PNHP

CMS limits innovative designs to multi-payer models

CMS limits innovative designs to multi-payer models

State Innovation Models Initiative: General Information

Centers for Medicare and Medicaid Services
Center for Medicare and Medicaid Innovation, February 2013

The State Innovation Models Initiative is providing up to $300 million to support the development and testing of state-based models for multi-payer payment and health care delivery system transformation with the aim of improving health system performance for residents of participating states. The projects will be broad based and focus on people enrolled in Medicare, Medicaid and the Children’s Health Insurance Program (CHIP).

Background

The Innovation Center created the State Innovation Models initiative for states that are prepared for or committed to planning, designing, testing, and supporting evaluation of new payment and service delivery models in the context of larger health system transformation. The Innovation Center is interested in testing innovative payment and service delivery models that have the potential to lower costs for Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP), while maintaining or improving quality of care for program beneficiaries. The goal is to create multi-payer models with a broad mission to raise community health status and reduce long term health risks for beneficiaries of Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP).

For more information, click on “Fact Sheet: State Innovation Models Initiative” at this link: http://innovation.cms.gov/initiatives/State-Innovations/

And…

State Receives $937,691 Grant to Continue Healthcare Transformation Efforts

State of Hawaii, February 21, 2013

The State of Hawaii once again has an opportunity to demonstrate its leadership in healthcare transformation. The Centers for Medicare and Medicaid Services (CMS) today announced that Hawaii was awarded a planning grant worth $937,691 as part of the agency’s State Innovations Model (SIM) initiative.

Beginning April 1, the state will have six months to design and submit a State Healthcare Innovation Plan, built around multipayer payment and healthcare delivery system transformation.

“Transforming our state’s healthcare system continues to be a focus of my New Day plan, and under the leadership of Beth Giesting, the state’s healthcare transformation coordinator, we’ve made great strides over the last year,” said Gov. Neil Abercrombie.

http://governor.hawaii.gov/state-receives-937691-grant-to-continue-healthcare-transformation-efforts/

Comment:

By Don McCanne, M.D.

Section 3021 of the Affordable Care Act establishes the Center for Medicare and Medicaid Innovation. Its purpose is “to test innovative payment and service delivery models to reduce program expenditures under the applicable titles (Medicare and Medicaid) while preserving or enhancing the quality of care furnished to individuals under such titles.”

The law lists “opportunities” for models to be tested, including “allowing states to test and evaluate systems of all-payer payment reform for the medical care of residents of the state.” Of note, nowhere does section 3021 limit the innovative testing to “multi-payer models.” Yet CMS now states that “the goal is to create multi-payer models.”

To show how important this administrative decision is, look at Hawaii. Gov. Neil Abercrombie has been a single payer supporter. He was a cosponsor of H.R. 676, John Conyers’ single payer bill, when he was a member of Congress. Efforts have recently been underway to move Hawaii towards becoming a single payer state. But now with this grant, Hawaii is going to “design and submit a State Healthcare Innovation Plan, built around multipayer payment and healthcare delivery system transformation.”

The CMS fact sheet (link above) list other states receiving funds under this program, including states that were thought to be in a position to lead the way on single payer reform, such as Vermont and California.

According to the fact sheet, Vermont has been awarded a $45 million grant to establish “three models: a shared-savings ACO model that involves integration of payment and services across an entire delivery system; a bundled payment model that involve integration of payment and services across multiple independent providers; and a pay-for-performance model aimed at improving the quality, performance, and efficiency of individual providers.” That doesn’t exactly have a single payer ring to it.

Although the law did not limit the innovations to be developed and tested to multi-payer models, the Obama administration has. Once again, single payer advocates have been denied a seat at the table. What are we going to do about it?

CMS limits innovative designs to multi-payer models

State Innovation Models Initiative: General Information

Centers for Medicare and Medicaid Services
Center for Medicare and Medicaid Innovation, February 2013
The State Innovation Models Initiative is providing up to $300 million to support the development and testing of state-based models for multi-payer payment and health care delivery system transformation with the aim of improving health system performance for residents of participating states. The projects will be broad based and focus on people enrolled in Medicare, Medicaid and the Children’s Health Insurance Program (CHIP).
Background
The Innovation Center created the State Innovation Models initiative for states that are prepared for or committed to planning, designing, testing, and supporting evaluation of new payment and service delivery models in the context of larger health system transformation. The Innovation Center is interested in testing innovative payment and service delivery models that have the potential to lower costs for Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP), while maintaining or improving quality of care for program beneficiaries. The goal is to create multi-payer models with a broad mission to raise community health status and reduce long term health risks for beneficiaries of Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP).
For more information, click on “Fact Sheet: State Innovation Models Initiative” at this link: http://innovation.cms.gov/initiatives/State-Innovations/
And…

State Receives $937,691 Grant to Continue Healthcare Transformation Efforts

State of Hawaii, February 21, 2013
The State of Hawaii once again has an opportunity to demonstrate its leadership in healthcare transformation. The Centers for Medicare and Medicaid Services (CMS) today announced that Hawaii was awarded a planning grant worth $937,691 as part of the agency’s State Innovations Model (SIM) initiative.
Beginning April 1, the state will have six months to design and submit a State Healthcare Innovation Plan, built around multipayer payment and healthcare delivery system transformation.
“Transforming our state’s healthcare system continues to be a focus of my New Day plan, and under the leadership of Beth Giesting, the state’s healthcare transformation coordinator, we’ve made great strides over the last year,” said Gov. Neil Abercrombie.
http://governor.hawaii.gov/state-receives-937691-grant-to-continue-healt…

Section 3021 of the Affordable Care Act establishes the Center for Medicare and Medicaid Innovation. Its purpose is “to test innovative payment and service delivery models to reduce program expenditures under the applicable titles (Medicare and Medicaid) while preserving or enhancing the quality of care furnished to individuals under such titles.”
The law lists “opportunities” for models to be tested, including “allowing states to test and evaluate systems of all-payer payment reform for the medical care of residents of the state.” Of note, nowhere does section 3021 limit the innovative testing to “multi-payer models.” Yet CMS now states that “the goal is to create multi-payer models.”
To show how important this administrative decision is, look at Hawaii. Gov. Neil Abercrombie has been a single payer supporter. He was a cosponsor of H.R. 676, John Conyers’ single payer bill, when he was a member of Congress. Efforts have recently been underway to move Hawaii towards becoming a single payer state. But now with this grant, Hawaii is going to “design and submit a State Healthcare Innovation Plan, built around multipayer payment and healthcare delivery system transformation.”
The CMS fact sheet (link above) list other states receiving funds under this program, including states that were thought to be in a position to lead the way on single payer reform, such as Vermont and California.
According to the fact sheet, Vermont has been awarded a $45 million grant to establish “three models: a shared-savings ACO model that involves integration of payment and services across an entire delivery system; a bundled payment model that involve integration of payment and services across multiple independent providers; and a pay-for-performance model aimed at improving the quality, performance, and efficiency of individual providers.” That doesn’t exactly have a single payer ring to it.
Although the law did not limit the innovations to be developed and tested to multi-payer models, the Obama administration has. Once again, single payer advocates have been denied a seat at the table. What are we going to do about it?

Intensity bias in risk adjustment

Observational intensity bias associated with illness adjustment: cross sectional analysis of insurance claims

By John E Wennberg, Douglas O Staiger, Sandra M Sharp, Daniel J Gottlieb, Gwyn Bevan, Klim McPherson, H Gilbert Welch
BMJ, February 21, 2013

Conclusions

We have shown that a method of risk adjustment that used data on diagnoses and controlled for the effects of supply, by using data on the frequency of visits by physicians in the year prior to a patient’s death, was more efficient than the standard method; but that still accounted for less than 25% of geographic variation in age, sex, and race adjusted mortality among fee for service Medicare beneficiaries. Thus, our study points to the importance of developing risk adjustment methods that better explain variation in age, sex, and race mortality rates and suggests that these will be found by using data that are clearly independent of the effects of supply.

http://www.bmj.com/content/346/bmj.f549#aff-1

And…

Dartmouth Study Questions Widely Used Risk-Adjustment Methods

By Jordan Rau
Kaiser Health News, February 21, 2013

In evaluating a hospital and health plan in the increasingly expensive U.S. health care system, federal officials and researchers often first factor in an assessment of how sick their patients are. A new study, however, challenges the validity of several widely used “risk-adjustment” efforts and suggests that Medicare is overpaying some plans and facilities while underpaying others.

Without these risk adjustments to level the comparisons, a hospital with more frail and very ill patients—who are more likely to die — might incorrectly appear to be doing a worse job than a hospital with healthier patients — who are more likely to survive.

Medicare risk-adjusts when determining how much to pay private Medicare Advantage insurance plans. It also used risk adjustments when deciding that 2,217 hospitals should be penalized for having high rates of patient readmissions.  Risk adjustment is also a key component in new models of delivering care, such as the accountable care organizations.

The new study by the Dartmouth Atlas Project, published today in the health journal BMJ, faults the practice of trying to assess how sick patients are by looking at records to see patient diagnoses. The authors argue that the more times patients see doctors or get tests, the more new diagnoses they are given. “The more one looks, the more one finds,” the authors wrote. The Atlas researchers have asserted in three decades of research that areas of the country with gluts of hospital beds, specialists and other providers tend to deliver more care, whether it’s needed or not.

“You would think sicker places would have higher visit rates, but they don’t,” said Dr. John Wennberg, the lead author and the founder of the Atlas.

Here’s how their latest study worked: The researchers examined Medicare records for more than 5 million beneficiaries in 306 different regions of the country. They looked at three different formulas commonly used to assess how sick patients are, each based on the number and nature of diagnoses for patients as well their age, race and sex. Medicare uses one of those methods, known as “hierarchical condition categories” (HCC) to adjust for risk.

The researchers also analyzed the death rates of patient populations in each of the 306 regions. They found that the sickness of the patients explained between 10 and 12 percent of the discrepancy between places with high mortality rates and those with low mortality rates. But there was still a wide spread between regions of the country. For instance, under the HCC method, the death rate in the Salt Lake City region was 59.3 patients per 1,000—much higher than around Miami, where the death rate was 32.6 patients per 1,000. If that difference were accurate, then it would appear that patients in Salt Lake City were getting astoundingly worse care than in Miami—something that the researchers considered implausible.

Next, the researchers looked at the number of physician visits the patients had in the previous year. They then used statistical methods to “correct” the sickness rates, essentially reclassifying those patients with lots of excess physician visits as less sick than they would appear based by their diagnoses alone.

When the researchers used this revised metric to look at regional death rates, they now found it explained between 21 percent and 24 percent of the differences between high-mortality and low-mortality areas—twice as much as the standard risk-adjustment methods explained. Once visits were factored into the equation, Salt Lake City’s death rate dropped to 51.8 patients per 1,000 and Miami’s rate rose to 47.3 percent. That was much closer than before, although there remained an unexplained variation.

In a phone interview, Wennberg said the paper showed that the government and others need to refine the methods of adjusting for risk. “The way we’re doing it now has a lot of problems,” he said.

http://capsules.kaiserhealthnews.org/index.php/2013/02/dartmouth-study-questions-widely-used-risk-adjustment-methods/

Comment:

By Don McCanne, M.D.

Private insurers pride themselves on market innovation. They will always find ways to reduce the amount that they spend on patients. They use devious methods to selectively enroll healthier individuals while receiving payments that are more appropriate for a mixture of both the sick and the healthy. When efforts are made by means of risk adjustment to modify payments to compensate for this injustice, insurers will use data manipulations to make their patients appear to be even sicker than they are in order to receive extra payments for their care.

This study by John Wennberg and his colleagues demonstrates that the differing regional rates of visits by physicians introduces a bias that makes it appear that regions with lower visits by physicians have higher costs and higher mortality rates, and vice versa. They conclude that correcting for such variations in intensity of patient observation (physician visit rates) would improve current risk adjustment methodologies, but that this would still account for “less than 25% of geographic variation in age, sex, and race adjusted mortality among fee for service Medicare beneficiaries.”

We already know that the private Medicare Advantage plans play games with risk adjustment. The Affordable Care Act will require risk adjustment between the private plans offered by the state insurance exchanges, and we can anticipate that they, too, will game the system.

Will this latest study finally bring us a risk adjustment process that the insurers cannot game? Unlikely. As more data are added, such as the intensity of patient observation suggested by this study, the administrative complexity increases, while the insurers find ever more not-yet-patched holes in the risk adjustment infrastructure.

As long as individual patients are linked to individual private plans, there will always be intermediaries – the private insurers – who will manipulate the system to their own benefit. We should remove these superfluous, administratively inefficient middlemen and replace them with our own public administrators. The task of negotiating appropriate payments with health care professionals and institutions would be much simpler if we got the private intermediaries out of the way.

Intensity bias in risk adjustment

Observational intensity bias associated with illness adjustment: cross sectional analysis of insurance claims

By John E Wennberg, Douglas O Staiger, Sandra M Sharp, Daniel J Gottlieb, Gwyn Bevan, Klim McPherson, H Gilbert Welch
BMJ, February 21, 2013
Conclusions
We have shown that a method of risk adjustment that used data on diagnoses and controlled for the effects of supply, by using data on the frequency of visits by physicians in the year prior to a patient’s death, was more efficient than the standard method; but that still accounted for less than 25% of geographic variation in age, sex, and race adjusted mortality among fee for service Medicare beneficiaries. Thus, our study points to the importance of developing risk adjustment methods that better explain variation in age, sex, and race mortality rates and suggests that these will be found by using data that are clearly independent of the effects of supply.
http://www.bmj.com/content/346/bmj.f549#aff-1
And…

Dartmouth Study Questions Widely Used Risk-Adjustment Methods

By Jordan Rau
Kaiser Health News, February 21, 2013
In evaluating a hospital and health plan in the increasingly expensive U.S. health care system, federal officials and researchers often first factor in an assessment of how sick their patients are. A new study, however, challenges the validity of several widely used “risk-adjustment” efforts and suggests that Medicare is overpaying some plans and facilities while underpaying others.
Without these risk adjustments to level the comparisons, a hospital with more frail and very ill patients—who are more likely to die — might incorrectly appear to be doing a worse job than a hospital with healthier patients — who are more likely to survive.
Medicare risk-adjusts when determining how much to pay private Medicare Advantage insurance plans. It also used risk adjustments when deciding that 2,217 hospitals should be penalized for having high rates of patient readmissions.  Risk adjustment is also a key component in new models of delivering care, such as the accountable care organizations.
The new study by the Dartmouth Atlas Project, published today in the health journal BMJ, faults the practice of trying to assess how sick patients are by looking at records to see patient diagnoses. The authors argue that the more times patients see doctors or get tests, the more new diagnoses they are given. “The more one looks, the more one finds,” the authors wrote. The Atlas researchers have asserted in three decades of research that areas of the country with gluts of hospital beds, specialists and other providers tend to deliver more care, whether it’s needed or not.
“You would think sicker places would have higher visit rates, but they don’t,” said Dr. John Wennberg, the lead author and the founder of the Atlas.
Here’s how their latest study worked: The researchers examined Medicare records for more than 5 million beneficiaries in 306 different regions of the country. They looked at three different formulas commonly used to assess how sick patients are, each based on the number and nature of diagnoses for patients as well their age, race and sex. Medicare uses one of those methods, known as “hierarchical condition categories” (HCC) to adjust for risk.
The researchers also analyzed the death rates of patient populations in each of the 306 regions. They found that the sickness of the patients explained between 10 and 12 percent of the discrepancy between places with high mortality rates and those with low mortality rates. But there was still a wide spread between regions of the country. For instance, under the HCC method, the death rate in the Salt Lake City region was 59.3 patients per 1,000—much higher than around Miami, where the death rate was 32.6 patients per 1,000. If that difference were accurate, then it would appear that patients in Salt Lake City were getting astoundingly worse care than in Miami—something that the researchers considered implausible.
Next, the researchers looked at the number of physician visits the patients had in the previous year. They then used statistical methods to “correct” the sickness rates, essentially reclassifying those patients with lots of excess physician visits as less sick than they would appear based by their diagnoses alone.
When the researchers used this revised metric to look at regional death rates, they now found it explained between 21 percent and 24 percent of the differences between high-mortality and low-mortality areas—twice as much as the standard risk-adjustment methods explained. Once visits were factored into the equation, Salt Lake City’s death rate dropped to 51.8 patients per 1,000 and Miami’s rate rose to 47.3 percent. That was much closer than before, although there remained an unexplained variation.
In a phone interview, Wennberg said the paper showed that the government and others need to refine the methods of adjusting for risk. “The way we’re doing it now has a lot of problems,” he said.
http://capsules.kaiserhealthnews.org/index.php/2013/02/dartmouth-study-q…

Private insurers pride themselves on market innovation. They will always find ways to reduce the amount that they spend on patients. They use devious methods to selectively enroll healthier individuals while receiving payments that are more appropriate for a mixture of both the sick and the healthy. When efforts are made by means of risk adjustment to modify payments to compensate for this injustice, insurers will use data manipulations to make their patients appear to be even sicker than they are in order to receive extra payments for their care.
This study by John Wennberg and his colleagues demonstrates that the differing regional rates of visits by physicians introduces a bias that makes it appear that regions with lower visits by physicians have higher costs and higher mortality rates, and vice versa. They conclude that correcting for such variations in intensity of patient observation (physician visit rates) would improve current risk adjustment methodologies, but that this would still account for “less than 25% of geographic variation in age, sex, and race adjusted mortality among fee for service Medicare beneficiaries.”
We already know that the private Medicare Advantage plans play games with risk adjustment. The Affordable Care Act will require risk adjustment between the private plans offered by the state insurance exchanges, and we can anticipate that they, too, will game the system.
Will this latest study finally bring us a risk adjustment process that the insurers cannot game? Unlikely. As more data are added, such as the intensity of patient observation suggested by this study, the administrative complexity increases, while the insurers find ever more not-yet-patched holes in the risk adjustment infrastructure.
As long as individual patients are linked to individual private plans, there will always be intermediaries – the private insurers – who will manipulate the system to their own benefit. We should remove these superfluous, administratively inefficient middlemen and replace them with our own public administrators. The task of negotiating appropriate payments with health care professionals and institutions would be much simpler if we got the private intermediaries out of the way.

Young immigrants excluded from ACA benefits

Young immigrants shut out of health reform

By Drew Joseph
San Francisco Chronicle, February 19, 2013

California’s young immigrants who have been granted reprieves to stay in the country stand to gain little from the federal health reform law that the state Legislature is working to implement.

The Affordable Care Act excludes illegal immigrants from accessing the law’s benefits, but some immigrant and health advocates are angry that the young people known as Dreamers have been left out, saying the policy contradicts the law’s intent of expanding coverage to more people.

“It really defeats what the goals of the ACA were to begin with,” said Sonal Ambegaokar, health policy attorney at the National Immigration Law Center.

The Deferred Action for Childhood Arrivals program (DACA), which was announced in June, allows people who were brought into the United States when they were young to stay for two years if they pursue education or military service. The young people eligible for the program are known as Dreamers, in reference to the proposed Dream Act – legislation that would give them a path to citizenship.

More than a quarter of the 1.76 million people who are or will be eligible to apply for DACA – about 460,000 immigrants – live in California, according to an August 2012 Migration Policy Institute report.

After the DACA program was announced, the Obama administration clarified the policy, specifying that people to whom DACA applies will not qualify for Medicaid now or as the health law is implemented. And while many Americans will receive subsidies to buy insurance through their state’s exchanges – the insurance marketplaces established by the Affordable Care Act – people granted DACA approval will not be able to purchase coverage through those exchanges even with their own money.

Critics say the rule does not make sense. They argue that people approved for the program are lawfully present in the country, but when it comes to health care, they are treated as undocumented immigrants and will face a harder time finding coverage.

http://www.sfgate.com/default/article/Young-immigrants-shut-out-of-health-reform-4292195.php

And…

Health Care for DACA Grantees

National Immigration Law Center, January 2013

What health insurance options are available to DACA grantees under ACA?

Until recently, like other individuals granted deferred action, DACA grantees would have had access to all the new health insurance options under ACA as “lawfully present” individuals. Due to a rule change by the Obama administration in August 2012, DACA grantees were specifically excluded from the ACA as well as nonemergency Medicaid and CHIP, and have the same access to health insurance as do undocumented individuals despite being granted deferred action by the U.S. Department of Homeland Security. As a result of the rule change, DACA grantees who have valid work permits and valid Social Security numbers (SSNs) and who are otherwise eligible:

* Cannot enroll today in affordable coverage through Medicaid or CHIP unless their state provides coverage to a broader group of lawfully present individuals.

* Do not have access today to prenatal care through Medicaid or CHIP unless their state provides coverage for pregnant women regardless of the woman’s immigration status.

* Cannot apply today for private health insurance under Pre-Existing Condition Insurance Plan (PCIP) unless their state has a similar health insurance program that is available regardless of status.

* Will not be able to buy affordable private health insurance, even at full cost, in the new insurance marketplaces created by ACA after 2014.

* Will not be eligible for federal tax credits (or subsidies) to help make private health insurance affordable after 2014, even if they are paying federal taxes.

* Will not be eligible for the Basic Health Plan if their state has this program.

* Likely will not be required to have health insurance after 2014.

What health care options do DACA grantees and undocumented individuals have today?

* Emergency-room care.

* Community health centers and free clinics.

* Public and safety-net hospitals.

* Public health services (immunizations, treatment of communicable diseases such as tuberculosis, HIV, or sexually transmitted diseases).

* Emergency treatment under the emergency Medicaid program, including labor and delivery for pregnancy.

* Hospital and community health centers’ financial assistance programs (also known as “charity care”).

* Private health insurance.

http://www.nilc.org/facts-health.html

Comment:

By Don McCanne, M.D.

Young immigrant children who were brought to this country and remained here without proper documentation have been raised here and are as much a part of our culture as are legal citizens. The Dream Act has been proposed to grant these individuals legal status to match the reality that this is their country.

Because of the failure of Congress to pass the Dream Act, President Obama has established the Deferred Action for Childhood Arrivals program (DACA). This is not a replacement of the Dream Act, but it is aimed at the same demographic, and it does provide temporary, potentially renewable legal status.

It seems that these individuals under DACA should have the same access to health care as other documented immigrants. However, it was decided that they would specifically be excluded from the provisions of the Affordable Care Act. They are not totally excluded from all health care since they have the same access as undocumented immigrants – those services and facilities listed above.

Although some might say that these services are adequate for this population, most of us want not want these limitations placed on our health care (with the exception of being able to purchase insurance outside of the exchanges and without subsidies – a problem for this population).

Immigration policy and health policy are two different topics. They should be dealt with separately. Right now, Congress is engaged in a process to reform immigration, and hopefully our lawmakers will demonstrate wisdom and benevolence in their decisions.

Health care is another matter. Everyone should have whatever health care is necessary. Period. Our laws and regulations and their implementation should have a goal of making certain that people get the care that they need. The Obama administration’s interpretation of their own DACA program falls short.

Under an optimally designed single payer program, whoever you are, if you need care, you get care. That’s the way it should be.

Chart of the day: Medicare’s administrative costs, explained

By Austin Frakt
The Incidental Economist, Feb. 18, 2013

In the Journal of Health Politics, Policy and Law, Kip Sullivan of the Minnesota chapter of Physicians for a National Health Program thinks almost everyone doesn’t understand Medicare’s administrative costs. He has problems of varying degree with the writing of Greg Mankiw, Paul Krugman, John Goodman, Thomas Saving, Dianne Archer, the Kaiser Family Foundation, and Ezra Klein, whom he quotes at length and then responds,

If by “premium collection” Klein meant taxes, he was wrong; a portion of IRS costs are allocated to Medicare’s overhead by OACT [CMS’s Office of the Actuary]. If by “premium collection” Klein meant Part B premiums, he was wrong on two counts: (1) the Social Security Administration, not the IRS, calculates and collects Part B premiums for the vast majority of Medicare enrollees, and the Railroad Retirement Board does so for former railroad workers; and (2) a portion of the SSA’s and the railroad board’s costs are allocated to Medicare’s overhead by OACT. Klein’s statement that the cost of processing claims for the traditional Medicare program does not appear in Medicare’s administrative expenditures is also incorrect. OACT does include the cost of claims processing, which is done by what used to be called “carriers” and “intermediaries” and are now called “Medicare administrative contractors.” […]

The federal agencies for which Treasury collects expenditure data, and which are therefore included in the trustees’ reports on Medicare administrative spending, include the Treasury Department, the IRS, the SSA, CMS, the Department of Health and Human Services, the Medicare Payment Advisory Commission, the Area Agency on Aging, the Department of Justice, the Federal Bureau of Investigation, and the Railroad Retirement Board (see the appendix). In addition, the appendix lists “quality improvement organizations,” which are private-sector organizations with which CMS contracts. The appendix also indicates that payments by CMS to insurance companies that process claims for Medicare’s original fee-for- service program are included in the trustees’ definition, as are the cost of buildings that house CMS staff and the cost of the numerous demonstration projects Congress requires CMS to conduct.

According to Sullivan, the Treasury’s calculation of administrative costs does not include those incurred by Medicare Advantage and private, Part D (drug) plans. Those are, however, included in the administrative costs calculated for the National Health Expenditure Accounts (NHEA). Examining the two flavors of administrative costs is instructive. I’ve graphed the figures Sullivan includes in his Table 1, below.

The trustees’ and NHEA measures were fairly close until the 1980s. Then they diverged as enrollment grew in Medicare Advantage and its predecessor programs. In 2006, Part D drug plans became available and the two types of administrative costs diverged further still. As traditional Medicare’s administrative costs went down, those of private plans grew.

Sullivan writes, “This enormous disparity between two measures that used to be almost identical should long ago have triggered inquiries within Congress and the US health policy community as to whether the higher administrative costs associated with the growing privatization of Medicare are justified.”

http://theincidentaleconomist.com/wordpress/chart-of-the-day-medicares-administrative-costs-explained/

Young immigrants excluded from ACA benefits

Young immigrants shut out of health reform

By Drew Joseph
San Francisco Chronicle, February 19, 2013
California’s young immigrants who have been granted reprieves to stay in the country stand to gain little from the federal health reform law that the state Legislature is working to implement.
The Affordable Care Act excludes illegal immigrants from accessing the law’s benefits, but some immigrant and health advocates are angry that the young people known as Dreamers have been left out, saying the policy contradicts the law’s intent of expanding coverage to more people.
“It really defeats what the goals of the ACA were to begin with,” said Sonal Ambegaokar, health policy attorney at the National Immigration Law Center.
The Deferred Action for Childhood Arrivals program (DACA), which was announced in June, allows people who were brought into the United States when they were young to stay for two years if they pursue education or military service. The young people eligible for the program are known as Dreamers, in reference to the proposed Dream Act – legislation that would give them a path to citizenship.
More than a quarter of the 1.76 million people who are or will be eligible to apply for DACA – about 460,000 immigrants – live in California, according to an August 2012 Migration Policy Institute report.
After the DACA program was announced, the Obama administration clarified the policy, specifying that people to whom DACA applies will not qualify for Medicaid now or as the health law is implemented. And while many Americans will receive subsidies to buy insurance through their state’s exchanges – the insurance marketplaces established by the Affordable Care Act – people granted DACA approval will not be able to purchase coverage through those exchanges even with their own money.
Critics say the rule does not make sense. They argue that people approved for the program are lawfully present in the country, but when it comes to health care, they are treated as undocumented immigrants and will face a harder time finding coverage.
http://www.sfgate.com/default/article/Young-immigrants-shut-out-of-healt…
And…

Health Care for DACA Grantees

National Immigration Law Center, January 2013
What health insurance options are available to DACA grantees under ACA?
Until recently, like other individuals granted deferred action, DACA grantees would have had access to all the new health insurance options under ACA as “lawfully present” individuals. Due to a rule change by the Obama administration in August 2012, DACA grantees were specifically excluded from the ACA as well as nonemergency Medicaid and CHIP, and have the same access to health insurance as do undocumented individuals despite being granted deferred action by the U.S. Department of Homeland Security. As a result of the rule change, DACA grantees who have valid work permits and valid Social Security numbers (SSNs) and who are otherwise eligible:
* Cannot enroll today in affordable coverage through Medicaid or CHIP unless their state provides coverage to a broader group of lawfully present individuals.
* Do not have access today to prenatal care through Medicaid or CHIP unless their state provides coverage for pregnant women regardless of the woman’s immigration status.
* Cannot apply today for private health insurance under Pre-Existing Condition Insurance Plan (PCIP) unless their state has a similar health insurance program that is available regardless of status.
* Will not be able to buy affordable private health insurance, even at full cost, in the new insurance marketplaces created by ACA after 2014.
* Will not be eligible for federal tax credits (or subsidies) to help make private health insurance affordable after 2014, even if they are paying federal taxes.
* Will not be eligible for the Basic Health Plan if their state has this program.
* Likely will not be required to have health insurance after 2014.
What health care options do DACA grantees and undocumented individuals have today?
* Emergency-room care.
* Community health centers and free clinics.
* Public and safety-net hospitals.
* Public health services (immunizations, treatment of communicable diseases such as tuberculosis, HIV, or sexually transmitted diseases).
* Emergency treatment under the emergency Medicaid program, including labor and delivery for pregnancy.
* Hospital and community health centers’ financial assistance programs (also known as “charity care”).
* Private health insurance.
http://www.nilc.org/facts-health.html

Young immigrant children who were brought to this country and remained here without proper documentation have been raised here and are as much a part of our culture as are legal citizens. The Dream Act has been proposed to grant these individuals legal status to match the reality that this is their country.
Because of the failure of Congress to pass the Dream Act, President Obama has established the Deferred Action for Childhood Arrivals program (DACA). This is not a replacement of the Dream Act, but it is aimed at the same demographic, and it does provide temporary, potentially renewable legal status.
It seems that these individuals under DACA should have the same access to health care as other documented immigrants. However, it was decided that they would specifically be excluded from the provisions of the Affordable Care Act. They are not totally excluded from all health care since they have the same access as undocumented immigrants – those services and facilities listed above.
Although some might say that these services are adequate for this population, most of us want not want these limitations placed on our health care (with the exception of being able to purchase insurance outside of the exchanges and without subsidies – a problem for this population).
Immigration policy and health policy are two different topics. They should be dealt with separately. Right now, Congress is engaged in a process to reform immigration, and hopefully our lawmakers will demonstrate wisdom and benevolence in their decisions.
Health care is another matter. Everyone should have whatever health care is necessary. Period. Our laws and regulations and their implementation should have a goal of making certain that people get the care that they need. The Obama administration’s interpretation of their own DACA program falls short.
Under an optimally designed single payer program, whomever you are, if you need care, you get care. That’s the way it should be.

The role of the New Democrats in the explosion of managed care

By Meade Klingensmith
Remapping Debate, Feb. 20, 2013

The “New Democrats” of the 1990s — those who thought the Democratic Party should move further to the right and position itself as a “centrist” alternative to the GOP — promoted a model of health care reform called “managed competition.” Fundamental premises behind the strategy — such as the idea that the interests of insurers would be aligned with the interests of those needing a doctor and that Americans, if anything, were getting too much medical care — were much more faith-based than evidence-based. And some of the negative consequences of the greater reliance on “managed care” created a short-term backlash. Nevertheless, the assumptions and rhetoric of the New Democrats live on, embedded in the architecture of the Affordable Care Act (ACA) and in the rhetoric of a wide range of politicians and journalists, as well as many of the experts who study the health care industry.

Will Marshall was a co-founder of the Democratic Leadership Committee (DLC), for more than two decades the heart of the New Democrats (the DLC shut its doors in 2011). He was also the founder and is still the president of the Progressive Policy Institute (PPI), the organization that provided the blueprints for many of the policies advocated by the DLC.

In an interview with Remapping Debate, Marshall described managed competition as “a system of private provision, competing health care providers who are under the supervision of public law and regulation that protects patients.” The idea, he said, was to create marketplaces in which health insurers sold their products, either to companies or directly to enrollees. (In the 1990s, these marketplaces were called “purchasing alliances”; in 2010, they were later incorporated into the ACA as “exchanges.”)

The marketplaces would be the only way to purchase health insurance in the United States, and all products sold within them would be required to meet certain standards of coverage. Under the Clinton plan, every employer in the U.S. would have been required to provide health insurance to its employees. And, crucially, managed competition models in general assumed that for-profit managed care organizations would become the dominant actors in the system, as their lower cost would naturally attract purchasers.

Theoretically, adoption of the model would achieve three things: (1) it would control health care costs by guiding patients into managed care organizations, forcing insurers to directly compete over customers, and enabling mass-scale group purchasing; (2) it would ensure universal coverage; and (3) it would do these things through regulated market mechanisms rather than a national health program, thereby appealing to what Marshall views as “the American economic and cultural outlook.”

Aligning incentives?

A central claim of managed care is that it aligns the incentives of health care providers with those of their patients. In the original formulation by Paul Ellwood (the “father” of managed care), found in his 1971 article for the journal Medical Care, the argument went as follows: “Since the economic incentives of the contracting parties [provider and patient] are identical [to keep the patient healthy], both would have an interest in maintaining health.”

Remapping Debate asked Marshall whether, even if managed competition and managed care could control costs and provide some form of universal coverage, it would do so by denying medical services to patients who need them. Marshall insisted managed care would theoretically not deny useful procedures. Its goal, he said, was to “eliminate unnecessary procedures, root out waste, and, when it’s done right, try to bring together specialists and general practitioners to take a holistic approach to the health care of the patient, rather than parceling them out by body part or disease and never communicating with each other.”

When asked whether PPI ever worried about the potential for managed care to deny necessary services, Marshall said it did. “If you can get away with dropping coverage and denying services,” he said, “some actors will do that, and did.” Then why would a for-profit managed care organization ever prioritize quality of care over making a profit? “The customers leave,” Marshall responded. “We have exit … I remember being in several HMOs that I didn’t like, and I left them and got into something that I thought was better care for me. Choice and exit are powerful forces.”

According to Dr. David Himmelstein, a professor of public health at the City University of New York School of Public Health at Hunter College and a co-founder of Physicians for a National Health Program (PNHP), however, the argument does not stand up. Because managed care is a profit-driven enterprise, he said, “The incentive … is to recruit the healthiest patients you can, to make them look on paper as sick as you can, and to avoid giving them care as much as you can.” Or, more simply, “If you deliver less care, you profit. If you deliver more care, you lose.”

Dr. Jim Scott, president-elect and vice president of internal affairs at the National Physicians Alliance, a physician advocacy organization, agreed.  He told Remapping Debate that from the perspective of a for-profit managed care organization (as opposed to the doctors who work there), “what you want to do is manage the population. You want to have the healthiest population you can, deny the most care you can, and get away with it. That’s about managing cost. That has nothing to do with managing care.” Calling such organizations “managed care,” he said, is “a lie.”

Remapping Debate pointed out to Marshall that most people in the United States receive health insurance through their employers, whose incentive is to control their own costs. How were those employees supposed to “exit”? “That constrains choice,” he said. “We’re not dealing with a perfect marketplace here. It’s got all kinds of peculiarities. And most people can’t afford to forgo the group purchasing functions of their employers.”

Where then, were they supposed to go? At that point in the interview, Marshall acknowledged that choice and exit alone were not powerful enough to prevent managed care from denying necessary services to patients. “That’s why you have to have legal protections. Aligning the incentives of health care providers with the interest[s] of patients cannot be left to the market alone.” For that reason, he said, having regulated “purchasing alliances” that would increase the negotiating leverage of health insurance “consumers” was an important part of the managed competition theory — but one that was not realized in the 1990s.

Cost, cost, cost

Managed competition was at the heart of President Clinton’s health care reform proposal, the Health Security Act (HSA), which was formulated by a group of health insurance insiders known as the Jackson Hole Group. The HSA died in 1994 of what Ida Hellander, the director of policy and programs at PNHP, called “political asphyxiation.” Neoconservative political commentator William Kristol, through his organization called Project for the Republican Future, spearheaded the opposition.

But records of the public debate around the HSA provide a window into how health care was discussed in the New Democrat era. Upon examining a range of speeches and testimony given during this period by politicians, health insurance lobbyists, and think tank representatives, and comparing those with the rhetoric of the last major health care debate in the 1970s, it is clear quality concerns took a back seat to a focus on controlling cost in the 1990s. As Will Marshall acknowledged, “The assumption [in the 1990s] was that quality wasn’t a huge problem…The assumption was that cost
inflation was the problem.”

The text of President Clinton’s 1993 speech on health care encapsulates the general trend of the 1990s. Its underlying assumption was that the quality of American health care was already excellent and needed little improvement: public policy should focus on quality health care only insofar as it does not harm quality; the priority was controlling cost, not improving quality. “We’re blessed with the best health care professionals on earth, the finest health care institutions, the best medical research, the most sophisticated technology,” Clinton said.  However, “medical bills are growing at over twice the rate of inflation, and the United States spends over a third more of its income on health care than any other nation on earth, and the gap is growing, causing many of our companies in global competition severe disadvantage.”

President Clinton’s speech was just the vanguard of what became a stampede of calls for controlling the cost of health care, with quality as an afterthought. For example, on November 8, 1993, Kenneth Thorpe, deputy assistant secretary for health policy at the Department of Health and Human Services, in testimony at a hearing on health care reform held by the Housing Energy and Commerce Committee, said, “Why must we remain committed to a strong cost containment strategy? Because the total costs of health care are high and rising…The rising costs of the current system harm businesses, government, and households.” The only mention of quality was as a factor for health insurance plans to compete over as part of a market-oriented bid at controlling cost.

And on March 10, 1994, Joan Simmons, the vice president of the Healthcare Leadership Council, an association of CEOs from several health insurers, pharmaceutical companies, hospitals, and other corporations in the health care field, testified to the House Education and Labor Committee, “People from across the globe come to the United States to receive the highest quality care. In this respect, our health care system is the envy of the world. It is proof that our system does more for its patients…Our delivery is undoubtedly the best in the world…Yet the financing system does require swift legislative reform…Congress must pass and the President must sign a bill that contains health care costs and makes coverage affordable and accessible to all.”

There were a number of key reasons that might have caused lawmakers and policy advocates to appreciate some cost increases as appropriate. These included the increased availability of demonstrably improved and necessary medical technology, the  population growth, and the beginning of the aging of the population. But, in general, this view was not expressed or explored, with the rising cost of health care seen as exclusively a negative that needed to be thwarted.

And quality?

There were, of course, some voices calling for quality as well, but even those often explicitly acknowledged they were swimming against the tide. For example, in testimony to the House Education and Labor Committee on November 8, 1993, Samuel Havens, board chairman of the Group Health Association of America, said, “We want to emphasize that while much of the impetus for reform comes from the need to reduce the inordinately high rate of increase in the overall health care costs, an even greater emphasis on assuring appropriate care and on maintaining and continuously improving the quality of care will be necessary if reform efforts are to succeed.” A call for “continuously improving the quality of care” was rare indeed, the record shows.

In testimony that pointed directly to the risk posed to quality of care by a strategy that focused entirely on cost control, given before the House Committee on Ways and Means on March 21, 1995, Robert Brook, a professor of medicine and health services at the UCLA Center for the Health Sciences, said, “If we are going to contain the growth of health care costs in the United States, as most people insist we must, mechanisms that rely solely on economic and administrative principles will result in the indiscriminate elimination of care that is both beneficial and not beneficial to the patient…We must work toward ensuring that quality, not just cost and access, is considered when the structure of the health system is altered by forces such as managed care and competition.”

Consequences of cost control fever

Near-relentless focus on cost and access, said Theodore Marmor, a professor emeritus of both political science and public policy and management at the Yale School of Management, will generally “put pressure on quality.” Marmor believes a basic health care policy dictum: “If you push for any two of the following three aspirations, you put pressure on the third. That is, if you put pressure on access and on cost, you’re going to do something to quality. If you put pressure to expand quality and to increase access, you’re going to put pressure on cost. If you put pressure to get cost under control and to maintain quality, you’re going to have real pressure on access.” This rule, he said, generally holds true “for anything other than vaccinations.” According to Marmor’s rule, then, by focusing the debate of the 1990s so strongly on cost and access, the New Democrats guided the way toward pressure on quality.

The health care debate in the 1970s was different. There, Marmor said, “the scope of reform was much broader.” Democrats, led by Senator Ted Kennedy, pushed for a national health program as a means of improving cost and quality, with both factors seen as equally in need of improvement. In a speech on health care at the 1978 Democratic National Convention, Kennedy said, “One of the most shameful things about modern America is that in our unbelievably rich land, the quality of health care available to many of our people is unbelievably poor, and the cost is unbelievably high.”

According to Marmor’s rule, wouldn’t a focus on quality and cost put pressure on access? “Allocating care has got to happen,” Marmor said, “and allocating it by ability to benefit and the seriousness of the medical need is a just, in my view, way of talking about this, as distinct from allocating it by ability and willingness to pay. That’s the central philosophical issue in medical care.”

Marmor insisted that it was not possible to provide “unlimited” highest-quality care for everyone: “You cannot do all the things that are possible and live within a reasonable budget,” he said, adding in a follow-up interview that doing so was also logistically impossible.

But what about trying to identify the highest standard of care currently available, estimating the cost of delivering that care universally, and only then deciding what compromises were necessary (rather than simply starting with the judgment that current expenditure levels are the appropriate place from which to start cutting)?

Marmor acknowledged the possibility that one could “imagine extending to everybody suffering [from an] illness the quality of care that is [provided] at very good places,” and derive, at least in broad terms, the cost of doing so. He was skeptical, however, because of what he described as practical impediments to the delivery of such care on a universal basis (including the difficulty of replicating universally best-practice care now being delivered by a self-selected population of doctors to a self-selected population of patients), and did not weigh in on the question of whether cutting should precede or follow the identification of, and cost associated with, universal best practices.

Fallout and backlash

Despite the failure of the HSA as a piece of legislation, the principles behind it had an enormous impact on American health care. Its ideas — and the bipartisan acceptance of those ideas — sent a signal to the fo
r-profit health insurance industry that no one would stop a scramble for profit, and scramble they did.

Hellander, noting that previous Democratic administrations had consistently aimed at creating a national health program, said, “That’s what capital and business and everyone thought was eventually going to happen, so they weren’t going to invest too much money in the health sector as a for-profit industry. Health insurance at that point was still mostly not-for-profit,” despite the steady growth of the for-profit sector over the previous two decades.

“Once it became clear that they [the New Democrats] were on the side of big business,” she said, “there was an all-out rush of insurance companies to merge…There were a lot of billionaires made during that period. Before that we’d seen people get rich in medicine, they’d have a few million dollars, but we’d never seen the creation of these billionaires.”

During this same period, the percentage of American workers in some form of managed care plan exploded — from 27 percent in 1988 to 90 percent in 1999 — primarily because employers favored them as a means of cost control. Managed care transformed from a niche market that catered largely to self-selecting enrollees into the primary way that Americans received medical care. “We got the market reorganization without the superstructure of public law and regulation,” PPI’s Marshall said, referring to the fallout from the New Democrats’ support of a market-based system, combined with the failure to pass the HSA.

This was most Americans’ first taste of managed care, and many found it bitter. The result was what is often called “the managed care backlash,” a period in which newspapers filled with horror stories about patients being denied care by their HMOs, or made to jump through so many hoops that when care finally came, it was at a grave cost. A 1996 op-ed column by Bob Herbert in The New York Times that excoriated a North Carolina HMO for forcing a three-month-old girl with leukemia to receive treatment in a different state for several months, away from her family, is a typical example.

Of course, not every managed care enrollee had to deal with denials of service. Enough did, however, and enough newspapers reported about such cases that in a 1997-1998 survey of consumer satisfaction, only tobacco companies were seen as providing worse service than managed care companies and health insurance companies. Banks and oil companies both received higher satisfaction ratings.

Though demands for more access remained a resonant political theme, and ultimately resulted in the increases in access promised by the ACA, demands for improving the “gold standard” of care have not been heard in force for 20 years. Indeed, rather than engaging in a process of first determining what the gold standard is, then making that standard of care available to all (in other words, the provision of care that would be “the envy of the world”), the ACA adopted a very different concept: it speaks in the language of “minimum essential benefits,” with each state being able to define that standard by matching it to the level of coverage currently provided by one of the largest health insurers or managed care organizations in the state (as long as certain broad categories of coverage are met).

SIDEBARS

Cost control Über alles

This is the second in a series of articles examining the phenomenon by which health care policy has come to be dominated by a single-minded desire for cost control, while concerns about maximizing the quality of care have been downgraded or ignored entirely.

The first article in the series described the origins of the Health Maintenance Organization (HMO) model, the modern incarnations of that model, and the evolution of HMOs into the vehicles through which a for-profit health insurance industry came to dominate the market by the 1990s.

This article describes the crucial role that the Clinton-era “New Democrats” — played in promoting the view that the principal problem to be addressed was cost control, and that the best and only solution to providing health care was through a for-profit, market-based system of insurance (albeit a regulated one), not a single-payer or not-for-profit HMO model.

— Editor

What motivated the New Democrats on health care?

Will Marshall said the PPI’s approach to health care policy was based on “the failure to achieve universal coverage after eight decades of agitation around that on the progressive end…We were trying to figure out how to get the goal of universal coverage in a new way, since the old ways didn’t seem to be yielding any progress.”

Chris Jennings, one of President Clinton’s primary health care advisors and a congressional liaison for Hillary Clinton, told Remapping Debate, “The motivator was [that] they wanted to have a successful effort to pass and enact legislation, and they felt that single payer was never going to pass.”

And Theodore Marmor, the Yale professor emeritus, said that some New Democrats “were advancing these [ideas] not because they thought this was the best way to go, but because they thought the institutions of American government made it so easy to block things that the only way you could do anything would be to provide a conception of health reform…that could draw Republican votes.”

But Dr. Ida Hellander rejected the idea that New Democrats were just seeking a practical way to achieve greater access to and affordability in health care: “The New Democrats were all about an alliance between Democrats and business…They were looking for a way to regain power, and they figured that moving to the right a whole lot was the way to do it.”

Were the New Democrats “all about” such an alliance? Marshall denied it, but in language remarkably similar to that used by those who are pro-business: the New Democrats, he said, had a “pro-growth agenda,” were “pro-market,” and tried to create policy solutions “that went with the grain of market logic.”

According to Marmor, some New Democrats did indeed have “a faith in market instruments, if not markets, that was practically theological in their fundamental orientation.” Marmor said Alain Enthoven, an economist formerly associated with the RAND Corporation (not himself a New Democrat), was the “quintessential example” of the beliefs of this faction.

When asked where the PPI got its ideas for health care reform, Will Marshall cited the work of Alain Enthoven.

http://www.remappingdebate.org/article/role-new-democrats-explosion-managed-care

Setting the record straight on Medicare’s overhead costs

Traditional Medicare’s administrative costs were only 1% in 2010, but if you roll in the private insurers’ Medicare plans, that figure jumps to 6%, says new study

FOR IMMEDIATE RELEASE, Feb. 20, 2013
Contact: Mark Almberg, communications director PNHP,  (312) 782-6006, mark@pnhp.org

The traditional Medicare program allocates only 1 percent of total spending to overhead compared with 6 percent when the privatized portion of Medicare, known as Medicare Advantage, is included, according to a study in the June 2013 issue of the Journal of Health Politics, Policy and Law.

The 1 percent figure includes all types of non-medical spending by the Centers for Medicare and Medicaid Services plus other federal agencies, such as the IRS, that support the Medicare program, and is based on data contained in the latest report of the Medicare trustees. The 6 percent figure, on the other hand, is based on data contained in the latest National Health Expenditure Accounts (NHEA) report.

The journal article, written by Minneapolis-based researcher Kip Sullivan, finds that the gap between the two measures has been growing over the last two decades as enrollment in private Medicare plans has risen.

“The high administrative costs of the privatized portion of Medicare are no surprise,” says Sullivan. “What’s surprising is that the high administrative costs of the Medicare private insurance companies haven’t provoked a debate about whether spending more money on insurance industry overhead is a good use of scarce tax revenues.”

According to Sullivan, the low attention given to this issue is caused in part by confusion about Medicare’s overhead costs.

“The confusion is due partly to the existence of two government reports,” says Sullivan, “and partly to claims by critics of Medicare that the government fails to report all of Medicare’s overhead costs.” The paper addresses both sources of confusion.

The article explains the difference between the yardstick used by the trustees and the one used by the NHEA and concludes both are accurate. The trustees’ measure counts as overhead only those administrative expenditures that support the traditional fee-for-service Medicare program, in which approximately three-fourths of all Medicare beneficiaries are enrolled. The NHEA measure takes the trustees’ measure and adds to it the overhead of insurance companies that participate in Medicare Advantage and that sell stand-alone Part D drug coverage.

“The issue isn’t whether one yardstick is more accurate than the other,” Sullivan explains. “The issue is when it’s appropriate to use one measure instead of the other.”

The 1 percent figure is the one that should be used to analyze several hotly debated health reform issues, including whether to expand traditional Medicare to all Americans and whether to turn Medicare over to the insurance industry, either by expanding the Medicare Advantage program of by converting Medicare to a voucher program as Rep. Paul Ryan has proposed.

“Total spending for any type of insurer, public or private, consists of medical and administrative expenditures,” explains Sullivan. “If you want to know whether Medicare would cost more or less if it were turned over to insurance companies, you first have to determine what Medicare spends on medical care and administration and you have to do the same for the health insurance industry.”

The proper yardstick to use to measure Medicare’s overhead in analyses of issues such as these would be the trustees’ measure – 1 percent. The average overhead of the health insurance industry is approximately 20 percent, he said.

The large difference between traditional Medicare’s overhead and that of the insurance industry has caused some conservative critics of Medicare to assert that the federal government is ignoring numerous administrative expenditures incurred by various federal agencies that should be attributed to Medicare.

Sullivan’s paper, “How to think clearly about Medicare administrative costs: Data sources and measurement,” describes this criticism as the second major source of confusion about Medicare’s overhead. Sullivan’s study reports that the 1 percent figure includes all appropriate administrative expenses incurred on Medicare’s behalf, including those by the IRS, the Social Security Administration, and the FBI, as well as the cost of numerous pilot projects that Congress orders CMS to conduct.

Sullivan’s notes that many liberals are also confused about what Medicare’s overhead costs are. “With so much confusion on both sides of the political spectrum, it’s fair to say a useful debate about whether to expand or contract the traditional Medicare program has yet to take place in this country,” he said.

Sullivan is a lawyer and member of the Minnesota chapter of Physicians for a National Health Program, which had no role in funding the study.

“How to think clearly about Medicare administrative costs: Data sources and measurement,” Kip Sullivan, J.D., Journal of Health Politics, Policy and Law, Vol. 38, No. 3, June 2013. Advance version published online Feb. 15, 2013. DOI 10.1215/03616878-2079523

Physicians for a National Health Program (www.pnhp.org) is a research and education organization of more than 18,000 doctors who advocate for single-payer national health insurance. PNHP had no role in funding the study mentioned above. To speak with a physician/spokesperson in your area, visit www.pnhp.org/stateactions or call (312) 622-0996.

Important: What are Medicare's true administrative costs?

How to Think Clearly about Medicare Administrative Costs: Data Sources and Measurement

By Kip Sullivan
Journal of Health Politics, Policy and Law, February 15, 2013

Abstract

The Centers for Medicare and Medicaid Services (CMS) annually publishes two measures of Medicare’s administrative expenditures. One of these appears in the reports of the Medicare Boards of Trustees and the other in the National Health Expenditure Accounts (NHEA). The latest trustees’ report indicates Medicare’s administrative expenditures are 1 percent of total Medicare spending, while the latest NHEA indicates the figure is 6 percent. The debate about Medicare’s administrative expenditures, which emerged several years ago, reflects widespread confusion about these data. Critics of Medicare argue that the official reports on Medicare’s overhead ignore or hide numerous types of administrative spending, such as the cost of collecting taxes and Part B premiums. Defenders of Medicare claim the official statistics are accurate. But participants on both sides of this debate fail to cite the official documents and do not analyze CMS’s methodology. This article examines controversy over the methodology CMS uses to calculate the trustees’ and NHEA’s measures and the sources of confusion and ignorance about them. It concludes with a discussion of how the two measures should be used.

Two Official Yardsticks
 
Medicare’s administrative costs were $8 billion in 2011, or 1.4 percent of total Medicare spending of $549 billion that year. Those figures come from the latest annual report of the Medicare trustees, prepared by OACT (Office of the Actuary within the Centers for Medicare and Medicaid Services). As I document below, the $8 billion includes costs incurred directly by CMS (notably, the salaries of CMS staff and payments to insurance companies to process claims) as well as costs incurred by other federal agencies on Medicare’s behalf (e.g., tax collection services provided by the Internal Revenue Service, Part B premium collection services provided by the Social Security Administration and the Railroad Retirement Board, and fraud prevention services provided by the Federal Bureau of Investigation).

The latest NHEA, also prepared by OACT, is for 2010. According to it, Medicare’s overhead totaled $31 billion that year, far more than the $7 billion reported by the trustees for 2010. That $31 billion constituted 6 percent of total Medicare spending in 20102 — much higher than the 1 percent rate reported for that year by the trustees. The difference between the trustees’ measure of overhead and the NHEA measure is due almost entirely to the fact that the NHEA defines Medicare’s overhead to include not only the $7 billion in administrative expenditures reported by the trustees for 2010 but also the $24 billion in administrative expenditures incurred by the insurance companies that participate in Parts C and D.

Selecting the Right Yardstick

The NHEA measure tracked the trustees’ measure quite closely for the first twenty years of Medicare’s existence. But since the mid- 1980s, which is when the percentage of Medicare beneficiaries insured by insurance companies began to rise beyond the negligible levels of the 1970s, the NHEA measure of Medicare’s overhead has risen dramatically while the trustees’ measure has continued to decline. As of 2010, the latest year for which data from both measures are available, the NHEA measure was 4.5 times larger than the trustees’ measure — 5.9 versus 1.3. This enormous disparity between two measures that used to be almost identical should long ago have triggered inquiries within Congress and the US health policy community as to whether the higher administrative costs associated with the growing privatization of Medicare are justified.

http://jhppl.dukejournals.org/content/early/2013/02/11/03616878-2079523.abstract

Comment:

By Don McCanne, M.D.

In his article, Kip Sullivan has finally laid to rest the distortions and obfuscations of those who contend that Medicare’s administrative costs are much higher than commonly cited percentages – 1.4 percent in 2011. Not only has he shown that the other government costs that allegedly were left out are actually included, but he has also shown that the other official measure of Medicare’s administrative costs shows how much more it is costing us to fund the administrative excesses of the private Medicare Advantage and Part D drug programs – an egregiously wasteful use of our Medicare funds.

Quoting Sullivan, “This enormous disparity between two measures that used to be almost identical should long ago have triggered inquiries within Congress and the US health policy community as to whether the higher administrative costs associated with the growing privatization of Medicare are justified.”

It should also have triggered the question: Why haven’t we yet enacted an improved Medicare for everyone?

Important: What are Medicare's true administrative costs?

How to Think Clearly about Medicare Administrative Costs: Data Sources and Measurement

By Kip Sullivan
Journal of Health Politics, Policy and Law, February 15, 2013
Abstract
The Centers for Medicare and Medicaid Services (CMS) annually publishes two measures of Medicare’s administrative expenditures. One of these appears in the reports of the Medicare Boards of Trustees and the other in the National Health Expenditure Accounts (NHEA). The latest trustees’ report indicates Medicare’s administrative expenditures are 1 percent of total Medicare spending, while the latest NHEA indicates the figure is 6 percent. The debate about Medicare’s administrative expenditures, which emerged several years ago, reflects widespread confusion about these data. Critics of Medicare argue that the official reports on Medicare’s overhead ignore or hide numerous types of administrative spending, such as the cost of collecting taxes and Part B premiums. Defenders of Medicare claim the official statistics are accurate. But participants on both sides of this debate fail to cite the official documents and do not analyze CMS’s methodology. This article examines controversy over the methodology CMS uses to calculate the trustees’ and NHEA’s measures and the sources of confusion and ignorance about them. It concludes with a discussion of how the two measures should be used.
Two Official Yardsticks
Medicare’s administrative costs were $8 billion in 2011, or 1.4 percent of total Medicare spending of $549 billion that year. Those figures come from the latest annual report of the Medicare trustees, prepared by OACT (Office of the Actuary within the Centers for Medicare and Medicaid Services). As I document below, the $8 billion includes costs incurred directly by CMS (notably, the salaries of CMS staff and payments to insurance companies to process claims) as well as costs incurred by other federal agencies on Medicare’s behalf (e.g., tax collection services provided by the Internal Revenue Service, Part B premium collection services provided by the Social Security Administration and the Railroad Retirement Board, and fraud prevention services provided by the Federal Bureau of Investigation).
The latest NHEA, also prepared by OACT, is for 2010. According to it, Medicare’s overhead totaled $31 billion that year, far more than the $7 billion reported by the trustees for 2010. That $31 billion constituted 6 percent of total Medicare spending in 20102 — much higher than the 1 percent rate reported for that year by the trustees. The difference between the trustees’ measure of overhead and the NHEA measure is due almost entirely to the fact that the NHEA defines Medicare’s overhead to include not only the $7 billion in administrative expenditures reported by the trustees for 2010 but also the $24 billion in administrative expenditures incurred by the insurance companies that participate in Parts C and D.
Selecting the Right Yardstick
The NHEA measure tracked the trustees’ measure quite closely for the first twenty years of Medicare’s existence. But since the mid- 1980s, which is when the percentage of Medicare beneficiaries insured by insurance companies began to rise beyond the negligible levels of the 1970s, the NHEA measure of Medicare’s overhead has risen dramatically while the trustees’ measure has continued to decline. As of 2010, the latest year for which data from both measures are available, the NHEA measure was 4.5 times larger than the trustees’ measure — 5.9 versus 1.3. This enormous disparity between two measures that used to be almost identical should long ago have triggered inquiries within Congress and the US health policy community as to whether the higher administrative costs associated with the growing privatization of Medicare are justified.
http://jhppl.dukejournals.org/content/early/2013/02/11/03616878-2079523….

In his article, Kip Sullivan has finally laid to rest the distortions and obfuscations of those who contend that Medicare’s administrative costs are much higher than commonly cited percentages – 1.4 percent in 2011. Not only has he shown that the other government costs that allegedly were left out are actually included, but he has also shown that the other official measure of Medicare’s administrative costs shows how much more it is costing us to fund the administrative excesses of the private Medicare Advantage and Part D drug programs – an egregiously wasteful use of our Medicare funds.
Quoting Sullivan, “This enormous disparity between two measures that used to be almost identical should long ago have triggered inquiries within Congress and the US health policy community as to whether the higher administrative costs associated with the growing privatization of Medicare are justified.”
It should also have triggered the question: Why haven’t we yet enacted an improved Medicare for everyone?