Out-of-Pocket Spending in the Last Five Years of Life

By Amy S. Kelley, Kathleen McGarry, Sean Fahle, Samuel M. Marshall, Qingling Du and Jonathan S. Skinner
Journal of General Internal Medicine, September 5, 2012
Abstract
Background
A key objective of the Medicare program is to reduce risk of financial catastrophe due to out-of-pocket healthcare expenditures. Yet little is known about cumulative financial risks arising from out-of-pocket healthcare expenditures faced by older adults, particularly near the end of life.
Design
Using the nationally representative Health and Retirement Study (HRS) cohort, we conducted retrospective analyses of Medicare beneficiaries’ total out-of-pocket healthcare expenditures over the last 5 years of life.
Participants
We identified HRS decedents between 2002 and 2008; defined a 5 year study period using each subject’s date of death; and excluded those without Medicare coverage at the beginning of this period (n = 3,209).
Main Measures
We examined total out-of-pocket healthcare expenditures in the last 5 years of life and expenditures as a percentage of baseline household assets. We then stratified results by marital status and cause of death. All measurements were adjusted for inflation to 2008 US dollars.
Results
Average out-of-pocket expenditures in the 5 years prior to death were $38,688 for individuals and $51,030 for couples in which one spouse dies. Spending was highly skewed, with the median and 90th percentile equal to $22,885 and $89,106, respectively, for individuals, and $39,759 and $94,823, respectively, for couples. Overall, 25% of subjects’ expenditures exceeded baseline total household assets, and 43% of subjects’ spending surpassed their non-housing assets. Among those survived by a spouse, 10% exceeded total baseline assets and 24% exceeded non-housing assets. By cause of death, average spending ranged from $31,069 for gastrointestinal disease and $66,155 for Alzheimer’s disease.
Conclusion
Despite Medicare coverage, elderly households face considerable financial risk from out-of-pocket healthcare expenses at the end of life. Disease-related differences in this risk complicate efforts to anticipate or plan for health-related expenditures in the last 5 years of life.
http://www.springerlink.com/content/427m88565153p76k/

And…

Grappling With Details of Medicare Proposals

By Roni Caryn Rabin
The New York Times, September 17, 2012
The (Medicare reform) proposals keep changing, and some are short on details. No one is certain what health care costs will be in the coming years.
Still, it’s clear the proposed changes would shift costs from the federal government to retirees. “All scenarios will require seniors to pay more,” said Robert Moffit, senior fellow at the Heritage Foundation, a conservative research organization in Washington. To think otherwise, he said, “is a fantasy.”
http://well.blogs.nytimes.com/2012/09/17/grappling-with-details-of-medicare-proposals/

In spite of having Medicare coverage, out-of-pocket health care expenditures can be devastating for seniors. Current proposals to reduce government entitlement spending on Medicare would shift even more costs to our seniors.
Premium support voucher proposals for Medicare would create a defined contribution which would shift more costs to all Medicare beneficiaries, when only the wealthier could afford the increase. That won’t work.
Since many already can’t pay their current out-of-pocket costs, proposals have been advanced to index costs to income by charging higher premiums, higher cost sharing and/or reducing benefits for the wealthier. That process has already begun with Part B and Part D premiums now based on income. That risks reducing support by the politically connected affluent, which could clear the way for enactment of destructive government policies, especially if the conservatives gained control. The threat from the liberals is bad enough.
On the other hand, lower income individuals could be given support beyond that of Medicare. Again, that is already happening through the dual-eligible program for both Medicare and Medicaid. The risk is that the dual-eligible program would be considered a welfare program for the poor, and would be budgeted accordingly. That is already happening as the federal and state governments are well along in the process of herding these victims into underfunded, low quality, private Medicaid managed care programs (see https://pnhp.org/news/2012/september/herding-dual-eligibles-into-low-…).
Obviously Medicare needs a lot of improvement before we convert it into a single payer national health program. We need to go in the opposite direction from where the politicians currently are headed. Instead of slashing it under the budget hawks’ call for cutting back on entitlements, we need to expand its coverage so that it doesn’t leave anyone with the devastating out-of-pocket expenses associated with complex and prolonged medical care.
Even though more would be spent through the Medicare program (i.e., through the tax system), the efficiencies of single payer would not increase our total health care costs, and, more importantly, would slow future health care cost increases to sustainable levels. It’s not that we can’t afford to expand Medicare; it’s that we can’t afford not to.

By Stephen Soumerai and Ross Koppel
The Wall Street Journal, September 17, 2012

In two years, hundreds of thousands of American physicians and thousands of hospitals that fail to buy and install costly health-care information technologies—such as digital records for prescriptions and patient histories—will face penalties through reduced Medicare and Medicaid payments. At the same time, the government expects to pay out tens of billions of dollars in subsidies and incentives to providers who install these technology programs.

The mandate, part of the 2009 stimulus legislation, was a major goal of health-care information technology lobbyists and their allies in Congress and the White House. The lobbyists promised that these technologies would make medical administration more efficient and lower medical costs by up to $100 billion annually. Many doctors and health-care administrators are wary of such claims—a wariness based on their own experience. An extensive new study indicates that the caution is justified: The savings turn out to be chimerical.

Since 2009, almost a third of health providers, a group that ranges from small private practices to huge hospitals—have installed at least some “health IT” technology. It wasn’t cheap. For a major hospital, a full suite of technology products can cost $150 million to $200 million. Implementation—linking and integrating systems, training, data entry and the like—can raise the total bill to $1 billion.

But the software—sold by hundreds of health IT firms—is generally clunky, frustrating, user-unfriendly and inefficient.

Now, a comprehensive evaluation of the scientific literature has confirmed what many researchers suspected: The savings claimed by government agencies and vendors of health IT are little more than hype.

To conduct the study, faculty at McMaster University in Hamilton, Ontario, and its programs for assessment of technology in health—and other research centers, including in the U.S.—sifted through almost 36,000 studies of health IT. The studies included information about highly valued computerized alerts—when drugs are prescribed, for instance—to prevent drug interactions and dosage errors. From among those studies the researchers identified 31 that specifically examined the outcomes in light of the technology’s cost-savings claims.

With a few isolated exceptions, the preponderance of evidence shows that the systems had not improved health or saved money.

It is already common knowledge in the health-care industry that a central component of the proposed health IT system—the ability to share patients’ health records among doctors, hospitals and labs—has largely failed. The industry could not agree on data standards.

Instead of demanding unified standards, the government has largely left it to the vendors, who declined to cooperate, thereby ensuring years of noncommunication and noncoordination. This likely means billions of dollars for unnecessarily repeated tests and procedures, double-dosing patients and avoidable suffering.

http://online.wsj.com/article/SB10000872396390443847404577627041964831020.html?mod=googlenews_wsj

Comment:

By Don McCanne, MD

This article reinforces two points that we have made repeatedly about the application of information technology to health care: 1) The government needs to lead the process, and 2) We need to look elsewhere for means of controlling spending in health care.

Entrepreneurial approaches to health information technology are designed to make money – a lot of it. Competitors design their products to be incompatible with each other in hopes that one can dominate the market and crowd out the competitors. Public service approaches, such as the interoperable VistA system of the VA, are designed to help health care professionals give better and more coordinated care to their patients, but are not designed for profit. We already own the VistA system, and it could easily be adapted to become the national standard, at a small fraction of the costs of the private fragmented systems that are being forced on providers by the 2009 stimulus legislation.

Particularly annoying is the repeated claim that information technology and electronic records will save money. Not true. Yet the pursuit of these savings and the alleged savings from the various experiments in payment innovations found in the Affordable Care Act – which all experience to date has suggested have been and will be phantom savings – have distracted us from proceeding with reform that everyone knows would recover tremendous waste and ensure health care affordability for everyone forever – a single payer national health program, aka an improved Medicare for all.

A Major Glitch for Digitized Health-Care Records

By Stephen Soumerai and Ross Koppel
The Wall Street Journal, September 17, 2012
In two years, hundreds of thousands of American physicians and thousands of hospitals that fail to buy and install costly health-care information technologies—such as digital records for prescriptions and patient histories—will face penalties through reduced Medicare and Medicaid payments. At the same time, the government expects to pay out tens of billions of dollars in subsidies and incentives to providers who install these technology programs.
The mandate, part of the 2009 stimulus legislation, was a major goal of health-care information technology lobbyists and their allies in Congress and the White House. The lobbyists promised that these technologies would make medical administration more efficient and lower medical costs by up to $100 billion annually. Many doctors and health-care administrators are wary of such claims—a wariness based on their own experience. An extensive new study indicates that the caution is justified: The savings turn out to be chimerical.
Since 2009, almost a third of health providers, a group that ranges from small private practices to huge hospitals—have installed at least some “health IT” technology. It wasn’t cheap. For a major hospital, a full suite of technology products can cost $150 million to $200 million. Implementation—linking and integrating systems, training, data entry and the like—can raise the total bill to $1 billion.
But the software—sold by hundreds of health IT firms—is generally clunky, frustrating, user-unfriendly and inefficient.
Now, a comprehensive evaluation of the scientific literature has confirmed what many researchers suspected: The savings claimed by government agencies and vendors of health IT are little more than hype.
To conduct the study, faculty at McMaster University in Hamilton, Ontario, and its programs for assessment of technology in health—and other research centers, including in the U.S.—sifted through almost 36,000 studies of health IT. The studies included information about highly valued computerized alerts—when drugs are prescribed, for instance—to prevent drug interactions and dosage errors. From among those studies the researchers identified 31 that specifically examined the outcomes in light of the technology’s cost-savings claims.
With a few isolated exceptions, the preponderance of evidence shows that the systems had not improved health or saved money.
It is already common knowledge in the health-care industry that a central component of the proposed health IT system—the ability to share patients’ health records among doctors, hospitals and labs—has largely failed. The industry could not agree on data standards.
Instead of demanding unified standards, the government has largely left it to the vendors, who declined to cooperate, thereby ensuring years of noncommunication and noncoordination. This likely means billions of dollars for unnecessarily repeated tests and procedures, double-dosing patients and avoidable suffering.
http://online.wsj.com/article/SB10000872396390443847404577627041964831020.html?mod=googlenews_wsj

This article reinforces two points that we have made repeatedly about the application of information technology to health care: 1) The government needs to lead the process, and 2) We need to look elsewhere for means of controlling spending in health care.
Entrepreneurial approaches to health information technology are designed to make money – a lot of it. Competitors design their products to be incompatible with each other in hopes that one can dominate the market and crowd out the competitors. Public service approaches, such as the interoperable VistA system of the VA, are designed to help health care professionals give better and more coordinated care to their patients, but are not designed for profit. We already own the VistA system, and it could easily be adapted to become the national standard, at a small fraction of the costs of the private fragmented systems that are being forced on providers by the 2009 stimulus legislation.
Particularly annoying is the repeated claim that information technology and electronic records will save money. Not true. Yet the pursuit of these savings and the alleged savings from the various experiments in payment innovations found in the Affordable Care Act – which all experience to date has suggested have been and will be phantom savings – have distracted us from proceeding with reform that everyone knows would recover tremendous waste and ensure health care affordability for everyone forever – a single payer national health program, aka an improved Medicare for all.

By Gary Claxton, Matthew Rae, Nirmita Panchal, Anthony Damico, Heidi Whitmore, Kevin Kenward and Awo Osei-Anto
Health Affairs, September 2012 (online)

Health care premiums rose moderately for single and family employer-sponsored coverage this year, the 2012 annual Kaiser Family Foundation/Health Research and Educational Trust (HRET) Survey of Employer Health Benefits found.

In 2012 the average annual premium cost was $5,615 for single health coverage and $15,745 for family coverage. The average premiums were about 3 percent higher for single coverage and 4 percent higher for family coverage than in 2011. During the same period, general inflation was 2.3 percent, and wages rose by 1.7 percent.

There continue to be important differences between the health benefits offered by small and large firms. Workers at small firms (those with 3–199 workers) face higher cost sharing, including higher copayments for office visits and higher general annual deductibles for single coverage. These workers are also responsible for a larger premium contribution for family coverage than are workers at large firms (those with 200 or more workers).

Compared to workers in large firms, workers in small firms have a slightly lower average percentage contribution for single coverage but a far higher average percentage contribution for family coverage.

Workers in firms with a large share of lower-wage workers face higher contributions for family coverage than workers in firms with a small share of lower-wage workers.

The enrollment distribution varies by employer size, with preferred provider organizations being relatively more popular among large firms, and point-of-service plans and high-deductible plans with a savings option being relatively more popular among small firms. 

Looking across all plan types, 49 percent of workers in small firms and 26 percent of workers in large firms are in a plan with a general annual deductible of at least $1,000.

The largest firms are much more likely than the smallest firms to offer health benefits: Virtually all firms with more than 5,000 workers offer benefits to at least some of their employees, whereas only half of firms with 3–9 workers do so. Firms with a smaller percentage of lower-income workers are more likely to offer coverage than firms with a larger percentage of those workers.

An employer-sponsored health plan can be grandfathered if it provided coverage to a worker when the act became law and if the plan does not make major changes that reduce benefits or increase employee costs.

From the Conclusion

There are important differences between the health plans being offered at small firms and those offered at large firms. Although the average family premium is lower at small firms than at large firms, workers at small firms are often responsible for paying a larger share of the premium than workers in large firms. Also, workers at small firms typically face higher cost sharing and out-of-pocket maximums—which means that in addition to higher premium contributions, they are also left with a higher financial burden when using services.

http://content.healthaffairs.org/content/early/2012/09/07/hlthaff.2012.0708.abstract

Comment:  

By Don McCanne, MD

The Affordable Care Act was designed to perpetuate as much as possible enrollment in employer-sponsored plans. This study demonstrates that lower-income workers face greater out-of-pocket costs through a higher share of premiums and through greater deductibles and other cost sharing, especially if they are employed by a small firm. Private employer-sponsored plans do not serve well the needs of workers with lower incomes.

An improved Medicare for everyone would resolve these differences.

Health Benefits In 2012: Moderate Premium Increases For Employer-Sponsored Plans; Young Adults Gained Coverage Under ACA

By Gary Claxton, Matthew Rae, Nirmita Panchal, Anthony Damico, Heidi Whitmore, Kevin Kenward and Awo Osei-Anto
Health Affairs, September 2012 (online)
Health care premiums rose moderately for single and family employer-sponsored coverage this year, the 2012 annual Kaiser Family Foundation/Health Research and Educational Trust (HRET) Survey of Employer Health Benefits found.
In 2012 the average annual premium cost was $5,615 for single health coverage and $15,745 for family coverage. The average premiums were about 3 percent higher for single coverage and 4 percent higher for family coverage than in 2011. During the same period, general inflation was 2.3 percent, and wages rose by 1.7 percent.
There continue to be important differences between the health benefits offered by small and large firms. Workers at small firms (those with 3–199 workers) face higher cost sharing, including higher copayments for office visits and higher general annual deductibles for single coverage. These workers are also responsible for a larger premium contribution for family coverage than are workers at large firms (those with 200 or more workers).
Compared to workers in large firms, workers in small firms have a slightly lower average percentage contribution for single coverage but a far higher average percentage contribution for family coverage.
Workers in firms with a large share of lower-wage workers face higher contributions for family coverage than workers in firms with a small share of lower-wage workers.
The enrollment distribution varies by employer size, with preferred provider organizations being relatively more popular among large firms, and point-of-service plans and high-deductible plans with a savings option being relatively more popular among small firms.
Looking across all plan types, 49 percent of workers in small firms and 26 percent of workers in large firms are in a plan with a general annual deductible of at least $1,000.
The largest firms are much more likely than the smallest firms to offer health benefits: Virtually all firms with more than 5,000 workers offer benefits to at least some of their employees, whereas only half of firms with 3–9 workers do so. Firms with a smaller percentage of lower-income workers are more likely to offer coverage than firms with a larger percentage of those workers.
An employer-sponsored health plan can be grandfathered if it provided coverage to a worker when the act became law and if the plan does not make major changes that reduce benefits or increase employee costs.
From the Conclusion
There are important differences between the health plans being offered at small firms and those offered at large firms. Although the average family premium is lower at small firms than at large firms, workers at small firms are often responsible for paying a larger share of the premium than workers in large firms. Also, workers at small firms typically face higher cost sharing and out-of-pocket maximums—which means that in addition to higher premium contributions, they are also left with a higher financial burden when using services.
http://content.healthaffairs.org/content/early/2012/09/07/hlthaff.2012.0708.abstract

The Affordable Care Act was designed to perpetuate as much as possible enrollment in employer-sponsored plans. This study demonstrates that lower-income workers face greater out-of-pocket costs through a higher share of premiums and through greater deductibles and other cost sharing, especially if they are employed by a small firm. Private employer-sponsored plans do not serve well the needs of workers with lower incomes.
An improved Medicare for everyone would resolve these differences.

Testimony by Daniel T. Durham, Executive Vice President, Policy and Regulatory Affairs, America’s Health Insurance Plans (AHIP)
House Ways and Means Committee, Subcommittee on Health, September 12, 2012

Minimum Coverage Requirements 
 
Beginning in 2014, the ACA will require health plans to provide coverage for an essential health benefits (EHB) package covering a broad range of mandated benefits, some of which are not typically included in individual and small group policies today. The ACA further requires that coverage sold through the exchanges must be at one of four actuarial value levels: 60% (bronze); 70% (silver); 80% (gold); and 90% (platinum). As a result of these provisions, millions of people may be forced to purchase health insurance that is more comprehensive – and more expensive – than they currently have.
 
We believe that the EHB package must be affordable for families and small businesses and that affordability should be the cornerstone of consideration in defining the EHB package. The nonpartisan Institute of Medicine – in its recommendations to HHS – underscored the need to ensure affordability in defining the EHB standard and cautioned that “if cost is not taken into account, the EHB package becomes increasingly expensive and, individuals and small businesses will find it increasingly unaffordable. If this occurs, the principal reason for the ACA – enabling people to purchase health insurance, and covering more of the population, will not be met.”

The imposition of broader benefit packages than what consumers and small businesses are purchasing today will force consumers to “buy up” coverage that they may not want or need. In recent months, many state departments of insurance and state exchange boards have requested formal actuarial and economic forecasts of the impact of the new insurance reforms on their state. These independent studies have found that several provisions, including the EHB and actuarial value requirements, will result in higher premiums.

Recognizing that these ACA provisions will have a major impact on the cost of coverage, we believe that the important goals of the EHB package can be met if HHS and the states place a high priority on offering affordable coverage options to consumers. In addition, consideration should be given to lowering the minimum actuarial value for coverage sold in the exchanges to ensure the availability of affordable coverage options and to allow smoother transitions to the new benefits packages.

http://waysandmeans.house.gov/uploadedfiles/durham_testimony_final_hl912.pdf

Comment: 

By Don McCanne, MD

As the Affordable Care Act was being drafted, many of us in the policy community were very disappointed with the decision to include in the state insurance exchanges low actuarial value plans, as low as 60 percent (the plan pays 60 percent of covered costs and the patient pays the other 40 percent plus 100 percent of all services and products not covered). Even with the subsidies, the financial barriers to care will be too great for many patients. Now AHIP – the all-powerful health insurance lobby organization – is asking Congress to lower even further the minimum required benefits and the actuarial values of the plans.

The reason is obvious. They explicitly state that “affordability should be the cornerstone of consideration,” but they are not referring to affordability of health care, rather they are referring to the affordability of their own private health insurance plans. They want their premiums to be low enough for middle-income Americans to be able to purchase their plans. They remain silent on the fact that reducing minimum benefits and reducing actuarial values of the plans will shift large portions of the costs to those who need care. (Again, the cost sharing subsidies are not adequate for covered benefits, and the patient is responsible for 100 percent of the costs of excluded benefits which would increase with this proposal.)

The private insurance industry got virtually everything that they asked for when the bill was written. Now they are coming along with a pitch that appeals to members of both sides of the aisle – we should make insurance affordable by allowing individuals to “buy only the insurance you need.” For people who are healthy on December 31, 2013, can they really feel secure with a low actuarial value, minimal benefit plan that begins on January 1, 2014, when they have absolutely no idea what health problems they may face throughout 2014 and into the future? Of course not, though the high premiums of plans with adequate coverage may serve as enough of a deterrent that they would want to or may even have to take the risk that they will remain healthy throughout the year – a safe bet for the insurers but a big gamble for the patient. With time, it becomes even more treacherous for individuals to bet that they will remain healthy forever.

It is particularly appalling when they say that the principal reason for the Affordable Care act was to enable people to purchase health insurance. Some of us thought that the principal reason should have been to remove financial barriers to essential health care for everyone.

Really, haven’t we had enough of Congress and the Obama administration supporting the private insurance industry? How about demanding support for America’s patients instead? Throw out the insurers and enact an improved Medicare for all. We just might have to throw out the politicians to get there.

Hearing: Implementation of Health Insurance Exchanges and Related Provisions

Testimony by Daniel T. Durham, Executive Vice President, Policy and Regulatory Affairs, America’s Health Insurance Plans (AHIP)
House Ways and Means Committee, Subcommittee on Health, September 12, 2012
Minimum Coverage Requirements
Beginning in 2014, the ACA will require health plans to provide coverage for an essential health benefits (EHB) package covering a broad range of mandated benefits, some of which are not typically included in individual and small group policies today. The ACA further requires that coverage sold through the exchanges must be at one of four actuarial value levels: 60% (bronze); 70% (silver); 80% (gold); and 90% (platinum). As a result of these provisions, millions of people may be forced to purchase health insurance that is more comprehensive – and more expensive – than they currently have.
We believe that the EHB package must be affordable for families and small businesses and that affordability should be the cornerstone of consideration in defining the EHB package. The nonpartisan Institute of Medicine – in its recommendations to HHS – underscored the need to ensure affordability in defining the EHB standard and cautioned that “if cost is not taken into account, the EHB package becomes increasingly expensive and, individuals and small businesses will find it increasingly unaffordable. If this occurs, the principal reason for the ACA – enabling people to purchase health insurance, and covering more of the population, will not be met.”
The imposition of broader benefit packages than what consumers and small businesses are purchasing today will force consumers to “buy up” coverage that they may not want or need. In recent months, many state departments of insurance and state exchange boards have requested formal actuarial and economic forecasts of the impact of the new insurance reforms on their state. These independent studies have found that several provisions, including the EHB and actuarial value requirements, will result in higher premiums.
Recognizing that these ACA provisions will have a major impact on the cost of coverage, we believe that the important goals of the EHB package can be met if HHS and the states place a high priority on offering affordable coverage options to consumers. In addition, consideration should be given to lowering the minimum actuarial value for coverage sold in the exchanges to ensure the availability of affordable coverage options and to allow smoother transitions to the new benefits packages.
http://waysandmeans.house.gov/uploadedfiles/durham_testimony_final_hl912.pdf

As the Affordable Care Act was being drafted, many of us in the policy community were very disappointed with the decision to include in the state insurance exchanges low actuarial value plans, as low as 60 percent (the plan pays 60 percent of covered costs and the patient pays the other 40 percent plus 100 percent of all services and products not covered). Even with the subsidies, the financial barriers to care will be too great for many patients. Now AHIP – the all-powerful health insurance lobby organization – is asking Congress to lower even further the minimum required benefits and the actuarial values of the plans.
The reason is obvious. They explicitly state that “affordability should be the cornerstone of consideration,” but they are not referring to affordability of health care, rather they are referring to the affordability of their own private health insurance plans. They want their premiums to be low enough for middle-income Americans to be able to purchase their plans. They remain silent on the fact that reducing minimum benefits and reducing actuarial values of the plans will shift large portions of the costs to those who need care. (Again, the cost sharing subsidies are not adequate for covered benefits, and the patient is responsible for 100 percent of the costs of excluded benefits which would increase with this proposal.)
The private insurance industry got virtually everything that they asked for when the bill was written. Now they are coming along with a pitch that appeals to members of both sides of the aisle – we should make insurance affordable by allowing individuals to “buy only the insurance you need.” For people who are healthy on December 31, 2013, can they really feel secure with a low actuarial value, minimal benefit plan that begins on January 1, 2014, when they have absolutely no idea what health problems they may face throughout 2014 and into the future? Of course not, though the high premiums of plans with adequate coverage may serve as enough of a deterrent that they would want to or may even have to take the risk that they will remain healthy throughout the year – a safe bet for the insurers but a big gamble for the patient. With time, it becomes even more treacherous for individuals to bet that they will remain healthy forever.
It is particularly appalling when they say that the principal reason for the Affordable Care act was to enable people to purchase health insurance. Some of us thought that the principal reason should have been to remove financial barriers to essential health care for everyone.
Really, haven’t we had enough of Congress and the Obama administration supporting the private insurance industry? How about demanding support for America’s patients instead? Throw out the insurers and enact an improved Medicare for all. We just might have to throw out the politicians to get there.