PNHP

Single-payer health care would save billions for Massachusetts

Single-payer health care would save billions for Massachusetts

By David U. Himmelstein and Steffie Woolhandler
The Boston Globe, May 30, 2012

The House and Senate health care proposals would set imaginary limits for spending growth enforced by secret “improvement plans” and wrist slaps for hospitals that overcharge; establish tiered payment schemes to consign the poor and middle class to second-tier hospitals and doctors; push most residents of the Commonwealth into HMOs (oops, we forgot, now they’re called “accountable care organizations,” or ACOs); and wipe out small doctor’s offices by “bundling” their pay into ACO payments. Apparently the legislators’ theory is that forcing health care providers to consolidate cuts costs. Oligopoly saves money?

Here are six alternative steps the Legislature could take that would actually save money while still preserving care.

* Cut out the middlemen. Why exactly do we pay private insurers 10 cents of every premium dollar? The plan that covers all 13 million residents of the Canadian province of Ontario has overhead of only 1 percent. Adopting that single-payer approach in Massachusetts would save about $2 billion in insurance overhead in 2013 alone.

* Pay hospitals the way we pay fire departments: real global budgets that cover all operating costs, not the per-patient schemes that are masquerading as global payments. Billing, collections, and paperwork consume nearly one quarter of hospitals’ revenues. Eliminate billing for individual patients and you’d cut that nearly in half. The savings: about $3 billion in 2013.

* End the medical arms race and enforce real health planning. Hospitals and clinics vie for affluent patients needing lucrative high-tech care. They reap surpluses, a.k.a. profit, which they use to buy fancy machines and superluxe buildings – usually situated where there’s already a surplus of such facilities. Inevitably, the surplus facilities induce unnecessary, even harmful overcare. Meanwhile, underserved communities and under-provided services like mental health and substance abuse are starved of investment. Hospital payments should go for patient care, not new buildings. Money for new buildings and technology should flow to a separate fund, and be allocated according to need, not profitability, through a transparent public process. Investing in what’s needed instead of what’s profitable would save billions and improve care for both the poor and the affluent.

* Right-size the physician work force: more primary care, fewer specialists. Massachusetts hospitals take pride in training super-specialists who go on to provide profitable but often unneeded care (see above). Meanwhile, the primary care shortage persists. The public, through Medicare, already pays for residency training and should use the power of the purse to make hospitals train the doctors that the public needs. And physicians’ fee schedules should be altered to assure that best students are attracted to the most needed, important, and difficult fields – primary care – and that doctors make as much for talking to patients as for putting them through a scanner.

* Negotiate drug prices statewide. Canadians pay 40 percent less for drugs than we do because they use single-payer buying power to drive down prices from pharmaceutical companies. Why can’t we?

* Cap health executives’ incomes. Why should a hospital CEO make more than the president of the United States?

David U. Himmelstein, M.D. and Steffie Woolhandler, M.D., M.P.H. co-founded Physicians for a National Health Program. They are professors at the City University School of New York School Public Health and visiting professors at Harvard Medical School. They worked as primary care doctors in Massachusetts from 1982-2010.

http://www.bostonglobe.com/opinion/2012/06/01/single-payer-health-care-would-save-billions-for-massachusetts/yNTLRlKucgdJCUCU3P5arM/story.html

Himmelstein and Woolhandler explain savings from single payer

Single-payer health care would save billions for Massachusetts

By David U. Himmelstein and Steffie Woolhandler
The Boston Globe, May 30, 2012
The House and Senate health care proposals would set imaginary limits for spending growth enforced by secret “improvement plans” and wrist slaps for hospitals that overcharge; establish tiered payment schemes to consign the poor and middle class to second-tier hospitals and doctors; push most residents of the Commonwealth into HMOs (oops, we forgot, now they’re called “accountable care organizations,” or ACOs); and wipe out small doctor’s offices by “bundling” their pay into ACO payments. Apparently the legislators’ theory is that forcing health care providers to consolidate cuts costs. Oligopoly saves money?
Here are six alternative steps the Legislature could take that would actually save money while still preserving care.
*  Cut out the middlemen. Why exactly do we pay private insurers 10 cents of every premium dollar? The plan that covers all 13 million residents of the Canadian province of Ontario has overhead of only 1 percent. Adopting that single-payer approach in Massachusetts would save about $2 billion in insurance overhead in 2013 alone.
*  Pay hospitals the way we pay fire departments: real global budgets that cover all operating costs, not the per-patient schemes that are masquerading as global payments. Billing, collections, and paperwork consume nearly one quarter of hospitals’ revenues. Eliminate billing for individual patients and you’d cut that nearly in half. The savings: about $3 billion in 2013.
*  End the medical arms race and enforce real health planning. Hospitals and clinics vie for affluent patients needing lucrative high-tech care. They reap surpluses, a.k.a. profit, which they use to buy fancy machines and superluxe buildings – usually situated where there’s already a surplus of such facilities. Inevitably, the surplus facilities induce unnecessary, even harmful overcare. Meanwhile, underserved communities and under-provided services like mental health and substance abuse are starved of investment. Hospital payments should go for patient care, not new buildings. Money for new buildings and technology should flow to a separate fund, and be allocated according to need, not profitability, through a transparent public process. Investing in what’s needed instead of what’s profitable would save billions and improve care for both the poor and the affluent.
*  Right-size the physician work force: more primary care, fewer specialists. Massachusetts hospitals take pride in training super-specialists who go on to provide profitable but often unneeded care (see above). Meanwhile, the primary care shortage persists. The public, through Medicare, already pays for residency training and should use the power of the purse to make hospitals train the doctors that the public needs. And physicians’ fee schedules should be altered to assure that best students are attracted to the most needed, important, and difficult fields – primary care – and that doctors make as much for talking to patients as for putting them through a scanner.
*  Negotiate drug prices statewide. Canadians pay 40 percent less for drugs than we do because they use single-payer buying power to drive down prices from pharmaceutical companies. Why can’t we?
*  Cap health executives’ incomes. Why should a hospital CEO make more than the president of the United States?
(David U. Himmelstein, M.D. and Steffie Woolhandler, M.D., M.P.H. co-founded Physicians for a National Health Program. They are professors at the City University School of New York School Public Health and visiting professors at Harvard Medical School. They worked as primary care doctors in Massachusetts from 1982-2010.)
http://www.bostonglobe.com/opinion/2012/06/01/single-payer-health-care-would-save-billions-for-massachusetts/yNTLRlKucgdJCUCU3P5arM/story.html

To explain simply what is meant by “single payer,” we often allude to an “Improved Medicare for All.” That seems to suggest that we merely need to tweak Medicare and then provide it to everyone – that simply eliminating private insurers is all we need to do. This article by PNHP co-founders David Himmelstein and Steffie Woolhandler briefly describes how the single payer model is much more than that, especially pointing out how it would be tremendously effective in slowing the nearly intolerable increases in health care spending, while dramatically improving the functioning of our health care delivery system.
First, a little background. When the Massachusetts health reform legislation was ready to be enacted, it was criticized for failing to address one of the most important reasons for reform – it did not include effective measures to contain costs, a flaw challenged by single payer supporters. Rather than taking another look at single payer, Gov. Romney’s advisor, MIT economist Jonathan Gruber, famously said that first we should get everyone covered by passing this, and then we’ll work on controlling spending.
Of course not everyone is covered in Massachusetts, while cost increases continue out of control. In response, the Massachusetts House and Senate have prepared separate but similar bills to control spending, while ignoring the remaining uninsured. Instead of adopting structural changes that would reduce waste – as Himmelstein and Woolhandler recommend – they would apply spending restrictions that could threaten solvency of components of the health care delivery system, while compounding the problems of patient access already evident in the inadequacies of the primary care infrastructure.
As everyone knows, the Affordable Care Act (ACA) was patterned on the same model as used in Massachusetts. Single payer advocates were vehemently proclaiming that ACA would leave too many out of the system, and that it would fail to address rising health care costs – the two primary problems that motivated reform. But we were excluded from the process.
As our members of Congress toiled over the markup of the legislation, measures were included that nominally would control costs. However, with the possible exception of the Independent Payment Advisory Board (IPAB), none of the included measures would have a significant impact on health care costs. Even the IPAB would have the serious flaw of cutting solely Medicare and not private insurer payments to the health care delivery system, threatening underfunding and likely impairing access due to the exodus of physicians from the Medicare program.
The primary reason that the meager measures to contain spending are inadequate is that ACA left in place and built upon our existing dysfunctional financing system with its profound waste. What we needed instead was a complete overhaul of the financing infrastructure, including not only changing to an administratively simplified single payer but also measures such as those listed by Himmelstein and Woolhandler.
Eliminating private insurers and switching to a single public insurer is the most important and effective measure of single payer, but the other measures are essential if we want to join the other wealthy nations that provide quality care to everyone at an average of half of what we are currently spending.
When you advocate for single payer by pushing an “Improved Medicare for All,” be sure in the same breath to let your listeners know the extent of our recommendations: “An Improved Medicare for All that would totally overhaul our dysfunctional financing system so that it works best for patients.”
In this age of sound bites, if you have another breath, you can point out that single payer would also have a highly favorable impact on the health care delivery system, by enhancing primary care, and by efficiently expanding facilities and high-tech capacity based on medical need instead of profit and extravagance.
Above all, it’s crucially important to communicate that single payer is not just your mother’s Medicare.

States in the Spotlight as Single-Payer Resurfaces in Mainstream Discourse

Public Citizen Health Letter, May 2012

The past year has seen single-payer health care in the news more than usual. May marks the first anniversary of Vermont’s health reform bill, which was widely touted as the first state single-payer law in the country — albeit only by those who had presumably not read the bill. Following closely on the heels of the Vermont law was one of the most high-profile U.S. Supreme Court cases in decades. The Obama administration’s controversial 2010 health reform law, the Affordable Care Act (ACA), came before the Supreme Court this March over a challenge to its constitutionality.

Both Vermont’s law and the court hearings have put a renewed spotlight in establishment circles on single-payer. The mainstream press usually focuses on single-payer only to ridicule it as a fringe cause lacking “political will” (a revealing term, given that a majority of the public has long supported a national health insurance system along the lines of single-payer), and this has largely remained the case in the current debate. But the possible repeal of the ACA, combined with efforts by many states to opt out of the reform, has led many who were formerly enamored with the ACA to ask what’s next and has forced a surprisingly frank discussion of the possibilities and merits of a U.S. single-payer health care system.

Saskatchewan’s example and Obama’s obstructionism

With just over 1 million residents, the sparsely populated Canadian province of Saskatchewan is not often in the headlines. But 50 years ago, the rural province was a staging ground for one of the most significant social justice achievements of the last century. The province’s pioneering, publicly financed health insurance system, first enacted for hospital care in the aftermath of World War II and gradually built upon over the next two decades, guaranteed medical coverage to all residents regardless of income and laid the groundwork for Canada’s single-payer health care system.

This milestone did not come without resistance from entrenched interests, most notably the province’s medical community. In a prelude to the American Medical Association’s opposition to Medicare a few years later, Saskatchewan’s physicians staged a 23-day strike in 1962 to protest the plan, which they thought would weaken their socially privileged positions within the health care system and, especially, their inflated salaries. In the end, the provincial government won (though not before agreeing to keep the physician-friendly, costly fee-for-service payment arrangement), and the success of its system led to universal health insurance in Canada within 10 years.

Fast-forward half a century, and Canada’s southern neighbor has yet to enshrine health care as a right instead of a privilege that remains out of reach for 50 million uninsured Americans. While Tommy Douglas, the man most responsible for bringing national health insurance to Canada, is feted as a hero, in the U.S., even tepid movements to increase health care access have met with extreme hostility from corporate interests. Despite the Obama administration’s best efforts to portray the 2010 ACA as a step toward universal health care, the law actually further entrenches the private insurance industry at the heart of the health care system, while leaving 27 million uninsured and tens of millions more underinsured when fully implemented.

A government-financed national health insurance system would, as noted by most commentators across the political spectrum, achieve the purported goal of an individual mandate — universal coverage — while being unquestionably constitutional. Justice Anthony M. Kennedy (widely seen as the swing vote in this summer’s decision on the ACA) most notably articulated this point when he observed during the Supreme Court hearings that the government could simply “use the tax power to raise revenue and to just have a national health service, single payer.”

A simple option in theory, perhaps, but one that was unacceptable to the Obama administration. President Barack Obama systematically excluded the single-payer option from consideration early in the process, ignoring high-profile protests from organizations such as Physicians for a National Health Program and Healthcare-NOW. With his approval ratings at their peak and a Democratic Congress at his back, Obama chose not to put single-payer on the table — though he acknowledged it as the only way to cover all Americans and there was majority support for single-payer among the American public.

Vermont’s misleading 2011 law: single-payer in name only

Single-payer activists were not deterred by the subsequent gift to the private insurance industry that was the core of the ACA, instead turning their efforts to the states, with Saskatchewan’s precedent in mind.

Vermont was the first battleground for single-payer following the ACA, and it seemed an ideal place to focus the movement’s efforts. The state is decidedly progressive and has a long history of implementing progressive health legislation, such as a pre-ACA prohibition on denial of coverage for pre-existing conditions, a generous Medicaid system and a more recent ban on gifts from pharmaceutical manufacturers to physicians. In 2010, the election of a new governor, Peter Shumlin, committed in principle to single-payer, raised expectations that Vermont might be the successful laboratory from which to build a national “Improved Medicare for All” system.

When Shumlin was still in the Vermont Senate, local single-payer advocates such as Deb Richter put him in contact with William Hsiao, the Harvard economist who designed Taiwan’s single-payer system in the 1990s. Following Shumlin’s election as governor, the state formally enlisted Hsiao to design a health care system that would accomplish three overarching goals: 1) universal coverage with sufficient benefits, 2) an equitable financing mechanism yielding long-term cost savings and 3) a more integrated delivery system focused on prevention and primary care.

Hsiao’s team presented three options to the state legislature in 2011, only the first of which was a true single-payer system. The latter two would still allow multiple private insurance payers to operate. In its report, the team recommended a so-called “public/private” non-single-payer option as the “most feasible because it is likely to be accepted by the broadest cross-section of stakeholders in Vermont.”

The most powerful stakeholders were undoubtedly the state’s private insurers, who had no desire to go quietly into the night as their Canadian predecessors had done 40 years ago. The insurers, including the largest, Blue Cross/Blue Shield (BCBS), positioned themselves firmly against the true single-payer option.

The opposition was subtle: BCBS presented itself to the public as a neutral observer, while by its own admission it worked behind the scenes to water down the bill as much as possible. As Leigh Tofferi of BCBS put it, “[W]e didn’t oppose it” but “wanted to make sure it was worded so as to be workable.” The company’s support of the final bill was explained in Tofferi’s brazen statement that “if there’s a single-payer system, we’d like to be the single payer.”

The Vermont Chamber of Commerce, meanwhile, lobbied against enacting any substantial reform until health care costs could be brought under control through various business-friendly solutions — a catch-22 because any serious cost controls would require the kinds of reforms the Chamber opposed.

In the face of this opposition, the state adopted Hsiao’s public/private non-single-payer option as Act 48 in May 2011. The new law’s stated mission was to ensure “universal access to and coverage for high-quality, medically necessary health services for all Vermonters.”

However, much of the plan is m
ore a mission statement than a tangible reform of the existing system. The core of the plan aims to gradually merge existing payers (for example, insurers) into a single “independently” administered payer, Green Mountain Care. But this central provision depends on new legislation and a federal waiver and, even if successful, would not be fully implemented until three to five years from now.

Although service through Green Mountain Care will be paid for with public funds, it will not be administered by the government but by representatives from existing payers and beneficiaries, such as employers, the state government and consumers. The plan will not be universal — initially incorporating only plans represented in the ACA-mandated state health insurance exchange in 2014, such as Medicaid and, possibly, the individual and small-group private insurance markets — and will exclude Medicare beneficiaries, state employees and school employees. The Vermont system will also contract out to private insurers’ tasks such as claims administration and other services.

The bill does contain some good provisions. For one, all Vermont residents (except undocumented immigrants, whose eligibility will be determined at a later date) would be eligible, insurance status would not be linked with employment, prevention and primary care would be prioritized and more efficient payment methods would be promoted to replace the inflationary fee-for-service model, which rewards higher and more expensive health care utilization.

More importantly, however, the plan’s weaknesses go to the core of the legislation. The failure to enact a single-payer system may prove decisive in preventing the plan’s survival, because it relies on long-term cost savings. The presence of multiple payers would prevent the system from realizing the vast administrative savings that would immediately come from a true single-payer system. The continued operation of private insurers, in particular, will undermine the law’s intent to create an equitable system. Private companies will be allowed to provide supplemental insurance to those able to afford it, thus creating a two-tier system based on wealth — precisely what single-payer is designed to avoid. The contracting out of tasks such as claims processing to these same insurers will undoubtedly add additional expenses.

The lack of a single payer with centralized claims processing may also prevent the state from achieving Canada’s and Medicare’s successes in creating comprehensive databases on health outcomes. Canada’s single-payer system has allowed provinces such as Ontario and British Columbia to track data on interventions and health outcomes for every resident. This tracking has facilitated an enormous amount of vital research. More importantly for Vermont, such data would have also enabled the state to evaluate whether the new system improved care for the state’s residents over time, one of the goals of the law. Whatever the cost, there is, as yet, no plan to pay for the new system. If funded at all, the most likely outcome would be a flat payroll tax on employers and employees on the first $106,800 of income, replicating the regressive Social Security tax.

Other states take tentative steps

Vermont is obviously unique both politically and, with a population of only around 600,000 residents in the state, demographically. Even its partially successful example cannot be readily applied to other states. However, the common perception that single-payer is more possible in Democratic states is too simplistic. The real dichotomy is between Republican and Democratic leaders on one side, backed by the same financial interests, and the majority of the public on the other. Medicare’s overwhelming popularity contrasts sharply with the unpopularity of private insurance companies and makes a single-payer option possible across the political spectrum, even one narrowly defined in partisan terms.

Framed this way, even Republican state officials have espoused single-payer as a policy option, with the Republican attorney general of Louisiana recently calling for a single-payer model nationwide and telling the Think Progress blog that he trusted “government more than insurance companies.” Hawaii and California are two states that have already taken steps in the direction of single-payer or state-based public options.

Similarly, Montana, usually a Republican state but currently with a Democratic governor, has invoked the model of Saskatchewan, its neighbor immediately to the north, citing demographic and economic similarities to the Canadian province. Last year, Gov. Brian Schweitzer asked the federal government for a waiver from all funds for federal health programs (including Medicare, Medicaid and the Veterans Health Administration) in favor of a block grant to build what amounts to a state-run public option.

Under this plan, private insurers would still be allowed to operate, but Schweitzer predicts all residents would eventually opt for the superior government plan. He told Great Falls, Mont., KRTV News, “It’ll be a lonely place over there at Blue Cross/Blue Shield, I’m afraid.” He is not alone in his prediction. The federal “public option” failed because private insurers feared they would be out-competed by a more efficient government plan.

Repeal and replace?

Meanwhile, what effect a repeal of the individual mandate would have on the prospects of state or federal single-payer plans remains to be seen. Some single-payer advocates submitted an amicus brief to the Supreme Court calling for a repeal of the ACA, apparently with the expectation that the collapse of the law would pave the way for a nationwide single-payer system. Others have highlighted the positive provisions in the law as a reason to preserve it while continuing efforts on the state level.

What isn’t in question is the obvious equity of a single-payer system. In the March hearings, Justice Kennedy hinted that it may have been more honest for the Obama administration to have enacted a single-payer plan rather than require Americans to purchase a product in the distorted marketplace that is private insurance. More honest? Perhaps. More just? Without a doubt.

http://www.citizen.org/Page.aspx?pid=5447

PwC predicts medical cost increases

Medical Cost Trend: Behind the Numbers 2013

PwC (PricewaterhouseCoopers)
Health Research Institute, May 2012

Healthcare spending growth in the United States has slowed considerably over the past three years. And despite expectations that the trend would bounce back up in 2012, it did not. In fact, we see no major change on the horizon for 2013.

Medical cost trend measures spending growth on health services and products—a critical factor in calculating insurance premiums for employers and consumers. For 2013 PwC’s Health Research Institute projects a medical cost trend of 7.5%. Perhaps most notably, the historically large gap between healthcare growth and overall inflation has closed slightly.

As a result, the United States finds itself at a crossroads with respect to medical inflation. History suggests that the current slowdown is merely a dip mirroring broader economic trends and that medical cost growth will return to “normal” when the rest of the economy recovers fully. Looking even further out, if the Affordable Care Act is fully implemented, tens of millions of newly-insured Americans receiving care for the first time in years could cause a spike in spending in 2014 and beyond.

But across the healthcare landscape behaviors are beginning to change. Employers are pushing wellness programs with real enforcement muscle. Healthcare providers and drug makers are embracing the quest for value. And patients are becoming more cost-conscious medical consumers.

It is always dangerous to predict that medical cost trend could be approaching a more sustainable level. Yet if the structural forces in the industry take hold, the U.S. health system may be entering a “new normal.”

Executive summary

The focus on medical cost containment strategies is continuing, aided by the sluggish economy, reforms in the healthcare industry, and efforts by employers to hold down costs.

More than half of the employers surveyed by HRI are considering increasing employees’ share of health benefit cost and expanding health and wellness programs in 2013.

In estimating the medical cost trend growth for 2013, HRI relied on multiple sources including interviews with health plan actuaries and industry leaders, a review of available surveys and analyst reports, and PwC’s own 2012 Health and Well-Being Touchstone Survey of 1,400 employers from more than 30 industries. In this year’s report, we identified:

Four factors that will deflate medical cost trend in 2013:

* Medical supply and equipment costs abate under market pressure. Supplies can account for more than 40% of the cost of certain procedures. Recent hospital consolidation and physician employment are enabling administrators to move away from “physician preference” purchasing and negotiate for significant savings. In addition, insurers are pressuring hospitals to hold down these expenses.

* New methods to deliver primary care gain popularity. One of the slowest areas of cost growth has been in physician services, and this trend is expected to continue in 2013 as consumers choose alternatives to the traditional doctor’s office visit. Lower-cost options such as workplace and retail health clinics, telemedicine, and mobile health tools continue to gain market share because employers and consumers view them as cost effective and convenient.

* Price transparency exerts pressure. As comparative cost information becomes more readily available, purchasers such as employers and individual patients can shop for non-emergency services such as tests and elective procedures. Providers meanwhile are under pressure to justify prices. More than 30 states require some reporting of hospital charges and reimbursement rates. Congress is considering legislation that would prohibit cost confidentiality clauses in insurance and hospital contracting.

* The pharmaceutical patent cliff continues to foster the use of cost-saving generics. Many blockbuster drugs have recently gone off patent, which will have a major effect on lowering drug spending in 2013.

Two factors that will inflate medical cost trend in 2013:

* Uptick in utilization trend is expected in 2013. The recession of 2007–2009 contributed to a significant slowing in healthcare consumption, as many people who lost jobs or were afraid of losing employment delayed care. As the economy continues to strengthen, utilization is expected to rebound.

* Medical and technological advances accelerate growth of higher-cost care. Remarkable new discoveries and technological advances let many in society live much longer—but often at a significantly higher cost. New technologies, such as robotic surgery and positron emission tomography services, have grown rapidly, with 36% of hospitals performing robotic surgery in 2010. Several health plans reported an uptick in high-cost cases, many surpassing the million-dollar mark.

What this means for your business

Employers and insurers will want to capitalize on the recent slowdown, while doctors, hospitals, and pharmaceutical companies will need to retool their business models to succeed in the new environment.

http://www.pwc.com/us/en/health-industries/behind-the-numbers/key-findings.jhtml

Comment:

By Don McCanne, MD

This annual PwC projection of medical cost trends with employer-sponsored health programs seems to celebrate the slowing of cost trends at the 7.5 percent level for 2013. Yet that is well in excess of the rate of inflation. Our nation’s employers and their private insurer partners have remained ineffective in controlling health care cost escalation.

PwC discusses four factors that they say should deflate the medical cost trend, but when you look closer at them, they would barely tweak costs.

* Hospital consolidation may place administrators in a better negotiating position for purchasing supplies and equipment, but since these are not services but rather products with relatively fixed production costs, negotiable margins will be quite narrow. Very little savings will be reflected in the bottom line of total costs.

* Retail health clinics might charge lower fees than primary care practices, but not much lower. Also, most health care still needs to be delivered within the traditional system of primary care professionals, specialists, and hospital and outpatient services. A discount on flu shots and exams for common colds in a convenience clinic will not make much of a dent in spending on the 80 percent who are relatively healthy, yet still receive most of their care through traditional health care professionals and facilities. It won’t have any impact at all on the 80 percent of health care that is consumed by those with more significant health care problems.

* There is much discussion of price transparency, as if patient/consumers are going to drive down prices through health care shopping. Most prices paid are determined not by price checks but by administered rates of government programs or negotiated rates through third party payers, including private insurers and employers with self-insured programs. Ubiquitous price shopping is merely a dream of ideologues.

* It is true that many blockbuster drugs are coming off of patent and will be much less expensive as generics. But when you look at some of the newer agents and the research that is down the line, the quest of the pharmaceutical and biotech industry is for drugs and biologicals with five and six digit prices, or maybe four digits for products with low production costs and higher utilization. The PwC report mentions $300,000 and $400,000 drugs that are already on the market. The industry has no interest in producing new $20 drugs.

The report also mentions factors that will
inflate health care costs, including increased utilization as the economy recovers, and increased spending on newer expensive technology. Also spending increases will occur if the states are successful in enrolling significant numbers of previously uninsured individuals in their insurance exchanges, and if employers increase coverage to avoid penalties should the Affordable Care Act survive its challenges.

Until we are ready to change to a much more efficient single payer national health program, we can anticipate that intolerable health care inflation rates will stay with us. As more of us suffer from the results – impaired access and financial hardship – we may finally reach a threshold wherein we are ready to act. Until then, don’t get sick.

PwC predicts medical cost increases

Medical Cost Trend: Behind the Numbers 2013

PwC (PricewaterhouseCoopers)
Health Research Institute, May 2012
Healthcare spending growth in the United States has slowed considerably over the past three years. And despite expectations that the trend would bounce back up in 2012, it did not. In fact, we see no major change on the horizon for 2013.
Medical cost trend measures spending growth on health services and products—a critical factor in calculating insurance premiums for employers and consumers. For 2013 PwC’s Health Research Institute projects a medical cost trend of 7.5%. Perhaps most notably, the historically large gap between healthcare growth and overall inflation has closed slightly.
As a result, the United States finds itself at a crossroads with respect to medical inflation. History suggests that the current slowdown is merely a dip mirroring broader economic trends and that medical cost growth will return to “normal” when the rest of the economy recovers fully. Looking even further out, if the Affordable Care Act is fully implemented, tens of millions of newly-insured Americans receiving care for the first time in years could cause a spike in spending in 2014 and beyond.
But across the healthcare landscape behaviors are beginning to change. Employers are pushing wellness programs with real enforcement muscle. Healthcare providers and drug makers are embracing the quest for value. And patients are becoming more cost-conscious medical consumers.
It is always dangerous to predict that medical cost trend could be approaching a more sustainable level. Yet if the structural forces in the industry take hold, the U.S. health system may be entering a “new normal.”
Executive summary
The focus on medical cost containment strategies is continuing, aided by the sluggish economy, reforms in the healthcare industry, and efforts by employers to hold down costs.
More than half of the employers surveyed by HRI are considering increasing employees’ share of health benefit cost and expanding health and wellness programs in 2013.
In estimating the medical cost trend growth for 2013, HRI relied on multiple sources including interviews with health plan actuaries and industry leaders, a review of available surveys and analyst reports, and PwC’s own 2012 Health and Well-Being Touchstone Survey of 1,400 employers from more than 30 industries. In this year’s report, we identified:
Four factors that will deflate medical cost trend in 2013:
* Medical supply and equipment costs abate under market pressure. Supplies can account for more than 40% of the cost of certain procedures. Recent hospital consolidation and physician employment are enabling administrators to move away from “physician preference” purchasing and negotiate for significant savings. In addition, insurers are pressuring hospitals to hold down these expenses.
* New methods to deliver primary care gain popularity. One of the slowest areas of cost growth has been in physician services, and this trend is expected to continue in 2013 as consumers choose alternatives to the traditional doctor’s office visit. Lower-cost options such as workplace and retail health clinics, telemedicine, and mobile health tools continue to gain market share because employers and consumers view them as cost effective and convenient.
* Price transparency exerts pressure. As comparative cost information becomes more readily available, purchasers such as employers and individual patients can shop for non-emergency services such as tests and elective procedures. Providers meanwhile are under pressure to justify prices. More than 30 states require some reporting of hospital charges and reimbursement rates. Congress is considering legislation that would prohibit cost confidentiality clauses in insurance and hospital contracting.
* The pharmaceutical patent cliff continues to foster the use of cost-saving generics. Many blockbuster drugs have recently gone off patent, which will have a major effect on lowering drug spending in 2013.
Two factors that will inflate medical cost trend in 2013:
* Uptick in utilization trend is expected in 2013. The recession of 2007–2009 contributed to a significant slowing in healthcare consumption, as many people who lost jobs or were afraid of losing employment delayed care. As the economy continues to strengthen, utilization is expected to rebound.
* Medical and technological advances accelerate growth of higher-cost care. Remarkable new discoveries and technological advances let many in society live much longer—but often at a significantly higher cost. New technologies, such as robotic surgery and positron emission tomography services, have grown rapidly, with 36% of hospitals performing robotic surgery in 2010. Several health plans reported an uptick in high-cost cases, many surpassing the million-dollar mark.
What this means for your business
Employers and insurers will want to capitalize on the recent slowdown, while doctors, hospitals, and pharmaceutical companies will need to retool their business models to succeed in the new environment.
http://www.pwc.com/us/en/health-industries/behind-the-numbers/key-findings.jhtml

This annual PwC projection of medical cost trends with employer-sponsored health programs seems to celebrate the slowing of cost trends at the 7.5 percent level for 2013. Yet that is well in excess of the rate of inflation. Our nation’s employers and their private insurer partners have remained ineffective in controlling health care cost escalation.
PwC discusses four factors that they say should deflate the medical cost trend, but when you look closer at them, they would barely tweak costs.
* Hospital consolidation may place administrators in a better negotiating position for purchasing supplies and equipment, but since these are not services but rather products with relatively fixed production costs, negotiable margins will be quite narrow. Very little savings will be reflected in the bottom line of total costs.
* Retail health clinics might charge lower fees than primary care practices, but not much lower. Also, most health care still needs to be delivered within the traditional system of primary care professionals, specialists, and hospital and outpatient services. A discount on flu shots and exams for common colds in a convenience clinic will not make much of a dent in spending on the 80 percent who are relatively healthy, yet still receive most of their care through traditional health care professionals and facilities. It won’t have any impact at all on the 80 percent of health care that is consumed by those with more significant health care problems.
* There is much discussion of price transparency, as if patient/consumers are going to drive down prices through health care shopping. Most prices paid are determined not by price checks but by administered rates of government programs or negotiated rates through third party payers, including private insurers and employers with self-insured programs. Ubiquitous price shopping is merely a dream of ideologues.
* It is true that many blockbuster drugs are coming off of patent and will be much less expensive as generics. But when you look at some of the newer agents and the research that is down the line, the quest of the pharmaceutical and biotech industry is for drugs and biologicals with five and six digit prices, or maybe four digits for products with low production costs and higher utilization. The PwC report mentions $300,000 and $400,000 drugs that are already on the market. The industry has no interest in producing new $20 drugs.
The report also mentions factors that will inflate health care costs, including increased utilization as the economy recovers, and increased spending on newer expensive technology. Also spending increases will occur if the states are successful in enrolling significant numbers of previously uninsured individuals in their insurance exchanges, and if employers increase coverage to avoid penalties should the Affordable Care Act survive its challenges.
Until we are ready to change to a much more efficient single payer national health program, we can anticipate that intolerable health care inflation rates will stay with us. As more of us suffer from the results – impaired access and financial hardship – we may finally reach a threshold wherein we are ready to act. Until then, don’t get sick.

Tradeoff between risk protection and moral hazard

Estimating the Tradeoff Between Risk Protection and Moral Hazard with a Nonlinear Budget Set Model of Health Insurance

By Amanda E. Kowalski
The National Bureau of Economic Research, May 2012

Abstract

Insurance induces a well-known tradeoff between the welfare gains from risk protection and the welfare losses from moral hazard. Empirical work traditionally estimates each side of the tradeoff separately, potentially yielding mutually inconsistent results. I develop a nonlinear budget set model of health insurance that allows for the calculation of both sides of the tradeoff simultaneously, allowing for a relationship between moral hazard and risk protection. An important feature of this model is that it considers nonlinearities in the consumer budget set that arise from deductibles, coinsurance rates, and stoplosses that alter moral hazard as well as risk protection relative to no insurance. I illustrate the properties of my model by estimating it using data on employer sponsored health insurance from a large firm. Within my empirical context, the average deadweight losses from moral hazard substantially outweigh the average welfare gains from risk protection. However, the welfare impact of moral hazard and risk protection are both small relative to transfers from the government through the tax preference for employer sponsored health insurance and transfers from some agents to other agents through a common premium.

4.3 The Estimated Tradeoff Between Moral Hazard and Risk Protection

The third panel of Table 10 gives the tradeoff between the welfare gain from risk protection and the deadweight loss from moral hazard. The distribution of the tradeoff at any quantile generally is not equal to the difference between DWL (deadweight loss) and RPP (risk protection premium) at those quantiles. However, as shown in the penultimate column, the mean tradeoff is equal to the mean DWL minus the mean RPP. For all offered and hypothetical plans considered, the results show that the average deadweight loss exceeds the gain from risk protection. The average net welfare loss in each of the offered plans is around $5, or 0.25% of money at stake.

We see that the welfare gains that we estimate from insurance in Table 11 are very similar to predicted insurer spending reported in Table 8; demographic groups with higher predicted insurer spending derive a larger welfare gain from insurance than demographic groups with lower predicted insurer spending. As we see in Table 12, demographic groups with larger predicted insurer spending also have larger deadweight losses. Risk protection does not appear to vary with predicted insurer spending because the magnitudes of the risk protection premium are so small, but there is also some variation in the risk protection premium across demographic groups.

NBER:
http://papers.nber.org/papers/w18108

Full paper (highly technical):
http://www.econ.yale.edu/~ak669/kowalski05_17_12submit.pdf

Comment: 

By Don McCanne, MD

The mainstream policy community likely will take from this study the fact that it supports the prevailing notion that losses from insured patients using more health care than they otherwise would have (moral hazard) are greater than the gains in protecting personal finances in the face of medical need (risk protection). Such an interpretation would be unfortunate simply because it is inadequate and therefore misleading.

Most importantly, the net welfare loss of using more care when there is risk protection is so small that it is almost negligible. In fact, the population studied (employees of a large retail trade firm) did not have high health expenditures and therefore would be the most likely to respond to direct costs incurred below their deductibles. Yet the data show that mean value of the extra care obtained above the value of the risk protection premium was almost negligible.

Most of health care spending is incurred by those with greater health care needs, a group that was not represented in this study of healthier individuals. People with greater health care needs exceed their deductibles and consequently do not experience consumer sensitivity to most of their health care prices.

Another important issue is that the extra health care accessed as a result of moral hazard should not be automatically dismissed as excess care. Half of it is not since it includes beneficial services, even though these services risk being dismissed merely because they are not reflected in improved mortality data. Even the care that might not seem to be beneficial still provides reassurance to concerned patients that their presenting complaints do not warrant further diagnostic or therapeutic intervention. Reassurance provided by health care professionals should not be considered to be a moral hazard.

The lesson to take home from this study is that the cost of trading up for more risk protection is almost negligible when the price paid is a very small increment in additional spending on largely beneficial health care that might otherwise have been foregone.

This is crucial in the continued debate over health care reform. There is considerable political pressure to shift price sensitivity to health care consumer/patients through consumer-directed high-deductible plans, health savings accounts, vouchers for Medicare plans, lower-tier plans in insurance exchanges, and other devious innovations that insurers will no doubt introduce in the future. These concepts are to deter the false bogeyman of moral hazard, but at the profound cost of threatening financial security for those of us with health care needs.

Regular readers already know how we can circumvent this nonsense – simply enact a single payer national health program that eliminates cost sharing. Countries that spend on average only half of what we do have shown that it can be done. The moral hazard is in not doing it.

Tradeoff between risk protection and moral hazard

Estimating the Tradeoff Between Risk Protection and Moral Hazard with a Nonlinear Budget Set Model of Health Insurance

By Amanda E. Kowalski
The National Bureau of Economic Research, May 2012
Abstract
Insurance induces a well-known tradeoff between the welfare gains from risk protection and the welfare losses from moral hazard. Empirical work traditionally estimates each side of the tradeoff separately, potentially yielding mutually inconsistent results. I develop a nonlinear budget set model of health insurance that allows for the calculation of both sides of the tradeoff simultaneously, allowing for a relationship between moral hazard and risk protection. An important feature of this model is that it considers nonlinearities in the consumer budget set that arise from deductibles, coinsurance rates, and stoplosses that alter moral hazard as well as risk protection relative to no insurance. I illustrate the properties of my model by estimating it using data on employer sponsored health insurance from a large firm. Within my empirical context, the average deadweight losses from moral hazard substantially outweigh the average welfare gains from risk protection. However, the welfare impact of moral hazard and risk protection are both small relative to transfers from the government through the tax preference for employer sponsored health insurance and transfers from some agents to other agents through a common premium.
4.3 The Estimated Tradeoff Between Moral Hazard and Risk Protection
The third panel of Table 10 gives the tradeoff between the welfare gain from risk protection and the deadweight loss from moral hazard. The distribution of the tradeoff at any quantile generally is not equal to the difference between DWL (deadweight loss) and RPP (risk protection premium) at those quantiles. However, as shown in the penultimate column, the mean tradeoff is equal to the mean DWL minus the mean RPP. For all offered and hypothetical plans considered, the results show that the average deadweight loss exceeds the gain from risk protection. The average net welfare loss in each of the offered plans is around $5, or 0.25% of money at stake.
We see that the welfare gains that we estimate from insurance in Table 11 are very similar to predicted insurer spending reported in Table 8; demographic groups with higher predicted insurer spending derive a larger welfare gain from insurance than demographic groups with lower predicted insurer spending. As we see in Table 12, demographic groups with larger predicted insurer spending also have larger deadweight losses. Risk protection does not appear to vary with predicted insurer spending because the magnitudes of the risk protection premium are so small, but there is also some variation in the risk protection premium across demographic groups.
NBER:
http://papers.nber.org/papers/w18108
Full paper (highly technical):
http://www.econ.yale.edu/~ak669/kowalski05_17_12submit.pdf

The mainstream policy community likely will take from this study the fact that it supports the prevailing notion that losses from insured patients using more health care than they otherwise would have (moral hazard) are greater than the gains in protecting personal finances in the face of medical need (risk protection). Such an interpretation would be unfortunate simply because it is inadequate and therefore misleading.
Most importantly, the net welfare loss of using more care when there is risk protection is so small that it is almost negligible. In fact, the population studied (employees of a large retail trade firm) did not have high health expenditures and therefore would be the most likely to respond to direct costs incurred below their deductibles. Yet the data show that mean value of the extra care obtained above the value of the risk protection premium was almost negligible.
Most of health care spending is incurred by those with greater health care needs, a group that was not represented in this study of healthier individuals. People with greater health care needs exceed their deductibles and consequently do not experience consumer sensitivity to most of their health care prices.
Another important issue is that the extra health care accessed as a result of moral hazard should not be automatically dismissed as excess care. Half of it is not since it includes beneficial services, even though these services risk being dismissed merely because they are not reflected in improved mortality data. Even the care that might not seem to be beneficial still provides reassurance to concerned patients that their presenting complaints do not warrant further diagnostic or therapeutic intervention. Reassurance provided by health care professionals should not be considered to be a moral hazard.
The lesson to take home from this study is that the cost of trading up for more risk protection is almost negligible when the price paid is a very small increment in additional spending on largely beneficial health care that might otherwise have been foregone.
This is crucial in the continued debate over health care reform. There is considerable political pressure to shift price sensitivity to health care consumer/patients through consumer-directed high-deductible plans, health savings accounts, vouchers for Medicare plans, lower-tier plans in insurance exchanges, and other devious innovations that insurers will no doubt introduce in the future. These concepts are to deter the false bogeyman of moral hazard, but at the profound cost of threatening financial security for those of us with health care needs.
Regular readers already know how we can circumvent this nonsense – simply enact a single payer national health program that eliminates cost sharing. Countries that spend on average only half of what we do have shown that it can be done. The moral hazard is in not doing it.

Insurers forcing patients to pay more for costly specialty drugs

Anthem Blue Cross, Aetna and other health insurers are increasingly shifting more prescriptions for complex conditions to a new category requiring customers to shoulder a larger share of the medication's cost.

By Chad Terhune
Los Angeles Times, May 29, 2012

Thousands of patients in California and across the nation who take expensive prescription drugs every month for cancer, rheumatoid arthritis and other ailments are facing sticker shock at the pharmacy.

Until recently, most of these patients typically paid modest co-pays for the advanced drugs. But increasingly, Anthem Blue Cross, Aetna and other insurers are shifting more prescriptions to a new category requiring patients to shoulder a larger share of the drug’s cost.

The result: Pharmacy bills are going up by hundreds of dollars a month — on top of insurance premiums.

Robert Gomer, who owns an interior plant business in Rancho Mirage, saw his cost for three HIV drugs soar to $450 a month on a new Anthem Blue Cross plan this year from $80 a month on a previous plan.

“All of a sudden you’re starting to count pills and asking friends to borrow some,” Gomer said. “It was a very stressful situation to be faced with.”

Anthem, the state’s largest for-profit insurer and a unit of WellPoint Inc., adjusted its prescription drug coverage early this year. It said it shifted more medications to the most expensive tier for many of its employer plans to keep premiums more affordable.

“Because high-cost pharmaceuticals reduce the affordability of health insurance, Anthem moved some of these drugs from a co-pay tier to a cost-sharing tier,” said company spokesman Darrel Ng. “We continue to evaluate and refine the drug classifications in our four-tier plans to enhance value and affordability.”

Robert Galle, Aetna’s head of pharmacy benefit management operations, said his company is responding to employers’ concerns about escalating costs from these specialty drugs. “As new drugs are brought to the market, we are generally adding them to these tiers,” he said.

Consumer advocates and some benefit consultants argue this trend could backfire as a cost-saving tool if workers stop taking needed medications and require even more costly medical care down the road.

Proposed state legislation would cap out-of-pocket expenses for prescriptions and other medical costs, but the insurance industry is fighting that move. Insurers say those caps will drive up premiums for all customers and that state rules are unnecessary because the federal Affordable Care Act establishes out-of-pocket spending limits in 2014. Insurers also note that caps don’t address the underlying increase in drug prices.

Nationwide, an estimated 57 million Americans rely on specialty drugs for complex conditions. These medications account for only 1% of total drug use, but 17% of drug spending by insurers because of the high prices, according to IMS Health, which tracks medical data.

What’s more, the struggle over drug spending is projected to intensify as the number of biological drugs and the conditions they can treat is expected to soar in the years ahead. Healthcare researchers say they could account for 40% of overall drug spending by 2020.

In most cases, cheaper generic substitutes don’t exist for these drugs because many are derived from living organisms, not chemical compounds that can easily be copied.

The average annual cost for multiple sclerosis drugs was $24,116 in 2010, according to Express Scripts, a pharmacy benefit manager. The average for pulmonary hypertension was $32,570. Employers and insurers are picking up most of that tab now.

To help lower their costs, health plans are changing their approach to drug coverage, often expanding from a three-tier to a four-tier plan. The first tier would be generic drugs at a $10 co-payment, for instance, the second tier preferred brand-name drugs at a $30 co-pay, the next tier non-preferred brand-name drugs for $50, and the top tier would be dozens of specialty drugs costing patients 10% to 30% co-insurance or $150 co-pays.

Nationwide, 14% of workers are in a plan with four or more tiers of cost sharing for prescription drugs, compared with 7% five years ago, according to the Kaiser Family Foundation.

Melanie Rowen, a 34-year-old career counselor in Berkeley, racked up thousands of dollars of credit card debt to pay for her multiple sclerosis drug. She was responsible for 30% of the price of a medication called Rebif, which initially cost her $680 a month and jumped to nearly $900 a month in a year’s time — until she recently switched jobs.

“It blew my mind,” Rowen said. “I felt like I was staring into the financial abyss.”

Assemblywoman Fiona Ma, a San Francisco Democrat, is pushing a bill that seeks to limit consumers’ financial exposure to high drug costs and other medical bills. The proposed legislation would cap annual out-of-pocket medical costs at $5,950 for an individual and $11,900 for a family.

Lawmakers in more than 20 states have introduced similar measures to limit bills for expensive medications. In 2010, New York banned four-tier and higher pharmacy plans.

The California Assn. of Health Plans is fighting the proposed legislation on the grounds that it curtails ways to keep premiums affordable and the federal healthcare law addresses the issue. “Capping out-of-pocket costs doesn’t make healthcare less expensive. It just shifts costs into premiums,” said Charles Bacchi, executive vice president of the industry group.

But supporters say the uncertainty of whether the federal healthcare law will survive a constitutional challenge gives even more reason to enact these consumer protections at the state level.

“It doesn’t take a lot to push a whole range of families into medical debt and bankruptcy,” said Anthony Wright, executive director of Health Access, a consumer advocacy group.

Carrie Thorpe, a 52-year-old event planner in Temecula, pays $150 each month for an injectable drug to treat her multiple sclerosis that costs $4,000 per month overall. She said she couldn’t afford her share without help from a patient assistance program.

“I can’t function without this medication,” she said. “I’m at the mercy of whatever the cost is.”

chad.terhune@latimes.com

Copyright © 2012, Los Angeles Times

http://www.latimes.com/business/la-fi-expensive-drugs-20120529,0,2965274.story

Bankruptcy as implicit health insurance

Bankruptcy as Implicit Health Insurance

By Neale Mahoney
The National Bureau of Economic Research, May 2012

Abstract

This paper examines the implicit health insurance households receive from the ability to declare bankruptcy. Exploiting cross-state and within-state variation in asset exemption law, I show that uninsured households with greater seizable assets make higher out-of-pocket medical payments, conditional on the amount of care received. In turn, I find that households with greater wealth-at-risk are more likely to hold health insurance. The implicit insurance from bankruptcy distorts the insurance coverage decision. Using a microsimulation model, I calculate that the optimal Pigovian* penalties are similar on average to the penalties under the Affordable Care Act (ACA).

5.2 Effect on Costs

To summarize, I find a strong positive relationship between seizable assets and out-of-pocket payments for households with higher utilization, a slightly downwardly sloping relationship for households with lower utilization, and zero effect on the extensive margin. Thus the impact of bankruptcy on financial risk is exactly what you would expect from a high-deductible health plan.

Conclusion

Understanding why households are uninsured is fundamental to positive and normative analysis of health insurance policy—yet the insurance-coverage decision is not well understood. The objective of this paper is to examine how the implicit insurance from bankruptcy bears on this decision.

In the first part of the paper, I argue that the fact that most medical care is provided on credit coupled with the fact that this debt can be discharged for seizable assets in bankruptcy provides households with implicit high-deducible health insurance.

I next evaluated the quantitative importance of this mechanism. Exploiting cross-state and within-state variation in asset exemption law, I show that uninsured households with greater seizable assets make higher out-of-pocket medical payments, conditional on the amount of care received. In turn, I find that households with greater wealth-at-risk are more likely to hold health insurance coverage. Health insurance is wealth insurance, to a certain degree, and is less valuable to those with fewer assets.

The final part of the paper examined ways in which the implicit insurance from bankruptcy might inform the design of health insurance policy. Because households do not pay for bankruptcy insurance, too many households choose to be uninsured on the margin. Using a utility-based, microsimulation model of insurance choice, I estimate that the optimal Pigovian* penalties are similar on average to the penalties under the ACA.

* A Pigovian tax is a tax levied on a market activity that generates negative externalities. The tax is intended to correct the market outcome. In the presence of negative externalities, the social cost of a market activity is not covered by the private cost of the activity. In such a case, the market outcome is not efficient and may lead to over-consumption of the product. A Pigovian tax equal to the negative externality is thought to correct the market outcome back to efficiency. In the presence of positive externalities, i.e., public benefits from a market activity, those who receive the benefit do not pay for it and the market may under-supply the product. Similar logic suggests the creation of Pigovian subsidies to make the users pay for the extra benefit and spur more production. (Wikipedia, accessed 5/29/12)

NBER:
http://papers.nber.org/papers/w18105?utm_campaign=ntw&utm_medium=email&utm_source=ntw

Full paper (highly technical):
http://www.stanford.edu/~nmahoney/Research/Mahoney_Bankruptcy.pdf

Comment: 

By Don McCanne, MD

At the risk of oversimplification, this paper demonstrates that personal bankruptcy can serve as a form of health insurance in individuals who are otherwise uninsured and have negligible wealth that is at risk and negligible assets that can be seized in a bankruptcy proceeding.

What a terrible thesis this is to study – suggesting that bankruptcy can suffice for health insurance in people with no wealth and no seizable assets. Maybe that is acceptable if impaired health care access due to lack of funds is not important, or if we accept that the costs of uninsured care should be shifted to insured individuals, or, above all, if we assume that the indignity of personal bankruptcy is small price to pay for this perverse form of “insurance.”

Perhaps one of the most alarming sentences in this paper is the following: “Thus the impact of bankruptcy on financial risk is exactly what you would expect from a high-deductible health plan.”

Wow! On financial risk, bankruptcy works as well as a high-deductible plan!

Instead of trying to figure out whether or not Pigovian penalties are similar to penalties under the Affordable Care Act, why don’t we instead move forward with a health care financing system that doesn’t ever involve bankruptcy, or Pigovian penalties for that matter – a single payer national health program. Not only would that be much simpler, we would all get the health care that we need.

Answers to Five of the Latest Myths Being Spread About Single Payer in Vermont

Vermont for Single Payer, 5/28/12

Indiana would be a good model for Vermont: Indiana has 14% of their population uninsured, we have 8%. Indiana has 8% of their kids uninsured, Vermont has 4%. According to the United Health Foundation, Vermont is the healthiest state and Indiana checks in at #41. Women in Indiana receive both mammograms and pap smears at lower rates than the national average.

Canadian single payer is a bad model for Vermont: Vermont is creating its own single payer system – one that will work here for Vermonters. Nonetheless, when people hear about single payer they often think about Canada, and there are many myths that the opposition will use about Canadian health care to scare people about the possibility of creating a single payer system in Vermont. We have to remember that Canadians live two years longer than Americans and their health care costs are half of what ours are per person. Interestingly, each year since 2004 more physicians have returned to Canada than have emigrated, and this indicates general satisfaction with the system. For more on the myths of  Canadian health care, take a look at this article on debunking the myths about Canadian health care

We’re moving too fast on health care, and there’s been no discussion about the options. Vermont is hardly moving too fast on health care. In fact, Vermonters have been discussing health care reform since the early 1990s when Howard Dean was Governor. The state has commissioned independent studies and each one has concluded that single payer is the most cost-effective for the state.

We don’t know what it will cost: The proposal worked out by Dr William Hsiao the economist from Harvard who designed the Taiwan system, estimated that the entire system would be approximately $5.5 billion (after PPACA implementation) in 2015. This is $180 million less than the current projection for the same year. And keep in mind this is with EVERY Vermonter getting a generous benefit package with doctor care, hospital care, eye care some dental, mental health , and prescriptions. Do you have a plan that generous now? It makes no sense for Vermonters to waste money on needless paperwork and transaction costs when that same amount of money can be used for Vermonters health care.

Your taxes will increase by 5 billion dollars: To suggest that our taxes will increase by 5 billion is completely deceptive. That is what we are already paying. Vermonters are already financing every penny of the $5.3 billion we will be spending this year on health care in one way or another. We won’t be increasing what we pay for health care with single payer but financing health care in a efficient way. The difference with single payer is that there will be predictable dedicated costs for the health care services we want for ourselves and others rather than the hodgepodge way we piece together the financing of those services now (insurance premiums, property taxes for public employees’ health insurance, higher prices for goods, huge out of pocket costs with co-pays, deductibles and even bankruptcies, taxes for Medicare and Medicaid, etc).

Bankruptcy as implicit health insurance

Bankruptcy as Implicit Health Insurance

By Neale Mahoney
The National Bureau of Economic Research, May 2012
Abstract
This paper examines the implicit health insurance households receive from the ability to declare bankruptcy. Exploiting cross-state and within-state variation in asset exemption law, I show that uninsured households with greater seizable assets make higher out-of-pocket medical payments, conditional on the amount of care received. In turn, I find that households with greater wealth-at-risk are more likely to hold health insurance. The implicit insurance from bankruptcy distorts the insurance coverage decision. Using a microsimulation model, I calculate that the optimal Pigovian* penalties are similar on average to the penalties under the Affordable Care Act (ACA).
5.2 Effect on Costs
To summarize, I find a strong positive relationship between seizable assets and out-of-pocket payments for households with higher utilization, a slightly downwardly sloping relationship for households with lower utilization, and zero effect on the extensive margin. Thus the impact of bankruptcy on financial risk is exactly what you would expect from a high-deductible health plan.
Conclusion
Understanding why households are uninsured is fundamental to positive and normative analysis of health insurance policy—yet the insurance-coverage decision is not well understood. The objective of this paper is to examine how the implicit insurance from bankruptcy bears on this decision.
In the first part of the paper, I argue that the fact that most medical care is provided on credit coupled with the fact that this debt can be discharged for seizable assets in bankruptcy provides households with implicit high-deducible health insurance.
I next evaluated the quantitative importance of this mechanism. Exploiting cross-state and within-state variation in asset exemption law, I show that uninsured households with greater seizable assets make higher out-of-pocket medical payments, conditional on the amount of care received. In turn, I find that households with greater wealth-at-risk are more likely to hold health insurance coverage. Health insurance is wealth insurance, to a certain degree, and is less valuable to those with fewer assets.
The final part of the paper examined ways in which the implicit insurance from bankruptcy might inform the design of health insurance policy. Because households do not pay for bankruptcy insurance, too many households choose to be uninsured on the margin. Using a utility-based, microsimulation model of insurance choice, I estimate that the optimal Pigovian* penalties are similar on average to the penalties under the ACA.
* A Pigovian tax is a tax levied on a market activity that generates negative externalities. The tax is intended to correct the market outcome. In the presence of negative externalities, the social cost of a market activity is not covered by the private cost of the activity. In such a case, the market outcome is not efficient and may lead to over-consumption of the product. A Pigovian tax equal to the negative externality is thought to correct the market outcome back to efficiency. In the presence of positive externalities, i.e., public benefits from a market activity, those who receive the benefit do not pay for it and the market may under-supply the product. Similar logic suggests the creation of Pigovian subsidies to make the users pay for the extra benefit and spur more production. (Wikipedia, accessed 5/29/12)
NBER:
http://papers.nber.org/papers/w18105?utm_campaign=ntw&utm_medium=email&utm_source=ntw
Full paper (highly technical):
http://www.stanford.edu/~nmahoney/Research/Mahoney_Bankruptcy.pdf

At the risk of oversimplification, this paper demonstrates that personal bankruptcy can serve as a form of health insurance in individuals who are otherwise uninsured and have negligible wealth that is at risk and negligible assets that can be seized in a bankruptcy proceeding.
What a terrible thesis this is to study – suggesting that bankruptcy can suffice for health insurance in people with no wealth and no seizable assets. Maybe that is acceptable if impaired health care access due to lack of funds is not important, or if we accept that the costs of uninsured care should be shifted to insured individuals, or, above all, if we assume that the indignity of personal bankruptcy is small price to pay for this perverse form of “insurance.”
Perhaps one of the most alarming sentences in this paper is the following: “Thus the impact of bankruptcy on financial risk is exactly what you would expect from a high-deductible health plan.”
Wow! On financial risk, bankruptcy works as well as a high-deductible plan!
Instead of trying to figure out whether or not Pigovian penalties are similar to penalties under the Affordable Care Act, why don’t we instead move forward with a health care financing system that doesn’t ever involve bankruptcy, or Pigovian penalties for that matter – a single payer national health program. Not only would that be much simpler, we would all get the health care that we need.

Maine campus hears support for single-payer health care

By Dina Mendros, Staff Writer
Biddeford (Maine) Journal Tribune, May 11, 2012

BIDDEFORD, Maine — The Affordable Care Act passed Congress in 2010. Now the country is awaiting a decision from the U.S. Supreme Court to see if part or all of the act will be struck down. And even if moves forward unscathed, some say the so-called Obamacare doesn’t go far enough.

“The United States is abnormal in not having a health care system that’s about health,” said Dr. Margaret Flowers, who works with the national organization Physicians for a National Health Program. Instead, she said in her address to medical students and others at the University of New England Biddeford campus Thursday, health care in this country “is about profit.”

To change the focus from profit to making people healthier, Physicians for a National Health Program, known as PNHP, supports a universal, single-payer health care system.

Prior to working for PNHP to reform health care in the U.S., Flowers practiced medicine in a hospital setting and in private practice. She said she joined the organization because she became frustrated with insurance companies dictating how she should treat her patients.

Historically, she said, many industrialized countries began instituting universal health care after World War II, as part of social and economic reform. However, the U.S. took a different route. Private companies began offering health insurance to entice workers.

Now the U.S. has the most expensive medical system, but has poorer outcomes than many other industrialized nations, said Flower. Also, the country pays the most per person for health care, approximately $8,000 – more than twice the amount of some industrialized countries with universal health care.

Yet, the U.S. has the highest preventable death rate in the industrialized world, she said.

In addition, said Flowers, currently, there are about 50 million Americans who are uninsured, plus many who are underinsured. Under the Affordable Care Act, about half the uninsured will remain uninsured, and the underinsured rate will rise, she said.

As proposed by the PNHP, with universal, single-payer health care, everyone would be covered throughout their lifetime, for all medically necessary care.

The system would be funded through taxes.

That’s not much different than today, said Flowers. Already public money pays for about 60 percent of the costs associated with the U.S. health care system, through federal and state taxes, property taxes and tax subsidies.

The remaining 40 percent of costs are equally divided between employers and employees, she said.

A universal, single-payer health care system would cost less than the current system, said Flowers.

Part of the reduction of costs would result because this simpler system would spend much less than the 30 percent of U.S. health spending that now goes to cover administrative costs, she said.

While some view this pro-posed system as socialized medicine, it’s different, according to the PNHP website. Doctors won’t work for and draw salaries from the government. They’ll be in private practice and paid on a fee-for-service basis.

“I’m totally for what you’re proposing,” said Patty Morris from Cape Elizabeth, in attendance at Flowers’ speech Thursday.

However, being a mother of a daughter with cystic fibrosis, she asked how would such a system affect the outcome of those with her daughter’s condition. She said she feared out-comes for those with chronic diseases might be worse and research for drugs and treatments for small groups might disappear.

There was no reason to think those with chronic diseases would have worse outcomes under universal health care, said Flowers. There would be increased access to care for those with such conditions who cannot currently pay for treatment.

Also, she said, public funds for medical research would continue.

First-year medical student Robert Zonderuan asked Flowers about comments she made regarding primary care physicians. There aren’t enough, said Flowers, in part because when students are faced with debt from medical school, averaging more than $100,000 for graduates, they turn to specialties where they can earn more money to pay for their schooling.

Under the system she pro-poses, there wouldn’t be such a large earning gap between doctors in private practice and those who specialize in a particular field. Thus there would be fewer incentives to specialize, she said.

Before concluding her talk, Flowers put out a call to action to students and others in the audience to help with the fight to create a universal, single-payer health care system in the U.S.