PNHP

The emergence of private insurance exchanges

The emergence of private insurance exchanges

Private exchanges offer yet another alternative to group health plans

By Emily Berry
American Medical News, September 5, 2011

With potentially more than 50 state-based versions of a public health insurance exchange set to emerge by 2014, another version of a post-health reform insurance market is emerging: the private exchange.

A private exchange is an existing concept taking on a new name. The idea also has been pitched as a “defined benefit” plan and has been part of a package with a health reimbursement account. Simply put, a private exchange is an alternative to a group health benefit plan. Rather than paying a portion or all of a premium, an employer pays each of its workers a flat amount and sends each to choose his or her plan.

Here’s how a private health exchange works:

An employer decides what it can afford to pay for health benefits — for example, $1,000 per employee per month. Rather than enrolling every employee in the same plan and using the $1,000 to pay for a portion of a premium, the employer puts $1,000 in an account for each worker.

Then one of two things happens: One, the employee works with a third party that acts as a clearinghouse. The worker chooses from any plan available in the individual market, with the clearinghouse administering the employee’s HRA, and helping connect brokers and health plans with the employees who want to buy coverage.

Under the second scenario, the employer sends the worker to a third party that gives him or her a limited set of choices, for instance a range of plans offered by the state’s Blues plan.

A private exchange would be a better deal for the employer than not offering health benefits, because the company can still reap the tax advantage of offering health benefits and avoid the penalty that would apply to companies with 50 or more employees if they decided not to offer benefits, analysts said.

http://www.ama-assn.org/amednews/2011/09/05/bisb0905.htm

Comment: 

By Don McCanne, MD

Employers who want to reduce their roles in providing health insurance for their employees, yet do not want to turn their employees over to the state insurance exchanges and pay penalties for doing so, seem to have another option – private exchanges.

One of the greatest benefits for the employer is that they can convert their health benefit programs from a defined benefit to a defined contribution. This shifts the burden of future health care cost increases onto their employees.

In the next couple of years we can anticipate seeing many other similar efforts to skirt the provisions of the Affordable Care Act. It is really tragic that we are going to have to wait until far too many more people are destitute and suffer and die before we are ready to enact the reform we really need – an improved Medicare for all.

The emergence of private insurance exchanges

Private exchanges offer yet another alternative to group health plans

By Emily Berry
American Medical News, September 5, 2011

With potentially more than 50 state-based versions of a public health insurance exchange set to emerge by 2014, another version of a post-health reform insurance market is emerging: the private exchange.

A private exchange is an existing concept taking on a new name. The idea also has been pitched as a “defined benefit” plan and has been part of a package with a health reimbursement account. Simply put, a private exchange is an alternative to a group health benefit plan. Rather than paying a portion or all of a premium, an employer pays each of its workers a flat amount and sends each to choose his or her plan.

Here’s how a private health exchange works:

An employer decides what it can afford to pay for health benefits — for example, $1,000 per employee per month. Rather than enrolling every employee in the same plan and using the $1,000 to pay for a portion of a premium, the employer puts $1,000 in an account for each worker.

Then one of two things happens: One, the employee works with a third party that acts as a clearinghouse. The worker chooses from any plan available in the individual market, with the clearinghouse administering the employee’s HRA, and helping connect brokers and health plans with the employees who want to buy coverage.

Under the second scenario, the employer sends the worker to a third party that gives him or her a limited set of choices, for instance a range of plans offered by the state’s Blues plan.

A private exchange would be a better deal for the employer than not offering health benefits, because the company can still reap the tax advantage of offering health benefits and avoid the penalty that would apply to companies with 50 or more employees if they decided not to offer benefits, analysts said.

http://www.ama-assn.org/amednews/2011/09/05/bisb0905.htm

Employers who want to reduce their roles in providing health insurance for their employees, yet do not want to turn their employees over to the state insurance exchanges and pay penalties for doing so, seem to have another option – private exchanges.

One of the greatest benefits for the employer is that they can convert their health benefit programs from a defined benefit to a defined contribution. This shifts the burden of future health care cost increases onto their employees.

In the next couple of years we can anticipate seeing many other similar efforts to skirt the provisions of the Affordable Care Act. It is really tragic that we are going to have to wait until far too many more people are destitute and suffer and die before we are ready to enact the reform we really need – an improved Medicare for all.

John Geyman's "Breaking Point"

Breaking Point: How the Primary Care Crisis Endangers the Lives of Americans

By John Geyman, M.D.

What are the dimensions of the crisis in primary care? How did we get here? How and why have past efforts to resolve it failed? And how can we succeed in rebuilding our crumbling foundation of health care in this country? In Part I, we will outline the dimensions of this crisis; its impacts on our system, patients and their families; and consider what we can learn from failed attempts to rebuild primary care. In Part II, we will look at various policy alternatives, summarize what can be learned from other countries, and propose a comprehensive agenda for rebuilding primary care.

This is admittedly a challenging problem that requires a long view, most likely over one or two generations. Present trends are very unfavorable, and a complete re-orientation of the goals of health care, the roles of physicians and other health care professionals, and fundamental changes in the way we finance health care will be required if we are to deal effectively with the primary care problem.

http://copernicus-healthcare.org/books-by-copernicus.html

Both the book and the Kindle ebook are available at Amazon.com:
http://www.amazon.com/Breaking-Point-Primary-Endangers-Americans/dp/0983773408

Comment: 

By Don McCanne, MD

In “Breaking Point,” John Geyman explains why it is crucial for us to rebuild our primary care infrastructure, and how we can do it. Highly recommended!

John Geyman’s “Breaking Point”

Breaking Point: How the Primary Care Crisis Endangers the Lives of Americans

By John Geyman, M.D.

What are the dimensions of the crisis in primary care? How did we get here? How and why have past efforts to resolve it failed? And how can we succeed in rebuilding our crumbling foundation of health care in this country? In Part I, we will outline the dimensions of this crisis; its impacts on our system, patients and their families; and consider what we can learn from failed attempts to rebuild primary care. In Part II, we will look at various policy alternatives, summarize what can be learned from other countries, and propose a comprehensive agenda for rebuilding primary care.

This is admittedly a challenging problem that requires a long view, most likely over one or two generations. Present trends are very unfavorable, and a complete re-orientation of the goals of health care, the roles of physicians and other health care professionals, and fundamental changes in the way we finance health care will be required if we are to deal effectively with the primary care problem.

http://copernicus-healthcare.org/books-by-copernicus.html

Both the book and the Kindle ebook are available at Amazon.com:
http://www.amazon.com/Breaking-Point-Primary-Endangers-Americans/dp/0983773408

In “Breaking Point,” John Geyman explains why it is crucial for us to rebuild our primary care infrastructure, and how we can do it. Highly recommended!

Defining success – UnitedHealth acquires Monarch HealthCare

UnitedHealth Buys California Group of 2,300 Doctors

By Anna Wilde Mathews
The Wall Street Journal, September 1, 2011

UnitedHealth Group Inc. will acquire the operations of a major southern California physician group, in the latest example of how lines are blurring between insurance companies and health-care providers.

The purchase of the management arm of Monarch HealthCare, an Irvine, Calif., association that includes approximately 2,300 physicians in a range of specialties, establishes United’s Optum health-services unit as a formidable presence in the region. Optum had previously taken over the management arms of two smaller southern California groups, AppleCare Medical Group and Memorial HealthCare Independent Practice Association.

In California, deals involving control of medical groups are structured to comply with rules that block most entities from directly employing practicing physicians. Typically, a company like Optum might buy non-clinical assets and sign a long-term management agreement with an independent practice association of physicians such as Monarch.

United has said in the past that providers acquired by Optum will not work exclusively with United’s health plan, and will continue to contract with an array of insurers. But in one sign of the potential complications that might ensue, Monarch is currently in an arrangement with United competitor WellPoint Inc. to create a cooperative “accountable-care organization” aimed at bringing down health-care costs and improving quality.

http://online.wsj.com/article/SB10001424053111903895904576542553422509280.html

Comment: 

By Don McCanne, MD

Consolidation is accelerating, and the largest insurers are positioning themselves to be at the top of the heap.

Excuse a personal note, but this particular merger is difficult for me to observe. Having practiced in Orange County, I watched the founding and expansion of Monarch HealthCare until they dominated health care in our region. As an early opponent of managed care as it was playing out, I certainly had no interest in joining them. Probably because my practice included large numbers of Medicaid, uninsured, and undocumented patients (so many that they crowded out my privately insured patients even though I worked extended hours), Monarch also never communicated an interest in including me in their panel.

What defines a successful health care system? It always seemed to me that success would be when everyone could receive quality health care that was appropriate and without financial barriers that would impair access. Yet The Wall Street Journal implies that success is when you can organize and control the delivery system and corner the portion of the market that has the highest monetary resources.

Although I was far busier than other primary care physicians in our region, I ended up retiring earlier than I intended because the composition of my practice eventually resulted in an unsustainable negative cash flow.

By most standards, at least by the dominant standards of today, I was unsuccessful, and Monarch HealthCare was highly successful. I’m not sure that my patients who couldn’t get past the appointment desks of Monarch physicians would agree when they had success in negotiating past my appointment desk.

Not to be defeated, I made a decision to devote my remaining productive years to promoting a concept of success that serves patients – all patients – without the intrusion of intermediaries such as UnitedHealth and Monarch HealthCare that glom onto the money and try to keep all that they can. Haven’t we had enough of Wall Street’s version of success?

Reform health care with evidence, not ideology

By Rick Kvam, M.D.
Letters, Rochester (Minn.) Post-Bulletin, Sept. 1, 2011

Dr. Mark Liebow’s  op-ed supporting single-payer health care reform flies in the face of current cries for smaller government and less regulation. Good. We need logical strategies, not simplistic formulas, when U.S. health care spending is a $2.1 trillion gorilla menacing every state and federal budget.

Guided by evidence, not ideology, one finds that in health care, the unbridled free market returns a very poor value. We boast the most market-driven health care in the developed world, and, not coincidentally, far and away the most expensive. Our per capita costs are double those of other industrialized nations (in spite of 50 million uninsured!), but our outcomes (life expectancy, infant mortality, etc.) are nevertheless worse. Workers’ inability to switch jobs for fear of losing health care coverage (ā€œjob lockā€) is a major drag on our economy.

Nobel Prize-winner Kenneth Arrow showed almost 50 years ago that health care is a highly imperfect market, and that ā€œthe laissez-faire solution for medicine is intolerable.ā€ We can no longer afford to insist on a ā€œuniquely Americanā€ system that is uniquely wasteful.

As demonstrated in ALL other developed nations, a coordinated health care system (whether single payer or a private mechanism) will provide better care and cost less. Our health care crisis requires a rational solution, not free market skim milk masquerading as cream.

Dr. Rick Kvam resides in Rochester, Minn.

Defining success – UnitedHealth acquires Monarch HealthCare

UnitedHealth Buys California Group of 2,300 Doctors

By Anna Wilde Mathews
The Wall Street Journal, September 1, 2011

UnitedHealth Group Inc. will acquire the operations of a major southern California physician group, in the latest example of how lines are blurring between insurance companies and health-care providers.

The purchase of the management arm of Monarch HealthCare, an Irvine, Calif., association that includes approximately 2,300 physicians in a range of specialties, establishes United’s Optum health-services unit as a formidable presence in the region. Optum had previously taken over the management arms of two smaller southern California groups, AppleCare Medical Group and Memorial HealthCare Independent Practice Association.

In California, deals involving control of medical groups are structured to comply with rules that block most entities from directly employing practicing physicians. Typically, a company like Optum might buy non-clinical assets and sign a long-term management agreement with an independent practice association of physicians such as Monarch.

United has said in the past that providers acquired by Optum will not work exclusively with United’s health plan, and will continue to contract with an array of insurers. But in one sign of the potential complications that might ensue, Monarch is currently in an arrangement with United competitor WellPoint Inc. to create a cooperative “accountable-care organization” aimed at bringing down health-care costs and improving quality.

http://online.wsj.com/article/SB10001424053111903895904576542553422509280.html

Consolidation is accelerating, and the largest insurers are positioning themselves to be at the top of the heap.

Excuse a personal note, but this particular merger is difficult for me to observe. Having practiced in Orange County, I watched the founding and expansion of Monarch HealthCare until they dominated health care in our region. As an early opponent of managed care as it was playing out, I certainly had no interest in joining them. Probably because my practice included large numbers of Medicaid, uninsured, and undocumented patients (so many that they crowded out my privately insured patients even though I worked extended hours), Monarch also never communicated an interest in including me in their panel.

What defines a successful health care system? It always seemed to me that success would be when everyone could receive quality health care that was appropriate and without financial barriers that would impair access. Yet The Wall Street Journal implies that success is when you can organize and control the delivery system and corner the portion of the market that has the highest monetary resources.

Although I was far busier than other primary care physicians in our region, I ended up retiring earlier than I intended because the composition of my practice eventually resulted in an unsustainable negative cash flow.

By most standards, at least by the dominant standards of today, I was unsuccessful, and Monarch HealthCare was highly successful. I’m not sure that my patients who couldn’t get past the appointment desks of Monarch physicians would agree when they had success in negotiating past my appointment desk.

Not to be defeated, I made a decision to devote my remaining productive years to promoting a concept of success that serves patients – all patients – without the intrusion of intermediaries such as UnitedHealth and Monarch HealthCare that glom onto the money and try to keep all that they can. Haven’t we had enough of Wall Street’s version of success?

The Great Health Care Takeaway

By Shamus Cooke
ZSpace, August 30, 2011

The health care crisis in the United States is getting worse with no visible end. The popular anger over unattainable or unaffordable health care has been diverted away from corporations by crafty politicians, always seeking to exploit a social disaster for their benefactors. Instead of making health care more affordable for the average person, politicians have successfully switched the messaging. Now, the purpose behind “reform” is to make health care less costly for governments and employers, at the expense of patients and workers.  

This was the essence behind Obama’s health care reform. And although Republicans exploited the “individual mandate” in Obamacare to gain populist credentials, they wholeheartedly agree with the deeper philosophy of the plan, which aspires to control health care costs — for corporations and governments — by providing less health care services to those who need it.   This agreement to “ration” health care aligns the two parties over the coming cuts to Medicare in Obama’s bi-partisan “Super Congress,ā€ while also binding the two parties’ approach to health care on a state and business level. 

Most workers now understand that there is a difference between apparently having health care and actually having health care: if you are technically “insured” but cannot afford doctor visits due to high deductibles and co-pays, you really aren’t insured.

This fact, applied to Medicare, has startling consequences. The New England Journal of Medicine found that, “For every 100 people enrolled in plans that raised co-pays, there were 20 fewer doctor visits, 2 additional hospital admissions and 13 more days spent in the hospital…” 

When co-pays and deductibles are raised, people simply stop going to the doctor and use the emergency room as needed. 

This dynamic pleased politicians because less Medicare money was being spent on doctorsā€™ visits, but they were upset that hospital stays were more frequent. The answer? Stop paying Medicare payments to hospitals if they re-admit a patient after 30 days, a policy sure to “reduce costs.ā€ And it worked! This aspect of Obama’s Affordable Health Care Act gives hospitals financial incentives not to admit patients and, according to Bloomberg, is a major reason that Medicare costs have dropped significantly in the past year:

“Historically, nearly 20 percent of Medicare patients have been readmitted to a hospital within 30 days of being dischargedā€¦ The Affordable Care Act included, among other remedies, a modest penalty for hospitals with high readmission rates.” (August 24th, 2011). 

The problem here is that re-admissions are usually medically necessary. According to a study by the Agency for Healthcare Research and Quality, only one out of ten hospital re-admissions were preventable. Hospitals are thus encouraged to deny hospital stays to those who need it, something they’ve already started. According to Case Management Monthly, hospital social workers have noticed this disturbing trend accelerate: “Several case managers have recently received readmission denial letters…they are surprised because the readmissions in question were actually appropriate and medically necessary.” (October 1st, 2010).  

Cost saving ideas like these are at the heart of Obama’s health care plan — which included massive cuts to Medicare — and further cuts to Medicare can be expected in his Super Congress. Even if the bi-partisan Super Congress is unable to agree to make massive cuts to social programs, cuts to Medicare will be automatically “triggered.ā€ Obama tells us not to worry because the triggered Medicare cuts will affect only providers — hospitals and doctors — not patients, as if the two could be so easily separated. The above example of denied hospital re-admissions is also a case where providers were targeted for cuts but patients were the most affected. 

Another way that politicians are saving health care money is by slashing Medicaid, the shared federal-state health care program that serves low-income populations. The states’ budget crises are quickly debilitating this already under-funded program, reducing availability and quality of health care for those low income people who qualify for the program. USA Today reports: 

“With a shortage of doctors…[ Medicaid] patients have little choice but to use hospital emergency rooms for more routine care.” (July 5th, 2011).

Higher income workers across the country are also seeing their health care rapidly deteriorate. The shoddy health insurance that includes high deductibles and co-pays are standard to most non-union workers who’ve suffered under this pseudo insurance for years. But even these plans are being shelved.  Two studies recently show that employers plan to quit offering health care plans altogether: a survey by Towers Watson showed that one out of ten companies plan to eliminate health care coverage by 2014; while a different study by the McKinsey Company showed that, by 2014, 30 percent of companies will drop their health coverage for workers. 

Much of this is due again to, Obama’s Affordable Health Care act: companies were encouraged and given an excuse to drop their health care coverage because everyone would be mandated to buy their own shoddy coverage. Politicians recognized that high health care costs were hurting corporate profits, and they were determined to do something about it. 

For those companies with a unionized workforce, Obama’s health care plan took special aim, taxing companies extra that offered so-called Cadillac insurance — coverage that was actually quality health insurance. But no more. This Cadillac tax doesn’t kick in till 2018, but employers are working now to make their health care plans skinny enough to avoid the tax; unions everywhere are being forced to make major concessions in the realm of health care, paying higher monthly premiums, deductibles, and other out-of-pocket costs. 

Another trend in the attack on health care for employees involves the implementation of Health Engagement Models (sometimes called Health Promotion Model). This super-invasive insurance plan forces all workers to undergo a health “assessment,ā€ and based on the results (weight, blood pressure, etc.) and health habits, workers will be forced to follow recommendations of a health “coach.ā€ Not following the coach’s orders will result in monthly fines, as will refusing assessments or continuing to smoke or other bad habits. Plans like this are becoming popular among corporate leaders since they openly discriminate against workers who are overweight, or are older, or who smoke, and thus drive down the cost of health care of the employer. This form of plan combined with the above higher costs are quickly turning the once-quality health insurance of union workers into its opposite. 

The above trends in health care are not likely to be reversed anytime soon. Some union leaders are arguing for these concessions using outworn logic, assuming that the economic crisis will soon be over, enabling unions to again demand better wages and benefits. No respected mainstream economist believes this. The current recession is expected to be longer and deeper than any since the Great Depression. Labor unions need to adjust their expectations to the facts and revise their tactics based on the changing economic landscape. 

This also applies to working people in general, who cannot simply wait for jobs to be created or wages and benefits to regain their past value. Health care is a key component to a workerā€™s standard of living, and it is now unreasonable to expect any progressive health care reform from the Democrats or Republicans. The above policies have not improved health care, though they have decreased the cost of health care for corporations a
nd governments, since patients are paying more for fewer services. The above policies have also not increased the number of workers with health insurance. In fact, the number of people without health care continues to grow every year, the most recent figure stands at over 52 million!  Obama’s plan to force people to buy crappy insurance they couldn’t afford to actually use — if the law survives the Supreme Court — will do nothing of substance to help.

The above health care policies are the natural result of a health care system based on the principles of private profit.  Corporate profits demand that companies provide the least amount of health care services at a minimal cost. From this vantage point, health care is a commodity that is bought by those who can afford it, instead of it being the human right of every person, as the U.N. Universal Declaration of Human Rights asserts. Europe has already proved that a nationwide, single payer system is vastly superior when it comes to quality, cost, availability, and results. 

The single payer system did not come into existence from the benevolence of kind governments, but from the demands of people in the street. Organized workers must fight to maintain their benefits; unorganized workers must organize to fight for better insurance; and older workers/retirees must fight to maintain and expand Medicare. The logical end to such struggles would be to demand a Medicare For All system, financed by taxing the wealthy and corporations.  

Shamus Cooke is a social service worker, trade unionist and writer for Workers Action (www.workerscompass.org).

http://www.zcommunications.org/the-great-health-care-takeaway-by-shamus-cooke

NAIC working group questions paring Medigap benefits

Changes To Medigap Plans Meet Resistance

By Susan Jaffe
Kaiser Health News, August 30, 2011

A provision of the 2010 federal health law seeking to increase Medicare beneficiariesā€™ share of health care costs is meeting resistance from an unlikely group of 33 state insurance regulators, health insurers and consumer advocates charged with revising Medigap insurance policies that cover most out-of-pocket expenses.

The National Association of Insurance Commissioners assembled the group to come up with ways to raise the beneficiariesā€™ cost for the most popular and generous Medigap policies, a task Congress assigned to the association in the health law. Since then, the idea of shifting some costs to beneficiaries in Medigap policies has emerged as one of several proposals to reduce the federal deficit.

The proposals suggest that if Medigap policies cover less of beneficiariesā€™ costs, some seniors will be less likely to overuse Medicare-covered health care services.

“Some of those proposals are fairly dramatic in the cost shifting effect onto seniors,” said Mary Beth Senkewicz, Florida’s deputy insurance commissioner, who chairs the NAIC’s senior issues committee, which includes the Medigap group.

Bonnie Burns, a policy specialist at California Health Advocates and another member of the Medigap group, questioned whether patients need incentives to reduce their use of medical services.

“Beneficiaries don’t order services, providers do,” she said. “To suggest that Medicare beneficiaries overutilize services on a whim because they don’t have ‘skin in the game,’ is pretty disturbing.”

Although some studies have found that seniors with Medigap policies use more Medicare services, Burns said they may be sicker than the average Medicare beneficiary, which is why they bought Medigap coverage.

Several members have suggested that Medigap policies aren’t responsible for Medicare’s growing costs.

William Schiffbauer, a member of the group and an independent health care attorney who has represented insurers, said the health law requires the group to suggest raising beneficiary cost-sharing in Medigap plans in order to encourage more appropriate use of physicians services, based on evidence published in medical journals. Schiffbauer said that the medical literature reviewed so far does not identify which services are inappropriate and should be discouraged by making them more expensive for patients.

The group is being asked to decide what’s medically necessary — an impossible task, he said.

A review of proposed Medigap changes by the Kaiser Family Foundation in July found that one in five Medigap beneficiaries would face higher out-of-pocket expenses, primarily those with health problems and low incomes. The study also noted that the savings to the Medicare program and Medigap members depend on patients seeking less medical care, including treatment they may really need.

Reducing Medicare spending for the wrong reason – by making it inaccessible – also worries members of the Medigap group, including Ruch.

“There may be seniors who would forego medically necessary care because they can’t afford it – even though they have a Medigap policy,” he said.

http://www.kaiserhealthnews.org/Stories/2011/August/30/Medigap-concerns.aspx

Comment: 

By Don McCann, MD

The Medigap working group established by the  National Association of Insurance Commissioners (NAIC) has reinforced the view presented in yesterday’s message that we should be very concerned about forcing out-of-pocket cost sharing onto patients.

Sec. 3210 of the Affordable Care Act (ACA) states, “The Secretary shall request the National Association of Insurance Commissioners to review and revise the standards for benefit packages (in Medigap plans) to otherwise update standards to include requirements for nominal cost sharing to encourage the use of appropriate physicians’ services under Part B (of Medicare).”

As stated yesterday, the alleged need for cost sharing is a concept so deeply entrenched within the political and policy communities that a requirement was placed in ACA to mandate the introduction of cost sharing to Medigap plans – plans which have been designed to cover the patients’ exposure to cost sharing. There is something really weird about requiring co-payments for a plan that insures co-payments.

Again, as stated yesterday, cost sharing has only a nominal impact on controlling total health care spending, but it clearly impairs access and imposes financial burdens on those who need care.

As today’s article demonstrates, members of the NAIC working group are appropriately alarmed at the prospect of making recommendations that would impair the ability of Medigap plans to improve access and reduce financial risk. They should be.

Instead of protecting Medigap plans, think what would happen if we were to eliminate the need for Medigap plans by eliminating cost sharing from Medicare – providing first dollar coverage as is commonplace in other nations which spend far less on health care.

Remember that Medigap plans are private health plans with low actuarial values that burn up too much of the premiums for their own administrative purposes and profits. Also they place an additional administrative burden on the providers who must deal with two payers – Medicare and the private Medigap plans.

When we speak of an improved Medicare-for-all, one of the improvements would be to eliminate cost sharing. We would have better access, less burden on people who need care, and at a negligible cost for this particular benefit alone. These costs would be more than offset with the multitude of other savings that would be made possible by a single payer Medicare-for-all program.

Of course, we’d have to go back to Congress… (It seems like there’s a flaw in every plan… in this case depending on Congress to do the right thing.)

***

For those who didn’t read yesterdays’ crucial message on moral hazard and welfare gain which explains the concerns expressed here, you have another chance by clicking on this link (or at least save it for weekend reading):

https://pnhp.org/news/2011/august/urgent-message-reprising-john-nymans-new-theory-of-moral-hazard

NAIC working group questions paring Medigap benefits

Changes To Medigap Plans Meet Resistance

By Susan Jaffe
Kaiser Health News, August 30, 2011

A provision of the 2010 federal health law seeking to increase Medicare beneficiariesā€™ share of health care costs is meeting resistance from an unlikely group of 33 state insurance regulators, health insurers and consumer advocates charged with revising Medigap insurance policies that cover most out-of-pocket expenses.

The National Association of Insurance Commissioners assembled the group to come up with ways to raise the beneficiariesā€™ cost for the most popular and generous Medigap policies, a task Congress assigned to the association in the health law. Since then, the idea of shifting some costs to beneficiaries in Medigap policies has emerged as one of several proposals to reduce the federal deficit.

The proposals suggest that if Medigap policies cover less of beneficiariesā€™ costs, some seniors will be less likely to overuse Medicare-covered health care services.

“Some of those proposals are fairly dramatic in the cost shifting effect onto seniors,” said Mary Beth Senkewicz, Florida’s deputy insurance commissioner, who chairs the NAIC’s senior issues committee, which includes the Medigap group.

Bonnie Burns, a policy specialist at California Health Advocates and another member of the Medigap group, questioned whether patients need incentives to reduce their use of medical services.

“Beneficiaries don’t order services, providers do,” she said. “To suggest that Medicare beneficiaries overutilize services on a whim because they don’t have ‘skin in the game,’ is pretty disturbing.”

Although some studies have found that seniors with Medigap policies use more Medicare services, Burns said they may be sicker than the average Medicare beneficiary, which is why they bought Medigap coverage.

Several members have suggested that Medigap policies aren’t responsible for Medicare’s growing costs.

William Schiffbauer, a member of the group and an independent health care attorney who has represented insurers, said the health law requires the group to suggest raising beneficiary cost-sharing in Medigap plans in order to encourage more appropriate use of physicians services, based on evidence published in medical journals. Schiffbauer said that the medical literature reviewed so far does not identify which services are inappropriate and should be discouraged by making them more expensive for patients.

The group is being asked to decide what’s medically necessary — an impossible task, he said.

A review of proposed Medigap changes by the Kaiser Family Foundation in July found that one in five Medigap beneficiaries would face higher out-of-pocket expenses, primarily those with health problems and low incomes. The study also noted that the savings to the Medicare program and Medigap members depend on patients seeking less medical care, including treatment they may really need.

Reducing Medicare spending for the wrong reason – by making it inaccessible – also worries members of the Medigap group, including Ruch.

“There may be seniors who would forego medically necessary care because they can’t afford it – even though they have a Medigap policy,” he said.

http://www.kaiserhealthnews.org/Stories/2011/August/30/Medigap-concerns.aspx

The Medigap working group established by theĀ  National Association of Insurance Commissioners (NAIC) has reinforced the view presented in yesterday’s message that we should be very concerned about forcing out-of-pocket cost sharing onto patients.

Sec. 3210 of the Affordable Care Act (ACA) states, “The Secretary shall request the National Association of Insurance Commissioners to review and revise the standards for benefit packages (in Medigap plans) to otherwise update standards to include requirements for nominal cost sharing to encourage the use of appropriate physicians’ services under Part B (of Medicare).”

As stated yesterday, the alleged need for cost sharing is a concept so deeply entrenched within the political and policy communities that a requirement was placed in ACA to mandate the introduction of cost sharing to Medigap plans – plans which have been designed to cover the patients’ exposure to cost sharing. There is something really weird about requiring co-payments for a plan that insures co-payments.

Again, as stated yesterday, cost sharing has only a nominal impact on controlling total health care spending, but it clearly impairs access and imposes financial burdens on those who need care.

As today’s article demonstrates, members of the NAIC working group are appropriately alarmed at the prospect of making recommendations that would impair the ability of Medigap plans to improve access and reduce financial risk. They should be.

Instead of protecting Medigap plans, think what would happen if we were to eliminate the need for Medigap plans by eliminating cost sharing from Medicare – providing first dollar coverage as is commonplace in other nations which spend far less on health care.

Remember that Medigap plans are private health plans with low actuarial values that burn up too much of the premiums for their own administrative purposes and profits. Also they place an additional administrative burden on the providers who must deal with two payers – Medicare and the private Medigap plans.

When we speak of an improved Medicare-for-all, one of the improvements would be to eliminate cost sharing. We would have better access, less burden on people who need care, and at a negligible cost for this particular benefit alone. These costs would be more than offset with the multitude of other savings that would be made possible by a single payer Medicare-for-all program.

Of course, we’d have to go back to Congress… (It seems like there’s a flaw in every plan… in this case depending on Congress to do the right thing.)

***

For those who didn’t read yesterdays’ crucial message on moral hazard and welfare gain which explains the concerns expressed here, you have another chance by clicking on this link (or at least save it for weekend reading):

https://pnhp.org/news/2011/august/urgent-message-reprising-john-nymans-new-theory-of-moral-hazard

Urgent message: Reprising John Nyman's new theory of moral hazard

NOTE:  It is likely that few Quote of the Day subscribers read this 2007 message on John Nyman’s new theory of moral hazard and welfare gain because it is long and terribly wonkish. It is being reprised here because current trends in health care payment reform violate these important concepts, thereby resulting in further impairment of access to care while creating greater financial hardships for patients. Following are excerpts from Nyman’s 2007 article along with the original and an updated comment by Don McCanne.

PNHP – Quote of the Day
Posted on: Monday, September 24, 2007

Cracks in the moral hazard foundation

American Health Policy: Cracks in the Foundation

By John A. Nyman
Journal of Health Policy, Politics and Law
October 2007

Abstract

Much American health policy over the past thirty-five years has focused on reducing the additional health care that is consumed when a person becomes insured, that is, reducing moral hazard. According to conventional theory, all of moral hazard represents a welfare loss to society because its cost exceeds its value. Empirical support for this theory has been provided by the RAND Health Insurance Experiment, which found that moral hazard — even moral hazard in the form of effective and appropriate hospital procedures — could be reduced substantially using cost-sharing policies with little or no measurable effect on health.

This article critically analyzes these two cornerstones of American health policy. It holds that a large portion of moral hazard actually represents health care that ill consumers would not otherwise have access to without the income that is transferred to them through insurance. This portion of moral hazard is efficient and generates a welfare gain. Further, it holds that the RAND experiment’s finding (that health care could be reduced substantially with little or no effect on health) may actually be caused by the large number of participants who voluntarily dropped out of the cost-sharing arms of the experiment. Indeed, almost all of the reduction in hospital use in the cost-sharing plans could be attributed to this voluntary attrition. If so, the RAND finding that cost sharing could reduce health care utilization, especially utilization in the form of effective and appropriate hospital procedures, with no appreciable effect on health is spurious.

The article concludes by observing that the preoccupation with moral hazard is misplaced and has worked to obscure policies that would better reduce health care expenditures. It has also led us away from policies that would extend insurance coverage to the uninsured.

Introduction

The direction of health policy in the United States over the past thirty-five years is well known: increased cost sharing in the form of higher deductibles and coinsurance rates; the “management” of care by utilization reviews, exclusive contracting with certain providers, capitation, and bundling of services; and most recently health savings accounts (HSAs) and “consumer-driven” health care. Less well understood, however, are the foundations of these policies, especially among those who see such policies as mainly restricting access to care.

Two of these foundational studies are (1) the theoretical analysis of the welfare implications of moral hazard (Pauly 1968; Feldstein 1973) and (2) the RAND Health Insurance Experiment (HIE) findings concerning the health consequences of reducing moral hazard (Manning et al. 1987; Newhouse and the Insurance Experiment Group 1993).

This article presents a critical view of these two foundational studies. First, it suggests that much of the additional health care that consumers purchase when they are insured — that is, much of moral hazard — is actually efficient and welfare increasing: its value to patients exceeds (and often far exceeds, in the case of expensive, life-saving, hospital procedures that patients would not be able to afford without insurance) the cost of providing that care. Second, it suggests that the RAND HIE did not really capture consumers’ willingness to substitute other goods and services for medical care in response to increases in the price of medical care, but instead the study largely captured participants who became ill, dropped out of the experiment, and received the needed medical care under their original insurance policies outside the experiment. Because these participants received treatment outside the RAND experiment, their health care utilization was not recorded. Thus, the finding that moral hazard, especially the portion of moral hazard represented by additional hospital procedures, could be reduced dramatically by cost sharing with only a negligible health effect is spurious.

New Theory

The fundamental error in conventional theory is that it did not recognize that, while the price of medical care might drop to zero for all those who are insured, for most medical care — especially the expensive, hospital-based procedures and associated care that comprise the bulk of medical care expenditures in the United States — it is really only those who are ill who respond to that price reduction. For example, what healthy person would purchase a coronary bypass procedure, a leg amputation, or a liver transplant just because the price has fallen to zero? This means that only those who become ill are responsive to the insurance price reduction. If so, the price reduction becomes the vehicle by which income is transferred from those who purchase insurance and remain healthy to those who purchase insurance and become ill. This is an important distinction because it changes the welfare implications of moral hazard dramatically and implies that much, if not most, of moral hazard is efficient and generates a welfare gain (Nyman 1999, 2003).

New Interpretation

Of the various responses to cost sharing that were observed in the participants of the RAND HIE, by far the strongest and most dramatic was in the relative number of RAND participants who voluntarily dropped out of the study over the course of the experiment. Of the 1,294 adult participants who were randomly assigned to the free plan, 5 participants (0.4 percent) left the experiment voluntarily during the observation period, while of the 2,664 who were assigned to any of the cost-sharing plans, 179 participants (6.7 percent) voluntarily left the experiment. This represented a greater than sixteenfold increase in the percentage of dropouts, a difference that was highly significant and a magnitude of response that was nowhere else duplicated in the experiment.

The explanation that makes the most sense is that the dropouts were participants who had just been diagnosed with an illness that would require a costly hospital procedure. If they dropped out, their coverage would automatically revert to their original insurance policies, which were likely to cover major medical expenses (such as hospitalizations) with no co-payments. This is because HIE participants had agreed to relinquish their existing policies to RAND as a condition of participation, but they could revert back to their existing policies whenever they wanted if they dropped out of the experiment. Thus, when faced with a large hospital expense, the participants could have simply dropped out of the experiment but received the inpatient care outside the experiment.

As a result of dropping out, these participants’ inpatient stays (and associated health care spending) did not register in the experiment, and it appeared as if participants in the cost-sharing group had a lower rate of inpatient use. In reality, however, this finding would have been because participants who remained in the cost-sharin
g group simply had fewer diagnoses that required hospitalization.

Conclusion

The conventional theory of the moral-hazard welfare loss and the conventional interpretation of the RAND HIE results have created a policy environment in which health insurance is viewed as more of a problem than a solution (Gladwell 2005). We must recognize, however, that much of moral hazard generates a welfare gain that society should encourage rather than discourage. Because of this reevaluation of moral hazard, we must also realize that health insurance is much more valuable than has been recognized. Indeed, there is probably no other investment that we can make as a society that would generate as great a net return on welfare as finding a politically acceptable mechanism for insuring the large portion of U.S. citizens who are currently uninsured.

Abstract:
http://jhppl.dukejournals.org/cgi/content/abstract/32/5/759

Full article (25 pages):
http://jhppl.dukejournals.org/cgi/reprint/32/5/759

Comment (September 24, 2007):

By Don McCanne, MD

This landmark report turns upside down the policy basis of moral hazard. The entire article should be downloaded so that it can be used to refute those who insist that patients who decline health care when they have to pay for it out-of-pocket will not adversely affect their own health because they will decline only that care that has no measurable benefit on their health outcomes.

These two cornerstones of American health policy, the moral hazard theory and the RAND Health Insurance Experiment, have crumbled, taking down with them the rationale of the cost-sharing basis of the consumer-directed health care movement.

Professor Nyman has shown us that the new interpretation of the moral hazard of insurance insulation against health care costs does not produce a welfare loss, but, in fact, produces a welfare gain. That is why we need a national health program that covers all of us and that eliminates financial barriers to beneficial services.

We really don’t have to worry, after all, about unleashing a stampede for free leg amputations or free liver transplants.

https://pnhp.org/news/2007/september/cracks-in-the-moral-hazard-foundation

Comment (August 30, 2011):

By Don McCanne, MD

Current trends demonstrate an escalation in the use of the tools of cost sharing to control health care spending. High deductibles are becoming the standard. Co-payments (a dollar amount per service) are being transitioned to coinsurance (a percentage of the fees) which shifts even more of the costs to patients. Standard or basic plans are now being assigned lower actuarial values, leaving a greater percentage of the costs to be paid out-of-pocket by the patient.

Allegedly the theory behind these trends is to reduce health care spending by empowering patients to become better health care shoppers, choosing only the care that they believe is worth paying for directly. This concept is so thoroughly entrenched within the health policy and political communities that it has become standard to include policies that ensure that patients feel the pain by having “skin in the game” (repulsive rhetoric that unfortunately has been effective in helping to perpetuate this concept).

Our health care system is very unstable. The Patient Protection and Affordable Care Act will not stabilize health care because 1) it leaves too many uninsured, 2) it creates inadequate low-actuarial value plans as the new standard, leaving too many potentially exposed to medical debt should they need care, and 3) it is the most expensive model of reform, destined to drive total health care costs ever upward.

According to Herbert Stein, if something can’t go on forever, it won’t. So a single payer system or social insurance system very similar to single payer is inevitable. Many nations with such systems provide first dollar coverage, and do so with a much lower level of total health care spending. They have proven that deductibles, co-payments, and coinsurance are not only unnecessary to control costs, but they, in themselves, also create financial barriers to health care and add to the already-excessive administrative burden.

So can we assume that once we adopt a single payer system we will be able to remove these financial barriers to care? The answer is an emphatic NO! This is why John Nyman’s work must be reprised and disseminated widely.

THE CONCEPT THAT COSTS MUST BE CONTROLLED BY HIGH DEDUCTIBLES AND OTHER FORMS OF COST SHARING IS SO THOROUGHLY ENTRENCHED IN THE POLICY AND POLITICAL COMMUNITIES THAT THEY WILL INEVITABLY BE INCLUDED IN ANY SINGLE PAYER LEGISLATION THAT STANDS EVEN A REMOTE CHANCE OF CLEARING THE LEGISLATIVE HURDLES. That is, unless we do something about it.

We have a gigantic education task before us. Experts cite the health policy literature for their support of the concept that cost sharing reduces spending. They have greatly overstated the savings and extrapolated it into spending that is not sensitive to consumer price decisions (most health care spending).  More importantly, they have marginalized or even ignored the significant negative impact that this can have on health care access and on personal financial security.

How can we convert the majority of Americans into health policy wonks? It’s going to be tough.