Backgrounder: Health Care Plan

Jeb!, October 13, 2015

ObamaCare must be repealed and replaced.  To position American health care to make the most of the potential of transformational innovation, policy solutions should go even further to stop the damage Washington central planners have caused for decades.  Solutions should ensure that health care is centered on individuals, the consumers, and that the health care system benefits from the innovation that will make it more accessible, convenient, personal and affordable.

Governor Bush’s reforms will get Washington out of the way and empower patients with more choices, security and control over their health care decisions.  These reforms will not only lower the costs of care, they will substantially lower federal spending.  They will enable a modern system that is convenient, affordable, accessible and results-oriented.

https://jeb2016.com/backgrounder-health-care-plan/

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Jeb’s Obamacare Repeal-And-Replace Plan Is More Repeal Than Replace

By Jonathan Cohn
The Huffington Post, October 13, 2015

The Bush plan calls for a familiar mix of conservative ideas on health care, according to campaign documents obtained by The Huffington Post. It would eliminate the coverage scheme of “Obamacare” — the tax credits, regulations on insurance, and individual mandate that have led to a historic reduction in the number of uninsured Americans.

In its place, Bush would introduce a new kind of financial assistance for people buying insurance on their own — specifically, tax credits pegged to age but not to income, and not designed to guarantee access to the same level of coverage as Obama’s health care program does.

The Bush plan also would give control of Medicaid, the insurance program for low-income Americans, over to the states.

What would this all mean in practice? It’s impossible to say with any precision, at least without more details about the dollar amounts involved.

Still, the outlines of Bush plan look a lot like like some other plans now in circulation on the right, like the so-called 2017 Project Plan and a proposal from Rep. Tom Price (R-Ga.). These plans envision less government spending and regulation, but would likely result in some combination of fewer people with insurance and less financial protection for people who have coverage. Experts contacted by The Huffington Post said they expected Bush’s plan, if enacted, would play out in a similar way.

The Bush plan would weaken (the Affordable Care Act) standards on insurance: People buying coverage would have more freedom to buy less-generous policies that cover only catastrophic costs. And the tax credits that Bush would provide, by design, guarantee access only to these catastrophic policies.

That’s cheaper than subsidizing the “silver” plans that the Affordable Care Act treats as its standard — a result conservatives would certainly cheer. But without ACA levels of assistance, poorer people who want more comprehensive coverage probably wouldn’t have the money to buy it.  Once they got sick, they’d be stuck with more punishing out-of-pocket expenses.  And because these are people with lower incomes, they’d have less money to cover those costs.

While the campaign has not specified how much money the states would get under Bush’s scheme (for Medicaid), conservative plans to hand control over to the states generally call for less spending on the program. Medicaid is already under-funded. If states had even less money with which to manage it, they’d almost surely have to restrict eligibility or cover fewer services — either of which would mean less financial protection, in this case for the very poor.

One more key footnote to the Bush plan is its protection for people with pre-existing conditions, which is different from the guarantee in the Affordable Care Act. The Bush plan calls for guaranteeing access, but only for people with “continuous” coverage. That means people whose insurance has lapsed — say, because they lost a job and couldn’t afford premiums for a few months — could be subject to denial because of their current medical problems.

“There seems to be an emerging consensus among Republican candidates for how to approach health care, beyond repealing Obamacare,” Larry Levitt, senior vice president at the Henry J. Kaiser Family Foundation, said on Monday night. “It centers around more limited protections for people with pre-existing conditions, health insurance tax subsidies that don’t vary with income, scaling back the tax subsidy for employer-based health benefits, and capping Medicaid. It means less regulation, and also less direct help for lower income people with their health needs.”

http://www.huffingtonpost.com/entry/jeb-bush-obamacare_561c712ae4b0c5a1ce60569b

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Comment:

By Don McCanne, MD

Although Jeb Bush’s health reform proposal released today is lacking in detail, there is enough to know that he would reduce government spending and government regulations, leaving patients even more exposed to impaired access and financial hardship. Those with a basic understanding of health policy can wade through the deceptive political rhetoric of Bush’s proposal to see how harmful it would be.

Financial health shaky at many Obamacare insurance co-ops

By Amy Goldstein
The Washington Post, October 10, 2015

A new breed of health insurers created under the Affordable Care Act — representing one of the government’s most innovative attempts in decades to foster better coverage — is on shaky financial ground in many of the 23 states where the plans began.

The nonprofit health plans were envisioned as a consumer-friendly counterweight to for-profit insurers, a way to provide more competition, greater consumer choice and better coverage in markets typically dominated by big commercial carriers. The government allocated billions of dollars in loans for them.

But in recent months, nearly half of the un­or­tho­dox start-ups have been told by federal regulators that their finances, enrollment or business model need to shape up.

The Centers for Medicare and Medicaid Services (CMS), which oversees the health-care law, recently sent warning letters to 11 of the “co-ops,” as they’re known. The agency placed them on “enhanced oversight” or required them to produce a plan of “corrective action,” or both, according to federal figures not previously made public. Several have been notified in the past two weeks.

Amid this increased monitoring, one co-op has folded, stranding its members, and four others are preparing to close in late December. They include the Nevada Health Co-Op, which was initially among a top tier that federal officials had regarded as best poised to succeed.

The birth and quick death of these co-ops illustrate the program’s fragility. When the ACA was enacted in 2010, the Consumer Operated and Oriented Plans were a compromise to appease congressional liberals who had wanted a new public insurance program for Americans unable to get health benefits at work.

Yet the co-ops’ struggle of late also reflects regulators’ shifting posture. In moves that could affect coverage for hundreds of thousands of people, CMS has gone from nurturing to getting tough.

The first plan to collapse served people in Iowa and Nebraska; it folded in February after being taken over by state insurance regulators. In July, Louisiana’s co-op revealed it was shutting down. Then late last month in New York state, the nation’s largest co-op toppled, startling insurance industry and health policy analysts who thought it was too big for the government to let fail.

The latest announcement came Friday, when the Kentucky Health Cooperative, serving about 51,000 customers, said that it, too, will close Dec. 31 because of poor finances.

The co-op disappearances are disrupting coverage for nearly 400,000 customers across five states, according to the most recent publicly available enrollment figures.

The program has been under siege from the start, including from the insurance industry. Before the law’s passage, government grants to help them get going were switched to loans. None of that money could go for advertising — a wounding rule for new insurers that needed to attract customers. Moreover, the amount available was cut from $10 billion to $6 billion and then later, as part of the administration’s budget deals with congressional Republicans, to $2.4 billion. Federal health officials abandoned plans for a co-op in every state.

At the time, some health policy experts warned that the constraints would make it difficult for some co-ops to thrive.

In August, federal officials delayed another type of assistance intended to help cushion the risk of covering the previously uninsured. This temporary “risk corridor” money was cut last week to a small fraction of what many co-ops had been banking on. The Kentucky co-op blamed its demise on its cut — from an expected $77 million to less than $10 million.

https://www.washingtonpost.com/national/health-science/financial-health-shaky-at-many-obamacare-insurance-co-ops/2015/10/08/2ab8f3ec-6c66-11e5-9bfe-e59f5e244f92_story.html

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Comment:

By Don McCanne, MD

During the crafting of the Affordable Care Act (ACA), there was strong support for including the option of selecting a government-run insurance program in the insurance exchanges. This “public option” was first emasculated so that it would not be an effective competitor to the private insurance firms, and then it was totally eliminated from ACA by political chicanery. That led to support for including “Consumer Operated and Oriented Plans” (co-ops) – nonprofit insurers controlled by directors elected by the enrollees – as a substitute for the public option.

The private insurers were not through. Obviously they did not want competition from a nonprofit consumer-operated system that should have significantly lower expenses than do the private insurers. Insurers require capital – both for start-up expenses and for establishing reserves from which to pay claims. Although the original intent was to provide government grants to the co-ops, these were changed to government loans which the co-ops would have to pay back (not to mention that borrowing to fund reserves is a shell game – the net reserves are zero). Adding the burden of debt service onto the backs of these co-ops basically destroyed their competitive advantage, especially at a time that they were facing high start-up costs. Further, as an extra measure, the insurers had included in ACA a rule that prohibited the co-ops from advertising. Thus the insurers saw to it that the co-ops were placed at a competitive disadvantage.

And what help did the co-ops receive from the government? First the government cut way back on the funds that were made available as loans to satisfy capital requirements. When co-ops were successful in their enrollment efforts, the government did not make further loans available to satisfy increased reserve requirements (larger member rolls require greater reserves). Then the feds reneged on their requirement to pay the co-ops losses above the risk corridor (a form of reinsurance for excessive losses by the co-ops). Finally, the feds have become hard-nosed and have begun shutting down the co-ops because of failure to maintain adequate reserves. Surprise! How were they supposed to build reserves in a year with high start-up costs, high debt service, and increased reserve requirements because of greater than expected enrollment?

It is clear that HHS, from the beginning, has been in bed with the private insurers. This experience with the co-ops is not the only example of their effort to relieve the insurers of competition from government programs. They have been supporting the private Medicare Advantage (MA) plans through administrative manipulations that offset the required reductions in overpayments to these plans. Also, they are now greatly increasing Part B premiums for about one-third of Medicare beneficiaries, especially for those with high incomes – a measure bound to diminish support for the traditional Medicare program, chasing irked beneficiaries into the private MA plans.

This unfortunate outcome for the co-ops was not exactly unanticipated. It was inevitable based on the design features dictated by the private insurers (see our Quote of the Day of July 18, 2011). What is particularly sad is that our own government has not been a reliable partner with our citizens and their organizations. They have gotten into bed with the private insurers instead.

Single payer would fix this, but we would need new public administrators.

Less Physician Practice Competition Is Associated With Higher Prices Paid For Common Procedures

By Daniel R. Austin and Laurence C. Baker
Health Affairs, October 2015

Abstract

Concentration among physician groups has been steadily increasing, which may affect prices for physician services. We assessed the relationship in 2010 between physician competition and prices paid by private preferred provider organizations for fifteen common, high-cost procedures to understand whether higher concentration of physician practices and accompanying increased market power were associated with higher prices for services. Using county-level measures of the concentration of physician practices and county average prices, and statistically controlling for a range of other regional characteristics, we found that physician practice concentration and prices were significantly associated for twelve of the fifteen procedures we studied. For these procedures, counties with the highest average physician concentrations had prices 8–26 percent higher than prices in the lowest counties. We concluded that physician competition is frequently associated with prices. Policies that would influence physician practice organization should take this into consideration.

Conclusion

The existence of an association between concentration and prices should underscore the importance of continued attention to the challenges posed by provider consolidation, especially given that consolidation among physician groups is likely to continue. Increased health care expenditures attributable to higher prices without improved outcomes for patients would generate inefficiency in the US health care system at a time when the opposite is badly needed. Policies that balance any benefits of larger organizations with the potential for problematic price increases, possibly including appropriate antitrust oversight, are needed as the country seeks to ensure efficient, high-quality patient care.

http://content.healthaffairs.org/content/34/10/1753.abstract

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Comment:

By Don McCanne, MD

Consolidation of physician practices has been promoted as a means of improving efficiency and quality of care by means of integrating health care services. But this has raised the concern that concentration is anticompetitive and thus may result in higher health care prices. This study looks at that possibility.

Although outrage is often expressed at some of the very high prices that physicians charge for procedures, those prices are rarely paid since Medicare and Medicaid dictate the actual amount they pay, and private insurers contract for allowable charges for their network providers. Only patients who are uninsured or who are using out-of-network providers face the full charges, but, even then, lower prices are often negotiated on an individual basis, or sometimes the patient simply defaults on the bill. So in considering health care costs in general, it is the authorized payments that count and not the list prices.

This study, in fact, confirmed that where physician practices are more concentrated, prices insurers paid for health care are higher. So physician concentration is anticompetitive and results in higher payments. But are physicians the bad guys who are making us pay more for health care than we should be?

Looking closer at this study, the prices analyzed were those paid to in-network physicians in preferred provider organizations (PPOs) representing larger employers. This is where insurers should be able to deliver on their promises of lower prices. By representing larger employers, the insurers contracting with the physicians who would be included in the networks should be able to extract from them their most competitive prices.

But that didn’t happen. The insurers were not able to drive a better bargain in markets with physician concentration. Physicians in less concentrated markets were able to provide their services for lower prices, so that means that insurers actually were paying excessive prices in the concentrated markets.

Some say that the costs of large integrated systems are higher, so the prices had to be higher. But this belies the claim that integration of services increases efficiency, thereby reducing prices. What this actually shows is that the PPOs were not as effective negotiators when faced with provider concentration.

Compare that with the publicly-administered pricing that takes place in a single payer national health program. The amount paid is based on actual costs with fair margins, not on whatever the market will bear. What we don’t need are wimpish insurers who charge us outrageous administrative fees for a job they don’t even do well. Let’s get rid of them.

U.S. Health Care from a Global Perspective: Spending, Use of Services, Prices, and Health in 13 Countries

By David Squires, Chloe Anderson
The Commonwealth Fund, October 8, 2015

This analysis draws upon data from the Organization for Economic Cooperation and Development and other cross-national analyses to compare health care spending, supply, utilization, prices, and health outcomes across 13 high-income countries: Australia, Canada, Denmark, France, Germany, Japan, Netherlands, New Zealand, Norway, Sweden, Switzerland, the United Kingdom, and the United States.

Key Findings:

• The United States is the highest spender on health care.

Data from the OECD show that the U.S. spent 17.1 percent of its gross domestic product (GDP) on health care in 2013. This was almost 50 percent more than the next-highest spender (France, 11.6% of GDP) and almost double what was spent in the U.K. (8.8%). U.S. spending per person was equivalent to $9,086 (not adjusted for inflation).

• Private spending on health care is highest in the U.S.

 In 2013, the average U.S. resident spent $1,074 out-of-pocket on health care, for things like copayments for doctor’s office visits and prescription drugs and health insurance deductibles. Only the Swiss spent more at $1,630, while France and the Netherlands spent less than one-fourth as much ($277 and $270, respectively). As for other private health spending, including on private insurance premiums, U.S. spending towered over that of the other countries at $3,442 per capita—more than five times what was spent in Canada ($654), the second-highest spending country.

• U.S. public spending on health care is high, despite covering fewer residents.

Public spending on health care amounted to $4,197 per capita in the U.S. in 2013, more than in any other country except Norway ($4,981) and the Netherlands ($4,495), despite the fact that the U.S. was the only country studied that did not have a universal health care system. In the U.S., about 34 percent of residents were covered by public programs in 2013, including Medicare and Medicaid.7 By comparison, every resident in the United Kingdom is covered by the public system and spending was $2,802 per capita. Public spending on health care would be even greater in the U.S. if the tax exclusion for employer-sponsored health insurance (amounting to about $250 billion each year) was counted as a public expenditure.

• Despite spending more on health care, Americans have fewer hospital and physician visits.

The U.S. had fewer practicing physicians in 2013 than in the median OECD country (2.6 versus 3.2 physicians per 1,000 population). With only four per year, Americans also had fewer physician visits than the OECD median (6.5 visits). In the U.S., there were also fewer hospital beds and fewer discharges per capita than in the median OECD country.

• Americans appear to be greater consumers of medical technology, including diagnostic imaging and pharmaceuticals.

The U.S. stood out as a top consumer of sophisticated diagnostic imaging technology. Americans had the highest per capita rates of MRI, computed tomography (CT), and positron emission tomography (PET) exams among the countries where data were available. In addition, Americans were top consumers of prescription drugs.

• Health care prices are higher in the U.S. compared with other countries.

Data published by the International Federation of Health Plans suggest that hospital and physician prices for procedures were highest in the U.S. in 2013. Other studies have observed high U.S. prices for pharmaceuticals.

• The U.S. invests the smallest share of its economy on social services.

A 2013 study by Bradley and Taylor found that the U.S. spent the least on social services—such as retirement and disability benefits, employment programs, and supportive housing—among the countries studied in this report, at just 9 percent of GDP.12 Canada, Australia and New Zealand had similarly low rates of spending, while France, Sweden, Switzerland, and Germany devoted roughly twice as large a share of their economy to social services as did the U.S.

The U.S. was also the only country studied where health care spending accounted for a greater share of GDP than social services spending. In aggregate, U.S. health and social services spending rank near the middle of the pack.

• Despite its high spending on health care, the U.S. has poor population health.

On several measures of population health, Americans had worse outcomes than their international peers. The U.S. had the lowest life expectancy at birth of the countries studied, at 78.8 years in 2013, compared with the OECD median of 81.2 years. Additionally, the U.S. had the highest infant mortality rate among the countries studied, at 6.1 deaths per 1,000 live births in 2011; the rate in the OECD median country was 3.5 deaths. The prevalence of chronic diseases also appeared to be higher in the U.S.

A 2013 report from the Institute of Medicine reviewed the literature about the health disadvantages of Americans relative to residents of other high-income countries. It found the U.S. performed poorly on several important determinants of health. The Institute of Medicine found that poorer health in the U.S. was not simply the result of economic, social, or racial and ethnic disadvantages—even well-off, nonsmoking, nonobese Americans appear in worse health than their counterparts abroad.

• The U.S. performs well on cancer care but has high rates of mortality from heart disease and amputations as a result of diabetes

One area where the U.S. appeared to have comparatively good health outcomes was cancer care. The opposite trend appears for ischemic heart disease, where the U.S. had among the highest mortality rates in 2013—128 per 100,000 population compared with 95 in the median OECD country. The U.S. also had high rates of adverse outcomes from diabetes, with 17.1 lower extremity amputations per 100,000 population in 2011. Rates in Sweden, Australia and the U.K. were less than one-third as high.

From the Discussion

Health care spending in the U.S. far exceeds that in other countries, despite a global slowdown in spending growth in recent years. At 17.1 percent of GDP, the U.S. devotes at least 50 percent more of its economy to health care than do other countries. Even public spending on health care, on a per capita basis, is higher in the U.S. than in most other countries with universal public coverage.

How can we explain the higher U.S. spending? In line with previous studies, the results of this analysis suggest that the excess is likely driven by greater utilization of medical technology and higher prices, rather than use of routine services, such as more frequent visits to physicians and hospitals.

High health care spending has far-reaching consequences in the U.S. economy, contributing to wage stagnation, personal bankruptcy, and budget deficits, and creating a competitive disadvantage relative to other nations. One potential consequence of high health spending is that it may crowd out other forms of social spending that support health. In the U.S., health care spending substantially outweighs spending on social services. This imbalance may contribute to the country’s poor health outcomes. A growing body of evidence suggests that social services play an important role in shaping health trajectories and mitigating health disparities.

Exhibit 8. Health and social care spending as a percentage of GDP

(The first number is the percent of GDP spent on health care, the second is the percent spent on social care, and the third is the percent spent on both combined)

12  21  33  France
12  21  33  Sweden
11  20  31  Switzerland
11  18  29  Germany
12  15  27  Netherlands
16  09  25  United States
09  16  25  Norway
08  15  23  United Kingdom
09  11  20  New Zealand
10  10  20  Canada
09  11  20  Australia

http://www.commonwealthfund.org/publications/issue-briefs/2015/oct/us-health-care-from-a-global-perspective

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Comment:

By Don McCanne, MD

This update, comparing us with 13 high-income countries, confirms that we still spend far more than any other nation on health care, partly because of our very high prices, even though we are not using more health care.  Worse, in spite of our high levels of spending, our population health remains relatively poor.

One exhibit in this report shows that our combined spending on health care and on social care (retirement and disability benefits, employment programs, and supportive housing) is about average (see Exhibit 8, above). Considering that our health care spending is so high, it may be that the comparatively low spending on social services is a significant contributor to our poor population health.

We do need to improve the way we spend our health care dollars so that everyone has affordable access to high quality care, and a single payer system would do that. However, since we are a very wealthy nation, we should be able to increase spending on social services as well. The progressive taxes required to do that would also help to address our crisis in income inequality.

Risk Selection Threatens Quality Of Care For Certain Patients: Lessons From Europe’s Health Insurance Exchanges

By Wynand P. M. M. van de Ven, Richard C. van Kleef and Rene C. J. A. van Vliet
Health Affairs, October 2015

Abstract

Experience in European health insurance exchanges indicates that even with the best risk-adjustment formulas, insurers have substantial incentives to engage in risk selection. The potentially most worrisome form of risk selection is skimping on the quality of care for underpriced high-cost patients—that is, patients for whom insurers are compensated at a rate lower than the predicted health care expenses of these patients. In this article we draw lessons for the United States from twenty years of experience with health insurance exchanges in Europe, where risk selection is a serious problem. Mistakes by European legislators and inadequate evaluation criteria for risk selection incentives are discussed, as well as strategies to reduce risk selection and the complex trade-off among selection (through quality skimping), efficiency, and affordability. Recommended improvements to the risk-adjustment process in the United States include considering the adoption of risk adjusters used in Europe, investing in the collection of data, using a permanent form of risk sharing, and replacing the current premium “band” restrictions with more flexible restrictions. Policy makers need to understand the complexities of regulating competitive health insurance markets and to prevent risk selection that threatens the provision of good-quality care for underpriced high-cost patients.

Lessons from Europe:

Risk Selection Is A Serious Problem

Examples of selection activities include offering health plans attuned to the preferences of the under- and overpriced insured, opening clinics in regions with healthy populations, closing offices in areas with underpriced high-cost populations, selective marketing to preferred groups, the use of group contracts, and selection of favorable applicants by insurance agents.

The situation is more critical in the United States than in Europe in the short run, because in the United States there are many competing managed care organizations that deliver care themselves and therefore, compared to European insurers, have much more effective and subtle tools to use to distort the level of quality of care. In addition, for-profit insurers in the United States have extensive experience with risk selection.

Risk Adjustment Should Be Improved

Because risk adjusters ideally should fulfill criteria such as appropriateness of incentives, fairness, and feasibility, adding new risk adjusters may involve trade-offs. For example, using a patient’s health care expenses in the previous year as a risk adjuster effectively reduces selection by insurers, but it also reduces the insurers’ incentives for efficiency.

The United States might consider adopting the following risk adjusters that are currently used in Europe: disability, pharmacy-based cost groups, previous use of durable medical equipment, and high costs from multiple prior years.

Invest In Collecting Data

Another lesson for US policy makers is that it is worthwhile to invest in collecting appropriate data. Several of the risk adjusters currently used in Europe required many years of investment in building up appropriate data systems.

Risk Sharing Is An Effective Strategy

Given imperfect risk adjustment, which seems inevitable to a certain extent, an effective strategy for reducing selection incentives is risk sharing. There are several forms of risk sharing. One form is mandatory risk sharing among insurers, which is sometimes referred to as mandatory reinsurance with a community-rated reinsurance premium. Another form is risk sharing between the regulator and the insurers — for example, when a regulator provides cost-based compensations to the insurers for high-cost patients. Because risk sharing also reduces an insurer’s incentive for efficiency, it confronts the regulator with a trade-off between selection and efficiency.

Adopt A Generic Premium Rate Band

Another effective strategy for US policy makers to use in reducing risk selection is to allow insurers to charge their enrollees, within a band or range of acceptable charges, risk-adjusted health insurance premium rates. As a result, the information surplus about enrollees that insurers have over the regulator might be focused on premium rate variation rather than on risk selection.

Understand The Complexities

An important lesson from European experience with health exchanges is that there are no easy solutions and that regulating competitive health insurance markets involves complex trade-offs among selection (through quality skimping), efficiency, and affordability. Another lesson from Europe is that legislators and policy makers can easily make serious mistakes and be misled by incorrect arguments.

http://content.healthaffairs.org/content/34/10/1713.abstract

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Risk Selection Threatens Quality of Care for Certain Patients: Lessons from Europe’s Health Insurance Exchanges

The Commonwealth Fund, October 6, 2015

The Issue

Beginning in the early 1990s, several European countries, along with Israel, established health insurance exchanges similar to those launched in the U.S. as part of the ACA. For a Commonwealth Fund–supported study in Health Affairs, researchers gleaned lessons from those countries on how to reduce incentives to engage in risk selection. Insurers can engage in risk selection by steering away high-risk patients in a variety of ways, including purposefully contracting with doctors or hospitals that offer mediocre or substandard care or excluding providers with the best reputations for treating certain diseases.

The Big Picture

Risk selection may be a more critical issue in the U.S. over the short run. “[I]n the United States there are many competing managed care organizations that deliver care themselves and therefore, compared to European insurers, have much more effective and subtle tools to use to distort the level of quality of care,” the authors write. U.S. insurers also are experienced at identifying medical risk and may use the information at their disposal to design products that are unattractive to high-risk patients—including those with cancer and substance abuse disorders. The high number of consumers choosing health plans in the insurance exchanges may exacerbate the problem. Solving these vexing issues, the authors say, must be made a priority to prevent sick patients from receiving poorer-quality services or reduced access to care.

http://www.commonwealthfund.org/publications/in-the-literature/2015/oct/risk-selection-threatens-quality-of-care

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Comment:

By Don McCanne, MD

This report, supported by the Commonwealth Fund and published in Health Affairs, looks at European nations that use variations of market exchanges of private insurance plans (Belgium, Germany, Ireland, Switzerland and, especially, the Netherlands) to see what lessons on risk selection they may have for the United States. But are these the right lessons for us?

Private insurers in the United States have long been masters at figuring out ways of insuring the healthy, with their relatively low health care costs, while avoiding insuring individuals with greater health care needs. Although the Affordable Care Act prohibits insurers from refusing to cover individuals anticipated to have higher health care costs, we are seeing insurance innovations in gaming risk selection that substitute for medical underwriting, which sometimes still prevents patients from receiving the care that they should have.

The multi-payer system in the United States is infamous for the very high costs of the wasteful administrative excesses in our health care financing. In fact, some of these excesses are for the very purpose of ensuring the business success of the private insurers. So what efficiencies do the European systems that use marketplace exchanges of private plans have that might help the United States avoid the perversities of favorable risk selection on the part of the insurers?

The authors suggest the introduction of additional risk adjusters (more administration), systems to collect yet more data (more administration), introduction of risk-sharing strategies such as mandatory community-rated reinsurance or risk sharing between the regulator and the insurers (more administration), allowing insurers to charge their enrollees, within a band or range of acceptable charges, risk-adjusted health insurance premium rates (more administration), and balancing trade-offs of quality-skimping selection, efficiency, and affordability (more administration).

Not only would these “lessons” expand the administrative excesses of our system, but because of the trade-offs involved, further compromises in quality and equity would result. No matter what strategies are used, the private insurers will always find a way around them. That is inherent in their business-model DNA.

Instead of us looking for lessons in the European private insurance markets, it seems that these European nations should be looking for lessons from our neighbor to the North: Canada and its single payer model of health care financing. We would do well to do the same.

High-Cost Patients Had Substantial Rates Of Leaving Medicare Advantage And Joining Traditional Medicare

By Momotazur Rahman, Laura Keohane, Amal N. Trivedi and Vincent Mor
Health Affairs, October 2015

Abstract

Medicare Advantage payment regulations include risk-adjusted capitated reimbursement, which was implemented to discourage favorable risk selection and encourage the retention of members who incur high costs. However, the extent to which risk-adjusted capitation has succeeded is not clear, especially for members using high-cost services not previously considered in assessments of risk selection. We examined the rates at which participants who used three high-cost services switched between Medicare Advantage and traditional Medicare. We found that the switching rate from 2010 to 2011 away from Medicare Advantage and to traditional Medicare exceeded the switching rate in the opposite direction for participants who used long-term nursing home care (17 percent versus 3 percent), short-term nursing home care (9 percent versus 4 percent), and home health care (8 percent versus 3 percent). These results were magnified among people who were enrolled in both Medicare and Medicaid. Our findings raise questions about the role of Medicare Advantage plans in serving high-cost patients with complex care needs, who account for a disproportionately high amount of total health care spending.

From the Introduction

Each year Medicare beneficiaries can choose between two options for health coverage: traditional Medicare and Medicare Advantage. Although each option covers the same core set of benefits, the two may differ in terms of beneficiaries’ out-of-pocket expenses, choice of providers, and access to additional services. Approximately 30 percent of Medicare beneficiaries in 2014 were enrolled in Medicare Advantage plans.

Because Medicare Advantage plans receive prospective, capitated payments to finance and deliver services for their enrollees, they operate under strong incentives to manage their members’ health care costs. Policy makers have been concerned that capitated payments give Medicare Advantage plans an incentive to enroll healthier beneficiaries and to avoid enrolling those with chronic conditions. Indeed, a large body of literature based on data from the 1990s and early 2000s found that Medicare Advantage plans disproportionately enrolled healthier beneficiaries. This phenomenon, known as favorable risk selection, has historically yielded substantial overpayments to Medicare Advantage plans.

From the Discussion

We examined the relationship between use of hospital, nursing home, and home health care in 2010 and beneficiaries’ switching between Medicare Advantage and traditional Medicare by January 2011. Among traditional Medicare beneficiaries, we observed lower rates of switching into Medicare Advantage among people who used nursing home, home health, or acute inpatient care, compared with beneficiaries who did not use these services. In contrast, among Medicare Advantage beneficiaries, we found increased rates of switching into traditional Medicare among people who used nursing home and home health care, compared with beneficiaries who did not use these services.

Our results are consistent with other studies reporting that beneficiaries who report poorer health, use more health services, and have higher health care spending are more likely than their counterpart Medicare Advantage beneficiaries to leave Medicare Advantage plans, despite the recent reforms to the Medicare Advantage payment formula.

Our results raise questions about whether current Medicare Advantage regulations and payment formulas are designed to meet the needs of Medicare Advantage members who use postacute and long-term care. First, the enhanced payments to Medicare Advantage plans for dual eligibles or people who receive extended nursing home care do not appear to be effective in retaining these beneficiaries in Medicare Advantage plans. The unidirectional flow of these high-risk and often high-spending patients from Medicare Advantage to traditional Medicare appears to transfer responsibility to traditional Medicare just as patients enter a period of intensive health care needs.

There could be several reasons for the switching of high-risk Medicare Advantage enrollees. One possibility is that Medicare Advantage plans may not have sufficient incentives to spend their enhanced payments on better services for their beneficiaries.

Second, our findings suggest that Medicare Advantage members who use home health or nursing home services might be dissatisfied with the Medicare Advantage program. Medicare Advantage beneficiaries may find that their plans’ network restrictions make it harder to access these services that would be the case in traditional Medicare, creating an incentive to switch.

Additionally, some Medicare Advantage plans have been criticized for imposing high cost sharing for services such as the skilled nursing facility care that can be necessary for seriously ill beneficiaries.

Conclusion

We observed substantial switching from Medicare Advantage to traditional Medicare by beneficiaries who used nursing home and home health care, particularly those who were also eligible for Medicaid, and virtually no entry into Medicare Advantage plans by traditional Medicare beneficiaries who used these services or acquired dual eligibility. We found that a high proportion of beneficiaries with nursing home or home health care use choose to exit the Medicare Advantage program by the start of the next plan year. Thus, our study raises questions about the role of Medicare Advantage plans in serving high-cost patients with complex health care needs that span acute, postacute, and long-term care settings.

http://content.healthaffairs.org/content/34/10/1675.abstract

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The Medicare-HMO Revolving Door — The Healthy Go in and the Sick Go Out

By Robert O. Morgan, Ph.D., Beth A. Virnig, Ph.D., M.P.H., Carolee A. DeVito, Ph.D., M.P.H., and Nancy A. Persily, M.P.H.
The New England Journal of Medicine, July 17, 1997

Enrollment in Medicare health maintenance organizations (HMOs) is encouraged because of the expectation that HMOs can help slow the growth of Medicare costs.

Results

The rate of use of inpatient services in the HMO-enrollment group during the year before enrollment was 66 percent of the rate in the fee-for-service group, whereas the rate in the HMO-disenrollment group after disenrollment was 180 percent of that in the fee-for-service group.

http://www.nejm.org/doi/full/10.1056/NEJM199707173370306

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Comment:

By Don McCanne, MD

In 1997, The New England Journal of Medicine published a landmark article that showed that Medicare patients who enrolled in private Medicare HMOs exited them when they developed a need for a greater amount of health care: “The Medicare-HMO Revolving Door — The Healthy Go in and the Sick Go Out”

After nearly two decades of refinement of payment methods for the private Medicare Advantage plans, this new study from Health Affairs shows that “a high proportion of beneficiaries with nursing home or home health care use choose to exit the Medicare Advantage program.” Specifically, “Our results are consistent with other studies reporting that beneficiaries who report poorer health, use more health services, and have higher health care spending are more likely than their counterpart Medicare Advantage beneficiaries to leave Medicare Advantage plans, despite the recent reforms to the Medicare Advantage payment formula.”

The healthy go in and the sick go out. With Medicare Advantage plans, the patients and the taxpayers end up as losers.

Big shortfall in Obamacare risk program could hurt insurers

By Tami Luhby
CNN Money, October 2, 2015

A key federal program designed to cushion health insurers’ risks in the Obamacare exchanges has a massive shortfall, which could throw some insurers into financial turmoil.

Insurers requested $2.87 billion in so-called “risk corridors” payments for 2014, but will only receive $362 million, or 12.6%, said the Centers for Medicare & Medicaid Services, which oversees Obamacare.

The risk corridors program’s goal is to help insurers transition into the individual exchanges, which opened in 2014. Insurers had a tough time setting premiums since they didn’t know how sick their new customers would be.

Under the three-year program, insurers whose premiums exceeded claims pay into the fund, while their peers who didn’t charge enough premiums to cover claims could draw from it.

But too many insurers miscalculated when they set their rates for 2014.

“Insurers underestimated the riskiness of their customer base and set their premiums too low,” said Tim Jost, a health law professor at Washington and Lee University School of Law.

The shortfall could put a financial strain on some insurers, especially some smaller ones who were counting on the funds. Some firms have reported losses in their Obamacare line of business, while four health insurance cooperatives are shutting down because of financial pressures.

Obamacare insurers have already set their premiums for 2016 and can’t adjust them now. The shortfall in risk corridor payments could prompt insurers to raise premiums in future years or exit the program.

The administration said the remaining 2014 risk corridor claims will be paid out of the 2015 and, if needed, the 2016 collections.

Insurers are still getting billions from two other Obamacare risk programs. They will receive $7.9 billion from the reinsurance program, designed to spread the cost of very large insurance claims across all insurers. And they will receive $4.6 billion from the risk adjustment program, which requires insurance companies with healthier consumers in a state to help offset some of the costs of those insurance companies with sicker customers in that state.

http://money.cnn.com/2015/10/02/news/economy/obamacare-insurers/index.html

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Health Policy Briefs

Health Affairs, February 19, 2015

With the new restrictions on premium setting and the unpredictability of medical expenses from the newly insured, insurers faced a high level of uncertainty when setting their premiums. To buffer insurers from high losses in the initial years, keep premiums affordable, encourage insurers to participate in the Marketplaces, and minimize year-to-year premium fluctuations, the ACA authorized three premium stabilization programs: risk adjustment, reinsurance, and risk corridors.

The risk corridor program has proven to be one of the more controversial aspects of the ACA with critics, including a number of Republicans in Congress, characterizing the program as an insurer bailout. They argue that as a result of HHS and state officials putting pressure on insurers to keep premiums low in the Marketplaces, the federal government will end up picking up the tab to bail out insurers if they underpriced.

Critics also claim that the program encourages insurers to underprice their plans in order to gain market share, knowing the government will offset their losses.

While the Consolidated and Further Continuing Appropriations Act of 2015, which funded the government for the 2015 fiscal year, did give HHS the authority to collect user fees, an amendment was included that specifically prohibited HHS from transferring money from either trust fund. The amendment did not eliminate the risk corridor program, nor did it prevent HHS from using payments received from insurers to pay out claims under the program (that is, user fees), but it effectively made the risk corridor program budget neutral unless HHS can find another source of funding.

If risk corridor claims exceed receivables and HHS does not find an alternative source of funding, it seems likely it will revert to its earlier proposal to prioritize paying off shortfalls from previous years before making new payments. If the shortfalls were great enough, this could effectively eliminate payments to insurers for the final two years of the program.

http://www.healthaffairs.org/healthpolicybriefs/brief.php?brief_id=134

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Comment:

By Don McCanne, MD

Although the media are covering this story as a shortfall in the risk corridor stabilization funds, the real story here is about the behavior of private insurers competing in the insurance exchanges established under the Affordable Care Act (ACA). An explanation is in order.

So what are the risk corridors and why do they exist? It was understood that insurers could be exposed to significant losses if they attracted more than an expected number of enrollees who had greater health care costs. So for the first three years, a portion of losses above a certain threshold (the upper margin of the corridor) would be covered by a stabilization fund. Likewise, if the insurers were successful in enrolling more individuals with very low health care costs (below the lower margin of the corridor), those insurers would be required to pay a portion of their net gain into the stabilization fund (“user fees”).

So how would private insurers respond? For the first year of marketing plans on the exchanges, they would want to have lower, competitive premiums in order to corner market share. Their losses for high cost enrollees would be largely covered (up to 80%) so they could accept some losses for those with average health care needs, knowing that they could later adjust fees modestly upwards after having gained market dominance (a version of the insurance underwriting cycle). As would be expected of the private insurers who are masters at gamesmanship, they were able to show that not many of their enrollees fell under the lower margin of the corridor, thus their payments to the stabilization fund (user fees) were kept to a minimum.

As a result, the stabilization fund is able to cover only about 13% of of the losses above the upper margin of the corridor. Although HHS says that they would find the funds, Congress has created barriers to using funds other than the user fees authorized by the risk corridor stabilization program. Since they are budgeting 2015 and 2016 user fees to pay for 2014 losses, obviously the funds will be rapidly depleted, with little or none available for the second and third years of the program.

Risk corridors, risk adjustment, and reinsurance are not for the benefit of patients, rather they are to protect the insurers. Not only do they add to our profound administrative waste, they also open up opportunities for insurers to profit even more through chicanery and gamesmanship.

We could completely do away with this and all of the other insurer excesses by simply enacting a single payer national health program. Why not now? Are not the voters in charge?