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!

Saving Billions Of Dollars — And Physicians’ Time — By Streamlining Billing Practices

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

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!

By Richard S. Foster, Chief Actuary
Centers for Medicare and Medicaid Services
Office of the Actuary
April 22, 2010

The estimated effects of the PPACA (Patient Protection and Affordable Care Act) on overall national health expenditures (NHE) are shown in table 5 (at link below).  In aggregate, we estimate that for calendar years 2010 through 2019, NHE would increase by $311 billion, or 0.9 percent, over the updated baseline projection that was released on June 29, 2009. The NHE share of GDP is projected to be 21.0 percent in 2019, compared to 20.8 percent under prior law.

http://graphics8.nytimes.com/packages/pdf/health/oactmemo1.pdf

Comment: 

By Don McCanne, MD

Although much attention was given to the CBO (Congressional Budget Office) estimates of the financial impact of the PPACA (Patient Protection and Affordable Care Act), CBO’s report was concerned primarily with the impact of the reform on the federal budget, taking into consideration the net costs of the program enacted and the offset of new revenues. The report from the Office of the Actuary of CMS (Centers for Medicare and Medicaid Services) is of much more practical importance for most of us since it describes the impact on our national health expenditures (NHE) – what we will be paying collectively for health care in the future.

To no surprise, we will be paying more than we would have had there been no reform enacted. More people will have coverage through an expansion of Medicaid/CHIP and through subsidized plans to be offered in the new state insurance exchanges. Expanding coverage improves access and thus increases spending. Some are impressed by the fact that the increase in NHE will be only 0.9 percent more than the projected NHE would be without reform.

Keep in mind that without reform, our NHE would have increased from 17.8 percent of GDP (Gross Domestic Product) in 2010 to 20.8 percent in 2019. When it was decided to make health care reform a priority, one of the major reasons was that this increase was considered to be nearly intolerable. The PPACA will increase this even more – to 21.0 percent of GDP – an even less tolerable number. That amounts to a staggering $4,670 billion NHE in 2019 alone.

What should be even more alarming are some of the measures in the bill that kept these numbers from being even higher:

* A major portion of the expansion is in Medicaid, a welfare program that reduces health expenditures by simply paying much lower rates. A continued lack of willing providers is inevitable, especially after the temporary reinforcement of primary care rates expires. If they are not allowed to expire, NHE will be even higher assuming that rates for specialized services will not be reduced further as an offset.

* Another major portion of the newly insured will receive their coverage through the state insurance exchanges. This report projects less increase in health expenditures because of “significant discounts negotiated by private health insurance plans.” Why would these “discounts” be any greater in the exchanges that they are now in the existing private insurance markets? Looking for a reduction in NHE through the magic of the marketplace within government established exchanges is not realistic.

* The excise tax on employer-sponsored plans with higher premiums is expected to “increase rapidly” after 2019, per this report. Employers will respond by reducing benefits, thereby increasing out-of-pocket costs for the employees and their families. This may also slow growth in health expenditures, but by the perverse policy of erecting financial barriers to beneficial health care services. Not paying for care that people should have obviously is not a rational way to slow the growth of our NHE.

* The $5 billion authorized for the national high-risk insurance pool is expected to be depleted very soon, resulting in substantial premium increases to sustain the program, in turn resulting in lower participation rates. Not spending money on high-risk pools will limit expenditures, but at what cost?

* Scheduled “productivity adjustments” to Medicare payment updates will further slow the growth in Medicare payments at a time when providers are already very concerned about current rates. The report states, “the Medicare productivity adjustments could become unsustainable even within the next 10 years.” Slowing growth in NHE through an “unsustainable” process certainly can’t be relied upon.

* The Independent Payment Advisory Board for Medicare is tasked with recommending further reductions in Medicare spending, without reducing benefits. Such recommendations could further stress an “unsustainable” process.

* Some of the reduction in health expenditures would occur because of a decline in the numbers covered by employer-sponsored plans which traditionally have had relatively generous benefits. Again, reducing benefits for services that people need is an inappropriate method of reducing total health expenditures.

We do need to control the excess growth in our national health expenditures, but not by methods that impair access to beneficial services, such as those in the PPACA.

If we adopted a single payer national health program, we could slow spending by eliminating the profound administrative excesses, by improving pricing though negotiation with health care professionals, by global budgeting of hospitals, by negotiated bulk purchasing of drugs and health care supplies, by evidence-based decisions on covering appropriate services but not ineffective and deleterious services, and by separate budgeting of capital improvements, thereby slowing the over-utilization that is characteristic of systems with excess capacity.

For the physical and financial health of all of us, let’s replace PPACA with an improved Medicare that takes care of everyone.

Estimated Financial Effects of the “Patient Protection and Affordable Care Act,” as Amended

By Richard S. Foster, Chief Actuary
Centers for Medicare and Medicaid Services
Office of the Actuary
April 22, 2010

The estimated effects of the PPACA (Patient Protection and Affordable Care Act) on overall national health expenditures (NHE) are shown in table 5 (at link below).  In aggregate, we estimate that for calendar years 2010 through 2019, NHE would increase by $311 billion, or 0.9 percent, over the updated baseline projection that was released on June 29, 2009. The NHE share of GDP is projected to be 21.0 percent in 2019, compared to 20.8 percent under prior law.

http://graphics8.nytimes.com/packages/pdf/health/oactmemo1.pdf

Comment: 

By Don McCanne, MD

Although much attention was given to the CBO (Congressional Budget Office) estimates of the financial impact of the PPACA (Patient Protection and Affordable Care Act), CBO’s report was concerned primarily with the impact of the reform on the federal budget, taking into consideration the net costs of the program enacted and the offset of new revenues. The report from the Office of the Actuary of CMS (Centers for Medicare and Medicaid Services) is of much more practical importance for most of us since it describes the impact on our national health expenditures (NHE) – what we will be paying collectively for health care in the future.

To no surprise, we will be paying more than we would have had there been no reform enacted. More people will have coverage through an expansion of Medicaid/CHIP and through subsidized plans to be offered in the new state insurance exchanges. Expanding coverage improves access and thus increases spending. Some are impressed by the fact that the increase in NHE will be only 0.9 percent more than the projected NHE would be without reform.

Keep in mind that without reform, our NHE would have increased from 17.8 percent of GDP (Gross Domestic Product) in 2010 to 20.8 percent in 2019. When it was decided to make health care reform a priority, one of the major reasons was that this increase was considered to be nearly intolerable. The PPACA will increase this even more – to 21.0 percent of GDP – an even less tolerable number. That amounts to a staggering $4,670 billion NHE in 2019 alone.

What should be even more alarming are some of the measures in the bill that kept these numbers from being even higher:

* A major portion of the expansion is in Medicaid, a welfare program that reduces health expenditures by simply paying much lower rates. A continued lack of willing providers is inevitable, especially after the temporary reinforcement of primary care rates expires. If they are not allowed to expire, NHE will be even higher assuming that rates for specialized services will not be reduced further as an offset.

* Another major portion of the newly insured will receive their coverage through the state insurance exchanges. This report projects less increase in health expenditures because of “significant discounts negotiated by private health insurance plans.” Why would these “discounts” be any greater in the exchanges that they are now in the existing private insurance markets? Looking for a reduction in NHE through the magic of the marketplace within government established exchanges is not realistic.

* The excise tax on employer-sponsored plans with higher premiums is expected to “increase rapidly” after 2019, per this report. Employers will respond by reducing benefits, thereby increasing out-of-pocket costs for the employees and their families. This may also slow growth in health expenditures, but by the perverse policy of erecting financial barriers to beneficial health care services. Not paying for care that people should have obviously is not a rational way to slow the growth of our NHE.

* The $5 billion authorized for the national high-risk insurance pool is expected to be depleted very soon, resulting in substantial premium increases to sustain the program, in turn resulting in lower participation rates. Not spending money on high-risk pools will limit expenditures, but at what cost?

* Scheduled “productivity adjustments” to Medicare payment updates will further slow the growth in Medicare payments at a time when providers are already very concerned about current rates. The report states, “the Medicare productivity adjustments could become unsustainable even within the next 10 years.” Slowing growth in NHE through an “unsustainable” process certainly can’t be relied upon.

* The Independent Payment Advisory Board for Medicare is tasked with recommending further reductions in Medicare spending, without reducing benefits. Such recommendations could further stress an “unsustainable” process.

* Some of the reduction in health expenditures would occur because of a decline in the numbers covered by employer-sponsored plans which traditionally have had relatively generous benefits. Again, reducing benefits for services that people need is an inappropriate method of reducing total health expenditures.

We do need to control the excess growth in our national health expenditures, but not by methods that impair access to beneficial services, such as those in the PPACA.

If we adopted a single payer national health program, we could slow spending by eliminating the profound administrative excesses, by improving pricing though negotiation with health care professionals, by global budgeting of hospitals, by negotiated bulk purchasing of drugs and health care supplies, by evidence-based decisions on covering appropriate services but not ineffective and deleterious services, and by separate budgeting of capital improvements, thereby slowing the over-utilization that is characteristic of systems with excess capacity.

For the physical and financial health of all of us, let’s replace PPACA with an improved Medicare that takes care of everyone.

Estimated Financial Effects of the “Patient Protection and Affordable Care Act,” as Amended

By Richard S. Foster, Chief Actuary
Centers for Medicare and Medicaid Services
Office of the Actuary
April 22, 2010
The estimated effects of the PPACA (Patient Protection and Affordable Care Act) on overall national health expenditures (NHE) are shown in table 5 (at link below).  In aggregate, we estimate that for calendar years 2010 through 2019, NHE would increase by $311 billion, or 0.9 percent, over the updated baseline projection that was released on June 29, 2009. The NHE share of GDP is projected to be 21.0 percent in 2019, compared to 20.8 percent under prior law.
http://graphics8.nytimes.com/packages/pdf/health/oactmemo1.pdf

Although much attention was given to the CBO (Congressional Budget Office) estimates of the financial impact of the PPACA (Patient Protection and Affordable Care Act), CBO’s report was concerned primarily with the impact of the reform on the federal budget, taking into consideration the net costs of the program enacted and the offset of new revenues. The report from the Office of the Actuary of CMS (Centers for Medicare and Medicaid Services) is of much more practical importance for most of us since it describes the impact on our national health expenditures (NHE) – what we will be paying collectively for health care in the future.
To no surprise, we will be paying more than we would have had there been no reform enacted. More people will have coverage through an expansion of Medicaid/CHIP and through subsidized plans to be offered in the new state insurance exchanges. Expanding coverage improves access and thus increases spending. Some are impressed by the fact that the increase in NHE will be only 0.9 percent more than the projected NHE would be without reform.
Keep in mind that without reform, our NHE would have increased from 17.8 percent of GDP (Gross Domestic Product) in 2010 to 20.8 percent in 2019. When it was decided to make health care reform a priority, one of the major reasons was that this increase was considered to be nearly intolerable. The PPACA will increase this even more – to 21.0 percent of GDP – an even less tolerable number. That amounts to a staggering $4,670 billion NHE in 2019 alone.
What should be even more alarming are some of the measures in the bill that kept these numbers from being even higher:
* A major portion of the expansion is in Medicaid, a welfare program that reduces health expenditures by simply paying much lower rates. A continued lack of willing providers is inevitable, especially after the temporary reinforcement of primary care rates expires. If they are not allowed to expire, NHE will be even higher assuming that rates for specialized services will not be reduced further as an offset.
* Another major portion of the newly insured will receive their coverage through the state insurance exchanges. This report projects less increase in health expenditures because of “significant discounts negotiated by private health insurance plans.” Why would these “discounts” be any greater in the exchanges that they are now in the existing private insurance markets? Looking for a reduction in NHE through the magic of the marketplace within government established exchanges is not realistic.
* The excise tax on employer-sponsored plans with higher premiums is expected to “increase rapidly” after 2019, per this report. Employers will respond by reducing benefits, thereby increasing out-of-pocket costs for the employees and their families. This may also slow growth in health expenditures, but by the perverse policy of erecting financial barriers to beneficial health care services. Not paying for care that people should have obviously is not a rational way to slow the growth of our NHE.
* The $5 billion authorized for the national high-risk insurance pool is expected to be depleted very soon, resulting in substantial premium increases to sustain the program, in turn resulting in lower participation rates. Not spending money on high-risk pools will limit expenditures, but at what cost?
* Scheduled “productivity adjustments” to Medicare payment updates will further slow the growth in Medicare payments at a time when providers are already very concerned about current rates. The report states, “the Medicare productivity adjustments could become unsustainable even within the next 10 years.” Slowing growth in NHE through an “unsustainable” process certainly can’t be relied upon.
* The Independent Payment Advisory Board for Medicare is tasked with recommending further reductions in Medicare spending, without reducing benefits. Such recommendations could further stress an “unsustainable” process.
* Some of the reduction in health expenditures would occur because of a decline in the numbers covered by employer-sponsored plans which traditionally have had relatively generous benefits. Again, reducing benefits for services that people need is an inappropriate method of reducing total health expenditures.
We do need to control the excess growth in our national health expenditures, but not by methods that impair access to beneficial services, such as those in the PPACA.
If we adopted a single payer national health program, we could slow spending by eliminating the profound administrative excesses, by improving pricing though negotiation with health care professionals, by global budgeting of hospitals, by negotiated bulk purchasing of drugs and health care supplies, by evidence-based decisions on covering appropriate services but not ineffective and deleterious services, and by separate budgeting of capital improvements, thereby slowing the over-utilization that is characteristic of systems with excess capacity.
For the physical and financial health of all of us, let’s replace PPACA with an improved Medicare that takes care of everyone.