PNHP

Will the Affordable Care Act obviate the need for employer-sponsored insurance?

Will the Affordable Care Act obviate the need for employer-sponsored insurance?

Will Employers Drop Health Insurance Coverage Because Of The Affordable Care Act?

By Thomas Buchmueller, Colleen Carey and Helen G. Levy
Health Affairs, September 2013

Abstract

Since the passage of the Affordable Care Act, there has been much speculation about how many employers will stop offering health insurance once the act’s major coverage provisions take effect. Some observers predict little aggregate effect, but others believe that 2014 will mark the beginning of the end for our current system of employer-sponsored insurance. We use theoretical and empirical evidence to address the question, “How will employers’ offerings of health insurance change under health reform?” First, we describe the economic reasons why employers offer insurance. Second, we recap the relevant provisions of health reform and use our economic framework to consider how they may affect employers’ offerings. Third, we review the various predictions that have been made about those offerings under health reform. Finally, we offer some observations on interpreting early data from 2014.

Summing Up And Looking Ahead

For an employer, deciding whether or not to offer health insurance already requires a complex calculus that takes into account a host of factors—including employees’ preferences, wages, taxes, and regulations. The Affordable Care Act throws new taxes, subsidies, requirements, and insurance markets into the mix. But it does not fundamentally change the economics of the firm’s decision. Microsimulation models built on sound economic principles have for the most part predicted relatively small declines in employer-sponsored coverage as a result of health reform, and we believe that these predictions are likely to be correct.

If we are wrong, though, how will we know? Inevitably, reports will come in that some employers are dropping coverage. Although it will be tempting to attribute such reported changes to the Affordable Care Act, it is important to interpret new data on employer-sponsored coverage in the context of the basic economics of firms’ behavior and preexisting trends. The combination of rising health care costs and stagnant earnings for middle-income workers has for decades led to a gradual but steady decline in employer-sponsored insurance. This trend is the appropriate baseline against which to measure the impact of health reform.

It is, perhaps, stating the obvious to add a caution against reading too much into anecdotal reports. But for reasons described above, even surveys with large samples can produce results that are difficult to interpret. Fortunately, there are several high-quality data sources that will be useful for monitoring changes in employer-sponsored insurance and drawing inferences about the effect of health reform.

We expect that the earliest data on rates of coverage will come in September 2014, when both the National Health Interview Survey and the Current Population Survey should report on individuals’ sources of coverage in early 2014. If historical patterns hold, the Kaiser Family Foundation/Health Research and Educational Trust Employer Health Benefits Survey will be published the same month. In September 2015 the American Community Survey will provide state and metropolitan-area estimates of individual-level coverage patterns, and in July 2015 the Medical Expenditure Panel Survey will provide further information on employer offerings.

Of course, effects in early 2014 will not be the last word, as individuals and employers may take a wait-and-see approach. And since the employer penalty for not offering coverage will not take effect until 2015, it may be several years before the true effects of health reform on employer-sponsored insurance become evident.

However, these data will begin to answer the question posed in the title of our article. Given the historical importance of employer-sponsored insurance, the attention that is paid to this question is understandable. However, it is not a question of great economic significance. There is no efficiency argument for preferring private insurance facilitated by employers to private insurance facilitated by the state or any other mechanism that could be used to pool risk and achieve administrative economies of scale.

It is also important to remember that relying on firms as a mechanism for pooling insurance risk generates efficiency costs because it distorts the labor market. A better-functioning individual health insurance market has the potential to improve labor-market efficiency by reducing job lock, and thus eliminating a barrier to entrepreneurship and making it easier for workers to find a job and an insurance plan that matches their preferences. If the shift from employer-sponsored insurance to individual coverage is greater than projected, these labor-market gains may be substantial.

http://content.healthaffairs.org/content/32/9/1522.full

and

Small Increases To Employer Premiums Could Shift Millions Of People To The Exchanges And Add Billions To Federal Outlays

By Daniel R. Austin, Anna Luan, Louise L. Wang and Jay Bhattacharya
Health Affairs, September 2013

Abstract

The Affordable Care Act will expand insurance coverage to more than twenty-five million Americans, partly through subsidized private insurance available from newly created health insurance exchanges for people with incomes of 133–400 percent of the federal poverty level. The act will alter the financial incentive structure for employers and influence their decisions on whether or not to offer their employees coverage. These decisions, in turn, will affect federal outlays and revenues through several mechanisms. We model the sensitivity of federal costs for the insurance exchange coverage provision of the Affordable Care Act using the nationally representative Medical Expenditure Panel Survey data set. We assess revenues and subsidy outlays for premiums and cost sharing for individuals purchasing private insurance through exchanges. Our findings show that changing theoretical premium contribution levels by just $100 could induce 2.25 million individuals to transition to exchanges and increase federal outlays by $6.7 billion. Policy makers and analysts should pay especially careful attention to participation rates as the act’s implementation continues.

http://content.healthaffairs.org/content/32/9/1531.abstract

Comment:

By Don McCanne, M.D.

There has been considerable speculation as to whether or not employers will discontinue their health benefit programs and shift their employees to the state insurance exchanges established by the Affordable Care Act (ACA). What is the likely outcome, and, more importantly, does it even matter?

The majority of studies suggest that the impact of ACA on employers’ decisions regarding the continuation of their employee health benefit programs will be relatively modest initially.

Examples that predict more extreme shifts, such as that above by Austin et al – three Stanford medical students and their faculty advisor – are often based on narrow assumptions. In this case the assumption is that quite modest differences in net costs of plans offered through the exchanges compared with employer-sponsored plans could cause large shifts from employers to the exchanges.That ignores a great many other considerations that enter the employers’ action plans. Another infamous study by Douglas Holtz-Eakin made questionable assumptions that resulted in the spurious claim that employers would drop up to 35 million employees from coverage simply because of the provisions of ACA.

The Health Affairs article by Thomas Buchmueller and his colleagues provides a much more objective, if nuanced, analysis of the probability of a shift from employer-sponsored plans to the exchanges
. Based on several more credible microsimulations and based on employer surveys, they conclude that the more immediate impact of ACA will be quite modest. They suggest resources that we can follow which should provide us with better evidence of developing trends in the employer provision of health benefits.

While much attention is being directed to employer responses, Buchmueller et al state that employer-sponsored insurance “is not a question of great economic significance.” There is “no efficiency argument for preferring private insurance facilitated by employers to private insurance facilitated by the state or any other mechanism that could be used to pool risk and achieve administrative economies of scale.”

Although this study compared employer-sponsored private insurance with private insurance offered by the state exchanges, the subtle comment above on the efficiency argument perhaps should be refined: “…no efficiency argument for preferring… private insurance facilitated by the state or any other mechanism that could be used to pool risk and achieve administrative economies of scale.” There is, in fact, a very strong efficiency argument for the state to use another mechanism to pool all risks and achieve administrative economies of scale; that is, of course, single payer reform – an improved Medicare for all.

Shumlin To Rely On Payroll Tax Hikes

By Peter Hirschfeld
Vermont Public Radio, Sept. 9, 2013

Gov. Peter Shumlin said increases in the payroll tax will “play a major role” in the public financing system he wants to use to fund single-payer health care.

The public discussion over single-payer has taken a back seat of late to the health insurance “exchange” set to come online in the beginning of October. The new online marketplace, a product of the federal Affordable Care Act, will offer consumers a platform from which to comparison shop from a more strictly regulated slate of coverage options.

But even as the state launches a $6 million outreach campaign aimed at building awareness of “Vermont Health Connect,” as the exchange is being called, Shumlin said his administration still has its eyes on the single-payer prize.

“What (the exchange) does is basically subsidize the current system, so that’s OK,” Shumlin said. “But like most things that come out of Congress, it doesn’t really solve the problem.”

In an interview this week on “City Room,” a public-access cable show, Shumlin said he’s still committed to delivering a publicly financed, universal health care system by 2017. And his administration, he said, is readying a financing plan that will rely in large part on the payroll tax.

“And the question is where do you have capacity in the other taxes — income, sales, room and meals, we all know what they are — to be able to integrate some of those taxes with a payroll tax to come up with a more fair system based upon ability to pay,” Shumlin said. “And that’s the challenge for the Legislature. And for us.”

The “challenge” of developing a plan looks to be falling more on Shumlin than on his Democratic colleagues in the Statehouse, who rejected a plan earlier this year to split responsibility for the development of a public-financing proposal between the legislative and executive branches.

The administration is spearheading that task now, with input from lawmakers, and will present a proposal to the Legislature in January 2015.

Shumlin said there’s no question that the payroll tax will figure prominently in the plan, but that his administration will have to figure out how to avoid the kind of economic disruption that would inevitably accompany a sudden increase in the surcharge on wages.

For companies that already provide health insurance to their employees, Shumlin said, the new payroll tax won’t be terribly jarring.

“Right now as an employer I can tell you that I pay something that I call a health care tax … And for businesses … that are already paying a health care premium … it’s not a big shock to tell us we’re going to be paying a payroll tax instead of a health care premium,” Shumlin said. “We don’t care what you call it, we’re already paying it.”

The problem with the payroll tax, according to Shumlin, arises when the new surcharge is assessed on Vermont companies that don’t already provide insurance.

“And the question is how to ratchet in the folks that are paying nothing slowly enough so it doesn’t hurt their bottom line,” Shumlin said.

Ultimately, he said that in the single-payer system, the state needs “to have everybody who’s in business in Vermont paying something.”

Shumlin said the job will be a heavy lift politically. But he said he’s convinced the debate is a winnable one.

“Opponents are going to say this will be the biggest tax increase in Vermont history. Fair enough,” Shumlin said. “But it’s going to be the biggest health care premium reduction in American history. We’re just going to swap a health care premium for a publicly financed health care premium.”

Peter Hirschfield writes for the Times Argus – Rutland Herald.

http://digital.vpr.net/post/shumlin-rely-payroll-tax-hikes

Shumlin plan to use payroll tax to fund single payer unpalatable to many in business

By Andrew Stein
Vtdigger.org, Sept. 9, 2013

If Gov. Peter Shumlin pursues a payroll tax to fund a publicly financed health care system, he will meet heavy resistance from one of the state’s most influential business groups.

Betsy Bishop, director of the Vermont Chamber of Commerce, says her organization and its members would not look favorably on a payroll tax.

“When you take away the decision-making process, but leave the payment still in place, it disconnects the employer from the payment,” she said. “What we’re interested in is continuing a system where employers, if they are paying for health care, have some level of control over what they are paying for.”

Last week, Shumlin told Times Argus Editor Steve Pappas that a payroll tax would be one of the vehicles for funding a single-payer, universal health care system in Vermont. Shumlin has been touting single payer for years, but he has provided little detail to date about how the state would pay for the system.

“Clearly, the payroll tax is going to have to play a major role,” he told Pappas.

Shumlin’s Office of Health Care Reform is working on a financing plan to raise an estimated $1.61 billion for the system, and the governor says he will hand the plan to the Legislature in January 2015. The state would not be eligible for a waiver from the Affordable Care Act to implement a single payer plan until 2017.

“Opponents are going to say this will be the biggest tax increase in Vermont history — fair enough,” Shumlin told Pappas. “But it’s going to be the biggest health care premium reduction in American history. We’re just going to swap a health care premium for a publicly financed health care premium.”

Jim Harrison, who runs the Vermont Grocers’ Association, which represents 700 retailers and 250 suppliers, says he is not surprised the administration is considering a payroll tax.

“It is logical a payroll tax would be under consideration because a lot of insurance premiums are paid for by employers,” he said.

Exactly how a payroll tax would affect businesses, however, depends entirely on how it would be leveraged.

“You could have a number of employers that could be dramatically hurt and others who could be substantially helped by such a system,” Harrison said.

Shumlin said the biggest shock would be felt by businesses that don’t currently contribute to their employees’ insurance.

“The question is: How do you ratchet in the folks that are paying nothing slowly enough so that it doesn’t hurt their bottom line?” he said to Pappas.

“We pay about 18 percent of payroll for health care premiums,” Shumlin said about his family business, Putney Student Travel. “You can call it a tax or a premium, but it’s coming out of our bottom line.”

This isn’t the first time a payroll tax has been proposed as the main funding mechanism for a single-payer system. Harvard economist William Hsiao recommended an 11 percent payroll tax on employers and a 4.5 percent payroll tax on employees in 2011. At the time, many employers balked at the idea.

Vermont Businesses for Social Responsibility supports a publicly financed health care system, and the organization’s team has been looking at various funding options for the past couple of years.

Dan Barlow, a lobbyist for the group, says, “There really aren’t that many buckets of money.”

“Taxing junk food is not going to pay for our health care system,” Barlow said. “The payroll system is one of those big buckets you can go to. The income tax is as well.”

David Coates, who chairs the 20-member Governor’s Business Advisory Council, says he prefers the payroll tax to an increase in income taxes.

“It’s one of the funding mechanisms that has to be on the table from my perspective,” he said. “It certainly beats the income tax. You have to look at whether something will be so onerous it will make us anti-competitive and drive people out of the state of Vermont. There are people saying that our income taxes are too high.”

Michael Costa, Shumlin’s health care financing czar, says every option is on the table.

“I think it’s really fair to say that the current system relies heavily on payroll contributions, and we certainly continue to take a hard look at this option,” Costa said. “I wouldn’t be shocked to see the payroll tax as a component of one or more of the plans.”

A plan, however, has not yet been developed, he said.

“A secret plan would make my life easier, and I’m really certain one does not exist,” Costa said. “Why? Because I asked during my job interview. It would make my life a lot easier.”

Shumlin also articulated this sentiment, in his interview with Pappas.

“If we could lift up the veil on this thing, and we had it all planned out, and we could tell you exactly how it was going to work, I wouldn’t be sitting here,” he said. “We would have done it already.”

Rep. Janet Ancel, who chairs the House Ways and Means Committee, said that she is unsure whether her committee will look at tax options this legislative session for single payer. Sen. Tim Ashe, who chairs the Senate Finance Committee, says his committee won’t vote on a financing plan before 2015.

Bishop of the Vermont Chamber said legislators ought to know what the system looks like before they vote on a financing plan for single payer.

“Before we can define what tax this comes from and how much money we can raise from a tax, I think the state needs to be very clear about what the definition of single payer is, and what the benefit package is, and who is eligible for it, and how much we are paying providers,” she said. “If you change any single one of those factors, the overall cost of the system changes.”

http://vtdigger.org/2013/09/09/shumlin-plan-to-use-payroll-tax-to-fund-single-payer-unpalatable-to-many-in-business/#sthash.wAc9JOnz.dpuf

Single Payer: A Universal Plan that Curbs Obscene Costs

By Joie Meissner, N.D.
Vital News, Summer 2013 (Seattle)

First introduced to the House of Representatives in 2003, H.R. 676, the national version of the universal single-payer health care plan, is very much like Medicare. One entity collects all the fees and pays all the clinics and doctors.

A single-payer plan eliminates the excessive administrative costs inherent in managing the thousands of different health care plans and organizations such as PPOs (preferred provider organizations), CDHPs (consumer directed health plans), HMOs (health maintenance organizations), and HSAs (health savings accounts) in our current multi-payer system. By streamlining all of these plans and carriers into one efficient system that contains checks and balances on hospital, drug, and device prices, a single-payer system would provide an estimated savings of more than $200-$300 billion annually.1,2 By controlling drug prices in a manner akin to that of other countries with single-payer systems, we could save billions each year on our drug costs.

Another result of combining all the current plans into a single, user-friendly system is that many health care providers and patients who submit their own claims (including naturopathic physicians and their patients) would spend less time haggling over insurance claims. Doctors would have more resources to devote to their patients, and patients would have more time to devote to their own health. As the legions of billing clerks at hospitals such as Duke University Hospital are reduced to manageable numbers, fewer resources would be expended on the financial overhead of health care. With less need for physicians to act as billing clerks, the quality of care provided to patients would be greatly enhanced. (More on this topic will be discussed in article 3 of this series.)

Whereas our current multi-payer private insurance system is run as a for-profit enterprise, a Medicare-style, universal single-payer system is a socially responsible health care plan designed to serve the public good.

Unlike our current multi-payer system under which 30 million Americans will remain uninsured after Obamacare is fully implemented in 2022, all Americans would be covered under a universal single-payer system.3 Since universal single-payer health care covers all persons regardless of their health status and is free at the point of care, it eliminates the current standard operating practices such as ‘cherry picking’ and ‘lemon dropping’, where health plans offer coverage to healthy patients and deny or restrict coverage to those whose needs are greater. Under a universal single-payer system, health care coverage would no longer be tied to employment and its cost would no longer be an incentive for employers to limit an employee’s work hours. Furthermore, medical bankruptcies would no longer be a commonplace phenomenon, but instead would become a relic of the past.4

Should a single-payer health care system be implemented, we would no longer be the only industrialized country in the world that does not provide some type of universal health coverage to its people.5 All Americans would be comprehensively covered for medically necessary services such as office visits, inpatient and outpatient services, long-term care, mental health, reproductive health care, dental, vision, prescription drug and medical supply costs which could include certain drugs, medical equipment; midwifery and natural medicines may also be included.6

Under a Medicare-style single-payer plan, patients would be able to see any licensed health professional of their choice, and most hospitals and clinics would remain privately owned and operated, receiving a budget from the NIH to cover all operating costs.7 Rather than imposing increased financial burdens on those most ill, everyone (including the healthier among us – the cherries) would be included in the insurance pool, such that the burdens of health care expenditures are more humanely distributed.

How Would We Pay for a Universal Single-Payer Health Care Plan?

Proposed single-payer systems place a strong emphasis on preventive care. In general, it is less expensive to prevent a disease or to properly manage a disease process that has already begun rather than provide treatment in its more advanced stages. Because providing access to preventive care would presumably lead to increased primary and secondary prevention of disease it would lessen the use of expensive heroic treatments like by-pass surgery, chemotherapy, and kidney dialysis and decrease the number of costly emergency room visits for routine care.

Studies have shown that a universal single-payer system could be successfully funded using monies currently paid into government health care programs (Medicare, Medicaid, trusts and other federal health care programs), along with increasing the personal income tax on the top five percent of income earners, instituting a modest and progressive excise tax on payroll and self-employment income, a modest tax on unearned income and a small tax on stock and bond transactions.8

By eliminating expensive governmental payouts to the privatized multi-payer system, recapturing tax loopholes to employers who provide health benefits, streamlining costs and enabling the ability to bargain down costs of goods and services, dismantling our current for-profit, multi-payer health care system would result in huge savings. Health care economist Gerald Friedman, PhD, reports that “While providing superior health care, a single-payer system would save as much as $570 billion now wasted on administrative overhead and monopoly profits. A single-payer system would also make health care financing dramatically more progressive by replacing fixed, income-invariant health care expenditures with progressive taxes.”9

The combination of capturing the money that the federal government now spends on health care, plus the modest tax increases, plus the savings from increased efficiency would finance a single payer health care system at reduced cost to most individuals, families and businesses. Additional revenue currently paid into state funded health care programs can also be used to fund a single payer system.

Health care economists have conducted studies for numerous states. Such studies demonstrate that switching to a single-payer model would lead to substantial savings. The latest of these studies, published in 2013 by economist Gerald Friedman, examined the economic effects of implementing a single-payer style plan in Pennsylvania. Results indicate that Friedman’s plan would reduce health care costs by 23%, saving $33 billion in 2014. Friedman explains that the savings would enable Pennsylvania to cover all residents and still save the state $17 billion, which he calculates would amount to a savings of $1,335/person. Another positive effect of this plan would be the creation of 120,000-200,000 new jobs in Pennsylvania.10 In the near future, Dr. Friedman plans to do a similar study in Washington State.11

For a quick summary of how single-payer health care works and how it can be funded, click the link below to watch this fun and informative 4 minute YouTube video http://www.youtube.com/watch?v=RAvy9jew9dM.12

What Is the Current Status of Single-Payer at the State and Federal Levels?

Many states have single-payer bills. For example, Vermont’s version of single-payer legislation was passed by both houses and the state is currently applying for a waiver (allowable under P-PACA/Obamacare) to implement a state single-payer system. In Washington, there is a single-payer bill, HB 1085, the Washington Health Security Trust (WHST). As licensed health care practitioners, naturopathic physicians are included in HB 1085. A hearing on HB 1085 that took place on February 1st of this year was very well attended by Washington residents who provided compelling testimony to our
legislature. Nevertheless, the bill did not get out of the House Health Care Committee, so the bill did not pass during the recent legislative session.13,14

Single-payer bills in most of the states have a number of advocacy organizations actively pursuing their passage. For example, Physicians for a National Health Program, Health Care for All, United for Single Payer and Health Care-NOW are single-payer advocacy groups maintaining chapters in Washington State and numerous other states across the country. Major proponents of these state bills are forging networking alliances with other social justice groups, funding research studies on the economic impact of state single-payer plans and pressing for the passage of H.R. 676, the national version of a universal single-payer plan.

At the federal level, H.R. 676, also known as the Expanded and Improved Medicare for All Act, was first introduced to the House of Representatives in 2003 and reintroduced again in 2009 and in 2011 by its author, Congressman John Conyers, Jr., D-MI. (Dennis Kucinich, D-OH, co-authored the bill.) At the time of its reintroduction in 2009, the bill had 88 co-sponsors. Congressman Conyers again reintroduced H.R. 676 on February 13, 2013. The bill currently has 46 co-sponsors.15

According to Quentin Young MD, a longtime advocate of universal health care, the “health-care-industrial-complex” has nearly 34% of our massive health care expenditures at its command to garner political influence and mount mass media campaigns to defeat the single-payer option.

Nevertheless, he maintains that polls show that the majority of the general public and conventionally trained physicians support a universal coverage system like single-payer.16

Physicians for a National Health Program of Western Washington, Health Care for All Washington and Health Care-NOW are a few single-payer advocate organizations in Washington State to contact for more information.17,18,19

Physicians for a National Health Program of Western Washington:
http://pnhpwesternwashington.org/
Health Care for All Washington:
http://www.healthcareforallwa.org/
Health Care-NOW:
http://www.healthcare-now.org/

If your congressperson is not already a co-sponsor, you can call or write him/her to see where he/she stands on this issue. Below is a link to Library of Congress Website that gives a list of H.R.676 co-sponsors http://beta.congress.gov/bill/113th-congress/house-bill/676/cosponsors20

Special Thanks To: Sherry Weinberg, MD, Don Bunger, Helen Thorsen CDP, Don Mitchell, MD, Jim Squire, MD, Marti Schmidt, JD, David McLanahan, MD, Kathleen Myers, DDS, Betty Capehart, Kathleen Randall, MA

References available here.

This article is the second of a three-part series. Part 3 of this article-“How Natural Medicine May Fare in the Universal Single-Payer Plans that Are Currently Being Proposed ” will discuss how natural medicine, naturopathic physicians and their patients could benefit from the implementation of single-payer health care plans that have been proposed with special emphasis on single-payer campaigns in Washington State.

Dr. Joie Meissner is a WANP member and primary care physician in Seattle’s Capital Hill area. Currently on the board of directors Physicians for a National Healthcare Program of Western Washington, her personal interests include food safety, securing a universal healthcare system and clinical research on multiple sclerosis at Bastyr University.

http://www.wanpnews.com/2013/07/25/single-payer-a-universal-plan-that-curbs-obscene-costs/

Large employers moving retirees to private exchanges

Time Warner Joins IBM in Health Shift for Retirees

By Spencer E. Ante
The Wall Street Journal, September 8, 2013

Media-company Time Warner Inc. plans to move its U.S. retirees from company-administered health plans to private exchanges, according to a person familiar with the matter. The company will allocate funds in special accounts that retirees can use to go shop for coverage, the person said.

The news comes as International Business Machines Corp. also plans to move about 110,000 of its own retirees off its company-sponsored health plan to a Medicare insurance exchange.

President Barack Obama’s health-care overhaul calls for such exchanges, which will go live next month, and employers are looking at similar, privately administered exchanges as an alternative to offering their own health plans.

Yet while these efforts are just ramping up—and creating a good deal of anxiety in the process—hundreds of thousands of retirees are already using exchanges to pick Medicare plans, and many more are likely to do so in the months ahead as companies look for ways to fix their health-care costs by moving to the “defined contribution” model they adopted for pensions years ago.

Extend Health, the Utah-based exchange owned by Towers Watson & Co. that IBM picked for its retirees, was founded in 2004 but has grown quickly recently as more employers have signed up.

Extend Health has signed up around 300 companies, and the pace is quickening. It had just three corporate customers at the end of 2007 and just 76 at the end of 2010. About a third have joined in this year alone.

Bryce Williams, managing director of Towers Watson Exchange Solutions, which runs Extend Health, said the exchange has moved more than 500,000 retirees over to its service. IBM will add to that total when it starts moving retirees over next year.

Instead of subsidizing retiree health premiums directly, IBM will give retirees an annual contribution through a health-retirement account that they can use to buy Medicare Advantage plans and supplemental Medicare policies on the exchange, as well as to pay for other medical expenses.

IBM retirees have a big incentive to pick insurance through plans offered by Extend Health: Retirees who are eligible but don’t enroll in a plan through Extend Health won’t receive the company contribution.

Extend Health said nearly 50 companies in the Fortune 500 have become clients, including Caterpillar Inc. and DuPont Co.

The approach was adopted for active employees last year by Sears Holdings Corp. and Darden Restaurants Inc.

http://online.wsj.com/article/SB10001424127887324549004579063170451763800.html

Comment:

By Don McCanne, M.D.

We already knew that employers were canceling retiree coverage in their company-administered health plans and switching to defined contribution approaches which place the risk of future health care increases onto the backs of their retirees. What is new is the acceleration of this shift by large employers who are taking the easy way out by using private insurance exchanges – a new intermediary that adds to the profound administrative waste already inherent in our health care system.

What is next? Sears Holdings and Darden have already adopted these defined contribution approaches for their active employees. When IBM, Time Warner, Caterpillar, DuPont, and the others that are sure to follow find that these new retiree programs are so successful in controlling the employers’ costs, how soon will it take them to shift their active employees into these plans? Even the union-negotiated plans are at risk since unions have lost much of their negotiating clout.

Middle-income Americans are already feeling the crunch. They realize that juggling cost-of-living, education expenses, defined contribution retirement funds, housing and transportation, and other costs is becoming much more difficult as the American Dream is being slowly chiseled away. They know that it is happening, but their lack of taking an activist stance seems to suggest that they don’t know what to blame it on.

Well, it’s pretty obvious. We have a government of, by and for the one percent. Unless the ninety-nine percent wake up, we’ll soon see virtual moats around their castles. In fact, just try to get close enough to knock on their doors today, and you’ll see what a private police state for the one percent is like.

Left behind: Stories from Obamacare’s 31 million uninsured

By Sarah Kliff and Lena H. Sun
Washington Post, Wonkblog, September 8, 2013

Every month, a hundred or so people crowd the lobby of the Arlington Free Clinic, clutching blue tickets to enter a health-care lottery. Uninsured and ailing, they hope to be among the two dozen who hit the jackpot and are given free care.

Some might think the lottery’s days are numbered, given that the insurance expansion under President Obama’s health-care law is taking effect in January. But clinic officials say the lottery will stay because demand for their services is likely to be as high as ever. “We will be business as usual,” said Nancy Sanger Pallesen, the clinic’s executive director.

The Affordable Care Act, the most sweeping health care program created in a half century, is expected to extend coverage to 25 million Americans over the next decade, according to the most recent government estimates. But that will still leave a projected 31 million people without insurance by 2023. Those left out include undocumented workers and poor people living in the 21 states, such as Virginia, that have so far declined to expand Medicaid under the statute, commonly called Obamacare.

“The law will cut the number of the uninsured in half,” said Matthew Buettgens of the Urban Institute. “This is an important development, but it certainly isn’t the definition of universal.”

As a result, while hospitals and other providers gear up to handle an influx of Americans who will be newly insured as of Jan. 1, many of the nation’s 1,000 free clinics, which cater to the uninsured and are financed mostly by private donations, are redoubling efforts to help those bypassed by the law. The trend shows both the limits of the law and the way it is affecting nearly every corner of the health-care system, sometimes in little-noticed ways.

Some of the free clinics are planning to step up their focus on undocumented workers, who won’t be permitted to buy insurance on the new online marketplaces and are expected to become a larger share of the uninsured. Other clinics, seeking to fill what they see as a major gap in the law, are considering offering free dental care.

Andre Sokol, a 59-year-old unemployed carpenter, is an example of someone who won’t be helped by the law and will continue to rely on the Arlington clinic, which, at an given time, provides care to about 1,600 people. He lost his health-care benefits when he left his job in the construction industry several years ago to care for his longtime girlfriend, who was diagnosed with ALS, and his mother, who was battling dementia. Two years ago, the women died within two months of each other. Sokol had no job, no income and no place to live.

In January, Sokol had quadruple bypass surgery at Virginia Hospital Center, which absorbed the costs. He didn’t qualify for Medicaid because Virginia doesn’t allow single men, no matter how poor, on Medicaid, unless they’re disabled. The state has one of the strictest eligibility standards in the country. That would change if the state expanded its program under the health law.

At the same time, Sokol’s income is too low to allow him to get federal subsidies to help pay for a private policy on the exchange. (The law assumed people with incomes below 100 percent of the poverty level, or about $11,500, would be covered by Medicaid, but many states balked at enlarging their programs after the Supreme Court said the expansions were optional.) Arlington Free Clinic officials said about half of their patients are in the same situation: They are below the poverty line but aren’t eligible either for Medicaid or subsidies to buy insurance.

After Sokol had surgery, the Arlington clinic agreed to take him on as a patient, as part of an agreement with Virginia Hospital Center. That agreement is one way people can become patients at the clinic; other patients come in by way of the lottery or via referrals from homeless and domestic-abuse shelters.

“Most of our members would love to go out of business and close their doors if there was a program that ended uninsurance,” Nicole Lamoureux Busby, executive director of the National Association of Free and Charitable Clinics, said. “But this isn’t universal health care. We’re not planning to see a dramatic decrease in our patients.”

Busby said that many of the clinics she works with are facing an additional hurdle with the health law: Convincing private donors that they will still play a crucial role after millions gain coverage.

“So many listen to the news and hear a 24-second sound bite that says everyone is getting coverage,” she said. “The donors may think we don’t need their funds.”

An analysis by the Kaiser Family Foundation predicted that the uninsured rate in Arlington County would fall from 12.4 to 7.4 percent after the health law is fully implemented in 2022. The foundation estimated that 14,000 people would remain without insurance, down from the 24,000 people currently lacking coverage.

The Arlington Free Clinic, which was founded in 1994, is staffed by doctors who volunteer their time when they aren’t at their regular jobs. To be eligible for the clinic, individuals must be over 18, live in Arlington County and earn less than 200 percent of the poverty line, or about $23,000 for an individual. They must also have been in the United States for at least a year.

On a recent Tuesday, the line for the lottery went around the block. It included a wide range of patients, including young children and the middle-aged who spoke English, Spanish, Arabic and Mandarin and other languages.

“I need a doctor for a lot of things,” said Ebtsam Ibrahim, a 46-year-old Egyptian woman and mother of four. She said she has had a toothache for two years but hasn’t seen a dentist because of the cost. She was trying for the third time to win the lottery.

Nazmun Nahar, a 33-year-old mother of three, arrived cradling her one-year-old daughter in her arms. She and her husband are Bangladeshi immigrants who became American citizens over a decade ago.

Because Nahar’s husband makes about $30,000 a year working at Subway, the family of five would likely qualify for generous subsidies to buy private health coverage under Obamacare. But like many of the lottery hopefuls, Nahar knew little about the law or how it would work.

“I just heard a little about it, but nobody explained it to me,” she said.

Jan Strucker, 59, was one of the few people who was aware of the new insurance marketplaces. A retired nurse, she lives on about $20,000 a year in worker’s compensation. She has serious health issues, and may soon need surgery. She figures she would be eligible for subsidies under the law. But that means she needs to wait until October to enroll, and coverage won’t kick in until January.

“This is ridiculous. This is shameful,” Strucker said. “And we’re only seven minutes from the White House.”

By mid-morning, the winning lottery tickets had been selected for 28 participants. A beaming Ibrahim, the Egyptian mother, was among the winners. A husband and wife from Russia also won one ticket that day. Each insisted that the other be the first to take advantage of the free health care, moving some clinic staff members to tears.

Lottery winners must go through an eligibility screening before their first appointment with a doctor, typically weeks later.

The other people who took par
t in the lottery, including Nahar and Strucker, went home empty-handed. Some will qualify for benefits under the health law. Others will likely return to the lottery, hoping to land a slot at the clinic.

Vidal Grajeda, 68, a retired painter and landscaper who previously won a spot through the lottery, was with his wife, Nicolasa Grajeda, 64, who took part in the lottery but did not win.

“I’m a patient and very grateful to the clinic,” he said. He doesn’t qualify for Medicare because he didn’t work long enough in the United States. At the clinic, he receives treatment for diabetes, high cholesterol, high blood pressure and knee problems. He asked the clinic’s director of clinical administration, Jody Steiner Kelly, whether the clinic will be open and working after Oct. 1, when people can start enrolling in coverage offered under Obamacare.

“Yes, the clinic will be here,” replied Kelly.

Luz Lazo contributed to this story.

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/09/08/left-behind-stories-from-obamacares-31-million-uninsured/

For the health of each and all

By Andrew D. Coates, M.D., F.A.C.P.
WAMC Northeast Public Radio, Sept. 6, 2013

We physicians earn a place in society that yields great scientific and human insight, the impact of illness upon individual lives. Yet we are encouraged by forces inside and outside our profession to look away from the big picture.

Over the last year I have been struck by the force and magnitude – and the health consequences – of the pressures upon working people to make ends meet.

A great deal has been made about how rich the wealthy have become. Less attention has been paid to fact that the poor in America have gotten poorer, in their tens of millions. Consider, for instance, that in New York state 52 percent of seniors live at the edge of poverty or that those living in poverty has grown, not diminished, since 1980, and in New York households in the bottom 20 percent of earnings have seen no gain in income for two decades.

Day to day, the strain of impoverishment, even as the official culture celebrates opulence and waste, creates conditions for the ravages of drug and alcohol abuse and addiction, for domestic violence, child abuse and neglect, as the repercussions of mass incarceration and the stress and strain of temporary and part-time employment weigh down upon us all.

I could insert here several shocking stories of patients I have cared for, often in the intensive care unit. The patients I have in mind suffered illnesses potentially catastrophic but completely avoidable – if only the social or family circumstances been but slightly different. I know my colleagues in other specialties see avoidable illness, often the consequences of untreated chronic illness and disastrous delays in obtaining care.

Although we all have grown accustomed, after decades of loud mainstream pronouncements, to the idea that a dog-eat-dog, every-man-for-himself ethos always leads to the best and fairest outcome, we caregivers know how silly these notions really are. Human beings do not deserve, let alone seek, their illnesses.

Could we really believe that some of us live lives not in pursuit of happiness, but seeking misery? At the end of the day we are all in this together. If the purpose of a democratic society is to support the chance for each individual to realize our potential, then an injury to one is truly an injury to all.

We doctors can tell you about the injuries. About the social conditions that create them, we don’t often have much to say.

The daily practice of medicine over recent decades has taken us farther away from the profession’s tradition of advocating for the health of everyone in our society. Over recent decades the practice of medicine has been steadily besieged by commercialization and corporatization.

In response, we physicians often struggle to remain focused narrowly upon the clinical question at hand. This can further separate the patient’s medical problem from its human context.

Clinging to our expertise one patient at a time has acquired its own urgency and momentum thanks to a blizzard of perverse financial incentives that undermine science, and a progressive intrusion of assembly-line management techniques that undermine caregiving. As a result, although we may see a big picture, we too often feel powerless to act upon our scientific and human understanding.

It is time we took a stand as a profession and as professionals that we care about the health of the entire society. That the conditions for health and personal development for each of us depend upon a society that cares for all us.

Dr. Andrew Coates practices internal medicine in upstate New York. He is president of Physicians for a National Health Program.

You can listen to Dr. Coates’ radio broadcast here: http://wamc.org/post/andrew-coates-health-each-and-all

IRS reporting requirements for managing ACA subsidies and penalties

Treasury Issues Proposed Rules for Information Reporting by Employers and Insurers Under the Affordable Care Act

U.S. Department of the Treasury
September 5, 2013

The ACA provides for information reporting (under Internal Revenue Code section 6055) by insurers, self-insuring employers, and other parties that provide health coverage.  It also provides for information reporting (under Code section 6056) by employers that are large enough to be subject to the employer shared responsibility provisions regarding the health coverage they offer their full-time employees. These proposed regulations reflect comments received and an ongoing dialogue with stakeholders, including plan sponsors, many of whom already offer their full-time workforce coverage far exceeding the minimum employer shared responsibility requirements. Nearly 95 percent of employers with more than 50 full-time employees already offer coverage to their employees.

The proposed rules issued today describe a variety of options to potentially reduce or streamline information reporting, such as:

* Replacing section 6056 employee statements with Form W-2 reporting on offers of employer-sponsored coverage to employees, spouses, and dependents.

* Eliminating the need to determine whether particular employees are full-time if adequate coverage is offered to all potentially full-time employees.

* Allowing employers to report the specific cost to an employee of purchasing employer-sponsored coverage only if the cost is above a specified dollar amount.

* Allowing self-insured group health plans to avoid furnishing employee statements under both section 6055 and section 6056 by furnishing a single substitute statement.

* Limited reporting for certain self-insured employers offering no-cost coverage to employees and their families.

* Permitting health insurance issuers to forgo reporting under section 6055 on individual coverage offered through a Marketplace because that information will be provided by the Marketplace.

* Permitting health insurance issuers, employers, and other reporting entities under section 6055 to forgo reporting the specific dates of coverage (instead reporting only the months of coverage), the amount of any cost-sharing reductions, or the portion of the premium paid by an employer.

The statute calls for employers, insurers, and other reporting entities to report, among other things:

For section 6055:

* Information about the entity providing coverage, including contact information.

* A list of individuals with identifying information and the months they were covered.

For section 6056:

* Information about the applicable large employer offering coverage (including contact information for the employer and the number of full-time employees).

* A list of full-time employees and information about the coverage offered to each, by month, including the cost of self-only coverage.

Once the final rules have been published, reporting entities will be encouraged to voluntarily implement information reporting in 2014 (when reporting will be optional), in preparation for the full application of the reporting provisions in 2015.  Real-world testing of reporting systems in 2014 will contribute to a smoother transition to full implementation in 2015.

Press Release:
http://www.treasury.gov/press-center/press-releases/Pages/jl2157.aspx

Information Reporting by Applicable Large Employers on Health Insurance Coverage Offered Under Employer-Sponsored Plans:
http://federalregister.gov/a/2013-21791

Information Reporting of Minimum Essential Coverage:
http://federalregister.gov/a/2013-21783

Comment:

By Don McCanne, M.D.

Here it is folks. These are the proposed ACA rules on reports that insurers and employers must file with the IRS – rules that proved to be so complex that the Obama administration deferred for a year the requirement that these reports be filed. Without these reports, the employer mandate could not be enforced. Though this announcement is about the simplification of the rules, that’s not the real story here.

When the Act was crafted, it was recognized that health insurance and health care was now so expensive that a majority would require subsidies for insurance premiums and out-of-pocket expenses. It was also recognized that plans would have to provide a defined set of minimal “essential health benefits.” It was also recognized that many individuals would not buy health plans for themselves unless they were threatened with a financial penalty for failing to do so.

It was decided that the Internal Revenue Service was best suited to administer these subsidies and penalties since they already had income information that would establish eligibility for the income-indexed subsidies. They were also in a position to use the tax system to assess penalties for non-compliance. But there are so many variables that the rule making process was overwhelmed. Even these new rules issued yesterday are not yet final and are open to public comment.

If you just glance at the few changes to simplify the rules (listed above), you will see that even they are quite complex. By the time that the multitude of variables for each individual are taken into consideration, you will see that the bureaucracy is living up to its reputation for complexity that induces intolerable frustrations. This isn’t even necessary. This system is yet another administrative nightmare in a health care system that is unique in all the world for its profound administrative waste.

If you are masochistic and want to research this yourself, here are some resources. Sec. 1502 of the Affordable Care Act amends Part III of Subchapter A of Chapter 61 of the Internal Revenue Code of 1986 by adding Subpart D – Sec. 6055 on the reporting of health insurance coverage. Sec. 1514 of the Affordable Care Act amends Subpart D that was just added by Sec. 1502, by inserting after Sec. 6055 the new section – Sec. 6056. So look up Sec. 1502 and Sec. 1514 in the Affordable Care Act. The newest proposed rules, which are the subject of the Department of the Treasury release on simplification of the rules (reported above), are available now online and will be formally published in the Federal Register on September 9, 2013. The proposed rules, “Information Reporting by Applicable Large Employers on Health Insurance Coverage Offered Under Employer-Sponsored Plans,” are 72 pages (link above). The proposed rules, “Information Reporting of Minimum Essential Coverage,” are 42 pages (link above).

Think of how much simpler it would be if we established a single national fund to pay for all reasonable health care for everyone and then funded it with progressive taxes. The tax system is already in place. We could tweak it so that it is even more equitable. Just think of the administrative simplification that we could have, as opposed to the exceedingly meager changes announced yesterday in the highly complex system established by ACA.

Yes, the more we see of the implementation of the Affordable Care Act, the more we realize that a single payer national health program is an imperative. All we have to do is fix Medicare so it works better, and then include everyone.

The right’s health care 'revolution' is a scam

Conservatives like to trumpet 'consumer-driven' health care plans. Here’s what they’re not telling you about them

By Adam Gaffney. M.D.
Salon, Sept. 6, 2013

“The consumer-driven health care revolution,” trumpeted one conservative think tank a few years back, “has only just begun.”

Now, for anyone who has ever been inconvenienced by an encounter with the health care system – or even worse, been on the receiving end of poor quality care, a medical error, or a misdiagnosis – a greater focus on “consumer” satisfaction might sound like just the right medicine for American health care.

So should we celebrate the recent rise of “consumer-driven” or “consumer-directed” health care plans (CDHPs)?  The premise of CDHPs – essentially high-deductible plans, with an option for a health savings account – is straight-forward enough: if you shop for services with your “own money,” you’ll use less health care and hunt for better bargains, in the process forcing providers to improve quality.

CDHPs have grown rapidly in recent years.  From a trivial 4 percent in 2006, CDHPs now account for a full 20 percent of all employer-based insurance plans.  The trend seems set to continue in 2014: a survey from the National Business Group on Health last month found that CDHPs were considered “the most effective tactic to control rising costs” by large employers, with 72 percent already offering a CDHP, and 22 percent planning to offer only CDHPs in 2014.

I’d wait to break out the bubbly, for, despite the utopian claims of its enthusiasts, CDHPs are more about cash than quality, more about cost shifting than consumer empowerment.

The “consumer-driven health care revolution,” it turns out, is likely to be neither revolutionary nor consumer-driven, but instead will only manage – somehow – to make the misfortune of getting sick an even worse experience.

One irony of the current craze with “consumer-driven” care is that its adherents seem surprisingly unaware that we already had an experiment with true market medicine in this country – in the nineteenth century.

“From the beginning,” argues the legal professor T. S. Jost in hiscritique of the consumer-driven movement, Health Care At Risk, ”there was only consumer-directed health care in the United States.”  Patients paid out of pocket, there was no health insurance, and there were an impressive variety of equally ineffective practitioners, frequently engaged in brutal competition.

The system (if it can be called that) was basically a disaster, with the presence of a health care marketplace doing little to encourage “quality” in that golden age of quackery.  What ultimately did improve quality – at least to some extent – was good old-fashioned regulation: medical licensure laws, the closure of low-quality medical schools, the Pure Food and Drugs Act, and so on.

Meanwhile, the poor of that era were generally left at the mercy of scattered and frequently inadequate charitable facilities – if they were lucky.  In later years, hospitals would not infrequently reject or otherwise “dump” sick patients deemed poor financial investments, a notorious practice that wasn’t really addressed – again, with regulation – until the Emergency Medical Treatment and Active Labor Act of 1986.

The second irony of the current consumer-driven movement is the degree to which it diverges from the last major health care “consumerism” movement of the 1960s and 1970s, when progressive activists and consumer advocates like Ralph Nader sought to advance the rights of patients in an age when medical paternalism was the rule of the land.

“The major element in all of this activity,” commented an editorial in one medical journal in 1971, “has been the unyielding insistence that the people who are to use the product or who are to be recipients of a service are entitled to an important voice in how that … service is dispensed.”  Reforms to defend the mentally ill and disabled, to protect the privacy of health information, to open free clinics for the poor, and to increase the use of “informed consent” prior to medical interventions were achieved, in part, in the name of “consumer” rights.

If the current consumer movement sought similar goals – to give patients more of a voice in the health care system – who would be opposed?

Enter “Consumer-Driven Health Care.” Unfortunately, the current consumer-driven movement represents something altogether different from these earlier efforts to advance the rights of patients.

Consumer-driven health care arose from the ashes of yet another allegedly “consumer” based-model: “managed competition” among health maintenance organizations (HMOs) that was at the heart of Bill Clinton’s health care plan.  The essence of such a type of plan – dubbed a “Consumer-Choice Health Plan” by the health economist Alain Enthoven in 1978 – was that competition among insurance companies for health care consumers would drive down costs and increase quality.  Clinton’s plan famously failed, but the HMO-model was rapidly ascendant – to the dismay of both patients and physicians, neither of whom appreciated profit-taking insurance companies dictating or denying care.

As the HMO paradigm began to disintegrate, a variety of academic, business, and political thinkers began promoting a “consumer-driven” alternative.  Their ideas, it should be noted, were not particularly original.  At the center of the new ideology was the longstanding idea of health care “moral hazard,” which as I recently discussed, is the idea that because insurance makes our medical expenses “free,” we will use health care haphazardly and indiscriminately, without regard for cost (and apparently without regard to the fact that we are subjecting our bodies to unnecessary incisions and intrusions).

But it was only in the late 1990s when the term “consumer-driven health care” arrived on the scene, a coinage courtesy of Harvard Business School professor Regina Herzlinger, dubbed the “unofficial godmother” of the movement by Money magazine.  “In this system people would newly consider the costs of the health care products and services they use,” she wrote in her 1997 book, Market-Driven Health Care.  “A consumer-controlled system would allow Americans to decide how to spend their money… they would shop carefully for the health services for which they themselves paid.”  Herzlinger coupled this notion of a free health care mar
ketplace, however, with a legal requirement that everybody buy catastrophic health insurance – i.e. an individual mandate, the initially conservative idea that today’s conservatives are oddly outraged by.

Herzlinger’s influence should not be underestimated.  The former CEO of Aetna called her ideas “the most important trend to hit health care – and Regi [as she is known] is a beacon for us practitioners.”  This was not idle talk, with Aetna being described in one policy journal as a “first mover” in the move towards consumer-driven health insurance.

The more-or-less same idea keeps popping up everywhere.  Rand Paul made the argument for market-medicine a few weeks back on the Daily Show. In the book, Catastrophic Care – How American Health Care Killed My Father, published earlier this year,the business executive David Goldhill similarly argues that the only solution to quality problems in American health care is consumer-driven care, with universal catastrophic insurance for all, but with all other expenses paid for out-of-pocket.  “We are less likely to be skeptical of benefits when we are paying little or nothing for them,” Goldhill argues.  “So the plague of unnecessary cesarean deliveries, spinal fusion surgeries, and cardiac bypasses …”

Exactly. It would be simply foolish not to have your abdomen, spine, and/or thoracic cavity surgically opened and unnecessarily manipulated, assuming – and this is crucial – that it was free.

The failure of such individuals to imagine that some things in life are not mere commodities underscores the inherent failure of the consumer-driven ideology.  But the ideology remains appealing to many because it promises things we all value – choice, quality, knowledge, respect, individualized-attention – with something that no one wants: skimpy, low-quality health insurance that pushes us to avoid needed care when we need it (sometimes even in emergencies), while leaving us at the end of the day with a big bill.

None of this is to deny that American health care has serious quality problems, that as physicians we need to be much more cognizant of the costs and utility of the interventions we prescribe, and that all health care providers need to work towards making the experience of health care more convenient and humane.

But let’s work to improve American health care in ways that actually have a basis in solid evidence, before selling it off to the highest bidder in the name of a market ideology better suited to the interests of industry than to the needs of the sick.

Adam Gaffney is a physician and writer in Massachusetts.

http://www.salon.com/2013/09/06/the_rights_health_care_revolution_is_a_scam/

Private insurers allow hospitals too much market power

High and Varying Prices for Privately Insured Patients Underscore Hospital Market Power

By Chapin White, Amelia M. Bond, James D. Reschovsky
Center for Studying Health System Change, HSC Research Brief No. 27, September 2013

Across 13 selected U.S. metropolitan areas, hospital prices for privately insured patients are much higher than Medicare payment rates and vary widely across and within markets, according to a study by the Center for Studying Health System Change (HSC) based on claims data for about 590,000 active and retired nonelderly autoworkers and their dependents. Across the 13 communities, average hospital prices for privately insured patients are about one-and-a-half times Medicare rates for inpatient care and two times what Medicare pays for outpatient care. Within individual communities, prices vary widely, with the highest-priced hospital typically paid 60 percent more for inpatient services than the lowest-priced hospital. The price gap within markets is even greater for hospital outpatient care, with the highest-priced hospital typically paid nearly double the lowest-priced hospital. In contrast to the wide variation in hospital prices for privately insured patients across and within markets, prices for primary care physician services generally are close to Medicare rates and vary little within markets. Prices for specialist physician services, however, are higher relative to Medicare and vary more across and within markets.

Making Sense of Price Variation Within Markets

Several factors can be ruled out as explanations for the wide price variation within markets, including:

* the costs of doing business—labor costs within each market are about the same;

* the complexity of the services being provided—differences in service complexity are taken into account by benchmarking to Medicare prices, which are adjusted for complexity; and

* the type of coverage—all enrollees are in private plans with similar benefits.

What, then, can explain the price variation? The hospital industry has argued that higher-priced hospitals treat the most complex patients and have higher costs because of their teaching programs and capital investments. While this may explain some variation within a market as riskier patients seek care at tertiary hospitals, benchmarking to Medicare should mitigate this influence. Indeed, many analysts believe that Medicare’s additional payments to hospitals for medical education exceed the additional costs.

The more likely culprit is variation among providers and private insurers in negotiating leverage. Negotiating leverage depends on the ability to walk away if an agreement cannot be reached. In terms of negotiating leverage, primary care practices fall at the bottom of the heap. Primary care physicians tend to practice solo or in smaller groups, and they are more numerous than specialists and more substitutable, making them the least able to dictate prices to health plans. Primary care physicians are, in economics jargon, price-takers. A private insurer does not need the participation of all primary care physicians in a market. Instead, an insurer needs only enough primary care physicians to provide access to enrollees, and no single primary care practice is needed to reach that threshold. As a result, few, if any, primary care practices can command prices that significantly exceed their competitors’.

The specialty physician market is generally more concentrated, with fewer specialist practices in each specialty than primary care physicians. Moreover, specialty practices tend to be larger. Studies have found that many specialty practices have become larger in recent years to gain negotiating clout, among other reasons. Many of these practices are large enough that insurers would be unable to offer adequate local access to the specialty without them, giving them substantial leverage with insurers.

Hospitals are in an even stronger negotiating position than specialist physicians. Hospitals typically are large entities that provide a high volume of patient care, giving a hospital or hospital system leverage that physician practices rarely, if ever, have. At the top of the negotiating heap are the must-have hospitals that offer some unique combination of reputation, location and services. Private insurers understand that employers will not continue to offer their products if must-have hospitals are excluded from the provider network. Even in metropolitan areas with many competing hospitals and hospital systems, these must-have hospitals can command unusually high prices. Also, hospitals increasingly have merged into systems, which may allow affiliated hospitals in a market to negotiate collectively with insurers. And, many hospitals are employing physicians and purchasing physician practices and then including physicians in their negotiations with insurers, which may result in more leverage for both the hospitals and the physicians.

Potential Savings

Given the growing evidence of significant intramarket price variation, especially for hospitals, purchasing strategies designed to guide patients to high-value providers clearly offer potential savings. Approaches such as reference pricing, where the payer sets a maximum allowed amount for a specific procedure in a specific market, have produced savings and put downward pressure on prices of outlier providers in some markets. Other innovations in benefit design, when accompanied by information to enrollees about differences in what they will have to pay when using different providers, clearly have roles to play in such approaches.

To get a very rough sense of the magnitude of potential savings from such purchasing strategies, actual plan spending was compared with hypothetical spending with a price ceiling equal to the 50th percentile of the current price distribution in each market. The 50th percentile price, or median, for a given market represents the price at which half of the services in that market were provided by higher-priced providers and half were provided by lower-priced providers. The second set of hypothetical price ceilings are multiples of Medicare prices: 1.0 and 1.5.

The potential savings from capping prices at the 50th percentile scenarios only represent 5.5 percent of physician and hospital spending in the plans. To put the savings in perspective, the average annual growth in per capita spending for employer-sponsored health insurance has been between 7 percent and 8 percent per year. So, the savings from rolling out an aggressive program of active purchasing might only slow trend by less than a year. However, even small percentage gains can make a significant difference given the enormous amount many large employers spend on health care. Additionally, active purchasing may begin to give large purchasers a more direct role in health care payment and delivery decisions. Active purchasing strategies will face challenges, including resistance to change from providers, insurers and enrollees.

More significant savings are possible if prices are limited to a level below what is now considered normal. By far the biggest opportunity for savings appears in the hospital outpatient setting, where setting a ceiling on prices equal to Medicare would reduce spending by 48 percent and a ceiling equal to 1.5 times Medicare would reduce spending by 26 percent. But, such a dramatic change might require governmental rate setting and force hospitals and specialist physician practices to cope with significantly constrained revenue.

Looking Ahead

Even though overall U.S. health spending has grown more slowly in recent years, premiums for employer-sponsored health insurance have continued to rise at an unsustainable rate. And, increases in provider prices explain most if not all of the increase in premiums. If this trend continues, employers will face increa
sing pressure to restrain spending growth, either reducing benefits, shifting costs to employees, or using some form of active purchasing to mitigate price increases. Insurers are consolidating and becoming more adept and experienced in implementing active purchasing. But, at the same time, consolidation continues apace on the provider side, recently including the employment of many physicians by hospitals. As a result, health plans may face only stiffening resistance to attempts to rein in high prices.

http://www.hschange.org/CONTENT/1375/

Comment:

By Don McCanne, M.D.

This study confirms once again that health care prices for privately insured patients vary widely across and within health care markets. This study is particularly helpful because it shows where most of the problem is.

It is not with the primary care physicians. They are “price-takers.” They have very little negotiating clout with the insurers. They are forced to accept the insurers rates if they want to be in the insurers’ networks. Thus prices for primary care physicians tend to be uniformly low.

Specialists tend to be more concentrated and thus have greater clout with the insurers. In the more concentrated markets, specialists can command higher prices, resulting in regional variations in pricing depending on their market power.

But the biggest problem is with the hospitals and their outpatient services. They have an even stronger negotiating position than the specialists. This is especially true of the “must-have” hospitals that are in great demand. With increasing merger activity, ever more hospitals are becoming must-have.

Suppose the insurers insisted that hospital prices were capped at the 50th percentile of current spending, bringing down the high prices commanded by the must-have hospitals. This study shows that would still not be enough to meet the average annual growth in per capita spending.

With the pressure to slow the increase in insurance premiums insurers are likely to find other ways to shift more of the costs to patients when costs are already intolerable.

What can we do? We can put the hospitals and their outpatient services on global budgets, just as we do with our police and fire departments. This is what a well designed single payer system would do. Fair rates would be negotiated with physicians which would include correcting the the primary care underpayments and specialist overpayments that result from our current flawed approach of allowing market concentration to artificially move rates away from optimum value.

Note that the reference standards for this study are the much lower Medicare rates – rates that private insurers pay only for primary care physicians. Instead of market power, we should be using people power through our representative government by enacting a publicly-financed and publicly-administered national health program – an improved Medicare for everyone – ensuring payment of legitimate costs and fair margins for the health care delivery system.

Brunswick lawmaker touts single-payer bill at Augusta health care rally

By Mario Moretto
Bangor (Maine) Daily News, Sept. 3, 2013

AUGUSTA, Maine — Activists assembled at the State House on Tuesday to kick off an eight-state tour of the Northeast in support of health care reform.

The group, called Drive for Universal Healthcare, or “DUH,” bills itself as a “rolling demonstration” of activists in their vehicles, visiting states with pending legislation that would expand health care coverage by instituting some version of single-payer health care.

In Maine, that’s LD 1345, sponsored by Rep. Charlie Priest, D-Brunswick. His bill would transition the state slowly toward a state-run insurance system similar to those established in Canada and much of Europe.

Priest has introduced similar bills in previous legislatures. This time, he said he took his cues from Vermont, which in 2011 approved a law to slowly establish a single-payer system, and is working today toward implementing the law by 2017.

He said single-payer — which proponents say would drastically reduce the cost of health care by eliminating the private profit motivation and overhead costs associated with tracking the myriad insurance payments — was established piecemeal in Canada, and should be approached the same way in the United States.

“It’s going to happen state by state by state until there’s enough momentum for Congress to act,” he told the small group of supporters at the State House Welcome Center.

Proponents of Priest’s bill — it has 51 co-sponsors in the House — will surely be watching as Vermont attempts to implement its law. The state is attempting to bring companies that operate their own insurance plans under the single-payer system.

The U.S. Employee Retirement Income Security Act, or ERISA, says companies operating their own plans are exempt from state health care laws. Vermont needs a waiver to make those companies opt in to the single-payer system. No state has ever obtained an ERISA waiver before.

The outcome of that process will provide crucial precedent for Maine’s single-payer efforts, said Trish Riley, a senior fellow for health policy at the Muskie School.

“The biggest difference between Vermont and Maine is we have far more businesses that are self-insured,” Riley said. There’s also the question of whether a “single” payer could ever be established, she said.

“If you try to do single payer [in Maine], the question is whether Medicare will play along, because we’re the oldest state. And what do you do about self-insurers if you can’t get a waiver?” she said.

It’s feasible that even under a single-payer plan — where private health insurance companies were kicked out of the system — health care providers still could end up dealing with multiple state and federal agencies, plus the large companies that operate under ERISA, such as Bath Iron Works, the University of Maine and the Maine State Employees Union.

Rep. Richard Malaby, R-Hancock, who sits on the Health and Human Services Committee, said he opposes Priest’s plan for health care.

“Single-payer has a lot of allure in that it could minimize overhead costs, which is good, but it does not address a key component of the health care system, which is that we need more competition,” he said.

Malaby said that even though there are more than 1,000 health insurance companies in the country, only a handful operate in Maine’s small group market. Easing regulations, he said, would make Maine’s market more attractive and drive prices down.

He also said that while it’s true that Europeans operating under a single-payer system pay dramatically less for health care than Americans, that’s not necessarily a function of their payment scheme.

“I think it’s a lot to do with technology and lifestyle choices. They also make rationing choices in those countries that we are not willing to make. We spend a lot of money on end-of-life services, for example,” he said.

Malaby and other Republicans also responded to Tuesday’s event at the State House by touting Public Law 90, a GOP-supported insurance reform package approved during the Republican-controlled 125th Legislature. The law decreased regulation on insurance companies by making it easier for them to offer new plans and by allowing small businesses to band together and negotiate more favorable rates.

The bill also created a high-risk pool — or reinsurance program — to protect insurance companies from the high costs of covering patients who require the most medical care. In addition, the law allowed insurers to charge different rates based on patients’ age, place of residence and health status. Proponents have said that part of the bill is an attempt to woo more young, healthy patients into the marketplace by allowing insurers to charge them less.

Democrats and lawmakers from northern Maine have criticized PL 90 for allowing rate hikes on older and rural customers. Republicans have countered by pointing out that more Mainers have seen rate decreases since PL 90 was enacted.

Malaby said that the geographic fluctuations were rough in the first year since PL 90 but that they are leveling off and that the Republican reform bill has been a success.

“You’re getting more and more young people who can stay in Maine and afford insurance,” he said. “It used to be we never saw rate decreases at all, and now we are.”

Regardless of the political battles over PL 90 or a single-payer bill — which Gov. Paul LePage opposes — Priest said there’s always a Plan B.

“If we can’t get it through the Legislature, which is a possibility, Maine has a wonderful citizen referendum system,” he said.

http://bangordailynews.com/2013/09/03/health/brunswick-lawmaker-touts-single-payer-bill-at-augusta-health-care-rally/?ref=latest

Some big insurers leery of exchanges

Big US health insurers wary of ‘Obamacare’ exchanges

By Stephanie Kirchgaessner
Financial Times, September 3, 2013

Some big US health insurers, including Cigna, Aetna and UnitedHealthcare, are steering clear of most of the new state healthcare exchanges amid uncertainty about the kinds of customers they might attract: namely sick ones.

The three companies have said they are taking a cautious approach because they need to evaluate how the markets – set up under the “Obamacare” reforms – will work. They add that they are specialised in providing insurance to big employers, not the individuals and small businesses that will be served by the exchanges.

An Obama administration official said risk adjustment and reinsurance programmes under the law were designed to offer incentives to health insurers to make sure they do not avoid enrolling customers with the greatest needs.

A spokesman for Cigna, which is participating in five of 50 new exchanges, agreed that the provisions would help the company manage risk.

UnitedHealthcare said it would participate in about 12 exchanges initially, but said the exchanges had the “potential to be a growth market” over time.

A spokesman for Aetna said it would participate in up to 14 exchanges. It emphasised that it planned to position itself “for the future”.

http://www.ft.com/cms/s/0/f17b5ea4-10a4-11e3-b291-00144feabdc0.html#ixzz2dwahA63N

Comment:

By Don McCanne, M.D.

UnitedHealthcare, Aetna, and Cigna – three of the largest private insurers in the nation – have decided to not participate in most of the state exchanges being established under Obamacare. Obama and his health care architects had told us that it was better to build on the system we had, expanding the prevalence of private insurance. With this gift of a ready-made market for the private insurers, why are they sneaking away?

America’s private insurers have always welcomed the healthy and shunned the sick. The greatest example is the largest insurance market of all – America’s workers and their families – not only the largest market in the nation but also the healthiest.

In contrast, the individual and small group markets exposed insurers to greater risks, so they countered by using underwriting to select only the healthy while rejecting those who needed health care. In turn, Obamacare now prohibits selective enrollment – cherry picking and lemon dropping. Insurers rightfully fear that those with greater health care needs will rush into the exchanges, creating high cost risk pools that would price premiums out of the market.

About 31 million people will remain uninsured. They are healthier than average since they will include young invincibles who would rather take a chance, hard working immigrants and their families, many of whom are prohibited from participating, lower-income workers who are exempt because of lack of affordable plans for them, and families with incomes high enough to disqualify them from subsidies yet low enough that they will find the premiums to be unaffordable, especially for plans that still leave them exposed to the out-of-pocket expenses of high deductibles and other cost sharing.

These big insurers aren’t dumb. If they are going to sell plans in the exchanges, they want most of these low-cost individuals included in order to dilute the high costs of the sick who will enroll, thereby allowing the insurers to offer competitive premiums. Quite clearly, they are not convinced that will happen.

Will delaying a year result in an influx of some of these healthy individuals into the plans? Look at the list again. Likely some of the previously healthy who develop medical problems will want in. But that will increase the costs of the pools even more, causing the healthier to disenroll because the premiums are driven up further – the classic problem of the death spiral of skyrocketing health insurance premiums.

We should listen to UnitedHealthcare, Aetna, and Cigna. This is a highly flawed method of financing health care. It just doesn’t make sense from a business perspective. But also we should give some thought to this ourselves. Does it really make sense to to insert an administratively wasteful insurance intermediary that has found great success in manipulating the markets so that they can welcome the healthy and shun the sick? Medicare Advantage has already proven to us that private insurers will always find a way around risk adjustment and other regulations in order to shift costs away from them and onto taxpayers.

Obama and friends crafted this program to take good care of the insurers while depriving us of a less costly, more efficient and more effective social insurance program – an improved Medicare for all – and yet the insurers are still not satisfied. It’s too bad that we are going to have to wait until 2015 and 2016 to see premiums skyrocket and insurers bail out.

What will be our response then? Will we let the insurers continue to cover the healthy while accepting for the rest of us the fact that financial hardship is simply an inevitable consequence of facing serious illness? Based on the lack of public engagement to this date, it seems like that is where we are headed.

How Obamacare compounds inadequacies

By Marc Landry
News and Observer (Raleigh, N.C.), Sept. 3, 2013

With the imminent rollout of open enrollment under Obamacare, we are all going to read and hear a great deal about health care and health insurance in the weeks and months to come.

To gain some international perspective on these issues, I highly recommend reading “The Healing of America” by T.R. Reid.

Reid, a correspondent for The Washington Post, writes of his journey around the world to experience the health care and insurance regimens of other countries. Citing a study from the National Academy of Sciences that claims 22,000 Americans die prematurely each year from treatable medical problems because they cannot afford to see a doctor, he asks the essential question:

“Should our country provide health care to all of its citizens who need it?”

To date, the United States is alone in the developed world to have answered with an emphatic “no.”

It is disgraceful that we allow tens of thousands of our fellow citizens to die prematurely because our decision-makers will not say “yes” to what is essentially a moral question.

Will Obamacare provide all Americans with the access to health care they need? Again, emphatically no. It will extend coverage to many who are now uninsured, but millions will continue to do without.

Obamacare extends coverage in the most inefficient way possible, building on the hodgepodge of health insurance regimes that already exist. And because Obamacare subsidizes the purchase of insurance coverage, it is essentially nothing more than a pipeline from taxpayer pockets to the coffers of the health insurance industry.

There are four health care delivery models, and the United States is the only country where all co-exist.

Americans are well-acquainted with the Bismarck model, which uses private health insurance plans and providers and is paid for by employers and employees through the payroll system. There are variations of the Bismarck model in Germany, France, Japan, Belgium, Switzerland and many parts of Latin America. Most working Americans under 65 get their health coverage this way.

In the Beveridge model – the inspiration for the National Health Service introduced in the United Kingdom in 1946 – the government pays for health care from general tax revenue. Medical treatment is a public service, and the government owns and operates the hospitals and clinics. The Beveridge model is what most Americans have in mind when they think of “socialized medicine.” Variations are found in Italy, Spain, Scandinavia and Hong Kong. Americans who get their health care this way are members of the military, veterans and American Indians.

The third model is national health insurance, which incorporates elements of both Bismarck and Beveridge. In countries using this model, every citizen pays premiums to the government, which in turn pays all medical bills. The medical providers are private, but the single-payer system gives the government considerable power to negotiate on price. Canada adopted its “Medicare” system in the 1960s, and newly industrialized countries such as Taiwan and South Korea have adopted variations. Americans over 65 should be familiar with this model as our own Medicare is an example.

Lastly, you have the out-of-pocket model found in most of the poorer countries where the rule is you get the health care you can afford. Think Burma and Rwanda – and the United States, where 45 million Americans are well-acquainted with this model.

Reid’s book concludes with a chapter that tries to answer the question: “Which are the best health care systems in the world?”

The United States ranks No. 1 in terms of absolute spending, per capita spending and spending as a percentage of GDP. The World Health Organization gathered all of the factors on which health care systems can be rated, synthesized the data and ranked the health care systems of 191 countries. We came in 38, just behind Costa Rica.

When you go to a Target store, banners proclaim, “Expect more. Pay less.” When it comes to health care, we in the United States have turned that around: “Pay more. Expect less.”

Marc Landry is a contributing columnist. He can be reached at marclandry49@gmail.com.

Read more here: http://www.newsobserver.com/2013/09/03/3161455/how-obamacare-compounds-inefficiencies.html#storylink=cpy