By Susannah Luthi
Modern Healthcare, August 8, 2018

Government spending on Obamacare premiums has raced past its per-person spending on Medicaid expansion, and the gap is poised to increase—a trend that has some policy experts shaking their heads over the long-term economic picture and at least one major insurer questioning the sustainability of the individual market.

The CBO’s latest projections from earlier this year show government paying out an average of $6,300 annually for every subsidized enrollee in fiscal 2018. It estimates that number will rise to nearly $12,500 in 2028. In contrast, Medicaid spends $4,230 per non-disabled adult, set to inflate at 5.2% annually to just over $7,000 per person in 2028.

UnitedHealthcare leveraged these numbers for an issue brief criticizing the exchanges as “significantly more costly and less sustainable than envisioned” and touting Medicaid expansion as more stable. The insurer has loaded up on its government business while ramping back its presence on the state exchanges, and in the white paper predicted more instability for the individual market.

The individual market is a very different animal than Medicaid. Its cost increases reflect the volatile reactions to congressional policies and moves by the Trump administration. The 2018 surge in Obamacare subsidies followed President Donald Trump’s cutoff of the cost-sharing reduction payments (CSRs) for low-income enrollees that insurers are still required by law to pay. Insurers priced CSRs into the silver plans that serve as the benchmark for calculating federal subsidies. This spiked silver plan premiums for the unsubsidized enrollees and financial help for the subsidized.

Supporters of the Affordable Care Act defend its subsidy structure as the unbreakable backbone of the law, while critics say tying premium tax credits to silver plans shields insurers at the expense of the government and the unsubsidized.

http://www.modernhealthcare.com…

***

Comment:

By Don McCanne, M.D.

The news is that the government subsidies alone per individual enrolled in the ACA exchange plans ($6,300) are greater than the amount that the government is paying for complete care per individual enrolled in Medicaid ($4,230). These numbers are being used by UnitedHealthcare to support their decision to avoid the ACA exchanges and build its business of private Medicaid managed care plans, as being a better deal for the government.

The numbers are distorted since the ACA enrollees who do not receive government subsidies are left out (which would make the government costs per ACA enrollee lower), and they leave out the Medicaid patients with expensive disabilities (which would make the government costs per Medicaid enrollee higher).

But there is a lesson here, and that is that an administratively complex system using private health plans is an expensive way of financing health care. Taxpayer funds are being wasted on excessive administrative functions designed to reduce the financial burden on low- and moderate-income individuals – not only the administrative excesses of the private insurers  and the administrative burden they place on the providers of care, but also the addition of the administrative costs of the insurance exchanges themselves.

The low costs of the Medicaid program are another issue. Payment rates were not enough to cover the costs of physicians caring for these patients and so many opted out, impairing access to care because of a lack of willing providers. Thus the private Medicaid managed care plans have moved in. Their business success depends on paying as little for health care as they can. That appears not only to be price concessions that they have negotiated with the providers, but also it seems that they have been successful in reducing the amount of care that patients are receiving, especially specialized services. Patients do not realize that they have been deprived of care if it was never offered to them.

Regardless, our health care financing system is clearly dysfunctional. We could get rid of the exchanges, the private insurers, the private Medicaid managed care plans and all of the other waste and inequities of our multi-payer system by enacting and implementing a well designed, single payer, improved Medicare for all. But then you’ve heard that before.

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By Lila Flavin, Leah Zallman, Danny McCormick, and J. Wesley Boyd
International Journal of Health Services, August 8, 2018

Abstract

In health care policy debates, discussion centers around the often-misperceived costs of providing medical care to immigrants. This review seeks to compare health care expenditures of U.S. immigrants to those of U.S.-born individuals and evaluate the role which immigrants play in the rising cost of health care. We systematically examined all post-2000, peer-reviewed studies in PubMed related to health care expenditures by immigrants written in English in the United States. The reviewers extracted data independently using a standardized approach. Immigrants’ overall expenditures were one-half to two-thirds those of U.S.-born individuals, across all assessed age groups, regardless of immigration status. Per capita expenditures from private and public insurance sources were lower for immigrants, particularly expenditures for undocumented immigrants. Immigrant individuals made larger out-of-pocket health care payments compared to U.S.-born individuals. Overall, immigrants almost certainly paid more toward medical expenses than they withdrew, providing a low-risk pool that subsidized the public and private health insurance markets. We conclude that insurance and medical
care should be made more available to immigrants rather than less so.

From the Discussion

Many Americans, including some in the health care sector, mistakenly believe that immigrants are a financial drain on the U.S. health care system, costing society disproportionately more than the U.S.-born population, i.e., themselves. Our review of the literature overwhelmingly showed that immigrants spend less on health care, including publicly funded health care, compared to their U.S.-born counterparts. Moreover, immigrants contributed more towards Medicare than they withdrew; they are net contributors to Medicare’s trust fund.

Our research categorized immigrants into different groups, but in all categories, these studies found that immigrants accrued fewer health care expenditures than U.S.-born individuals. Among the different payment sources – public, private, or out-of-pocket – public and private expenditures were lower for immigrants, with immigrants spending more out-of-pocket. Differences decreased the longer immigrants resided in the United States.

While annual U.S. medical spending in 2016 was a staggering $3.3 trillion, immigrants accounted for less than 10% of the overall spending – and recent immigrants were responsible for only 1% of total spending. Given these figures, it is unlikely that restrictions on immigration into the United States would result in a meaningful decrease in health care spending. To the contrary, restricting immigration would financially destabilize some parts of the health care economy, as suggested by Zallman and colleagues, who found that immigrants contributed $14 billion more to the Medicare trust fund than they withdrew.

Fiscal responsibility is an important reason for the United States to provide insurance for newly arrived immigrants, as they could continue to enlarge the low-risk pool of healthy individuals that helps offset the cost of insuring high-risk individuals. Currently, under the ACA, undocumented immigrants cannot enroll in the state health care exchanges. If we are seeking to minimize costs, which would seem a major factor in the reasoning of policymakers who would deny immigrants care, then it makes financial sense to enroll individuals who will (on average) contribute more to the health care system than they withdraw. Healthy, young immigrants are precisely whom we should target for Medicaid enrollment, state exchanges, or private health insurance.

http://journals.sagepub.com…

***

A New Threat to Immigrants’ Health — The Public-Charge Rule

By Krista M. Perreira, Ph.D., Hirokazu Yoshikawa, Ph.D., and Jonathan Oberlander, Ph.D.
The New England Journal of Medicine, August 1, 2018

The United States is making major changes to its immigration policies that are spilling over into health policy. In one such change, the Trump administration is drafting a rule on “public charges” that could have important consequences for access to medical care and the health of millions of immigrants and their families. The concept of a public charge dates back to 19th-century immigration law. Under current guidelines, persons labeled as potential public charges can be denied legal entry to the United States. They can also be prevented from adjusting their status from a nonimmigrant visa category (e.g., a student or work visa) to legal permanent resident status. In addition, if they become public charges within the first 5 years after their admission to the United States, for reasons that existed before they came to the country, in rare cases they can be arrested and deported. Immigrants and their families consequently have strong incentives to avoid being deemed public charges.

In evaluating whether a person is likely to become a public charge, immigration officials take account of factors such as age, health, financial status, education, and skills. The use of cash assistance for income maintenance (e.g., Supplemental Security Income or Temporary Assistance for Needy Families) and government-funded long-term care are considered in making these determinations. Other noncash benefits such as health and nutrition programs are specifically excluded from consideration, and use of cash-assistance benefits by the immigrant’s dependents is not currently factored in.

The Trump administration is proposing sweeping changes to these guidelines. A draft rule from the Department of Homeland Security (DHS) would substantially expand the definition of a public charge to include any immigrant who “uses or receives one or more public benefits.” Not just cash assistance but nearly all public benefits from federal, state, or local governments would be considered in public-charge determinations, including nonemergency Medicaid, the Children’s Health Insurance Program (CHIP), and subsidized health insurance through the marketplaces created by the Affordable Care Act (ACA); Medicare would be excluded. The DHS draft notes that in making these determinations, “having subsidized insurance will generally be considered a heavily weighted negative factor.” The broadened definition of public charge would also encompass food assistance (the Supplemental Nutrition Assistance Program [SNAP] and the Women, Infants, and Children Program [WIC]), programs designed to assist low-income workers (e.g., the Earned Income Tax Credit [EITC]), housing assistance (Section 8 vouchers), and the Low Income Home Energy Assistance Program. Moreover, not only immigrants’ use of public assistance but use of these programs by any dependents, including U.S.-born citizen spouses and children, would also be considered.

The potential impact of these changes is enormous. In 2016, about 43.7 million immigrants lived in the United States. If enacted, the new regulations would affect people seeking to move to the United States to be reunified with family members and to work, as well as lawfully present immigrants who hope to become legal permanent residents (green-card holders). One estimate suggests that nearly one third of U.S.-born persons could have their use of public benefits considered in the public-charge determination of a family member. This includes “10.4 million citizen children with at least one noncitizen parent.” Notably, unauthorized immigrants are not the primary target of the draft rule, since they are already ineligible for most federally funded public assistance. Instead, lawfully present immigrants would bear the brunt, as well as persons living in “mixed-status” families (those in which some members are citizens and others are not) and persons living abroad who wish to immigrate to the United States.

We believe that the draft public-charge regulation represents a substantial threat to lawfully present immigrants’ access to public programs and health care services. What modifications may be made is uncertain — after the rule is formally proposed, there will be a public comment period, and revisions could be made before it is finalized. But if this rule takes effect, it will most likely harm the health of millions of people and undo decades of work by providers nationwide to increase access to medical care for immigrants and their families.

https://www.nejm.org…

***

Comment:

By Don McCanne, M.D.

Numerous studies have shown that immigrants pay more into our health care financing systems, both public and private, than they take out in health care services. We should be welcoming their contributions to our health care. Yet the Trump administration is intending to put into place an expansion of the “public charge” rule that will have an enormous negative impact on lawfully present immigrants.

The last paragraph of the NEJM article bears repeating:

“We believe that the draft public-charge regulation represents a substantial threat to lawfully present immigrants’ access to public programs and health care services. What modifications may be made is uncertain — after the rule is formally proposed, there will be a public comment period, and revisions could be made before it is finalized. But if this rule takes effect, it will most likely harm the health of millions of people and undo decades of work by providers nationwide to increase access to medical care for immigrants and their families.”

Is this what kind of a nation we are becoming? Are the large, often unruly crowds at President Trump’s political rallies in charge of presenting our values to the world forum?

Have we no citizen responsibility here? If so, what is it? Yes, we need to vote, but look at who is being elected. Will we have an epiphany by November and change our elected representatives, or will it be more of the same?

And the most perplexing question of all: How did we end up with so many individuals in our nation who demonstrate repeatedly man’s inhumanity to man?

Two contrasting stanzas, excerpted from:

Man was made to mourn: A Dirge

Many and sharp the num’rous ills
Inwoven with our frame!
More pointed still we make ourselves
Regret, remorse, and shame!
And man, whose heav’n-erected face
The smiles of love adorn, –
Man’s inhumanity to man
Makes countless thousands mourn!

Yet, let not this too much, my son,
Disturb thy youthful breast:
This partial view of human-kind
Is surely not the last!
The poor, oppressed, honest man
Had never, sure, been born,
Had there not been some recompense
To comfort those that mourn!

– Robert Burns, 1784

There is hope.

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By G. Edward Miller, Jessica P. Vistnes, Frederick Rohde, and Patricia S. Keenan
Health Affairs, August 2018

Abstract

Over the past decade, employers have increasingly turned to high-deductible health plans (HDHPs) to limit health insurance premium growth. We used data from private-sector establishments for 2006 and 2016 from the Medical Expenditure Panel Survey–Insurance Component to examine trends in HDHP enrollment and heterogeneity in HDHPs by firm size. We studied insurance plan offerings along the following dimensions: whether employers fund accounts to help defray employees’ out-of-pocket health care spending, the availability of non-HDHP plan choices, and single and family deductible levels. We extend the literature by examining these characteristics by detailed firm-size categories and by including all plans with deductibles that met or exceeded Internal Revenue Service thresholds to be qualified for health savings accounts. We found that in 2016, 78.0 percent of HDHP enrollees in the smallest firms (those with fewer than 25 employees) lacked an employer-funded account, compared to 35.2 percent in the largest firms (those with 1,000 or more employees). Overall, HDHP enrollees in the largest firms had significant advantages relative to workers in smaller firms along all of the dimensions examined.

From the Discussion

Similar to previous studies, we found a rapid rise—in this case, from 2006 to 2016—in the proportion of private-sector enrollees in insurance plans with deductibles that met or exceeded IRS thresholds for HSA-qualified plans. Because the thresholds are indexed by the Consumer Price Index for All Urban Consumers, increasing enrollment in high-deductible health plans indicates that deductibles rose faster than general inflation and that household budgets were exposed to potentially higher out-of-pocket health care spending. Employer contributions to HSAs and HRAs can be used to defray some of these costs, but the share of HDHP enrollees with employer-funded accounts increased only among those in the largest firms (those with 1,000 or more employees) over this time period.

Other studies have identified lower health care utilization, even among plans with employer contributions to a savings account, and higher financial burdens for HDHP enrollees compared to enrollees in non-HDHP plans. Our results suggest that these effects may be larger for workers in small firms, who are more likely to have higher deductible levels and lack employer contributions to help pay for out-of-pocket expenses, compared to workers in larger firms.

https://www.healthaffairs.org…

***

Comment:

By Don McCanne, M.D.

In order to control the cost of employer-sponsored health insurance, employers have increasingly turned to high-deductible health plans. This makes the up-front, high out-of-pocket costs unaffordable for many employees. To get around this hurdle, some employers will also help fund health savings accounts (HSAs) or health reimbursement arrangements (HRAs) to defray some of the upfront costs. How well is this working?

Large employers with over 1,000 employees will more often contribute to these accounts, but, even there, 35 percent of the employees of these large firms do not have an employer-funded account. Even worse, 78 percent of enrollees in high-deductible plans offered by firms with less than 25 employees lack an employer-funded account. Many of these employees without employer-funded accounts do not have the financial capability of funding those accounts on their own.

The literature is clear on the impact of high-deductible health plans on employees who do not have pre-funded HSAs. The financial barriers frequently prevent them from receiving health services that they should have, and when services are unavoidable, financial hardship often ensues. Neither of these are good outcomes. Yet the Trump administration is currently encouraging Congress to expand the use of HSAs.

We should not celebrate the fact that the majority of large employers do contribute to their employees’ HSAs, because all they have done is to dig the hole less deep. We need to get rid of private high-deductible health plans and replace them with an improved Medicare that provides first dollar coverage for everyone. We can control health care costs through much more patient-friendly policies that make health care affordable and accessible for all of us.

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By Deborah Thorne, Pamela Foohey, Robert M. Lawless & Katherine Porter
SSRN, August 5, 2018

Abstract

The social safety net for older Americans has been shrinking for the past couple decades. The risks associated with aging, reduced income, and increased healthcare costs, have been off-loaded onto older individuals. At the same time, older Americans are increasingly likely to file consumer bankruptcy, and their representation among those in bankruptcy has never been higher. Using data from the Consumer Bankruptcy Project, we find more than a two-fold increase in the rate at which older Americans (age 65 and over) file for bankruptcy and an almost five-fold increase in the percentage of older persons in the U.S. bankruptcy system. The magnitude of growth in older Americans in bankruptcy is so large that the broader trend of an aging U.S. population can explain only a small portion of the effect. In our data, older Americans report they are struggling with increased financial risks, namely inadequate income and unmanageable costs of healthcare, as they try to deal with reductions to their social safety net. As a result of these increased financial burdens, the median senior bankruptcy filer enters bankruptcy with negative wealth of $17,390 as compared to more than $250,000 for their non-bankrupt peers. For an increasing number of older Americans, their golden years are fraught with economic risks, the result of which is often bankruptcy.

From the Introduction

The social safety net for older Americans has been shrinking for the past couple decades. The risks associated with aging, reduced income, and increased healthcare costs, have been off-loaded onto older individuals. At the same time, older Americans are increasingly likely to file consumer bankruptcy, and their representation among those in bankruptcy has never been higher. Using data from the Consumer Bankruptcy Project, we find more than a two-fold increase in the rate at which older Americans (age 65 and over) file for bankruptcy and an almost five-fold increase in the percentage of older persons in the U.S. bankruptcy system. The magnitude of growth in older Americans in bankruptcy is so large that the broader trend of an aging U.S. population can explain only a small portion of the effect. In our data, older Americans report they are struggling with increased financial risks, namely inadequate income and unmanageable costs of healthcare, as they try to deal with reductions to their social safety net. As a result of these increased financial burdens, the median senior bankruptcy filer enters bankruptcy with negative wealth of $17,390 as compared to more than $250,000 for their non-bankrupt peers. For an increasing number of older Americans, their golden years are fraught with economic risks, the result of which is often bankruptcy.

National concern for the well-being of older Americans soon declined, beginning in the early-1980s, especially as the cost of funding their social safety net strained state and federal budgets. This financial tension and emerging ideological shifts promoted an intergenerational war. Conservatives, free market advocates, and media promoted the image of older Americans as “a threat to economic viability,” as thieves of our children’s futures, and as “responsible for the nation’s economic problems.” In just a few decades, norms of privatized citizenship and individual responsibility upstaged the ideal of America’s social welfare system. Financial risks were shunted off onto individuals, regardless of age. Many older Americans suffered greatly because of this movement toward “private responsibility,” with their Social Security, retirement, and healthcare, among other protections, coming under attack.

Since the early-1990s, scholars on the Consumer Bankruptcy Project (CBP) have collected data on the age of bankruptcy filers. These data are used to determine the percent of older Americans within the U.S. population who file bankruptcy, and the percent of older filers within the bankrupt population. Comparing CBP data between 1991 and now shows significant increases in both categories. The changes are so great that the broader trend of an aging U.S. population can explain only a small proportion of what is happening in the bankruptcy courts. Older Americans’ reported reasons for filing strongly suggest that they are experiencing the fallout from our current individualized risk society and the corresponding shrinkage of their social safety net.

From the Results

Within the Bankrupt Population

One in seven bankruptcy filers is of retirement age, 65 years or over. This is nearly a five-fold increase over just two and a half decades. This is a notable demographic shift.

Within the oldest cohort, those age 75 and over, there has been a near ten-fold increase since 1991. In 1991, this group constituted only 0.3 percent of filers, as compared to 3.3 percent now.

The overall trend is clear. Bankruptcy filers in the youngest cohorts (18-24, 25-34, and 35-44) now comprise a much smaller segment of the bankrupt population than they did twenty-five years ago. During that same period, there has been a marked increase in the percent of filers among the older cohorts (55-64, 65-74, and 75 and above), those people who are approaching or are in their retirement years.

Older Americans’ Reasons for Bankruptcy—Evidence of a Risk Shift

Regardless of age, leading data suggest that income problems and medical costs top the list of events that push households into bankruptcy.

Data from the current CBP suggest that financial struggles, namely a decline in income, was a leading reason for older Americans’ bankruptcies—almost seven out of ten respondents (69.1 percent) reported that they “very much” or “somewhat” agreed that this was the reason for their bankruptcy.

Another respondent’s comment describes an additional financial risk that can be especially consequential for retirees—the popular defined-contribution plans, like 401(k)s, that individuals are left to manage on their own.

Just over seven out of ten respondents (71.6 percent) either “very much” or “somewhat” agreed that they filed because of the stress of dealing with debt collectors.

Medical expenses also were a catalyst for bankruptcy for more than six out of ten (62.2 percent) respondents.

Additionally, 40 percent of respondents reported that they “very much” or “somewhat” agree that missing work for medical reasons was a reason for their bankruptcies.

Finally, respondents were asked to list the single most important thing that they or their family members were unable to afford in the year before their bankruptcies. Over half of older filers (52 percent) who responded indicated that the single most important thing they had to go forego was related to medical care—surgeries, doctor visits, prescriptions, dental care, and health/supplemental insurance. These responses continue to suggest that their health care coverage is inadequate.

From the Discussion

The most effective solution to older Americans’ increasing financial plight is a social safety net that obviates the need to take out debts that result in financial crises. In prior decades, Americans collectively decided that we have a responsibility to our older citizens to absorb the financial risks they face. But it appears that we have since abandoned that commitment. We can do better. Historically, we have.

At the core, the lessons of prior decades show that aid to older citizens must originate with our government. Community and charitable organizations, while having the best of intentions, are inadequate. Comprehensive policies led by our government will ensure financial stability for all elderly citizens. We appear to be in the midst of an old-fashioned game of tug-of-war. On the one hand, many Americans believe that providing a strong social safety net for our older citizens, a net that reduces their individual financial risks, is part of our collective responsibility. On the other hand, there are those who insist on policies that continue to unravel that safety net, leaving older Americans to fend for themselves.

Conclusion

How we manage the time called retirement, the span between when we stop working and when we die, is a social issue affecting the lives of tens of millions. America has come almost full circle in its attitudes toward its older citizens—from sending them to the poorhouse when they became a financial burden, to ameliorating their economic risks with pensions, a responsive social security program, and healthcare, and now to transferring financial risks to them that can drive them to financial collapse.

Absent significant policy changes that reassume the risks of aging and effectively insure the financial stability of older Americans, our data suggest that the trend of an aging bankruptcy population will continue. In 2015, almost 15 percent of the U.S. population was 65 and over. By 2050, almost a quarter of Americans, 88 million, will be over 65 (U.S. Census 2016). If current bankruptcy trends among seniors continue, our bankruptcy courts will be flooded with financially broken retirees. For older Americans, bankruptcy is too little too late. By the time they file, their wealth has vanished, and they simply do not have the enough years to get back on their feet. Our data expose the severity of the continuing financial decline of older Americans. Now that we can see the magnitude of the coming storm of broke elderly, it is time to renew our commitment to supporting our citizens as they age.

https://papers.ssrn.com…

***

Comment:

By Don McCanne, M.D.

The social safety net for older Americans built up during the last century is now showing alarming trends toward shifting greater financial risk to this population. In the past two and a half decades there has been a five-fold increase in the rate of bankruptcy filings for individuals over 65.

There are multiple factors including the loss of income, the deterioration in retirement plans, and the inability to accumulate wealth before retirement, but the inadequacy of health care coverage also has been a significant factor. The authors state, “respondents were asked to list the single most important thing that they or their family members were unable to afford in the year before their bankruptcies. Over half of older filers (52 percent) who responded indicated that the single most important thing they had to go forego was related to medical care—surgeries, doctor visits, prescriptions, dental care, and health/supplemental insurance.”

The authors conclude, “Absent significant policy changes that reassume the risks of aging and effectively insure the financial stability of older Americans, our data suggest that the trend of an aging bankruptcy population will continue… Now that we can see the magnitude of the coming storm of broke elderly, it is time to renew our commitment to supporting our citizens as they age,” and “At the core, the lessons of prior decades show that aid to older citizens must originate with our government.”

As an aside, one of the co-authors of this report, UC Irvine Professor Katherine Porter, is taking her academic credentials into the political arena by running for Congress in California’s 45th District, hoping to join Senator Elizabeth Warren and others in efforts to counter the attack on our social safety net.

Katherine Porter, Professor of Law, University of California, Irvine School of Law:
https://www.law.uci.edu…

Katie Porter for Congress:
https://katieporter.com

PNHP does not endorse candidates for pubic office. This statement on Katie Porter’s candidacy is appropriately included in the Quote of the Day since it shows her bias on the topic of today’s report (for full disclosure, a bias which Quote of the Day editor Don McCanne happens to share).

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By John Cochrane
The Grumpy Economist, July 29, 2018

A July 30 2018 Op-Ed in the Wall Street Journal, titled “The tax and spend health care solution”:

Why is paying for health care such a mess in America? Why is it so hard to fix? Cross-subsidies are the original sin. The government wants to subsidize health care for poor people, chronically sick people, and people who have money but choose to spend less of it on health care than officials find sufficient. These are worthy goals, easily achieved in a completely free-market system by raising taxes and then subsidizing health care or insurance, at market prices, for people the government wishes to help.

But lawmakers do not want to be seen taxing and spending, so they hide transfers in cross-subsidies. They require emergency rooms to treat everyone who comes along, and then hospitals must overcharge everybody else. Medicare and Medicaid do not pay the full amount their services cost. Hospitals then overcharge private insurance and the few remaining cash customers.

Overcharging paying customers and providing free care in an emergency room is economically equivalent to a tax on emergency-room services that funds subsidies for others. But the effective tax and expenditure of a forced cross-subsidy do not show up on the federal budget.

Over the long term, cross-subsidies are far more inefficient than forthright taxing and spending. If the hospital is going to overcharge private insurance and paying customers to cross-subsidize the poor, the uninsured, Medicare, Medicaid and, increasingly, victims of limited exchange policies, then the hospital must be protected from competition. If competitors can come in and offer services to the paying customers, the scheme unravels.

No competition means no pressure to innovate for better service and lower costs.

As usual, I (John Cochrane) have to wait 30 days to post the whole thing. It synthesizes some of my earlier blog posts on how cross subsidies are worse than straightforward, on budget, taxing and spending.

Let me here admit to one of the implications of this view. Single payer might not be so bad — it might not be as bad as the current Medicare, Medicaid, Obamacare, VA, etc. mess.

But before you quote that, let’s be careful to define what we mean by “single payer,” which has become a mantra and litmus test on the left. There is a huge difference between “there is a single payer that everyone can use,” and “there is a single payer that everyone must use.”

Most on the left promise the former and mean the latter. Not only is there some sort of single easy to access health care and insurance scheme for poor or unfortunate people, but you and I are forbidden to escape it, to have private doctors, private hospitals, or private insurance outside the scheme. Doctors are forbidden to have private cash paying customers. That truly is a nightmare, and it will mean the allocation of good medical care by connections and bribes.

But a single provider or payer that anyone in trouble can use, supported by taxes, not cross-subsidized by restrictions on your and my health care — not underpaying in a private system and forcing that system to overcharge others — while allowing a vibrant completely competitive free market in private health care on top of that, is not such a terrible idea, and follows from my Op-Ed. A single bureaucracy that hands out vouchers, pays full market costs, or pays partially but allows doctors to charge whatever they want on top of that would work. A VA like system of public hospitals and clinics would work too.  Like public schools, or public restrooms, you can use them, but you don’t have to; you’re free to spend your money on better options if you like, and people are free to start businesses to serve you. And no cross-subisides.

Whether we restrict provision with income and other tests, and thus introduce another marginal disincentive to work, or give everyone access and count on most working people to choose a better product, I leave for another day. It would always be an inefficient bureaucratic problem, but it might not be the nightmare of anti-competitive inefficiency of the current system.

The free market describes well how your and my health care and insurance should work. It does not offer nearly so clear advice on how the government should manage the finances and bureaucracy that provide subsidies (if we want to provide them). There are always tradeoffs, generosity vs. moral hazard and disincentives. Economics is crucial to understanding those tradeoffs, of course, but the answer will always be a muddy middle of tradeoffs. I have offered that taxing and spending — on budget and appropriated — to provide those subsidies may be better than the current mandated cross subsidies. We already have a “single payer” — the federal government. The argument that a single point of entry, a single payer, or a single provider, may be more rational and cost effective than the current system for the purpose of providing subsidized care is not as crazy as it sounds — if it allows a free market for the majority of Americans who own cars, houses, TVs and cell phones and can pay for better services in that free market.

“Single payer” also usually means “single price-setter.” It means a gargantuan Federal bureaucracy that will somehow produce health care cost savings by simply decreeing that doctors and hospitals be paid less. Good luck with that.

Both left and right forget that “negotiation” means only you pay less and somebody else pays more. We can’t all pay less by negotiation. Price controls mean rationing. Period. This is the heart of current “single payer” proposals, and they are doomed.

My “single payer” is just that, a “payer,” operating in a completely free market.

Still, when a politician endorses “single payer,” ask “does that mean we all can use a single payer? Or does that mean we all must use a single payer?”

John H. Cochrane is a Senior Fellow of the Hoover Institution at Stanford, an adjunct scholar of the Cato Institute, and formerly a professor at the University of Chicago Booth School of Business.

https://johnhcochrane.blogspot.com…

***

Comment:

By Don McCanne, M.D.

The single payer policy community certainly would dispute that there are two types of single payer – one that allows individuals to opt out and one that mandates participation. In a well designed single payer system there is only one payer for everyone. That does not mean that there are not other systems that allow individuals to opt out of the public program, but those multi-payer systems should not be labeled single payer.

Nevertheless, the comments of conservative economist John Cochrane are interesting. He recognizes that there are enough sound economic policies in a single payer system that it “might not be as bad as the current Medicare, Medicaid, Obamacare, VA, etc. mess.” On that we can agree. However our ideological differences leave us far apart. Cochrane’s insistence that the market must still play a prominent role calls for design features that prevent realization of the single payer goals of true universality, equity, affordability, and universal access.

Many of his comments warrant a response which we won’t bother with now, except one that stands out and that is his statement that a single payer system that does not allow other options is one in which, “you and I are forbidden to escape it, to have private doctors, private hospitals, or private insurance outside the scheme.” Of course, the single payer system supported by Physicians for a National Health Program does allow free choice of private doctors and hospitals. Following is the comment that I submitted in response to his blog:

Under a single payer that everyone must use you are forbidden to have private doctors and private hospitals? But look at the traditional Medicare program. Patients have free choice of their physicians and hospitals. They also can elect to enroll in the private Medicare Advantage (MA) plans, but then they lose their their health care choices by being restricted to provider networks. Not only that, but “MA insurer revenues are 30 percent higher than their healthcare spending,” demonstrating the surplus that the private insurers are receiving from the taxpayers (NBER No. 23090) – a cross subsidy of sorts, but benefiting the insurer rather than the patients.

Of course, single payer advocates also support tax and spend, but we want our tax funds to be used wisely. Providing excess public funding to private insurers while they take away health care choices from patients is not a wise use of our tax dollars. It would be far better to improve the traditional Medicare program and then cover everyone with it, and then let the health care delivery system compete on the basis of service, access, and quality.

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A Libertarian’s Case Against Free Markets in Health Care

By Roman Zamishka
The Health Care Blog, August 2, 2018

This presumably arbitrary nature of prices should be the first thing about the US healthcare market that catches the attention of any student of economics. Prices for the same procedure vary greatly between hospitals on opposite sides of the street and even then appear to have no basis in reality. Further investigation reveals many other features of the healthcare market that economics teaches us will increase transaction costs and the misallocation of resources. The prices we discussed are generally not paid by the patient, but by a third party insurer. Often the patient isn’t even able to select the insurer but is assigned one by his or her employer. What the patient thinks of the insurer’s ability as a steward of his or her premiums is irrelevant. Further, contracts between providers or pharmacies and the insurer completely hide the true price from the patient’s view. In addition, anti-competitive certificate of need laws limit competition between providers and expensive regulations compel providers to merge to compete in a nuclear arms race with the insurers, although the real victim is the patient’s wallet over which the providers and insurers fight their proxy wars. The best way to explain the US healthcare system is if you took every economic best practice and then did the opposite.

Academics and physicians from places like Boston and San Francisco often argue that this situation is proof that free market healthcare has failed in America and that the only solution is to implement a nationalized single-payer model.

(Zamishka here provides a discussion of Kenneth Arrow’s “Uncertainty and the Welfare Economics of Medical Care,“ and then discusses how markets do not work in the various institutions and disciplines of medicine.)

The broader problem that I see is that much of the health insurance market is already nationalized through Medicaid, Medicare and the VA. The reality is that it is politically impossible to reverse from this position. If we then add to this list emergency medicine, perinatal healthcare, child healthcare, genetic diseases, mental health and chronic disease management, all of which I earnestly believe have a legitimate case to be nationalized, then what are we left with for free market shopping? Surgeries and generic drugs? At that point, you might as well nationalize the rest just to simplify things and remove any regulatory asymmetries. I hate to say it, but it’s not clear to me as a conservative that single payer (or at least universal coverage + optional private supplemental insurance) isn’t the right solution.

Roman Zamishka is a healthcare policy student at NYU focused on comparative analysis of healthcare systems.

http://thehealthcareblog.com…

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Comment:

By Don McCanne, M.D.

These articles express the views of two libertarians who recognize the benefits of the single payer model of health care financing, though both would maintain a role for private insurance.

The Cochrane article is reproduced in its entirety. The Zamishka article is quite long and so only brief excerpts are provided. However it might be worth wile to save the link for reading the full article this weekend. He presents a case that we should consider using when discussing single payer with libertarians or conservatives who truly do care and would like to see our health care financing system function better for all of us.

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By David U. Himmelstein, M.D., and Steffie Woolhandler, M.D., M.P.H.
Physicians for a National Health Program, August 2, 2018

The Mercatus Center’s estimate of the cost of implementing Sen. Bernie Sanders’ Medicare for All Act (M4A) projects outlandish increases in the utilization of medical care, ignores vast savings under single-payer reform, and fails to even mention the extensive and well-documented evidence on single-payer systems in other nations – which all spend far less per person on health care than we do. But despite adopting a raft of faulty assumptions that inflate the estimated cost of implementing single payer, the Mercatus Center’s report concludes that universal first dollar coverage under Sen. Sanders’ bill would actually decrease the nation’s total health expenditures, saving the average American about $6,000 over ten years.

We outline below some of the most glaring errors in the Mercatus Center analysis of Medicare for All, which was led by Charles Blahous.

1. Administrative savings, Part 1: Blahous assumes that insurance overhead would be reduced to 6 percent of total health spending from the current level of 13 percent in private insurance. Although overhead in Canada’s single payer system is only 1.8%, Blahous justifies his 6 percent estimate by citing Medicare’s current overhead, which includes the extraordinarily high overhead costs of private Medicare HMOs run by UnitedHealthcare and other insurance firms. However, Sen. Sanders’ proposal would exclude these for-profit insurers, and instead build on the traditional Medicare program, whose overhead is less than 3 percent. Moreover, by simplifying hospital payments by funding them through global budgets (similar to the way fire departments are paid), rather than the current patient-by-patient payments, a well-designed single-payer program could fully reduce overhead to Canada’s level of about 1.8 percent. Cutting insurance overhead to less than 2 percent (rather than the 6 percent that Blahous projects) would save approximately $2.9 trillion more than Blahous estimates over a 10 year period.

2. Administrative savings, Part 2: Blahous seems unaware of the extensive literature documenting the huge administrative burden – and resulting costs – borne by U.S. doctors and hospitals, and the savings that would be realized under a streamlined single-payer system. Every serious analyst of single-payer reform has acknowledged these savings, including the Congressional Budget Office, the Government Accountability Office, the Lewin Group (a consulting firm owned by UnitedHealth Group), and Prof. Kenneth Thorpe.

These provider savings on paperwork would, in fact, be much larger than the savings on insurance overhead. At present, U.S. hospitals spend one-quarter of their total budgets on billing and administration, more than twice as much as hospitals spend in single payer systems like Canada’s or Scotland’s. Similarly, U.S. physicians, who must bill hundreds of different insurance plans with varying payment and coverage rules, spend two to three times as much as our Canadian colleagues on billing.

Overall, these administrative savings for doctors and hospitals would amount to about $3.4 trillion over 10 years. Additional savings of almost $2.0 trillion from streamlined billing and administration would accrue to nursing homes, home care agencies, ambulance companies, drug stores, and other health care providers.

In total, the Blahous analysis underestimates administrative savings by about $8.3 trillion over 10 years.

3. Drug costs: Blahous projects that the only drug savings achievable through a single-payer plan would come from switching patients from brand name drugs to generics. He assumes that the prices of drugs – both generics and brand name drugs – could not be lowered through the price negotiations called for in Sen. Sander’s bill. Blahous claims that the savings achievable through negotiations cannot be estimated, ignoring the price reductions of about 40-50% that have been achieved by the VA and by many other nations that use the methods called for in the Sanders legislation.

Reducing drug prices to the levels currently paid by European nations would save at least $1.7 trillion more than Blahous posits over 10 years.

4. Utilization of care: Blahous projects a massive increase in acute care utilization, but does not provide detailed breakdowns of how big an increase he foresees for specific services like doctor visits or hospital care. However, it is clear that the medical care system does not have the capacity to provide the huge surge in care that he posits.

For instance Blahous’ figures for the increase in acute care suggest that Sanders’ plan would result in more than 100 million additional doctor visits and several million more hospitalizations each year. But there just aren’t enough doctors and hospital beds to deliver that much care. Doctors are already working 53 hours per week, and experience from past reforms tells us that they won’t increase their hours, nor will they see many more patients per hour.

Instead of a huge surge in utilization, more realistic projections would assume that doctors and hospitals would reduce the amount of unnecessary care they’re now delivering in order to deliver needed care to those who are currently not getting what they need. That’s what happened in Canada. Doctors and hospitals can adjust care to meet increasing demand, as happens every year during flu season.

Moreover, no surge materialized when Medicare was implemented and millions of previously uninsured seniors got coverage. Between 1964 (before Medicare) and 1966 (the year when Medicare was fully functioning) there was absolutely no increase in the total number of doctor visit in the U.S.; Americans averaged 4.3 visits per person in 1964 and 4.3 visits per person in 1966. Instead, the number of visits by poor seniors went up, while the number of visits by healthy and wealthy patients went down slightly. The same thing happened in hospitals. There were no waiting lists, just a reduction in the utilization of unneeded elective care by wealthier patients, and the delivery of more care to sick people who needed it.

Bizarrely, despite projecting a $2.213 trillion increase in total payments to providers over 10 years, Blahous claims that the program would lead to massive financial losses for doctors and hospitals (top of page 19).

5. Long Term Care: The original version of Blahous’ report estimated that the Sanders bill would increase expenditures for long term care by $1.849 trillion over 10 years. He was apparently unaware that the Sanders bill would not immediately implement major changes in the long term care financing system. When informed of this error he deleted this section of the report, and recalculated his figures.

In summary, Blahous grossly underestimates the administrative savings under single payer; projects increases in the number of doctor visits and hospitalizations that far exceed the capacity of doctors and hospitals to provide this added care; and posits that our country would continue to pay much more for drugs and medical equipment than people in every other nation with national health insurance. He thus overestimates national health expenditures by about $10 trillion over 10 years.

Blahous also neglects to mention that massive savings would accrue to businesses, households, and state and local governments that would no longer be saddled with health insurance premiums or out-of-pocket costs. These savings would more than compensate for the increased federal government expenditures. The Sanders bill would, in reality, shift spending from private to public sources, and from state and local governments to the federal government. Over 10 years, our nation would surely pay less overall under Sen. Sanders bill than under current arrangements.

Moreover, despite overestimating new costs and underestimating savings Blahous admits that Sanders’ program would cover all of the uninsured, and upgrade coverage for the vast majority of Americans who currently have private insurance or Medicare, while decreasing total health expenditures by $2 trillion over ten years.

Blahous’ biased, anti-single payer estimate inadvertently bolsters the evidence that a single payer reform would greatly increase the efficiency and fairness of the U.S. health care system.

Drs. Himmelstein and Woolhandler are distinguished professors of health policy at the City University of New York at Hunter College and lecturers in medicine at Harvard Medical School. The opinions expressed do not necessarily reflect those institutions’.

https://www.pnhp.org…

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Comment:

By Don McCanne, M.D.

Res ipsa loquitur.

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