In a bit of end of year silliness I got involved in the comments over at Robert Prather’s post at Insults Unpunished about HSA’s in the new Medicare bill. There’s no doubt that HSA’s have a greater chance of success than the MSA’s they replace but Robert and I disagree about how easy it is for doctors and pharmacists to be transparent enough about their pricing to allow a real market to develop. The comments are worth reading though, particularly some of those from Don Johnson who as usual injects a serious and balanced view from the right into the discussion, and has some perceptive things to say about why managed competition has never gotten far in the policy world.
Meanwhile, The NY Times reports on the related issue of out-of-network doctors counteracting the attempts of what’s left of the managed care industry to restrict members to tight networks. The Times found that in several states Some Doctors (are) Letting Patients Skip Co-Payments. Of course it’s those co-pays that are supposed to keep the managed care patients in network. If doctors are prepared to work for UCR fees minus the patient’s co-pay/co-insurance, then what’s left of the managed care plans’ efforts to control medical care using loose networks is doomed.
I’ll say more in my personal end of year message, but for now, thanks for reading THCB and Merry Christmas, Chunakah, Kwanza or other mid-winter fertility ritual to you! Back next week!
So please welcome yet another anonymous contributor, this one we’ll call Jones the Policy Wonk. The Wonk took exception to my recent post which suggested that "big" health care reform would be absent in the next administration whether it was Bush, Clark or Dean at the top. (Don Johson at Businessword indirectly chides me for leaving out Gephardt’s plan, but besides my admiration for Kucinch taking a bold non-conforming stand, I am a realist and Dick Gephardt ain’t got a shot either! The Geek seems to me to be in the Paul Krugman camp who think that the current Administration wants to "starve the beast" (scroll down to #3 here to learn more)–that is, run deficits so there’s no money for moderate income people’s programs like SS and Medicare so those people will turn against the government. Anyway, the Wonk gets her name because she understands Medicaid very well, not because she said I was wrong about no big health care reforms coming. Here’s what she suspects is coming from Bushco in the next couple of years:
First, I think Bush will unveil some kind of tax credit for individuals, and while it will be deeply flawed policy, it will make for excellent political soundbites. He’ll run on that and "I fixed Medicare!"
I see the following happening: An agenda of caring for the uninsured, which encompasses:
#1 Med malpractice reforms–it’s ideologically desirable and the right kind of "malpractice reform" would undercut a huge source of funding for Democrats (trial lawyers). It’s going to be a senate battle, and depending on how well Edwards does in the election, med mal could move WAY up in the agenda),
#2 some kind of tax credits scheme (probably similar to the TAA bill), and
#3 Medicaid Reform (largely an intragovernmental fight, and I think the White House will lose).
My guess that they’ll go to Medicaid is just a guess, but it makes sense–
Hint #1: Dennis Smith, head of Medicaid, rather than Leslie Norwalk, currently the acting #2 person at CMS, was tapped to "temporarily" to take over Scully’s position. I’m reading tea leaves at the Kremlin here, but it suggests to me they’re looking for someone conversant in Medicaid policy, and with the credibility and connections of a former state Medicaid director (Virginia) to push through reform.
Hint #2–Bill Frist has said his #1 priority will be helping the uninsured. This doesn’t only suggest tax credits for low-income people. Interestingly, when George Bush made his initial push for Medicaid reform in August, 2001 he linked it to decreasing the number of uninsured.
Rationale for Action: Because of the Federal match, the Federal government has almost no control over the annual budget line for Medicaid, and states love to spend through Medicaid. Richt now, Medicaid growth is really being driven by medical inflation, esp in the care of long-term disabled and elderly dual-eligibles. So, the question isn’t "why is Medicaid spending increasing"–all healthcare spending is increasing. The question is: "why don’t states slash their Mcaid budgets?"
States are decreasing Medicaid spending (or, more often, decreasing the rate of growth in spending), but less than one would expect. This is because aside from all the traditional political pressures against cuts (industries dependent on Medicaid like pharma, hospitals, nursing homes, etc//political fallout of cutting benefits for poor people), every dollar of state spending through Medicaid is matched federally on a 1:1 or greater level (depending on how poor a
state is). So, a Medicaid budget of $100 million represents (at maximum) $50 million in state spending, and $50 million in free federal dollars. In most states, every dollar spent on Medicaid brings in way more than a dollar in federal matching funds.
As a result, states have done things like classify state funded programs as part of Medicaid (eg: NY put its entire developmental disability system in Medicaid), to get the federal match on state spending they were going do even without the match. Additionally, some states have engaged in fantastic accounting gimmicks with Medicaid to effectively draw down "match" federal dollars that could be used for any purpose.
So, the problem from a Bush Administration standpoint is that federal Medicaid spending can be infinitely expanded (states just get a waiver), and there’s not a lot of accountability for where the money goes (in theory, there’s accountability, but in practice not really. Lots of states, you know.) So, as you go farther and farther out, it’s gets harder and harder to predict Medicaid spending because you have the typical uncertainties of medical spending growth, but also the uncertainty of "Will California one day declare universal healthcare through Medicaid?"
In addition, there is some argument that federal regulations are too onerous. IMHO, this is a red herring–most of the regulations really prohibit states from slashing benefits to the truly poor, and from providing benefits in a discriminatory manner. Furthermore, you can always get around them with a good reason and a waiver. Additionally, if the feds think the federal regulations are too burdensome, they can just not enforce them. Grant waivers to everyone, for everything. Problem solved.
So, the Bush suggestion is that states should take a block grant instead of a match, in exchange for increased flexibility. It’s supposed to look like "managed care" for states–they get a block grant and all the flexibility they want to design their programs however they want. However, the danger is that this will look a lot like "managed care" ended up–capitation with ruthless enforcement of spending caps, and not so much delivery on creating a better, more integrated system. There’s already sufficient pressure for efficiency–states DO have to foot about 40% of the bill, and with the shortfalls they’re suffering, it’s significant. So, the "taking on of risk in exchange for freedom" analogy that the Bush Administration is pushing is fundamentally flawed–they already have enough risk to motivate them to maximize efficiency, and they have enough freedom to get the job done.
However, it is strongly analogous to employers moving from a "defined benefit" system (we provide insurance to our employees) to a "defined contribution" system (shoot, we don’t know HOW much this damn insurance is gonna cost next year; let’s give all employees $900 annually to buy into a plan)
So there you have it. According to the Wonk, the next Bush administration will dump more people and less money into Medicaid, declare more or less universal coverage victory and go home. My sense is that this won’t get off the ground politically because it runs into the roadblock of the southern strategy. Most of those states relying on Medicare match for more than 50% of Medicaid spending, and the ones that get the most pork anyway, are the central and southern "Red" states. It seems unlikely to me that an Administration with almost no interest or appetite for significant policy reform domestically (i.e. outside Baghdad) and showing very little interest in fiscal restraint, will start down this path by upsetting its core supporters. But if I’m wrong the Wonk‘s theory does have a suitably neo-con ring to it!
The first decent poll I’ve seen on the Medicare bill is out from Harris, and the seniors hate it. No one under 40 has a clue about the bill (really!) but those over 65:
–are disappointed it passed by 51% to 16%
–disapprove of the discount drug card provision 45% to 44%
–disapprove of allowing private plans to compete with Medicare 54% to 30%
–disapprove of the ban on Canadian imports by a modest 85% to 12%
They only just approve of the drug benefit itself by 48% to 44%! These are horrible numbers by any interpretation and perhaps may have an impact in the wider scheme of things.
The Republicans (62-3%) get the blame over the Democrats (57%). So my memo to the Democrat strategists (if they can find one) is to blame the Republicans for banning cheap drugs from Canada and selling Medicare to those evil HMOs, and perhaps they should suggest that Bushco has the same thing planned for social security. The Donkey faithful must see Florida and Pennsylvania veering into the D column any time now……
Following my post last week on the individual and small group insurance market, the Anonymous Academic declared some of his political colors by saying this:
I haven’t followed the situation in California, but I am familiar with the situation in Washington State in the late 1990s, when the individual market there was a mess. The main culprit was a package of "progressive" reforms designed to enable chronically ill people to buy coverage, but which ended up making the individual market completely dysfunctional (for example, basically eliminating the market for generous individual coverage). After the reforms, most of the insurers (and many beneficiaries) fled the individual market, and those few insurers that remained offered truly crappy plans.
Unbelievably, the state’s insurance commissioner, Deborah Senn, and many left-wingers denied that there was a problem–or if they acknowledged the problem they denied that the legislative reforms were in any way responsible. One prominent liberal said that "sometimes things have to get worse before they get better," by which I believe she meant the market for individual coverage had to be destroyed to engender support for a single-payer approach. Prior to the reforms, the individual market in Washington functioned reasonably well, although admittedly the situation was not very good for someone who got hurt or sick while uninsured. I don’t see how this problem can be avoided in a voluntary insurance market. If (a) people can choose whether to buy insurance and (b) there are few or no adverse consequences for getting sick while uninsured, then (c) few people will bother to buy insurance until they get sick.
A little later in our conversation, while giving the proviso that his comments are directly limited to the insurance reforms in Washington State in the late 1990s (guaranteed issue, community rating, 3-month waiting period for coverage of pre-existing conditions), he adds:
There were few serious consequences to being uninsured. If you got sick, you could get coverage in just 3 months with no underwriting. I do think there are some problems with the individual market, but I definitely do not think that guaranteed issue, community rating, etc, are the right way to solve those problems.
Now I’m going to have to agree and disagree with the Academic. He is right. Individual health insurance CAN NOT work as a market if the insurer has any idea who they’re insuring OR if the individual has the choice to buy or not buy insurance. Both of them lead to one extreme–sick people being unable to get insurance–or the other–the adverse selection that kills companies that are compelled to offer insurance to the sick, as under those Washington State reforms. Insurers make money by getting rid of the expensive people. One of my buddies in the consulting business has been looking at individual enrollee profitability, and his analysis for his health plan customer helped that plan increase profitability by identifying and enrolling the psychogrpahic profiles of a consumer who is less likely to be a big user of health services. Conversely if the plans have any clue in advance who those expensive people might be it’s their raison d’etre to make sure they don’t write them insurance. And funnily enough, crude though they may be, insurers have some tools to help them do that (hence my 300% quote increase when they found out I’d had knee surgery 2 years ago). It’s the same concept as an insurer who covers fire damage knowing which 15% of houses are already on fire and therefore not covering them. If an insurer gets it mostly right they do OK; if they get it wrong, they get hosed (pardon the pun).
And, by the way, as both the Academic and on a larger stage Mark Pauly gloss over, there are damn serious consequences for getting sick while uninsured. For example, there’s the raft of stories in the WSJ about denying care to the uninsured at UT Galveston. Another recent story well covered in the medblogs was the hospital in Indiana that carted deadbeat payers off to debtor’s prison. And anecdotally (but I know her well), there’s my friend who has had no steady job in 30 months, is off COBRA, has a chronic blood-clotting illness (DVT) that flares up occasionally and was quoted (legally) $1200 a month she didn’t have for coverage with a $2,000 deductible (with no coverage of her pre-existing condition for the first 6 months) by California Blue Shield. Her barely existing middle-class life will be torpedoed the next time she’s carted off to hospital when her condition breaks out, and she’ll probably have to declare bankruptcy to avoid paying the $20,000 bill she’ll likely receive.
I guess that if Pauly and other "free market" economists really believe that an insurance market is "good enough" if it works for the 80% of people who don’t actually need care, then the individual insurance market is fine. If, on the other hand, you think that sick people should be able to get health care and have their costs spread over a larger group of healthy people (which I believe is the original concept of insurance) then everyone has to:
a) be anonymously community-rated in a big pool and
b) be forced to be in the pool (i.e. have to buy insurance)
But then again, that means that if you take it to its logical extension we should all be in one pool (or have large pools which make genuinely risk-adjusted transfer payments between each other), and then that means that the government is the logical organization to run that process. That then means the premiums we pay are called taxes, and we don’t like that. So we pay much higher taxes called "premiums" for worse coverage and services (and pay way more out of pocket) and keep a bunch of useless anachronisms called brokers and small insurers in business all for the pleasure of avoiding "socialized medicine"–even though in Japan, Germany, Holland, Germany, etc, etc, they’ve worked out how to do this without nationalizing care delivery.
But instead we conduct minor and meaningless reforms like HIPAA at the edges of the individual insurance market, and try to get coverage to specific underinsured groups such as kids via tack-on programs like SCHIP which, as Cal Healthline and USA Today report, are incredibly vulnerable to the ongoing fiscal crisis at the state level. There is no way to put lipstick on this pig. But there’s no political interest in fixing it.
My personal solution for this whole mess is for Mark Pauly and all members of Congress to be forced to buy their health insurance on the individual market (even the over-65 year olds!). Then you’d see a Clinton-style pooling plan implemented in about 3 weeks flat.
Wierd historical footnote: It was of course the smaller insurers who along with the AMA destroyed the Clinton plan with theHarry and Louise ads–the big guys fancied their changes in the pool structure. Ironically enough, a decade later the HIAA and the AAHP just merged!).
Over at Don Johnson’s Businessword, he profiles the health care proposals of Democratic front-runners Howard Dean and Wesley Clark. Now my astute guess is that no Democrat could come up with a proposal that Don would like while remaining a Democrat and Don’s pretty scathing about both of these. But that’s not the relevant part here. What is relevant is that neither of them (and none of the other "leading" Democrat contenders) really has anything much "big" to say about the subject.
Ok, I know that they have proposals but everyone knows that proposals get watered down, and getting insurance from 86% to 90% of Americans may be a laudable aim, but it’s not exactly massive system reform. So this tells me that neither of these guys (one a triangulator, the other a military liberal) thinks that health care reform that would actually matter (i.e. cover the uninsured and/or limit costs & incomes in the health-care sector) is either a) possible or b) politically appealing to the Democratic base who’s vote they need to get the nomination.
I understand that the Democratic faithful have some other things to think about, but apparently double digit premium increases and 43 million uninsured are not enough to get any Democrats other than those few wishing for a Kucinich miracle talking about real universal health care. That tells me that politically health care (aside from Medicare) is a dead issue next year, and the political result for health care in 2005 will be either be nothing more from the Bush administration or not too much from a Democratic one.
As the careful regular reader will note, I’ve always been hazy on what value the PBM brings to the health care party. My old IFTF colleagues Ian Morrison and Robert Mittman were at least partially responsible for making sure some of our big pharma clients didn’t toss money away by buying PBMs in 1993-4, and while Merck eventually sold Medco for the $6bn they paid for it 10 years later, Lilly and Smithkline both took it in the shorts for their purchases of PCS (now Caremark/AdvancePCS) and DPS (Now Express Scripts). The losses for Lilly and SB were $2.4 bn and $1.6 bn respectively! (At the time Merck was not a client–Lilly and SmithKline were but ignored IFTF’s advice. If only we’d got a small share of what some of the others didn’t lose on those deals!)
The business problem in pharma’s relationships with the PBMs has always been that it’s the role of PBMs to carve-out their clients’ (employers or health plans) drug costs and reduce them. Those advocates of pharma companies buying PBMs viewed it as neutralizing the PBM’s power, and enabling it to get volume slanted towards its drugs. Many including the current plaintiffs against Medco felt that Merck was using Medco to slant business towards its drugs and also accepting pay-offs in the form of rebates, some of which were shared in a very dubious manner with its plan clients. All of this was not exactly visible to those plan’s end customers–employers, government and consumers (and those health plans not in on the deal).
More importantly, there was no overall visibility behind how much the PBMs were getting in rebates for switching how much business between different drug products. Now that PBMs are going to have the same role in Medicare, enquiring minds have wanted to know what they are and how big a role they’ll play–and of course how hard the PBMs are trying to reduce drug costs if a big chunk of their revenue comes from their suppliers. The most enquiring of those minds is dotcom millionaire Senator Maria Cantwell from Washington state who’s amendment to make PBM’s rebates transparent in Medicare drug coverage was in the Senate bill but of course disappeared from the final version.
However, even though her amendment didn’t make it into the deal, the heat is still on the PBMs over the rebate issue. Even the New York Times has sat up and taken notice, although to be fair to Milt Fredunheim he’s been writing about this for years now. The change now is that a combination of prosecutors who’ve been investigating the PBMs for years, and very upset clients like Ford and Verizon are actively demanding to know what’s going on under the hood. The PBMs of course are squawking that if their deals became public, prices would rise because their suppliers wouldn’t give them the best deal because then everyone would want it. But of course you can go all the way back to Adam Smith to discover collusion between those with more information meaning higher prices to those with less. Of course, the proof in the pudding is that while PBMs have been around drug prices have been the fastest growing component of health care costs. When you start making the argument that your actions saved a bad situation from getting worse (as the PBMs must if they are to justify their earnings for the last 10 years) then you’re going to be looking hard for sympathetic ears. Mind you, since the "end of managed care", health plans need to brush up the same argument.
If you click on Forrester Research’s FirstLook Archive you’ll see their predictions for next year and some other interesting stuff. They think this will be the year of the EMR (or at least the start of its mainstream appearance) and of the elderly getting wired to their providers. Knowing something about how to make lousy predictions myself, I wouldn’t put too much stock in this "big for next year" stuff. But at least they’ve lost the rhetoric about Why Doctors Hate The Net, which remains the research report in health care with the lowest ever "research validity to press column inches" ratio.
Right. A little housekeeping. I’ve been under the cosh the last week or so, and you’ll see some evidence of the massive project I’m working on showing up in TCHB over the coming weeks. I can’t tell you exactly what it is but suffice it to say that it concerns looking into the inefficiencies of our "health care system" and, whatever viewpoint you come from, they are legion.
My various contributors in the Crestor/A-Z/Pfizer/Lipitor conversation are all alive and well. I’ll be getting back to that later, but apparently the Industry Veteran agrees with me about Chomsky but thinks that the Lancet /Pfizer relationship is too blatant to be as compromised as the Anonymous Cardiologist has suggested. I’m glad that some of you are enjoying this spontaneous series, and I’m sure that it’s continuing at least to confirm the complexity of the pharma marketing world. And it is complex.
But as Monty Python says: Now for something completely different. If you didn’t know this already, let me confirm it for you–the small group and individual insurance market is in a mess. I know this because as a solo operation I have to shop there. Because of a prior surgery, even though the same affected area is excluded from my first 6 months of coverage as a pre-excluding condition, for a $2,000 deductible and $4,000 max out of pocket, my insurance company wanted to put my rates up 350% over what they first quoted when I tried to buy the policy (when they didnt kno about the surgery). Instead I bought a temporary insurance plan at 30% of the cost (ironically enough from another division of the same company). But those plans don’t cover people with systemic chronic illnesses, who are SOL. Even in California I have friends who have been intermittently unemployed long enough that they have outlived COBRA and, due to various ailments, cannot get individual coverage at less than $1,000 a month for an individual. This is a broken market, and now the data is coming in to prove it.
The folks at the Center for Studying Health System Change (HSC) have a new report out in Inquiry on Health and the Cost of Nongroup Insurance. To quote the pres realease:
They found that people with deteriorating health are about half as likely to purchase individual, nongroup insurance as people in excellent health. Furthermore, when adjusting nongroup premiums for selection bias based on health status, individuals in fair or poor health face premiums that are 43% to 50% higher than people with no health problems. "The results suggest that medical underwriting may be more extensive and, in fact, may shut some people out of the nongroup insurance market," the authors say.
No shit Sherlock. In fact some analysis last year in Health Affairs from market-apologist Mark Pauly at Wharton, who’s always felt that health care spending grows as it should and damn the consequences, suggested that the small group market worked relatively well–for 80% of the participants. But "its performance for the remaining 20 percent of low-income or high-risk persons is controversial." To me that’s like saying 80% of Iraqis are happy the US army’s there but 20% are trying to blow our boys’ heads off. Whatever Pauly and the Bush administration may want to say in both cases, it’s with the 20% that we’ve got a problem.
Funnily enough, while market failure continues in the small group market, for the last few years and especially the last year, what’s left of the managed care industry has been making out like bandits. Overall earnings rose 81% and earnings from Medicare went up over 118%. How do health plans make their money? It’s the same joke I used to tell in 1995–the easy part of managing care is not insuring sick people. Oh, and it helps if you are at the top of the underwriting cycle. Sadly for plans we are now somewhere near the top. At least HSC also reports that, in the first half of 2003, health costs only went up 8.3% as opposed to 10% for the last half of 2002. Given that health plans the last few years have mostly been "cost-plus" actors, there’s slightly less "cost" to "plus" onto. Although a poll of health plans earlier this month showed that while costs were slowing, it instead showed that increases were still well into the double digits.
Finally if you really believe (as Robert Prather does–we’ve respectfully butted heads over this issue in DB’s Comments a while back) that the solution for all this mess is to give everyone a HSA and have them spend their own dollars at the doctors, you might consider this. There’s a small problem, as David Durenbeger, former Republican Senator and wise old man of health care, shows–no one in health care has a clue what the actual transaction price for any service should be.