PNHP

Medicaid/CHIP patients are shoved out of the office faster

Medicaid/CHIP patients are shoved out of the office faster

The Effects of Public Health Insurance Expansions

The National Bureau of Economic Research
NBER Digest OnLine, October 2011

In the United States, public health insurance programs cover over 90 million individuals. Changes in the scope of these programs, such as the Medicaid expansions under the recently passed Patient Protection and Affordable Care Act, or in the generosity of these programs, may affect physician behavior.

In “The Doctor Might See You Now: the Supply Side Effects of Public Health Insurance Expansions” (NBER Working Paper No. 17070), Craig Garthwaite finds that after the 1990s implementation of the State Children’s Health Insurance Program (SCHIP) – a partnership between federal and state governments intended to increase insurance coverage for low-income Americans under the age of 19 – more physicians participated in the program, but their total number of hours spent with patients declined as a result of shorter office visits.

Garthwaite finds that there were fewer visits that lasted more than 10 minutes after this public program expansion. The evidence on shorter office visits is consistent with economic models of physician behavior in a system with both public and private payers.

The negative effects of reductions in physician labor supply, such those observed in this study, may be particularly important for Medicaid patients because they are covered by a program that is increasingly not accepted by physicians.

http://www.nber.org/digest/oct11/w17070.html

Comment: 

By Don McCanne, MD

Most of us who support a single payer national health program do so primarily because it would provide high quality, comprehensive care for everyone. Although the Affordable Care Act will not cover everyone, much of the expansion in coverage that it does accomplish is through increased eligibility for the Medicaid and CHIP programs, chronically underfunded welfare programs. This study demonstrates that such an approach does result in a system with at least two tiers, the lower tier patients facing shorter visits and a decline in access to participating physicians.

There is already enough money in our health care system to provide a single level of comprehensive, high quality care for everyone. We should reject the concept of a separate, underfunded, lower tier program for low-income individuals and families, with a higher tier of great care for the rest of us (though the Affordable Care Act certainly doesn’t ensure that either).

The Flaws in the “Affordable” Care Act and How to Remedy Them

By Dr. Paul Clay Sorum
The Journal of County Administration, July/August 2011

The Accountable Care Act (ACA) has many good features (described by Erika Martin and Courtney Burke in the previous issue of the Journal of County Administration) (see also, the Kaiser Family Foundation’s summary).[1] It asserts the principle that everyone should have health insurance and—by expanding access to Medicaid and requiring most people who don’t have public insurance to purchase it (if, as expected, the Supreme Court upholds this provision)— expands access to some sort of health insurance. It tries to prevent the most predatory practices of at least some private insurers. It offers a few, if temporary, plums to primary care providers. It pays for a variety of worthwhile, if limited, experiments in changing how care is paid for and delivered.

But the ACA is hardly revolutionary. The lawmakers chose to fiddle with, prop up, and make additions to an already complicated and tottering structure rather than to tear it down and put its pieces back in a more rational and solid manner. Accordingly, the ACA does not change—indeed it tries to reinforce— the basic structure of US health insurance, with its primary reliance for the non-elderly population on employer provided private health insurance.

The US Census Bureau’s determination of the health insurance coverage of Americans during the year 2009 (i.e., prior to the passage of the ACA) is shown in Table 1.[2] The classification of “no insurance’ meant being without insurance all year; those who were uninsured only part of the year were counted in the insured categories. Note that, since many people’s  coverage changed during the year, the percentages of private insurance, government insurance, and no insurance add up to greater than 100%.

The ACA maintains this reliance on employers and on private insurance: it requires employers with more than 50 employees to offer health insurance, either through private companies or through the new state run insurance exchanges, and the state-run exchanges will also offer to individuals without employer provided or government insurance the choice among a set of private plans. Table 2 shows the estimates by the Urban Institute and Robert Wood Johnson Fund of the changes for the non-elderly population when the law’s provisions about coverage are fully implemented in 2014.[3]
Congress’s decision, for political and ideological reasons, to maintain the fundamental structure of the US health care system is the ACA’s major, perhaps fatal, flaw. It contributes to a multitude of more specific flaws.

Flaws in the ACA

First, the system set up by the ACA is much too complex. Patients (or their employers) and providers will still have to deal with, waste time over, and get frustrated by the dozens of private and public insurers, most with multiple different and ever-changing plans and sets of rules. Medicaid will still be means-tested, i.e. potential enrollees will still have to prove they are poor enough. The new law will add to this complexity by creating the health exchanges, also means tested, which will be allowed to be different in each state (although all will have to fulfill the law’s requirements). It has been calculated that 50% of adults with family incomes below 200% of the federal poverty level will bounce between eligibility for Medicaid or for the exchanges as their incomes fluctuate during the year.[4] The requirement to purchase insurance requires mechanisms, mostly through income tax returns, to find, penalize, or give exemptions to people who fail to purchase health insurance. Furthermore, to compensate for some of its deficiencies, the law had to add a variety of fixes, such as a temporary pool for who are uninsurable because of preexisting conditions, a set of rules to reduce predatory practices by private insurance companies, and a federal watchdog to make sure that states regulate insurance premium increases adequately.[5] Because of this complexity, the law is hard to understand and hard to defend to the public, and, in spite of provisions to get private insurance companies to agree on common rules, it will increase rather than decrease the administrative costs of health care.

Second, change is coming much too slowly. It will take some eight years for the system to be rolled out completely (although most is to be done by the end of 2014).[6] In contrast, Medicare was instituted in less than a year. The reasons for the delay are the complexity of the changes—in particular, the need for each state to set up a health exchange—and the political calculation, I assume, of trying to reduce opposition to change by doing it very slowly (in particular, to spread out the costs of implementation).[ 7] This calculation was, however, short-sighted because of largely foreseeable political and economic events. Midterm elections commonly turn against the party in power, especially when the gain of Democratic seats in the House in 2008 came in usually Republican-voting districts. With the loss of the Democratic majority in the House, the Republican opponents of the reform have the opportunity to delay and derail—by withholding funding if not by repealing— as many of the provisions as possible. If the Republicans have their way, especially if they win the White House too, we may be left with a partial ACA, which may be worse than outright repeal of the whole act. Moreover, with the financial collapse that President Obama inherited and the resulting economic recession— and the ensuing debt crises on the state and federal levels—the state and federal monies, as well as (to a lesser extent) the business profits, required to expand health care are no longer there. The result is continuing pressure to reduce benefits and increase patient financial responsibilities in both tax-supported and employer supported plans—we can see that happening already[8]—and rising opposition to major expansion of health insurance, at least of government- financed insurance.[9]

Third, the ACA will not reduce costs. On the one hand, most of the excess “administrative” costs of the private insurance company—for insurers and for providers (the most recent estimate was just published online in Health Affairs[10]—such as for marketing, submitting and processing claims, obtaining prior approvals for services, and paying shareholders (for for-profit insurers) will persist, even if the law tries to limit them slightly by promoting common insurance forms and requiring “medical loss ratios” (the percentage of premiums spent on actual health care) to be at least 85% for group plans and 80% for individuals. In addition, as mentioned above, the Medicaid program and the state insurance exchanges will still require costly and burdensome means testing, the insurance exchanges will create an additional administrative layer, and the law requiring people to buy insurance will have to be enforced. The Urban Institute estimates that, if the ACA had been fully implemented in 2010, total spending on acute health care for the non-elderly by the government, employers, and individuals would have increased by 4.5%.[3] The Netherlands, which privatized its health care system in 2006 (creating a system similar to that envisioned by the ACA), has found that this “managed competition” is unpopular and has increased costs.[11] On the other hand, the much-ballyhooed experiments in new ways to deliver and pay for medical care—pay-for-performance, medical homes, accountable care organizations, and the like—are still experiments, promising in small projects but untested as ways to reduce costs on a large scale.[12]

The Commonwealth Fund had, in its optimistic assessment of a panoply of similar reform proposals, concluded that, together, they could bend the cost curve, but not prevent costs from rising faster than GDP.[13] Not surprisingly, therefore, the percentage of GDP devoted to
health care is expected to rise from 17.6% in 2009 to 18.1% in 2014 (when the state health exchanges are implemented and residents are required to have health insurance) to 19.8% in 2020.[14] The money to pay for care must come from somewhere. If governments and employers are unwilling to pay more, patients will either have to pay more or do without the medical services they expect. The Affordable Care Act is, therefore, affordable neither for the country nor for the patients.

Fourth, the ACA will not only leave millions still without insurance— the Urban Institute estimates 8.3% of non-elderly adults[3]—but it is likely to increase the number of “under-insured.” In 2007, the Commonwealth Fund estimated that 14% of nonelderly adults were underinsured— defined as spending 10% or more of income (or 5% if their income was less than 200% of the poverty level) on out-of-pocket medical expenses or having deductibles of 5% or more of income[15] (although these estimates may be low).[16] The ACA aims to decrease underinsurance by insisting on a basic set of benefits (yet to be defined) for the state-run health exchanges (in the footsteps of Massachusetts that lowered its underinsurance from 7.3% of adults to 5.6% a year after the enactment of its health reform).[17] Yet, even as envisioned now, these health exchanges will impose a financial burden: if people choose the most affordable bronze plan, its “actuarial value” is only 60%, i.e. the individual will have to pay for 40% of his or her expected health costs (up to, as currently defined, $5,950 for individuals and $11,900 for families), a large burden for a poor person who gets sick or injured. Moreover, faced with rising costs, increasing enrollments in Medicaid and in state insurance exchanges, and—at least until the economy recovers— stagnating business profits and tax revenues, employers and state and federal governments will have no choice but to offer plans with increased premiums and/or reduced benefits[8, 18] (as well as, if possible, with reduced payments to providers). In 2010, the average annual premium for employer-sponsored health insurance was up to $5,049 for single coverage and $13,770 for family coverage (of which the worker contributed $899 and $3997, respectively)[8] and is surely going higher. Faced with the need to keep premiums as affordable as possible in the exchanges, it seems likely that the state directors and ACA federal administrators will be under great pressure to lessen the benefit package required of all insurers participating in the exchanges.

Fifth, access to care may increase on paper, but it is likely, especially for poor people, to decrease in practice. We need to train more physicians to prevent a growing shortage—the Association of American Medical Colleges projects that by 2020 we will have shortage of 45,000 primary care physicians and 46,000 surgeons and medical specialists[19]—and we need current physicians, especially primary care physicians, to see the newly insured patients. For this, we need to offer them sufficient reimbursement. But this is unlikely to occur—indeed, quite the opposite. For Medicaid, payments to physicians are, in states like New York, so low already that private physicians see Medicaid patients largely out of a moral commitment to care for all patients. For Medicare, payments are already less than those from private payers so that some physicians do not accept Medicare and, if Medicare rates drop further (as is threatened yearly by the provisions of the Balanced Budget Act), many more will drop it. Yet state and federal governments are talking about cutting reimbursements to providers—a likely recommendation of the Congressional committee that is to propose further cuts in federal spending to reduce the federal debt— and the ACA sets up a committee that will suggest moneysaving cuts if the Medicare budget increases too fast (as it has done repeatedly in recent years).

How to Remedy the ACA

What can we do to remedy the flaws in the ACA? I see three possibilities. First, the Obama administration can try, through administrative acts and legislation, to make small improvements in the new system and, meanwhile, to wait for better economic and political times. This is the most likely course of action, but it does little to fix the ACA’s flaws.(even if the Republicans allow any improvements). Second, the politicians could scrap the new law and institute a better system, which, as I have argued before in these pages, would be a single-payer system, equivalent to an expanded and improved Medicare for All. The radical Republicans also want, of course, to repeal the law and reduce government’s role to providing vouchers for poor people to use to purchase private health insurance (as in Ryan’s ill-received proposal for privatizing Medicare). Neither the single-payer supporters nor the radical Republicans will be able to repeal the law, both because many of its provisions are already in place and because there is no political majority for either extreme. Third, we can facilitate the changes currently taking place in Vermont and help them spread to other states. This seems currently to be the most promising approach.

Vermont’s recently passed legislation [20] creates a public plan, Green Mountain Care, “to contain costs and to provide, as a public good, comprehensive, affordable, high-quality, publicly financed health care coverage for all Vermont residents in a seamless manner regardless of income, assets, health status, or availability of other health coverage.” Thus all Vermont residents will be eligible for Green Mountain Care “regardless of whether an employer offers health insurance for which they are eligible.” Green Mountain Care will be managed by an independent board, appointed by the governor and approved by Vermont’s Senate, advised by a committee of stakeholders; the board will contract with private-sector organizations, such as Blue Cross and Blue Shield of Vermont, to administer the system. Green Mountain Care will run the health exchange required by the ACA (which will be set up to be its “foundation”); insure state and municipal employees (including teachers); absorb Medicaid, SCHIP, and Medicare as federal waivers become available; and, it is expected, be more cost-effective for private employers to join than the competing private plans. In order to avoid under-insurance, the legislation stipulates that Green Mountain Care will provide all “medically necessary health services”—including primary care, preventive care, chronic care, acute episodic care, and hospital services— and that it will pay for “at least 87 percent of the full actuarial value of the covered health services.”

The architects of the Vermont plan, led by Harvard economist William C Hsiao, needed to convince Vermont interest groups and legislators that the expansion of coverage would not result in increased overall costs. They proposed funding through a payroll tax of 14.2% on all wages, capped at the Social Security level, with exemptions for families with incomes below 200% of poverty level. Employers would pay 10.6% (versus an estimated 12% under the ACA) and employees 3.6%. They concluded that the plan would save money each year of its implementation and after 10 years would be reducing overall health care expenses by 25.3% compared to what spending would be without the reform (7.3% from reduced administrative expenses, 5% from reduced fraud and abuse, 10% from payment reform and integration of the delivery system, 2% from malpractice reform, and 1% from changed governance and claims administration). They also argued that at this point the plan would be cutting employer and household health care spending by $200 million (though employers previously not providing insurance and families earning more than 400% of the poverty level would be paying more than now), would create 3,800 jobs, and would boost the state’s economic output by $100 million.[21]

Vermont’s goal in setting up Green Moun
tain Care was to “provide health benefits through a single payment system.” But the state could not do this immediately, and it is not certain that it will be able to reach its goal. The state must, in accordance with federal statutes, allow individuals or businesses to purchase private health insurance if they want, inside or outside of the exchange (as long as the private plans meet the requirements of the ACA); the assumption is that individuals and businesses will find it in their interests to switch to Green Mountain Care. The state must seek federal waivers to bring Medicare, Medicaid, and SCHIP into Green Mountain Care; these will not be available until 2017 unless Congress passes a law to allow states more flexibility earlier than 2017, and such passage will depend on federal politics and, in particular, on the results of the 2012 and 2014 elections. The Vermont legislature still has to decide on a financing mechanism. But, in spite of these uncertainties, the Vermont law is a momentous first step that shows other states how they too can create the embryo of a single payer system from within the ACA.[21]

County administrators should be excited by the ability of a Green Mountain Care and, moreover, of a complete single-payer system to reduce county taxes, to take over the health insurance of county employees and retirees, to provide health care to all county residents, and even to increase employment. It is time to take action—to support similar health reforms in your states and to lobby Congress for the waivers needed to make these state reforms successful.

References

1. Kaiser Family Foundation. Focus on health reform. Summary of new health reform law, March 26, 2010. Available at http://www.kff.org/healthreform/ upload/8061.pdf. Accessed on July 18, 2011.

2. U.S. Census Bureau. Income, poverty, and health insurance coverage in the United States, 2009. U.S. Government Printing Office, issued September 2010. Available at http://www.census.gov/ prod/2010pubs/p60-238.pdf. Accessed on July 17, 2011.

3. Buettgens M, Garrett B, Holahan J. Americans under the Affordable Care Act. Urban Institute, Robert Wood Johnson Fund, December 2010. Available at http:// www.rwjf.org/files/research/71555.pdf. Accessed on July 9, 2011.

4. Sommers BD, Rosenbaum S. Issues in health reform: how changes in eligibility may move millions back and forth between Medicaid and insurance exchanges. Health Aff 2011;30:228–236.

5. NY Times, July 26, 2011.

6. Kaiser Family Foundation. Health reform implementation timeline. Available at http://healthreform.kff.org/timeline. aspx. Accessed on August 4, 2011.
7. Oberlander J. Beyond repeal—the future of health care reform. N Engl J Med 2010;363:2277–2279.

8. Kaiser Family Foundation. Employer health benefits: 2010 summary of findings. Available at http://ehbs.kff.org. Accessed on July 28, 2011.

9. Newport F. U.S. still split on whether gov’t should ensure healthcare. Gallup Poll, Nov 18, 2010. Available at http://www.gallup.com/poll/144839/Split-Whether- Gov-Ensure-Healthcare.aspx. Accessed on August 4, 2011.

10. Morra D, Nicholson S, Levinson W, Gans DN, Hammons T, Casalino LP. US physicians practices versus Canadians: Spending nearly four times as much money interacting with payers. Health Aff 2011. Available at http://content.healthaffairs. org/content/early/2011/08/03/ hlthaff.2010.0893.full.pdf+html. Accessed on August 4, 2011.

11. Okma KGH, Marmor TR, Oberlander J. Managed competition for Medicare? Sobering lessons from the Netherlands. N Engl J Med 2011;365:287–289. Available at http://healthpolicyandreform.nejm.org/?p=14712#more-14712. Accessed on July 27, 2011.

12. Oberlander J. Throwing darts: Americans’ elusive search for health care cost control. J Health Politics, Policy and Law, June 2011.

13. Schoen C, Guterman S, Shih A, Lau J, Kasimow S, Gauthier A, Davis K. Bending the curve: options for achieving savings and improving value in U.S. health spending, The Commonwealth Fund, December 18, 2007. Available at http://www.commonwealthfund. org/Content/Publications/Fund-Reports/2007/Dec/Bending-the- Curve–Options-for-Achieving-Savings-and- Improving-Value-in-U-S–Health-Spending. aspx. Accessed on July 30, 2011.

14. Keehan SP, Sisko, AM, Truffer DJ, Poisal JA, Cuckler GA, Madison AJ, Lizonitz JM, Smith SD. National health spending projections through 2020: economic recovery and reform drive faster spending growth. Health Aff 2011;8. Available at http://content.healthaffairs. org/content/early/2011/07/27/ hlthaff.2011.0662.full.pdf+html. Accessed on July 30, 2011.

15. Schoen C, Collins SR, Kriss JL, Doty MM. How many are underinsured? Trends among U.S. adults, 2003 and 2007. Health Aff Web Exclusive, June 10, 2008:w298–w309

16. Abraham JM, DeLeire T, Royalty AB. Moral hazard matters: Measuring relative rates of underinsurance using threshold measures. Health Serv Res 2010;45:806–824.

17. Long SK. The impact of health reform on underinsurance in Massachusetts: Do the insured have adequate protection? The Urban Institute, October 2008.

18. Towers Watson. Shaping health care strategy in a post-reform environment. 16th annual Towers Watson/National Business Group on Health employer survey on purchasing value in health care, 2011. Available at http://www.towerswatson.com/ assets/pdf/3946/TowersWatson-NBGH- 2011-NA-2010-18560-v8.pdf. Accessed on July 27, 2011.

19. Association of American Medical College. Physician shortages to worsen without increases in residency training. Available at https://www.aamc.org/download/150584/ data/physician_shortages_factsheet.pdf. Accessed on August 4, 2011.

20. Vermont legislature, H202, 2011. Available at http://www.leg.state.vt.us/ docs/2012/BILLS/PASSED/H-202.pdf. Accessed on July 30, 2011. 21. Hsaio WC, Knight AD, Kappel S, Done N. What other states can learn from Vermont’s bold experiment embracing a single-payer health care financing system. Health Aff 2011;30:1232–1241.

Ask Wendell: Squeak long and loud with health insurers

Deb Richter's textbook battle to get the coverage she deserves

By Wendell Potter
iWatchNews, October 3, 2011

Deb Richter knows from years of experience that you can’t take  “no” as a final answer from your health insurer. You’ve got to fight back.

As a doctor, Richter has gone to bat for many patients after they received denial notices from their insurance companies for care she knew they needed. I wrote about her advocacy for both patients and for a single payer system in Vermont last May.

Now Richter has a new patient she has to stick up for: herself. She recently learned she has cancer, and is discovering that, like many other Americans with life-threatening illnesses, she has to battle her insurer as well as her disease. And she is learning that even doctors have no immunity from the practices insurance companies engage in every day to avoid paying claims.

Last week I wrote about the importance of being a squeaky wheel when your insurer has decided it doesn’t want to pay for expensive treatment, even if your doctor believes your life might depend on it. I noted that most insurance firms have special departments to deal exclusively with what they refer to as “high profile” cases. Squeak loud and long, if necessary. You’re more likely to get the grease. Richter has every intention of being designated “high profile.”

Dear Wendell:

I received a letter from my insurance company stating that they are investigating whether my breast cancer is a pre-existing condition. Mind you, my mammogram one year ago was completely normal. Even when they went back and looked at it again this year and compared it to the positive one I just got, they stated there was no evidence of malignant changes on last year’s mammogram.

I am newly insured with this company (MVP in Vermont), starting March 21, 2011. Ironically enough I was uninsured for two months when my employer at the time neglected to pay the premium. Since there was a gap in my coverage, I think they can use the pre-existing condition clause. Is that right?

My main worry here is that even though I had no clinical evidence of cancer one year ago, it is well known that cancer is present for years before it is diagnosed. Can the insurer use that as their reasoning for not paying claims on a newly diagnosed cancer and claim it is a pre-existing condition?

I have every intention of using this example publicly, Wendell. (Sen.) Bernie Sanders (I-Vt.) is aware and is willing to take them on, too. I feel like Dirty Harry. Make my day.

Deb

Dear Deb:

There are many excuses insurers use to avoid paying claims. Most have employees who do nothing but search for an excuse to deny coverage when someone gets diagnosed with an illness that will require costly treatment. Some of those employees even get bonuses for finding reasons to cancel policyholders’ coverage when they get sick.

Even though you had no control over the missed premium payments—and likely were not even aware until after the fact that you were uninsured for two months—your insurer could possibly claim you do not meet its criteria for covering care related to a pre-existing condition. Some insurers will not pay for such care during the first six or 12 months of enrollment.

Insurers have also been known to scour a patient’s medical records looking for evidence that an illness was pre-existing—even if the patient had no knowledge of it. Even President Obama’s mother found this to be the case. Her insurer refused to pay the disability claims she had filed when she developed cancer because one of her doctors had made a note on her chart that a growth she detected might become malignant. The doctor never mentioned it to the president’s mother (this was before he got into politics), but it didn’t go unnoticed by her insurer. She was still fighting with the company when she died.

If Sen. Sanders is willing to write a letter or make a call on your behalf, by all means ask him to do so. And be sure to tell MVP you have alerted the senator. That will almost assuredly give your case high-profile status. There is a good chance MVP will quickly end its investigation and pay for your care.

Postscript: Dr. Richter emailed me last week with the news that MVP has agreed to cover her care.

“Well, it worked,” she wrote. “I called them and intimated that I had no intention of getting treatment until they agreed to pay for my care and that would be tantamount to their being negligent. I also mentioned that Bernie Sanders was ready to step in, and did they really want to go that route? Within two hours they got back to me stating they were going to pay every bill related to my care. Hmmm. No gun needed.”

http://www.iwatchnews.org/2011/10/03/6846/ask-wendell-squeak-long-and-loud-health-insurers

Putting Single Payer on the Nation's Agenda

By Kay Tillow
FORsoot, October, 2011

Hope is alive and well for placing national single payer health care on our nation’s agenda.  On August 10, 2011, the St. Louis Post Dispatch editorial board published its opinion on solving both the debt and the health care crises—adopt a single payer system. 

The Post Dispatch asserts that one way to address spiraling health care costs is to shift those costs to recipients, cut the benefits, extend the eligibility age of Medicare and index eligibility to income. 

“The second way for government to address its health costs is not to shift them, but to reduce them. This is what a singlepayer health care system would do, largely by taking the for-profit players (insurance companies for the most part) out of the loop,” said this heartland, mainstream newspaper.
The editorial was quickly reproduced in the Cleveland Plain Dealer, the Kansas City Star, and papers in Fort Worth, Texas, and West Hawaii. The Charleston Gazette (W. Va.) ran a similar editorial on August 17, 2011. 

No matter how many times the insurance and pharmaceutical industries and those political leaders who yield to
those vast corporate powers declare single payer “dead in the water,” “not feasible,” or “off the table” the idea pops up again. That’s because the health care bill passed in 2010, the Affordable Care Act, will not cover everyone, will not make coverage and care affordable, and will not bend the cost curve either for patients or for the nation. 

Instead, the health care crisis is worsening. Last week Kyle Willis, a 24 year-old Cincinnati father, died from a tooth infection because he could not afford the antibiotics prescribed. He is one of about 45,000 people in the US who die each year, not because their conditions are incurable, but solely because they have no insurance coverage. 

Over 60 million people were uninsured for all or part of 2010 and 23 million will remain uninsured in 2019 when the Affordable Care Act is fully in place, if that happens.  Over 49 million people spend more than 10 percent of their income on health care and premiums, meaning they meet the definition of underinsured. 

In the U.S., 62% of personal bankruptcies were linked to medical bills or illness, and three fourths of those bankrupted had health insurance when they got sick. About 54% of Americans reported delaying care in 2010 because of costs.

Medicaid, the plan for the poor and disabled, is supposed to pick up about half of the people who will be newly insured under the Affordable Care Act. Yet, because Medicaid pays so little, many on Medicaid cannot see specialists. Medicaid will become even stingier as it is turned over to profit making companies. That’s the trend, and Kentucky just did it, too.  The Commonwealth Fund’s recent study shows that more money is wasted on administration and the quality of care is lower under such forprofit Medicaid managed care companies.

U. S. health spending is the highest in the world, an estimated $8,649 per person, or 17.7 percent of our Gross Domestic Product. That’s about double what the rest of the industrialized countries spend on health care, yet other countries’ outcomes in life expectancy, infant mortality, and other measures are better than ours. Our
nation’s five top for-profit health insurers netted $11.7 billion in profits in 2010, up 51 percent from 2008.

Even former President Clinton remarked recently that the US could save $1 trillion dollars a year if we adopted  the health care system of any of the other advanced nations.

Joseph Stiglitz, Nobel Laureate Economist and former head of the World Bank is also “pitching for a single payer system.”  When asked why, he stated: “Insurance companies innovate at finding better ways of discrimination. They are inefficient because they are trying to figure out how to insure people who don’t need
the cover and keep out people who need it….  The incentives are all wrong, and the transaction costs are very high, and you have to give them a high profit….  Competition does not work in healthcare especially in the health insurance market.”

Clinton and Stiglitz for single payer? How silent they were when their voices could have counted during the health reform debate of 2009. Yet, their current statements show that single payer is becoming mainstream.

Then there is the real possibility that the Supreme Court will rule the individual mandate in the Affordable Care Act unconstitutional, throwing the whole bill into a tailspin.  John Nichols of “The Nation” says that will just move us closer to adopting an improved Medicare for All, a single payer plan that has no constitutional problems and will really make coverage and care universal.

Physicians for a National Health Program estimates that “private insurance bureaucracy and paperwork consume one-third (31 percent) of every health care dollar. Streamlining payment through a single nonprofit payer would save more than $400 billion per year, enough to provide comprehensive, high-quality coverage for
all Americans.”

The math works. So does the humanity. As Marcia Angell, former editor of the prestigious New England Journal of Medicine says: “If you keep health care in the hands of for-profit companies, you can do one or the other—increase coverage by putting more money into the system, or control costs by decreasing coverage. But you cannot do both unless you change the basic structure of the system.”

It is clear what we have to do. We must build a movement to make the democratic will of the people into the law of the land and pass HR 676, Expanded and Improved Medicare for All. We will have to do what the suffragists did, and the abolitionists did, and the civil rights movement did. 

We will have to recruit our families and our neighbors and put our feet in the streets.  Health care is life and death and ending needless suffering. It is close to the hearts and passions of all of our people.

Kay Tillow is Director of Organization of the Nurses Professional Organization and an activist with Kentuckians for Single Payer Health Care. The group provides free presentations on single payer. (502) 636-1551, nursenpo@aol.com, kyhealthcare.org, pnhp.org.

Vermont Edges Toward Single Payer Health Care

By Jessica Marcy
Kaiser Health News, OCT 02, 2011

Starting now, Vermont begins building a single-payer health system that will move many state residents into a publicly financed insurance program and pay hospitals, doctors and other providers a set fee to care for patients.

Proposed by the governor and passed by the Democratic-controlled legislature, the new program will replace the traditional insurance plans currently used in the state and the traditional fee-for-service reimbursements, giving the state a system different from its 49 counterparts and more like its neighbor to the north, Canada.

Many of the details of the system, including the key issue of financing, still need to be worked out and more legislation will be required to complete the transformation. But Democratic Gov. Peter Shumlin has moved quickly since taking office last January to set the state on a path to create the single-payer system, called Green Mountain Care.

“Under the plan, single payer coverage will be a right and not a privilege, and will not be connected to employment,” he wrote in a recent blog post. “This is groundbreaking. But our success in guaranteeing coverage depends on our ability to control health care costs, so our plan is focused squarely on that goal.”

It will be a unique endeavor; no other state has tried such a dramatic restructuring of its health care system, and national lawmakers backed away from such an option in the health care overhaul debate after vehement opposition from conservatives.

But, Vermont has been a pioneer on other progressive initiatives. It was the first state to recognize gay marriage; and nearly 20 years before the federal health overhaul, Vermont reformed its insurance regulations to bar plans from turning down applicants because of preexisting medical conditions and limit rate variation. It also has one of the nation’s most generous Medicaid programs, as well as a higher percentage of insured residents and health care spending than many other states.

Shumlin recently appointed the five-member Green Mountain Care board, which had an official start date of Oct. 1. That panel will set plans for revamping the state’s health care delivery and payment system including deciding on reimbursement rates.

“Every state in the nation faces a crisis in terms of health care costs rising faster than our ability to pay,” said Anya Rader Wallack, who will chair the Green Mountain board. “What’s unique about Vermont is that we have a governor who has said, ‘I want to fix this problem,’ and he’s put us on a tight timeline for fixing it.”

Here are some of the issues involved:

What would the Vermont law do?

Green Mountain Care would be a state-funded-and-managed insurance pool that would provide near-universal coverage to residents with the expectation that it would reduce health care spending. On May 26, Shumlin signed a bill that started the process. However, the process will take several years. Many key details – such as how to pay for the system – remain unresolved.

The law allows for either a completely public system or a public-private venture where the state could contract out some administrative functions to private insurers. Employers with self-insured plans (usually large companies) would be able to keep their current health coverage.

The law:

–Launches a health insurance exchange as required by the 2010 federal health care law.

–Creates pilot projects to revamp the way health care is delivered and paid for, including possible efforts to use bundled payments, where a provider or group of providers would receive a lump sum for managing specific conditions, or creating a system called an “advanced medical home” in which doctors and other health care providers work together to improve the cost and quality of primary care.

–Establishes the Green Mountain Care Board. The board will provide oversight of cost-control initiatives, review and set rates for medical procedures and design the health benefit package. It will also create a cost projection and recommend a funding plan to the legislature.

How does it fit – or not – with the federal health care law?

Vermont wants to use funds offered in the federal law to build a health insurance exchange that would provide the basis for Green Mountain Care. Under the federal law, all states will have an exchange, or insurance marketplace for individuals and small business, by 2014 – or the federal government will set one up for them. But the law also allows states to seek a waiver from the specific federal requirements for running that exchange if they show they are providing at least equal coverage and benefits another way. Vermont is seeking a waiver to pursue the single payer system and not have to run two duplicative programs.

What are the benefits?

Supporters say that a single-payer system is friendly to consumers and providers and will help reduce the rate of health-care cost increases over time. A Commonwealth Fund report concluded that such a system could cut health care spending by 25 percent after it is fully implemented in about 10 years. After adding coverage for the uninsured and expanding other services, including dental care, the system would save Vermont households and employers nearly $200 million in the first year alone. Savings would come primarily from lower administrative expenses, reduced fraud and abuse, greater delivery system integration and malpractice reform. The report also found that the system would create about 3,800 new jobs and increase the state’s total economic output by more than $100 million in 2015.

Dr. David Himmelstein, a professor at the City University of New York’s School of Public Health and a proponent of a national single payer system, said: “If they follow through like they say they would, it would be a fabulous thing, an enormous gift to the nation.”

What are the criticisms?

Some business owners worry about losing control over how they provide employee insurance and about the potential for more taxes. Others are concerned about legal and fiscal challenges.

In addition is the key concern about the costs for the state. The legislature had to deal with a $150 million shortfall this year. No Republican in the House and only one Republican in the Senate supported the bill. Some House Republicans blasted the governor for not dealing with the hard part — how to finance the plan — until after he campaigns for a second two-year term in 2012.

Meanwhile, some single-payer advocates believe that the new system does not go far enough. Himmelstein said that the law should be more explicit about not having copayments and deductibles and make a greater commitment to global budgeting, in which providers pay for a patient’s healthcare with a set fee for the year.

He also warned that private insurance could undermine government coverage in the same way that the existence of Medicare Advantage plans has prevented the general Medicare program from upgrading its coverage. “The only reason to buy private coverage when there is public coverage is if the public is not good. So it gives the insurance lobby a very strong motive to make the public insurance inadequate since that gins up business for them,” Himmelstein said.

How likely is it that the program will be implemented?

The next few years will prove pivotal in laying the groundwork for implementation. During that time, opponents will be able to organize. They have worked effectively in the past to kill other efforts, including former Gov. Howard Dean’s push to create a single-payer system in 1994.

Implementation may also depend on overcoming certain legal challenges including whether the state gets
waivers from the federal government for Medicaid and Medicare because the system would change how health providers are paid for services in those systems.

Vermont might also face challenges from self-insured employers, who are protected by federal law from state regulations.

How will the state pay for the system?

Vermont is just beginning to examine potential funding options, including sales, income and payroll taxes. In two years, the secretary of administration will need to recommend a financing plan and then the legislature will vote on it.

First though, the Green Mountain Care Board will have to reexamine the costs of a single payer system and then present its findings to the secretary. “The governor said he won’t ask anyone to support a public financing system until he knows that we can do a sufficient job of cost-containment,” Rader Wallack said. “So, we really see it as we have to do our work immediately in order to show that the system is sustainable before we ask for endorsement of any particular financing plan.”

http://www.kaiserhealthnews.org/Stories/2011/October/02/Vermont-single-payer-health-care.aspx

Common Ground for Legal Adversaries on Health Care

By ADAM LIPTAK
The New York Times, September 29, 2011

WASHINGTON — The 2010 health care overhaul law has provoked an unprecedented clash between the federal government and 26 states, dividing them on fundamental questions about the very structure of the federal system. But the two sides share a surprising amount of common ground, too, starting with their agreement in briefs, filed on Wednesday, that the Supreme Court should resolve the clash in its current term.

Until just days ago, it was hardly clear that the Obama administration would agree with the states on the need for prompt review, as there were good political reasons for moving slowly. The court’s decision is now most likely to come just months before the 2012 presidential election.

Their briefs also reflect agreement on matters of substance. The two sides, along with the judges in the majority in the appeals court decision most likely to be reviewed by the justices, all said the dispute is about means rather than ends. There are other ways, they said, for Congress to achieve near-universal health coverage, some of them more expansive than what was enacted.

“Both sides agree that Congress has the constitutional power to enact a national health care system that raised taxes to support a single government agency that pays all medical bills, just like Medicare,” said Walter Dellinger, who served as acting solicitor general in the administration of President Bill Clinton and supports the law.

Randy E. Barnett, a lawyer for some of the plaintiffs who on Wednesday sought Supreme Court review, made essentially the same point. “What I’ve said from Day 1,” he said, “is that if Medicare is constitutional then Medicare-for-everyone is constitutional.”

Mr. Dellinger said there was irony in this harmony. “The constitutional attack is focused on a mandate that was necessary if the new system was to utilize the existing private market, which had traditionally been a conservative and Republican proposal for how to deal with health care,” he said.

To be sure, the two sides dispute whether Congress has the power under the Constitution’s commerce clause to require people to buy insurance through what the federal government calls a minimum coverage provision and the plaintiffs call an individual mandate. But they agree that Congress could have achieved much the same thing through a slightly different mechanism, as Judge Stanley Marcus wrote in his dissent from the 2-to-1 decision issued in August by a panel of the United States Court of Appeals for the 11th Circuit, in Atlanta.

“The plaintiffs and, indeed, the majority have conceded, as they must, that Congress has the commerce power to impose precisely the same mandate compelling the same class of uninsured individuals to obtain the same kind of insurance, or otherwise pay a penalty, as a necessary condition to receiving health care services, at the time the uninsured seek these services,” Judge Marcus wrote.

Judge Jeffrey S. Sutton, one judge on the United States Court of Appeals for the Sixth Circuit in the majority in a 2-to-1 decision in June upholding the law, said the difference between the concededly proper approach and the disputed one was not enough to strike down a major piece of legislation.

“Requiring insurance today and requiring it at a future point of sale amount to policy differences in degree, not kind, and not the sort of policy differences removed from the political branches,” Judge Sutton wrote.

Other judges have acknowledged the distinction but found it legally significant.

“Congress cannot require individuals who choose not to purchase health insurance or individuals who are not currently seeking or receiving services in the health care market to purchase health insurance in order to stabilize the health insurance market,” Judge Christopher C. Conner of Federal District Court in Harrisburg, Pa., wrote this month. “Congress cannot mandate or regulate in anticipation of conduct that may or may not occur in the future.”

The decision of the 11th Circuit is the one most likely to be reviewed by the Supreme Court, if only because it is the one that involves 26 states. It also helps that Solicitor General Donald B. Verrilli Jr. on Wednesday urged the justices to grant a review of that decision rather than the one from the Sixth Circuit. It does not hurt, either, that the states are represented by Paul D. Clement, who served as solicitor general in the administration of President George W. Bush.

Mr. Verrilli and Mr. Clement appear to have areas of agreement about what should follow if the Supreme Court strikes down the requirement to purchase insurance. Both sides have questioned whether the court can surgically remove the heart of the current law without also killing parts of the rest of it.

The 11th Circuit majority, on the other hand, left in place every part of the law except the requirement to purchase insurance, even as it noted that Congress had found the requirement essential to the operation of two other provisions — one forbidding insurers to turn away applicants, the other barring them from taking account of pre-existing conditions.

Lawyers for the federal government have called the three provisions “absolutely intertwined.” In his brief filed Wednesday, Mr. Clement wrote that the 11th Circuit’s decision “erroneously leaves the entire act in place — even provisions that the federal government concedes cannot be divorced from the mandate — notwithstanding compelling evidence that Congress intended the mandate to function as the act’s essential lynchpin and would never have passed the act without it.”

There is agreement on some broader points, too, including that the law, the Affordable Care Act, is one of unusual sweep, ambition and complexity.

In his brief for the administration, Mr. Verrilli said the law was “a comprehensive program of economic regulation and tax measures.”

Mr. Clement said much the same thing, but more vigorously. The law, he wrote, “is a massive collection of sweeping changes that impose substantial new federal obligations on every corner of society and compel financial action from nearly every citizen of the United States.”

The two sides have a final point in common. Each seems quite confident that it will win in the Supreme Court.

http://www.nytimes.com/2011/09/30/us/health-care-adversaries-have-common-ground.html

Medicaid/CHIP patients are shoved out of the office faster

The Effects of Public Health Insurance Expansions

The National Bureau of Economic Research
NBER Digest OnLine, October 2011

In the United States, public health insurance programs cover over 90 million individuals. Changes in the scope of these programs, such as the Medicaid expansions under the recently passed Patient Protection and Affordable Care Act, or in the generosity of these programs, may affect physician behavior.

In “The Doctor Might See You Now: the Supply Side Effects of Public Health Insurance Expansions” (NBER Working Paper No. 17070), Craig Garthwaite finds that after the 1990s implementation of the State Children’s Health Insurance Program (SCHIP) – a partnership between federal and state governments intended to increase insurance coverage for low-income Americans under the age of 19 – more physicians participated in the program, but their total number of hours spent with patients declined as a result of shorter office visits.

Garthwaite finds that there were fewer visits that lasted more than 10 minutes after this public program expansion. The evidence on shorter office visits is consistent with economic models of physician behavior in a system with both public and private payers.

The negative effects of reductions in physician labor supply, such those observed in this study, may be particularly important for Medicaid patients because they are covered by a program that is increasingly not accepted by physicians.

http://www.nber.org/digest/oct11/w17070.html

Most of us who support a single payer national health program do so primarily because it would provide high quality, comprehensive care for everyone. Although the Affordable Care Act will not cover everyone, much of the expansion in coverage that it does accomplish is through increased eligibility for the Medicaid and CHIP programs, chronically underfunded welfare programs. This study demonstrates that such an approach does result in a system with at least two tiers, the lower tier patients facing shorter visits and a decline in access to participating physicians.

There is already enough money in our health care system to provide a single level of comprehensive, high quality care for everyone. We should reject the concept of a separate, underfunded, lower tier program for low-income individuals and families, with a higher tier of great care for the rest of us (though the Affordable Care Act certainly doesn’t ensure that either).

Private Medicare plans shockingly game risk adjustment

The Consequences of Risk Adjustment in the Medicare Advantage Program

The National Bureau of Economic Research
NBER Digest OnLine, September 2011

Since the 1980s, people eligible for Medicare have been able to choose between the regular fee-for-service plan, under which the federal government pays a set fee to health care providers for each service provided, and Medicare Advantage (MA), whereby the government pays private health plans a fee for each individual they enroll. Almost one quarter of Medicare beneficiaries are currently enrolled in Medicare Advantage plans.

Paying the same amount for every person enrolled in a health plan encourages plans to enroll low-cost people and to avoid high-cost ones. Because of this, the federal government historically overpaid for MA enrollees relative to their costs in traditional Medicare. So, in 2004 the Medicare program began to adjust its payments to private plans for enrollees health status. As a result, a plan would, for example, receive a higher “risk-adjusted” payment for a recipient with diabetes or heart disease than for an otherwise identical person without these conditions.

In “How Does Risk Selection Respond to Risk Adjustment? Evidence for the Medicare Advantage Program” (NBER Working Paper No. 16977), Jason Brown, Mark Duggan, Ilyana Kuziemko, and William Wollston study individual-level data for 55,000 people in the Medicare Current Beneficiary Survey (MCBS) from the period 1994 to 2006. Prior to risk adjustment, insurers simply had an incentive to enroll individuals with low costs. After risk adjustment, insurers instead had an incentive to enroll individuals with low costs conditional on their medical conditions. The main reason for this is that the risk adjustment formula pays the plans the average cost of the average person in a particular risk category. The authors demonstrate that, because individuals with less costly cases of diabetes and other health conditions enrolled in MA plans after the move to risk adjustment, overpayments to these plans actually increased.

The risk adjustment formula that is used also explains only 11 percent of an individual’s fee-for-service costs in the year after risk is assessed. The formula systematically over-predicts costs for those with below average costs, and systematically under-predicts costs for those with above average costs. The authors find that individuals who are more expensive than the average person to insure are less likely to enroll in Medicare Advantage plans. So on balance, the government ends up paying the average cost for people who, had they stayed in fee-for-service Medicare, would have cost the government much less.

Before risk-adjustment began in 2004, switching from fee-for-service Medicare to Medicare Advantage increased average individual Medicare spending by $1,800. The authors calculate that using risk adjustment formulas on the population that enrolled before 2004 would have reduced Medicare Advantage overpayments by more than $800 a person. But when the reimbursement formula changed, so did the pattern of enrollment in Medicare Advantage plans. After 2004, switching from fee-for-service to Medicare Advantage increased Medicare spending by approximately $3,000 per person. Thus the shift to risk adjustment actually increased Medicare spending.

Although Medicare Advantage plans did enroll people with higher “risk scores” after risk adjustment was instituted, those people still tended to be significantly below the average cost in their risk category. Furthermore, both before and after risk adjustment, MA enrollees in poor health expressed greater dissatisfaction with their medical care relative to their counterparts in traditional Medicare. This pattern suggests that MA plans invest more resources in their relatively healthy enrollees, perhaps to differentially retain them. 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.

http://www.nber.org/digest/sep11/w16977.html

And…

How does Risk Selection Respond to Risk Adjustment? Evidence from the Medicare Advantage Program

By Jason Brown, Mark Duggan, Ilyana Kuziemko, William Woolston
NBER Working Paper No. 16977, April 2011

We close by returning to the potential distributional consequences of our results. Regardless of how the surplus described above is split, the MA program appears to expand the cost of Medicare while also transferring relative expenditures from the FFS population toward the financing of care for the MA population. As those switching into MA have, throughout the sample period, lower baseline costs and better self-reported health than do those remaining in FFS, the MA program transfers Medicare expenditure to those who likely have less need for it.

Moreover, as we show in Section 7, the gradient of satisfaction with one’s health care is a more positive function of self-reported health for MA enrollees than FFS enrollees, consistent with MA plans treating their healthier (and thus more profitable) enrollees better so as to differentially retain them. Indeed, exit rates out of MA plans are differentially higher among those in poor health. Therefore, the MA program appears not only to transfer aggregate Medicare expenditures from the relatively higher-cost FFS population to the relatively lower-cost MA population, but it seems to effect a similar transfer within the MA population.

These results suggest that governments may wish to take special care in “contracting out” social insurance. Imperfect pricing – whereby the government overpays a private firm relative to the cost and quality of in-house production – is, of course, a potential concern every time governments contract with a private party and has received great attention in the literature (see, for example, Hart et al. 1997). In the case of, say, paving a road, the consequences of imperfect pricing would seem limited to whatever amount the government overpaid. 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.

http://www.nber.org/papers/w16977

Comment:

By Don McCanne, MD

Never underestimate the ability of the private insurance industry to stick it to us. This shocking study on risk adjustment in the Medicare Advantage program should have been a front page story across the nation. It shows us how the private insurers have used risk adjustment – designed to correct their cheating through favorable selection – to further reap their own rewards by upending the adjustments so that they steal even more funds from us!

How could this be? Some history.

Congress was sold on the concept that private insurers could provide higher quality at lower costs than could the traditional, government-run Medicare program. The Medicare + Choice program was established to do this. Even though the plans were able to selectively enroll healthier, lower-cost patients (favorable selection), the concept still was a failure and plans began withdrawing from the markets. They could not fulfill their promise of lower costs for comparable care.

The conservatives would not give up. It was essential that a robust market for private Medicare plans be established as an initial step toward privatizing the entire Medicare program (a concept still very much alive in the Paul Ryan proposal which was approved in the House of Representatives). They wer
e successful in passing legislation that gave private Medicare plans (now Medicare Advantage) a new life by paying them about 13 percent more per beneficiary than it costs to provide care for them in the traditional fee-for-service program.

As is that weren’t enough, the plans continued to selectively enroll healthier, less expensive patients, further expanding their margins. To counter this, risk adjustment was applied to the payment rates. If the plans’ beneficiaries were healthier than average, they would be paid less. If they were subject to adverse selection – enrolling a greater portion of sicker patients – they would be paid more.

Enter this study. Although it is 55 pages of a very heavy read, seriously testing your math skills, the conclusions can be gleaned from the summary and excerpts above. The plans continued to favorably select their patients, not only by enrolling the healthy, but even more by selecting fairly healthy patients that had just a touch of illness that would allow the insurers to move them into intensified diagnostic groups that increased their payments much more than the level of illness would warrant.

The authors explain that firms have been able to decrease “extensive-margin” selection and increase “intensive-margin” selection. These terms might be obscure to us, but what isn’t obscure is that this chicanery on the part of the insurers allowed them to escape the risk adjustments that would have reduced their overpayments from $1,800 to $800 per beneficiary (still an overpayment), and replace it with a $3,000 per person overpayment!

The authors conclude that “governments may wish to take special care in ‘contracting out’ social insurance.” They are far too kind. We need to throw the damn crooks out, fix our traditional Medicare program, and then provide it for everyone.

Private Medicare plans shockingly game risk adjustment

The Consequences of Risk Adjustment in the Medicare Advantage Program

The National Bureau of Economic Research
NBER Digest OnLine, September 2011

Since the 1980s, people eligible for Medicare have been able to choose between the regular fee-for-service plan, under which the federal government pays a set fee to health care providers for each service provided, and Medicare Advantage (MA), whereby the government pays private health plans a fee for each individual they enroll. Almost one quarter of Medicare beneficiaries are currently enrolled in Medicare Advantage plans.

Paying the same amount for every person enrolled in a health plan encourages plans to enroll low-cost people and to avoid high-cost ones. Because of this, the federal government historically overpaid for MA enrollees relative to their costs in traditional Medicare. So, in 2004 the Medicare program began to adjust its payments to private plans for enrollees health status. As a result, a plan would, for example, receive a higher “risk-adjusted” payment for a recipient with diabetes or heart disease than for an otherwise identical person without these conditions.

In “How Does Risk Selection Respond to Risk Adjustment? Evidence for the Medicare Advantage Program” (NBER Working Paper No. 16977), Jason Brown, Mark Duggan, Ilyana Kuziemko, and William Wollston study individual-level data for 55,000 people in the Medicare Current Beneficiary Survey (MCBS) from the period 1994 to 2006. Prior to risk adjustment, insurers simply had an incentive to enroll individuals with low costs. After risk adjustment, insurers instead had an incentive to enroll individuals with low costs conditional on their medical conditions. The main reason for this is that the risk adjustment formula pays the plans the average cost of the average person in a particular risk category. The authors demonstrate that, because individuals with less costly cases of diabetes and other health conditions enrolled in MA plans after the move to risk adjustment, overpayments to these plans actually increased.

The risk adjustment formula that is used also explains only 11 percent of an individual’s fee-for-service costs in the year after risk is assessed. The formula systematically over-predicts costs for those with below average costs, and systematically under-predicts costs for those with above average costs. The authors find that individuals who are more expensive than the average person to insure are less likely to enroll in Medicare Advantage plans. So on balance, the government ends up paying the average cost for people who, had they stayed in fee-for-service Medicare, would have cost the government much less.

Before risk-adjustment began in 2004, switching from fee-for-service Medicare to Medicare Advantage increased average individual Medicare spending by $1,800. The authors calculate that using risk adjustment formulas on the population that enrolled before 2004 would have reduced Medicare Advantage overpayments by more than $800 a person. But when the reimbursement formula changed, so did the pattern of enrollment in Medicare Advantage plans. After 2004, switching from fee-for-service to Medicare Advantage increased Medicare spending by approximately $3,000 per person. Thus the shift to risk adjustment actually increased Medicare spending.

Although Medicare Advantage plans did enroll people with higher “risk scores” after risk adjustment was instituted, those people still tended to be significantly below the average cost in their risk category. Furthermore, both before and after risk adjustment, MA enrollees in poor health expressed greater dissatisfaction with their medical care relative to their counterparts in traditional Medicare. This pattern suggests that MA plans invest more resources in their relatively healthy enrollees, perhaps to differentially retain them. 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.

http://www.nber.org/digest/sep11/w16977.html

And…

How does Risk Selection Respond to Risk Adjustment? Evidence from the Medicare Advantage Program

By Jason Brown, Mark Duggan, Ilyana Kuziemko, William Woolston
NBER Working Paper No. 16977, April 2011

We close by returning to the potential distributional consequences of our results. Regardless of how the surplus described above is split, the MA program appears to expand the cost of Medicare while also transferring relative expenditures from the FFS population toward the financing of care for the MA population. As those switching into MA have, throughout the sample period, lower baseline costs and better self-reported health than do those remaining in FFS, the MA program transfers Medicare expenditure to those who likely have less need for it.

Moreover, as we show in Section 7, the gradient of satisfaction with one’s health care is a more positive function of self-reported health for MA enrollees than FFS enrollees, consistent with MA plans treating their healthier (and thus more profitable) enrollees better so as to differentially retain them. Indeed, exit rates out of MA plans are differentially higher among those in poor health. Therefore, the MA program appears not only to transfer aggregate Medicare expenditures from the relatively higher-cost FFS population to the relatively lower-cost MA population, but it seems to effect a similar transfer within the MA population.

These results suggest that governments may wish to take special care in “contracting out” social insurance. Imperfect pricing – whereby the government overpays a private firm relative to the cost and quality of in-house production – is, of course, a potential concern every time governments contract with a private party and has received great attention in the literature (see, for example, Hart et al. 1997). In the case of, say, paving a road, the consequences of imperfect pricing would seem limited to whatever amount the government overpaid. 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.

http://www.nber.org/papers/w16977

Never underestimate the ability of the private insurance industry to stick it to us. This shocking study on risk adjustment in the Medicare Advantage program should have been a front page story across the nation. It shows us how the private insurers have used risk adjustment – designed to correct their cheating through favorable selection – to further reap their own rewards by upending the adjustments so that they steal even more funds from us!

How could this be? Some history.

Congress was sold on the concept that private insurers could provide higher quality at lower costs than could the traditional, government-run Medicare program. The Medicare + Choice program was established to do this. Even though the plans were able to selectively enroll healthier, lower-cost patients (favorable selection), the concept still was a failure and plans began withdrawing from the markets. They could not fulfill their promise of lower costs for comparable care.

The conservatives would not give up. It was essential that a robust market for private Medicare plans be established as an initial step toward privatizing the entire Medicare program (a concept still very much alive in the Paul Ryan proposal which was approved in the House of Representatives). They were successful in passing legislation that gave private Medicare plans (now Medicare Advantage) a new life by paying them about 13 percent more per beneficiary than it costs to provide care for them in the traditional fee-for-service program.

As is that weren’t enough, the plans continued to selectively enroll healthier, less expensive patients, further expanding their margins. To counter this, risk adjustment was applied to the payment rates. If the plans’ beneficiaries were healthier than average, they would be paid less. If they were subject to adverse selection – enrolling a greater portion of sicker patients – they would be paid more.

Enter this study. Although it is 55 pages of a very heavy read, seriously testing your math skills, the conclusions can be gleaned from the summary and excerpts above. The plans continued to favorably select their patients, not only by enrolling the healthy, but even more by selecting fairly healthy patients that had just a touch of illness that would allow the insurers to move them into intensified diagnostic groups that increased their payments much more than the level of illness would warrant.

The authors explain that firms have been able to decrease “extensive-margin” selection and increase “intensive-margin” selection. These terms might be obscure to us, but what isn’t obscure is that this chicanery on the part of the insurers allowed them to escape the risk adjustments that would have reduced their overpayments from $1,800 to $800 per beneficiary (still an overpayment), and replace it with a $3,000 per person overpayment!

The authors conclude that “governments may wish to take special care in ‘contracting out’ social insurance.” They are far too kind. We need to throw the damn crooks out, fix our traditional Medicare program, and then provide it for everyone.

Consensus on the constitutionality of Medicare for all

Some Common Ground for Legal Adversaries on Health Care

By Adam Liptak
The New York Times, September 29, 2011

The 2010 health care overhaul law has provoked an unprecedented clash between the federal government and 26 states, dividing them on fundamental questions about the very structure of the federal system. But the two sides share a surprising amount of common ground, too, starting with their agreement in briefs, filed on Wednesday, that the Supreme Court should resolve the clash in its current term.

Their briefs also reflect agreement on matters of substance. The two sides, along with the judges in the majority in the appeals court decision most likely to be reviewed by the justices, all said the dispute is about means rather than ends. There are other ways, they said, for Congress to achieve near-universal health coverage, some of them more expansive than what was enacted.

“Both sides agree that Congress has the constitutional power to enact a national health care system that raised taxes to support a single government agency that pays all medical bills, just like Medicare,” said Walter Dellinger, who served as acting solicitor general in the administration of President Bill Clinton and supports the law.

Randy E. Barnett, a lawyer for some of the plaintiffs who on Wednesday sought Supreme Court review, made essentially the same point. “What I’ve said from Day 1,” he said, “is that if Medicare is constitutional then Medicare-for-everyone is constitutional.”

http://www.nytimes.com/2011/09/30/us/health-care-adversaries-have-common-ground.html

Comment:

By Don McCanne, MD

The Affordable Care Act represents the most expensive model of reform and yet falls short on universality and affordability, and now it is being challenged as a violation of the Constitution. Why are we defending it when the least expensive model that actually would accomplish our goals has been declared by all parties to be compliant with the Constitution?

Fast tracking the decision is great. Once the legal issues are dispensed with, we can look at the mess we have left, reject it, and move on to enacting an improved Medicare for all.

Additional comment from Merrill Goozner:

What’s interesting about rising insurance premiums is that they are way out of line with the rise in costs, which was only around 4% last year in nominal dollars, which in inflation-adjusted dollars would be just a 2% increase. Both Medicare total expenditures and insurance total expenditures rose (which, after adjusting for inflation was the same rate as economic growth; GDP rose 2.6% in 2010). It was one of the lowest increases in decades, as health care’s share of the economy did not increase for the first time in many years.

So why the hike in premiums. A Goldman Sachs analyst quoted in the WSJ story earlier this week attributed the outsized premium increases to insurance
companies padding their bottom lines.

I blogged on it here: http://gooznews.com/?p=3215

Consensus on the constitutionality of Medicare for all

Some Common Ground for Legal Adversaries on Health Care

By Adam Liptak
The New York Times, September 29, 2011

The 2010 health care overhaul law has provoked an unprecedented clash between the federal government and 26 states, dividing them on fundamental questions about the very structure of the federal system. But the two sides share a surprising amount of common ground, too, starting with their agreement in briefs, filed on Wednesday, that the Supreme Court should resolve the clash in its current term.

Their briefs also reflect agreement on matters of substance. The two sides, along with the judges in the majority in the appeals court decision most likely to be reviewed by the justices, all said the dispute is about means rather than ends. There are other ways, they said, for Congress to achieve near-universal health coverage, some of them more expansive than what was enacted.

“Both sides agree that Congress has the constitutional power to enact a national health care system that raised taxes to support a single government agency that pays all medical bills, just like Medicare,” said Walter Dellinger, who served as acting solicitor general in the administration of President Bill Clinton and supports the law.

Randy E. Barnett, a lawyer for some of the plaintiffs who on Wednesday sought Supreme Court review, made essentially the same point. “What I’ve said from Day 1,” he said, “is that if Medicare is constitutional then Medicare-for-everyone is constitutional.”

http://www.nytimes.com/2011/09/30/us/health-care-adversaries-have-common-ground.html

The Affordable Care Act represents the most expensive model of reform and yet falls short on universality and affordability, and now it is being challenged as a violation of the Constitution. Why are we defending it when the least expensive model that actually would accomplish our goals has been declared by all parties to be compliant with the Constitution?

Fast tracking the decision is great. Once the legal issues are dispensed with, we can look at the mess we have left, reject it, and move on to enacting an improved Medicare for all.

Additional comment from Merrill Goozner:

What’s interesting about rising insurance premiums is that they are way out of line with the rise in costs, which was only around 4% last year in nominal dollars, which in inflation-adjusted dollars would be just a 2% increase. Both Medicare total expenditures and insurance total expenditures rose (which, after adjusting for inflation was the same rate as economic growth; GDP rose 2.6% in 2010). It was one of the lowest increases in decades, as health care’s share of the economy did not increase for the first time in many years.

So why the hike in premiums. A Goldman Sachs analyst quoted in the WSJ story earlier this week attributed the outsized premium increases to insurance
companies padding their bottom lines.

I blogged on it here: http://gooznews.com/?p=3215