Mercer
April 27, 2010

More than a third of the nation’s employers – 38% – have at least some employees for whom coverage would be considered “unaffordable” under the newly enacted Patient Protection and Affordable Care Act (PPACA), according to a new analysis of data from Mercer’s annual employer health plan survey.

According to Mercer’s analysis, one of the more challenging provisions to interpret and apply may be the rule that employers provide “affordable” coverage – meaning that full-time employees must generally be asked to pay no more than 9.5% of their household income for coverage.

If employer coverage is “unaffordable” by this definition, and at least one employee receives government assistance to buy individual coverage through a health insurance exchange, the employer must pay a yearly penalty of $3,000 per full-time employee who gets government assistance and buys coverage in an exchange (to a maximum of $2,000 times the number of full-time employees in excess of the first 30), starting in 2014. For employers trying to understand their potential risk for incurring the penalty, determining each employee’s household income presents a significant challenge. Without access to that information, employers can use a conservative approach by assuming that each employee’s pay is the total household income.

Apart from employers that don’t currently offer coverage at all, reform may have the biggest impact on employers with large part-time populations that don’t provide coverage to any part-time employees or require them to work more than 30 hours per week for coverage eligibility. Under the “shared responsibility” requirement, all employees working an average of 30 hours per week or more in a month must be eligible for affordable coverage, or the employer may be subject to a penalty.

Mini-med, or limited benefit, plans, which typically limit coverage to $50,000 to $100,000 per year, will no longer be an option for part-timers or other employees who work an average of 30 or more hours a week.

How many employers don’t have any of the three red flags – for unaffordable coverage, ineligible part-time employees, or mini-med plans – described above? Only about a third (38%) of them; close to half (48%) have one red flag and 14% have two.

Although they may require the most significant changes in benefit strategy, these aren’t the only provisions affecting employer plans. Employers will have to discontinue lifetime maximums, most annual dollar maximums, and cost-sharing on preventive care – even something as modest as a $10 copay. The use of lifetime benefit maximums, banned under PPACA, currently is the rule rather than the exception. About three-fifths all employers (61%) and nearly three-fourths of large employers (71%) have lifetime benefit maximums in their PPO plans. Lifetime maximums are less common in HMOs, where 25% of sponsors currently use them.
 
“The design changes really have to be looked at in concert with the affordability requirement for contributions. Simply stated, it’s going to cost an employer more to offer a generous plan and cap the contributions for low-income employees at 9.5% of their income,” said (Tracy Watts, a partner in Mercer’s Washington, DC, office). “An unintended consequence of reform may be that employers adopt a ’safety-net‘ plan that meets the minimum requirements as their new standard plan and offer a more generous plan at higher cost to employees.”

http://www.mercer.com/summary.htm?idContent=1378875

And…

Study: Many Health Plans Not Affordable

CFO
May 3, 2010

Nearly 40% of employers may be at risk for violating the Patient Protection and Affordable Care Act’s (PPACA) mandate that company health-care plans be affordable, according to a recent Mercer analysis of close to 3,000 employer-sponsored health plans.

… experts say the level of health coverage would likely degenerate compared with current levels, in order to make the plans cheaper. Particularly if all plans must be affordable, “you’ll probably see the level of coverage going down,” says (Beth Umland, director of research for health and benefits at Mercer), with employers making additional, richer coverage available for workers to purchase with aftertax dollars.

The law does require a minimum level of coverage — specifically, that health insurance plans cover 60% or more of medical costs — but most appear to be well within that constraint, says Umland, offering plenty of leeway for downgrading.

http://www.cfo.com/article.cfm/14495563/c_14495857?f=home_todayinfinance

Comment: 

By Don McCanne, MD

One of the more important reasons given for choosing the model of reform that was eventually enacted (PPACA) was that the administration and Congress did not want to disrupt the portion of health plan coverage that was working fairly well: employer-sponsored health plans.

Not only did this represent the largest sector of those already insured, the benefits in the plans were relatively generous compared to the individual insurance market, and, most importantly, policymakers were reluctant to forgo the massive infusion of health care funds already provided by the employers. Though these funds actually represent forgone wage and salary increases for the employees, the financing was already in place, thereby eliminating the need to try to fit this enormous expense into the federal budget.

Although the individual and small group insurance market was a disaster, Congress recognized that employer-sponsored plans also were facing difficulties. Because of rising health care costs, plans were becoming less affordable. Employers began shifting more costs to employees through benefit design changes (high-deductibles, etc.), and some employers were even dropping coverage altogether. To reduce the financial burden on the employer, Congress decided that the plans would not be required to have an actuarial value of greater than 60 percent, even though that shifted more costs to the employees and their families. Congress also realized that employees would not be able to bear an excessive share of the increasing insurance premiums, so they limited the employee premium contribution to 9.5 percent of household income. Further, to be sure that employers did not bail out, they established a $3000/$2000 employer penalty for any employees that purchased government subsidized plans in the exchanges.

Put those numbers together and then ask yourself, was Congress effective in its effort to avoid disrupting the employer-sponsored segment of private health plans? The structure of the reform leaves employers with almost no other option than to significantly downgrade their plans, shifting more costs to individuals and families who actually need health care. They may continue to offer their employees the option to purchase better plans, but only those employees who can afford the additional costs of after-tax premiums will do so. Thus Congress has further intensified the economic divide between the wealthy and the rest of us.

Although disruptive innovation has great appeal on Wall Street, Congress’s disruptive innovation for employer-sponsored health plans will be a disaster for our workforce and their families who need health care.

It’s not too late to dump the highly flawed PPACA and move on with a program that actually would work: an improved Medicare for everyone.

A third of employers may be penalized for health coverage deemed ‘unaffordable’

Mercer
April 27, 2010
More than a third of the nation’s employers – 38% – have at least some employees for whom coverage would be considered “unaffordable” under the newly enacted Patient Protection and Affordable Care Act (PPACA), according to a new analysis of data from Mercer’s annual employer health plan survey.
According to Mercer’s analysis, one of the more challenging provisions to interpret and apply may be the rule that employers provide “affordable” coverage – meaning that full-time employees must generally be asked to pay no more than 9.5% of their household income for coverage.
If employer coverage is “unaffordable” by this definition, and at least one employee receives government assistance to buy individual coverage through a health insurance exchange, the employer must pay a yearly penalty of $3,000 per full-time employee who gets government assistance and buys coverage in an exchange (to a maximum of $2,000 times the number of full-time employees in excess of the first 30), starting in 2014. For employers trying to understand their potential risk for incurring the penalty, determining each employee’s household income presents a significant challenge. Without access to that information, employers can use a conservative approach by assuming that each employee’s pay is the total household income.
Apart from employers that don’t currently offer coverage at all, reform may have the biggest impact on employers with large part-time populations that don’t provide coverage to any part-time employees or require them to work more than 30 hours per week for coverage eligibility. Under the “shared responsibility” requirement, all employees working an average of 30 hours per week or more in a month must be eligible for affordable coverage, or the employer may be subject to a penalty.
Mini-med, or limited benefit, plans, which typically limit coverage to $50,000 to $100,000 per year, will no longer be an option for part-timers or other employees who work an average of 30 or more hours a week.
How many employers don’t have any of the three red flags – for unaffordable coverage, ineligible part-time employees, or mini-med plans – described above? Only about a third (38%) of them; close to half (48%) have one red flag and 14% have two.
Although they may require the most significant changes in benefit strategy, these aren’t the only provisions affecting employer plans. Employers will have to discontinue lifetime maximums, most annual dollar maximums, and cost-sharing on preventive care – even something as modest as a $10 copay. The use of lifetime benefit maximums, banned under PPACA, currently is the rule rather than the exception. About three-fifths all employers (61%) and nearly three-fourths of large employers (71%) have lifetime benefit maximums in their PPO plans. Lifetime maximums are less common in HMOs, where 25% of sponsors currently use them.
“The design changes really have to be looked at in concert with the affordability requirement for contributions. Simply stated, it’s going to cost an employer more to offer a generous plan and cap the contributions for low-income employees at 9.5% of their income,” said (Tracy Watts, a partner in Mercer’s Washington, DC, office). “An unintended consequence of reform may be that employers adopt a ’safety-net‘ plan that meets the minimum requirements as their new standard plan and offer a more generous plan at higher cost to employees.”
http://www.mercer.com/summary.htm?idContent=1378875

And…

Study: Many Health Plans Not Affordable

CFO
May 3, 2010
Nearly 40% of employers may be at risk for violating the Patient Protection and Affordable Care Act’s (PPACA) mandate that company health-care plans be affordable, according to a recent Mercer analysis of close to 3,000 employer-sponsored health plans.
… experts say the level of health coverage would likely degenerate compared with current levels, in order to make the plans cheaper. Particularly if all plans must be affordable, “you’ll probably see the level of coverage going down,” says (Beth Umland, director of research for health and benefits at Mercer), with employers making additional, richer coverage available for workers to purchase with aftertax dollars.
The law does require a minimum level of coverage — specifically, that health insurance plans cover 60% or more of medical costs — but most appear to be well within that constraint, says Umland, offering plenty of leeway for downgrading.
http://www.cfo.com/article.cfm/14495563/c_14495857?f=home_todayinfinance

One of the more important reasons given for choosing the model of reform that was eventually enacted (PPACA) was that the administration and Congress did not want to disrupt the portion of health plan coverage that was working fairly well: employer-sponsored health plans.
Not only did this represent the largest sector of those already insured, the benefits in the plans were relatively generous compared to the individual insurance market, and, most importantly, policymakers were reluctant to forgo the massive infusion of health care funds already provided by the employers. Though these funds actually represent forgone wage and salary increases for the employees, the financing was already in place, thereby eliminating the need to try to fit this enormous expense into the federal budget.
Although the individual and small group insurance market was a disaster, Congress recognized that employer-sponsored plans also were facing difficulties. Because of rising health care costs, plans were becoming less affordable. Employers began shifting more costs to employees through benefit design changes (high-deductibles, etc.), and some employers were even dropping coverage altogether. To reduce the financial burden on the employer, Congress decided that the plans would not be required to have an actuarial value of greater than 60 percent, even though that shifted more costs to the employees and their families. Congress also realized that employees would not be able to bear an excessive share of the increasing insurance premiums, so they limited the employee premium contribution to 9.5 percent of household income. Further, to be sure that employers did not bail out, they established a $3000/$2000 employer penalty for any employees that purchased government subsidized plans in the exchanges.
Put those numbers together and then ask yourself, was Congress effective in its effort to avoid disrupting the employer-sponsored segment of private health plans? The structure of the reform leaves employers with almost no other option than to significantly downgrade their plans, shifting more costs to individuals and families who actually need health care. They may continue to offer their employees the option to purchase better plans, but only those employees who can afford the additional costs of after-tax premiums will do so. Thus Congress has further intensified the economic divide between the wealthy and the rest of us.
Although disruptive innovation has great appeal on Wall Street, Congress’s disruptive innovation for employer-sponsored health plans will be a disaster for our workforce and their families who need health care.
It’s not too late to dump the highly flawed PPACA and move on with a program that actually would work: an improved Medicare for everyone.

By Barbara Starfield
Health Affairs
May 2010

Canada is, in many respects, culturally and economically similar to the United States, and until relatively recently, the two countries had similar health systems. However, since passage of the Canada Health Act in the 1970s, that nation’s health statistics have become increasingly superior. Although the costs of Canada’s health system are high by international standards, they are much lower than U.S. costs. This paper describes several factors likely to be responsible for Canada’s better health at lower cost: universal financial coverage through a so-called single payer; features conducive to a strong primary care infrastructure; and provincial autonomy under general principles set by national law.

Differences in health — both overall and regarding social disparities — in two countries that are otherwise quite similar are attributed to the important effect of two related phenomena: achievement of important health-system characteristics and a strong clinical primary care infrastructure in Canada. Several international studies have confirmed the importance of three health-system characteristics of countries that achieve better health at lower cost: government attempts to distribute resources, such as personnel and facilities, equitably; universal financial coverage either through a single payer or regulated by the government; and low or no cost sharing for primary care services.

U.S. policy achieves none of the three structural characteristics of good health systems. Canada achieves all three. At the same time, although Canada’s efforts to distribute resources equitably have been more extensive and successful than in the United States, Canada’s are less adequate than in other countries, such as Sweden, Finland, Denmark, the Netherlands, Spain, and the United Kingdom.

The United States also is the only industrialized country to lack a national strategy to address important building blocks of a strong primary care system, including services delivery, workforce, information systems, medical products, vaccines, technology policy, financing, leadership, and governance. International experiences demonstrate that national stewardship, financing, and generation of resources are important for an adequate primary care infrastructure.

http://content.healthaffairs.org/cgi/content/full/29/5/1030

Health Affairs theme issue: Reinventing Primary Care
http://content.healthaffairs.org/content/vol29/issue5/index.dtl?etoc

Comment: 

By Don McCanne, MD

The May 2010 issue of Health Affairs is a theme issue on “Reinventing Primary Care.” As a long time advocate of strengthening our primary care infrastructure, Barbara Starfield’s comments serve as an entry to the concepts and policies discussed in this special issue. We need to enact a single payer financing system, but that would be of little consolation if the health care professionals were not there when we needed them.

Reinventing Primary Care: Lessons From Canada For The United States

By Barbara Starfield
Health Affairs
May 2010
Canada is, in many respects, culturally and economically similar to the United States, and until relatively recently, the two countries had similar health systems. However, since passage of the Canada Health Act in the 1970s, that nation’s health statistics have become increasingly superior. Although the costs of Canada’s health system are high by international standards, they are much lower than U.S. costs. This paper describes several factors likely to be responsible for Canada’s better health at lower cost: universal financial coverage through a so-called single payer; features conducive to a strong primary care infrastructure; and provincial autonomy under general principles set by national law.
Differences in health — both overall and regarding social disparities — in two countries that are otherwise quite similar are attributed to the important effect of two related phenomena: achievement of important health-system characteristics and a strong clinical primary care infrastructure in Canada. Several international studies have confirmed the importance of three health-system characteristics of countries that achieve better health at lower cost: government attempts to distribute resources, such as personnel and facilities, equitably; universal financial coverage either through a single payer or regulated by the government; and low or no cost sharing for primary care services.
U.S. policy achieves none of the three structural characteristics of good health systems. Canada achieves all three. At the same time, although Canada’s efforts to distribute resources equitably have been more extensive and successful than in the United States, Canada’s are less adequate than in other countries, such as Sweden, Finland, Denmark, the Netherlands, Spain, and the United Kingdom.
The United States also is the only industrialized country to lack a national strategy to address important building blocks of a strong primary care system, including services delivery, workforce, information systems, medical products, vaccines, technology policy, financing, leadership, and governance. International experiences demonstrate that national stewardship, financing, and generation of resources are important for an adequate primary care infrastructure.
http://content.healthaffairs.org/cgi/content/full/29/5/1030
Health Affairs theme issue: Reinventing Primary Care
http://content.healthaffairs.org/content/vol29/issue5/index.dtl?etoc

The May 2010 issue of Health Affairs is a theme issue on “Reinventing Primary Care.” As a long time advocate of strengthening our primary care infrastructure, Barbara Starfield’s comments serve as an entry to the concepts and policies discussed in this special issue. We need to enact a single payer financing system, but that would be of little consolation if the health care professionals were not there when we needed them.

Government Accountability Office (GAO)
April 30, 2010

This report formally transmits the attached slides (at link below) in response to section 1899L of the American Recovery and Reinvestment Act of 2009. The statute required the Comptroller General to examine issues related to participation in and administrative costs associated with the Health Coverage Tax Credit program administered by the Internal Revenue Service (IRS) in the Department of the Treasury, and to provide the results to Congress by March 1, 2010.

The Health Coverage Tax Credit (HCTC) is a tax credit created by the Trade Adjustment Assistance Reform Act of 2002 that pays a share of health plan premiums for eligible individuals: certain workers who lost their jobs due to foreign competition and are eligible for Trade Adjustment Assistance (TAA) benefits, and certain retirees age 55 and over whose pensions were taken over by the Pension Benefit Guaranty Corporation (PBGC).

Participation: fewer than 30,000 of the hundreds of thousands of potentially eligible individuals each year have participated

From 2003 through 2008, total annual HCTC participation averaged about 26,000 individuals, with declining participation since 2005.

HCTC participation increased after key Recovery Act changes took effect: The average number of advance participants per month increased by 36 percent. This was higher than the increase in the average number of potentially eligible individuals per month — 23 percent.

Prior to the Recovery Act temporary increase, the HCTC covered 65 percent of health plan premiums.

Recovery Act changes to the HCTC in 2009 increased the credit from 65 percent to 80 percent of premiums.
 
The HCTC administrative costs to IRS averaged 17 percent of total HCTC-related costs, and most health plans reported that any additional administrative costs were minimal.

The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 includes a tax credit to help individuals pay for health coverage. Like the HCTC, it will be administered by the IRS and available in advance as a payment directly to health plans or as a credit on participants’ end-of-year taxes. A key difference between the administration of the new credit and the HCTC is that, under the new credit, participants will pay their share of the health plans’ premiums directly to the health plans and IRS will only process the governments’ share of the payment.

HCTC Administrative Costs:

• From 2003 through 2008, HCTC administrative costs to IRS averaged 17 percent of total HCTC-related costs, with variation related to start up costs in early years.

• Most HCTC health plan and TPA officials that provided information reported that any additional administrative costs for HCTC participants compared to the typical costs incurred for non-HCTC participants were minimal. 

• A share of the $793 million in health plan premiums paid from 2003 through 2008 covers the health plans’ administrative costs.

• Industry estimates of health plans’ typical administrative costs for all enrollees vary greatly, from 5 to 26 percent for group plans, such as employer-sponsored plans, and 25 to 40 percent for individual, nongroup plans.

http://www.gao.gov/new.items/d10521r.pdf

Comment: 

By Don McCanne, MD

An important feature of the Patient Protection and Affordable Care Act (PPACA) is the provision of a tax credit to help individuals purchase private health plans. A similar tax credit is already available for eligible displaced workers and certain retirees. This report from the Government Accountability Office (GAO) provides insight to anticipated participation levels, and to the administrative burden placed on the IRS which has administered the current tax credit program and will be administering the tax credits under PPACA.

Regarding participation levels, only tens of thousands, out of hundreds of thousands eligible, participated in the HCTC (Health Coverage Tax Credit) program, even though the tax credit was increased to 80 percent of premiums. Under the PPACA, tax credits are much more modest for average-income individuals and families (35 to 44 percent at 300 to 400 percent of the federal poverty level). Although PPACA differs because there is a mandate to purchase insurance with penalties for non-compliance, the poor response to a much more generous program should raise concerns about the inadequacy of the PPACA premium subsidies, which will likely result in lower than anticipated levels of participation. We will still be seeing far too many individuals who will remain uninsured.

Regarding the administrative costs, the burden of HCTC on the IRS has been quite high, adding 17 percent in administrative costs to the already high administrative costs of the private insurers (5 to 26 percent for group plans and 25 to 40 percent for individual plans). Although greater participation would spread the IRS’s fixed costs more broadly, any program that requires continuing reassessment of eligibility determination for each individual is bound to perpetuate administrative complexity.

What a waste. It would be so much simpler and much less costly to automatically include everyone in a single health care program, and fund it separately through equitable tax policies. The extra burden for the IRS would be essentially nil, not to mention that we would eliminate the profound administrative excesses of the private insurance industry.

We can still do it right.

Health Coverage Tax Credit: Participation and Administrative Costs

Government Accountability Office (GAO)
April 30, 2010
This report formally transmits the attached slides (at link below) in response to section 1899L of the American Recovery and Reinvestment Act of 2009. The statute required the Comptroller General to examine issues related to participation in and administrative costs associated with the Health Coverage Tax Credit program administered by the Internal Revenue Service (IRS) in the Department of the Treasury, and to provide the results to Congress by March 1, 2010.
The Health Coverage Tax Credit (HCTC) is a tax credit created by the Trade Adjustment Assistance Reform Act of 2002 that pays a share of health plan premiums for eligible individuals: certain workers who lost their jobs due to foreign competition and are eligible for Trade Adjustment Assistance (TAA) benefits, and certain retirees age 55 and over whose pensions were taken over by the Pension Benefit Guaranty Corporation (PBGC).
Participation: fewer than 30,000 of the hundreds of thousands of potentially eligible individuals each year have participated
From 2003 through 2008, total annual HCTC participation averaged about 26,000 individuals, with declining participation since 2005.
HCTC participation increased after key Recovery Act changes took effect: The average number of advance participants per month increased by 36 percent. This was higher than the increase in the average number of potentially eligible individuals per month — 23 percent.
Prior to the Recovery Act temporary increase, the HCTC covered 65 percent of health plan premiums.
Recovery Act changes to the HCTC in 2009 increased the credit from 65 percent to 80 percent of premiums.
The HCTC administrative costs to IRS averaged 17 percent of total HCTC-related costs, and most health plans reported that any additional administrative costs were minimal.
The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 includes a tax credit to help individuals pay for health coverage. Like the HCTC, it will be administered by the IRS and available in advance as a payment directly to health plans or as a credit on participants’ end-of-year taxes. A key difference between the administration of the new credit and the HCTC is that, under the new credit, participants will pay their share of the health plans’ premiums directly to the health plans and IRS will only process the governments’ share of the payment.
HCTC Administrative Costs:
• From 2003 through 2008, HCTC administrative costs to IRS averaged 17 percent of total HCTC-related costs, with variation related to start up costs in early years.
• Most HCTC health plan and TPA officials that provided information reported that any additional administrative costs for HCTC participants compared to the typical costs incurred for non-HCTC participants were minimal.
• A share of the $793 million in health plan premiums paid from 2003 through 2008 covers the health plans’ administrative costs.
• Industry estimates of health plans’ typical administrative costs for all enrollees vary greatly, from 5 to 26 percent for group plans, such as employer-sponsored plans, and 25 to 40 percent for individual, nongroup plans.
http://www.gao.gov/new.items/d10521r.pdf

An important feature of the Patient Protection and Affordable Care Act (PPACA) is the provision of a tax credit to help individuals purchase private health plans. A similar tax credit is already available for eligible displaced workers and certain retirees. This report from the Government Accountability Office (GAO) provides insight to anticipated participation levels, and to the administrative burden placed on the IRS which has administered the current tax credit program and will be administering the tax credits under PPACA.
Regarding participation levels, only tens of thousands, out of hundreds of thousands eligible, participated in the HCTC (Health Coverage Tax Credit) program, even though the tax credit was increased to 80 percent of premiums. Under the PPACA, tax credits are much more modest for average-income individuals and families (35 to 44 percent at 300 to 400 percent of the federal poverty level). Although PPACA differs because there is a mandate to purchase insurance with penalties for non-compliance, the poor response to a much more generous program should raise concerns about the inadequacy of the PPACA premium subsidies, which will likely result in lower than anticipated levels of participation. We will still be seeing far too many individuals who will remain uninsured.
Regarding the administrative costs, the burden of HCTC on the IRS has been quite high, adding 17 percent in administrative costs to the already high administrative costs of the private insurers (5 to 26 percent for group plans and 25 to 40 percent for individual plans). Although greater participation would spread the IRS’s fixed costs more broadly, any program that requires continuing reassessment of eligibility determination for each individual is bound to perpetuate administrative complexity.
What a waste. It would be so much simpler and much less costly to automatically include everyone in a single health care program, and fund it separately through equitable tax policies. The extra burden for the IRS would be essentially nil, not to mention that we would eliminate the profound administrative excesses of the private insurance industry.
We can still do it right.

Edward Luce, Financial Times, Washington Bureau Chief
April 30, 2010

I think I would, controversially, and these are my personal opinions, not the opinions of the Financial Times, necessarily; but you mentioned single payer. I think if we could transcend the political realities for a moment… in terms purely alone of American competitiveness, forget the moral argument, forget the social justice case for universal access to public health care, but just in terms of putting a lid on the galloping costs in the American economy, the disincentive to creating a new manufacturing job here for example, as opposed to in China, or Canada for that matter, I would have a single payer system. A single payer system would be able to negotiate like a monopsony, which is the buyer side of a monopoly, and to reduce drug prices which is one of the biggest contributors to health care inflation in America. It would be able to do all sorts of things to drive health care costs down, and that would help begin to solve America’s fiscal problem.

http://www.c-span.org/Watch/Media/2010/04/30/WJE/R/32382/Friday+April+30.aspx

Comment: 

By Don McCanne, MD

Although we cannot just forget the moral argument – the social justice case for single payer – those who worry more about the American economy should be just as concerned as we are. As Financial Times Washington Bureau Chief Edward Luce states, single payer “would help begin to solve America’s fiscal problem.” The nation should be unified, socially and politically, in support of single payer reform.

Washington Journal, C-SPAN

Edward Luce, Financial Times, Washington Bureau Chief
April 30, 2010
I think I would, controversially, and these are my personal opinions, not the opinions of the Financial Times, necessarily; but you mentioned single payer. I think if we could transcend the political realities for a moment… in terms purely alone of American competitiveness, forget the moral argument, forget the social justice case for universal access to public health care, but just in terms of putting a lid on the galloping costs in the American economy, the disincentive to creating a new manufacturing job here for example, as opposed to in China, or Canada for that matter, I would have a single payer system. A single payer system would be able to negotiate like a monopsony, which is the buyer side of a monopoly, and to reduce drug prices which is one of the biggest contributors to health care inflation in America. It would be able to do all sorts of things to drive health care costs down, and that would help begin to solve America’s fiscal problem.
http://www.c-span.org/Watch/Media/2010/04/30/WJE/R/32382/Friday+April+30.aspx

Although we cannot just forget the moral argument – the social justice case for single payer – those who worry more about the American economy should be just as concerned as we are. As Financial Times Washington Bureau Chief Edward Luce states, single payer “would help begin to solve America’s fiscal problem.” The nation should be unified, socially and politically, in support of single payer reform.

By Bonnie B. Blanchfield, James L. Heffernan, Bradford Osgood, Rosemary R. Sheehan and Gregg S. Meyer
Health Affairs
April 29, 2010

Abstract

The U.S. system of billing third parties for health care services is complex, expensive, and inefficient. Physicians end up using nearly 12 percent of their net patient service revenue to cover the costs of excessive administrative complexity. A single transparent set of payment rules for multiple payers, a single claim form, and standard rules of submission, among other innovations, would reduce the burden on the billing offices of physician organizations. On a national scale, our hypothetical modeling of these changes would translate into $7 billion of savings annually for physician and clinical services. Four hours of professional time per physician and five hours of practice support staff time could be saved each week.

Opportunity For Reform

The growth in administrative complexity has been largely overlooked as an opportunity for health care reform, with administrative expenses being viewed as a relatively mild influence on the growth in health spending. The Patient Protection and Affordable Care Act of 2010 does not contain major provisions to limit excessive administrative complexity. However, it does require that health plans begin to standardize the transfer of electronic data, which will cut down some of the duplicative information technology costs. The law does not specifically address the need for comprehensive uniformity of all data and information requirements.

The results of this study enumerate the inefficiencies engendered by excessive administrative complexity. We also hope that they will provide detail to enable understanding of the magnitude of these costs, and to inspire multistakeholder discussions around proposals of incremental reforms that standardize payment processing rules across payers. The current cost of excessive complexity would not be tolerated by employers from any other type of vendor. We believe that once fully explained, the current administrative burden will be recognized as intolerable by patients, purchasers, and policy makers.

Thus far, health reform has not resulted in a single-payer mandate that replaces the U.S. health insurance industry and nationalizes billing and payment processes. But the evidence of the system costs from excessive complexity in our case study indicates that imposing a standard set of payment requirements, increased payment-rule transparency, standardized forms, and a standard set of data exchange requirements remains an important and high-value target for future policy reform efforts.

An incremental move to one set of payment rules would yield significant dollar savings as well as work-life and productivity opportunities for physicians and their office staffs. Done carefully, administrative simplification could still leave room for a diversity of insurance products and could promote innovation without relying on blunt and opaque administrative processes as a tool.

The savings from reducing administrative complexity could be translated into decreased costs in general. These decreased costs would be of greater magnitude than estimated here. Many of the changes under the single-rule-set scenario would result in decreased costs for payers as well, and would provide resources that could be passed on as savings to purchasers and patients or could be used to provide additional needed health services.

Achieving these savings would not require restructuring the basic market-system tenets of our complex health care system through, for example, mandating a single-payer approach. Rather, mandating a single set of rules, a single claim form, standard rules of submission, and transparent payment adjudication — with corresponding savings to both providers and payers — could provide systemwide savings that could translate into better care for Americans.

http://content.healthaffairs.org/cgi/content/full/hlthaff.2009.0075v1

Comment:

By Don McCanne, MD

This study confirms the previously well documented administrative waste that occurs in physicians’ practices due to the complexity of complying with the various requirements of multiple payers in our fragmented system of health care financing. However, the authors do a disservice by perpetuating the myth that all we need is a single billing form and a single set of rules, thereby obviating the need to switch to a single payer model of health care financing.

The authors estimate that a single claim form and simplified rules would save about $7 billion yearly. Yet the single payer model has been projected to save about $400 billion yearly. What are these authors overlooking?

First is the profound administrative waste intrinsic to the private insurance industry. It is so great that our legislators up front granted them the right to retain 15 to 20 percent of insurance premiums just to pay these costs (plus profits).

Although this article indicates that the administrative burden on the physicians is great, the authors still would not salvage all of the waste that is recoverable since they contend that the insurers could still continue to provide a diversity of innovative insurance products, perpetuating the inevitable administrative complexity.

Anyone who has looked at a hospital bill understands the great administrative complexity of hospital payment systems under our multi-payer system. Under a single payer system, hospital financing would be provided by global budgets based on legitimate costs, much like our fire and police departments. The labor-intensive, complex hospital chargemaster disappears.

Bulk purchasing would be used for pharmaceuticals and medical supplies, again greatly reducing the administrative waste.

More waste is generated when payers and providers try to work the system to their own advantages – an understandable response in a complex and opaque system. A single payer system provides much greater precision and transparency in payment processes.

It is not as if the authors didn’t understand these differences. They cite the landmark paper of Woolhandler, Campbell and Himmelstein showing the dramatic reduction in administrative waste in Canada compared to the United states, after Canada changed to a single payer system of financing. But they seem to sweep the conclusions under the carpet while insisting that all we need is a simple form (which we already have – CMS 1500) and simple rules (which we will never have with the diversity of insurance products and insurer innovation that they support).

Perhaps the most outrageous comments in this paper are the following:

“Prior studies of this problem have examined the relative overall administrative costs of health care in the United States, particularly in comparison to those in Canada. However, these studies have been able to provide only an overall view of the costs and do not provide specific direction to foster improvements. As a result, these findings have done little to move stakeholders in the U.S. health care system — including patients, providers, payers, purchasers, and policy makers — to confront excessive administrative complexity as a target for reform.”

No specific direction!? The single payer advocates have been vociferous in showing the direction in which we must head! Google “health care administrative costs.” There are over 45 million results, and the first one is the landmark NEJM article by Woolhandler, Campbell and Himmelstein. People who deny that there is adequate evidence that a single payer system would provide us the savings that we need to provide health care to everyone
are simply liars!