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New Evidence on the Persistence of Health Spending

By Richard A. Hirth, Teresa B. Gibson, Helen G. Levy, Jeffrey A. Smith, Sebastian Calónico, Anup Das
Medical Care Research and Review, June 2015

Abstract

Surprisingly little is known about long-term spending patterns in the under-65 population. Such information could inform efforts to improve coverage and control costs. Using the MarketScan claims database, we characterize the persistence of health care spending in the privately insured, under-65 population. Over a 6-year period, 69.8% of enrollees never had annual spending in the top 10% of the distribution and the bottom 50% of spenders accounted for less than 10% of spending. Those in the top 10% in 2003 were almost as likely (34.4%) to be in the top 10% five years later as one year later (43.4%). Many comorbid conditions retained much of their predictive power even 5 years later. The persistence at both ends of the spending distribution indicates the potential for adverse selection and cream skimming and supports the use of disease management, particularly for those with the conditions that remained strong predictors of high spending throughout the follow-up period.

http://mcr.sagepub.com/content/72/3/277.abstract?etoc

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High health spending is more persistent than you might think

By Austin B. Frakt, PhD
AcademyHealth Blog, July 9, 2015

You get hit with a major health condition and your health care needs and spending spikes. A lot. Welcome to the 10% club, whose members spend at least $30,000 on health care in a year. Yeah, most of it is covered by insurance, but selecting the plan with the $2,500 deductible you blew through (not to mention the thousands more in copayments) looks like a bad idea in hindsight.

It could be worse. It could happen to you next year, and the year after, and the year after that, and so on. Will it?

This is a question of health spending persistence. And, as surprising as it may sound, we don’t know a lot about it, at least for the working age population.

Richard Hirth and colleagues recently were able to take an analysis of persistence for workers and their dependents a lot further, and using recent data. They looked at six years of health spending data (2003-2008) for a sample of millions of individuals with coverage from over 100 medium and large employers. One of their findings is that at least one in every three high spenders in a given year will be a high spender in any of the next five years. (Here, high spender is defined as in the top 10% of the annual spending distribution.) I don’t know what your prior is, but this is a much higher level of persistence than I expected.

If you’re unlucky enough to get hit with a very costly health condition, consider yourself relatively lucky if it’s not highly persistent. The new work by Hirth and colleagues shows that such persistence is surprisingly common and remarkably long. This is how sickness saps savings, for those with coverage that comes with high enough deductibles and copayments. Today, we call that “insurance.” Is it?

http://blog.academyhealth.org/high-health-spending-is-more-persistent-than-you-might-think/

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Comment:

By Don McCanne, M.D.

We already know that high deductibles and other cost sharing can result in financial hardships for individuals who develop major medical problems. But how many face the additional burden of having to pay the high deductibles in the years following? This study provides an answer.

Of health plan members or their family members who were in the top 10 percent of spending in a given year, 43 percent were still in the top 10 percent the following year, and an astonishing 34 percent were still in the top 10 percent five years later.

These are workers and their family members – largely middle-income Americans – who had employer-sponsored health plans. These are the plans that the Affordable Care Act was designed to protect. Now that employers are are switching to “consumer-directed” high-deductible health plans, these plans are devastating to the personal finances of these families that must meet the high-deductibles and other cost sharing year after year. Forget retirement funds, college funds, vacations, and the like and plan to spend time with bill collectors and bankruptcy referees.

When you think about the financial protection that you should be receiving from your health plan, it is deplorable that one-third of those who have the greatest needs for health care are exposed to years of recurrent, persisting financial burdens simply because of the fundamentally flawed design of our private health plans. Austin Frakt is right to question if this is even “insurance.”

The authors of the study suggest that the solution is found in disease management. What? Disease management only tweaks spending on major medical problems and would have no impact on the high-deductibles that patients would have to pay before their coverage kicks in. Let’s get real.

A single payer system with first dollar coverage would eliminate the burden of high medical bills that these unfortunate individuals face under our current, dysfunctional health care financing system. Yes, they need qualified health professionals to help them manage their diseases, but that’s a function of the health care delivery system. Intrusive, private, third-party money managers need to get out of the way.

Point-Counterpoint

Journal of Health Politics, Policy and Law, August 2015

The Affordable Care Act versus Medicare for All

By Laurence Seidman

Abstract

Many problems facing the Affordable Care Act would disappear if the nation were instead implementing Medicare for All — the extension of Medicare to every age-group. Every American would be automatically covered for life. Premiums would be replaced with a set of Medicare taxes. There would be no patient cost sharing. Individuals would have free choice of doctors. Medicare’s single-payer bargaining power would slow price increases and reduce medical cost as a percentage of gross domestic product (GDP). Taxes as a percentage of GDP would rise from below average to average for economically advanced nations. Medicare for All would be phased in by age.

http://jhppl.dukejournals.org/content/early/2015/06/09/03616878-3150160.full.pdf

Medicare for All — If It Were Politically Possible — Would Necessarily Replicate the Defects of Our Current System

By Harold Pollack

Abstract

Medicare for All, ideally implemented, could offer powerful advantages over our current health care financial system. Unfortunately, the political obstacles to such a system are formidable and are likely to remain so for decades. More to the point, a politically viable single-payer system would not replace our currently dysfunctional health care politics. It would be a product of that same legislative process and political economy and thus be disfigured by the same interest group politics, path dependence, and fragmentation that Laurence Seidman rightly laments.

From the text

Laurence Seidman’s brief for single payer will be congenial to many JHPPL readers, and for good reasons. As someone who has spent the past seven years advocating for the Affordable Care Act (ACA), I must concede that a well-conceived, well-implemented Medicare for All system would offer powerful advantages over our current health care financing system.

Medicare for All would be fundamentally more disruptive for tens of millions of people. As a matter of basic accounting, a huge reform that creates millions of winners creates millions of losers, too: affluent workers receiving generous tax expenditures, too many constituencies to count across the supply side of the medical economy who are likely to be squeezed in a new system, individuals subject to small or large tax increases, to name a few. This list includes some of the most powerful and organized constituencies in American politics. They would have to be accommodated in complex, sometimes unappetizing, ways.

Medicare for All cannot offer itself as the replacement of our depressing health politics. It would have to arise as another product of that very same process, passing through the very same legislative choke points, constrained by the very same path dependencies that bedevil the ACA.

For the foreseeable future, the main health policy challenge is to make the ACA work.

I hope that the public option returns in some form as a viable choice within the new marketplaces. One possibility would be to allow individuals over the age of sixty the option of purchasing public insurance coverage. Many Americans would welcome this option, which would also provide needed competition and market discipline of providers.

Policies like this may someday pave the way to a Medicare for All system. More likely, these would allow the possibility of public insurance carving out a complicated coexistence with private coverage. This may be the best outcome. If we keep our shoulder to the wheel in pursuing the messy, frustratingly incremental process of health reform, we can create a more humane and disciplined health system. That’s no small accomplishment. I’m not sure what else we can do either.

http://jhppl.dukejournals.org/content/early/2015/06/09/03616878-3150172.full.pdf

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Will Doctors Be An Impediment To Reform?

By Harold Pollack
The New Republic, August 2009

On the left, there are Physicians for a National Health Care Program. (I happen to dislike PNHP leaders’ unhelpful stance in the current debate, but that is another story.) 

http://www.drsforamerica.org/blog/-will-doctors-be-an-impediment-to-reform-hat-tip-h-pollack–260

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How not to argue about health policy

By Harold Pollack
The Incidental Economist, December 3, 2011

One can make a principled decision to withdraw from the incremental politics of American health policy. I understand why single-payer advocates are tempted to take this course. Most do so with greater awareness of the attendant tensions and costs. PNHP was a sideline, not always very civil participant in the political fight to enact and preserve health care reform. Indeed its leaders denigrate important provisions of ACA that expand access for 32 million people and protect millions against catastrophic financial risks. I wish the group would talk and act rather differently in this debate.

Weekend edition: How not to argue about health policy

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Comment:

By Don McCanne, MD

This pair of Point-Counterpoint articles from the Journal of Health Politics, Policy and Law renew the debate over the Affordable Care Act versus Medicare for All. Laurence Seidman presents the solid case for the policy superiority of the single payer Medicare for All model while Harold Pollack also acknowledges the superior policies of single payer, yet rejects it based on our dysfunctional health care politics.

Policy is not the issue in this particular debate; it is the politics. You do not compromise clearly superior policy to conform with the dysfunctional politics, but rather you change the politics in order to support optimal policy.

PNHP’s mission is to educate the public on the single payer model – an essential step in changing the politics. Harold Pollack instead supports incremental changes, such as those of ACA, as a means of negotiating the politics. Both approaches are reasonable and neither should be completely rejected in deference to the other one. The ultimate goal should always be the utopian version of single payer, and every effort must be made to achieve that goal. In the interim, incremental measures that improve health care should be supported. But it is important to continue to inform the public on the inadequacies of these interim measures that perpetuate hardship and suffering, lest inertia set in.

Harold Pollack writes about “pursuing the messy, frustratingly incremental process of health reform,” and says, “I’m not sure what else we can do.” Yet he concedes that “a well-conceived, well-implemented Medicare for All system would offer powerful advantages over our current health care financing system.” He says that he wishes PNHP “would talk and act rather differently in this debate.” This defies any interpretation other than that PNHP should abandon their mission of single payer and join him in supporting his incremental pathway to reform. Yet he suggests that “the best outcome” may be “the possibility of public insurance carving out a complicated coexistence with private coverage.” PNHP emphatically disagrees that this would be the best outcome.

Recognizing that policy goals must not be compromised and that the politics must change, we wish the incrementalists “would talk and act rather differently in this debate.” After all, we do share the ultimate goal of health care justice for all.

The Veiled Economics of Employee Cost Sharing

By Katherine Baicker, PhD; Amitabh Chandra, PhD
JAMA Internal Medicine, July 2015

This year, once again, millions of people in the United States who get health insurance through their employers received the unwelcome news that cost sharing would increase. 

At first blush, it might seem that cost sharing is just a way of dividing up whether employers or employees pay the bills, but decades of evidence show that lower cost sharing leads patients to consume more care of limited health value—such as unnecessary tests—and that this consumption leads to higher health insurance premiums. Cost sharing can thus mitigate the premium increases that would be needed to expand coverage to new services—many of which may particularly benefit patients with serious illnesses.

The potential usefulness of cost sharing does not, however, mean that we would all be better off with across-the-board increases in cost sharing. First, insurance provides crucial financial protection against potentially catastrophically high health expenditures. Patient cost sharing erodes the value of the risk protection that health insurance provides. The benefit of reducing the overuse of medical services that is inherent in subsidizing health care must be balanced against the cost of losing financial protection when it really matters. A disproportionate share of health spending is for a relatively small number of people requiring very expensive care. Any insurance plan with adequate protection against catastrophic out-of-pocket spending (such as an annual out-of-pocket maximum of $10 000) will leave a substantial share of health care expenditures in excess of that maximum, and thus not subject to cost sharing. Second, as we have discussed, a given dollar amount of cost sharing has different implications for people with different incomes, suggesting that optimal cost sharing might increase with income. At present, this feature is seen more in cost-sharing subsidies for low-income enrollees in some public plans than in employer-sponsored health insurance. Third, patients facing higher deductibles and copays may reduce care of high value (such as adherence to effective medications) along with the care of low value (such as tests that are not recommended). The evidence suggests that more sophisticated cost sharing, such as higher copays for care of questionable health benefit, might encourage higher-value health care spending and stem the growth of health insurance premiums. Examples are “carve-outs” that protect preventive care from copayments and “value-based” insurance plans that subsidize medications that help keep patients out of the hospital.

These caveats do not mean that cost sharing should be eschewed as a tool to improve value—but rather that cost sharing should be deployed in a more nuanced way than it is now. If enabled by regulatory changes and health care system reforms, cost sharing based on the value of care and scaled by income could improve health, slow increases in health insurance premiums, and increase take-home pay.

http://archinte.jamanetwork.com/article.aspx?articleID=2289129

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Tracking Trends In Provider Reimbursements And Patient Obligations

By Katherine Hempstead, Iyue Sung, Joshua Gray and Stewart Richardson
Health Affairs, July 2015

ACAView attempts to capture how health reform affects the day-to-day practice of community-based medicine. The project has collected data on more than seventeen million visits to nearly 15,000 providers in 2013 and 2014.

Patients’ payment obligations rose for all specialties, and deductibles were the largest category of increased patient spending.

From the Conclusion

Coverage expansion in the United States has benefited millions of people. However, the high out-of-pocket expenses that many people are facing may cause some to forgo nonurgent care. The overall implications for providers are unclear. Increased bad debt is one potential outcome.

It will be important to monitor changes in patient obligation and provider reimbursement as the effects of coverage expansion, risk contracting, and narrow networks continue to unfold. The degree to which these changes may affect access to care for low-income insured patients and debt levels for providers in particular deserves close scrutiny.

http://content.healthaffairs.org/content/34/7/1220.abstract

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Comment:

By Don McCanne, MD

Can we balance the benefit of spending reductions associated with high deductibles and other cost sharing with the potential reduction in beneficial health care services that can result from patient exposure to out-of-pocket expenses as a prerequisite for health care access? Perhaps a better question is, should we?

Although Katherine Baicker and Amitabh Chandra support high deductibles and other cost sharing as a means to slow the increase in health care spending, they do recognize the problems with this approach to cost containment, for example: 1) the erosion of protection against the financial risk of essential health care services, 2) the ineffectiveness of cost sharing for most of health care spending – the catastrophic costs of the minority who have major health care problems, 3) the negative impact of cost sharing on those with lower incomes, and 4) the decrease in the use of high value care because of the financial barriers of cost sharing.

Rather than abandoning their support of the consumer-directed approach of increasing patient sensitivity to health care costs through out-of-pocket cost sharing, Baicker and Chandra recommend improving cost sharing by taking into consideration income levels, chronic disease status, and the relative value of the health care services provided. As if applying cost sharing was not already administratively burdensome, imagine applying these three adjustments to each patent’s cost sharing. Even then, the benefits of these adjustments would be only relative since you cannot eliminate 100 percent of the financial hardships, nor ensure that patients would receive 100 percent of the essential health care services that they need.

When you consider that most health care spending (about 80 percent) is not subject to cost sharing, you really have to give more thought as to whether this decades-long experiment in cost sharing is worth continuing.

It is not as if we don’t have a far better option. With a single payer system, monopsonistic price setting would obviate the need for patient price shopping. So then the only purpose for cost sharing would be to reduce the use of “low value” services. Beneficial services that some may consider to be of low value, but not of no value, are commonplace today, and who is to say that we should establish policies that impair access to that care?  On the other hand, services that clearly have absolutely no diagnostic nor therapeutic benefit would simply be excluded from coverage.

The system would be 100 percent effective in preventing financial hardship due to medical bills and 100 percent effective in removing financial access barriers, while slowing the rate of increases in health care spending down to that of other industrialized nations. You would have the cost containment that we need without the injustices and profound administrative waste of our fragmented, multi-payer system.

Perhaps Harvard’s Baicker and Chandra, with their PhDs, should sit down with Himmelstein and Woolhandler, with their MDs, and have a frank discussion of priorities in reform – like placing the patient first, as a single payer system would.

Serious Risks And Few New Benefits From FDA-Approved Drugs

By Donald W. Light
Health Affairs Blog, July 6, 2015

Over the past year, the U.S. Senate and The New York Times have been investigating the failure of the nation’s auto safety regulators to protect citizens from cars with occasionally dangerous faulty devices.

But neither august institution has paid attention to the Food and Drug Administration’s (FDA) failure to protect the 170 million Americans who take prescription drugs from adverse reactions that are killing more than 2,400 people every week. Annually, prescription drugs cause over 81 million adverse reactions and result in 2.7 million hospitalizations.

This epidemic of harm from medications makes our prescription drugs the fourth leading cause of death in the United States. Including hospitalizations and deaths from prescribing errors, overdosing, and self-medication, drugs move up to third place.

Below I describe the biases that appear throughout the drug development process, from initial research to FDA review and approval. I conclude with recommendations that would reduce drug development costs and ensure that drugs are only approved if they are safe and significantly more effective than already existing medications.

Figure 1. Few Clinical Advances in a Decade and Hundreds of Other Drugs Approved for Promotion
Number of New Drugs, 2002-2011
2 – Breakthrough
13 – Real Advance
61 – Some Advantage
918 – Little or No Improvement

(The exhibit focuses on France, a country whose consumer-oriented drug market features an array of products similar to the U.S.)

Flooding the market with hundreds of minor variations on existing drugs and technically innovative but clinically inconsequential new drugs, appears to be the de facto hidden business model of drug companies. In spite of its primary charge to protect the public, the FDA criteria for approval encourage that business model. The main products of pharmaceutical research are scores of clinically minor drugs that win patent protection for high prices, with only a few clinically important advances like Sovaldi or Gleevec.

This business model works. Despite producing drugs with few clinical advantages and significant health risks, industry sales and profits have grown substantially, at public expense. Companies spend 2-3 times less on research than on marketing to convince physicians to prescribe these minor variations.

The Center for Drug Evaluation and Research (CDER) is the FDA division responsible for determining whether new drugs should be approved. Its funding, however, now largely comes not from taxpayers but from the companies submitting their drugs to CDER for review.

This clear conflict of interest and approving so many new drugs with few clinical benefits serve corporate interests more than public interests, especially given the large risks of serious harm. Direct and indirect costs to society far exceed the cost of funding the FDA as a public, independent review body.

Peer-reviewed studies already demonstrate how pharmaceutical companies manipulate FDA rules to generate evidence that their new drugs are more effective and less harmful than unbiased studies would show. The industry then recruits teams of medical writers, editors, and statisticians to select and repackage trial results into peer-reviewed articles that become accepted as reliable medical knowledge.

Based on his investigations, Marc Rodwin concludes, “Scholarly studies have revealed that drug firms design trials that skew the results and that they distort the evidence by selective reporting or biased interpretation.”

New FDA policies to get more drugs reviewed faster so that they can reach patients sooner result ironically in even more drugs being approved with less evidence that they are either safer or more effective. Faster reviews mean the chance that a drug will generate an FDA warning of serious harm jumps from one in five to one in three.

To protect the public from unsafe and ineffective drugs and earn public trust, the FDA and Congress must acknowledge the biases described here that result from pharmaceutical corporations financing the public regulator. They should also require two changes: that new drugs demonstrate patient-based clinical advantages through comparative trials, and that these trials be based on the population that will actually take a drug.

These changes would reduce the flood of minor variations shown in Exhibit 1 and the subsequent billions spent on them.

http://healthaffairs.org/blog/2015/07/06/serious-risks-and-few-new-benefits-from-fda-approved-drugs/

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Comment:

By Don McCanne, MD

Outrageously high pricing is not the only problem we face with new pharmaceutical products. We are inundated with new drugs that provide little or no improvement over existing products. This exposes us not only to the higher prices driven by new patents, but also to the potential of serious adverse effects that may not be recognized until the new drugs have been on the market for a period of time.

Under a single payer system, drug formularies should include only those products are reasonably effective, comparatively safe, and cost effective. Since the industry does not provide us with those assurances, it is the responsibility for the government to step in and do so.

Health Insurance Companies Seek Big Rate Increases for 2016

By Robert Pear
The New York Times, July 3, 2015

Health insurance companies around the country are seeking rate increases of 20 percent to 40 percent or more, saying their new customers under the Affordable Care Act turned out to be sicker than expected. Federal officials say they are determined to see that the requests are scaled back.

The rate requests, from some of the more popular health plans, suggest that insurance markets are still adjusting to shock waves set off by the Affordable Care Act.

It is far from certain how many of the rate increases will hold up on review, or how much they might change. But already the proposals, buttressed with reams of actuarial data, are fueling fierce debate about the effectiveness of the health law.

A study of 11 cities in different states by the Kaiser Family Foundation found that consumers would see relatively modest increases in premiums if they were willing to switch plans. But if they switch plans, consumers would have no guarantee that they can keep their doctors. And to get low premiums, they sometimes need to accept a more limited choice of doctors and hospitals.

Marinan R. Williams, chief executive of the Scott & White Health Plan in Texas, which is seeking a 32 percent rate increase, said the requests showed that “there was a real need for the Affordable Care Act.”

“People are getting services they needed for a very long time,” Ms. Williams said. “There was a pent-up demand. Over the next three years, I hope, rates will start to stabilize.”

Sylvia Mathews Burwell, the secretary of health and human services, said that federal subsidies would soften the impact of any rate increases. Of the 10.2 million people who obtained coverage through federal and state marketplaces this year, 85 percent receive subsidies in the form of tax credits to help pay premiums.

In an interview, Ms. Burwell said consumers could also try to find less expensive plans in the open enrollment period that begins in November. “You have a marketplace where there is competition,” she said, “and people can shop for the plan that best meets their needs in terms of quality and price.”

In their submissions to federal and state regulators, insurers cite several reasons for big rate increases. These include the needs of consumers, some of whom were previously uninsured; the high cost of specialty drugs; and a policy adopted by the Obama administration in late 2013 that allowed some people to keep insurance that did not meet new federal standards.

“Healthier people chose to keep their plans,” said Amy L. Bowen, a spokeswoman for the Geisinger Health Plan in Pennsylvania, and people buying insurance on the exchange were therefore sicker than expected. Geisinger, often praised as a national model of coordinated care, has requested an increase of 40 percent in rates for its health maintenance organization.

Federal officials have often highlighted a provision of the Affordable Care Act that caps insurers’ profits and requires them to spend at least 80 percent of premiums on medical care and related activities. “Because of the Affordable Care Act,” Mr. Obama told supporters in 2013, “insurance companies have to spend at least 80 percent of every dollar that you pay in premiums on your health care — not on overhead, not on profits, but on you.”

In financial statements filed with the government in the last two months, some insurers said that their claims payments totaled not just 80 percent, but more than 100 percent of premiums. And that, they said, is unsustainable.

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Comment:

By Don McCanne, MD

Although it will be about three months before we have the final health insurance premiums for 2016, the information we have already can warrant a few preliminary observations.

• The Affordable Care Act appears to have failed on delivering its promise of controlling global health care costs. The primary reason given by the insurers when submitting requests for much higher premiums for 2016 is that health care costs were much higher than their actuaries anticipated.
• Some complain that new enrollees were less healthy and thus drove spending up, but under the individual mandate, increases in enrollment were across the board and not concentrated amongst the less healthy.
• There may have been some pent up demand amongst new enrollees (e.g., joint replacement) but that is only a transient surge which does not warrant long term premium increases. Much of the pent up demand will have been ventilated as most of the remaining uninsured are ineligible by immigration status or by personal hardship. The numbers who are eligible but decline coverage will only trickle in as health care needs develop.
• It appears that the increases in the benchmark silver plans will not be as great as the increases currently receiving considerable publicity. Requests over a ten percent increase were required to be made public whereas increases under ten percent will not be known until plans are marketed prior to the November 1 beginning of open enrollment.
• Because rate increases vary considerably amongst the plans, many individuals will be forced to choose between paying higher rates by staying in their current plans or changing to plans with lower rates but with different narrow provider networks thereby potentially sacrificing continuity of care.
• Respected institutions such as Geisinger in Pennsylvania and Scott and White in Texas are asking staggering premium increases, indicating that the supposed cost containment features of ACA are having a negligible impact on legitimate spending.
• Little is being said about the insurance underwriting cycle. Large, well capitalized insurers are able to price their products more competitively, decreasing the market presence of less competitive insurers. Once market dominance is established, insurers are free to drive up premiums as much as 20 to 40 percent, as reported in this New York Times article. The regulated medical loss ratios are generous enough to allow market performance (profits) to excel, as confirmed by current Wall Street activity in health insurance equities.

So are we going to wait until October when the premium rates are announced, and then do nothing other than continue to stand back and observe because the insurers will reassure us that silver benchmark plans didn’t go up that much – maybe 4.4 percent – even if it means that the enrollees have to switch plans and find new providers in a different narrow network? Is this the good that’s coming out of all of this? What about those who want to continue with their current providers, but face a 20 to 40 percent premium increase? Will the death spiral bleed over from insurers to patients?

Enough. Single payer.