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Growth of underinsurance now rampant in employer-sponsored plans

Growth of underinsurance now rampant in employer-sponsored plans

How Well Does Insurance Coverage Protect Consumers from Health Care Costs?

By Sara R. Collins, Munira Z. Gunja, Michelle M. Doty
The Commonwealth Fund, October 18, 2017

Background

Congress intended for the ACA to do more than expand access to insurance; it aimed for the new coverage to allow people to get needed health care at an affordable cost.

For people covered by employer-based insurance — which includes more than half of Americans under age 65, or more than 150 million people — plans were historically far more comprehensive and cost-protective than individual market coverage. However, over the past decade, premium cost pressures have led companies to share increasing amounts of health costs with workers, particularly in the form of higher deductibles. At the same time, income growth has been sluggish, leaving families increasingly pinched by health care costs.

Survey Findings

Estimated 41 Million Adults Are Underinsured

As of July 2016 through November 2016, 28 percent of U.S. adults ages 19 to 64 who were insured all year, or an estimated 41 million people, were underinsured. This is more than double the rate in 2003 when the measure was first introduced in the survey, and is up significantly from 23 percent, or 31 million people, in 2014.

The underinsured population is predominantly composed of people in employer plans: 56 percent of underinsured adults had coverage through employers at the time of the survey. This reflects the fact that the majority of insured adults have employer coverage. However, people with coverage through the individual market, including the ACA marketplaces, and Medicare beneficiaries who are disabled adults under age 65, are disproportionately represented among the underinsured.

The share of adults who were underinsured has climbed over time in each coverage group. Among adults with employer-based coverage at the time of the survey, 24 percent were underinsured, which is more than double the rate in 2003, and is up significantly from 2014. People working in small firms historically have had somewhat higher underinsured rates than employees of larger firms. But in 2016, the share of adults in firms with 100 or more workers who were underinsured climbed significantly to 22 percent — the same rate as among workers in small companies.

People with individual market coverage, including those in marketplace plans, are significantly more likely to be underinsured than people in employer plans. In 2016, 44 percent of adults with individual market policies, including marketplaces plans, were underinsured.

One-quarter (26%) of adults with Medicaid coverage — the poorest adults in the survey — were underinsured in 2016. Medicaid requires little cost-sharing, but because people eligible for the program have very low incomes, minor out-of-pocket costs can comprise a large share of income.

Adults under age 65 with Medicare who were continuously insured are by far the sickest group of covered adults in the survey — 77 percent have a chronic condition or are in fair or poor health — and the second-poorest after Medicaid enrollees. Many have very high health expenditures and low incomes. Almost half (47%) of adults in this group were underinsured in 2016.

Underinsured Rates in the Four Largest States

The survey drew an additional sample of people in the nation’s four most populous states. Adults in Florida and Texas were underinsured at higher rates than those in California and New York. Among adults who were insured all year, 32 percent of Floridians and 33 percent of Texans were underinsured compared with 21 percent of Californians and New Yorkers.

Higher Deductibles Are Increasingly a Factor in the Underinsured Rate

Between 2003 and 2016, deductibles were increasingly a factor in underinsurance: more people than ever before have plans with deductibles and more have deductibles that are high relative to income.

The share of privately insured adults who had health plans without deductibles has fallen by nearly half over the past 13 years, from 40 percent in 2003 to 22 percent in 2016. At the same time, deductibles have grown in size. By 2016, more than one of 10 (13%) adults enrolled in a private plan had a deductible of $3,000 or more, up from just 1 percent in 2003.

Deductibles are outpacing growth in many families’ incomes, and thus representing a greater share of income. In 2016, 12 percent of adults with insurance coverage all year, or 18 million people, had a deductible that comprised 5 percent or more of their income, up from 3 percent, or 4 million people, in 2003.

Deductibles that are high relative to income are more common in the individual market, but have grown increasingly prevalent in employer plans. Among those insured all year, about one-quarter of adults with individual market policies and marketplace plans had deductibles that equaled 5 percent or more of their income, up from 7 percent in 2003. Among people who had employer coverage, the share with a high deductible grew from 2 percent in 2003 to 13 percent in 2016.

Large deductibles have been most common among small employers, but in 2016 the share of workers in large firms with high deductibles climbed significantly. Among adults with health benefits through their own employer who were working part-time or full-time in companies with 100 or more workers, the share with a high deductible relative to income climbed to 13 percent, the same rate as in small-employer plans.

When we examined the data more closely in the individual market, we found differences by income that likely reflect the effects of the Affordable Care Act’s cost-sharing reductions. These reductions lower deductibles and other cost-sharing elements for lower-income enrollees in marketplace plans. In 2016, a smaller share of adults with incomes under 200 percent of poverty ($23,760 for an individual and $48,600 for a family of four) in the individual market had high deductibles relative to their income than did higher-income enrollees. In contrast, in employer plans, lower-income enrollees have higher deductible burdens than do higher-income employees because the deductible amount does not vary with income. We have found a similar pattern in analyses of other survey data since the ACA’s major coverage expansions in 2014.

Adults with Low Incomes or Health Problems Are at Greatest Risk of Underinsurance

People with low incomes in the United States are by far the most at risk of being underinsured. Among adults who had health insurance for the full year, 44 percent of those with incomes under 200 percent of the federal poverty level ($23,760 for an individual and $48,600 for a family of four) were underinsured in 2016, more than twice the rate of adults with incomes over 200 percent of poverty (20%). Low-income adults comprised 61 percent of the 41 million underinsured adults in 2016.

People with health problems are also at greater risk of being underinsured because of their relatively higher health care costs. Among adults who were insured all year, more than one-third (34%) of those in fair or poor health or those with a chronic health problem were underinsured in 2016, compared to 23 percent of those in better health.

Underinsured Adults Have High Rates of Medical Bill Problems

Greater cost exposure is leaving Americans burdened with medical debt. Half (52%) of underinsured adults reported problems paying their medical bills or said they were paying off medical debt. This is about the same rate as adults who were uninsured for some time during the year and more than twice the rate reported by insured adults who were not underinsured (25%).

Among adults with private coverage who had been insured all year, those with high deductibles were more likely to report problems with medical bills than those with low or no deductibles. Two of five (40%) adults with a deductible of $3,000 or more said they had difficulty paying their medical bills or had accumulated medical debt compared with 21 percent of those who did not have a deductible.

Among adults who were paying off medical bills over time, those who had high deductibles were carrying the largest debt loads. Nearly two of five (39%) privately insured adults with deductibles of $1,000 or higher were paying off accumulated medical bills of $4,000 or more.

Medical Bill and Debt Problems Have Long-Term Financial Consequences

Many adults who have struggled to pay their medical bills report lingering financial problems. People who are either underinsured or uninsured have the highest rates of such problems: both groups had higher debt loads and lower incomes than adequately insured adults. Half (47%) of underinsured adults who had problems paying medical bills or had medical debt said they had used up all their savings to pay their bills; 40 percent said they had received a lower credit rating because of their bills. Over one-third (38%) of underinsured adults with medical bill problems said they had taken on credit card debt to pay bills. About 6 percent of underinsured adults reported they had to declare bankruptcy.

Underinsured Adults Report Not Getting Needed Care Because of Cost

Underinsured adults are more likely to skip needed health care because of cost than are adults with more cost-protective insurance. More than two of five (45%) underinsured adults reported not getting needed care because of cost in the past year, including not going to the doctor when sick, not filling a prescription, skipping a test or treatment recommended by a doctor, or not seeing a specialist. This is twice the rate of continuously insured adults who were not underinsured (22%). It is also close to the rate reported by adults who were uninsured (52%).

Privately insured adults who had health plans with high deductibles were more likely than those with no deductibles to report cost-related problems getting health care. More than two of five (47%) privately insured adults who were insured all year with a deductible of $3,000 or more reported not getting needed care because of cost compared with 22 percent of adults who did not have a deductible.

Many underinsured adults with health problems reported difficulty getting appropriate care. Among underinsured adults with at least one chronic health condition, nearly a quarter (24%) said they had not filled a prescription for their condition or had skipped a dose of their medication because of cost, compared with 10 percent of those with adequate coverage.

Addressing the Key Driver of Insurance Costs: Health Care Cost Growth

Health care costs are the single largest factor in the growth of private insurance premiums in the United States. Insurers and employers have tried to manage premium growth by making consumers increasingly responsible through higher deductibles and other cost-sharing vehicles. Advocates of this approach argue that with more skin in the game, consumers will help to slow cost growth by choosing more-efficient providers and being more selective in the services they use. But years of experience with high-deductible health plans in the U.S. has yielded scant evidence that such a strategy is effective. Instead, as the survey findings indicate, many consumers have responded to higher deductibles by avoiding needed health care and skipping their medications.

Evidence suggests that consumers cannot do the heavy lifting required to reduce the rate of growth in medical costs in the United States.

http://www.commonwealthfund.org…

***

Comment:

By Don McCanne, M.D.

When the Affordable Care Act was crafted, a majority of Americans were enrolled in large employer-sponsored group plans which seemed to be working fairly well. It was decided that these plans should be left alone, other than slightly modifying them to ensure continued protection. Most enrollees seemed to be satisfied with these plans, and so President Obama said that you could keep them if you wanted to. Even today they tell us that that we would face a voter revolt if we tried to take these plans away from people and replace them with a more comprehensive single payer system.

This report reveals that protection provided by employer-sponsored plans is rapidly deteriorating, including in the highly touted large group plans. A relatively high percentage of individuals with these plans are finding that they are underinsured. They are experiencing financial barriers to health care and are suffering financial hardship when they must access that care. The percentages of individuals exposed are scattered through the excerpts above, and they are very significant.

Those who are fortunate enough to remain healthy and do not need much health care may be satisfied with their current plans, not realizing that they are only one serious illness or major injury away from being exposed to financial hardship. They assume that their insurance will take care of any problems, but the experience of those who need care has demonstrated the degree of deterioration in protection that has gradually taken place in recent years.

Those under 65 with long-term disabilities who are enrolled in Medicare are finding that their coverage is inadequate. That is why we need to improve Medicare if we are going to use it as a universal program that covers everyone. Although Medicaid has lower cost-sharing requirements, enrollees are low-income individuals who find that these modest out-of-pocket amounts may create a hardship. Individual and small group plans have traditionally provided more meager coverage, again leaving individuals financially vulnerable. Individual plans offered in the ACA exchanges have some protection for low-income individuals through cost-sharing reductions (if they are reinstated), but individuals with incomes above 250% of the federal poverty level are exposed to significant out-of-pocket costs because of the relatively low actuarial value of the silver plans. So now employer-sponsored insurance has joined the lineup of plans and programs that expose individuals to underinsurance.

It will only get worse. We spend too much and receive too little. We have been shifting to consumer empowerment by placing more of the burden on patients, but this report confirms that we are worse off for it. The report concludes, “Evidence suggests that consumers cannot do the heavy lifting required to reduce the rate of growth in medical costs in the United States.” The heavy lifting can easily be done by a well designed single payer national health program – an improved Medicare for all. Under such a program, nobody should be underinsured.

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The collapse of Trumpcare and the rise of single payer

Single payer bills signal a new era in American healthcare politics

By Adam Gaffney, M.D. and Zackary D. Berger, M.D., Ph.D.
thebmj, October 17, 2017

Two major developments in September upended US healthcare politics. The month’s end saw the failure of a last-ditch blitz by Senate Republicans to dispatch the Affordable Care Act (ACA) via the Graham-Cassidy bill, a painful defeat for opponents of Obamacare, including President Trump. And on 13 September, Senator Bernie Sanders’ single-payer “Medicare-for-All” bill was released, galvanizing proponents of progressive healthcare reform.

Among the notable aspects of Sanders’ bill was its co-sponsorship by 16 Senators (as opposed to zero for Sanders’ last bill), among whom were most of the potential Democratic 2020 presidential contenders. Rising support for single-payer in the Senate follows a similar shift in the House of Representatives, where a majority of Democratic lawmakers now support Representative John Conyers’ single-payer bill.

The immediate impact of these single-payer bills—given that neither will pass in the current Congress—may seem modest. Yet in conjunction with the collapse of Republicans’ ACA repeal efforts, they could signal a new era in American healthcare politics.

Firstly, on the political level, Democrats’ growing embrace of single-payer is tantamount—as many have noted—to a historic shift in the so-called “Overton window,” or the boundaries of the politically possible. Indeed, it now seems likely that single-payer healthcare reform proposals will figure prominently not only in the 2020 Democratic presidential primaries, but in the general election as well.

Secondly, the bills—or something like them—could serve as a framework for legislation under a new government. Sanders’ bill (like Conyers’) would achieve the long-sought goal of universal coverage for US residents through a single public programme. It would eliminate most “cost-sharing”—e.g. copayments and deductibles— a radical departure from trends towards high patient exposure to healthcare costs. Indeed, the bill would cover comprehensive medical benefits without any fees at point of use; the only copayments are for prescription drugs (to incentivize the use of generics), and even these are capped and would not apply to “preventive” medications.

Such fundamental reform could do much good; given that lack of healthcare coverage (28 million remain uninsured at present, despite Obamacare) has been associated with premature deaths, it could be lifesaving. [1] The shift away from cost-sharing could also bring dramatic improvements in the financial and physical well-being of American patients. “Underinsurance” appears to be rising: one recent survey of insured patients seeking cancer treatment found that more than one in three had an unexpectedly high financial burden from care, and about one in six had “high or overwhelming financial distress.” For the latter group of cancer patients, out-of-pocket healthcare spending consumed nearly a third of income despite insurance coverage. [2,3]

Still, even supporters of single-payer reform recognize that Sanders’ bill is merely the first step. First, unlike the House counterpart, the Senate bill excludes long-term care from the new universal programme; it would continue to be provided through the current federal-state Medicaid programme and so would still be a means-tested, rather than a universal, benefit. Advocates also stress other areas for improvement in Sanders’ bill, including shifting hospitals to global budgets (to reduce hospital administrative spending); planned capital expenditures (to control long-term cost growth); and the exclusion of investor-owned health facilities (given concerns about the quality and inefficiency of corporate healthcare). [4]

No one claims, however, that this version of the bill will constitute final legislative text. It also lacks a funding mechanism. Most importantly, its passage will require a shift in the power balance in Washington, as well as greater familiarity and understanding among the electorate, given that new taxes will be needed to replace current spending private healthcare spending. Nonetheless, in addition to providing a potential model for future legislation, the bill serves a number of useful functions now: it has already spurred discussion of the inadequacies of the healthcare status quo (including unsustainable costs), and it provides a vision of the future that contrasts with the bleak plans of both the Republican Party and insurance company lobbyists.

Lawmakers from across the political spectrum are taking notice. “To my friends to the Left,” Senator Lindsey Graham (R-SC), sponsor of Republicans’ Graham-Cassidy bill, said, “I will do everything I can to stop and put a stake into the heart of single-payer healthcare.” [5]

Yet there is a reason why Graham’s bill crashed and burned, and why single-payer may one day succeed despite such threats of impalement. 52% of Americans disapproved of Graham’s bill; even among Republicans, only 46% were in favour, with 21% opposed and a third uncertain. [6] Single-payer, by contrast, is favoured by 53% of Americans, including 64% of Democrats, 55% of Independents, and even 28% of Republicans. [7]

Such poll numbers portend a grim prognosis for the conservative healthcare project. By contrast, as the notion of healthcare as a right—and not a commodity—increasingly becomes part of the national ethos, the prospects for single-payer reform continue to sweeten.

Dr. Zackary Berger is an associate professor of General Internal Medicine at Johns Hopkins School of Medicine and member of the Core Faculty at the Johns Hopkins Berman Institute of Bioethics. He is the founder and treasurer of Clinicians for Progressive Care.

Dr. Adam Gaffney is an Instructor in Medicine at Harvard Medical School and a pulmonary and critical care physician at the Cambridge Health Alliance. He is a board member in the advocacy organization Physicians for a National Health Program and is the author of “To Heal Humankind: The Right to Health in History.”

http://blogs.bmj.com…

References

1. Woolhandler S, Himmelstein DU. The relationship of health insurance and mortality: Is lack of insurance deadly? Ann Intern Med, 2017 doi: 10.7326/M17-1403.

2. Collins SR, Rasmussen PW, Beutel S, et al. The Problem of Underinsurance and How Rising Deductibles Will Make It Worse—Findings from the Commonwealth Fund Biennial Health Insurance Survey. The Commonwealth Fund, 2015.

3. Chino F, Peppercorn JM, Rushing C, et al. Out-of-pocket costs, financial distress, and underinsurance in cancer care. JAMA Oncology, 2017 doi: 10.1001/jamaoncol.2017.2148.

4. Physicians for a National Health Program. Doctors’ group welcomes Sen. Sanders’ Medicare-for-all bill. (Accessed September 29, 2017).

5. Leonard K. Lindsey Graham vows to ‘put a stake into the heart of single-payer’. The Washington Examiner, September 25, 2017. (Accessed September 28, 2017).

6. De Pinto J, Backus F, Khanna K, et al. Poll: Most disapprove of Graham-Cassidy health care bill. CBS News, September 25, 2017. (Accessed September 29, 2017).

7. Hamel L, Wu B, Brodie M. Data Note: Modestly Strong but Malleable Support for Single-Payer Health Care. Kaiser Family Foundation, July 5, 2017. (Accessed September 29, 2017).

UnitedHealth celebrates Trump’s executive order

Top U.S. Health Insurer to Look at Trump Obamacare Alternatives

By Zachary Tracer
Bloomberg, October 16, 2017

UnitedHealth Group Inc., the U.S.’s biggest health insurer, said it’s excited about the the chance to sell health plans President Donald Trump is promoting as alternatives to Obamacare.

Last week, Trump signed an executive order promoting short-term health insurance plans, “association health plans” for business owners who could band together, and tax-advantaged savings accounts that could be used to pay for health services. The order — which Trump has acknowledged as a move to effectively dismantle Obamacare — rattled some health insurance and hospital stocks last week.

“We have a great deal of experience in the areas covered in the order — short-term policies, association plans and expanded use of HRAs,” Chief Executive Officer David Wichmann said on a call with investors. “We will be engaging with policymakers as the regulatory frameworks in these areas are developed.”

UnitedHealth said in a statement Tuesday that its medical-loss ratio, a measure of how much of every premium dollar is spent on care, was 81.4 percent.

The company’s shares rose 4.4 percent to $201.75 at 9:41 a.m. in New York, after earlier rising as much as 5.3 percent for the biggest intraday gain in a year. They’re up about 26 percent so far this year.

https://www.bloomberg.com…

***

Comment:

By Don McCanne, M.D.

As President Trump signs an executive order designed to help dismantle Obamacare, look who is celebrating – UnitedHealth Group, Inc., the nation’s largest health insurer. UnitedHealth has already mastered Trump’s tools to increase profits through short-term health insurance plans, association health plans, and health reimbursement arrangements – tools which reduce the amount the insurers have to pay for health care.

Wall Street also wants its piece of the action, as demonstrated by the boost in UnitedHealth’s share prices, now up about 26 percent this year.

UnitedHealth is touting its medical-loss ratio of 81.4 percent, which means that they divert 18.6 percent of their premium revenue to their own purposes, including high executive compensation and shareholder profits. Compare that to Medicare’s spending on health care which is about 98 percent of revenues.

And this afternoon we learn that Sen. Lamar Alexander and Sen. Patty Murray have reached an agreement that would temporarily extend cost-sharing payments in exchange for softening the rules to allow for cheaper, skimpier plans – shifting yet more health care costs away from insurers.

And when we try to offer the single payer solution, our progressive colleagues jump up and say we can’t have a litmus test. We must continue to support those (neoliberals) who have led us down this path to health care purgatory.

What is your next step? A champagne toast with UnitedHealth’s executives? That seems to be all that we are getting out of D.C. Or are we finally going to do something about this? Like demanding an improved Medicare for all. No, really. We have to make that demand and make it in an effective manner. They are not going to volunteer it.

Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.

Now is time for universal health care

By Rob Stone, M.D.
Bloomington (Ind.) Herald-Times, October 16, 2017

Donald Trump has done for health care what no Democrat was ever able to do: He has made the Affordable Care Act popular. The Senate has tried and failed three times to repeal and replace the ACA. What next?

One thing is certain — it is difficult to predict the future. The most unlikely things have come to pass the last two years: Almost no one predicted that Donald Trump would win the Republican nomination, Bernie Sanders would win the Indiana Democratic primary, and then Trump would win the presidency. Absolutely no one in either party predicted the ACA would still be standing at the end of September 2017.

Is there a way for Republicans to repeal their hated Obamacare and replace it with something that both keeps Trump’s campaign promise to “cover everybody” and that Democrats would get behind? A bipartisan solution?

The answer is hiding in plain sight — repeal Obamacare and replace it with universal Medicare. It will never happen, you say? Stranger things keep happening. Bernie Sanders has introduced such a bill in the Senate, with 16 Senate co-sponsors. The companion bill in the House has 120 co-sponsors.

The great humanitarian-physician Dr. Paul Farmer said, “I can’t show you exactly how health care is a basic human right. But what I can argue is that no one should have to die of a disease that is treatable.”

Especially in the richest nation on earth. I believe everyone deserves health care. You may not believe health care is a “right,” but please tell me whom you believe does not deserve health care.

Medicare already takes care of the sickest and most expensive Americans. Simply expand it to cover everyone. In the process, improve it, remove the co-pays and deductibles and add better hearing and dental coverage. We don’t have to re-invent the wheel.

There is wide agreement that a universal Medicare program is the ideal way to take care of everyone and control costs. The greatest barrier is those who say it can never happen, that it is pie-in-the-sky, that the corporate power against it is too great.

Why have large corporations not championed universal health care? Because it would cause the disintermediation of the private health insurance industry. Disintermediation (a seven syllable mouthful of a word) is what happens when the free market economy figures out how to remove a middleman and let people deal directly with the services they want. Like buying airplane tickets online, or Uber for a taxi, or Airbnb for a hotel room.

We don’t have a true free market for health care. Some say that is because there is too much government regulation, but that turns out not to be the case. Purchasing health care is not like buying a new car. It starts with a doctor and a patient. Patients want choices, but not the choice of which insurance policy to buy. We don’t want insurance companies coming between us and our doctor. We want the freedom to choose our doctor and our hospital. That’s what traditional Medicare does. You can seek care anywhere and not worry about being “in-network.”

The health insurance industry is an expensive middleman that adds no value, but adds huge complexity, cost and inefficiency. Can this unpopular industry be dis-intermediated? Actually, it is inevitable. We can’t afford not to. Private for-profit health insurance is superfluous and obsolete.

Universal health care is where we draw the line; where we make our stand. This is our wedge issue — the people against the powerful and corrupt corporations. I’m betting on the people. Now is the time.

Dr. Rob Stone is director of Hoosiers for a Commonsense Health Plan and Indiana coordinator for Physicians for a National Health Program.

https://www.heraldtimesonline.com…

Medicare for All would offer Americans better health care

By Pamella Gronemeyer, M.D.
St. Louis Post-Dispatch, Letters, October 16, 2017

Now that President Trump has found ways to destroy Obamacare without the need for Congressional approval or our democracy, we must open our eyes and push for the Improved Medicare for All plans supported by Rep. John Conyers, D-Mich., and a majority of congressional Democrats and Sen. Bernie Sanders, I-Vt., and numerous Democratic senators.

A majority of the American people support federal government involvement in the delivery of health care to all Americans. The federal government already pays for about two thirds of health care costs through Medicare, the Veterans Administration and Medicaid. As a physician, I know that Medicare works. It is only at the age of 65 that one sees the curve of health care outcomes improve in relation to other nations because of Medicare.

Medicare for All is publicly funded and privately delivered. The health care bills are paid by one payer, the federal government, not a myriad of insurance companies, personal checks or credit cards. Even more important, there are no people who must turn to Go Fund Me pages to pay their bills or file bankruptcy.

We need to demand that the government represent us and not let edicts of our president control our health and welfare. Call your congressman and senators and ask them to support The House and Senate bills. Learn about Medicare for All through websites at Physicians for a National Health Program or HealthcareNow.

The money that we currently pay for premiums, copay, and deductibles would be reduced by a combination of a progressive tax, employers’ tax and other creative funding. This would be a solution that all Americans can proudly support.

Dr. Gronemeyer resides in Glen Carbon, Ill.

http://www.stltoday.com…

The pecuniary distortion of limited networks

NBER Working Paper 23742: Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets

By Kate Ho and Robin S. Lee
National Bureau of Economic Research, August 2017

Abstract

Why do insurers choose to exclude medical providers, and when would this be socially desirable? We examine network design from the perspective of a profit-maximizing insurer and a social planner to evaluate the welfare effects of narrow networks and restrictions on their use. An insurer may engage in exclusion to steer patients to less expensive providers, cream-skim enrollees, and negotiate lower reimbursement rates. Private incentives for exclusion may diverge from social incentives: in addition to the standard quality distortion arising from market power, there is a “pecuniary” distortion introduced when insurers commit to restricted networks in order to negotiate lower rates. We introduce a new bargaining solution concept for bilateral oligopoly, Nash-in-Nash with Threat of Replacement, that captures such bargaining incentives and rationalizes observed levels of exclusion. Pairing our framework with hospital and insurance demand estimates from Ho and Lee (2017), we compare social, consumer, and insurer-optimal hospital networks for the largest non-integrated HMO carrier in California across several geographic markets. We find that both an insurer and consumers prefer narrower networks than the social planner in most markets. The insurer benefits from lower negotiated reimbursement rates (up to 30% in some markets), and consumers benefit when savings are passed along in the form of lower premiums. A social planner may prefer a broader network if it encourages the utilization of more efficient insurers or providers. We predict that, on average, network regulation prohibiting exclusion has no significant effect on social surplus but increases hospital prices and premiums and lowers consumer surplus. However, there are distributional effects, and regulation may prevent harm to consumers living close to excluded hospitals.

From the Introduction

Since the passage of the Affordable Care Act (2010) there has been growing concern among policymakers about “narrow network” health insurance plans that exclude particular medical providers. Selective contracting by insurers — in which only particular providers are accessible — is not a new phenomenon. Dating back to the 1980s, managed care insurers have used exclusion to steer patients towards more cost effective or higher quality hospitals and physicians, and to negotiate lower reimbursement rates. While networks broadened somewhat with the “managed care backlash” of the 1990s (Glied, 2000), recent high profile exclusions from state exchange plans have reinvigorated the debate over the desirability of such practices. Amid concerns that restrictive insurer networks may adversely affect consumers by preventing access to high-quality hospitals (Ho, 2006), or may be used to “cream skim” healthier patients, regulators at the state and federal levels are considering formal network adequacy standards for both commercial plans and plans offered on state insurance exchanges.

In this paper, we examine the private and social incentives for exclusion of hospitals from insurer networks, and consider the potential effects of network adequacy regulations in the U.S. commercial (employer-sponsored) health insurance market. We begin with a simple framework that isolates the fundamental economic trade-offs when deciding whether or not to exclude a hospital, and identifies the empirical objects required to measure the costs and benefits from exclusion. We then extend the model of the U.S. commercial health care market developed and estimated in Ho and Lee (2017) — which incorporates insurer-employer bargaining over premiums and consumer demand for hospitals and health insurers — to capture exclusionary incentives on the part of insurers. Extensions include incorporating a stage of strategic network formation by an insurer and allowing for endogenous outside options in bargaining. Finally, we use our model to predict equilibrium market outcomes under hospital networks that would be chosen by an agent maximizing social or consumer welfare, or by a profit-maximizing insurer. By comparing outcomes across networks either maximizing different objectives or required to cover all hospitals in a market, we uncover circumstances when private incentives diverge from social or consumer preferences, and evaluate the effects of certain forms of network regulation.

Conclusion

Narrow provider networks have grown more prevalent in both exchange and employer-sponsored health care markets in recent years. Their presence raises important questions. Are these plans effective at reducing spending, and if so, through what means? And is regulation warranted — are the networks that are introduced too narrow from either a social or consumer welfare perspective?

Our paper addresses these and related questions. We extend the model of the commercial U.S. health care market developed in Ho and Lee (2017) by endogenizing an insurer’s hospital network and incorporating a new bargaining concept that explicitly captures an insurer’s incentives to exclude. In the employer-sponsored setting that we examine, we find that selective contracting and informed network design can have substantial effects on overall health care spending. Narrow hospital networks are preferred by a profit-maximizing insurer primarily due to their ability to substantially reduce negotiated rates — and not necessarily due to cream-skimming healthier enrollees or steering patients towards lower-cost hospitals. A private insurer tends to engage in exclusion more than is socially optimal, but typically does so to a lesser extent than the average consumer would prefer because consumers often benefit from substantial premium reductions.

These results support the argument that allowing insurers to exclude providers can substantially reduce hospital payments and premiums without significantly affecting social surplus. This tends to benefit consumers (and hence employers) on average, implying that employers and insurers may wish to work together to control spending through exclusion. Our framework may be useful for these and other interested parties to inform network design. It also can be used to address potential distributional consequences of exclusion by identifying affected populations and quantifying the transfers needed to offset harm from reduced access.

http://www.nber.org…

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Comment:

By Don McCanne, M.D.

This paper looks at the motivation of insurers in establishing narrower hospital networks (profit-maximization, of course) and the perspective of the consumer (i.e., patient) and the social planner.

For the insurer, it’s simple. Contract with the hospital(s) that will agree to the lowest negotiated rates. Quality, cream-skimming or steering patients to lower-cost hospitals has little to do with it as long as the insurers save on negotiated rates.

These economists join others in concluding that consumers prefer narrower-network insurance plans. But it needs to be emphasized, once again, that patients are not choosing narrower-network plans simply because they prefer not to be burdened by having to make decisions regarding having a broader choice in their health care options. They choose narrower-network plans solely for one reason – lower insurance premiums. It would be incorrect to conclude that patients do not mind giving up provider choice as long as they can save some money. Rather it is that insurance premiums have become so expensive that they find paying them often creates a financial hardship. They do not want to give up their choice of health care providers, but many often feel that they have no other option since they have little or no disposable income.

From the standpoint of the social planner, health care resources should be made available based on need. Arbitrarily removing options for care based on pecuniary benefit to the insurer conflicts with optimal social planning. These and other economists tend to be somewhat, but not completely, dismissive of the social planner. They do concede that it could be beneficial to address “potential distributional consequences of exclusion by identifying affected populations and quantifying the transfers needed to offset harm from reduced access.” Or, “there are distributional effects, and regulation may prevent harm to consumers living close to excluded hospitals.”

It shouldn’t be just about money – about insurers’ profits and about patients’ spending as consumers. Social planning is crucial in providing optimal access to health care services. It doesn’t take much thought to conclude which model emphasizes social planning – the for-profit, private insurance model, or the patient service model of a well designed, single payer national health program – an improved Medicare for all. If you need a reminder, the traditional Medicare program does not use provider networks. Costs are contained in much more patient-friendly ways.

Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.

Dr. Farzon Nahvi on ‘NowThis’

New York-based emergency physician Dr. Farzon Nahvi recorded a video op-ed that was posted to the “NowThis Politics” Facebook page on October 16, 2017. He said single-payer reform was needed to protect two distinct groups of patients: those without private health insurance and those with private health insurance.

A single payer system could mean more coordinated care

By Paula L. Stillman, M.D., M.B.A.
Philadelphia Inquirer, October 16, 2017

I do not want to have to switch my health care coverage.

For the past 15 years, I have had multiple spinal epidural injections to relieve my sciatic nerve pain. The injection lasts for 4-6 months and I am pain free during that interval. All of my records and images are at a major hospital in Delaware where I worked for 8 years.  When I left that position I went on Medicare. My injections continued without a copay. I now work at a major health system in Philadelphia and receive health coverage through that health care system.

Recently, I went down to Delaware for my epidural injection before a major out of town trip. The injection worked and I was pain free. Imagine my surprise when I received a bill for a copay for the hospital facility fee for over $1200. I did not realize that the hospital in Delaware was a tier 3 provider. I was never told this before the procedure or the amount of my copay. In fact, I received the bill almost 3 months after the procedure. I appealed this case to Blue Cross and am waiting their decision. I told them that I was never told about the co pay before the procedure and it was bad medicine for me to change providers. I am awaiting their decision.

I should be able to go to whatever health care system I choose and to stay with the hospital that has all of my records and has past experience with my problem. I do not want to switch. For years, I have been very satisfied with the care that I received in Delaware. I have been essentially pain free and able to travel, exercise and enjoy life. Just because my insurance coverage has changed, I should not have to switch my providers. This is bad medicine.

A single payer plan could solve this problem, and Bernie Sanders’ proposal would be a good first step. No one should have their care disrupted because they were forced to change insurance.

Dr. Stillman is Director of Community Engagement of The Institute of Emerging Health Professions at Jefferson University.

http://www.philly.com…

All Americans deserve good health care

By Rian Podein, M.D.
Wisconsin State Journal (Madison, Wisc.), October 16, 2017

Medicare for all is patriotic.

Our nation proudly acts patriotic when we support our military troops. This patriotism naturally extends to supporting our neighbors too. Our brave military men and women are often placed in harms way sacrificing, life and limb.

The same is true of our courageous countrymen and women who may also find themselves in harm’s way, whether by natural disaster, national tragedy, mass shootings, terrorism or illness.

Rightfully, we have guaranteed our military personnel access to high quality and affordable health care via the Veteran’s Administration. We owe the same patriotic commitment to our neighbors.

Current legislation that can fulfill this patriotic commitment includes bills introduced in the U.S. House of Representatives by Rep. John Conyers, D-Mich., and more recently in the Senate by Sen. Bernie Sanders, I-Vt.

The time has come to support our troops and our neighbors with the right to health care.

http://host.madison.com…

Dr. Thomas Clairmont on ‘The Senior View’

Dr. Thomas Clairmont appeared on “The Senior View” on Portsmouth (N.H.) Public Media on October 14, 2017. He was joined by Dr. David Rutstein and other guests to discuss “health care in America.” The panel lamented the outrageous (and rising) cost of care and Dr. Clairmont pushed for single-payer reform to address this problem.

Trump’s abrupt termination of cost-sharing reductions

Trump Administration Takes Action to Abide by the Law and Constitution, Discontinue CSR Payments

U.S. Department of Health & Human Services, October 12, 2017

U.S. Health and Human Services Acting Secretary Eric Hargan and Centers for Medicare & Medicaid Services Administrator Seema Verma released the following statement announcing that cost-sharing reductions payments will be discontinued immediately based on a legal opinion from the Attorney General:

“It has been clear for many years that Obamacare is bad policy.  It is also bad law. The Obama Administration unfortunately went ahead and made CSR payments to insurance companies after requesting – but never ultimately receiving – an appropriation from Congress as required by law.  In 2014, the House of Representatives was forced to sue the previous Administration to stop this unconstitutional executive action. In 2016, a federal court ruled that the Administration had circumvented the appropriations process, and was unlawfully using unappropriated money to fund reimbursements due to insurers.  After a thorough legal review by HHS, Treasury, OMB, and an opinion from the Attorney General, we believe that the last Administration overstepped the legal boundaries drawn by our Constitution.  Congress has not appropriated money for CSRs, and we will discontinue these payments immediately.”

https://www.hhs.gov…

HHS Memo with opinion of Attorney General Jefferson B. Sessions III:
https://www.hhs.gov…

CBO: The Effects of Terminating Payments for Cost-Sharing Reductions:
https://www.cbo.gov…

NYT: 12 ways Trump is scaling back Obamacare:
https://www.nytimes.com…

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Executive Order: Promoting Healthcare Choice and Competition Across the United States

The White House, October 12, 2017

Among the myriad areas where current regulations limit choice and competition, my Administration will prioritize three areas for improvement in the near term: association health plans (AHPs), short-term, limited-duration insurance (STLDI), and health reimbursement arrangements (HRAs).

https://www.whitehouse.gov…

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Comment:

By Don McCanne, M.D.

In order to make health care more affordable for lower-income individuals, the Affordable Care Act required that credits (cost-sharing reductions or CSR) be paid to the insurers to cover a portion of the cost sharing. Republicans chose to block these payments by refusing to appropriate the funds required, forcing the Obama administration to use an alternative source of funds – a move which is now under legal challenge (use link above to see Attorney General Sessions’ opinion).

The Trump administration has now ordered the immediate termination of the CSR payments.

The Congressional Budget Office has previously provided an analysis of the consequences of terminating the CSR payments (see link above). There are too many variables to predict with certainty what will happen, but the action at least is likely to be disruptive to the silver plans offered in the exchanges (the silver plans being the ones that quality for the CSR payments).

Also yesterday President Trump issued an Executive Order instructing agencies to modify regulations for association health plans (AHPs), short-term, limited-duration insurance (STLDI), and health reimbursement arrangements (HRAs). Again, because of variables in implementation of this executive order, the impact is uncertain, but it is likely to be quite negative.

The New York Times has listed other ways in which Trump’s administration is scaling back the Affordable Care Act (see link above). All of these measures together will certainly increase the number of uninsured, reduce health care benefits covered by the innovative plans, while increasing exposure to financial risk. Too many patients will end up sicker and poorer.

At a time when there is a surge of interest in single payer reform – an improved Medicare for all – the pushback against the Trump chicanery could expedite the political processes required to advance health care justice to all. We should be sure that the nation understands that there is a much better way out, but also that they will have to demand that change.

Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.

The time for universal health care and single-payer is near

We should not have to wait another 17 years to see a change that is so critically needed now.

By Richard C. Dillihunt, M.D.
Portland (Maine) Press Herald, October 13, 2017

Seventeen years ago, I wrote an op-ed for the Maine Sunday Telegram headlined “Universal Medicare: The time is coming” (Nov. 19, 2000). Apparently I jumped the gun, as it has not taken place yet.

Now I feel like a cicada, an insect that looks like a huge fly, emerging after 17 years of hibernation under the bark of a tree and emitting unique and characteristic shrill buzzing sounds to attract attention to itself. Now the sounds come from independent Vermont Sen. Bernie Sanders. The concern of our nation regarding health care for all is reaching a crescendo, and we need to address this. The resounding will of the people should be recognized and acted upon.

The recent and astounding conversion of now-retired Sen. Max Baucus, D-Mont., into a supporter of a system of single-payer care like that of Canada leaves one breathless. Baucus owed this to every American, having blocked single-payer eight years ago as an architect of the Affordable Care Act.

Today I repeat the message after all these years. The time for universal health care and single-payer is near, and the politicians of all parties have an obligation to awaken and do what hundreds of millions of Americans crave. Poll after poll expresses this desire.

Current efforts otherwise in Washington are dying day by day, and the gasping last breaths of politicians to repair, replace, revise, renew or whatever are just roadblocks and flimsy efforts to make an easy job impossible.

President Trump, Senate Majority Leader Mitch McConnell, House Speaker Paul Ryan and so many others should be ashamed they have not pushed the easy button bringing superior health care to every last citizen of America. Repeated tweaking of and failures to change the system with little study and no experience only expose amazing incompetence, lack of education and profound political positioning. Trying to solve these issues with political threats and outright lies rather than facts would be laughable if it were not such a serious matter, easily the most important domestic issue of our time.

We owe it to one another to bring about this change and elevate our position to the top. In a recently released, reliable comprehensive study of health care worldwide, our only top position is cost. We blow away every other nation as we spend $9,000 per capita yearly on care – about 17 percent of our gross domestic product.

However, we are far down the list, tied with Estonia and Montenegro, in quality of and access to health care. On a scale of 0 to 100, our overall grade point average is 81. That, to me, is a cruel joke. Top score went to Andorra, a little country in the Alps – boasting a score of 95. Big countries like Norway and Australia beat us with ease. Yes, this is hard to believe. Just check the article, published May 18 in The Lancet – the accurate, highly regarded journal from the U.K. It is all there.

Money is not the problem. How can we wear Gucci shoes while preemies die? How can we let our horn of plenty stop on Wall Street while addicts lives’ end as they wait in vain down the street for rehabilitation services? How can we spend $4 billion on another destroyer scraping its sides on the Panama Canal while health care-related bankruptcies humiliate Middle America?

Should we be sending billions to Egypt to buy tanks that shoot at each other? Or a billion to Ukraine for forgotten reasons?

I again submit: The time has come for Americans to take care of ourselves. Look over our northern border and we will see how it works – at huge savings. Note that the per capita cost of health care here has more than doubled since the publication of my 2000 Telegram op-ed – even though Canada has enjoyed both liberal and conservative governments during this time, with no change in the love for single-payer there.

The per capita cost of health care in Canada is a little less than half of what we pay in the U.S. Politics should not lead the way on how to fix your mother’s hip – or how to pay for it. We need more civilized ways to face these responsibilities. Virtually all polls agree with this position.

Personally, I have more at stake here. I do not want to wait another 17 years to see a change that is so critically needed now. I am sick of living under the bark of a tree. Please study the issues on switching to universal health care and single-payer. Then join Bernie Sanders and a huge majority of our fellow Americans in supporting single-payer care.

http://www.pressherald.com…