By Jillian Chown, David Dranove, Craig Garthwaite, and Jordan Keener
National Bureau of Economic Research, July 2019

Abstract

Perhaps more than any other sector of the economy, healthcare depends on government resources. As a result, many healthcare systems rely on the use of government monopsony power to decrease spending. The United States is a notable exception, where prices in large portions of the healthcare sector are set without government involvement. In this paper we examine the economic implications of a greater use of monopsony power in the United States. We present a model of monopsony power and test its predictions using price differences between the United States and Canada – a country that represents an example of a “Medicare for All” style system. Overall, we find that wage differences for medical providers across the two countries are primarily driven by the broader labor market while price difference for prescription drugs are more directly the result of buyer power. We discuss theoretical reasons why a Canadian monopsonist may be more willing to exploit its buyer power over prescription drugs rather than provider wages and why a U.S. monopsonist might not be willing to do the same.

From the Introductory Comments

Health care spending varies markedly across countries. It is widely accepted that at least a portion of spending differences results from the willingness and ability of governments to exercise monopsony power when purchasing healthcare goods and services. Broadly speaking, governments that finance healthcare services often use their buyer power to push down the prices paid for healthcare inputs such as pharmaceutical products, medical devices, and the wages of medical providers. Differences in the willingness and ability to exercise buyer power certainly contributes to the considerable healthcare price and wage dispersion across countries. However, the degree to which these price differences across countries are the result of buyer power as opposed to other economic forces is an open question that we explore in this paper.

At an aggregate level, the United States stands at an extreme of a relatively parsimonious government role in the financing of healthcare services, a limited use of government buyer power, and a relatively large percentage of its economic activity occurring in the health sector. Concerned about the rising cost of U.S. healthcare, many policymakers have proposed that the federal government make greater use of its buyer power. Proposals include various “Medicare-for-All” policies that would expand existing public insurance systems to cover more than simply the elderly, poor and disabled, as well as more limited proposals, such as requiring Medicare to use its size to negotiate lower pharmaceutical prices. The economic effects of a greater use of monopsony power obviously depend on the specifics of the proposed policy reform. While proponents have offered a variety of “Medicare-for-all” alternatives, we will use the term in this paper to refer to a truly single payer system where no private insurance options exist. Under this option, which has been proposed by numerous policymakers, the federal government would be the single purchasing agent for all Americans.

The potential savings from implementing such a single payer system would primarily come from two sources: (1) decreased administrative costs resulting from a single firm providing health insurance and (2) the exercise of buyer power to reduce input prices. We will briefly discuss the former before moving on to the latter, which is the main focus of this paper.

Centralizing insurance in a single entity would certainly eliminate some duplicative administrative functions. In addition, a single insurer that lacked competitive pressures would likely have lower marketing expenses.

While administrative expenditures are a potential source of savings, a single payer aiming to meaningfully reduce spending would, by necessity, follow the proverbial “Willie Sutton” rule of health spending and target the prices paid to healthcare inputs such as medical providers and pharmaceuticals. These input prices represent the bulk of U.S. healthcare spending with labor costs comprising approximately 60 percent (Kocher and Sahni, 2011) and pharmaceuticals accounting for an additional 15 percent. A government payer could cut both of these prices either by directly reducing the fees paid to physicians, other medical personnel, and pharmaceutical manufacturers or by reducing payments to hospitals and other institutions, which would then have to reduce their costs (i.e., cut wages and reduce other medical inputs) to remain financially viable.

Proponents of an expanded use of government buyer power frequently cite the experiences of other developed countries that have both far more extensive government involvement in healthcare and lower health spending. Within these comparisons, the Canadian system is perhaps the most similar to Medicare-for-all. In Canada, provincial governments offer health insurance and finance care delivery under rules established by the government, but medical services are mostly provided by private providers in privately owned and operated facilities. The similarity of the Canadian system to many U.S. proposals for Medicare-for-all can perhaps be most clearly seen in Senator Bernie Sanders (I-VT) explicit statements that the Canadian system is a model for his widely discussed universal coverage proposal (Kliff 2017). Thus, the decisions of Canadian insurers provide perhaps the best evidence of the potential optimal savings available from the creation of a single monopsonist in the United States.

In this paper, we present a simple theoretical model to predict the optimal decisions of a healthcare monopsonist such as Canada. We then use price data across the U.S. and Canada to empirically test the predictions of this model to help understand the scope of savings optimally available to a similar monopsonist in the United States.

The predictions of the model suggest the optimal exercise of market power will differ based on both the relative size of the monopsonist in the relevant market and the resulting elasticity of supply it faces. We test the predictions of this model using U.S. and Canadian price data for two key inputs of healthcare services: prescription drugs and medical providers.

Given our model predicts a different response based on the monopsonist’s relative market size (and therefore the respective elasticity of supply), it predicts different exercises of market power across these two input markets. Specifically, our model predicts the Canadian monopsonist would exercise more of its market power for pharmaceuticals than for labor.

We find evidence that the Canadian monopsonist does exercise buyer power with respect to drugs. Using highly detailed pricing data that has not been previously studied for this purpose, we estimate that for a consistent basket of pharmaceutical goods, Canadian consumers pay 54 percent less than Americans.

Our analysis finds that Canadian drug prices are 54 percent lower – a difference that is far greater than for other goods and services. We interpret this as evidence that Canadian provincial governments are willing and able to exercise monopsony power over drugs to a greater degree than in the labor market – which is consistent with our monopsony model’s predictions.

The fact that Canadian wages for highly skilled employees show limited evidence of an exercise of buyer power while prescription drug prices indicate a large role for the public payer’s negotiations suggests that Canadian policymakers carefully consider the potential consequences of exploiting monopsony power in healthcare markets. For products where Canadian consumers represent a relatively small part of the market, such as prescription drugs, policymakers have the freedom to exploit buyer power without meaningful consequences – and they do. In contrast, in labor markets, Canadian policymakers must contend with the fact that if they use their negotiating power to push down input prices it could have large and potentially harmful short and long term consequences for healthcare labor supply.

From the Conclusions

In this paper, we examine the role of monopsony power in healthcare markets by comparing prices and quantities of healthcare inputs in Canada and the United States. We provide a theoretical framework and empirical evidence for the optimal behavior of a monopsonist. We focus on two critical inputs to the healthcare production function that illustrate key features of the theoretical model – labor and prescription drugs. In line with the theoretical expectations we outline, we find that the Canadian monopsonist is more willing to exploit its market power over prescription drugs than provider wages.

Examining a market basket of prescription drugs, we find that prices in Canada are 54 percent lower than in the U.S. This price differential is much larger than the general cost-of-living differences between the two countries, which we interpret as evidence that the Canadian monopsonist is willing to use its power to lower the cost of this particular medical input. This is in line with our theoretical expectations: because Canada represents a small share of the global drug market, policymakers are able to exploit their buyer power without incurring broader consequences, such as reducing innovation.

In contrast, we find that the differential in provider wages between the U.S. and Canada can largely be explained by differences in the prevailing labor market conditions, implying that the Canadian monopsonist is not willing to exercise the full scope of its buyer power for this input. In particular, we find that Canadian medical workers earn about 24 percent less than their American counterparts. If this was solely the result of profligate U.S. health spending, we should expect that U.S. providers would not only be paid more than their Canadian counterparts but also relatively more than other highly skilled professionals in the United States. This is not the case. We primarily attribute differences in wages for U.S. medical providers to the structure of the broader labor market; i.e., U.S. providers are paid more than in Canada because all highly skilled U.S. professionals are paid more than in Canada. In particular, high skilled healthcare workers in Canada make about 26 percent less than similar workers in the United States, while high skilled non-healthcare workers make 22 percent less. Thus, the vast majority of the 26 percent wage differential likely reflects overall labor market conditions. The remaining 4 percentage point differential between healthcare and other professional wages may reflect a variety of factors—potentially including inefficiencies in the U.S. system that provide excess wages to healthcare providers or a choice by the Canadian monopsonist to exploit some of its market power.

Our findings are consistent with the idea that the Canadian monopsonist believes that a substantial reduction in the wages of physicians and other healthcare workers could cause a reallocation of talent across the economy. This is true even conditional on similar individuals receiving medical training. These individuals have a number of opportunities beyond clinical practice, and there are some reports physicians are increasingly choosing these options (Mostue 2017). Perhaps more concerning would be a reallocation of talent out of medical training altogether. For example, if the U.S. took steps so that its physicians were paid the same as Canadians, this would move physicians from the second highest paid profession in the U.S. to the eighth highest paid profession — situated just above computer engineers, mathematicians and biomedical engineers. This change in relative pay could push many talented young individuals considering medicine into entirely different fields. Given this concern, it should perhaps not be surprising that even the Canadian monopsonist does not appear to have chosen to meaningfully exercise its wage setting power. In Canada, as in the United States, physicians and surgeons are among the highest paid employees in society.

Taken together, our findings should temper the expectations of anyone who believes that Medicare-for-all will drive U.S. health spending to Canadian levels. Most health spending goes toward labor expenses. Returning to the Willie Sutton analogy, while labor is “where the money is,” a U.S. monopsonist might find, just as in Canada, that it is not worth “robbing the bank” by lowering labor expenses, as this would drive highly skilled workers into other fields. And while the U.S. monopsonist could drive down drug prices to levels at or below those in Canada, it might be tempered by concerns about disruptions to long term drug supply, a problem not shared by the much smaller Canadian monopsonist.

https://www.nber.org…

Comment:

By Don McCanne, M.D.

In the debate over the proposal for a single payer model of Medicare for All, the claim is often made that giving the government that much power to set prices (functioning as a monopsony – a single purchaser of health care) would drive physicians and hospitals into insolvency thus decreasing access to health care. This NBER paper is important because it shows what is actually happening in Canada under its single payer model of health care financing and what might happen in the United States under a single payer Medicare for All monopsony.

Many studies have shown that much of the administrative waste that characterizes the health care financing system in the United States would be recoverable under a single payer system. But a single payer would also have the monopsonistic power to drive down prices, potentially saving even more funds. So how has Canada, with its Medicare for All-like system, utilized its monopsonistic power?

Canada has driven down drug prices so that they are 54 percent lower than in the United States. They have been able to do that since their drug market is only about one-tenth of that in the United States, thus there is no fear that lower profit margins would have any impact in suppressing new drug innovation. This fear of suppressing innovation has been expressed repeatedly in the United States considering our very large drug market, but other factors not addressed here suggest that the costs of drug innovation do not justify the price gouging that is taking place in the U.S.

What is particularly striking in this paper is that Canada is not using its monopsonistic power to drive down wages and salaries in the health care industry to levels that are comparable to those in our traditional Medicare program. Rather they are pricing health care wages based on prevailing labor market conditions.

In the United States, Medicare has exercised its monopsonistic power to drive prices down to levels that some claim to be below costs. It is the private insurance sector that has been complicit with driving prices up, and Medicare has been able to offset some of the excessive pricing through its monopsonistic leverage.

Private insurers have at least two incentives to drive up prices. Revenue in excess of medical losses (costs of patient care) are retained by the insurer to fund their own administrative costs and to provide profits. Their primary product is administration and the more administrative services they can sell, the better for them. So private insurers contribute directly to high health care costs in the U.S. both by driving up prices and by generating ever more administrative waste.

But in Canada, the public stewards are pricing health care at a level that ensures an adequate health care labor supply yet not wasting taxpayer funds on excessive prices. Further, through the administrative simplicity of the single payer model, they are not wasting financial resources that are better used for patient care,

In the United States, we are now seeing a softening of the demand to enact single payer Medicare for All while at the same time we are seeing the manipulation of public opinion in support of ensuring the preservation of the option to choose private insurance plans. This is backwards. The private insurers are in the business to increase their revenues (waste our funds) whereas publicly financed and administered systems are public service systems that have a mission to provide us with the greatest value in health care. They can do that with a monopsony that gets the prices right by balancing legitimate costs with patient needs. The private insurers will not do that for us.

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By Reed Abelson
The New York Times, July 29, 2019

It seems a simple enough proposition: Give people the choice to buy into Medicare, the popular federal insurance program for those over 65.

Former Vice President Joseph R. Biden Jr. is one of the Democratic presidential contenders who favor this kind of buy-in, often called the public option. They view it as a more gradual, politically pragmatic alternative to the Medicare-for-all proposal championed by Senator Bernie Sanders, which would abolish private health insurance altogether.

A public option, supporters say, is the logical next step in the expansion of access begun under the Affordable Care Act, passed while Mr. Biden was in office. “We have to protect and build on Obamacare,” he said.

But depending on its design, a public option may well threaten the A.C.A. in unexpected ways.

A government plan, even a Medicare buy-in, could shrink the number of customers buying policies on the Obamacare markets, making them less appealing for leading insurers, according to many health insurers, policy analysts and even some Democrats.

In urban markets, “a public option could come in and soak up all of the demand of the A.C.A. market,” said Craig Garthwaite, a health economist at the Kellogg School of Management at Northwestern University.

And in rural markets, insurers that are now profitable because they are often the only choices may find it difficult to make money if they faced competition from the federal government.

Some insurers could decide that a smaller and uncertain market is not worth their effort.

If the public option program also matched the rates Medicare paid to hospitals and doctors, “I think it would be really hard to compete,” Mr. Garthwaite said. Even leading insurers do not have the leverage to demand lower prices from hospitals and other providers that the government has.

The A.C.A. is now a solidly profitable business for insurers, with several expanding options after earlier threats to leave. For example, Centene, a for-profit insurer, controls about a fifth of the market, offering plans in 20 states. It is expected to bring in roughly $10 billion in revenues this year by selling Obamacare policies.

In spite of stock drops because of investors’ concerns over Medicare-for-all proposals, for-profit health insurers have generally thrived since the law’s passage.

But a buy-in shift in insurance coverage could profoundly unsettle the nation’s private health sector, which makes up almost a fifth of the United States economy. Depending on who is allowed to sign up for the plan, it could also rock the employer-based system that now covers some 160 million Americans.

Some experts predict that private insurers will adapt, while others warn that the government could wind up taking on the sickest customers with high medical bills, leaving the healthier, profitable ones to private insurers.

One variant of the public option — letting people over 50 or 55 buy into Medicare — is often depicted as less drastic than a universal, single-payer program. But this option would also be problematic, experts said.

This consumer demographic is quite valuable to insurers, hospitals and doctors.

Middle-aged and older Americans have become the bedrock of the Obamacare market. Some insurers say this demographic makes up about half of the people enrolled in their A.C.A. plans and, unlike younger people who come and go, is a reliable and profitable source of business for the insurance companies.

The aging-related health issues of people in this group guarantee regular doctor visits for everything from rising blood pressure to diabetes, and they account for a steady stream of lucrative joint replacements and cardiac stent procedures.

Several experts said that designing a buy-in program that is compatible with the existing public and private plans could be daunting.

“You’d have to do it carefully,” said Representative Donna Shalala, a Florida Democrat who served as the secretary of health and human services under President Bill Clinton.

Linda Blumberg, a health policy expert at the Urban Institute, a nonpartisan think tank, agreed. “The idea of Medicare buy-ins was taken very seriously before there was an Affordable Care Act,” she said. “In the context of the A.C.A., it’s a lot more complicated to do that.”

Blue Cross plans could lose 60 percent of their revenues from the individual market if people over 50 are shifted to Medicare, said Kris Haltmeyer, an executive with the Blue Cross Blue Shield Association, citing an analysis the company conducted. He said it might not make sense for plans to stay in the A.C.A. markets.

Siphoning off such a large group of customers could also lead to a 10 percent increase in premiums for the remaining pool of insured people, according to the Blue Cross analysis. More younger people with expensive medical conditions have enrolled than insurers expected, and insurers would have to increase premiums to cover their costs, Mr. Haltmeyer said.

Dr. David Blumenthal, the president of the Commonwealth Fund, a foundation that funds health care research, said a government plan that attracted people with expensive conditions could prove costly.

“You might, as a taxpayer, become concerned that they would be more like high-risk pools,” he said.

Jonathan Gruber, an M.I.T. economist who advised the Obama administration during the development of the A.C.A., likes Mr. Biden’s plan and argues there is a way to design a public option that does not shut out the private insurers.

“It’s all about threading the needle of making a public option that helps the failing system and not making the doctors and insurers go to the mat,” he said.

While Ms. Shalala supports a public option as an alternative to “Medicare for All,” she is clear about how challenging it will be to preserve both Obamacare and the private insurance market. “You can’t do it off the top of your head,” she said.

https://www.nytimes.com…

Comment:

By Don McCanne, M.D.

To many, the debate about health care reform does not seem very complicated. Prevailing thought seems to be that we should leave employer-sponsored plans alone, allowing people to choose them if they want. We should also allow individuals to purchase a newly-created Medicare public option if that is their preference. Some would still prefer single payer Medicare for All as a plan that covers everyone since that would resolve health care coverage issues forever, though the KFF poll released today shows that 55% of Democrats would prefer building on the existing Affordable Care Act whereas only 39% would prefer replacing is with a national Medicare for all plan, whereas 62% of Republicans oppose even a public option. So it seems that we should use the democratic process to see which route the majority prefers and then go with that.

But the message in Reed Abelson’s New York Times article shows that it is not that simple. The policy considerations behind the various approaches are very complex. They mostly boil down to the fact that fragmenting the health care financing system introduces inefficiencies, inequities, and profound administrative complexities which divert an inordinate amount of funds from actual patient care, and leave many without the care they need.

What is somewhat instructive are the separate views of Jonathan Gruber and Donna Shalala, both of whom have had considerable experience with our health financing system. They both express the view that reform should preserve the role of private insurers (but why?). Gruber says, “It’s all about threading the needle,” whereas Shalala says, “You can’t do it off the top of your head.”

Preserving the private insurance sector creates a tremendous policy challenge that can be negotiated only by compromising on efficiency, effectiveness and equity, while agreeing to greatly expand our health care spending – already by far the highest in the world.

Why does the policy community keep trying to sideline the definitive model that would work best for all of us – single payer Medicare for All? Are people really that enamored over their private plans that nobody is able to keep over the decades anyway (60 million people leave their jobs each year)? Why are we bending over backwards to keep such a dysfunctional system in place?

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KAMALA HARRIS’ PLAN FOR MEDICARE FOR ALL

KAMALA HARRIS FOR THE PEOPLE, July 29, 2019

(excerpts)

Medicare for All will provide every individual in America with access to comprehensive health care.

HOW DOES THIS PLAN WORK AND HOW WILL WE TRANSITION TO MEDICARE FOR ALL?

Under my Medicare for All plan, we will immediately allow people to buy into a Medicare Transition Plan through an extended 10-year phase-in period.

We will automatically enroll newborns (with an opt-out provision for families with employer-sponsored insurance) and the uninsured into a Medicare Transition Plan, and provide a commonsense path for employers, employees, the underinsured, children, and others on federally-designated programs, such as Medicaid or the Affordable Care Act exchanges, to transition into the Medicare Transition Plan.

Second, after the 10-year transition period, we will have a new Medicare framework where most Americans will be in an expanded and improved public Medicare plan. In my Medicare for All system, similar to Medicare Advantage today, private insurance plans can contract through Medicare and compete with the public Medicare plan. However, these private Medicare plans will be subject to stricter consumer protection requirements than under current law, such as getting reimbursed by Medicare for less than the cost of the public Medicare plan to ensure taxpayers aren’t subsidizing insurance company profits. Americans can then choose whether to stay in the public Medicare plan or opt-into a private Medicare plan.

WHAT ABOUT EMPLOYER-BASED PLANS?

During the transition period, employers can continue to provide private health coverage to employees. However, employers will also have the opportunity to provide health care for their employees through the Medicare Transition Plan, with a shared responsibility payment. Employees will also have the option on their own to buy into the Medicare Transition Plan during the transition period.

Following the transition period, under my Medicare for All system, employers will have the option to provide a private Medicare plan for their employees that will be certified by the Medicare program, similar to how employers can offer Medicare Advantage plans today. Employees could choose to be in that employer Medicare plan, a different private Medicare plan, or the public Medicare plan.

WHAT ABOUT ORGANIZED LABOR AND UNION WORKERS?

Under my Medicare for All plan, union workers will have the option to join Medicare and stop sacrificing wages for better health care. Unions could also continue working with employers to offer a private Medicare plan option or supplemental benefits in addition to the Medicare plan.

DOES YOUR PLAN ELIMINATE ALL PRIVATE INSURANCE?

No. Under my Medicare for All system, the power of big insurance companies will be greatly diminished. After the transition period, private insurance will only exist in two ways:

1) At the end of the day, Americans want to be able to choose their doctor and the care they receive, not the insurance company that provides it. Under my plan, private insurers can compete with the new public Medicare plan, as long as the plans they offer adhere to strict requirements like those laid out below. This would function similarly to how Medicare Advantage operates within the Medicare system today. Today, 35% of seniors are enrolled in private Medicare plans that get paid directly by Medicare and, in fact, 25% of current private Medicare insurance plans are already at or below 95% of Medicare costs.

In my Medicare for All system, Medicare will continue to set the rules of the road for these plans, including price and quality, and private insurance companies will play by those rules, not the other way around. But unlike under the current program, these private Medicare plans will be held to stricter consumer protection standards than they are today, such as getting reimbursed less than what the public Medicare plan will cost to operate, to ensure that they are delivering meaningful value and unable to profit off of gaming consumers or the government.

2) People will be able to purchase supplemental insurance covering services not included under Medicare for All, such as medical insurance for traveling abroad and cosmetic surgery. Employers will still be able to offer their employees retiree supplemental coverage through a private insurance plan.

https://kamalaharris.org/medicare-for-all

Comment:

By Don McCanne, M.D.

Although there had been a surge in support for the single payer model of Medicare for All, that support is now being qualified with the condition that private insurance plans remain an option to an improved Medicare program that would otherwise cover everyone.

Polling organizations have added this qualification to routine polls on Medicare for All, but without asking if there would be a preference for a public plan that would offer more benefits than the typical private plan, with greater choice of physicians and hospitals, and lower costs for most individuals and families. To no surprise, the majority participating in the polls would like to have the option to choose a private plan in addition to having available a guaranteed public plan – Medicare for All.

The media have latched onto this preference for having the option to choose a private plan, but some have expanded it to say that many Americans prefer their private plans and should not have them taken away.

Today’s message is about the concept of not eliminating the option of choosing a private plan. It is not about Kamala Harris’ campaign. The reason she is mentioned is that the media has been pounding on her about whether she would prohibit private plans as an option to Medicare for All. With the second round of debates coming up this week, she would certainly be hit hard on this if she didn’t adjust her message. So, although we are examining her defensive policy adjustment, the changes she is supporting represent the more moderate views of those who would support a Medicare public option instead, along with adjustments to the Affordable Care Act. That is, the changes represent allegedly mainstream views that voters may be looking for in the upcoming primary and general elections.

The issues are complex, and her suggestions add to the complexity. So how do you straighten this all out? Well, she asks to expand the transition to Medicare for All to ten years. But look at what happened to the Affordable Care Act after ten years of political shenanigans. It’s worse than what they began with. The numbers of uninsured have been increasing again, the out-of-pocket costs have become less affordable, and provider networks have markedly narrowed, especially with the largest ACA expansion – Medicaid. Does anyone really believe that the ten year transition would escape political sabotage?

Perhaps even more alarming is that the private insurance options proposed are basically the private Medicare Advantage plans that are being touted as being preferred by seniors. (It is merely because the private plans can offer better benefits by being overpaid at the same time the traditional Medicare program has been neglected, especially by not providing catastrophic protection.) This is fulfilling the dream of the private insurance industry that has been advocating for “Medicare Advantage for All” that places the entire nation in private health plans.

Harris’ proposal does call for the private plans to be paid 5% less than the costs of Medicare, just like the original Medicare + Choice program wherein the private insurers promised that they could provide higher quality at lower costs. It turns out they couldn’t, so the Choice program was terminated and profitable private Medicare Advantage replaced it. We know what happened there. The insurers were very successful in marketing their plans to the healthy while high cost patients were left in the traditional Medicare program. In response, the government then introduced risk adjustment to compensate for the overpayment to the private plans. The plans then expanded the diagnoses codes making their relatively healthy patients seem to be sicker than they were in order to quality for upward adjustments in the payment rates. Thus they are still being overpaid though there is disagreement as to how much. At any rate, the insurance industry is so powerful that you know there is no way that they would be compensated at rates 5% below traditional Medicare payments.

But what about the general principle of using multiple competing private plans as opposed to one single universal risk pool in a single payer Medicare for All program? One of the most important advantages of single payer is that administrative costs are dramatically reduced. Close to half a trillion dollars per year could be recovered by switching our fragmented system to single payer. Splitting up the risk pool amongst a slew of private insurers greatly increases the administrative complexity.

So what about those countries in Europe that they tell us use private plans successfully for their health care financing systems? In a Quote of the Day analysis of a 2011 OECD/WHO report on the Swiss health system, I commented: “It is not clear why so many in the U.S. are enamored of the Swiss health insurance system when this OECD/WHO report confirms that it is highly inefficient and fragmented, with profound administrative waste, inequitably funded, with regressive financing and with wide variations in premiums, has the highest out-of-pocket costs, has an increasing prevalence of managed care intrusions, and is controlled by a private insurance industry that has learned how to game risk selection at significant cost to those on the losing end.” (https://pnhp.org…)

So Kamala Harris might have repaired her debate sound bite on the private insurance option for Medicare for All, but she, and almost everyone else, are sure screwing up the message on single payer policies. Their policy modifications would have tragic results if eventually enacted and implemented, compared to a well designed single payer Medicare for All. (https://pnhp.org…)

As the title of a recent Quote of the Day states, “Do not sacrifice policy for the sake of political expediency.” (https://pnhp.org…)

PNHP does not support any politician or political campaign. This message is intended to reflect only on the wisdom, or rather lack thereof, of offering private insurance plans as an option in a single payer Medicare for All program.

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

By Ed Weisbart, M.D., C.P.E., F.A.A.F.P.
American Association for Physician Leadership, July 25, 2019

In the nearly ten years since I retired as chief medical officer for a large pharmacy benefit manager, it seems my perspective has shifted.

Before I left, I remember a discussion bemoaning the public’s increasingly critical view of managed care. We valiantly searched for a narrative to bolster our industry’s image.

The best example we found was about an insurer that helped a patient switch from the non-formulary drug her physician prescribed over to that insurer’s preference. We were all proud that the insurer had done extensive patient outreach and care coordination rather than just deny the pharmacy claim. While patting ourselves on our backs, we failed to recognize that the very existence of our fragmented insurance industry was the reason the patient needed to take something other than her physician’s first choice.

I was reminded of all of this when I read Erik Sherman’s “Sudden Medical Bills Surprising, But No Fun” in the May/June 2019 Physician Leadership Journal. Sherman has documented many of the symptoms of our fragmented system, and then recommended multiple solutions whose “effort, costs, and time commitment would be significant.” The entire strategy is based on making it easier for patients to understand their out-of-pocket costs, so that it would be “easier to collect,” in the words of financial advisor quoted in the article. This advice flies in the face of the fact that millions of Americans already declare bankruptcy from overwhelming medical bills despite having insurance when they get sick.

There’s nothing in Sherman’s article addressing our nation’s unsustainable cost trends, the fact that financial barriers keep so many Americans from healthcare, or the professional burnout created by needless administrative complexities. Instead, his proposal would add even more administrative complexity and waste. As any student of Deming and Juran can tell you, complexity is the enemy of quality.

Enough, I say, and most Americans agree.

Managed care is a model that’s had its day, if there ever really was one.

“Surprise medical bills” and “balance billing” are consequences of this fragmentation. They point to the need for us to build a single national health program, insuring every American with comprehensive first-dollar coverage. With this being the insurer for every American, virtually every physician and hospital would be “in network” and the surprises and unaddressed balances would fade into the dust heap of history.

The simplicity and success of this approach has been demonstrated around the world and resonates with patients and physicians alike. Indeed, ever since 2001 there has been a net migration of American physicians into Canada. Every year since 2004 there has been a net repatriation of expat Canadian physicians. Dr. Trina Larsen Soles, president of Doctors of British Columbia, describes practice in Canada as “It’s not a big hassle. I can focus on patient issues, not administrative issues.” Compare that to Dr. John Cullen, at the time president-elect of the American Academy of Family Physicians, who described American medical practice as “An incredible bureaucratic mess to get anything done for patients.”

It is time to move away from the convolutions and contortions that define this uniquely American industry, get rid of these intermediaries, and switch to the American system with the lowest overhead, consistently high levels of popularity, and extends our life expectancy.

Let us build our solution upon traditional Medicare (Parts A and B): eliminate the copays and deductibles; add in coverage for pharmacy, optometry, dentistry, and a few other critical elements; and fully fund our national health insurance through an equitable public funding mechanism rather compound overwhelming illnesses with overwhelming financial burdens.

With these improvements, there would be no market for supplements or Advantage plans. According to dozens of economic analyses, the savings from reduced administrative overhead and more consistent pricing would mean that the vast majority of Americans would spend less on healthcare. And be put back in control of their own healthcare decisions.

https://www.physicianleaders.org…

Comment:

By Don McCanne, M.D.

My father, my two brothers and I joined together in a traditional general practice (in the days before “family practice” was a discipline). In 1966, the implementation of Medicare and Medicaid (Medi-Cal) was a godsend. We were able to obtain more essential services, especially specialty care, for our patients, though the instability of individual insurance coverage and employer-sponsored plans remained a problem (60 million people leave their jobs each year!). Referrals of the uninsured and undocumented were often very difficult, though a few specialists did share our views on health care justice.

But then managed care entered the picture. Awful! The plans were very successful in erecting barriers to care. It was so bad that we eventually welcomed EMTALA which enabled an enforced referral by sending our patients to the emergency department of the hospital. Talk about a terrible way to practice medicine, not to mention the damage it did to the previously collegial relationships between physicians. In Orange County, even Medi-Cal was split up into multiple managed care organizations. (An example of how that worked out: There was only one authorized psychiatrist on my list who happened to be an octogenarian who had practiced in the opposite end of the county far away from my patients, but who had his license suspended because of a morals offense committed in a city park restroom. So I didn’t have any psychiatrist to whom I could refer my patients. Yet Blue Cross had the gall to send an agent to my office to admonish me for sending patients out of network, when virtually none of the specialists in my region would accept my Medi-Cal [CalOptima] patients within the network. It was managed exclusion of care.)

And Medicare? There is now a march toward private Medicare Advantage plans. It may not be obvious to those who are enrolling in these plans, but they are designed to create barriers to care – the most important being limitation of care to contracted provider networks. Most patients do not know when preferred care is being bypassed or that it is not even offered at all because of these restrictions, or maybe because physicians are simply avoiding the hassle of obtaining prior authorizations.

And those who insist on the right to enroll in private plans as a condition for enacting a Medicare for All program? They truly do not seem to know what they are wishing for. They are making a plea for the perpetuation of the evils of managed care, though the insurers have been effective in making those evils less transparent.

Ed Weisbart has it right again: Managed care is a model that’s had its day. If only the public could understand that. We would then have the political support to move forward with single payer Medicare for All – affordable health care for everyone forever.

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By Jack Meyer
Health Affairs Blog, July 24, 2019

The debate over the future of the US health care system has entered a fact-free, extremist zone that will continue to impede progress toward the critically important goals of moving to universal health coverage, improving the quality of care and patient safety, and controlling the growth of total health spending. The polarization of the health care debate will leave us in gridlock and block any bipartisan approaches to universal coverage that can be enacted and implemented.

Sabotaging The ACA

On one side of this debate, the Trump administration has been repeatedly sabotaging the ACA, while offering no constructive alternative.

Living In A Dream World

On the other side of the debate, most Democratic presidential candidates are shouting “Medicare for All” without explaining how that would work or how we would get from here to there.

A Better Approach To Achieving Universal Health Coverage

There are constructive, feasible, and affordable pathways to universal coverage that build on our mixed, public/private system.

Linda Blumberg, John Holahan, and Stephen Zuckerman of the Urban Institute have developed a plan to move toward universal coverage that allows people to keep their employer plan if they are satisfied with it.

The US needs to stop the ideological battle over the ACA and develop a realistic, affordable plan to move to universal health coverage. Instead of repealing the ACA or forcing people out of private coverage, we can construct a mixed public/private approach using large building blocks to forge a solid structure. No sabotage, no mandates, no villains, no easy sound bites. Instead, a blend of pluralistic approaches to affordable coverage using expanded public subsidies, private insurance, and sensible regulations.

Health Affairs Comment:

By Don McCanne, M.D.

There is absolutely no question that a well designed single payer model of reform is vastly superior from a policy perspective. It automatically includes absolutely everyone; it reduces administrative waste by hundreds of billions of dollars each year (not each decade); it improves equitable distribution of our health care resources thus improving access; it is financed equitably so that no person is exposed to financial hardship, and it uses public policies to slow future health care spending to sustainable levels. Incremental measures, such as described here, only add more layers to our highly dysfunctional health care financing, thus perpetuating inequities, inefficiencies, ineffectiveness, and ever rising health care spending. The problem is not with single payer policy, but it’s with the political path to get there, as this article implies.

It is a terrible error to automatically compromise on policy in order to clear a pathway through the politics, yet that is how it is typically done. What we should be doing instead is change the politics so that we can enact and implement the optimal policies that work best for all of us.

The first step should be to have a little more honesty in our national dialogue on reform. Instead of discussing how well selected policies work for the dysfunctional elements of the existing system, we should be discussing how well optimal policies (single payer) would benefit the patients, and then be sure that the public is educated on the differences. Difficult? Sure it is, but this multi-trillion dollar industry is being funded by us, the people, and for that level of spending we should be demanding optimal value – high quality health care for everyone.

https://www.healthaffairs.org…

Further Comment:

By Don McCanne, M.D.

Think about these two problems society faces:

1. We have the most expensive health care system in the world yet it is failing us in preventing much avoidable suffering, financial hardship and premature death.
2. We have a political system that serves as a barrier to problem #1.

So what have we been doing? We first approach problem #2. We decide that we have to agree to compromise and then we decide what health policies can survive the compromise process.

Through the decades, we have agreed on policies that sacrifice universality, access, affordability, efficiency, effectiveness, and especially equity. Yet we have defined this as success because we were able to negotiate the politics.

We still see that today. Forget the dream world of a high performing health care system that’s affordable and takes care of everyone. Let’s spin our wheels on the real challenge – achieving political compromise – but to do that, we have to dump the beneficial policies that actually would work for all of us. In other words, we must tackle the barrier to reform – problem #2 – by sacrificing real solutions for problem #1 – our health care.

As stated above, we need more honesty in our national discourse on reform. People need to understand what really would work best for them. By placing a priority on policy, you would hope that the politics would align.

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