By Timothy Jost
Health Affairs Blog, February 18, 2012

On December 16, 2011, the Department of Health and Human Services issued a bulletin describing the approach that it intended to take to defining the essential health benefits (EHB) that individual (nongroup) and small group plans must cover under the Affordable Care Act.

The EHB bulletin raised a host of questions as to how this approach would work.  On February 17, 2012, HHS issued guidance in the form of an FAQ (frequently asked questions) addressing some of these questions. This post will discuss this FAQ.

Summing up:

The FAQ do go some distance toward clarifying a number of the issues left open by the initial bulletin, in particular how plan flexibility will (and will not) work, that states will not establish a new EHB every year, and that a state’s commercial plan EHB need not apply to Medicaid. The approach selected by HHS will allow states to maintain their coverage mandates (or at least those that apply to the small group market) until 2016, but will preclude the addition of new mandates. It is still hard to imagine how this is all going to work out in practice, however, and more to the point how plan compliance will ever be monitored, given the ability of plans to substitute services within categories. One must wonder whether in the end it might not have been more straightforward simply to come up with a federal menu of services.

http://healthaffairs.org/blog/2012/02/18/implementing-health-reform-essential-health-benefits-and-medical-loss-ratios/

CMS – FAQs on essential health benefits:
http://cciio.cms.gov/resources/files/Files2/02172012/ehb-faq-508.pdf

Comment: 

By Don McCanne, MD

Being the fine gentleman he is, Professor Jost politely states, “One must wonder whether in the end it might not have been more straightforward simply to come up with a federal menu of services.”

You don’t have to wonder. Not only should we have a national standard calling for comprehensive benefits for everyone, we also should have simplified the financing system to make it more equitable and much more efficient so that health care would be accessible and affordable for everyone.

Implementing Health Reform: Essential Health Benefits And Medical Loss Ratios

By Timothy Jost
Health Affairs Blog, February 18, 2012
On December 16, 2011, the Department of Health and Human Services issued a bulletin describing the approach that it intended to take to defining the essential health benefits (EHB) that individual (nongroup) and small group plans must cover under the Affordable Care Act.
The EHB bulletin raised a host of questions as to how this approach would work.  On February 17, 2012, HHS issued guidance in the form of an FAQ (frequently asked questions) addressing some of these questions. This post will discuss this FAQ.
Summing up:
The FAQ do go some distance toward clarifying a number of the issues left open by the initial bulletin, in particular how plan flexibility will (and will not) work, that states will not establish a new EHB every year, and that a state’s commercial plan EHB need not apply to Medicaid. The approach selected by HHS will allow states to maintain their coverage mandates (or at least those that apply to the small group market) until 2016, but will preclude the addition of new mandates. It is still hard to imagine how this is all going to work out in practice, however, and more to the point how plan compliance will ever be monitored, given the ability of plans to substitute services within categories. One must wonder whether in the end it might not have been more straightforward simply to come up with a federal menu of services.
http://healthaffairs.org/blog/2012/02/18/implementing-health-reform-essential-health-benefits-and-medical-loss-ratios/
CMS – FAQs on essential health benefits:
http://cciio.cms.gov/resources/files/Files2/02172012/ehb-faq-508.pdf

Being the fine gentleman he is, Professor Jost politely states, “One must wonder whether in the end it might not have been more straightforward simply to come up with a federal menu of services.”
You don’t have to wonder. Not only should we have a national standard calling for comprehensive benefits for everyone, we also should have simplified the financing system to make it more equitable and much more efficient so that health care would be accessible and affordable for everyone.

Deloitte

Administrative Simplification, part of the Patient Protection and Affordable Care Act of 2010 (ACA) signed into law on March 23, 2010, has an overarching goal of streamlining administrative interactions between health plans and providers to improve the patient experience and reduce costs throughout the health care system. Administrative Simplification provisions build on the electronic standards first defined in 1996 with HIPAA 4010 and accelerated in 2009 with passage of HIPAA 5010. While HIPAA addresses the technical structure of transactions, Administrative Simplification addresses how they are used.

Goals:

• Standardized business and operating rules to eliminate variability in transaction implementation, moving the industry toward commoditization of “back-end” transaction processing
• Standardized benefit coverage information to drive consistency of eligibility content, enabling providers to better understand financial liability
• Provision of patient financial liability at or before the point of care, enabling providers to improve the collections process
• Real-time electronic auto-adjudication and claims status, providing for automated reconciliation
• Automation of health plan utilization management and care management decision processes required to support real-time referrals and pre-authorizations

Key dates and scope:

• Wave 1 (January 1, 2013): Automation of point-of-care eligibility and claims status
• Wave 2 (January 1, 2014): Automation of claims payment remittance advice and electronic funds transfer
• Wave 3 (January 1, 2016): Automation of claims and encounters, enrollment/disenrollment, referral authorization, premium payments, and claim attachments

Deloitte – Administrative Simplification:
http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/us_lshc_AdministrativeSimplification_021612.pdf

CMS – Administrative Simplification Provisions in the Patient Protection and Affordable Care Act of 2010 (ACA) (6 page pdf):
https://www.cms.gov/Affordable-Care-Act/Downloads/Summary%20of%20ACA%20provisions%20for%20Administrative%20Simplification.pdf

Comment:

By Don McCanne, MD

It has long been recognized that profound administrative waste is a unique feature of the U.S. health care system – waste that contributes to our unparalleled, sky-high health care spending. During the reform process, the subject of administrative waste was brought up repeatedly. In response, Congress included in the Affordable Care Act “Sec. 1104 Administrative Simplification.” What is that?

You can read either Sec. 1104 in ACA, or, better, you can read the six page summary by CMS (link above). However, easiest would be to read the excerpts above from the Deloitte report on Administrative Simplification. There is enough there to let you know what it is.

It will not take long for people who understand the administrative advantages of the single payer model to realize that Sec. 1104 has nothing to do with the administrative waste that is a result of our highly fragmented, dysfunctional health care financing infrastructure. Sec. 1104 is primarily revising the information technology systems of the insurers and then requiring the providers to become compliant.

An idea of what Sec. 1104 is really about can be gleaned from Deloitte’s discussion of a revolutionary scenario for administrative simplification:

“This scenario assumes that all stakeholders adopt real-time, end-to-end transaction processing, and that product standardization emerges. Implementation costs would be significant for both health plans and providers. Commercial health plans, in particular, would face a new strategic reality as claims transactions become a commodity, and health plan differentiation shifts to other areas, such as provider network and member experience. Such revolutionary change is possible if existing industry players and/or new entrants look for innovative ways to capitalize on market opportunities to affect health care cost and quality and make meaningful improvements to our health care system.”

Do not be misled when ACA supporters talk about “administrative simplification.” That’s their code language for “commoditization” and “innovative ways to capitalize on market opportunities.”

“Administrative simplification” is another term that they have stolen from the single payer community, and then bastardized it. Don’t let them get away with it. That’s our policy science.

Administrative Simplification: From compliance to competitive advantage

Deloitte
Administrative Simplification, part of the Patient Protection and Affordable Care Act of 2010 (ACA) signed into law on March 23, 2010, has an overarching goal of streamlining administrative interactions between health plans and providers to improve the patient experience and reduce costs throughout the health care system. Administrative Simplification provisions build on the electronic standards first defined in 1996 with HIPAA 4010 and accelerated in 2009 with passage of HIPAA 5010. While HIPAA addresses the technical structure of transactions, Administrative Simplification addresses how they are used.
Goals:
• Standardized business and operating rules to eliminate variability in transaction implementation, moving the industry toward commoditization of “back-end” transaction processing
• Standardized benefit coverage information to drive consistency of eligibility content, enabling providers to better understand financial liability
• Provision of patient financial liability at or before the point of care, enabling providers to improve the collections process
• Real-time electronic auto-adjudication and claims status, providing for automated reconciliation
• Automation of health plan utilization management and care management decision processes required to support real-time referrals and pre-authorizations
Key dates and scope:
• Wave 1 (January 1, 2013): Automation of point-of-care eligibility and claims status
• Wave 2 (January 1, 2014): Automation of claims payment remittance advice and electronic funds transfer
• Wave 3 (January 1, 2016): Automation of claims and encounters, enrollment/disenrollment, referral authorization, premium payments, and claim attachments
Deloitte – Administrative Simplification:
http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/us_lshc_AdministrativeSimplification_021612.pdf
CMS – Administrative Simplification Provisions in the Patient Protection and Affordable Care Act of 2010 (ACA) (6 page pdf):
https://www.cms.gov/Affordable-Care-Act/Downloads/Summary%20of%20ACA%20provisions%20for%20Administrative%20Simplification.pdf

It has long been recognized that profound administrative waste is a unique feature of the U.S. health care system – waste that contributes to our unparalleled, sky-high health care spending. During the reform process, the subject of administrative waste was brought up repeatedly. In response, Congress included in the Affordable Care Act “Sec. 1104 Administrative Simplification.” What is that?
You can read either Sec. 1104 in ACA, or, better, you can read the six page summary by CMS (link above). However, easiest would be to read the excerpts above from the Deloitte report on Administrative Simplification. There is enough there to let you know what it is.
It will not take long for people who understand the administrative advantages of the single payer model to realize that Sec. 1104 has nothing to do with the administrative waste that is a result of our highly fragmented, dysfunctional health care financing infrastructure. Sec. 1104 is primarily revising the information technology systems of the insurers and then requiring the providers to become compliant.
An idea of what Sec. 1104 is really about can be gleaned from Deloitte’s discussion of a revolutionary scenario for administrative simplification:
“This scenario assumes that all stakeholders adopt real-time, end-to-end transaction processing, and that product standardization emerges. Implementation costs would be significant for both health plans and providers. Commercial health plans, in particular, would face a new strategic reality as claims transactions become a commodity, and health plan differentiation shifts to other areas, such as provider network and member experience. Such revolutionary change is possible if existing industry players and/or new entrants look for innovative ways to capitalize on market opportunities to affect health care cost and quality and make meaningful improvements to our health care system.”
Do not be misled when ACA supporters talk about “administrative simplification.” That’s their code language for “commoditization” and “innovative ways to capitalize on market opportunities.”
“Administrative simplification” is another term that they have stolen from the single payer community, and then bastardized it. Don’t let them get away with it. That’s our policy science.

By Diane Archer and Theodore Marmor
Health Affairs Blog, February 15, 2012

As the debate over Medicare continues in connection to America’s fiscal problems, it is critical to understand how Medicare differs from commercial health insurance for working people.  There is a fundamental difference between these two types of health insurance plans, one social and one commercial.

The basic difference between Medicare and commercial insurance is that Medicare is designed to absorb risk, serving individuals who have or may have costly and complex medical needs as well as the relatively healthy, whereas commercial insurance is required to protect its business interests by avoiding those most likely to use medical care.

****

But nothing can change the underlying reality that programs like Medicare are designed to absorb and broadly distribute risk, protecting everyone, while commercial insurers are designed to select and protect individuals with the fewest needs.

The belief that competition among private health insurance firms can produce cost savings or higher quality care represents the victory of illusion over evidence. We need to let the existing Medicare system do what it already does effectively: insulate Americans from risk, rather than shift risk to the most vulnerable citizens.

http://healthaffairs.org/blog/2012/02/15/medicare-and-commercial-health-insurance-the-fundamental-difference/comment-page-1/#comment-165108

Comment: 

By Don McCanne, MD

The fundamental difference between Medicare and commercial health insurance is very basic and easy to understand. Medicare is “designed to absorb and broadly distribute risk, protecting everyone, while commercial insurers are designed to select and protect individuals with the fewest needs.”

The explanation of this difference in this Health Affairs Blog entry by Diane Archer and Theodore Marmor should make us question once again why Congress and President Obama chose commercial insurers as the foundation for the Affordable Care Act when what we clearly needed was a universal public program based on improved version of Medicare.

You should read their fairly brief blog entry and then read the replies posted first by Vince Kuraitis and then by Don McCanne. They exemplify the differences between the commercial approach to insurance and the social function of Medicare.

It’s really an easy concept to grasp:

Commercial – “Of or relating to commerce, having profit as a chief aim”

Social – “Of, relating to, or occupied with matters affecting human welfare”

Addendum:  Since the reply submitted by Don McCanne has not yet been posted on the blog website, both the Kuraitis reply and McCanne reply are reproduced here.

Vince Kuraitis says:

You (Archer and Marmor) make a sweeping statement: No matter what regulations are instituted in an attempt to guarantee their good behavior, commercial insurers will still have an incentive to avoid risk, and they will do so insofar as it is possible.

An equally sweeping rebuttal: this problem is entirely fixable by risk adjusting — paying higher premiums for members that are less healthy. Medicare has already started doing this with Medicare Advantage plans.

Of course, the devil is in the details…and in a debate we’d probably come out in the middle somewhere. Risk adjustment is easier to conceptualize than to do accurately.

…but I think your broad, blunt assertion needs to be challenged.

Don McCanne says:

Vince Kuraitis writes that the authors’ statement on incentives for commercial insurers needs to be challenged. It is Mr. Kuraitis’ challenge that needs to be challenged since the authors’ statement is quite correct.

Commercial insurers do have incentives to avoid risk, and, if subjected to risk adjustment, they have incentives to game the system. This is not suggesting illegal activity. It merely represents “appropriate” commercial activity – activities that are rewarded on Wall Street.

Risk adjustment already takes place in the Medicare Advantage program. An NBER study (Working Paper No. 16977, April 2011) revealed that the Medicare Advantage plans were able to further increase their own advantage and transfer more resources from the relatively sick in the traditional program to the relatively healthy within their plans.

Quoting from the NBER report, “With social insurance programs, however, imperfect pricing can induce private firms to cream-skim, exacerbating the utility consequences of the underlying inequality the program was initially intended to mitigate. At least in the case of Medicare, we find little evidence that risk adjustment has solved this problem.”

And from the NBER Digest, “Thus the authors conclude that the Medicare Advantage program both increased total Medicare spending and transferred Medicare resources from the relatively sick to the relatively healthy, and that risk-adjustment was not able to address either of these problems.”

Archer and Marmor are precisely correct: “No matter what regulations are instituted in an attempt to guarantee their good behavior, commercial insurers will still have an incentive to avoid risk, and they will do so insofar as it is possible.” That is the nature of the commercial approach to insurance, which is in sharp contrast to the social function of the traditional Medicare program.

Medicare And Commercial Health Insurance: The Fundamental Difference

By Diane Archer and Theodore Marmor
Health Affairs Blog, February 15, 2012
As the debate over Medicare continues in connection to America’s fiscal problems, it is critical to understand how Medicare differs from commercial health insurance for working people.  There is a fundamental difference between these two types of health insurance plans, one social and one commercial.
The basic difference between Medicare and commercial insurance is that Medicare is designed to absorb risk, serving individuals who have or may have costly and complex medical needs as well as the relatively healthy, whereas commercial insurance is required to protect its business interests by avoiding those most likely to use medical care.
****
But nothing can change the underlying reality that programs like Medicare are designed to absorb and broadly distribute risk, protecting everyone, while commercial insurers are designed to select and protect individuals with the fewest needs.
The belief that competition among private health insurance firms can produce cost savings or higher quality care represents the victory of illusion over evidence. We need to let the existing Medicare system do what it already does effectively: insulate Americans from risk, rather than shift risk to the most vulnerable citizens.
http://healthaffairs.org/blog/2012/02/15/medicare-and-commercial-health-insurance-the-fundamental-difference/comment-page-1/#comment-165108

The fundamental difference between Medicare and commercial health insurance is very basic and easy to understand. Medicare is “designed to absorb and broadly distribute risk, protecting everyone, while commercial insurers are designed to select and protect individuals with the fewest needs.”
The explanation of this difference in this Health Affairs Blog entry by Diane Archer and Theodore Marmor should make us question once again why Congress and President Obama chose commercial insurers as the foundation for the Affordable Care Act when what we clearly needed was a universal public program based on improved version of Medicare.
You should read their fairly brief blog entry and then read the replies posted first by Vince Kuraitis and then by Don McCanne. They exemplify the differences between the commercial approach to insurance and the social function of Medicare.
It’s really an easy concept to grasp:
Commercial – “Of or relating to commerce, having profit as a chief aim”
Social – “Of, relating to, or occupied with matters affecting human welfare”
Addendum:  Since the reply submitted by Don McCanne has not yet been posted on the blog website, both the Kuraitis reply and McCanne reply are reproduced here.

Vince Kuraitis says:
You (Archer and Marmor) make a sweeping statement: No matter what regulations are instituted in an attempt to guarantee their good behavior, commercial insurers will still have an incentive to avoid risk, and they will do so insofar as it is possible.
An equally sweeping rebuttal: this problem is entirely fixable by risk adjusting — paying higher premiums for members that are less healthy. Medicare has already started doing this with Medicare Advantage plans.
Of course, the devil is in the details…and in a debate we’d probably come out in the middle somewhere. Risk adjustment is easier to conceptualize than to do accurately.
…but I think your broad, blunt assertion needs to be challenged.
Don McCanne says:
Vince Kuraitis writes that the authors’ statement on incentives for commercial insurers needs to be challenged. It is Mr. Kuraitis’ challenge that needs to be challenged since the authors’ statement is quite correct.
Commercial insurers do have incentives to avoid risk, and, if subjected to risk adjustment, they have incentives to game the system. This is not suggesting illegal activity. It merely represents “appropriate” commercial activity – activities that are rewarded on Wall Street.
Risk adjustment already takes place in the Medicare Advantage program. An NBER study (Working Paper No. 16977, April 2011) revealed that the Medicare Advantage plans were able to further increase their own advantage and transfer more resources from the relatively sick in the traditional program to the relatively healthy within their plans.
Quoting from the NBER report, “With social insurance programs, however, imperfect pricing can induce private firms to cream-skim, exacerbating the utility consequences of the underlying inequality the program was initially intended to mitigate. At least in the case of Medicare, we find little evidence that risk adjustment has solved this problem.”
And from the NBER Digest, “Thus the authors conclude that the Medicare Advantage program both increased total Medicare spending and transferred Medicare resources from the relatively sick to the relatively healthy, and that risk-adjustment was not able to address either of these problems.”
Archer and Marmor are precisely correct: “No matter what regulations are instituted in an attempt to guarantee their good behavior, commercial insurers will still have an incentive to avoid risk, and they will do so insofar as it is possible.” That is the nature of the commercial approach to insurance, which is in sharp contrast to the social function of the traditional Medicare program.

Health Status and Hospital Prices Key to Regional Variation in Private Spending

Research Brief by Chapin White
National Institute for Health Care Reform, February 15, 2012
Differences in health status explain much of the regional variation in spending for privately insured people, but differences in provider prices — especially for hospital care — also play a key role, according to a new study by the Center for Studying Health System Change (HSC) for the nonpartisan, nonprofit National Institute for Health Care Reform (NIHCR).
Based on claims data for 218,000 active and retired nonelderly unionized autoworkers and their dependents, the study found that health spending per enrollee in 2009 varied widely across 19 communities with large concentrations of autoworkers, from a low of $4,500 in Buffalo, N.Y., to a high of $9,000 in Lake County, Ill.  The autoworkers’ health benefits are essentially uniform nationally, so spending differences do not reflect benefit differences.
Differences in service quantities accounted for two-thirds of the overall spending variation, while differences in prices accounted for one-third, according to the study.
On the quantity side, differences in health status and other demographic factors explained most, but not all, of the variation in quantity. About 18 percent of the total variation in spending was a result of unexplained differences in service quantities. On the price side, the cost of doing business explained very little of the price differences, with almost all of the differences in prices unexplained, the study found.
http://www.nihcr.org/news_Spending_Variation.html
From the Research Brief:
Sources of health care spending variation across autoworker communities, 2009
Differences in spending due to quantities
37% – Differences in health status
10% – Differences in age and sex
18% – Differences in quantities (excess)
Differences in spending due to prices
2% – Differences in providers’ cost of doing business
33% – Differences in prices (excess)
Comparing Private Prices to Medicare
Physician office visits. The prices paid by the autoworker plan for physician office visits, on average, are only 3 percent higher than what Medicare would have paid for the same services.
Hospital inpatient care. The prices for inpatient hospital care paid by the autoworker plan are, on average, 55 percent higher than what Medicare would pay, and the price gap varies widely across communities.
Hospital emergency department care. The prices paid by the autoworker plan for hospital emergency department care are, on average, more than double the Medicare price, and the price gap varies even more widely across communities than for inpatient care.
Research Brief
http://www.nihcr.org/Spending_Variation.html
PDF version
http://www.nihcr.org/Spending_Variation.pdf

Policy wonks likely will download this Research Brief since it will prove to be a landmark study explaining the wide variation in spending amongst privately insured patients – very useful information when designing policies to improve our health care financing.
We already have several landmark studies demonstrating the wide variations in quantity of services and in pricing of those services – both factors in determining the variations in health care spending.
What has not been so clear is whether the quantities vary based on the health status of the patients or based simply on variations in intensity amongst populations of comparable health (i.e., providing excess services to drive up revenues, though deficient services when system capacity is inadequate is an important but separate concern).
What also has not been so clear is whether price differences are primarily due to differences in costs of health system resources, or simply due to charging higher prices where private insurer market control is weaker.
This study provides very convincing data to explain the differences. Look at the percentage differences listed above.
Health status (37%) and age and sex (10%) explain almost half (47%) of the differences in spending. These are entirely appropriate differences and do not require policy intervention. The 18% that is not otherwise explained may well be excess quantity of services that perhaps could be moderated by judicious application of health policy.
But let’s not kid ourselves. Those who suggest that, based on the Dartmouth studies, close to 100% of the difference in quantity of services is excessive tend to support policies that would come as close as possible to eliminating the differences. Since this study shows that the excess quantity is only about 18% of the difference in spending (only slightly over one-fourth of the increased quantity in higher spending areas), it would be very difficult to design policies that would tease out this modest amount while leaving in place the other services that are clearly beneficial. That doesn’t mean that efforts shouldn’t be made to do so, but it does mean that great care must be taken to be certain that people still receive the services that they should have – a much more important priority than budget trimming.
Excessive prices (33%) appear to account for most of the differences in prices for services since differences in the providers’ costs of doing business account for a mere 2% of spending differences. Most of this excess pricing is found in hospitals and in their emergency departments. This finding screams out for a better method of controlling prices. All other wealthier nations use some form of government pricing to eliminate these excesses. We should too.
Uwe Reinhardt has provided convincing evidence that an all-payer system, such as the hospital price-setting system in Maryland, would capture much of this excess in pricing. That is true, though it would be more difficult for an all-payer system to address the problem of excess quantity.
Our objection to all-payer systems is that they address only this one issue and leave out the many other advantages of a single payer national health program. When we have a solution that would fix so many problems at once let’s go with that.