The Value of Medicaid: Interpreting Results from the Oregon Health Insurance Experiment

By Amy Finkelstein, Nathaniel Hendren & Erzo F.P. Luttmer
National Bureau of Economic Research, Working Paper 21308, June 2015

Abstract

We develop a set of frameworks for valuing Medicaid and apply them to welfare analysis of the Oregon Health Insurance Experiment, a Medicaid expansion for low-income, uninsured adults that occurred via random assignment. Our baseline estimates of Medicaid’s welfare benefit to recipients per dollar of government spending range from about $0.2 to $0.4, depending on the framework, with at least two-fifths – and as much as four-fifths – of the value of Medicaid coming from a transfer component, as opposed to its ability to move resources across states of the world. In addition, we estimate that Medicaid generates a substantial transfer, of about $0.6 per dollar of government spending, to the providers of implicit insurance for the low-income uninsured. The economic incidence of these transfers is critical for assessing the social value of providing Medicaid to low-income adults relative to alternative redistributive policies.

http://www.nber.org/papers/w21308

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Valuing Medicaid

By Harold Pollack, Bill Gardner & Timothy Jost
The American Prospect, July 26, 2015

How Valuable Is Medicaid?

An important recent paper by Amy Finkelstein, Nathaniel Hendren, and Erzo Luttmer, “The Value of Medicaid,” tries to determine how much it is worth, but in a narrow way whose baseline assumptions understate the value of the program. The authors use data from the Oregon Health Insurance Experiment. The experiment worked like this: Oregon had more poor and uninsured people than they could insure under Medicaid. So they held a lottery for who could apply for Medicaid coverage. Finkelstein and her colleagues realized that this lottery was in effect an experiment that would allow them to study the impact of Medicaid coverage on the previously uninsured.  Following a reasonable — but contestable — economic methodology, Finkelstein and colleagues estimated an equivalent dollar-value to the improved health observed among lottery winners. The authors then explored what happened to a dollar that was spent on providing Medicaid: Who actually benefited and by how much? And would recipients have been willing to pay for their Medicaid benefits if they had to?

The study’s major findings, widely reported in The Wall Street Journal, Vox, Forbes, and many other media outlets, can be summarized as follows:

1. Uninsured people who get Medicaid only gained from 20 to 40 cents in value from each dollar spent by the government.
2. A principal reason why the benefit of getting insured was so small is that when uninsured people received care, they typically paid only 20 cents on the dollar for those services. Safety-net providers, state or local government, friends, relatives, or someone else absorbed the remaining costs. When a recipient became insured, Medicaid paid some of these costs at the rate of about 60 cents per dollar.
3. Because a large fraction of Medicaid expenditures financed care that recipients would have received anyway (for example, by leaving bad debt at hospitals), it is unclear whether recipients themselves would have been willing to pay the full costs of Medicaid.

While the Oregon Health Insurance Experiment was a well-designed study, too few of the study participants experienced serious medical conditions to investigate how Medicaid affected their health or quality of life. In addition, the experiment — and thus Finkelstein, Hendren, and Luttmer’s study — did not examine how Medicaid affected recipients’ families or the health-care institutions that care for low-income uninsured patients. Medicaid’s long-term benefits as an investment in infants and children were also beyond the scope of the Oregon experiment.

But perhaps the most important limitation of the study stems from an assumption that many readers would be unlikely to notice. Finkelstein and her colleagues placed a very low value — $25,000 — on a year of additional life for Medicaid beneficiaries. The typical threshold used in health services research is much larger, in recent studies far above $100,000 per additional year of (healthy) life. Yet because the median income of the Oregon study participants was about one-fourth of the median income in the United States, the researchers chose to value an additional life-year at about one-fourth of the usual threshold. This assumption powerfully frames everything that follows in this analysis. After all, if you start out by assuming that Medicaid beneficiaries’ lives are worth very little, you will find that it is not worth spending much money to prolong them.

Although Finkelstein, Hendren, and Luttmer’s baseline assumptions are methodologically defensible, they have radical implications that are rarely so bluntly applied in other domains of health-policy research. Choices about how to financially value the health of poor people relative to the health of others are inevitably both politically and morally freighted. It strains credulity, for example, to imagine American policymakers using this low a value for life when analyzing mammography, prostate cancer treatment, or implantable cardiac defibrillators for seniors.

The authors are careful not to make any normative statements based on these findings, but others such as Michael Cannon, Tyler Cowen, and John Graham have done so. They make two arguments: First, Medicaid is an inefficient way to benefit the poor. If a Medicaid dollar results in only 20 cents in benefit to a previously uninsured person, wouldn’t it be more efficient to simply give that person a dollar? And, second, Medicaid is actually a subsidy for people other than those it ostensibly helps.

We see matters rather differently. Economists have long understood that poor people would prefer cash to subsidized health insurance (especially if they can still get health care for free). So why does every developed country, including the United States, subsidize health insurance for the poor? Part of the reason is that those countries have broader moral and public-health criteria for thinking about health insurance and poor people’s lives. Universal health care expresses a commitment to the well-being of fellow citizens. Everyone should have access to a decent minimum of care; caring for others in distress is a primary expression of human solidarity.

http://prospect.org/article/valuing-medicaid

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Quotes from conservatives cited above:

Michael Cannon: “The (Finkelstein et al) trio found that Medicaid enrollees receive very little benefit from each dollar spent on Medicaid.”

Tyler Cowan:  “An implication of this is that the poor would be better off getting direct cash transfers.”

John Graham:  “Only 20 to 40 cents of Medicaid spending actually goes towards patients’ welfare.” 

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Comment:

By Don McCanne, MD

This NBER study by Amy Finkelstein and her colleagues on the value of Medicaid is important in that it is being used by conservatives to discredit Medicaid, giving fodder to opponents of this program. For that reason, it is important to understand the limitations of the narrow assumptions used in the study, and that is why the article by Harold Pollack and his colleagues is so important.

The Finkelstein article is challenging for the non-economist, but one assumption stands out as a basis for countering the claims of the conservatives who would use this to diminish support for Medicaid. That assumption in this study is that a year of life is worth about $25,000 for Medicaid beneficiaries when most studies assign a value closer to $125,000 per quality-adjusted life year ($100,000 to $150,000). When private insurance extends life by a year it is worth about five times what that same year of life would be worth for a low-income Medicaid beneficiary, so this study seems to assume. According to Pollack, et al., “… if you start out by assuming that Medicaid beneficiaries’ lives are worth very little, you will find that it is not worth spending much money to prolong them.”

Another bizarre line of reasoning is that much of the Medicaid money does not benefit the patient because it goes to physicians, hospitals, and Medicaid managed care organizations. The assumption seems to be that if the patient was not covered by Medicaid, the care would be provided anyway on a charity basis. Thus the patient does not receive any benefit from Medicaid because charity care and care under Medicaid are supposedly the same (not true), whereas the physicians and hospitals would benefit by receiving Medicaid income for what would otherwise be charity care. Would these conservatives seriously contend that private insurance provides little value for patients since the money goes to the physicians, hospitals and insurers and not to the patient? Of course not. Private insurance funds are used to purchase health care, providing considerable value for the patient. So how can they say that Medicaid funds are simply diverted to the health care delivery system, providing little value for the patient?

This is yet one more study to come out of the Oregon Health Insurance Experiment. The raw data in these studies are valid but the assumptions made and the interpretations extrapolated from them are being used to make claims such as, “Medicaid enrollees receive very little benefit from each dollar spent on Medicaid.” Medicaid saves lives, reduces suffering, and prevents financial hardship. That has real value.

Next Steps for the Affordable Care Act

By Linda J. Blumberg, John Holahan
Urban Institute, August 12, 2015

While the ACA has already had some very important successes, simply put, there has never been enough funding, given how ambitious the goals of the law were—for example, substantially reducing the number of uninsured, ending discrimination against those with health conditions, and controlling health care costs.

Every effort was made to keep the costs of the law under a trillion dollars over 10 years, which amounted to about 0.7 percent of GDP. This amount was simply not adequate, given the problems the nation faced in the health care sector. In order to allow the ACA to meet and exceed its long-term objectives, additional investments should be made to improve affordable access to care and bolster administrative capacity.

Affordability concerns

Under the ACA, significant strides have been made in increasing the affordability of coverage and reducing the number of uninsured by 15 million people. This was done in an environment with surprisingly moderate premiums in the private nongroup insurance market and prohibitions on discrimination against those with health problems. However, despite these achievements, affordability remains the most often stated reason for remaining uninsured.

• As it now stands, premium and cost-sharing subsidies are not generous enough to make coverage affordable for large numbers of low-income Americans.
• Low-income families are often unable to obtain subsidized coverage if one worker in the family receives an offer of affordable single coverage through an employer.
• Following the Supreme Court decision in 2012, which essentially left Medicaid expansion up to individual states, 21 states still have not expanded eligibility for that program. That leaves a significant gap between those Medicaid eligible prior to the ACA and those eligible for federal subsidies through the marketplaces.

Administrative concerns

In addition to these affordability issues, the significant reforms in the ACA require serious attention to administration. Much of the need for administrative effort is a consequence of building a system around competing private insurers. This requires a complex and flexible IT apparatus, continuing strategies and structures for broad-based education, outreach and enrollment assistance, and effective approaches for oversight and enforcement of insurance regulation.

• Experience with IT systems has been decidedly mixed, with some state marketplaces working effectively, some moving to the federal HealthCare.gov system, and some moving to well-functioning systems developed for other states. But the most promising systems, including HealthCare.gov, require more funding than they have thus far received.
• Education, outreach, and enrollment assistance needs are not diminishing, although the current funding approach appears to treat it that way.
• Regulatory oversight and enforcement resources have yet to be allocated sufficiently.

Our solutions

All of these issues can only be addressed with additional funding, and the amount that is needed is trivial as a share of the economy. We propose the following:

• Make reductions in the premiums and cost-sharing (deductibles, co-payments, coinsurance) that low-income people pay to purchase coverage through the nongroup marketplaces.
• Make it possible for families to receive financial assistance for the purchase of marketplace coverage even if a family member has an affordable offer of single coverage through an employer.
• Make it an option for states to expand Medicaid to those at or below only 100 percent of the federal poverty level to induce more states to step forward.
• Make permanent a significant federal contribution to administrative costs. This includes IT systems, but also the human support that is needed, like call centers and a permanent cadre of personnel to help individuals get enrolled both during open enrollment and during special enrollment periods. Plus, make a federal investment in ensuring appropriate oversight and enforcement of insurance regulations.

How much these solutions cost

We estimate that our proposed reforms could be done for about 0.2-0.24 percent of GDP. There are many ways to pay for this, including applying rebates used in the Medicaid program to certain Medicare enrollees as well, increasing cigarette and alcohol taxes, and replacing the “Cadillac tax” with a cap on the exclusion of employer contributions to health insurance.

The changes that we propose are not trivial. We recognize that they are not politically feasible in the near term, but we also believe that what is politically feasible at this moment will not do the job that is necessary to make the ACA solve all the problems it is intended to address.

The ACA marks a large step forward for the US health care system, but no country solves its health care problems with one piece of legislation. There is more to do, and doing it is achievable with additional investments that are extremely small relative to our economy and our total level of health care spending.

http://www.urban.org/urban-wire/next-steps-aca

Full report (60 pages): http://www.urban.org/research/publication/after-king-v-burwell-next-steps-affordable-care-act/view/full_report

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Comment:

By Don McCanne, MD

This report is ideal for those who say that we should forget single payer and instead move forward with fixing what we have – the Affordable Care Act. The authors list some of the more obvious problems and provide suggested solutions. Although their contribution to the reform dialogue is commendable, there are two major problems with their approach.

The most important concern is that their recommendations are limited to deficiencies in ACA, but ACA was merely a series of patches to our highly dysfunctional, inequitable, inadequate, overpriced system uniquely characterized by profound administrative inefficiencies. The fundamentally flawed system would remain intact. Though the ACA patches were beneficial, they did not begin to address the profusion of other problems in our system.

The authors are merely proposing patches to the patches. We will still be left with millions without insurance, millions who are underinsured, profound administrative waste, and little means to control our high health care costs. In fact, the authors recommend increasing our spending on health care – additional spending that is appropriate only if you accept the fact that we reject the comprehensive reform that we really need.

The other problem is political. They acknowledge that their proposals “are not politically feasible in the near term.” But isn’t that what people say about single payer? Is single payer really that much less feasible than patches to the patches? Look at the current political campaigns. One of the most outspoken advocates of single payer Medicare for all is filling stadiums with passionate supporters of his messages. Yet other candidates who advocate for repeal of Obamacare and reducing our spending on Medicare and Medicaid are drawing ridicule from those outside of their narrow camp.

If we are going to work on changing political feasibility, wouldn’t it be far better to join the rising tide in support of replacing bad policy with good policy through single payer, instead of merely trying to patch the bad policies of our highly dysfunctional post-ACA non-system?

Health Insurance Coverage: Early Release of Estimates From the National Health Interview Survey, January–March 2015

By Robin A. Cohen, Ph.D. and Michael E. Martinez, M.P.H., M.H.S.A.
National Center for Health Statistics, August, 2015

Highlights

• The number of uninsured persons continued to decline from 2013. In the first 3 months of 2015, 29 million persons of all ages (9.2%) were uninsured at the time of interview, 7 million fewer persons than in 2014.
• Among adults aged 18-64, the percentage uninsured decreased from 16.3% in 2014 to 13.0% in the first three months of 2015. There was a corresponding increase in private coverage, from 67.3% to 70.4%.
• Among children under age 18 years, the percentage with private coverage increased from 52.6% in 2013 to 56.3% in the first 3 months of 2015, reversing a 14-year trend of declining rates of private coverage.
• Among those under age 65, the percentage with private coverage through the Health Insurance Marketplace or state-based exchanges increased from 2.5% (6.7 million) in the last three months of 2014 to 3.6% (9.7 million) in the first 3 months of 2015.

Estimates of enrollment in HDHPs and CDHPs

In the first 3 months of 2015, 36.0% of persons under age 65 with private health insurance were enrolled in an HDHP, including 13.3% who were enrolled in a CDHP [an HDHP with a health savings account (HSA)] and 22.7% who were enrolled in an HDHP without an HSA. Among those with private insurance, enrollment in an HDHP generally increased since 2010. However, the percentage who were enrolled in an HDHP did not significantly change between 2014 (36.9%) and the first 3 months of 2015 (36.0%).

http://www.cdc.gov/nchs/data/nhis/earlyrelease/insur201508.pdf

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Comment:

By Don McCanne, MD

The National Health Interview Survey (NHIS) shows the success of implementation of the Affordable Care Act (ACA) in reducing the number of uninsured in the United States – down to 29.0 million, from a 2014 level of 36.0 million. Although it is great news to know that so many gained coverage, it is disappointing that 29 million will still remain uninsured. 

There is a bit of news in this report that could be significant. The rise in enrollment in high-deductible health plans (HDHPs) has been of concern because they create financial barriers to care and result in personal financial hardships. This year the enrollment stayed flat – at 36.0% compared to 36.9% in 2014 – a statistically insignificant decline in the percentage. Although health savings accounts (HSAs) have been heavily promoted to help cover higher out-of-pocket expenses associated with HDHPs, 63% of those with private HDHPs did not have an HSA to help with those expenses. It is the deductible, not the savings account, that is the primary operative.

One of the more serious flaws of ACA is the increased use of HDHPs as a trade-off to keep insurance premiums more affordable. These HDHPs have been unpopular because of the medical bills patients are facing, but they have been selected anyway because of the lower premiums.

It will take more time to see if this flattening of the growth in HDHPs actually represents an increasing resistance to these plans or if it is just a random variation. Even if it does represent the early onset of a rebellion, individuals will still be faced with trying to balance premiums with out-of-pocket expenses – a dilemma inherent in the lower actuarial values of today’s typical private plans. A single payer system would eliminate this problem, not to mention that it would bring the percentage of uninsured down to zero.

Not All of the Federally Facilitated Marketplace’s Internal Controls Were Effective in Ensuring That Individuals Were Properly Determined Eligible for Qualified Health Plans and Insurance Affordability Programs

Department of Health and Human Services, Office of the Inspector General, August 2015

Our objective was to determine whether the Federal marketplace’s internal controls were effective in ensuring that individuals were determined eligible for enrollment in QHPs (qualified health plans) and eligible for insurance affordability programs according to Federal requirements.

DEFICIENCIES RELATED TO VERIFYING APPLICANTS’ ELIGIBILITY

Social Security Numbers Were Not Always Validated Through the Social Security Administration

Citizenship Was Not Always Verified Properly

Annual Household Income Was Not Always Verified Properly

Family Size Was Not Always Determined Correctly

DEFICIENCIES RELATED TO RESOLVING AND EXPIRING INCONSISTENCIES

Inconsistencies Related to Certain Eligibility Requirements Were Not Always Resolved Properly

Inconsistencies Related to Certain Eligibility Requirements Were Not Always Expired Properly

Applicant Data and Documentation Related to Resolving Inconsistencies Were Not Always Maintained Properly

https://oig.hhs.gov/oas/reports/region9/91401011.pdf

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Comment:

By Don McCanne, MD

Considering the administrative complexities of the Federally Facilitated Marketplace (insurance exchanges) established by the Affordable Care Act, these deficiencies in determining eligibility for the exchange health plans and for the premium tax credits and cost-sharing reductions do not really demonstrate bureaucratic incompetence but rather would be expected based on the complex program design authorized by the legislation.

This was totally unnecessary. By design, in a single payer system everyone is eligible and automatically enrolled. There is no need for premium tax credits since there are no premiums. The program is funded through equitable taxes instead. There also is no need for cost-sharing reductions since there are no deductibles or coinsurance. It is a prepaid program.

Instead of reading the news reports and merely tisk-tisking the incompetence of the administration, we need to give more thought as to why the administrative boondoggles exist and redirect the blame to the fact that we are implementing a highly flawed model of health care financing. That should then lead us to advocating for a model that really does work well – a single payer national health program.

In U.S., Uninsured Rates Continue to Drop in Most States

By Dan Witters
Gallup, August 10, 2015

The marketplace exchanges opened on Oct. 1, 2013, with new insurance plans purchased during the last quarter of that year typically starting on Jan. 1, 2014. Medicaid expansion among initially participating states also began with the onset of 2014. As such, 2013 serves as a benchmark year for uninsured rates as they existed prior to the enactment of the two major mechanisms of the healthcare law.

Nationwide, the uninsured rate fell from 17.3% in full-year 2013 to 11.7% in the first half of 2015.

Collectively, the uninsured rate in states that have chosen to expand Medicaid and set up their own state exchanges or partnerships in the health insurance marketplace has declined significantly more since 2013 than the rate in states that did not take these steps. The uninsured rate declined 7.1 points in the 22 states that implemented both of these measures by Dec. 31, 2014, compared with a 5.3-point drop across the 28 states that had implemented only one or neither of these actions.

Although the 22 states that implemented both mechanisms before Jan. 1, 2015, had a lower uninsured rate to begin with, the 7.1-point drop is larger than what is reported among the other 28 states, and represents a 44% decline since 2013 in the uninsured rate among adults residing there. The 5.3-point drop in the 28 states that have implemented one or neither of the mechanisms represents a 28% decline in uninsured rates. Still, the difference in the rate of decline in uninsured rates between the two groups of states has now leveled off, and is unchanged relative to the same 1.8-point gap in the rate of decline measured in midyear 2014.

http://www.gallup.com/poll/184514/uninsured-rates-continue-drop-states.aspx

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Comment:

By Don McCanne, MD

Although supporters of the Affordable Care Act (ACA) celebrate the reductions in the numbers of uninsured into the second year of plan enrollment, those of us who believe that everyone should be covered certainly do not have cause to celebrate.

Nationally, the rate of uninsured fell from 17.3% before ACA expansions were implemented to 11.7% after the second annual enrollment period. That is a decline in the uninsured of only 32%. Two-thirds of the numbers previously uninsured still remain uninsured.

Even in those states that cooperated with ACA by both expanding Medicaid and by establishing exchanges themselves or partnering with the federal government to establish exchanges still saw reductions in the uninsured of only 44% – less than half (a decline from 16.0% to 8.9%). Thus even the optimal results are disappointing. States that failed to cooperate saw even less of a decline in the uninsured – 28% (from 18.7% to 13.4%).

With two seasons of ACA implementation, the low fruit has been picked. With increasing penalties for remaining uninsured, a few more enrollees should trickle into the exchanges. Also some states missing in action will likely reluctantly expand their Medicaid programs. But even with optimistic estimates of the increases in participation, it is quite clear that far too many will remain uninsured.

The defect is in the design of the Affordable Care Act – an administratively complex, fragmented system that could never result in truly universal coverage, not to mention all of the inequities that it perpetuates. In contrast, a single payer system automatically enrolls everyone, while reducing inequities. That’s the design that we need.

Tax Filing Problems Could Jeopardize Health Law Aid for 1.8M

By Ricardo Alonso-Zaldivar
Associated Press, August 4, 2015

About 1.8 million households that got financial help for health insurance under President Barack Obama’s law now have issues with their tax returns that could jeopardize their subsidies next year.

Consumers who got health care tax credits are required to file tax returns that properly account for them, even if they are unaccustomed to filing because their incomes are low. Unless they follow through, “they will not be able to receive tax credits to help lower the cost of their health insurance for 2016,” Lodes explained (Lori Lodes, communications director for the Centers for Medicare and Medicaid Services).

Treasury officials said 1.8 million households are at risk of losing subsidies for next year, and that number breaks down as follows:

• About 710,000 households that have not filed a 2014 tax return, although they were legally required to account for health insurance tax credits that they received.
• Some 360,000 households that got tax credits and requested an extension to file their returns. They have until Oct. 15.
• About 760,000 households that got tax credits and filed their tax returns omitted a new form that is the key to accounting for the subsidies. Called Form 8962, it was new for this year’s tax filing season.

The 1.8 million households with tax issues represent 40 percent of 4.5 million households that had tax credits provided on their behalf and must account for them.

“What the IRS is doing here is sending these people a not-so-gentle reminder that they need to file or they will put their subsidy at risk,” said Mark Ciaramitaro, vice president for tax and health care at H&R Block, the tax preparation company. He cautioned that many consumers will find the process cumbersome, so they should waste no time getting started.

http://hosted.ap.org/dynamic/stories/U/US_HEALTH_OVERHAUL_TAX_CONFUSION

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Comment:

By Don McCanne, MD

Forty percent of the 4.5 million households that received tax credits in 2014 for the health plans offered in the ACA exchanges have failed to complete the tax filing requirements for these credits and thus will be ineligible for tax credits for 2016, unless they follow through with their delayed filings.

In a health care system already heavily burdened with administrative excesses, it is unfortunate that the Affordable Care Act significantly increases the administrative burden. In this instance, the additional hassle of the tax filing requirements for those receiving subsidies under ACA may be confusing enough that many may fail to file correctly, and thus they may become disqualified for tax credits to which they are entitled and which many need just to be able to afford the premiums for the exchange plans.

Many of ACA’s provisions and regulations apply specifically to individuals and families, creating sometimes complex administrative requirements in each individual case. In contrast, a single payer system requires simple registration only once in a lifetime, and the financing requires nothing more than compliance with the existing tax system, with rates set based on ability to pay.

For the individual, a single payer system is hassle-free, whereas for the entire nation, single payer frees up enough administrative waste to pay for the care that people are not currently receiving but should be.

When we have a financing system requiring IRS rules that can threaten individuals with loss of their health care, we know that the system needs to be changed. Time for an improved Medicare for all.

Australian Health Care — The Challenge of Reform in a Fragmented System

By Jane Hall, Ph.D.
The New England Journal of Medicine, August 6, 2015

The Australian health care system appears remarkably successful in delivering good health outcomes with reasonable cost control. Australians enjoy one of the longest life expectancies and a long healthy life expectancy, while costs as a proportion of the gross domestic product remain around the median among countries in the Organization for Economic Cooperation and Development (OECD). Universal, tax-financed comprehensive health insurance, Australian Medicare, has been largely stable for three decades. Yet this performance has been achieved through, or despite, the interplay of public and private financing, public and private service provision, and a division of responsibilities between the federal and state governments. The main political parties clash over the role of government and whether national health insurance in its current form should continue.

Australian Medicare was established in 1984, after a period of tumultuous change. Australia has moved through numerous approaches to health care financing: private insurance with public subsidies (pre-1974), publicly financed national universal health insurance (Medibank, 1974–1976), predominantly private insurance with public subsidies (1976–1984), publicly financed national universal health insurance (Medicare, 1984–1996), publicly financed national universal health insurance with publicly subsidized private health insurance (1996–2013), and publicly financed national universal health insurance with means testing for private insurance subsidies (2013 to present). The rationale for government subsidies for private insurers alongside a public universal insurance scheme has never seemed clear; perhaps it is best seen as the compromise between the “strife of interests masquerading as a conflict of principles” that, according to health planner Sidney Sax, characterizes the Australian system.

Another strife of interests afflicts intergovernment relationships. There are six states and two territories (hereafter all referred to as states), each of which retains its own government and the responsibility for public health and health care. The national government, the Commonwealth of Australia, holds the major revenue-raising powers, so states rely on financial transfers to provide services. The states operate public hospitals (which account for about two thirds of all hospitalizations and provide emergency department visits without charge), though funding them is a joint responsibility of both levels of government. The Commonwealth has responsibility for paying benefits through Medicare (for out-of-hospital medical care and in-hospital private medical services) and for the Pharmaceutical Benefits Scheme (covering most prescribed drugs), but funding arrangements for other services often involve both levels of government. The result is a complex set of overlapping and fragmented responsibilities.

A recent review concluded that “the complex split of government roles means no single level of government has all the policy levers needed to ensure a cohesive health system” and that the people who suffer the most from the lack of coordination are “patients with chronic and complex conditions, such as diabetes, cancer and mental illness, who regularly move from one health service to another.”

A change in national government in 2013 prompted substantial revision of many aspects of reform. In primary care, Medicare Locals were disbanded, and on July 1, 2015, they were replaced by 31 Primary Health Networks. The call for applications to establish these networks emphasized the eligibility of various organizations, including private health insurance funds, as contractors. The successful bids came mainly from consortia of Medicare Locals, some of them including insurers as partners. The networks may yet develop the potential to become purchasers and thereby provide impetus for integrated care, but given the challenge of setting up new entities, that transformation remains aspirational.

The new government has also reversed the agreement that provided additional Commonwealth funding to public hospitals on the basis of efficient cost increases and volume growth. Beginning in July 2017, the Commonwealth’s additional contributions will be based only on population growth and inflation. This change presents a major challenge for states, whose public-hospital expenditure is a major budgetary commitment that isn’t matched by revenue-raising capability. It will therefore severely limit states’ flexibility in funding other programs, such as education and transportation, and in developing innovative health programs that might improve care integration and coordination.

An underlying concern is the extent to which the Commonwealth government intends to reduce its share of health care expenditure. In 2014, it attempted to reduce its outlays on Medicare by imposing patient copayments for GP visits — a tactic that was eventually dropped in the face of concerted opposition. But other cost-reduction avenues remain open, and recent announcements have, for example, targeted the cost of pharmaceuticals. Since 2002, the Commonwealth has produced a series of Intergenerational Reports predicting what government expenditures will be over the next 40 years if current policies remain in place. These reports show significant increases in health care spending, but they focus on the Commonwealth budget rather than the entire health sector. If reducing Commonwealth expenditures remains the primary objective for the health portfolio, it could lead to further fragmentation of care and missed opportunities for developing a coherent and efficient health system.

http://www.nejm.org/doi/full/10.1056/NEJMp1410737

Australian Government White Paper on Health Reforrm, December 2014: https://federation.dpmc.gov.au/sites/default/files/issues-paper/Health_Issues_Paper.pdf

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Medibank

Wikpedia

The company began business as an Australian government-owned private health insurer, established by the Whitlam Government in 1975 through the Health Insurance Commission (now known as Medicare Australia). It is Australia’s largest health insurance provider with 3.6 million members, 30% of the market, under two brands.

Medibank was set up to provide competition to private “for-profit” health funds. Although government owned, the fund has operated as a government business enterprise since 2009, operating as a fully commercialised business paying tax and dividends under the same regulatory regime as do all other registered private health funds. Highly regulated regarding the premiums it can set, the fund was designed to put pressure on other health funds to keep premiums at a reasonable level. In 2006, the Coalition Howard Government announced that Medibank would be sold in a public float if it won the 2007 election, however they were defeated by the Australian Labor Party under Kevin Rudd which had already pledged that it would remain in government ownership. Liberal leader Tony Abbott made the same pledge to privatize Medibank if it won the 2010 election but was again defeated by Labor. Privatisation was again Liberal party policy at the 2013 election, which the Coalition won. On 26 March 2014 Minister for Finance Mathias Cormann announced that Medibank would be sold through an initial public offering in the 2014-2015 financial year. The sale was completed with 100% of the company sold, listing on the Australian Stock Exchange under the code MPL on 25 November 2014, with 440,000 individual owners with a market capitalisation of A$5.921 billion.

https://en.wikipedia.org/wiki/Medibank

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Comment:

By Don McCanne, MD

Probably the greatest problem with government financed and government administered health care systems is that, whenever conservatives gain control of the government, they attempt to privatize the systems, believing that markets work better than the government. Currently we are seeing such efforts in England, Canada and Australia.

As today’s message demonstrates, Australia serves as a prime example of how the health care systems suffer under continuing shifts in political ideology, with the most damage being done under conservative rule. As their government leadership changes periodically, “Australia has moved through numerous approaches to health care financing.” 

Jane Hall, the author of the NEJM article above, writes, “The rationale for government subsidies for private insurers alongside a public universal insurance scheme has never seemed clear; perhaps it is best seen as the compromise between the ‘strife of interests masquerading as a conflict of principles’ that, according to health planner Sidney Sax, characterizes the Australian system.”

Thus Australia has ended up with a highly fragmented system, though shifting political winds make it likely that they have not seen the last change. (More information is available in the white paper produced by the current conservative Australian government – link above.)

One interesting observation in the NEJM article (which is available for free at the link above) is the contrast between the public and private sectors in delivering health care. An example is that “42% of private deliveries (unadjusted for risk factors) are caesareans, versus 29% of public deliveries.” Their private sector seems to have much in common with our medical-industrial complex.

Many single payer supporters in the United States continue to advocate for a “public option” – a government-run insurance that competes with the private plans – as an incremental step towards a universal single payer system. Australia’s Medibank began as such a program in 1975. The Wikipedia chronicle (above) of the history of Medibank reveals that it has transformed into the largest, private, shareholder owned insurance company in their nation. Although our efforts at establishing a public option never got off the ground, before the effort was abandoned, the concept had already evolved away from an expansion of Medicare into simply another player in the private insurance market, government in name only.

Our health care politics have much in common with Australia, and we both have fragmented health systems as a result. Our public Medicare program has already been partially privatized by using overpayments of taxpayer dollars to lure Medicare beneficiaries into the private Medicare Advantage plans. The conservatives are not through in that they want to shift the entire program into the private sector by use of “premium support” vouchers. Of course, the expansion of private insurance plans also perpetuates fragmentation, though currently efforts are being made to convert the insurers into private oligopolies – perhaps the worst model of health care reform that we could have.

So who ultimately controls the ideological complexion of the government? The voters, of course. That is why it is crucial that we continue to educate the public on single payer – an improved Medicare for all – contrasting it with the more dysfunctional models, with our present system being a prime example of dysfunction. The people can have a much better health care system, but they are going to have to understand what that is so that they will demand it of our politicians.