market fully unraveling, and reduce welfare.”

It is unlikely that risk-adjustment will improve significantly. The insurers have already demonstrated how easy it is for them to game risk-selection adjustments, and there is no end to their ability to innovate.

The problem is really very simple. The private insurers, for their own benefit, continue to impair the functioning of our health plans, and then inflict upon us outrageous administrative charges for doing so.

The solution is simple. Replace them with a single payer national health program. Patients would not have to shop plans since everyone would be covered by the same single comprehensive plan. Patients would not have to worry about information frictions, whether or not they understood them.

A simpler system

By Richard A. Lippin, M.D.
The Philadelphia Inquirer, Letters, Nov. 23, 2015

Thanks to Don Sapatkin for writing about soaring and complex medical bills (“The anatomy of a medical bill,” Nov. 15). His conclusion, however, that “with no easy solutions in sight, the best consumers can do is learn – and fight,” falls short.

Consumers can also support a single-payer health-care system. State Rep. Pamela A. DeLissio (D., Phila.) introduced a single-payer bill in Harrisburg on Nov. 9.

While a single-payer system would not solve all our problems, it would bring the United States closer to other Western countries in terms of per capita costs by cutting out the middle man – insurance companies – and simplifying the process.

There’s no perfect system, but single-payer is better than consumers learning about and fighting our broken system. And when we are suffering, there is often little energy remaining to “learn and fight.”

Dr. Richard A. Lippin resides in Southampton.

http://articles.philly.com/2015-11-24/news/68513555_1_single-payer-friends-hospital-paris-attacks

Debating Colorado ballot initiative for single-payer health care

By David Iverson, M.D.
The Denver Post, Letters, Nov. 29, 2015

It’s unsurprising that Janet Trautwein of the National Association of Health Underwriters opposes single-payer health care: she represents private insurers, whose profits are threatened by such a system.

The U.S. is the only industrialized country without a national health system, and even though we spend almost twice as much per capita on health care than any other nation, our medical outcomes are mediocre by comparison.

Yes, it’s true that in Canada, no one gets an elective hip or knee replacement immediately. No nation can assure that. Yet Canadians get the care they need and give their system much higher rates of satisfaction than we give our private-insurance-based arrangements.

Universal health care is on the ballot in Colorado because people recognize that insurer profits are made by denying care. Don’t let the insurance industry scare you into voting against your own interests.

Dr. David Iverson resides in Denver.

http://blogs.denverpost.com/eletters/2015/11/29/debating-colorado-ballot-initiative-for-single-payer-health-care-3-letters/40013/

Setting the health care record straight

By Charles Bensonhaver, M.D.
The Post and Courier (Charleston, S.C.), Letters, Nov. 30, 2015

Your editorial entitled “Another costly ACA symptom” rightly sheds light on the inability of the ACA to control the rise in health care costs.

However, I find your idea that Congress should explore proposals that would push consumers (patients) to consider costs before they make health care decisions to be impractical and often dangerous.

The march to raise deductibles, increase co-pays and severely restrict provider networks has been going on for more than a decade and has been accelerating. As every physician with even a little clinical experience knows, the ideal policy is to have no deductibles, co-pays or limits on appropriate providers for all basic/essential medical services. Then patients are much more likely to seek and maintain appropriate care.

Too often essential medication, treatments and physicians visits are skipped when they don’t fit into the family budget. This often results in hospitalization or death. Several studies have shown that death due to the lack of adequate health insurance exceeds the death rates from motor vehicle accidents.

You also state that “the public should learn … the folly … of expecting massive federal health care interventions to keep medical costs down.” Wrong!

Traditional Medicare, now 50 years old, has been doing so quite effectively. It is the only element in our current health care system with real teeth.

I wish the media would do a much better job of shedding light on the major problems we have in our country in how we organize and finance health care. For more than two decades, we have been plodding along on the theory that patients should have “skin in the game” and that we should rely on competition and the free enterprise system to control costs.

What has been the result? Our costs are nearly twice the average of the other advanced nations in the world. Our overhead is very excessive, i.e. too many chiefs and not enough Indians. We are the only advanced nation that fails to automatically cover everyone. Obesity is going up and our longevity has stagnated compared to other rich nations.

All of this is quite unnecessary. We can greatly reduce the rate of increase in health care costs in ways similar to our sister nations in the developed world. Our aging population problem is not as severe as many other nations. Furthermore health care is a booming area for job creation across the full salary range, especially for the middle class.

For details about the facts and suggested reforms, I recommend two respected organizations: the Organization for Co-operation and Economic Development (OECD.org) and the Physicians for a National Health Program (PNHP.org)

We are sorely in need of major reform.

Dr. Charles Bensonhaver resides on Johns Island.

http://www.postandcourier.com/article/20151130/PC1002/151139977/1021/

PPOs further erode benefits by cutting back on out-of-network coverage

This year’s model: PPOs in 2016 offer less out-of-network coverage

By Katherine Hempstead, PhD
Robert Wood Johnson Foundation, December 3, 2015

Preferred Provider Organization plans (PPOs) are health insurance products that offer both a relatively “broad” provider network, along with some coverage for use of out-of-network providers. Since last year there has been a significant reduction in the number of PPOs offered in the Affordable Care Act (ACA) marketplaces. A prior analysis showed that of the 131 carriers offering silver PPO products in 2015, only about one-third remained unchanged in 2016, while the rest were either reduced in scope or eliminated.

Since changes in the generosity of out-of-network coverage don’t affect a plan’s actuarial value (AV), carriers can adjust these features without affecting the AV status. Plans new to the market in 2016 provide less coverage for out-of-network providers as compared to those that are continued from last year.

Fewer plans have a cap on out-of-pocket spending for out-of-network services

The out-of-network coverage offered in a PPO usually consists of some kind of cost-sharing—most often co- insurance—for visits to out-of-network providers. This benefit is usually subject to a separate out-of-network deductible, in addition to which there may be an annual out-of-network Maximum Out-Of-Pocket cost (MOOP). While an out-of-pocket maximum is required by the Affordable Care Act (ACA) for in-network coverage, there is no similar requirement with regard to out-of-network coverage.

There has been a sharp decline in the prevalence of out- of-network MOOPs in PPOS in 2016. While only 14 percent of PPO plans offered in 2015 did not have an out-of-network MOOP, this is the case for 45 percent of plans newly offered in 2016. For the market as a whole, the percent of PPOs with no MOOP doubled from 14 percent in 2015 to 30 percent in 2016.

Average MOOPs for out-of-network services have increased

For plans that have MOOPS, the annual cap has increased as well. Figure 2 shows the mean MOOP has increased to $16,700 in 2016 from $14,500 in 2015. Among plans new to the market in 2016, the average out-of-network MOOP was $17,900. For 25 percent of plans on the market in 2016, the MOOP was greater than $19,000. For plans that stayed in the market from 2015 to 2016, the average increase in the MOOP was approximately $1,000, although six plans increased their MOOP by more than $10,000.

Both the reduction in the number of PPOs and this “skinnying” of coverage within existing, and particularly new PPOs should be viewed as part of a broader carrier trend designed to reduce exposure to higher cost out-of-network providers. These changes are ostensibly being made to preserve affordability for marketplace products, which consumers have repeatedly indicated they value most. However, it remains to be seen to what extent consumers will continue to be willing to trade access to providers for lower premiums.

http://www.rwjf.org/content/dam/files/rwjf-web-files/Research/2015/PPO_This%20Years%20Model.pdf

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Comment:

By Don McCanne, M.D.

After a few decades of experiencing insurance company innovations designed to keep their premiums affordable, we should not be surprised by their ingenuity in figuring out new ways to avoid paying for health care. Now that networks are narrower and yet more prevalent, such that more patients are inadvertently receiving care out-of-network, the PPO plans are introducing further innovations to avoid paying for much of the out-of-network care that is often unavoidable for many patients.

Plans are increasing the maximum out-of-pocket costs (MOOP) that patients must pay for care obtained out-of-network. But an even more alarming trend is that almost half of the newer PPO plans are totally eliminating MOOP, which could expose patients to truly catastrophic expenses. To add to the insult, these expenses do not apply to in-network deductibles and MOOP.

We can anticipate that we will see continual erosion in health plan benefits as the private insurers contrive to find ever new ways of welshing on paying for our legitimate medical bills. This behavior is inherent in their DNA. They are structured to optimize their self-serving business model rather than to optimize patient service. That’s the nature of markets.

When markets fail us, we can turn to our own public entity, established to serve all of us, and that is our government. We don’t need a government-owned health care delivery system since the private, non-profit sector functions reasonably well for us, but we do need a publicly-owned and publicly-administered health care financing system – a single payer national health program dedicated to patient service.