PNHP

Finkelstein and Einav on moral hazard

Finkelstein and Einav on moral hazard

NBER Working Paper No. 24055; Moral Hazard in Health Insurance: What We Know and How We Know It

By Liran Einav and Amy Finkelstein
National Bureau of Economic Research, November 2017

Abstract

We describe research on the impact of health insurance on healthcare spending (“moral hazard”), and use this context to illustrate the value of and important complementarities between different empirical approaches. One common approach is to emphasize a credible research design; we review results from two randomized experiments, as well as some quasi-experimental studies. This work has produced compelling evidence that moral hazard in health insurance exists – that is, individuals, on average, consume less healthcare when they are required to pay more for it out of pocket – as well as qualitative evidence about its nature. These studies alone, however, provide little guidance for forecasting healthcare spending under contracts not directly observed in the data. Therefore, a second and complementary approach is to develop an economic model that can be used out of sample. We note that modeling choices can be consequential: different economic models may fit the reduced form but deliver different counterfactual predictions. An additional role of the more descriptive analyses is therefore to provide guidance regarding model choice.

From the Introduction

We make no attempt to review the voluminous empirical literature on the topic (moral hazard in health insurance). Rather, we select only a few specific papers – drawing (grossly) disproportionately on our own work – to illustrate the relationship and complementarities between different empirical approaches used to study the same topic. Our focus is thus not only on describing (some of) what we know, but also on how we know it.

We begin by defining the object of interest: what “moral hazard” means in the context of health insurance, and why it is of interest to economists. We then discuss work on three specific questions related to moral hazard in health insurance. First, we describe work that has tested whether moral hazard in health insurance in fact exists. There is a clear affirmative answer, with much of the most-convincing existing evidence coming from large- scale randomized experiments: Just like almost any other good, individuals increase their healthcare utilization when the price they have to pay for it is lower. Second, we describe work that tries to assess the nature of the consumer response. In particular, we ask whether individuals respond to the dynamic incentives that arise from the non-linear health insurance contracts. Again, the general finding is positive, with much of the evidence driven by quasi- experimental studies. Finally, we describe work that attempts to forecast what healthcare spending would be under contracts we do not observe in the data. This requires a more complete model of individual behavior.

In the final section, we conclude by returning to our main goal in writing this paper, and discuss the cross-pollination across the methods and approaches used in the three preceding sections. While all methods were used in the context of the same broad topic, the more specific questions they answer are slightly different. We highlight the value of each approach, and the important interactions between them.

From the Conclusions

It is a great time to be an empirical economist. We have a rich tradition of economic modeling and structural estimation to draw upon. And we are the beneficiaries of an improved (and improving!) reduced form tool kit for identifying causal effects. Both can be applied to the large, and rich administrative data sets that researchers are increasingly accessing. By combining these approaches – within and across papers – our production possibility frontier will expand even further.

http://www.nber.org…

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Merriam-Webster

moral: of or relating to principles of right and wrong in behavior

hazard: a source of danger

https://www.merriam-webster.com

***

Comment:

By Don McCanne, M.D.

What is the meaning of “moral hazard”? By a dictionary definition it sounds as if it is a source of danger emanating from wrong behavior. Whatever it is, it doesn’t sound good.

In health insurance moral hazard refers to the inverse relationship between out-of-pocket spending and the amount of health care one attempts to access. The more one has to spend to access care, the less likely the individual will receive that care regardless of how beneficial it may be. Thus moral hazard does sound bad since cost sharing (deductibles, copayments, and coinsurance) cause individuals to forgo beneficial health care services. But wait.

That isn’t what the supporters of cost sharing (consumer-directed health care) mean when they refer to moral hazard. They contend just the opposite – that it is a moral hazard (bad) when an individual accesses care for free (i.e., the care is fully covered by insurance) – care that would have been forgone had payment been required.

Think about this. We have some individuals in the policy community who believe that a health care financing system should assist individuals in getting the care they should have, and thus financial barriers are bad. Others in the policy community believe that individuals should be deterred from getting health care that would otherwise be paid for through collective funds, whether private insurance risk pools or publicly-financed government programs, and thus financial barriers are good whereas receiving care without a related payment is bad. Thus there is a sharp contrast in the belief in the social contract of solidarity.

It seems obvious. Preventing access to beneficial care is bad, and removing those barriers is good, even though the latter has been labeled by the pro-market policy wonks with the pejorative term, “moral hazard.” And yet this concept has generated an entire industry within the policy community producing endless studies over how “beneficial” consumer-directed health care is. No wonder the authors, members of that camp, state, “It is a great time to be an empirical economist.” It is also a great time to be a loan shark or a bankruptcy attorney.

We do not need more studies of moral hazard. When the advocates of consumer-directed health care advocate for more high deductibles, we should soundly reject the concept based on the dictionary definition of immoral hazard.

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What would Uwe Reinhardt say about Walmart’s company-sponsored health coverage?

As Walmart Buys Online Retailers, Their Health Benefits Suffer

By Noam Scheiber and Michael Corkery
The New York Times, November 27, 2017

The steady growth of e-commerce has been a source of jobs and benefits as employment in traditional stores declines. But at online retailers taken over by Walmart, workers are finding one benefit in retreat: their company-sponsored health coverage.

In little more than a year, Walmart has spent nearly $4 billion acquiring e-commerce companies with thousands of workers. Last month, many learned that their potential out-of-pocket costs for medical expenses would increase in 2018 at a rate far exceeding the overall rise in health care costs — reaching thousands of dollars in many cases.

In 2011, it raised some premiums by more than 40 percent. Three years ago, it ended coverage for employees working fewer than 30 hours per week on average. Other large retailers, such as Target and Home Depot, made similar changes.

Health care benefits tend to be harder to come by in retail than in any other industry, with just over half of all retail employees eligible for company plans, versus more than 90 percent in manufacturing, according to a survey this year by the Kaiser Family Foundation.

The new Walmart options for hourly workers prominently feature what are known as consumer-driven plans, in which workers cover all their medical expenses out of pocket, up to a relatively high deductible. A medical-expense account to which the company contributes money helps defray these costs.

One coverage option for a worker and a child, including dental and vision, has a biweekly premium of about $67 (assuming no use of tobacco products). Walmart would in turn contribute $600 to a health reimbursement account. Once that $600 is exhausted, however, the worker would have to shoulder the full amount of family medical expenses up to $5,500.

Larry Levitt, a health insurance expert at the foundation, said that such high-deductible plans had increasingly become the cost-containment strategy of choice among many employers, but that the particulars of Walmart’s plan made it especially ungenerous.

https://www.nytimes.com…

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Comment:

By Don McCanne, M.D.

When the Affordable Care Act was crafted, it was decided to leave employer-sponsored plans in place because that sector of health care coverage was working so well, so they said. But look at Walmart, the nation’s largest private employer, half-owned by the nation’s wealthiest family – the Waltons.

With average wages of $13.85 per hour ($28,808 per year if working 40 hours per week with paid vacations), they expect a worker with a child to pay $7,242 in health care costs ($1,742 towards the premium and $5,500 in cost sharing). That is one-fourth of the family’s meager income! This is the pragmatic approach to health care financing advocated by the ACA supporters who tell us that single payer is not feasible? How can they consider this outrage to be pragmatic, or even feasible?

This is a prime example of the escalating shift to consumer-driven health care. It is not as if we didn’t understand the issues long ago. We should listen again to the words of our friend and mentor, the late Uwe Reinhardt, from a Quote of the Day on November 23, 2004. At that time I transcribed the following excerpts from the closing remarks of the keynote address that he gave to the Leadership Academy sponsored by the California Medical Association. (I am not aware of this address having been published elsewhere.)

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Can a “Consumer-Driven” Health Care System Succeed?

By Uwe E. Reinhardt, Ph.D., Professor of Political Economy, Princeton University

“What should be the goal of a health system? It should improve health status. It should protect families from financial ruin over illness. It should leave people satisfied with the care they got. But it should also make them feel good about a sense of fairness in their society, as Canadians fiercely feel proud of the sense of fairness in their system, whatever problems they have. And the Germans and the Swiss are fiercely proud of the social contract of solidarity.

“Intermediate goals are access to timely care, that feeds into health status and that. See, these are not goals, they’re just instruments to reach these goals: efficiency and fairness, fairness in financing health care…

“We don’t talk enough about financial protection, about people who have cancer also going broke, and the insult and hurt that that represents.

“But, you know, ‘It wasn’t my fault that I got cancer, now I have to sell my house.’ That’s an insulting thing for a Canadian and German like me to think about. And it happens. Many, many American families go broke over health care.

“We don’t ever talk enough about fairness and equity, not at all about the social ethic. We talk about the Judeo-Christian ethic as if it were something else. It should really be ours, and, incidentally, there is a confusion in all kinds of other ethics. But they all ask for the same.

“In the present instance, I think we should ask how these goals are affected relative to the status quo and relative to alternative policy options that we might consider, like traditional, comprehensive coverage with managed care, single payer system, and so on. And I think we need to have some debate; which of these approaches actually gets us closer to those goals…

“A major problem in the U.S. is we never discuss ethics; that’s somehow a taboo topic, because here we get ideological and then we get political. And I say, ‘Bullshine.’ That is at the core of health care. That is the foundation that should surround health care, because that’s how physicians, among others, are trained.

“So, to me, we can’t really judge whether this will succeed. Some people will say, ‘It succeeds.’ It’s like beauty and honor, the evaluation of consumer-directed health care will be driven much more by ideology than by data. And that’s where we are right now. And I wish it were more driven by two things: data, to tell us what this thing really does, and, secondly, what would we like to be like as a people.

“Do we want to be the kind of people that treats soldiers the way we do ($8000/year pension after losing a limb)? Do we want to be the kind of people that leaves a mother, who raises three children for America, sitting there without health insurance or (with only) the policy that she can find on eHealthInsurance.com (leaving her with $20,000 out of pocket on $26,000/year income)? Is that what we’re about as a people? I’m just an immigrant here. I can’t tell you. This is your problem, not mine. I’m well to do; I buy out of this. But I urge you to reflect on those aspects of it before we get into the technique.

“We can do this. When you tell me the ethics; we can implement it, or the people who spoke yesterday. We know how to do this. But ethics first. And I think we put ethics last.”

https://pnhp.org…

In the four day meeting, Uwe Reinhardt was the only speaker to receive a standing ovation. It is not too late. We can still move forward with ethics first.

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An economist supports pragmatic reform

Replace Obamacare with single payer health system

By William W. Dornburgh
Times Union, November 26, 2017

I am neither a Democrat nor a Republican, neither a conservative nor a liberal. I am a pragmatist.

The Affordable Care Act has imposed federal mandates on both the insurance industry and on those who are uninsured either voluntarily or otherwise. The insurance companies can’t make a profit under that system, so the government subsidizes them with cash. That should be an abomination to both conservatives and liberals alike. The ACA mandates that people buy policies they can’t afford or don’t want, and the insurance companies are mandated to sell policies that don’t meet normal underwriting standards. The ACA is a law that is seriously flawed. It is not regulation, but control.

In national polls, people favor coverage of pre-existing conditions and say health care should be a “right.” That means that health care should be available to all, regardless of ability to pay or one’s health condition. That is the political wave of the future that the Democrats will eventually act upon when they will inevitably control Congress. The Republicans may as well accept that reality while they still have an opportunity to draft the legislation by compromise.

The ACA has abolished the concept of risk management, an underlying insurance principle. By mandating what must be paid, the health insurance industry is reduced to merely a payment mechanism, a “middle man.” It is an antiquated system complicated by 50 states that have a say in the insurance products that can or cannot be sold within their boundaries, all of which is complicated by Medicaid.

The majority of health care professionals, and probably most corporate employers, would prefer a single payer system, in which the federal government would be the sole “middle man.”

That is not as radical as it may sound. Single payer is not socialized medicine, but a centralized payment system as is Medicare. A universal Medicare system could retain deductibles and co-pays as Medicare does now. The insurance industry would still have a more limited participation by offering supplementary insurance policies to cover the deductibles and co-pays that Medicare does not pay. It would surely be a more economical, less costly alternative than the chaotic system we have now.

And how should we pay for such an ambitious program? First let’s note that universal Medicare will relieve individuals and businesses of the burden of dealing with a multitude of insurance products as well as paying ever-increasing premiums, a considerable financial burden. Workers and employers would no longer have Medicare payroll taxes. The role of Medicaid would be significantly reduced if not eliminated. The cumulative benefits are significant.

The primary source of funding would be a dedicated value added tax. Some object that it would fall disproportionately upon the poor, but such a tax is paid mostly by those who buy the most products and therefore would fall mainly on the wealthiest among us. The give-and-take of compromise would be necessary.

The economist in me acknowledges that our current unwieldy health care system urgently needs to be overhauled. A centralized payment system is not only a more economic solution, but more pragmatic than what we have now. My guess is that the insurance industry would breathe a sigh of relief to get the ACA off of its back and settle for offering supplemental policies.

Let us compromise and get it over with and move on to much other pressing problems, such as abolishing pennies and nickels.

William W. Dornburgh, of Cooperstown, is an economist and former banker who has served on insurance company and hospital boards.

http://www.timesunion.com…

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Comment:

By Don McCanne, M.D.

Many supporters of the Affordable Care Act say that they do not believe that single payer is politically feasible and thus the pragmatic approach to reform is to continue to support ACA. But is supporting an outrageously expensive and administratively inefficient system that leaves so many without affordable access to health care truly pragmatic? Of course not.

This is why today’s message is so important. William W. Dornburgh, an economist and former banker who has served on insurance company and hospital boards, has observed our dysfunctional system, not from a political perspective but from the perspective of economics, banking, insurance, and hospital care, and he has concluded that the current system is not pragmatic, but single payer is.

His general arguments are very persuasive. Some of the details, not so much. Deductibles and copayments are a problem because they create financial barriers to care, so they should be eliminated. Single payer contains costs in a more patient-friendly way. Increasing single payer Medicare for all benefits to include those that would be covered by private supplementary Medigap plans would allow us to eliminate them, thus reducing the waste and administrative inefficiency caused by these superfluous plans. He suggests that the primary source of funding should be a value added tax, but considering the massive shift of income and wealth to the top, more progressive tax policies would be in order.

But his fundamental thesis is right on. Single payer is far more pragmatic than ACA, and it is time that we said so. We need to call out those who profess to be pragmatists in supporting the highly flawed ACA model. Pragmatism it is not.

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A ‘Grand Bargain’ in health reform that we should support

The smart path to single-payer: Combine universal access to health care with an overhaul of punishing bureaucratic rules

By Dr. Matthew Hahn
New York Daily News, October 19, 2017

Sen. Bernie Sanders’ “Medicare for All” bill — onto which just about every Democrat aspiring for the 2020 presidential nomination has signed on — is a serious attempt to fix the American health care system.

That is not to say that the proposal, in its present form, warrants our support. In fact, I will tell you exactly why it should not be supported without significant changes. But Berniecare goes vastly farther than either Obamacare or recent Republican health care plans, and therefore, ought to be considered the real starting point of an in-depth conversation about how we can finally fix American health care.

I’m a family doctor, and from my vantage point, the American health care system is defined by four main problems. First and foremost, too many people lack access to care. Second, health care costs too much – both for individuals, and for the nation as a whole. Third, American health care is low-quality care. And fourth, American health care is a bureaucratic and administrative nightmare for both patients and providers alike. Any serious proposal must address all of these issues.

Obamacare increased access to care for some, but it did not seriously address cost issues. Republican reform proposals may cut costs, but they do so at the expense of access to care for millions of Americans. Therefore, neither is the solution we need.

Berniecare, on the other hand, provides access to all. And for patients, the cost issue is solved. One fee, an income tax, pays for everything. So the two biggest issues in American health care are ostensibly fixed. That should be enough to get everyone to give this proposal serious consideration.

But criticisms of single payer are relevant, and must be taken seriously. In fact, how these issues are addressed makes or breaks the plan.

Many question whether our government, which has a hard time managing complex problems, is capable of properly administering such a system. This is a legitimate issue. Any practicing physician or nurse will tell you that excessive and unnecessary government bureaucracy has contributed as much as any other single factor to the destruction of American health care.

Billing for Medicare patients in the current system may actually be more complicated than providing their medical care.

An average appointment for a Medicare patient that I see pays about $75, but the amount of effort it takes my small office to collect that amount is incredible. At one point a few years ago, all of our Medicare payments were stopped for months because Medicare officials could not decide which credentialing form we needed to fill out, the 855I or the 855R.

We were not paid a penny the entire time. We were forced to draw from our line of credit to pay our staff.

This barely begins to scratch the surface of the administrative overkill that plagues health care professionals every day. The government’s mandatory Meaningful Use program doomed a generation of modern physicians to purchase expensive and essentially unusable electronic health record programs. Compliance with such programs is so complicated that I now spend as much time today trying to figure that out as I do reading medical journals.

The worst may be yet to come. The government’s complicated new “value-based payment” program (best-known by its abbreviation, MACRA) uses clinical, computer use, and cost data to determine physicians’ Medicare pay rates. It increases physicians’ administrative burdens substantially, and will actually penalize doctors who see the oldest, sickest, and poorest patients, who tend to generate the worst data.

Even more frustrating is the fact that the American health care system holds back genuine value at almost every step. The other day, one Medicare patient, who happens to have diabetes, had prescriptions for insulin and glucose testing supplies rejected four times because we could not successfully figure out all of the coding and authorization requirements. Misguided programs like MACRA will encourage physicians to stop taking care of the most difficult patients.

What this means is that it is not unrealistic to fear that out-of-control government bureaucracy could ruin a single-payer health care system. In fact, recent history, as evidenced by these examples, argues that without significant reform it would do just that.

Does this mean that we should reject “Medicare for All”? I don’t think so. But we need to give a good deal of thought to developing more efficient, less invasive ways to regulate health care.

In fact, let’s consider striking a grand bargain: Guarantee health insurance for all, in exchange for a major deregulation of the day-to-day decisions of most doctors.

Matthew Hahn, M.D., is author of “Distracted: How Regulations Are Destroying the Practice of Medicine, and Preventing True Health-Care Reform.”

http://www.nydailynews.com…

***

Earlier this week a proposed “Grand Bargain” by Georgetown Professors Gregg Bloche and David Hyman published in Health Affairs was discussed in a Quote of the Day. Excerpts from my comment: “This is a call for more of the same. Numerous studies have shown that this is the most expensive model of health care reform and that it falls far short on reform goals of universality, comprehensiveness, access, equity, efficiency, quality, and affordability. A well designed single payer model would achieve those goals.” “We can get the policy right, but we need to change the politics.”

Gregg Bloche responded to my comments with the following: “We didn’t set out to propose an ideal system. We’re proposing a way forward that takes account of stakeholder power and ideological divides, preserves access to care for millions of Americans, and addresses the long-term challenge of rising costs. Yes, politics stands in the way. But we think our way forward is politically more plausible than the maximalist positions many Democrats and Republicans have staked out.”

https://www.healthaffairs.org…

***

Comment:

By Don McCanne, M.D.

There is general agreement that, in spite of a few beneficial policies contained in the Affordable Care Act, serious problems remain in our health care system and especially in its method of financing. A few days ago a “Grand Bargain” in health reform was discussed in a Quote of the Day. As with many other similar proposed compromises, it was presented by its authors, Gregg Bloche and David Hyman, as a politically plausible solution. Bloche says that they “didn’t set out to propose an ideal system,” and that is the problem. Most of these compromise proposals insist on sacrificing an ideal system by perpetuating highly flawed policy for the sake of political feasibility. As we have said many times, it is the policy that we need to get right, while it is the politics that we need to change.

That brings us to the “Grand Bargain” proposed by Matthew Hahn, a family physician practicing in Hancock, Maryland. His approach to a grand bargain is quite different from compromise proposals. He has written a book,”Distracted: How Regulations Are Destroying the Practice of Medicine and Preventing True Health-Care Reform” (I have ordered the book but have not read it yet, only the reviews).

Matt Hahn, Russ Mokhiber and I had long conversation two days ago about his thoughts on reform. He does generally support the single payer model of comprehensive reform, but he is understandably very concerned about the response of several other physicians who have expressed disdain towards Medicare, blaming much of the dysfunction in health care on government bureaucracy. That has made it difficult to convince them that a government administered single payer system – an improved Medicare for all – is the solution.

The problems Hahn addresses in his book are familiar to everyone in health care, especially since they have contributed significantly to the burnout being experienced by about half of all physicians. At PNHP we have repeatedly expressed concern about many of these issues – MACRA with MIPS and APMs, and the intrusive EMRs being prime examples. So in his article, Hahn proposes a “Grand Bargain” of combining the single payer model with a massive overhaul of regulations to tame the “out-of-control government bureaucracy.”

Well, he is right that the government has gotten carried away with regulatory measures such as those that would “replace volume with value.” The experimental models are now being implemented throughout the nation even though they have already failed to deliver on significant cost containment, and the impact of the quality measures have been negligible, but they are driving physicians crazy.

Token acknowledgement of some of these issues has been given by the current administration, especially by CMS administrator Seema Verma. Unfortunately she is recommending the wrong path toward deregulation. She is pushing patients into the private sector while relaxing essential government oversight of the insurers. They are proposing reductions of federal contributions to health care – a move that will only compound the problem of a lack of affordability of insurance and health care.

It is important to understand that the primary defect is not government regulation alone but rather the highly dysfunctional health care financing system. Most of the administrative excesses come from the private insurance industry and the administrative burden that these private insurers are placing on physicians, hospitals and other health care institutions. It is the private insurers, including private Medicare Advantage plans and private Medicaid managed care organizations that are limiting patients to networks of providers. It is the private plans that are erecting excessive financial barriers to care through very high deductibles and other cost sharing. It is the private insurers who insist on intrusive prior authorization requirements, and it is private pharmacy benefit managers who create access barriers to much needed medications. It is the avoidance of adverse risk selection by the private insurers that help to keep tens of millions of Americans on the rolls of the uninsured.

Without government regulation the insurers exclude patients with greater health care needs from their risk pools, thus we need guaranteed issue. Community rating is required to ensure that selected groups will not be gouged by the insurers. Market competition is not enough to prevent insurers from pulling out of less profitable regions. But keep in mind that these important government regulations of the private insurance industry would not be necessary with a universal public single payer system. A public program does not need special regulations to prevent the government insurer from gouging patients – public service is a given.

Hahn has expressed some concern that the current single payer bills HR 676 and S 1804 do not explicitly correct many of the public (and private!) bureaucratic abuses. As to just how explicit the bills should be can be debated, but it is imperative that we get the word out that Hahn’s grand bargain – a combination of a well designed single payer model with attention to regulatory, bureaucratic abuses – is the model supported by PNHP, even if we haven’t always been explicit in addressing the concerns of Dr. Hahn and his colleagues. We need to direct more attention to this topic in our efforts to educate our colleagues and the public at large.

It is not government bureaucrats alone that we have to fear. It is the highly dysfunctional, fragmented, private and public financing system that is the problem. The private sector will not fix it with their business model. They have had over half of a century to prove that they are incapable. We will need to rely in the future on our own public service model – single payer – but we will have to select public stewards who understand that it is all about the patient. Create a system that takes good care of patients, and the health care professionals will do just fine.

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Single-payer health care gains traction, local physician advocates

By Amanda Zhou and Kris B. Mamula
Pittsburgh Post-Gazette, November 23, 2017

When Rep. John Conyers, D-Michigan., introduced a bill in Congress in 2015 that would create a single-payer health care system, he picked up 49 co-sponsors.

In September, he had 120 co-sponsors when he introduced the bill again, reflecting the gains the idea has made locally and nationally for a privately delivered, publicly financed universal health care system that limits the role of health insurers.

“Everybody’s in. Nobody is out. No such thing as separate networks,” said Ana Malinow, a Shadyside pediatrician who has treated many children who didn’t have health insurance. “The way we get there is a single-payer health care system.”

Dr. Malinow, who served as president of the Chicago-based Physicians for a National Health Program in 2007, recently revitalized the Pittsburgh chapter of the organization, which has about two dozen physician members from the region. PNHP also has been collaborating with the Western Pennsylvania Coalition for Single Payer Healthcare, an organization founded in 2006 and chaired by veteran labor negotiator Ed Grystar.

“Our goal is to build a strong grassroots organization, independent of political parties,” Mr. Grystar said. “Just because you’re insured doesn’t mean you necessarily have access to health care.”

Over the years, a lack of health insurance has caused easily treated medical problems to instead reach a crisis, Dr. Malinow said.

She remembered two patients from her years working at Ben Taub Hospital in Houston, Texas. In one case, an infection spread up a child’s arm, requiring intravenous antibiotics because the parents couldn’t afford a prescription medication. Another child wound up in the intensive care unit for treatment of asthma because the parents couldn’t afford a prescription inhaler.

“I honestly knew nothing about the U.S. health care system,” Dr. Malinow said. “I just knew it was broken.”

The Texas Medical Association calls its state the “uninsured capital of the U.S.,” but Dr. Malinow said the problems in Texas are, in fact, endemic in the country’s health care system, where high insurance premiums, co-pays and deductibles put health care out of reach for many families.

Still, single-payer health care bills have been historically difficult to pass. Limiting the role of insurance carriers in the health care equation likely would encounter resistance, said Martin Gaynor, professor of economics and health policy at Carnegie Mellon University.

“If we thought the Affordable Care Act was a big transition, that’s nothing, that’s peanuts compared to this,” Mr. Gaynor said.

In 33 years of practicing medicine, pediatrician Scott Tyson said he has seen health insurance companies take a bigger role in medical decisions, which has not always benefited patients.

“The insurance industry has taken more and more of the power away from patients and providers,” said Dr. Tyson, who has offices in Mt. Lebanon, Peters and Robinson. “Getting the insurance industry out of the picture is the only way to control costs and give health care back to patients and providers.”

Single-payer health care is the norm for countries from Singapore to Canada to Germany, though each country has its differences.

While proponents point out that the United States spends more on health care per capita than most other developed countries yet scores worse when it comes to preventable deaths, life expectancy and child mortality, critics point to wait times and the lack of incentives for drug and treatment innovation under single-payer systems. In Canada, a Fraser Institute study found it takes around 8.5 weeks to see a specialist after visiting a general practitioner and then another 9.8 weeks to receive a procedure.

According to the Kaiser Foundation, 49 percent of the U.S. population is covered by private insurance and 35 percent is covered by Medicare, Medicaid or another form of public insurance. “Obamacare” reduced the uninsured portion of the population from 16 percent to around 9 percent.

For a Medicare-for-all option, the federal government could choose to expand Medicare Advantage plans, where the government contracts with private insurers to provide medical care, said Amelia Haviland, associate professor of statistics and health policy at CMU.

The option favored by Sen. Bernie Sanders, I-Vermont, would expand Medicare to include all citizens under 65 with additional coverage for dental, hearing and vision.

http://www.post-gazette.com…

How do you give thanks when you can’t pay your deductible?

The biggest health issue we aren’t debating

By Drew Altman
Axios, November 22, 2017

Thanksgiving is always a time to think about those in need. How about, then, a group we don’t worry about enough: the many lower and moderate income Americans who can’t cover their cost sharing if they get sick? It raises the question: How much cost sharing is too much?

High deductible plans, which require people to pay large amounts out of pocket before their medical bills are covered, are a good deal for some middle and upper income people. But many lower and moderate income Americans simply don’t have $1,500 to $3,000 to pay for the colonoscopy that might save their life, or a stress test that might reveal the heart disease which is the cause of their chest discomfort.

Share of non-elderly households with liquid assets less than their deductibles, among people with private insurance:

Deductible of $1500 single/$3000 family:
28% – All non-elderly households
63% – Less than 150% of federal poverty level (FPL)
44% – 150-400% of FPL
10% – 400% or more of FPL

Deductible of $3000 single/$6000 family:
40% – All non-elderly households
76% – Less than 1505 of FPL
60% – 150-400% of FPL
20% – 400% or more of FPL

The chart, drawn from a new study, tells the tale: More than four in 10 households with private coverage and incomes between 150% and 400% of the federal poverty line do not have enough liquid assets to cover a deductible of $1,500 for single people and $3,000 for families.

* That’s not a high deductible plan, but about the average in an employer-provided insurance plan.

* Sixty percent couldn’t cover deductibles double those amounts, which are not uncommon, especially in the individual insurance market.

For many families, even if they have insurance, any significant illness could wipe out all their savings, making impossible to fix a broken car to get to work, or pay for school, or make a rent or mortgage payment.

Congress has passed no law declaring that the country will go with high deductible coverage as its main approach to health insurance.

https://www.axios.com…

***

Comment:

By Don McCanne, M.D.

Over one-fourth of all households with a $1500/$3000 deductible plan (average employer-sponsored plan) do not have enough liquid assets to pay their deductible and two-fifths of those with a $3000/$6000 deductible (modest high-deductible plan) cannot either, yet these plans have become fairly standard today. And as many as three-fourths of low-income families with private insurance do not have enough funds to pay their deductibles.

Tomorrow we are supposed to be giving thanks for what we do have, but how difficult will it be for families to give thanks when they wiped out their savings and still owe more because their health insurance coverage was inadequate? Too many couldn’t fix their broken car they need to get to work; they couldn’t pay for school; they couldn’t make the rent payment.

Tomorrow let us resolve to reach the day wherein absolutely everyone will be able to give thanks for being able to access the health care that they need without having to face financial hardship. Giving thanks for what we, as a nation, already have is not enough.

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Beware the ‘Grand Bargain’ in health reform

Beyond Showmanship And Spite: Toward A Health Care “Grand Bargain”

By Gregg Bloche & David A. Hyman
Health Affairs Blog, November 20, 2017

Is a deal on health care possible? Conventional wisdom says no.

We’re alarmed. One of us is a Cato Institute-friendly “free-market”eer who wrote a book arguing (tongue in cheek) that Medicare is the work of the Devil. The other helped to develop President Barack Obama’s 2008 campaign health plan and believes that failure to ensure everyone’s access to health care is an assault on human decency. But we’ve come together because we believe that failure to resolve the present impasse will have hugely destructive consequences for millions of Americans’ access to health care.

Designing A Deal

We think a bipartisan “grand bargain” to stabilize the US health care system is feasible — if key decision makers can move beyond showmanship and spite. To this end, we outline a deal that: honors but balances the competing values at stake, steadies both market and public mechanisms of medical care financing, and puts the nation on a path toward sustainability in health spending.

Our grand bargain builds on federalism. Allowing states to sort out controversial matters within broader limits than the ACA now imposes would permit creative policy alternatives to unfold and encourage local buy-in.

The Long Game: Seven Steps Toward a Compromise that Can Work And Endure

1) Moving Beyond Maximalism — Medicaid Rollback And “Medicare for All”

Republicans should end their campaign to roll back the ACA’s Medicaid expansion, and Democrats should stand down on their quest for single payer. Both pursuits inspire true believers but will go nowhere on Capitol Hill for the imaginable future.

2) State Flexibility

Give states more flexibility to design their Medicaid programs and to govern their insurance exchanges. States could also be allowed but not required to offer a public option through their exchanges. Instead of an all-or-none answer to the public plan question, the nation would have a framework for market-driven, state-by-state resolution. Similarly, states should be allowed to decide whether to prohibit, permit, or require enrollment of Medicaid beneficiaries in private plans.

3) Health Savings Accounts That Appeal To Everyone

We propose that every lawful US resident be auto-enrolled in a health savings account (HSA), funded through a refundable tax credit, scaled to income and family size.

4) Repeal The Individual Mandate

Sacrilege, you’re surely thinking, if you’re a Democrat who’s spent seven-plus years defending the mandate, the ACA’s most disliked element. But the mandate isn’t needed to keep healthy people in community-rated risk pools — it’s the intensity of the incentives, whether framed as penalties or subsidies, that matters. Such subsidies could be supplied in conservative-friendly fashion by allowing all who buy coverage on the exchanges to put HSA funds (including the tax credit we urge) toward their premiums.

5) Congressional Authorization Of Funding For Both The ACA’s Cost-Sharing Reductions And CHIP

Congress should guarantee funding for the cost-sharing reductions for a two-year period, with automatic renewal for an additional two years if per capita subsidies rise by no more than the Consumer Price Index (CPI) during the prior two years. Likewise, Congress should renew CHIP’s funding for several years — we urge three as a compromise.

6) The “Long Game” — Reining In Medical Spending

A long-term effort to contain spending growth is essential for US fiscal stability and consumer well-being. The ACA created a framework for doing this. The Independent Payment Advisory Board (IPAB) can limit Medicare spending, subject to congressional veto, if growth exceeds target rates. And the 40 percent “Cadillac tax” on high-cost private health plans will cover a rising share of the private market as medical costs increase. Together, these policies have the potential to contain clinical spending by capping demand.

A grand bargain should follow through on both of these strategies, plus add similar restraints on Medicaid spending and on the amounts spent to subsidize coverage through the exchanges.

7) Pursuing Therapeutic Value

Much more must be done to use health care resources wisely as constraints tighten. Tying financial rewards closely to clinical value via payment practices, market exclusivity policies, and other incentives will be critical — and will require the clearing of legal and regulatory obstacles. Voluntary action must also play a role: The grand bargain we’ve sketched here creates myriad opportunities for providers, patients, and insurers to gain by insisting on value from a sector of the economy that too often fails to deliver it.

https://www.healthaffairs.org…

***

Reader Comment:

By Don McCanne, M.D.

This is a “Grand Bargain”? Tweaking our highly dysfunctional, fragmented, administratively inefficient, overpriced, inequitable health care financing system?

This is a call for more of the same. Numerous studies have shown that this is the most expensive model of health care reform and that it falls far short on reform goals of universality, comprehensiveness, access, equity, efficiency, quality, and affordability.

A well designed single payer model would achieve those goals. Just because the current Congress would not enact an improved Medicare for all does not mean that the concept should be abandoned. The current Congress will not enact the tweaks called for in this Grand Bargain either.

We can get the policy right, but we need to change the politics. We need to align ourselves behind reform that works for everyone, not behind measures that enrich the stakeholders while perpetuating mediocrity for the rest of us.

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Medicare Advantage plans using ‘service-level selection’ to cheat the taxpayers

NBER Working Paper 24038; Service-level Selection: Strategic Risk Selection in Medicare Advantage in Response to Risk Adjustment

By Sungchul Park, Anirban Basu, Norma Coe, and Fahad Khalil
National Bureau of Economic Research, November 2017

Abstract

The Centers for Medicare and Medicaid Services (CMS) has phased in the Hierarchical Condition Categories (HCC) risk adjustment model during 2004-2006 to more accurately estimate capitated payments to Medicare Advantage (MA) plans to reflect each beneficiary’s health status. However, it is debatable whether the CMS-HCC model has led to strategic evolutions of risk selection. We examine the competing claims and analyze the risk selection behavior of MA plans in response to the CMS-HCC model. We find that the CMS-HCC model reduced the phenomenon that MA plans avoid high-cost beneficiaries in traditional Medicare plans, whereas it led to increased disenrollment of high-cost beneficiaries, conditional on illness severity, from MA plans. We explain this phenomenon in relation to service-level selection. First, we show that MA plans have incentives to effectuate risk selection via service-level selection, by lowering coverage levels for services that are more likely to be used by beneficiaries who could be unprofitable under the CMS-HCC model. Then, we empirically test our theoretical prediction that compared to the pre-implementation period (2001-2003), MA plans have raised copayments disproportionately more for services needed by unprofitable beneficiaries than for other services in the post-implementation period (2007-2009). This induced unprofitable beneficiaries to voluntarily dis-enroll from their MA plans. Further evidence supporting this selection mechanism is that those dissatisfied with out-of-pocket costs were more likely to dis-enroll from MA plans. We estimate that such strategic behavior led MA plans to save $5.2 billion by transferring the costs to the federal government.

From the Introduction

Recent health care reforms have facilitated the transition from volume- to value-based payment models in hopes of achieving cost control and enhancing the quality of care. One such example is that the Centers for Medicare and Medicaid Services (CMS) reimburses Medicare Advantage (MA) plans with a capitated amount per beneficiary to encourage coordinated care in managed care settings. It has been shown that MA plans save money without sacrificing quality. However, as an unintended consequence, MA plans have selectively enrolled healthier people to receive overpayments, known as favorable selection. It remains inconclusive whether cost savings are attributable to cost-effective care management or to risk selection. To reduce risk selection, CMS has adjusted payments to MA plans to reflect the health status of their enrollees, a process known as risk adjustment. To more accurately estimate capitated payments, in 2004, CMS introduced a new risk adjustment model—the CMS-Hierarchical Condition Categories (HCC) model—which uses extensive inpatient and outpatient diagnostic information from the prior year to generate risk scores.

It is debatable whether the CMS-HCC model has been effective in reducing risk selection or whether it has led to strategic evolutions of risk selection. On one hand, it has been shown that the CMS-HCC model considerably reduced the phenomenon of avoiding sicker beneficiaries (i.e., those with high-risk scores) in traditional Medicare (TM) plans. As risk adjustment leads to neutral payments for beneficiaries with conditions included in the risk adjustment formula, MA plans no longer have incentive to avoid those with high-risk scores if their conditions are included in the CMS-HCC model.

On the other hand, there is suggestive evidence showing that MA plans could strategically respond to the CMS-HCC model. Brown et al. (2014) argue that the HCC model merely shifted the profitable population from healthy people (i.e., those with low-risk scores) to sick ones who are over-compensated, within their risk-score. This can be achieved because, first, there is considerable variability in actual expenditures of beneficiaries around their risk-adjusted payments. For all beneficiaries with a given health condition, the CMS-HCC model is designed to adjust payments to MA plans by the same rate. However, the severity of the condition and thus the cost of treating it can vary within a given condition (Medicare Payment Advisory Commission). Second, the variability of the within-risk-score expenditures is larger for those with higher risk scores. Because the CMS-HCC model only accounts for about 100 major conditions, this generates underpayments for those whose conditions are not accurately measured by the model, who tend to have multiple chronic conditions.

We examine these competing claims and analyze the risk selection behavior of MA plans in response to the CMS-HCC model. Specifically, we hypothesize that MA plans engage in service-level selection, in which they provide relatively lower coverage levels for some services to discourage enrollment of certain beneficiaries. While the CMS-HCC model encouraged MA plans to accept TM beneficiaries with high-risk scores, we claim that MA plans strategically behave to avoid beneficiaries who could be unprofitable under the CMS-HCC model (i.e., those with higher expenditures than their risk-adjusted payments). Although there is a large literature on investigating service-level selection as a risk selection strategy, to the best of our knowledge, there is no research explaining mechanisms through which MA plans could engage in service-level selection as a strategic risk selection behavior in response to risk adjustment.

We find that the CMS-HCC model achieved the goal of reducing favorable selection based on health; however, we also find that it led to increased disenrollment of unprofitable beneficiaries from MA plans, leading MA plans to save costs of $5.2 billion in 2007-2009. We explain this phenomenon via service-level selection. Building upon Ellis and McGuire (2007), we theoretically show that MA plans have incentives to effectuate risk selection through service-level selection, as unprofitable beneficiaries are more likely to use services that are expensive and are thus more vulnerable to under provision by MA plans. Specifically, we show that those with higher expenditures than their risk-adjusted payments are more likely to use services that health plans would ration more tightly (i.e., services with higher service-level selection index). This phenomenon is more likely to be pronounced for those with higher risk scores. Then, we find evidence supporting our theoretical prediction that MA plans have actually raised copayments disproportionately more for services with higher service-level selection index (i.e., ambulance, home health service, partial hospitalization, and inpatient hospital service) than services with lower service-level selection index (i.e., outpatient substance abuse services, outpatient X-rays, and outpatient hospital services). Such disproportionate increases in copayment induced unprofitable beneficiaries to voluntarily disenroll from MA plans. In additional analyses, we find evidence supporting this selection mechanism that those with dissatisfaction with out-of-pocket costs were more likely to disenroll from MA plans. Consequently, the variation of total Medicare expenditures for MA enrollees with high-risk scores reduced over time. These findings indicate that service-level selection allowed MA plans to avoid the risk of enrolling unprofitable beneficiaries.

Service-level selection

By Law, MA plans are not allowed to deny coverage based on beneficiaries’ health status. However, MA plans might practice risk selection in subtle ways so that unprofitable beneficiaries voluntarily disenroll from MA plans. To achieve such risk selection, MA plans could risk-select through collecting additional data or advertising. However, because such selection mechanisms would lead to substantial screening costs, MA plans are likely to seek screening approaches with lowest costs. One such approach that generates relatively low screening costs is service-level selection because MA plans do not need to predict each beneficiary’s expenditures but rather only need to predict services more likely used by beneficiaries who could be unprofitable under the CMS-HCC model.

Service-level selection is one type of risk selection, which is based on the phenomenon that unprofitable individuals are more likely to use services that are expensive to health plans subject to capitated payments and are thus more vulnerable to under-provision by health plans. As with risk selection, service-level selection occurs due to asymmetric information between two parties, in which health plans do not know individuals’ private information about health status and preferences for health care. The health plan only knows the probability of using the service at the population level, while the individual knows her need, or probability of need, for each health care service and chooses the best health plan that can satisfy her need. Since rational individuals respond to health plan design when selecting plans, reducing coverage levels for services related to financial losses (i.e., services more likely used by unprofitable individuals) would induce unprofitable individuals to voluntarily disenroll from the plan. In this way, service-level selection would allow health plans to reduce the scope of enrolling those who could be costly to them. Although unprofitable individuals enroll in the plan, service-level selection would also enable health plans to reduce their financial loss as they shift the costs to the individual.

From the Discussion and Conclusion

The goal of this paper is to shed light on the competing claims on the effectiveness of the CMS-HCC model and to comprehensively understand strategic risk selection behaviors of MA plans. We find that the CMS-HCC model reduced the phenomenon that MA plans avoid beneficiaries with high-risk scores in TM plans, whereas it led to increased disenrollment of high-cost beneficiaries, conditional on risk score, in MA plans. We explain this phenomenon through service-level selection. Through theoretical and empirical analysis, we show that after the full phase-in period of the CMS-HCC model, MA plans have the incentive to and did increase copayments disproportionately more for services that appeal to beneficiaries who could be unprofitable under the CMS-HCC model than other services. The disproportionate changes in copayments led to voluntary disenrollment of beneficiaries with need for these services, who tend to incur higher expenditures than their risk-adjusted payments. We also find evidence supporting our hypothesis that those who were less satisfied with out-of-pocket costs were more likely to disenroll from MA plans. Such strategic behavior led to MA plans to save $5.2 billion in 2007-2009 by simply transferring the costs to the federal government, thereby placing significant financial burdens on the federal government.

Findings from this study indicate that the CMS-HCC model reduced the MA plans’ risk selection of avoiding TM beneficiaries with high-risk scores, whereas it induced MA plans to strategically behave in response to the CMS-HCC model via service-level selection. MA plans have raised copayments disproportionately more for services needed by high-need beneficiaries than for other services, thereby inducing unprofitable beneficiaries to voluntarily disenroll from their MA plans, mainly due to increased out-of-pocket costs. This allows MA plans to avoid the risk of enrolling unprofitable beneficiaries.

http://www.nber.org…

***

Comment:

By Don McCanne, M.D.

Since private Medicare Advantage plans initially were paid a flat capitation rate for each enrollee, they selectively marketed their plans to healthier Medicare beneficiaries and that was successful in increasing their profits since their patients were healthier than those enrolled in the traditional Medicare program. To counter this, the government established the Hierarchical Condition Categories (HCC) risk adjustment model so that capitation payments were were made based on the health status of each beneficiary.

To no surprise, the plans then upcoded their diagnoses so that they received capitation rates that were higher than the actual level of care required. It was suspected that the plans were also gaming the system through service-level selection, and this study confirms that they were. Specifically they determined which services would be used by high-cost beneficiaries, and then they disproportionately increased copayments for those services. The dissatisfaction caused by the high out-of-pocket costs for individuals using these services caused them to voluntarily disenroll from the Medicare Advantage plans.

Although the insurers had already been paid at higher capitation rates for this population, they were able to avoid paying for those individuals with costs even higher than the capitation payments, by this devious scheme of shifting more costs to these patients, thus causing them to disenroll. The authors calculated that this shifted $5.2 billion in costs from the insurers to the federal government, that is, to us the taxpayers.

Ironically the system of capitation payments supposedly represents a transition from volume- to value-based payments, yet the insurers have figured out ways to decrease value instead by selectively marketing to the healthy, by upcoding to qualify for higher risk-adjusted payments, and now by chasing away patients who need more care by penalizing them for accessing services normally used by patients with more serious disorders (service-level selection).

How much longer do we put up with this? Throwing these crooks out and replacing their plans with our own single payer national health program would fix this problem right now. What’s holding us back?

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Heading in the wrong direction on Medicare

Older Americans Were Sicker And Faced More Financial Barriers To Health Care Than Counterparts In Other Countries

By Robin Osborn, Michelle M. Doty, Donald Moulds, Dana O. Sarnak, and Arnav Shah
Health Affairs, November 15, 2017

Abstract

High-income countries are grappling with the challenge of caring for aging populations, many of whose members have chronic illnesses and declining capacity to manage activities of daily living. The 2017 Commonwealth Fund International Health Policy Survey of Older Adults in eleven countries showed that US seniors were sicker than their counterparts in other countries and, despite universal coverage under Medicare, faced more financial barriers to health care. The survey’s findings also highlight economic hardship and mental health problems that may affect older adults’ health, use of care, and outcomes. They show that in some countries, one in five elderly people have unmet needs for social care services — a gap that can undermine health. New to the survey is a focus on the “high-need” elderly (those with multiple chronic conditions or functional limitations), who reported high rates of emergency department use and care coordination failures. Across all eleven countries, many high-need elderly people expressed dissatisfaction with the quality of health care they had received.

From the Discussion

The elderly US population is already sicker than similar populations in other countries. Part of the cause is likely to be gaps in coverage and preventive care during Americans’ working years, which results in an older population that ages into Medicare with unmanaged chronic illness.

The US elderly face a “triple whammy,” as they experience higher cost sharing, higher levels of economic vulnerability, and dramatically higher health care costs — with prescription drugs often two or three times as expensive in the United States as in the other countries studied.

The Social Safety Net

The economic vulnerability of older adults emerged from this study as a key concern. Research shows that poverty, food insecurity, unstable housing, social isolation, and mental health problems contribute to higher rates of chronic illness, poorer health and outcomes, higher utilization of the health care system, and greater costs. The United States stands out for disproportionately low spending on social care services compared to health. A previous analysis has shown that some countries in the Organization for Economic Cooperation and Development spend, on average, two dollars on social services for every one dollar on health care. In the United States, less than sixty cents is spent on social services for every health care dollar spent.

http://www.healthaffairs.org…

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First, Republicans want tax cuts. Next, they’ll try gutting Medicare and Social Security.

By Bruce Bartlett
The Washington Post, November 16, 2017

For decades, conservative intellectuals have pushed for big tax cuts; less to grow the economy and more because they want to “starve the beast.” They want to force a major overall spending cut that would be a political non-starter without first passing a tax cut that creates a deficit so large, something must be done about it. Spending cuts must be enacted, then, as they would be presented as the only way to pay for the already passed tax cut’s lost revenue.

Once we can see the whole picture, Americans will have a clearer idea of the net benefit to them. The rich don’t need either Social Security or Medicare — it’s the middle class, which depends on both, that needs to know how tax cuts and spending cuts affect them. If Social Security and Medicare cuts follow tax cuts, on net, even those who would get a tiny tax cut will be much worse off when the spending cuts are factored in. This will give a true, complete picture of the distribution of pain and gain in the GOP program.

https://www.washingtonpost.com…

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Comment:

By Don McCanne, M.D.

Medicare beneficiaries are sicker and face more financial barriers to care than do the elderly in other wealthy nations. Further, the U.S. spends far less proportionately on social services. Clearly we need to do more.

So where is Congress headed? At a time that we have intolerable levels of transfer of income and wealth to the very top, Congress is going to decrease taxes for the very wealthy which will only increase that dastardly transfer. The budget deficits that will be created will supposedly prove that the federal government will no longer be able to afford Social Security and Medicare and thus it will be necessary to slash their budgets as the systems are privatized.

Where we should be headed instead is that we need to improve the Medicare program and then expand it to cover everyone. Since too much income and wealth is at the top we need to increase taxes on that sector rather than reduce them. This is the opposite of what we are witnessing right now. Where is the outrage?

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Single-Payer: A Reproductive Justice Value

By Katie Klabusich
Truthout, November 17, 2017

The reproductive justice movement focuses on expanding the ability of all people to access the full spectrum of reproductive health care — from contraception and cancer screenings to abortion and prenatal care. This priority is particularly urgent amid a recent onslaught of unconstitutional restrictive laws. However, reproductive justice activists know that availability means nothing if patients cannot afford to see their physicians. As Truthout has reported, a single-payer system is the only national health plan that would ensure no one falls through the cracks.

“Reproductive justice is focused on each and every person having the resources and tools to exercise agency over their sexual and reproductive lives,” Alexis Cole, policy manager at youth-focused reproductive justice organization URGE: Unite for Reproductive & Gender Equity, told Truthout.

“What we are really talking about is families — every single person must have the ability to determine what kind of family they choose to have and then be able to raise that family healthily,” Cole said. “The only way we do that is through a comprehensive, universal health plan that includes the full spectrum of reproductive health care, including abortion.”

The Medicare for All Act of 2017, introduced by Sen. Bernie Sanders, explicitly covers maternity, infant and abortion care — all of which would be huge wins for the reproductive justice movement.

This piece is part of Fighting for Our Lives: The Movement for Medicare for All, a Truthout original series. Continue reading at the link below.

http://www.truth-out.org…

Reduce Medicaid spending? Look at Puerto Rico

Capping Medicaid Funding — Lessons From Puerto Rico

By Krista M. Perreira PhD, David K. Jones PhD, and Jonathan Oberlander PhD
American Journal of Public Health, December 2017 (Online November 8, 2017)

The United States already has experience with the consequences of limiting Medicaid funding. The federal government’s contribution to the Medicaid program in Puerto Rico, a US territory with 3.5 million residents, 46% of whom are enrolled in Medicaid or CHIP, is capped and grows with the medical consumer price index. When introduced in 1968, the statutory cap was set to cover 50% of the program’s costs. By 2010, it covered only 18% of Puerto Rico’s Medicaid expenditures. If Puerto Rico’s federal Medicaid payments instead were based on per-person income, as is currently the case in the 50 states, then the federal government would pay 83% of the commonwealth’s Medicaid bill.

The erosion of federal funding for Medicaid in Puerto Rico reflects a fundamental problem with block grants and spending caps. Under such arrangements, payments typically are neither sufficiently indexed to account for rising medical costs nor adequately responsive to changing economic circumstances that can increase the number of poor individuals eligible for benefits. Consequently, the share of Medicaid costs paid by the federal government can decline substantially over time, as it has in Puerto Rico. Puerto Rican officials have responded by setting low income-eligibility levels, based on a commonwealth-specific poverty measure, that covers pregnant women and children only up to 50% of the federal poverty level. Additionally, Puerto Rico provides only 10 of the 17 federally mandated Medicaid benefits. It does not cover nonemergency medical transportation and lacks the infrastructure to cover and regulate long-term care and nurse midwife services.

Puerto Rico’s circumstances are especially dire, but its experiences with capped federal Medicaid funding highlight the quandaries that states would face under Republican proposals to cap spending. Such plans would dramatically curtail the federal government’s role in financing Medicaid. States cannot afford the steep cuts in federal Medicaid financing — about $800 billion over 10 years, amounting to a 24% reduction that would increase to 35% in the following decade — that House and Senate Republicans have proposed. Capped funding inevitably would force states to make painful decisions about reducing Medicaid eligibility and benefits. Medicaid funding caps would unravel the program in many states, leaving millions of low-income persons without any health insurance.

Although the ACA repeal campaign stalled in the Senate, proposals to cap Medicaid spending are likely to resurface. Efforts to limit the federal government’s role in financing Medicaid will not stop, regardless of the ACA’s future. Medicaid is an inviting ideological and fiscal target. Indeed, pressures to reduce the federal budget deficit and pay for tax cuts could soon lead Congressional Republicans to reconsider block grants. Puerto Rico’s experiences with capped Medicaid funding are a warning of the dangers that such plans hold for the states.

http://ajph.aphapublications.org…

***

Comment:

By Don McCanne, M.D.

The Republicans want to cap Medicaid spending. Some of their proposals for doing so already apply to Puerto Rico. As this report indicates, it has been a disaster.

The Democrats are not without blame since they have been content with leaving Medicaid as a chronically underfunded program. It’s just that the Republican proposals would make it much worse.

The most important touted success of the Affordable Care Act has been the expansion of Medicaid, but as long as it remains chronically underfunded and a target for budget cuts, care for low-income individuals and families is at risk of falling below a standard acceptable to most of us – a lower tier of care than what we are capable of providing.

It does not have to be that way. We are spending enough now to provide top-tier health care for everyone – a level in which optimal care becomes the standard. Yes, top-tier care is affordable because it includes eliminating administrative waste, reducing excessive prices, reducing excessive capacity that drives overuse, and reducing care that is of no value.

Rather than expanding to low-income populations the disastrous level of care being experienced in Puerto Rico, we should be bringing Puerto Rico up to the standard of a high performance system that we should all be experiencing. All we have to do is enact a well designed single payer national health program.

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Uwe Reinhardt

Uwe Reinhardt

“The issue of universal coverage is not a matter of economics. Little more than 1 percent of GDP assigned to health could cover it all. It is a matter of soul.”

Uwe E. Reinhardt
September 24, 1937 – November 13, 2017


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