The Oregon Health Insurance Experiment: Evidence from the First Year

By Amy Finkelstein, Sarah Taubman, Bill Wright, Mira Bernstein, Jonathan Gruber, Joseph P. Newhouse, Heidi Allen, Katherine Baicker, The Oregon Health Study Group
The National Bureau of Economic Research, July 2011

NBER Working Paper No. 17190

In 2008, a group of uninsured low-income adults in Oregon was selected by lottery to be given the chance to apply for Medicaid. This lottery provides a unique opportunity to gauge the effects of expanding access to public health insurance on the health care use, financial strain, and health of low-income adults using a randomized controlled design. In the year after random assignment, the treatment group selected by the lottery was about 25 percentage points more likely to have insurance than the control group that was not selected. We find that in this first year, the treatment group had substantively and statistically significantly higher health care utilization (including primary and preventive care as well as hospitalizations), lower out-of-pocket medical expenditures and medical debt (including fewer bills sent to collection), and better self-reported physical and mental health than the control group.

http://www.nber.org/papers/w17190

Although innumerable studies have shown that health insurance provides both health security and financial security, some have contended that insurance is not necessary, especially for low income individuals, since they can find care through our safety-net institutions. As President George W. Bush stated, “After all, you just go to an emergency room.” This study, the Oregon Health Insurance Experiment (Oregon HIE), puts an end to that contention. Low income Oregon residents who were selected by a random lottery to be enrolled in Medicaid fared significantly better than those who were randomly excluded.

The Oregon Medicaid lottery provided a great if disconcerting opportunity for policy researchers. It would be unethical for them to have designed and carried out a study that randomly provided health care benefits to one group while leaving uninsured another group serving as a control. This unique opportunity arose when Oregon received more funds for their Medicaid program, but not nearly enough to cover everyone eligible. They decided to randomly select by lottery those whom they could fit into the program while leaving many more out in the cold.

It is ironic that politicians created a study opportunity that is clearly unethical by policy research standards, yet doesn’t seem to violate the ethical standards of the politicians. If you need any more proof of that, just look at the Affordable Care Act (ACA) where policy decisions were made that will leave 23 million individuals without any health care coverage, but they can go to the emergency room.

Although much of the media coverage of the Oregon HIE implies that it was a wise decision to include in ACA the expansion of coverage under Medicaid, there are many other factors not covered in this study. Two important considerations stand out.

Having Medicaid is better than having no coverage at all, but access is still impaired under the program because of a lack of willing providers, especially for specialized services. Bringing millions more into the program will certainly exceed the already inadequate capacity. With the low level of funding for this program, it is unlikely that funds will be available in the near future to expand capacity. Adequate capacity for everyone does exist within our entire health care delivery system, but not when providers are allowed to opt out of an underfunded component of it.

Another important element in this study is that Medicaid eliminates most cost sharing by the patients. If the patients are able to find providers who will accept them then they do not have to face financial barriers that would prevent them from receiving recommended care, tests, prescriptions, and preventive services that they should have. This is one of the major advantages of the Medicaid program (though some states are now considering cost sharing as a means of reducing Medicaid spending).

Supposedly the RAND Health Insurance Experiment (RAND HIE) demonstrated that cost sharing did not have a major impact on health care outcomes, except for low income individuals, even though health care utilization decreased. The problem with the RAND HIE conclusions is that they have only intrinsic validity for a healthy workforce and their young, healthy families for only a brief, healthy interval in their lives. It is inappropriate to expect the same result for a cross section of our population including a fair sampling of those with greater health care needs. Had greater cost sharing been used in the Oregon HIE, utilization certainly would have been less, and it is likely that outcomes would have been worse.

Before we start celebrating the fact that Medicaid is better than nothing at all, let’s keep in mind the facts that Medicaid lacks the capacity to meet the expanded coverage through ACA, that eliminating cost sharing does improve access, and that expanding Medicaid will do nothing for the 23 million remaining uninsured and the tens of millions more who will be underinsured through low actuarial value plans with very high cost sharing.

There is a far better way – a single payer national health program that provides comprehensive benefits for everyone with no cost sharing barriers to care. Other nations have adopted such programs at a far lower cost than our dysfunctional system. We can do it too. (You’ve heard this before.)

GAO
June 2011

Report to Congressional Committees

On the basis of its 2010 national survey of physicians, GAO estimates that more than three-quarters of primary and specialty care physicians are enrolled as Medicaid and CHIP providers and serving children in those programs. A larger share of primary care physicians (83 percent) are participating in the programs — enrolled as a provider and serving Medicaid and CHIP children — than specialty physicians (71 percent). Further, a larger share of rural primary care physicians (94 percent) are participating in the programs than urban primary care physicians (81 percent). Nationwide, physicians participating in Medicaid and CHIP are generally more willing to accept privately insured children as new patients than Medicaid and CHIP children. For example, about 79 percent are accepting all privately insured children as new patients, compared to about 47 percent for children in Medicaid and CHIP. Nonparticipating physicians — those not enrolled or not serving Medicaid and CHIP children — most commonly cite administrative issues such as low and delayed reimbursement and provider enrollment requirements as limiting their willingness to serve children in these programs.

Physicians experience much greater difficulty referring children in Medicaid and CHIP to specialty care, compared to privately insured children. On the basis of the physician survey, more than three times as many participating physicians — 84 percent — experience difficulty referring Medicaid and CHIP children to specialty care as experience difficulty referring privately insured children — 26 percent.

http://www.gao.gov/new.items/d11624.pdf

Comment: 

By Don McCanne, MD

This highly credible report from GAO provides more evidence that access remains a problem within the Medicaid and CHIP programs. Less than half of physicians are willing to accept children in these programs as new patients, and over four-fifths experience difficulty referring Medicaid and CHIP children to specialty care. Instead of trying to expand this chronically underfunded program, we should replace it and all other programs with a single comprehensive program for everyone that eliminates financial barriers to care. No one would ever have to ask again if a physician accepts whatever program. They would simply get the care they need, no questions asked.

MEDICAID AND CHIP: Most Physicians Serve Covered Children but Have Difficulty Referring Them for Specialty Care

GAO
June 2011

Report to Congressional Committees

On the basis of its 2010 national survey of physicians, GAO estimates that more than three-quarters of primary and specialty care physicians are enrolled as Medicaid and CHIP providers and serving children in those programs. A larger share of primary care physicians (83 percent) are participating in the programs — enrolled as a provider and serving Medicaid and CHIP children — than specialty physicians (71 percent). Further, a larger share of rural primary care physicians (94 percent) are participating in the programs than urban primary care physicians (81 percent). Nationwide, physicians participating in Medicaid and CHIP are generally more willing to accept privately insured children as new patients than Medicaid and CHIP children. For example, about 79 percent are accepting all privately insured children as new patients, compared to about 47 percent for children in Medicaid and CHIP. Nonparticipating physicians — those not enrolled or not serving Medicaid and CHIP children — most commonly cite administrative issues such as low and delayed reimbursement and provider enrollment requirements as limiting their willingness to serve children in these programs.

Physicians experience much greater difficulty referring children in Medicaid and CHIP to specialty care, compared to privately insured children. On the basis of the physician survey, more than three times as many participating physicians — 84 percent — experience difficulty referring Medicaid and CHIP children to specialty care as experience difficulty referring privately insured children — 26 percent.

http://www.gao.gov/new.items/d11624.pdf

This highly credible report from GAO provides more evidence that access remains a problem within the Medicaid and CHIP programs. Less than half of physicians are willing to accept children in these programs as new patients, and over four-fifths experience difficulty referring Medicaid and CHIP children to specialty care. Instead of trying to expand this chronically underfunded program, we should replace it and all other programs with a single comprehensive program for everyone that eliminates financial barriers to care. No one would ever have to ask again if a physician accepts whatever program. They would simply get the care they need, no questions asked.

Managed Care Enters The Exam Room As Insurers Buy Doctor Groups

By Christopher Weaver
Kaiser Health News/Washington Post, July 1, 2011

Even if UnitedHealth Group isn’t your insurance company, there’s a good chance it touches you in some way. The $100 billion behemoth sells technology to hospitals and other insurers, distributes drugs, manages clinical trials and offers continuing medical education, among other things, through the growing web of firms it owns.

Now, that touch could get a lot more personal.  United’s health services wing is quietly taking control of doctors who treat patients covered by United plans in several areas of the country — buying medical groups and launching physician management companies, for example.

It’s the latest sign that the barrier between companies that provide health coverage and those that actually provide care to patients is crumbling. Other large insurers, including Humana and WellPoint, have announced deals involving doctors in recent months, part of a strategy to curb rising health costs that could cut into profits and to weather new challenges to their business arising from the federal health law. But United is the biggest insurer by revenue, making the trend much more significant.

Many patients insured by these companies are going to see much tighter management of their care.

“Health care costs are still going to rise,” said Wayne DeVeydt, chief financial officer of WellPoint, which entered the business of running clinics in June with the announcement that it would acquire CareMore, a health plan operator based near Los Angeles that owns 26 clinics. “But the only way to stem those costs in the long term is to manage care on the front end.”

That means enlisting doctors. Their orders drive most health care spending, including the wasteful share: treating heart patients with expensive stents when cheaper drugs might work, or overusing high-tech imaging devices, for example. By managing doctors directly, insurers believe they can reshape the practice of medicine – and protect their profits.

For instance, CIGNA, another large insurer, saves 9 percent on patients treated by doctors in a Phoenix medical group it controls, said Stephanie Gorman, president of CIGNA Arizona. CIGNA has expanded the group over the last 18 months in response to the health law, and it now serves patients at 32 locations.

Insurance companies are pursuing doctors in response to increasing financial pressure. The health law cuts government spending on private Medicare plans that many insurers offer, imposes rules that could limit profits, and increases scrutiny of their rates. Adding to the pressure, the insurers’ customers are tired of rising prices.

Employers and other customers “are saying, I want more value for the dollars I spend in health care,” said Dawn Owens, chief executive officer of OptumHealth, United’s health services subsidiary. But, “there’s also a realization that the delivery system isn’t ready for that kind of change. That’s where we come in.”

The tools needed to control costs and improve care are things insurers have “invested in over the years,” she said. “The provider community doesn’t have those tools.”

Dr. Amir Bacchus, chief medical officer of HealthCare Partners of Nevada, a large physician group, said he learned about United’s plans in a phone call from a United recruiter. He was asked if he’d be interested in joining the company to manage 500 doctors at a network of clinics United planned to build around the country, one part of its physician strategy.

By adding physicians in some places, United “can definitely control the health system” in those areas, said Bacchus, who declined United’s overture. “It’s a threat for us,” he added. “They are going to compete directly with our business model.”

United’s OptumHealth subsidiary, meanwhile, is buying doctors’ groups, building management companies to organize physicians, fostering new partnerships with medical groups and hiring doctors at a group it already controls.

Insurers managed physician practices before, especially in the 1990s. But customers rejected those tightly managed plans. Some local plans, and larger insurers such as Kaiser Permanente, continue to employ practicing doctors. But the biggest national insurers shed such arrangements.

One reason the strategy makes sense now is that the health law could reward such arrangements. The law envisions so-called accountable care organizations, groups of doctors and hospitals that take responsibility for patients and the financial risk that comes with them. If they cut spending, they would keep some of the savings.

While hospitals are widely seen as the natural leaders of ACOs, United’s strategy positions it to lead the new systems, too, a company executive acknowledged.

Some observers watching the developments say the health law, which in part was sold as a way to rein in insurers, has had the opposite result, opening the door for the companies to take control of even more parts of the health system.

“There’s a gigantic Murphy’s law emerging here,” said Ian Morrison, a California-based health care consultant who does some work for United, as well as most of its competitors. “The very people who were the demons in all of this, that the public can’t stand” – managed-care firms – “are the big winners.”

http://www.kaiserhealthnews.org/Stories/2011/July/01/unitedhealth-insurers-buy-doctors-groups.aspx

In the push towards integrated health systems, hospitals have been consolidating within markets in order to gain leverage in the negotiation of insurance contracts. Physicians have been consolidating within medical groups, also giving them greater market leverage. Leading the way, virtually all metropolitan insurance markets are now highly concentrated. In this power play between the health care giants, who is winning and who is losing?

Although the Medicare Shared Savings version of accountable care organizations is not gaining much traction, the underlying concept of integrating physicians and hospitals is. We are witnessing a power play by physician groups that want to be the entry point for health care through primary care medical homes and integrated specialty services. Many of these medical groups are establishing associations with hospitals in order to be able to contract with insurers as providers of comprehensive health care services.

On the other hand, hospitals would like to be in control, so they are not only consolidating but they are also purchasing physician practices. Is it the hospitals or the physicians who are winning this game?

Think back on how health care reform played out. Hospitals and physicians meekly supported the process mostly out of fear that their lot would be much worse off if they weren’t there during the process. But who was placed in control, with representatives actually writing the Affordable Care Act? The insurance industry! Everyone will be required to purchase their products, Medicaid is being converted to managed care organizations, and Medicare Advantage private health plans have been expanding. The private insurers are being given control of much of our national health care spending.

Look what the insurers are doing with that control. In the full version of the article provided at the link above and in many other information resources, you will see that the insurers are very busy trying to buy up enough of the health care delivery system to gain control of the health care markets. They will not only be the money managers for health care, but they will replace the current owners of the health care delivery system. In the worst possible outcome imaginable, they will be the actual providers of our health care!

Karen Ignagni of Americas Health Insurance Plans stated repeatedly during the reform process that the measure must provide effective mechanisms of controlling costs. It doesn’t. But now that the insurers are gaining total control, they will be able to bring us cost containment, but on their terms. How? As the CFO of WellPoint states, by owning the delivery system, they will be able to “manage care at the front end.” They will use their own doctors to prevent “overuse” and “protect their profits.”

A single payer system would be designed to macromanage dollars but would leave micromanagement of health care to the physicians and their patients. Once the insurers become the owners, the insurers will move in as the micromanagers of health care. Patients not only lose choice of their health care providers, but they also lose choice of their health care services and products.

So between the hospitals and the physicians, who comes out the winners? Neither. It’s the insurers who win. You can argue about whether or not the hospitals and physicians would be losers (or rather how much they would lose), but the tragedy of all of this is that the real losers would be those for whom the health care system should be designed – the patients.

For those who support a single payer Medicare for all system and believe that it will only be a matter of time before we’re there, think about this. When we have enacted a single payer system, the government will then negotiate with the providers of health care for delivery of health care services. That will not be with the physicians nor the hospital administrators, but it will be with the owners of the health care delivery system – the private insurers!

Unless we can enlist an outraged public to fight this thing, we will not end up with a single payer health care nirvana for all, but a single payer health care inferno from hell. Never have we had a greater imperative to inform and activate the public than right now. Let’s do it!

By Gerald Friedman
Dollars and Sense, July/August 2011

America’s broken health-care system suffers from what appear to be two separate problems. From the right, a chorus warns of the dangers of rising costs; we on the left focus on the growing number of people going without health care because they lack adequate insurance. This division of labor allows the right to dismiss attempts to extend coverage while crying crocodile tears for the 40 million uninsured. But the division between problem of cost and the problem of coverage is misguided. It is founded on the assumption, common among neoclassical economists, that the current market system is efficient. Instead, however, the current system is inherently inefficient; it is the very source of the rising cost pressures. In fact, the only way we can control health-care costs and avoid fiscal and economic catastrophe is to establish a single-payer system with universal coverage.

In short, the question is not whether we can afford a single-payer health-insurance system that would provide adequate health care for all Americans. The real question is: can we afford anything else?

(Gerald Friedman is a professor of economics at the University of Massachusetts-Amherst.)

http://www.dollarsandsense.org/archives/2011/0711friedman.html

Comment:

By Don McCanne, MD

It is great to have on board another economist from the academic community who understands the imperative of the single payer model. We should be hearing more from Professor Gerald Friedman.