Big Firms Overhaul Health Coverage

By Anna Wilde Mathews
The Wall Street Journal, September 26, 2012
Two big employers are planning a radical change in the way they provide health benefits to their workers, giving employees a fixed sum of money and allowing them to choose their medical coverage and insurer from an online marketplace.
Sears Holdings Corp. and Darden Restaurants Inc. say the change isn’t designed to make workers pay a higher share of health-coverage costs. Instead they say it is supposed to put more control over health benefits in the hands of employees.
The approach will be closely watched by firms around the U.S. If it eventually takes hold widely, it might parallel the transition from company-provided pensions to 401(k) retirement-savings plans controlled by workers and funded partly by employer contributions. For employees, the concern will be that they could end up more directly exposed to the upward march of health costs.
“It’s a fundamental change…the employer is saying, ‘Here’s a pot of money, go shop,’ ” said Paul Fronstin, director of health research at the Employee Benefit Research Institute, a nonprofit. The worry for employees is that “the money may not be sufficient and it may not keep up with premium inflation.”
Darden did say that employees will pay the same contribution out of their own pockets that they currently do for approximately the same level of coverage. Employees who pick more expensive coverage will pay more from their paychecks to make up the gap. Those who opt for cheaper insurance, which may involve bigger deductibles or more limited networks of doctors and hospitals, will pay less.
“It puts the choice in the employee’s hands to buy up or buy down,” said Danielle Kirgan, a senior vice president at Darden. The owner of chains including Olive Garden and Red Lobster will let its approximately 45,000 full-time employees choose the new coverage in November, to kick in Jan. 1. Darden says that employees with families to cover will be given more money to buy insurance than employees covering just themselves.
The hope is that insurers will compete more vigorously to get workers to sign up, which will lower overall health-care costs. Darden and Sears are both currently self-insured, meaning that the cost of claims each year comes out of company coffers.
Several big benefits consultants and health insurers are betting on the employee-choice model. Major consulting firm Aon Hewitt, a unit of Aon PLC, is behind the insurance exchange that Sears and Darden will use, while rival Towers Watson TW & Co. in May bought Extend Health Inc., an online marketplace used by employers to hook retirees up with Medicare coverage. It plans to expand the marketplace to include active workers buying individual plans, starting in 2014.
“Within the next two or three years, it’s going to be mainstream,” said Ken Goulet, executive vice president at WellPoint Inc. The insurer will roll out a product next year called Anthem Health Marketplace that lets employers offer a variety of its plans to workers, paired with a fixed contribution. Mr. Goulet said it is close to signing up more than 30 midsize and large employers for early next year, including one with more than 50,000 workers.
Exchange operators today say they offer employers more predictable costs, as well as potential savings gleaned from workers’ voluntary choice of skinnier coverage and competition among insurers offering plans on the exchanges.
http://online.wsj.com/article/SB10000872396390444549204578020640220260374.html

Many larger employers have said that they do not want to be the first to initiate major structural reforms in their employee health benefit programs – reforms that would bring the employers relief but at a cost to their employees – but that they would quickly follow others out the door. It looks like the door has opened.
This is a very fundamental change in employee health benefit coverage. The Affordable Care Act relies heavily on self-insured large employers maintaining their coverage of a large percentage on America’s workforce, so that the Act can concentrate on lower-income and uninsured individuals. Under the radical change described in this WSJ article, employers will discontinue their self-insured programs and switch to a defined contribution – a specific dollar amount that employees will use to shop for health plans in these employer insurance exchanges.
There has been considerable discussion recently over converting Medicare to a defined contribution – premium support or voucher program – in which the costs to the government would be fixed to some index of inflation, whereas the greater increases in health care costs would be borne by the Medicare beneficiary. Thus health care would become less and less affordable, especially for those with greater health care needs.
With this move by employers, they are putting in place the same perverse defined contribution approach which we have determined would be so destructive to our Medicare program. And, oh yes, the benefits consultants and health insurers are jumping in to draw off even more health care funds in administrative costs – already one of the greatest burdens in our health care system. The executive vice president of WellPoint says, “Within the next two or three years, it’s going to be mainstream.”
Further, as was reported in yesterday’s Quote of the Day, over 90 percent of individuals do not select the Medicare Part D drug plan that would be best in their individual circumstances. It shows that health insurance shoppers really do not know how to shop for health insurance. Obviously comprehensive health plans are much more complex, and it would be virtually impossible for individuals to select the best plan, even with the language of simplified plan descriptions called for in the Affordable Care Act.
In fact, several studies have shown that most individuals select plans based primarily on the lowest net premium, with very little attention paid to plan benefits and cost sharing. The most common strategy for insurers to keep premiums low is to use large deductibles and coinsurance, though they also manipulate benefits and provider networks to reduce costs. Besides the increasing deductibles, coinsurance is particularly a problem since it is a percentage of the charges rather than a dollar copayment which is usually much smaller. Low premium plans tend to set coinsurance rates at very high percentages. As this article states, the savings will be dependent upon “workers’ voluntary choice of skinnier coverage.” It’s all the workers’ fault!
It is likely that the initial defined contributions will be fairly close to the amounts that employers are currently paying for the health benefit programs, so the immediate impact will not be transparent. Only after many employees face bankrupting medical debt – a phenomenon that will increase as the employer contribution buys ever less insurance – will the implications be clear. It is tragic that so many will have to experience financial hardship before we are ready to get serious about fixing our system by enacting an improved Medicare for everyone.

By Florian Heiss, Adam Leive, Daniel McFadden, Joachim Winter
The National Bureau of Economic Researchm June 2012

From the NBER Digest:

Fewer than 10 percent of individuals enroll in what for them would be the most cost-effective plans.

In Plan Selection in Medicare Part D: Evidence from Administrative Data (NBER Working Paper No. 18166), co-authors Florian Heiss, Adam Leive, Daniel McFadden, and Joachim Winter analyze data on medical claims in Medicare Part D drug insurance programs. They find that fewer than 10 percent of individuals enroll in what for them would be the most cost-effective plans. This is apparently because seniors pay more attention to their out-of-pocket premiums than to the overall benefits of the dozens of drug plans available to them. Equally significant, the researchers believe that how seniors decide whether to enroll in Medicare Part D, and what plans they select, is important not only for management of the Part D program, but also is indicative of how consumers behave in real-world decision situations with a complex, ambiguous structure and high stakes. The researchers add that their findings may yield predictions for how seniors will handle plan choices in the new general health insurance exchanges that will implement the Patient Protection and Affordable Care Act of 2010.

http://www.nber.org/digest/oct12/w18166.html

NBER Working Paper No. 18166 (47 pages):
http://www.nber.org/papers/w18166.pdf

Comment:

By Don McCanne, MD

If over 90 percent of purchasers of the Medicare Part D drug plans fail to choose the plans that are best for themselves, then how could we ever expect them to make wise decisions in selecting the best plans from the much more complex plans of the state health insurance exchanges, or, for that matter, from the choice of Medicare Advantage plans or the plan choices to be offered in the proposed premium support (voucher) markets?

The last sentence from “Conclusions” in their paper: “Our results then do not support the proposition that consumers can make and benefit from good choices in private health insurance markets, and direct health care resources to their best use.”

This is really important. Inserting very expensive, profoundly wasteful insurer administrative intermediaries into the system under the guise of choice – choices that cannot be made on a rational basis, choices that are all worse than a single, comprehensive publicly-administered plan would be – is the ultimate of reckless decisions made by the policy community and the politicians that they work for.

Let’s improve Medicare by eliminating the Part D and Medicare Advantage intermediaries and folding an improved version of those benefits into the traditional Medicare program, and then provide it to everyone. It would be cheaper overall and would open up our choices to the choices we really want – that of our health care professionals and institutions. That would be far better than this nonsense of choosing from all the wrong choices.

Plan Selection in Medicare Part D: Evidence from Administrative Data

By Florian Heiss, Adam Leive, Daniel McFadden, Joachim Winter
The National Bureau of Economic Researchm June 2012
From the NBER Digest:
Fewer than 10 percent of individuals enroll in what for them would be the most cost-effective plans.
In Plan Selection in Medicare Part D: Evidence from Administrative Data (NBER Working Paper No. 18166), co-authors Florian Heiss, Adam Leive, Daniel McFadden, and Joachim Winter analyze data on medical claims in Medicare Part D drug insurance programs. They find that fewer than 10 percent of individuals enroll in what for them would be the most cost-effective plans. This is apparently because seniors pay more attention to their out-of-pocket premiums than to the overall benefits of the dozens of drug plans available to them. Equally significant, the researchers believe that how seniors decide whether to enroll in Medicare Part D, and what plans they select, is important not only for management of the Part D program, but also is indicative of how consumers behave in real-world decision situations with a complex, ambiguous structure and high stakes. The researchers add that their findings may yield predictions for how seniors will handle plan choices in the new general health insurance exchanges that will implement the Patient Protection and Affordable Care Act of 2010.
http://www.nber.org/digest/oct12/w18166.html
NBER Working Paper No. 18166 (47 pages):
http://www.nber.org/papers/w18166.pdf

If over 90 percent of purchasers of the Medicare Part D drug plans fail to choose the plans that are best for themselves, then how could we ever expect them to make wise decisions in selecting the best plans from the much more complex plans of the state health insurance exchanges, or, for that matter, from the choice of Medicare Advantage plans or the plan choices to be offered in the proposed premium support (voucher) markets?
The last sentence from “Conclusions” in their paper: “Our results then do not support the proposition that consumers can make and benefit from good choices in private health insurance markets, and direct health care resources to their best use.”
This is really important. Inserting very expensive, profoundly wasteful insurer administrative intermediaries into the system under the guise of choice – choices that cannot be made on a rational basis, choices that are all worse than a single, comprehensive publicly-administered plan would be – is the ultimate of reckless decisions made by the policy community and the politicians that they work for.
Let’s improve Medicare by eliminating the Part D and Medicare Advantage intermediaries and folding an improved version of those benefits into the traditional Medicare program, and then provide it to everyone. It would be cheaper overall and would open up our choices to the choices we really want – that of our health care professionals and institutions. That would be far better than this nonsense of choosing from all the wrong choices.

By Ezekiel J. Emanuel, Neera Tanden and Donald Berwick
The Wall Street Journal, September 24, 2012

Conservative and liberal health-policy experts agree that the key to sustainable cost control lies in encouraging physicians and hospitals to focus on quality rather than quantity, and value rather than volume.

According to a study published in August in the New England Journal of Medicine, over the past decade per-person costs in Medicare have increased less than those of private insurance, and are projected to be 1.2 percentage points lower than those of private insurance per year over the next decade.

Why should anyone believe that the Affordable Care Act and our new proposals will actually control costs? After all, skeptics argue, Medicare costs have increased inexorably despite myriad policies designed to control them. But we propose a break from the past, which has largely relied on the government’s setting of payments. Our alternative is to allow the market to set many prices for medical goods and then to change payment and reimbursement methods so that physicians and hospitals have the incentive to keep patients healthy. This is neither government nor insurer rationing. It is a market-friendly approach that empowers health providers to re-engineer how they care for patients.

http://online.wsj.com/article/SB10000872396390444017504577645193107383610.html?mod=googlenews_wsj

And…

Health Care Cost and Utilization Report:  2011

Health Care Cost Institute (HCCI)
September 2012

For 2011, HCCI found increases in prices were the primary cause of increased health care spending for the privately insured younger than 65 and covered by ESI (employer-sponsored insurance).

The rate of price growth for all major services outpaced changes in utilization. The primary cause of increased prices was growth in unit prices.

http://www.healthcostinstitute.org/files/HCCI_HCCUR2011.pdf

Comment: 

By Don McCanne, MD

The authors of this Wall Street Journal opinion article have participated in the development and implementation of the Democrats’ Affordable Care Act. Increases in prices continue to be a primary cause of increases in health care spending, so what do these authors recommend? “Our alternative is to allow the market to set many prices for medical goods and then to change payment and reimbursement methods so that physicians and hospitals have the incentive to keep patients healthy.”

Health care prices remain a problem. The health care market, such as it is, always has set prices high and will continue to do so. Utilization is not excessive. It is comparable to other nations with far lower total spending. Incentives designed to reduce utilization risk impairing access to appropriate care, thereby impairing quality.

It is futile to continue to pretend that market approaches within our highly dysfunctional financing system – that perpetuated by the Affordable Care Act – will ever bring us quality health care at a reasonable cost. Allowing the market to set prices is utter nonsense. Our own public stewards, working with the health care delivery system, can price our health care services and products properly, providing that they are allowed to function as a single payer monopsony (not to mention all of the other benefits of single payer financing).

We don’t need more market-friendly Democrats. We need patient-friendly politicians, though they are a rare sighting these days.

The Democrats’ Market-Friendly Health-Care Alternative

By Ezekiel J. Emanuel, Neera Tanden and Donald Berwick
The Wall Street Journal, September 24, 2012

Conservative and liberal health-policy experts agree that the key to sustainable cost control lies in encouraging physicians and hospitals to focus on quality rather than quantity, and value rather than volume.

According to a study published in August in the New England Journal of Medicine, over the past decade per-person costs in Medicare have increased less than those of private insurance, and are projected to be 1.2 percentage points lower than those of private insurance per year over the next decade.

Why should anyone believe that the Affordable Care Act and our new proposals will actually control costs? After all, skeptics argue, Medicare costs have increased inexorably despite myriad policies designed to control them. But we propose a break from the past, which has largely relied on the government’s setting of payments. Our alternative is to allow the market to set many prices for medical goods and then to change payment and reimbursement methods so that physicians and hospitals have the incentive to keep patients healthy. This is neither government nor insurer rationing. It is a market-friendly approach that empowers health providers to re-engineer how they care for patients.

http://online.wsj.com/article/SB10000872396390444017504577645193107383610.html?mod=googlenews_wsj

And…

Health Care Cost and Utilization Report:  2011

Health Care Cost Institute (HCCI)
September 2012

For 2011, HCCI found increases in prices were the primary cause of increased health care spending for the privately insured younger than 65 and covered by ESI (employer-sponsored insurance).

The rate of price growth for all major services outpaced changes in utilization. The primary cause of increased prices was growth in unit prices.

http://www.healthcostinstitute.org/files/HCCI_HCCUR2011.pdf

Comment: 

By Don McCanne, MD

The authors of this Wall Street Journal opinion article have participated in the development and implementation of the Democrats’ Affordable Care Act. Increases in prices continue to be a primary cause of increases in health care spending, so what do these authors recommend? “Our alternative is to allow the market to set many prices for medical goods and then to change payment and reimbursement methods so that physicians and hospitals have the incentive to keep patients healthy.”

Health care prices remain a problem. The health care market, such as it is, always has set prices high and will continue to do so. Utilization is not excessive. It is comparable to other nations with far lower total spending. Incentives designed to reduce utilization risk impairing access to appropriate care, thereby impairing quality.

It is futile to continue to pretend that market approaches within our highly dysfunctional financing system – that perpetuated by the Affordable Care Act – will ever bring us quality health care at a reasonable cost. Allowing the market to set prices is utter nonsense. Our own public stewards, working with the health care delivery system, can price our health care services and products properly, providing that they are allowed to function as a single payer monopsony (not to mention all of the other benefits of single payer financing).

We don’t need more market-friendly Democrats. We need patient-friendly politicians, though they are a rare sighting these days.

The Democrats’ Market-Friendly Health-Care Alternative

By Ezekiel J. Emanuel, Neera Tanden and Donald Berwick
The Wall Street Journal, September 24, 2012
Conservative and liberal health-policy experts agree that the key to sustainable cost control lies in encouraging physicians and hospitals to focus on quality rather than quantity, and value rather than volume.
According to a study published in August in the New England Journal of Medicine, over the past decade per-person costs in Medicare have increased less than those of private insurance, and are projected to be 1.2 percentage points lower than those of private insurance per year over the next decade.
Why should anyone believe that the Affordable Care Act and our new proposals will actually control costs? After all, skeptics argue, Medicare costs have increased inexorably despite myriad policies designed to control them. But we propose a break from the past, which has largely relied on the government’s setting of payments. Our alternative is to allow the market to set many prices for medical goods and then to change payment and reimbursement methods so that physicians and hospitals have the incentive to keep patients healthy. This is neither government nor insurer rationing. It is a market-friendly approach that empowers health providers to re-engineer how they care for patients.
http://online.wsj.com/article/SB10000872396390444017504577645193107383610.html?mod=googlenews_wsj

And…

Health Care Cost and Utilization Report:  2011

Health Care Cost Institute (HCCI)
September 2012
For 2011, HCCI found increases in prices were the primary cause of increased health care spending for the privately insured younger than 65 and covered by ESI (employer-sponsored insurance).
The rate of price growth for all major services outpaced changes in utilization. The primary cause of increased prices was growth in unit prices.
http://www.healthcostinstitute.org/files/HCCI_HCCUR2011.pdf

The authors of this Wall Street Journal opinion article have participated in the development and implementation of the Democrats’ Affordable Care Act. Increases in prices continue to be a primary cause of increases in health care spending, so what do these authors recommend? “Our alternative is to allow the market to set many prices for medical goods and then to change payment and reimbursement methods so that physicians and hospitals have the incentive to keep patients healthy.”
Health care prices remain a problem. The health care market, such as it is, always has set prices high and will continue to do so. Utilization is not excessive. It is comparable to other nations with far lower total spending. Incentives designed to reduce utilization risk impairing access to appropriate care, thereby impairing quality.
It is futile to continue to pretend that market approaches within our highly dysfunctional financing system – that perpetuated by the Affordable Care Act – will ever bring us quality health care at a reasonable cost. Allowing the market to set prices is utter nonsense. Our own public stewards, working with the health care delivery system, can price our health care services and products properly, providing that they are allowed to function as a single payer monopsony (not to mention all of the other benefits of single payer financing).
We don’t need more market-friendly Democrats. We need patient-friendly politicians, though they are a rare sighting these days.

Rep. Jesse Jackson, Jr. Forced To Sell Luxury Townhouse To Pay Medical Bills

Your Black World
September 20, 2012
In a statement released by Rep. Jesse Jackson, Jr.’s chief of staff, Rick Bryant, Rep. Jackson and his wife have made the decision to sell their townhouse in Washington D.C. to defray medical expenses Jackson has acquired for his depression and bipolar disorders. “Like millions of Americans, Congressman Jackson and Mrs. Jackson are grappling with soaring health care costs and are selling their residence to help defray costs of their obligations,” the statement read. “The congressman would like to personally thank everyone who has offered prayers on behalf of his family.” Jackson aides could not say how much, if any, of the expenses are covered under his health insurance plan.
http://www.yourblackworld.net/2012/09/black-news/rep-jesse-jackson-jr-forced-to-sell-luxury-townhouse-to-pay-medical-bills/

Those who say repeatedly that everyone should have the same health care coverage as members of Congress should check with Rep. Jesse Jackson, Jr. He is losing his Washington, D.C. townhouse because of medical bills.
Other than the statement released by his chief of staff, we don’t know any of the details, and we shouldn’t since common decency dictates that we respect his privacy.
We could speculate on the great many potential factors that might be involved as to why a member of Congress faces a financial hardship due to medical bills, but we won’t, even though many come to mind. We’ll merely state that we need a health care financing system that removes financial barriers to care – for everyone. A properly designed single payer national health program would do that.