NBER Working Paper No. 23090: Healthcare Spending and Utilization in Public and Private Medicare

By Vilsa Curto, Liran Einav, Amy Finkelstein, Jonathan D. Levin, and Jay Bhattacharya
National Bureau of Economic Research, January 2017

Abstract

We compare healthcare spending in public and private Medicare using newly available claims data from Medicare Advantage (MA) insurers. MA insurer revenues are 30 percent higher than their healthcare spending. Healthcare spending is 25 percent lower for MA enrollees than for enrollees in traditional Medicare (TM) in the same county with the same risk score. Spending differences between MA and TM are similar across sub-populations of enrollees and sub-categories of care, with similar reductions for “high value” and “low value” care. Spending differences primarily reflect differences in healthcare utilization; spending per encounter and hospital payments per admission are very similar in MA and TM. Geographic variation in MA spending is about 20 percent higher than in TM, but geographic variation in hospital prices is about 20 percent lower. We present evidence consistent with MA plans encouraging substitution to less expensive care, such as primary rather than specialist care, and outpatient rather than inpatient surgery, and with employing various types of utilization management. Some of the overall spending differences between MA and TM may be driven by selection on unobservables, and we report a range of estimates of this selection effect using mortality outcomes to proxy for selection.

From the Conclusion

We have compared healthcare spending and utilization in public and private Medicare. This setting provides a rare opportunity for a “side by side” comparison of public and private health insurance systems operating on a similar scale, for the same population, in the same markets, and with the same providers. Novel data from the Health Care Cost Institute on the healthcare claims of MA enrollees allow us a rare look inside the “black box” of healthcare utilization and spending in MA.

We find that MA insurer revenues are 30 percent higher than their healthcare spending. Healthcare spending for enrollees in MA is 25% lower than for enrollees in TM in the same county and risk score.

The lower spending by MA enrollees is entirely due to lower healthcare utilization. Prices appear similar in MA and TM. Where we can most directly measure this – the price of an admission for a given DRG at a given hospital – we estimate that average prices in MA are 1.1% higher than in TM. Reductions in utilization appear similar both for types of care where there is concern about “over use” (e.g. imaging and diagnostic tests) and where there is concern about “under use” (e.g. preventive care).

We provide suggestive evidence for some of the potential channels by which MA may reduce healthcare utilization for enrollees. We find that utilization is lower in MA but that, conditional on an encounter, spending per encounter is similar or slightly higher in MA. This suggests that MA manages to restrict utilization on the margin to sicker individuals. Relatedly, individuals discharged from the hospital are much more likely to be sent home – and less likely to be sent to post-acute care facility – if they are enrolled in MA rather than in TM. We also find evidence consistent with substitution to less expensive types of care in MA: differences in specialist visits are much larger than differences in primary care visits, and while inpatient surgery rates are lower in MA, outpatient surgery rates are higher.

Finally, in light of the widespread interest in geographic variation in healthcare spending in TM, and recent work on geographic variation in commercial (under 65) private insurance, we explore similar comparisons in MA. Although geographic variation in spending in TM is often viewed as a reflection of the inefficiencies in a public health insurance system, we find similar – in fact slightly larger – geographic variation in spending in MA compared to TM. And while recent work has emphasized the much greater geographic pricing variation in private commercial insurance than in TM, we find similar – in fact slightly smaller – geographic variation in pricing in MA compared to TM.

One natural question these findings raise is their implications for MA insurers and consumers. For insurers, our estimates from MA data indicate that their revenue exceeds their healthcare expenditures by $177 (about 30%) per enrollee-month. An important area for further work is to examine how this may be dissipated through other costs, such as the administrative costs of providing the insurance and the marketing costs of attracting enrollees. A related and important question is whether and how competitive pressures affect the MA market.

Implications for consumers are more elusive, since the elements of their objective function are not as straightforward to define or measure. A simple revealed preference argument would suggest that consumers who choose MA are better off in it. Other inferences are harder to make. Quality of the healthcare experience is difficult to assess; our measures of preventive care point to reductions there that are similar in magnitude to those for other forms of care. We calculated that the mean actuarial benefit to consumers (i.e. rebate to consumers as measured in the bid data) was $51 per enrollee-month, but, of course, the rebate may be valued differently from its actuarial value, and MA plans have other attributes that will affect consumer surplus, such as limited networks. The implications of privately provided Medicare for both consumers and producers is an important area for further work.

http://www.nber.org…

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Comment:

By Don McCanne, M.D.

Although services provided by the traditional Medicare (TM) program and the Medicare Advantage (MA) plans are priced about the same, the health care expenditures of MA plans are about 30 percent lower than their revenues. The difference is lower utilization by patients of MA plans.

Although some would like to claim that the lower utilization is due to greater efficiency of the managed care organizations as opposed to the government plan, the data is highly suggestive that MA plans do what we already knew they do – they enroll healthier, less expensive patients who do not require as much care.

What are the private MA plans doing with the 30 percent of revenues that are not spent on health care? The authors suggest that further study might be warranted of their administrative costs and marketing costs of attracting (healthy) enrollees (not to mention high executive compensation and shareholder return), but we already know that is where the excess payments are going. The payments are excessive because they care for healthier patients than those in the traditional program, while gaming risk adjustment to receive higher capitation fees as if their enrollees were sicker than they actually are.

We need an improved Medicare to cover all of us, and one of the first improvements should be to get rid of the private Medicare Advantage plans that are wasting so much of our taxpayer dollars.

In Iowa, financial pain follows Trump-style Medicaid reforms

By David Steen Martin
STAT, January 24, 2017

When President Donald Trump tapped policy consultant Seema Verma to run Medicaid and Medicare in his administration, he called her part of a health care “dream team.”

But the health policy changes she helped design in Iowa have felt more like a nightmare to providers serving poor and disabled residents across the state.

Verma has helped several states revamp Medicaid, including Kentucky and Indiana. Here in Iowa, she worked on an aggressive effort to privatize the program, which provides health care to about 600,000 adults and children.

Complaints poured in when the new program went live on April 1, 2016, shifting all Medicaid recipients at once to managed care.

Nearly a year later, the complaints are still coming: Hospitals, nursing homes, and clinics that provide care to Medicaid patients say they’ve lost hundreds of thousands of dollars in expected reimbursements — and have had to spend untold hours chasing down payments.

The three for-profit managed care organizations running the program aren’t happy either, saying they are hemorrhaging money and accusing the state of vastly underfunding Iowa’s $4.2 billion Medicaid program.

John Bigelow Jr., executive director at the Southwest Iowa Mental Health Center, said the facility was short $313,000 at last count for psychiatric care, outpatient therapy, and other services, in part because the managed care organizations have not reimbursed the center at the same rate the state did.

“We’re doing the same care. We’re just not getting paid for it like we were,” Bigelow said.

When Democrats surveyed 423 Iowa Medicaid providers over the summer, 61 percent said privatization had reduced the quality of services they could provide. Some 90 percent said administrative costs had increased.

“It’s created quite an administrative and financial burden on our hospitals and other providers,” said Scott McIntyre, vice president of communications at the Iowa Hospital Association.

In Washington, meanwhile, Congressman Dave Loebsack, a Democrat, has asked the federal Centers for Medicare and Medicaid to rescind the federal waiver allowing managed care companies to run Iowa’s Medicaid.

But that’s unlikely to happen under the new administration.

If confirmed, Verma is expected to give states even more flexibility to design new Medicaid programs — including more privatization.

Verma, who is awaiting a confirmation hearing for the top job at the Centers for Medicare and Medicaid Services, did not return requests for comment.

https://www.statnews.com…

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Comment:

By Don McCanne, M.D.

Seema Verma is a conservative ideologue who wishes to convert government health care programs into privatized, consumer-directed models. She has represented some states in negotiating with CMS for waivers to convert their Medicaid programs.

She has been frustrated by the limitations of the waivers, believing that CMS could provide more flexibility with their policies, which would enable her to advance further her ideological preferences. But Iowa serves as an example of what perversions can be accomplished under the current waiver system. Nobody is happy with the changes in Iowa, except Seema Verma.

President Trump has selected her to head CMS and thus be in charge of the waiver process. Her boss will be Tom Price, as head of HHS, who worships the same inhumane ideology. They have a Congress that will be supportive of their efforts to require that these low-income individuals have more “skin in the game” (Verma’s words).

Some are hoping for the Trump surprise of calling for a single payer system. His selections of Verma and Price should set all such expectations aside. Medicaid block grants are on their way, and they will be terribly disruptive of what care Medicaid beneficiaries are receiving!

Some states are trying, but they will be further handicapped by the reductions in the federal transfers made possible by changing to block grants.

We desperately need a well designed single payer system – an improved Medicare for all. We will not get that until we, the people, join together in citizen action to demand health care justice for all.

Consumer Costs Continue to Increase in 2017 Exchanges

By Caroline F. Pearson, Elizabeth Carpenter and Chris Sloan
Avalere, January 18, 2017

Plans sold in exchange markets in 2017 feature higher premiums, growing consumer out-of-pocket costs, and more restricted access to providers and hospitals than in previous years, according to a new analysis from Avalere.

Premiums Increase Dramatically, Especially for Low-Cost Silver Plans

Following several years of single-digit premium growth, premiums increased 12 percent on average for silver plans in 2017 — from $496 per month in 2016 to $554 per month in 2017, this, according to the Avalere analysis.

Furthermore, premiums for popular low-cost silver plans (i.e., those with the lowest or second-lowest cost premiums in each region) increased 25 percent in 2017.

Fewer PPOs Offered on Exchanges

Avalere experts note that in 2017, only 31 percent of all plans sold in exchange markets are preferred provider organizations (PPO) or point of service (POS) plans. By comparison, in 2014, nearly 52 percent of plans sold on exchanges were PPO or POS products. In general, PPOs include a wider network of providers and cover more out-of-network care than health maintenance organizations (HMOs) and exclusive provider organizations (EPOs).

Out-of-Pocket Costs Also Rose in 2017, Particularly Deductibles

In addition to premiums, out-of-pocket costs for exchange products continue to rise, according to Avalere analysis of plans offered in the exchanges. Average deductibles for services and drugs jumped by 20 percent for silver plans in 2017 to $3,703.

http://avalere.com…

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Comment:

By Don McCanne, M.D.

For plans sold in the exchanges in 2017, not only have the premiums gone up 25 percent for the popular low-cost silver plans, but the average deductibles for silver plans have increased 20 percent, and over two-thirds of plans now have more restrictive networks (with only 31 percent allowing out-of-network coverage with the penalty of higher cost sharing).

The instability and uncertainties are innate characteristics of the market for individual health plans. These problems would disappear with a single universal risk pool covering everyone – a single payer national health program, aka an improved Medicare for all.

Doctors hail reintroduction of Medicare-for-all bill

Saying status quo is ‘unacceptable’ and GOP plans even worse, physicians group says it’s time to move forward to single-payer plan

Physicians for a National Health Program, January 25, 2017

A national physicians group today hailed the reintroduction of a federal bill that would upgrade the Medicare program and swiftly expand it to cover the entire population, saying it’s the only workable and equitable way to move forward in U.S. health care.

The Expanded and Improved Medicare for All Act, H.R. 676, introduced last night by Rep. John Conyers Jr., D-Mich., ranking member of the Judiciary Committee, with 51 other House members, would replace today’s welter of private health insurance companies with a single, streamlined public agency that would pay all medical claims, much like traditional Medicare works for seniors today.

The full text of H.R. 676 will be available at Congress.gov in the next few days, but is expected to be unchanged from the version introduced in the last Congress.

The doctors group says that an improved-Medicare-for-all system, also known as “single payer,” would vastly simplify how the nation pays for care, saving hundreds of billions of dollars on administrative overhead that could be used to improve patient health, restore free choice of physician, and eliminate copays and deductibles.

“International experience shows that single-payer financing systems, like the one described in Rep. Conyers’ bill, are the fairest and most cost-effective way to assure that everyone gets high-quality care,” said Dr. Carol Paris, president of Physicians for a National Health Program, a nonprofit research and educational group of 20,000 doctors nationwide.

Paris continued: “The Affordable Care Act, despite its modest achievements, has shown itself incapable of providing universal health care. With nearly 30 million Americans still uninsured, and tens of millions who are underinsured, the doors to health care remain shut to many in need.

“The status quo is unacceptable,” she said, “and the ideas pushed by the Republican majority in Congress, which are based on even more privatization and patient cost-sharing, would only exacerbate our problems and lead to an additional tens of thousands of unnecessary, preventable deaths.”

Paris, a Nashville, Tenn.-based psychiatrist, continued: “In contrast, an expanded and improved-Medicare-for-All program would assure truly universal coverage, cover all medically necessary services, including dental, vision and long-term care, and would remove the growing financial barriers to care – high premiums, copays, deductibles and coinsurance – that our patients and their families are increasingly facing, often with tragic results.

“In addition to the enormous administrative savings from a single payer, such a program would also have the financial clout to negotiate with drug and medical equipment suppliers for lower prices. And doctors would have more time to spend with their patients, instead of dealing with mountains of paperwork and haggling with insurers. The key step is removing the private health insurers from the picture.

“Recent Kaiser and Gallup surveys have shown that nearly 6 in 10 Americans, 58 percent, support a Medicare-for-all approach, with the Gallup poll finding that 41 percent of Republicans favor replacing the ACA with ‘a federally funded health care program providing insurance for all Americans,’” she said. “And surveys show physician support is also strong and growing. Hundreds of labor, civic and faith-based organizations have endorsed this model of deep-going reform.

“The time for fundamental health care reform is now,” Paris said. “No more tweaking. No more incrementalism. No more ‘political feasibility’ arguments. It’s time for Congress to stop putting the interests of private insurance and Big Pharma over constituent needs. It’s time to make H.R. 676, Improved Medicare for All, the law of the land.”

Physicians for a National Health Program (www.pnhp.org) is a nonprofit research and education organization of more than 20,000 doctors who support single-payer national health insurance. It was founded in 1986.

H.R. 676, Expanded and Improved Medicare for All Act:
https://www.congress.gov…

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Comment:

By Don McCanne, M.D.

Finally, good news for a change!

Coverage and Access for Americans With Chronic Disease Under the Affordable Care Act: A Quasi-Experimental Study

By Hugo Torres, MD, MPH; Elisabeth Poorman, MD, MPH; Uma Tadepalli, MD; Cynthia Schoettler, MD, MPH; Chin Ho Fung, MD; Nicole Mushero, MD, PhD; Lauren Campbell, MD, MPH; Gaurab Basu, MD, MPH; Danny McCormick, MD MPH
Annals of Internal Medicine, January 24, 2017

Background:

Half of Americans have at least 1 chronic disease. Many in this group, particularly racial/ethnic minorities, lacked insurance coverage and access to care before the Patient Protection and Affordable Care Act (ACA) was enacted.

Objective:

To determine whether the ACA has had an effect on insurance coverage, access to care, and racial/ethnic disparities among adults with chronic disease.

From the Results:

Despite improvements after ACA implementation, large proportions of adults with chronic disease continued to lack coverage or access. Overall, after the ACA took effect, 14.9% of persons with chronic disease nationally continued to lack insurance, 22.8% had to forgo a physician visit, 18.1% did not have a personal physician, and 27.6% did not have a checkup. In addition, we found the persistent lack of coverage and access after ACA implementation was particularly great among racial minorities, despite the greater gains as a result of the ACA. Approximately one fifth of blacks had persistent post-ACA gaps, ranging from 17.5% lacking coverage to 26.8% forgoing a physician visit. Approximately one third of Hispanics had persistence post-ACA gaps, ranging from 29.7% lacking coverage to 32.9% forgoing a physician visit.

http://annals.org…

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Comment:

By Don McCanne, M.D.

Many people have benefited by gaining access and coverage under the Affordable Care Act, but this study shows that far too many people with chronic disease have been left out, particularly amongst blacks and Hispanics.

We can do far better. An improved Medicare for all, with automatic enrollment of everyone, would close the gaps without spending any more than we do already. That would be vastly superior to any of the proposals that are currently being considered as a replacement for ACA.

Repealing the Affordable Care Act will kill more than 43,000 people annually

By David Himmelstein and Steffie Woolhandler
The Washington Post, January 23, 2017

Now that President Trump is in the Oval Office, thousands of American lives that were previously protected by provisions of the Affordable Care Act are in danger. For more than 30 years, we have studied how death rates are affected by changes in health-care coverage, and we’re convinced that an ACA repeal could cause tens of thousands of deaths annually.

The story is in the data: The biggest and most definitive study of what happens to death rates when Medicaid coverage is expanded, published in the New England Journal of Medicine, found that for every 455 people who gained coverage across several states, one life was saved per year. Applying that figure to even a conservative estimate of 20 million losing coverage in the event of an ACA repeal yields an estimate of 43,956 deaths annually.

With Republicans’ efforts to destroy the ACA now underway, several commentators have expressed something akin to cautious optimism about the effect of a potential repeal. The Washington Post’s Glenn Kessler awarded Sen. Bernie Sanders (I-Vt.) four Pinocchios for claiming that 36,000 people a year will die if the ACA is repealed; Brookings Institution fellow Henry Aaron, meanwhile, predicted that Republicans probably will salvage much of the ACA’s gains, and conservative writer Grover Norquist argued that the tax cuts associated with repeal would be a massive boon for the middle class.

But such optimism is overblown.

The first problem is that Republicans don’t have a clear replacement plan. Kessler, for instance, chides Sanders for assuming that repeal would leave many millions uninsured, because Kessler presumes that the Republicans would replace the ACA with reforms that preserve coverage. But while repeal seems highly likely (indeed, it’s already underway using a legislative vehicle that requires only 50 Senate votes), replacement (which would require 60 votes) is much less certain.

Moreover, even if a Republican replacement plan comes together, it’s likely to take a big backward step from the gains made by the ACA, covering fewer people with much skimpier plans.

Although Aaron has a rosy view of a likely Republican plan, much of what they — notably House Speaker Paul D. Ryan (R-Wis.) and Rep. Tom Price (R-Ga.), who is Trump’s nominee to head the Department of Heath and Human Services, which will be in charge of dismantling the ACA — have advocated in place of the ACA would hollow out the coverage of many who were unaffected by the law, harming them and probably raising their death rates. Abolishing minimum coverage standards for insurance policies would leave insurers and employers free to cut coverage for preventive and reproduction-related care. Allowing interstate insurance sales probably would cause a race to the bottom, with skimpy plans that emanate from lightly regulated states becoming the norm. Block granting Medicaid would leave poor patients at the mercy of state officials, many of whom have shown little concern for the health of the poor. A Medicare voucher program (with the value of the voucher tied to overall inflation rather than more rapid medical inflation) would worsen the coverage of millions of seniors, a problem that would be exacerbated by the proposed ban on full coverage under Medicare supplement policies. In other words, even if Republicans replace the ACA, the plans they’ve put on the table would have devastating consequences.

The frightening fact is that Sanders’s estimate that about 36,000 people will die if the ACA is repealed is consistent with well-respected studies. The Urban Institute’s estimate, for instance, predicts that 29.8 million (not just 20 million) will lose coverage if Republicans repeal the law using the budget reconciliation process. And that’s exactly what they’ve already begun to do, with no replacement plan in sight.

No one knows with any certainty what the Republicans will do, or how many will die as a result. But Sanders’s suggestion that 36,000 would die is certainly well within the ballpark of scientific consensus on the likely impact of repeal of the ACA, and the notion of certain replacement — and the hope that a GOP replacement would be a serviceable remedy — are each far from certain, and looking worse every day.

https://www.washingtonpost.com…

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Comment:

By Don McCanne, M.D.

Fact Checkers sometimes traverse minefields, and The Washington Post’s Glenn Kessler really blew it when he gave Bernie Sanders Four Pinocchios for telling the truth about the potential lethal consequences of repealing the Affordable Care Act. Fortunately the Washington Post has now published a response from noted experts on the topic – Professors David Himmelstein and Steffie Woolhandler.