PNHP

Defining success – UnitedHealth acquires Monarch HealthCare

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,” 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 doctors’ 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.” 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 discharged… 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.” 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,” and based on the results (weight, blood pressure, etc.) and health habits, workers will be forced to follow recommendations of a health “coach.” 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 worker’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 beneficiaries’ 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 beneficiaries’ 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 beneficiaries’ 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 beneficiaries’ 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 beneficiaries’ 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 beneficiaries’ 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 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

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.

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-sharing 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

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.

An Insurance Maze for U.S. Doctors

By PAULINE W. CHEN, M.D.
The New York Times, Well blog, Aug. 25, 2011

A former colleague from Canada who practiced medicine with me here in the States never hesitated to make one thing clear to me: He couldn’t wait to get back.

It wasn’t the cultural life that he missed, nor was it the ex-girlfriend I always suspected he pined for. It was the medicine.

“It’s different,” he would say wistfully, without elaborating. “Practicing medicine is just different over there.”

A study published this month in the journal Health Affairs made me think of my colleague again and offered one likely possibility for his return to Canada: There, he had more time to focus on his patients.

Researchers asked hundreds of physicians and administrators in private practices across the United States and Canada how much time they spent each day with insurers and other third-party payers, tracking down information for claims that were denied or incorrectly paid, resolving questions about insurance coverage for prescription drugs or diagnostic tests, and filing the different forms required by each and every insurance company.

Physicians in Canada, where health care is administered mainly by the government, did spend a good deal of time and money communicating with their payers. But American doctors in the study spent far more dealing with multiple health plans: more than $80,000 per year per physician, or roughly four times as much as their northern counterparts. And their offices spent as many as 21 hours per week with payers, nearly 10 times as much as the Canadian offices.

“The amount of time we spend on this is just crazy,” said Dr. Sara L. Star, a partner in a three-physician pediatrics practice in suburban Chicago. “But each insurance company has its own language, its own set of rules and specific contracts with certain laboratories, hospitals, physicians and pharmaceutical companies.”

And when those companies offer multiple “insurance products,” the convoluted coverage grid acquires yet another level of complexity. Each “product” comes with its own unique permutation and combination of authorization requirements, rules for claims and list of approved prescription drugs.

Large practices often choose to outsource the job to firms that specialize in wading through the labyrinthine rules and regulations. Some hire several nurses or administrators to work exclusively with insurers, with each specializing in the arcane rules of a single insurer. But most primary care providers in this country — clinicians who are part of practices with five or fewer physicians — cannot afford to pay for additional help. Instead, they must make their way through the thicket of insurers and rules by themselves.

The complicated task inevitably gets in the way of patient care.

A young patient complaining of extreme fatigue, for example, might benefit from a $40 blood test that could confirm infectious mononucleosis in 10 minutes. But a doctor cannot order the simple test without first checking with the insurance company to see if it is covered and if there are any constraints on where the patient’s blood can be drawn and the test run.

Tracking down answers often means phone calls with long periods on hold, digging up old patient information and even recruiting office workers to act as specimen couriers to other labs and hospitals in order to expedite results or save frail patients or harried family members the hassle of traveling to an “approved site” for a test or procedure. “If someone comes in with a sick infant who needs a test, we often eat the costs and draw the blood ourselves,” Dr. Star said. “We aren’t going to tell them to put that kid in a car seat, drive a mile to an approved lab, park, register, then wait in line.”

Even more confusing are frequent changes in health care plans, particularly regarding prescription drugs. Every week, payers send physicians’ offices notifications of changes in their list of approved medications, lists that run to hundreds of different drugs. The sheer volume of new information makes it impossible for doctors to keep up. “Physicians get into medical school because we can follow rules,” said Dr. Marian Bouchard, a family doctor who practices with two other physicians and a nurse practitioner in Bristol, Vt. “But none of us can or want to follow the minutiae of a hundred rules at once, especially when we are trying to be present for our patients.”

The authors of the study offer several recommendations to reduce the confusion and inefficiency of interactions between physician practices and payers. Not surprisingly, they propose simplifying the forms and procedures that add to costs without improving quality. “There are rules that really save money or improve patient care that health plans won’t want to change,” said Sean Nicholson, one of the study authors and an economist in the department of policy analysis and management at Cornell University. “But there are also a lot of things that don’t matter that they could and should standardize.”

The insurance industry, for example, could embrace a single set of universal standards to measure quality rather than the dozens that are currently used. They could adopt a uniform process of obtaining authorization for tests, procedures or consultations. And while widespread adoption of electronic medical records and changes in how doctors are reimbursed may eventually decrease some administrative burdens, the results of the study leave little doubt as to the costs now and in the foreseeable future for doctors and patients.

“We aren’t saying that we should go to a single-payer system,” Dr. Nicholson added. “But it’s important to know exactly what all the benefits of the current costs are.”

[PNHP note: Although Dr. Sean Nicholson is quick to assert that he and his co-authors are not advocating for a single-payer system, many readers of this New York Times article definitely support single-payer health reform. Their comments can be viewed at the URL below; scroll down to the reader comments section.]

http://well.blogs.nytimes.com/2011/08/25/an-insurance-maze-for-u-s-doctors/

Johnathon Ross and Don McCanne on lessons from the Oregon experiment

The Effects of Medicaid Coverage — Learning from the Oregon Experiment

By Katherine Baicker, Ph.D., and Amy Finkelstein, Ph.D.
The New England Journal of Medicine, July 20, 2011

Working with a team of researchers, we have taken advantage of an unprecedented opportunity to gauge the effects of Medicaid coverage on low-income, previously uninsured adults, using the gold standard of medical and scientific research: a randomized, controlled trial. In 2008, Oregon used a lottery to allocate a limited number of Medicaid spots for low-income adults (19 to 64 years of age) to people on a waiting list for Medicaid. Those selected by random lottery draw won the opportunity to apply for Medicaid. In total, about 30,000 people were selected from the 90,000 on the waiting list. Approximately 10,000 of those selected ended up being enrolled in Medicaid; not everyone who was selected successfully filled out the required application and met the eligibility criteria.

The lottery provides an opportunity to estimate the causal effects of being allowed to apply for Medicaid (intention to treat). It also allows us to estimate the causal effects of being enrolled in Medicaid relative to being uninsured (the effects of “treatment on the treated,” which we focus on below), under the assumption that selection by the lottery to be able to apply for Medicaid affects the outcomes we studied only through its role in increasing insurance coverage.

We now have evidence of the effects of the first year of Medicaid coverage after the lottery. These results are based on administrative data from hospital discharges, credit reports, and death records, in addition to mail surveys we conducted. We found that Medicaid coverage increases the use of health care.

Responses by Johnathon Ross and Don McCanne, former presidents of Physicians for a National Health Program:

Johnathon Ross MD, MPH
Toledo Ohio, USA
August 25, 2011

This is interesting “experiment” and useful policy data but it reminds me of Tuskegee. What a sad commentary on our country that we question whether access to care is good for patients and that it might cost us something to provide it. We need a national health insurance program that is nondiscriminatory, fairly financed, effective, and efficient. An improved and expanded Medicare for all would be the easiest to implement since the administrative savings would be adequate to cover all the uninsured and improve coverage and financial security for everyone. Instead we will muddle along with the half baked reforms that have been passed and continue to waste hundreds of billions of dollars on the billing and insurance bureaucracy. Cost control will be the natural outcome of setting a national budget for health care. This will lead to better emphasis on those services which are most beneficial and reduce future costs and disability. ACO’s, bundled payments, managed care will never accomplish what a budget will. What are we doing? Caring citizens should protect and empower each other.

and…

Don McCanne MD
San Juan Capistrano California, USA
August 25, 2011

With our current level of knowledge about the favorable impact of insurance coverage, obviously it would have been unethical to design a study in which the control group – the uninsured – was exposed to both the financial hardship and impaired health outcomes of being uninsured. It is ironic that this would represent an intolerable violation in ethics within the health policy community, yet at the same time represents an acceptable standard for politicians.

The Affordable Care Act, as a political document, includes policies that seem to violate fundamental health policy ethics. It was enacted knowing that tens of millions will remain uninsured, under-insurance will become the new standard (60 to 70 percent actuarial values), and that it is the most expensive model of reform, providing little relief from the financial burden placed upon all of us.

Ethical policies and sterile politics could have been melded into a process that would have brought us truly universal coverage, with comprehensive benefits, financial security for everyone, and cost containment through the power of an efficient public monopsony. That, of course, would describe a single payer national health program – an improved and expanded Medicare for all.

Instead, the policy community compromised their ethics by cooperating with politicians who were catering to interests much more powerful than patients. But the greater ethical transgression was committed by the politicians themselves who ruled out in advance of the reform process the single payer model. They knew that if it were seriously considered, the superiority would have been obvious when compared to the fragmented, dysfunctional, inequitable, administratively overburdened, overpriced system that the politicians dumped on us.

We can still go back to the drawing boards and do it right.

http://healthpolicyandreform.nejm.org/?p=14971

Johnathon Ross and Don McCanne on lessons from the Oregon experiment

The Effects of Medicaid Coverage — Learning from the Oregon Experiment

By Katherine Baicker, Ph.D., and Amy Finkelstein, Ph.D.
The New England Journal of Medicine, July 20, 2011

Working with a team of researchers, we have taken advantage of an unprecedented opportunity to gauge the effects of Medicaid coverage on low-income, previously uninsured adults, using the gold standard of medical and scientific research: a randomized, controlled trial. In 2008, Oregon used a lottery to allocate a limited number of Medicaid spots for low-income adults (19 to 64 years of age) to people on a waiting list for Medicaid. Those selected by random lottery draw won the opportunity to apply for Medicaid. In total, about 30,000 people were selected from the 90,000 on the waiting list. Approximately 10,000 of those selected ended up being enrolled in Medicaid; not everyone who was selected successfully filled out the required application and met the eligibility criteria.

The lottery provides an opportunity to estimate the causal effects of being allowed to apply for Medicaid (intention to treat). It also allows us to estimate the causal effects of being enrolled in Medicaid relative to being uninsured (the effects of “treatment on the treated,” which we focus on below), under the assumption that selection by the lottery to be able to apply for Medicaid affects the outcomes we studied only through its role in increasing insurance coverage.

We now have evidence of the effects of the first year of Medicaid coverage after the lottery. These results are based on administrative data from hospital discharges, credit reports, and death records, in addition to mail surveys we conducted. We found that Medicaid coverage increases the use of health care.

Responses by Johnathon Ross and Don McCanne, former presidents of Physicians for a National Health Program:

Johnathon Ross MD, MPH
Toledo Ohio, USA
August 25, 2011

This is interesting “experiment” and useful policy data but it reminds me of Tuskegee. What a sad commentary on our country that we question whether access to care is good for patients and that it might cost us something to provide it. We need a national health insurance program that is nondiscriminatory, fairly financed, effective, and efficient. An improved and expanded Medicare for all would be the easiest to implement since the administrative savings would be adequate to cover all the uninsured and improve coverage and financial security for everyone. Instead we will muddle along with the half baked reforms that have been passed and continue to waste hundreds of billions of dollars on the billing and insurance bureaucracy. Cost control will be the natural outcome of setting a national budget for health care. This will lead to better emphasis on those services which are most beneficial and reduce future costs and disability. ACO’s, bundled payments, managed care will never accomplish what a budget will. What are we doing? Caring citizens should protect and empower each other.

and…

Don McCanne MD
San Juan Capistrano California, USA
August 25, 2011

With our current level of knowledge about the favorable impact of insurance coverage, obviously it would have been unethical to design a study in which the control group – the uninsured – was exposed to both the financial hardship and impaired health outcomes of being uninsured. It is ironic that this would represent an intolerable violation in ethics within the health policy community, yet at the same time represents an acceptable standard for politicians.

The Affordable Care Act, as a political document, includes policies that seem to violate fundamental health policy ethics. It was enacted knowing that tens of millions will remain uninsured, under-insurance will become the new standard (60 to 70 percent actuarial values), and that it is the most expensive model of reform, providing little relief from the financial burden placed upon all of us.

Ethical policies and sterile politics could have been melded into a process that would have brought us truly universal coverage, with comprehensive benefits, financial security for everyone, and cost containment through the power of an efficient public monopsony. That, of course, would describe a single payer national health program – an improved and expanded Medicare for all.

Instead, the policy community compromised their ethics by cooperating with politicians who were catering to interests much more powerful than patients. But the greater ethical transgression was committed by the politicians themselves who ruled out in advance of the reform process the single payer model. They knew that if it were seriously considered, the superiority would have been obvious when compared to the fragmented, dysfunctional, inequitable, administratively overburdened, overpriced system that the politicians dumped on us.

We can still go back to the drawing boards and do it right.

http://healthpolicyandreform.nejm.org/?p=14971

The Ryan Medicaid Plan: A Threat to Middle Class Security

The Medicaid changes in the Ryan budget plan would have extraordinary implications not only for the poor individuals who are normally thought of as the principal beneficiaries but for a very broad swath of middle-class families who are far more likely to become reliant on Medicaid benefits at some point in their life than most currently realize.

By Scott Lilly
Center for American Progress, July 8, 2011

Download this report (pdf)
Download the introduction and summary (pdf)
Read the full report in your web browser

For more than a decade policymakers in Washington and ordinary citizens across the country have engaged in a public dialogue on the federal budget that has frequently served to confuse rather than clarify the choices facing our nation. This year Rep. Paul Ryan (R-WI), chairman of the House Budget Committee, put forward a proposal that attaches significantly greater programmatic detail to the spending reductions he is proposing than previous advocates of large spending cuts. The proposal has been both praised and assailed for its content—but there is little question that it has served to move the budget debate to a more substantive and informative level.

The Ryan plan is important not simply because it provides greater detail as to how cuts in federal spending might be achieved but also because it has legislative credibility. On April 15, 2011 the Ryan budget was adopted by the U.S. House of Representatives by a vote of 235 to 193, with all but four members of the majority party (the Republicans) voting “yes.”

This paper examines one key proposal in the Ryan budget plan that has thus far received surprisingly little attention—the proposal to replace the current Medicaid program with block grant payments to states. The Medicaid changes would have extraordinary implications not only for the poor individuals who are normally thought of as the principal beneficiaries but for a very broad swath of middle-class families who are far more likely to become reliant on Medicaid benefits at some point in their life than most currently realize.

A full public discourse on whether the Congress should go forward with these particular cuts as opposed to other policy options available to the Congress requires some in depth probing as to what impact the cuts would likely have on various segments of the population, and whether or not the public at large would be comfortable with the risk that those benefits might disappear. It is also necessary to view the value of these benefits in comparison with other options that might be available to Congress and in particular, the overall policy direction of the broader Ryan proposal—a proposal that not only includes the permanent extension of the Bush era tax cuts but the adoption of additional tax cuts, including the lowering the top individual income tax rate from 35 percent to 25 percent.

Overall the proposal includes $5.8 billion in spending cuts (relative to the Congressional Budget Office baseline) that are heavily offset by $4.2 billion in revenue reductions. Net the plan generates only $1.6 trillion in deficit reduction. Medicaid reductions and most other spending cuts can be fairly seen as largely paying for further tax reductions rather than deficit reduction.

As a result, the federal budget will remain in deficit throughout this period and the public debt will grow by $5.8 trillion. That is less than the $7.4 trillion worth of debt that would accumulate if no deficit reduction plan were adopted, but far less than one might assume given the magnitude of spending cuts Rep. Ryan is proposing.
What does this mean for Medicaid? Under the Ryan plan, Medicaid accounts for $771 billion in spending cuts over the 10-year period of the proposal. That is more than one-eighth of the total cuts in the plan—many times more than the cuts in Medicare. Nonetheless, the Medicaid portion of the package has received far less attention than the Ryan proposal for Medicare. Medicaid is in fact the epicenter of the current budget debate.

Perhaps that is because many of us are under the misperception that Medicaid is simply one more benefit for the nation’s poor and that we have reached a point when we can no longer afford to be as generous to the poor as we were in the past.

But in fact Medicaid is not really a poverty program. As this paper will demonstrate, two-thirds of Americans living below the federal poverty line are not Medicaid beneficiaries. But the overwhelming majority of families who make up what is generally considered the nation’s middle class will be at significantly greater risk of facing financial catastrophe at some point in their lives if these benefits are taken away.

We all know people—or at least know of people—who had their lives changed in a split second. Whether it is an auto accident, the birth of a severely disabled child, a stroke, or devastating news from the doctor’s office, a well-planned and orderly life can be turned upside down almost instantly with grave consequences for not only the immediate victim but friends and family as well.

The medical costs associated with such events can run into hundreds of thousands and even millions of dollars. Many of us are lucky enough to have insurance that will cover most if not all of those costs. But few of us can manage the extraordinary burden of the long-term care requirements that such tragedies often leave in their wake. Few of us could cover such costs if we were the victims and even fewer could make a substantial contribution to the cost of providing such care for a relative that can no longer be cared for at home or in a community setting.

Many elderly and disabled Medicaid beneficiaries once lived in middle class households, and while they make up only 25 percent of Medicaid’s enrollees they account for two-thirds of Medicaid spending. It is difficult to envision reductions in Medicaid spending of the magnitude that would be required under the Ryan formula without significant reductions in this portion of the program.

Cutting eligibility for those who are neither elderly nor disabled would also be more problematic than is generally recognized. The overwhelming portion of Medicaid funds going to adults who are neither aged nor disabled goes for prenatal and maternity care and that care is at least partially responsible for the dramatic decreases in miscarriages and infant mortality that have taken place in this country. Reducing the health care available to children would reduce the number who arrive at school ready to learn and would also place the broader population at risk from the stand point of public health.

Finally, this paper will discuss whether the Ryan Medicaid proposal actually resolves the deficit and spending problems we now face or simply relocates them to state capitals. Even if the Ryan proposal to repeal the recently enacted health care legislation is adopted, the cost of providing current levels of service to currently eligible populations will increase by about $337 billion over the next decade. Under the current formula the federal government would pay about $192 billion of that increase leaving the states to pick up the remaining $145 billion.

Ryan would cut the federal contribution to $78 billion, leaving the states with well over a quarter of a trillion in new revenue necessary to fund the current Medicaid program. Under the Ryan proposal the portion of state revenues needed to fund current service and eligibility levels would go from 16 percent at present to 26 percent by 2021. While it is likely that the portion of state revenues going to Medicaid will rise significantly—crowding out other state servi
ces such as support for colleges and universities, aid to highways, public health, law enforcement, and the support of local schools —it is not likely that those shifts will resolve the entire shortfall.

As a result, the proposal will also place significant upward pressure on state and local taxes, including sales taxes and property taxes. Combined with the Ryan proposal to lower tax rates on the highest-income federal taxpayers, this will amount to a massive downward redistribution of after-tax income.

Medicaid is a huge program that touches many lives but is nonetheless poorly understood by both the public and policymakers. Perhaps more than any other government program it is the social safety net for middle class families—families that as the result of old age, injury, disease, or some other catastrophic happenstance could face medical and long-term care bills that far exceed what their savings and insurance will cover. Because it insured millions of Americans who got the care that they needed, millions of families did not confront financial disaster.

Changes to this program should be made with extreme caution and not before the public has a clear understanding of the consequences those changes might have on their lives and the lives of their neighbors. In the pages that follow, this paper details the costs and consequences of the Ryan plan as passed by the House of Representatives earlier this year.

Scott Lilly is a Senior Fellow at the Center for American Progress.

http://www.americanprogress.org/issues/2011/07/ryan_medicaid.html

Arizona Medicaid co-pays rejected by Appeals Court panel

Copays Break Law

By Mary K. Reinhart
The Arizona Republic, August 25, 2011

The three-judge panel of the 9th U.S. Circuit Court of Appeals said federal health officials failed to show how the copays, imposed in November after a seven-year court battle, served any purpose besides cutting the state’s Medicaid budget.

Raising copayments for more than 200,000 of Arizona’s poorest residents and making them mandatory, the judges said, helped balance the state budget but didn’t meet that federal standard.

“The administrative record reveals that the purpose of Arizona’s waiver application was to save money,” wrote Judge Richard Paez. “There is little, if any, evidence that the secretary considered the factors (federal law) requires her to consider before granting Arizona’s waiver. Thus, the secretary’s decision was arbitrary and capricious.”

The copays, which range from $4 to $30, were first approved by lawmakers in 2003 and were in place for about four months before a class-action suit was filed and a federal judge put them on hold. That stay was lifted in November by a separate appeals-court panel, which upheld a March 2010 ruling by U.S. District Judge Earl Carroll.

Since November, childless adults covered under the Arizona Health Care Cost Containment System, the state’s Medicaid program, and those who spend down their savings to become AHCCCS eligible can be turned down for medical care and medications if they can’t afford the copayment.

http://www.azcentral.com/arizonarepublic/local/articles/2011/08/25/20110825ahcccs-copays-break-law-ruling.html

Comment: 

By Don McCanne, MD

These are patients with incomes below the federal poverty level. Requiring a co-payment before access to care is permitted causes many of these individuals to go without medical care. It is appropriate that the Court of Appeals panel ruled that the HHS Secretary was “arbitrary and capricious” in approving the waiver that authorized the imposition of co-payments.

What is the purpose of co-payments? Some say that it is to prevent people from obtaining medical care that they don’t really need. Really? If a person has decided that she should see a physician, and she can afford the co-payment, would that really stop her from obtaining care? Highly unlikely.

Then is the co-payment for the purpose of raising revenues to help fund health care? The administrative hassle of processing co-payments offsets much of the gain that the co-payment revenues would bring.

Yet co-payments for low-income individuals clearly impair access to beneficial health care services. Thus co-payments provide little good and cause real harm.

Deductibles and coinsurance are another matter. For the very wealthy, they have no impact on health care access. But for middle-income individuals they are enough of a financial burden that they do cause patients to forego beneficial health care – obviously an undesirable policy.

How effective are deductibles and coinsurance in raising revenues to pay for health care? About 80 percent of health care is consumed by individuals who are no longer sensitive to the costs because they have already met their cost-sharing requirements. Thus they play a negligible role in funding our total national health expenditures.

The primary role that cost sharing plays in reducing health care spending is to prevent individuals from receiving care that they should have. (The value of reductions in non-essential services that result from cost sharing has been overstated since consultations with reassurance are still very beneficial health care services.)

So how much does foregoing beneficial care really save? Estimates based on the RAND HIE have suggested that the amount saved is about 30 percent. But 30 percent of what? It is 30 percent of the care consumed by healthy workers and their young healthy families, most of whom do not have major health expenses. Once you factor in the entire population, including all major medical disorders, the percentage of care that would be avoided is negligible.

Many other countries that spend far less while covering everyone do not have deductibles, co-payments, nor coinsurance. They have found them to be unnecessary in controlling costs. They are an insignificant revenue source, and they can cause harm, especially in vulnerable groups such as Arizona’s adult Medicaid population, and now in middle-income Americans who must live with the new standard of under-insurance.

It didn’t have to be this way.