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HEALTH PLANS: SCHIP and Medicare Advantage

You’ll be seeing more and more of Maggie Mahar here as she works blogging into her new role at The Century Foundation. But of course, she’s not the only one who’s made this connection. If you want to see more of your host’s caustic comments on Medicare Advantange, and lots of good comments around it, try here, here here, here or here. Here’s Maggie on this week’s dust up.

A debate rages in Congress: Who needs the money more  – UnitedHealth or the kids?

This week, a storm hit the House of Representatives when law-makers began  to debate a proposal that would, in the words of a Wall Street Journal editorial, “steal nearly $50 billion from Medicare Advantage, the innovative attempt to bring private competition to senior health care” in order to beef up the State Children’s Health Insurance Program (SCHIP), a program that delivers health care to poor children.

Last night, the House voted 225-204 to pass the legislation.

SCHIP is scheduled to expire September 30; the House bill would renew the program while expanding it to include another 5.1 million children at a cost of an extra $50 billion over five years. The bill’s backers propose to fund the legislation by increasing the federal cigarette tax by 45 cents while   simultaneously paring the premium that Medicare pays private insurers who provide Medicare to seniors. The goal of the bill, reformers say, is to ensure that all children in the United States have health insurance. The Wall Street Journal’s editors see things otherwise: “Democrats apparently want to starve any private option for Medicare,” the editorial concluded.

Rupert Murdoch hasn’t yet weighed in, so I decided to take a look at the proposal. Would the House bill really make it impossible for private sector insurers to continue to offer needed benefits to seniors?

I began by looking at insurers’ finances only to discover that the health care insurance industry is, in fact, facing rough weather ahead. While the cost of providing health care continues to climb, more and more employers are backing away from providing health care benefits for their employees. Others are raising premiums and co-pays to a point that some workers can’t afford to participate in the plans. This means that insurers are losing customers.

As a result, one might expect that insurers’ profits would be falling. One would be wrong.

Just last week, Bloomberg reported that in the second quarter of 2007 profits at UnitedHealth Group, the largest health insurer in the United States, climbed by 22 percent. On the heels of that happy announcement came the news that Humana’s earnings more than doubled.

They are not alone. Aetna posted a 16 percent jump in earnings. While WellPoint, the second-largest U.S. health insurer, saw profits rise 11 percent over the same span.

This is not to say that Wall Street broke out the champagne. In recent years, investors have come to count on rich returns from insurers, and many sniff at numbers like 11 percent. To give you an idea of what investors expect, consider the fact that Humana’s stock has climbed 26 percent in the past seven months. Over five years, UnitedHealth Group’s shares have gained 125 percent, while WellPoint’s investors have reaped a 130 percent return. Granted, some insurers have had a tougher time, but still, as of the end of July, the six-member managed care index showed a 13 percent gain in just seven months.

Meanwhile, just as one would expect, many insurers have been losing business in the employer-based market: Humana, for example, saw the number of customers in employer-sponsored health plans fall by 10.7 percent in the second quarter.  while UnitedHealth reports that, in the year ending June 30, it lost 10,000 customers in employer programs. WellPoint explains that its health-plan membership declined by 108,000 from the first quarter, in part because of declines in employment in the automobile, home-building, and mortgage industries.

Health care inflation also is taking its toll. In April, Aetna’s stock dropped sharply after the company confessed that its spending on patient care has climbed from 77.9 percent of its revenues to 79.4 percent.

In the midst of so much bad news, how have insurers continued to maintain double-digit earnings growth? Bloomberg explains: “UnitedHealth’s profits rose 22 percent on gains from government-sponsored medical programs.” Here Bloomberg is referring to what it describes as “the boon UnitedHealth has seen from increasing the profitability of its Medicare programs for the elderly and adding 290,000 members in state Medicaid programs for the poor in the 12 months through June 30.”

Aetna also got a boost from the government; in the second quarter, it raked in Medicare premiums of $677.8 million, up from $436 million a year earlier.

WellPoint President Angela Braly echoes the theme, announcing that her company’s profits were driven by “expanded enrollment in government-funded programs” as well as “tighter control of costs.”

As for Humana, it “reported its strongest quarterly result in recent memory on the back of stronger-than-expected performance in the government segment,” according to Gregory Nersessian, a Credit Suisse analyst in New York.

In fact, “Humana derives more than 50 percent of its 2007 earnings from Medicare Advantage alone,” Justin Lake, an analyst with UBS Investment Research, recently pointed out to his clients. The company is forecasting Medicare profits margins of 5 percent for 2007—up from 4 to 5 percent in earlier statements.

Just how is it that Medicare Advantage has turned out to be such a lucrative business? It may have something to do with the fact that Medicare is paying insurers an average of 12 percent more (or about $1,000 more, per beneficiary) than Medicare would spend if it covered those same seniors directly.

This seems counterintuitive. After all, isn’t the private sector supposed to be more efficient than the government? Shouldn’t competition among for-profit insurers mean that they would be able to provide Medicare for less?

When Congress passed the Medicare Modernization Act of 2003, it decided to sweeten the deal for the insurance industry because the program’s backers wanted to make sure that a large number of Medicare patients would switch to private plans. After all, the majority of seniors were quite satisfied with regular Medicare. They would need encouragement to leave a program they knew—particularly since so many had been badly burned by private insurers in the late 1990s when Medicare began giving seniors a choice between standard Medicare (with the government paying medical bills directly) and Medicare+Choice (a program that paid HMOs to provide Medicare benefits to seniors).

The architects of Medicare+Choice hoped that managed care plans might find creative ways to cut Medicare’s costs while enhancing benefits. Indeed, American Association of Health Plans’ president Karen Ignagni told Congress that insurers could do a splendid job if they were just paid the same amount that Medicare was spending on seniors. All Ignagni wanted was “a level playing field.” (Testimony before the Senate Finance Committee May 27, 1999.)

Mindful of that experience, legislators who pushed Medicare Advantage through Congress in 2003 decided to pay insurers more so that they could offer more benefits (including prescription drugs, sometimes at no extra charge), enroll more patients—and make more profits. The government has “pretty much given up on the argument that the HMOs save money,” Lori Achman, a research analyst at Mathematica Policy Research, an independent research center, told the New York Times.

How much more is Medicare paying insurers? According to the Congressional Budget Office, over the next five years, Medicare will be paying for-profit companies $54 billion above and beyond what it would cost traditional Medicare to serve the same beneficiaries. Over ten years, the bonus will total $149 billion

A portion of that premium does go to seniors in the form of extra benefits and lower cost-sharing. But the remainder of what critics call the “overpayment” covers the insurer’s administrative costs, marketing—and profits.

The amount that goes into profits varies by plan and by region, but overall, if the Wall Street reports and earnings announcements quoted above are to be believed, the government’s largesse is making a big difference in helping to offset insurers’ losses in other areas. Or as one analyst put it, insurers are achieving double-digit profits “on the back of” stronger-than-expected performance in their Medicare business.

To put it bluntly, at a time when some customers are deserting private insurers (because they find premiums too high), the government is subsidizing the industry. But is this Medicare’s job? Are we to view UnitedHealth as another Chrysler? Are the taxpayers who fund Medicare responsible for making sure that UnitedHealth’s shareholders continue to make 125 percent on their investment every five years?

The idea of subsidizing for-profit insurers does not sit well with many members of Congress. Indeed, even UBS analyst Justin Lake thinks this is a bit much: “It is likely inevitable Congress will be forced to act [to cut the ‘overpayment’], given the competing priorities and long-term solvency issues facing Medicare,” Lake wrote in a July 23 note to clients.

And now House Democrats are threatening to do just that. Under the SCHIP legislation that the House voted for last night, lawmakers would equalize payments between Medicare Advantage plans and traditional Medicare over five years, reducing federal reimbursements by nearly $50 billion in order to help fund health insurance for children.

House Republicans claim that Democrats are trying to rob seniors, and  tried to enlist support from the AARP. But AARP policy director John Rother refused, saying that funding for Medicare physician reimbursements and free medical screenings included in the SCHIP bill more than makes up for any difficulties managed-care companies might face when they get the same reimbursement rates as the
core Medicare “>.

It will be interesting to see how the Senate—and President Bush—respond to this proposal as they consider the bottom-line issue: who needs the $50 billion more, children who are either uninsured or under-insured—or an industry that is already racking up double-digit profits.

To read the longer version of this story—and find out what other options Congress might have– see www.tcf.org.  Please return here to comment.

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51 replies »

  1. I am not positive the place you are getting your information, but great topic. I must spend some time learning much more or working out more. Thank you for magnificent information I was on the lookout for this information for my mission.

  2. “The truth is that they have, in fact, ticked off customers, doctors and hospitals. Do you know a single person who has been seriously ill and still likes his insurance company? (If you look at polls, health insurance companies are about as popular as oil companies.) As for doctors and hospitals, the vast majority hate insurers. They tend to prefer Medicare because it: pays promptly and doesn’t try to micro-manage the practice of medicien by requiring doctors to spend hours on the phone . . . )”
    WHAT A BULLSHIT LIE!
    Doctors & Most Specilaists in Washington, California, Oregon Connecticut & Wisconin actually REFUSE Original Medicare & REFUSE Medicaid, while the ACCEPT Medicare Advantage plans…..
    Why?
    Because companies like United Health Care PAY ON TIME!
    There is no double billing & if the Duals have an Advantage plans as the primary, then the relcutnant doctors will agree to take Medicaid in some cases because they know they won’t get stiffed by United Health care as they would by Original Medicare.
    My fiance & my mother are on advantage plans for this reason. Advantage plans also have contacts with Doctors and if the Doctors mistreat patients we are able to discipline them in our HMO’s & PPO’s, unlike Fee for Service Medicare where there are no contacts. We have Nurse lines & Care Managers who HELP these people get the care they deserve from these overpaid Quacks. Medicare won’t do that for them & since the Doctors in these states fonud out that CMS cut their physician payments by 10% we saw a large spike in the number of Doctors joining the Advantage plans.
    Maggie & the rest of her backers here make me sick. I would spit in your faces if I ever met you on the street. My fiance & Mother would be left to suffer without their advantage plans.
    I hope someday to watch you choke. I’m not a even a republican & was a former democrat until you hypocratic sickos started spewing yor bullshit.
    Its too bad there isn;t a strong third party. I will be forced to join the Republicans. The Dems lost their only good man when in Wes Clark, & instead endorsed idiot waffler Kerry. Without a strong candidate Bush was allowed in & spent all “the kids”: money you advocate for on the war on Irag & useless space exploration. You dug you own grave. Taking away medical benefits is not the answer to the deficit. Besides Medicare makes money by transferring to risk of the SNP chronic conditions petients to companies like Evercare who often take a loss on the sickly but never have pulled out of the program.
    You people make me want to vomit, As well as the few stubborn providers out there who still complain even they are paid more by Advantage plans. They drive around in Mercedes Benz & live on 3 acres & force people on disability to change plans to suit thweir needs. One quack asked an old lady to change her HMO w/rx coverage to our pffs with no rx coverage just because it paid him $10 more per visit. That would force her to pay $40 more per month for a drug plan that was inccluded in her HMO for $0 monthly premium. If you support that, I hope you rot in hell.

  3. the uninformed morons who want to take away medicare advantage don’t realize that people on disability who are not 65 aren’t even ELIGIBLE for a med supplement plan.
    Supplements also hike up premiums as your health worsens. Advantage plans do not underwrite based on health conditions & there also Advantage plans specifially DESIGNED FOR PEOPLE WITH CHRONIC OR DISABLING CONDITIONS! WHAT SUPPLEMENT DOES THAT?….(crickets)
    At least ALL Medicare beneficiaries(with only some exceptions of ESRD) can enroll in a Med Advantage plan, regardless of age.
    Also, the idiots also don’t consider the fact that not all providers accept Medicare. IN CA, WA & OR, there are doctors that REQUIRE Medicare patients to be in an Advantage plan because they don’t accept Original Medicare.
    Taking away medicare advantage would also hurt people who qualify for extra help with part d, but not state medicaid. Those people cannot afford a supplement.
    Taking away Medicare Advantage gurts even people on both Medicare & Medicaid because trying to find doctors who accept state insurance is often like trying to find a needle in a haystack & they would lose the extra benefits the Advantage plans provide that Medicare & Medicaid do not.

  4. I really get tired of the current administration suffering under the illusion that it has business sense. The cliches about gaining efficicancy through privitatizing Medicare programs is as bogus as George Bush’s hyped business career. The shifting of bill paying responsibility from Medicare parts A and B which operates on 3 to 4% overhead to Avdantage plans which is costing Medicare from 12 to 19% more than traditional parts A and B. Do Republicians really want to destroy the most efficiant medical insurance system in the world?
    I write this not as a liberal idealist but as one who makes his living selling both Medicare supplements and Medicare Advantage plans. The Bush administration is pushing its irresponsible, dogmatic agenda into the health care insurance area where it will cause the same type of havoc it did in the unneccessary invasion of Iraq.

  5. In all of this rush to change things that they set up I wonder if those in D.C. will do anything for those people who must go on Medicare because of a disability but, because they are not 65, can not find a Medi Gap plan to enroll in!!! For those people Medicare Advantage gives a little help.
    Secondly, if those who legislated were saddled with their decisions for there healthcare I wonder if they might do things differently. It is easy to legislate on something that will not touch you!!

  6. While it is true that AARP is staying out of this debate, they are doing it only for the time being. AARP has a very lucrative partenrship with United Health Care and will eventually join the fray, if needed. Because cutting Medicare Advantage would effect mainly the poor, though, the NAACP has joined the fight against any cuts in the program. Anyone who thinks that these plans are just so big companies can get richer and that they don’t benefit medicare recipients has never spoken to people who have these plans. In many areas, MA plans are providing medicare recipients care and protection that they wouldn’t otherwise have and that they definately need, for very little or no premium. Gutting this program, as the House Democrats suggest would seriously harm millions of seniors who have these plans. Offering free health care to families making $83,000 per year, which the Democrat’s proposal would do, is not worth that.

  7. Maggie,
    I understand your conflict of interest argument with respect to private (for profit) insurers, especially those that are publicly held. Presumably, non-profits are not under the same pressure, though they charge comparable rates for their policies and, in the case of the non-profit Blues that enjoy very high market shares in their respective states, their provider reimbursement rates are generally somewhat lower than their private sector competitors due to superior market clout.
    One disadvantage I think Medicare has is inflexibility. It either covers a service or it doesn’t. It tends to pay all providers in a given geography the same rate for the same service. Private insurers could try such strategies as: (1) we will require you to have a living will as a condition of insurance, (2) we will charge a lower premium if you want nothing heroic in an end of life situation, and we will charge a higher premium if you want everything done to keep you alive as long as possible, (3) if you qualify for our premium designation, we will pay you 10% more per procedure than we pay our providers who don’t qualify for the designation because we expect you to keep your patients healthier (on a risk adjusted basis) and, overall, utilize fewer healthcare services. I think private insurers may have better analytics capabilities which help them to both combat fraud and better identify what works and what doesn’t.
    Away from healthcare, lots of services formerly provided by state or local government including trash collection, water service, snow plowing, bus transportation and numerous others were contracted out to private firms. The government entity got the work done for less which saved taxpayers money while the private provider made a profit. While Medicare is just a payer and not a provider of healthcare services, the fact that a private payer needs to make a profit does not necessarily, by itself, mean that it can’t effectively compete with Medicare on an all in cost basis. At the end of the day, the key, I think, will be healthcare analytics and other IT resources driving wasteful healthcare utilization out of the system that will bring costs under control. As medical software and other IT get progressively cheaper while hospital services, doctors’ fees, and drug prices march steadily upward, I am actually an optimist about our ability to get healthcare cost growth to a lower and more sustainable level over the intermediate term, the aging of the population notwithstanding.
    I’ll be leaving the country for a couple of weeks of vacation tomorrow but will try to check in from time to time if I can find some Internet access.

  8. Booya! Maggie doesn’t think that I’m a mad money type trader! Well I am when I feel like going short…and usually UNH makes me pay for that!
    OTherwise this is a very intelligent discussion…and no Sonoma, no censorship. Only I have that power and I never use it (other than spam) and wasnt around this weekend to do so anyway

  9. EDIT OF COMMENT ABOVE:
    The second paragraph should begin: “Why can’t for-profit insurers do this as well or better than MEDICARE?

  10. Barry–
    I agree that Medicare needs to be reformed. But if you read the MedPac reports you see that they know it too. Medicare is running out of money–either you slash payments to all physicians by a huge amount (a political non-starter) or you start looking at cost-effectiveness, over-treatment, fee-for-service, overpayments to certain specialities,regional differences,etc.
    Why can’t private insuers do this as well or better than for-profit insurers? It’s not just that for-profits have to spend money on marketing and advertising, or that individual for-profits don’t have as much clout when it comes to negotiating prices with drugmakers and hospitals, or that for-profit insurers don’t have subpoena power (those FBI raids do have a chilling effect on healthcare fraud, at least for a while) . . .
    The biggest difference is this: for-profit insurers, like all American corporations, are expected to put their shareholders’ interests first. This is the law.
    This doesn’t mean that they can cheat their customers or lie to them, but “caveat emptor” always applies. And it’s up to the insurers to pay out as little of their revenues as possible, saving as much of that money as possible for their shareholders.
    So inevitably, for-profit insurers have a conflict of interet. On the one hand, there are the patients (who want care) and the doctors and hospitals (who want to be paid in a timely fashion) and on the other hand, the insurers must serve the interests of shareholders, who expect double-digit profits. If a company’s executives were seen as too generous, shareholders could (and would) sue.
    Finally,if you look at exectuive pay in the for-profit insurance industry–and see how much of it comes in the form of stock options–it becomes obvious why shareholders’ interests win out. It’s not only that legally, the corporation’s first responsibility is to its shareholders. There is also the fact that the share price goes up, the CEO’s salary levitates.

  11. Barry–
    I agree that Medicare needs to be reformed. But if you read the MedPac reports you see that they know it too. Medicare is running out of money–either you slash payments to all physicians by a huge amount (a political non-starter) or you start looking at cost-effectiveness, over-treatment, fee-for-service, overpayments to certain specialities,regional differences,etc.
    Why can’t private insuers do this as well or better than for-profit insurers? It’s not just that for-profits have to spend money on marketing and advertising, or that individual for-profits don’t have as much clout when it comes to negotiating prices with drugmakers and hospitals, or that for-profit insurers don’t have subpoena power (those FBI raids do have a chilling effect on healthcare fraud, at least for a while) . . .
    The biggest difference is this: for-profit insurers, like all American corporations, are expected to put their shareholders’ interests first. This is the law.
    This doesn’t mean that they can cheat their customers or lie to them, but “caveat emptor” always applies. And it’s up to the insurers to pay out as little of their revenues as possible, saving as much of that money as possible for their shareholders.
    So inevitably, for-profit insurers have a conflict of interet. On the one hand, there are the patients (who want care) and the doctors and hospitals (who want to be paid in a timely fashion) and on the other hand, the insurers must serve the interests of shareholders, who expect double-digit profits. If a company’s executives were seen as too generous, shareholders could (and would) sue.
    Finally,if you look at exectuive pay in the for-profit insurance industry–and see how much of it comes in the form of stock options–it becomes obvious why shareholders’ interests win out. It’s not only that legally, the corporation’s first responsibility is to its shareholders. There is also the fact that the share price goes up, the CEO’s salary levitates.

  12. Just to clarify, in my voucher related comments above, perhaps Medicare could be not just one of the choices but the default choice for those unwilling or unable to choose among the health insurance options available to them. Alternatively, if there are several solid plans than received regulatory approval and meet at least minimum coverage standards defined by law, people who didn’t want to choose could be randomly assigned to a plan.

  13. Bev,
    Your point is well taken. Let me speak to what goes on in the money management world with respect to employer sponsored 401-K plans. Many people know nothing about money management, are totally confused about what choices to make, and, the more choices available to them, the more confused they are. So, what to do. There are basically two approaches for those unable or unwilling to make their own asset allocation choices. One is an industry developed product called lifestyle funds. For example, if your projected retirement date is 2020, you can choose the 2020 fund. If it’s 2030, choose the 2030 fund. Professional money managers allocate the money among stocks, bonds and short term investments in an appropriate manner given an average risk tolerance for people with that age profile. The second approach is that the employer develops a default choice. In our own company, this is a 50-50 split between a stock index fund and a conservative fixed income fund.
    To relate this to healthcare, assume we had a voucher system where the value of the voucher was sufficient to purchase one of four or five or six different insurance plans, all approved by an appropriate regulatory body. Perhaps one of those choices could be standard Medicare, though, for the under 65 population, Medicare should have to finance healthcare out of members’ voucher payments plus risk adjustment payments if it winds up with a riskier than average population. It should not be able to draw on general revenues while competing private insurers have to finance their coverage out of voucher payments only (plus risk adjustment payments, if appropriate).
    I know Maggie thinks the private insurers can’t possibly compete because they have to cover the cost of advertising, profits, and gargantuan CEO salaries. However, they may well do a better job in minimizing fraud, in disease management, care coordination, rewarding best practices and penalizing over treatment, etc. On the other hand, as Charlie Baker, CEO of Harvard-Pilgrim Healthcare put it (I’m paraphrasing): If Medicare can do it (provide health insurance to the entire population) cheaper and better (than the private sector), so be it. Nobody owes me or anyone else a job.
    Finally, as for finding doctors, maybe there are a lot of people who could not navigate the system even if much more robust information were available. They could continue to do what they do now which could be to rely on a PCP that they trust or get a family member or friend to help them. They would be no worse off, while the large segment of the population that could make effective use of more robust information would be better off.

  14. Barry;
    Remember, I’m the one who wants YOU to be on the committee to reform health care. (: However, I do have to qualify your statement that “most people” could function very well finding a doctor and reasonable health care on their own, given enough information. I have no doubt that you could do that, and that most of the people commenting on this blog could do that. However, that certainly does NOT hold for much of the population that physicians see in their offices, or who come to ER’s, even if they are insured. Think of people’s inability to manage their 401k’s, multiplied by 10. Then add advanced age and illness as another multiplier for many of them, and the idea degrades further.
    I honestly have no position yet on what I think the best form of health care financing should be. I learn from these blogs and other venues in order to try to form an opinion. However, I think perhaps you see a well-educated segment of the populace in your daily life, which may be skewing your views a little.

  15. Maggie,
    I have no problem with government setting minimum standards for what health insurance must cover. Hopefully, as you say, it would rely heavily on input from doctors and other experts as opposed to bureaucrats but also be sensitive to costs. It should have a reasonable out of pocket maximum, which Medicare, by the way, does not have. Federal employees get a choice of numerous plans, and even though plenty of those employees have limited education and sophistication, they seem to be able to make a reasonable health insurance choice that suits their needs. I think most people could navigate the insurance market just fine with a voucher and, perhaps, some help from their employer’s HR department or some other objective infomediary.
    I also recognize that there are gray areas in medicine where the best people can do is to find a doctor they can trust. However, there are also plenty of situations that lend themselves to price and quality transparency. Not all surgeries, for example, have to be done right away. People have time to check out the quality of the surgeon and area hospitals if the information is available.
    I think there is a lot more we can do when it comes to making information about specific doctors available. Besides where they went to medical school, whether or not they are Board Certified in their specialty, and how long they have been practicing, I would like to know things like: how many times the doctor has been successfully sued and how does he compare to peers. For surgeons, how many times he has performed the various types of operations that he does and some information about his outcomes record (risk adjusted) would be helpful as well.
    With respect to cost control, I would like to see more effort put into trying to develop a consensus as to how long it is reasonable and appropriate to make people wait for procedures like hip replacements that are not life threatening but can be painful to live with in the meantime. For end of life care, other countries either explicitly ration (UK) or at least have developed a strong societal consensus as to just what constitutes good, sound medical practice. Or, they have more rigorous approaches to cost-effectiveness analysis in deciding whether or not to pay for new drugs and devices. Medicare, thus far, has done little or nothing along these lines. For whatever reason, our political system is incapable of saying NO. Medicare has also done nothing (so far) to bring about any convergence in the huge regional difference in practice patterns.
    It is not helpful to keep pounding away at the fact that other countries have universal health insurance and spend far less than we do and hold out Medicare for All as the answer for us while Medicare, at least so far, has been either incapable or incompetent or both at controlling costs while it continues to shift ever more of its costs to the private sector by keeping its reimbursement rate increases below provider cost growth.

  16. Tom and Barry
    First, I agree with Tom that while it is possible to be a rational, well-informed consumer when shopping for a refrigerator or a car, shopping for health care is very, very different.
    In those cases where our choices are most important, we are very sick, probably frightened and quite possibly in pain. Moreover, when making medical deicions and evaluating the options, even a doctor must face a great deal of ambiguity. Medicine is still, in many ways, an infant science. On this point, Dr. Atul Gawande, author of “Complications: A Surgeon’s Notes on an Imperfect Science” is brilliant:
    “Medicine is an enterprise of constantly changing knowledge, uncertain information, fallible individuals . . the core predicament of medicine, its uncertainties, [is] the thing that makes being a patient so wrenching, being a doctor so difficult, and being part of a society that pays the bills so vexing.”
    Granted, today both physicians and patients enjoy access to far more information than ever before but as Gawande points out, that can lead us to a false sense of confidence: “With all that we know nowadays about people and diseases and how to diagnose and treat them, it can be hard to grasp . . . how deeply the uncertainty runs . . .”
    A couple of years ago I was diagnosed with an eye disease (acute mascular degeneration) that is likely to cause many baby-boomers to go blind. At present there is no treatment–though there are some experimental treatments on the horizon. There is no cure. When I received the diagnosis I asked my doctor: “Does this mean that, if I live along enough, I will go blind?”
    His answer: “It depends.” And then he added: “That’s the answer to most of the really important medical questions.”
    “It depends” isn’t exactly what I wanted to hear. But I do like the fact that he is honest and I recognize that he is right. No one knows whether my “dry” AMD will turn into “wet” AMD (at which point I would go blind quite quickly) because no one knows exactly how or why the disease progresses. My doctor recommended some vitamins that might help. (He and his wife take them. He doesn’t know if they do any good but is quite confident that they do no harm.)
    If even physicians find medical science riddled with ambiguities, how can patients hope to be rational consumers? The information isn’t just imperfect, it is deeply flawed. That is one reasons healthcare markets are so different from other markets.
    As Kenneth Arrow, the Nobel Laureate economist who launched health care economics observed in 1963: “Uncertainty as to the quality of the product is perhaps more intense here than in any other [market]. Recovery from disease is as unpredictable as its incidence . . . and further there is a special quality to the uncertainty: it is very different on the two sides of the transaction: The information possessed by the physicians as to the consequences and possibilities of treatment is necessarily very much greater than that of the patient . . .”
    This isn’t just because the doctor has been to medical school–though that certainly is a big difference between the buyer and the seller. The doctor has seen a great many patients suffering from the same disease. And what that has taught him is that no two bodies are alike. A particular course of treatment can have a drastically different effect on two different bodies–particularly when we’re talking about diseases, such as cancer, that we don’t understand very well.
    Moreover, a good physician possesses quite a bit of inarticulate information–things that he “knows” or senses based on his experience.
    Because of this difference between doctor and patient, ultimately the purchase of healthcare is a transaction that must be based on trust. Certainly, many of today’s patients want to understand as much as they can about their diseases–but ultimately, no matter how much they strain against it, even 21st century patients must pick a doctor and place considerable faith in him or her.
    If you do some reserach and pay attention, you probably can avoid the really bad doctors (too many malpractice suits, or what your own insticts tell you
    about how interested, hard-working or conscientious
    a particular doctor seems to be)
    But after that, it’s very very difficult to sort out ‘the best” doctors. Outcomes research is thin and
    can be misleading. When a doctor has a reputaiton as being one of the very best that tells you only that he is well-regarded in the medical community. He probably possess good social skills and superb political instincts. And he might also be a brilliant physician . . .
    Finally, Barry, because healthcare is so complicated I think that just sending the patient out into the marketplaced with a voucher isn’t a good idea. Even picking health insurance is very difficult–as the Medicare Advantage program has demonstrated.
    We need more government oversight and regulation of what insurance policies must cover as well as guidelines for “best practice (and those guidelines should be created, not by beaurocrats but by panels of disintersted physicians).

  17. > Tom: did you write?
    Yes I did. If it leaves Dennis Kucinich scratching his head, this is a good reason not to elect him, or even re-elect him. Uncle Miltie I think would get the point, but we’ll never know. In any case I do not sacrifice at the same altar he did.
    t

  18. (In the 1990s some tried to really manage care and the backlash was enormous. The public assumed that they were simply trying to save money–which often they were. Though in other cases insurers were actually try to improve the quality of care by refusing to cover over-treatment.)
    In the case of very expensive bone marrow transplants for breast cancer, the insurers turned out to be right. The treatment was largely ineffective and not worth its cost.
    In a taxpayer funded voucher system, the individual (not the employer) would be the customer and would have the right to take his or her business elsewhere during the annual renewal period if not satisfied with the current insurer’s service. Throw in much more robust price and quality transparency, information about the cost-effectiveness of specific treatments and providers and objective, unbiased infomediaries to help consumers sort through their treatment options, and there is no reason why healthcare cannot function much more like every other marketplace. The only exception would be when treatment is needed under emergency conditions, but, even then, family members, with help from their PCP, may be able to get the patient transferred to a hospital and/or a specialist better able to provide the most appropriate and highest quality care.

  19. Tom: did you write?
    “absent massive government intervention in the market, individuals will never be even approximately rational consumers of medical services”
    I may not have a PhD in economics (although I do have a masters degree in public policy from JFK School), but that statement would leave even Dennis Kucinich scratching his head. Milton Friedman, meanwhile, is flopping wildly in his grave.

  20. My previous post seems to have vanished. I guess we’ve entered the realm of Kos-like ideological conformity. Disagree, and you’re censored. Nice.

  21. sonoma writes:
    > This type of plan forces price transparency,
    > and so efficiency.
    Non sequitur. Price transparency is a necessary but insufficient condition for a Pareto efficient market. And of course there is the serious question of whether a Pareto efficient market is desirable. There is far more to the study of economics than Econ 101. Lots of people here have forgotten more economics than you ever learned. Just a hint, FWIW.
    Your “Health 401K” account already exists: its called a “Health Savings Account”, but it hasn’t got all the government (federal, no less!) interference you propose: taxes and chronic disease funds and need-tested subsidies. The most cursory review of health policy literature would’ve turned it up for you. HSAs do zero, zip, nada to change the fundamental economic difficulty of healthcare.
    It is certainly true that Medicare and tax policy exacerbated certain problems of the market for medical services, but they did not create the problems and by design did nothing to address the fundamental problem: that absent massive government intervention in the market, individuals will never be even approximately rational consumers of medical services. If you want to learn about the fundamental problem and why Medicare did essentially nothing to solve it, read more of and write less on The Healthcare Blog.
    t

  22. Barry and Peter–
    I absolutely agree that it makes no sense for Medicare patients in Iowa and Minnesota to be subsidizing Medicare in California and Massachusetts.
    Very few people realize that Medicare patients in some regions get so much more care than seniors in other states–which is why seniors in Iowa don’t protest. The other reason that no one talks about this is, as you suspect, political. It turns out that the states where Medicare patients see more specialists, spend more time in the hospital and undergo more procedures (New York, Florida, New Jersey, Massachusetts, Texas, Florida,
    Pennsylvania, California [mainly Southern California] are states that have many more representatives in Congress than states like Minnesota, Iowa, Wisconsin, Oregon,Wyoming, North Dakot, South Dakota, New Mexico, Maine where patients see fewer specialists and spend less time in hospitals (largely, as I note above, becuase there are fewer specialists and fewer hopsital beds in those states.)
    So it would be very hard to get enough votes in Congress to raise Medicare premiums for seniors in the high-spendig states.
    Of course, as you point out, people do accept the fact that people in some states pay far more for real estate, etc., but Medicare is one of those “sacred” third-rail topics that politicians don’t like to fool with.
    Peter–you are right, we need more controls and insurers aren’t going to do the job. (In the 1990s some tried to really manage care and the backlash was enormous. The public assumed that they were simply trying to save money–which often they were. Though in other cases insurers were actually try to improve the quality of care by refusing to cover over-treatment.)
    In any case, I think the best solution is to begin with Medicare. (Medicare reform could pave the way for national health insurance.) I think Medicare needs to begin asking for evidence that the patient had an x-ray first before paying for an MRI (assuming its a situation where an x-ray might well locate the problem.) And Medicare should take a second look at hospitals and doctors that consistently hospitalize similiar patients for longer periods of time, readmit patients because the procedure wasn’t done right the first time around, repeat tests because they can’t find the original test, etc. etc. .
    MedPac has suggested that Medicare begin by notifying health care providers who appear to be less efficient when compared to benchmarks like the Mayo Clinic, Intermountain, Kaiser, etc. Health care providers could then try to figure out why they are using more resources–are their patients really sicker or is something else going on? Finally, if they can’t come up
    with satisfactory explanations, MedPac suggests that Medicare begin lowering their reimbursements for readmissions, redundant tests, etc.
    Finally, and most importantly, we need to go back to the old “certificate of need” laws. Under those laws,you couldn’t build a new hospital, enlarge a hospital, or make large investments in capital equipment (like MRI units) without showing that the community really needed more beds, more MRI units, another heart clinic etc. Since we know that excess supply drives excess use Wihtout Any Health Benefit (outcomes are no better–and sometimes worse— in states where Medicare spends most) we need to keep an eye on supply.
    In fact the reserachers at Dartmouth argue that we don’t need to train more specialists in order to take care of the aging baby-boomer generation–though we may well need more internists, palliative care specialists and nurse-practioners . . .

  23. Maggie,
    I read your Dartmouth Medicine article. Great job. I like the idea of the virtual multi-specialty groups connected to a hospital. I also think it would be helpful, however, if Medicare beneficiaries also paid differential premiums depending on spending where they live. Under the current system, Medicare Part B premiums are set to cover 25% of program costs on a nationwide basis. If risk adjusted spending in Massachusetts is twice as high as in Minnesota, why shouldn’t MA beneficiaries pay twice as much for their Part B coverage as MN residents? I know there are political obstacles, and there probably needs to be some mechanism to protect the lower income folks who are not also eligible for Medicaid (dual eligible), but I think the concept makes sense.
    Nobody seems to have a problem with the fact that housing costs (especially on a per square foot basis) are far higher in Manhattan, Los Angeles, and San Francisco than in Houston, Atlanta, and Denver. Car and homeowner insurance varies considerably in cost from region to region for the same coverage. Many retirees choose to move to Florida for the warmer weather, no state income tax, no state inheritance tax and reasonable housing costs. They accept the fact that there are also hurricanes from time to time, homeowner insurance costs are rising sharply and property taxes are as well. If South Florida residents also had to pay more for their Medicare Part B premium, that would be one more thing that gets factored into the equation in deciding where to live. They might also be inclined to ask: hey doc, how come my Medicare Part B premium is twice as high as it is in Minnesota for the same coverage? I hear it’s because you guys order too many tests and are too quick to admit patients to the hospital. What gives?
    Uniform national pricing (to the beneficiary) is a huge Medicare design flaw, in my opinion. I note that my home state of NJ was, for years, the most expensive state in the country for car insurance and insurers were leaving the state or wouldn’t come here in the first place because they couldn’t make any money. We had lots of lawsuits for minor injuries, car thefts, fraud, etc. Eventually, the state cracked down on fraud, passed a no fault law, with the ability to retain the right to sue for an added premium, and law enforcement did a better job of catching car thieves. Our car insurance now is cheaper than it was ten years ago, and more insurers are competing for our business. I think the same can happen in healthcare if we have the political will to give it the focus it needs and to get the incentives right.

  24. Barry and Charles and Matt Guilden–
    Barry– It sounds like you work for a good company that
    provides excellent insurance. I imagine they pay a pretty penny for that insurance, but it’s good that they are willing and able to do that.
    I also was in that position while I was working at Dow Jones in the 1980s and 1990s. We had an incredibly generous traditional indemnity plan (under Aetna) for which I paid little or nothing. I never had any serious illnesses, but I never had any problems getting bills paid.
    But Dow Jones cut back on its insurance a few years ago (Wall Street Journal reporters marched to protest),and now that the company has a new owner, I suspect that things are only going to go downhill from here
    on in.
    My point is simply that fewer and fewer employers can afford to (or are willing to) pay for top-of-the-line
    health insurance. I should add that I have self-employed friends who are able to pay top dollar for insurance and still have incredible problems with their insurers. And I know people with supposedly excellent employer-based insurance who have found themselves battling their insurers . . .. I think this varies by state–in states with community rating, things are much better, though insurance is more expensive.
    And you are entirely right, the problems can be traced to the fact that the price of everythig–from your
    podiatrist to a prescription pill –has been skyrocketing.
    And our government has made virtually no effort to bring prices down–either by jaw-boning, by negotiating drug and device prices, or by looking at the cost-effectiveness of treatments before agreeing to cover them. Lobbyists for those who keep raising their prices have enormous power in Washington.
    You also are right about not-for-profit care in Minnesota and Massachusetts. Both states offer some high
    quality not-for-profit care –but care is much, much more expensive in Massachusetts. After adjusting for the overall health of the population, race, age and sex Medicare spends about twice as much per beneficiary in Massachusetts than in Minnesota.
    Researchers at Dartmouth have spent more than two decades figuring out why. What they have discovered is that in regions where there are more specialists and more hospital beds people receive more health care. (In other words, supply drives demand: Build the beds and they will come. If specialists have more time free in their calendars (beacuse there are more of them in a particuar city) they will see their patients more often.)
    Yet outcomes for Medicare patients in Massachusetts are no better than outcomes for very similar Medicare patients (suffering from the same diseases) in Minnesota–even though patients in Minnesota spend less time in the hospital, see fewer specialists and undergo fewer procedures. The moral of the tale: More care is not better care. Sometimes it is worse. Over-treatment, or spending time in a hospital when you don’t really need to be there can be hazardous to your health.
    I’ve written about this for Dartmouth Medicine–the alum magazine for the Dartmouth medical school. (Google my name and Dartmouth Medicine and Spring 2007 and you’ll find the article.)
    Charles–Thanks for joining the discussion. It’s interesting that Kaiser also makes more on Medicare patients. . . This confirms the thesis that Medicare is overpaying
    Matt Guilden–I agree that the health insurance industry faces real financial problems. Its commercial customers are backing out and the cost of care continues to levitate. In other words, I wouldn’t take
    Matthew (Holt’s) stock tip on UnithedHealth (see his post above this one.)
    (Face it, Holt knows a lot about healthcare, but when it comes to investing . . well, he’s no Jim Cramer.)
    At the same time, I imagine you agree that it’s not Medicare’s job to bail out the insurance industry. Medicare has enough problems of its own.
    The answer–both for Medicare, and for the health insurance industry–is that we need to put a brake on healthcare spending. We pay too much for nearly everything (except family docs, internists, GPs and palliative care specialists) and we are not getting value for our heatlhcare dollars. In a fee-for-service largely for-profit system there is too much waste.

  25. “Perhaps providers should look inward for an explanation of why healthcare costs are persistently rising much faster than general inflation.”
    Barry, since insurance won’t control provider costs (some comment they have no business doing that) and we sure won’t see providers “looking inward”, then single-pay WILL (or has the potential to) impose cost controls through management of budgets. That’s how single pay countries do it, their cost of healthcare shows it.
    Sonoma keeps blaming Michael Moore and the “socialists”, but who really brought us to this point? It is insurance companies and providers and the hand linked system they created and profit from. Don’t expect solutions from them, they just seem to be asking government to fill in the profit holes.

  26. Kaiser tries to benefit from these discussions by pretending that it is non-profit with salaried physicians. They wish to be the answer to the compromise needed. However, their $1.4 billion profit in 2004 alone – half going to physicians – is the dirty secret they try to hide.
    And while Medicare makes up only 10% of Kaiser’s patients, these same patients represent 20% of the income turnover. With an yearly advertising budget of $45 million, an HMO of this size can cover up anything.

  27. Do you know a single person who has been seriously ill and still likes his insurance company?
    Yes! Me. After a half dozen surgeries over the last ten years or so, including CABG, I’ve never had a problem with a bill except for an occasional minor clerical posting error (credited to the wrong account) which was easily rectified. On the issue of pleasing customers generally, about 150-160 million people (including family members) get their health insurance through an employer. Since it is the employer that is paying the premium, whether for full at risk coverage or for ASO services, the employer is the customer in the eyes of the insurer, not the member or the providers. Under a taxpayer funded voucher system, the individual would become the customer. For the record, my insurer is a non-profit, and my employer self insures.
    Regarding the for profit insurers who need to meet (sometimes unreasonable) Wall Street earnings expectations, I think jd has pointed out numerous times in the past that for profit health insurers earn about 6% after tax on revenues as compared to 3% earned by non-profits. The largest for profits are generally more efficient than the non-profits on the administrative side because they invested more in technology over the years. That difference is reflected in higher margins. The premiums actually charged are comparable.
    While providers may prefer Medicare because it pays promptly, it could probably stand to invest more in fraud mitigation. From a taxpayer perspective, prompt payment of every bill that comes in is not necessarily a good thing. The biggest single competitive advantage Medicare has vs private payers (both for profit and non-profit) is that it pays significantly less to providers. According to Charlie Baker, CEO of (non-profit) Harvard-Pilgrim Healthcare, private payers pay, on average, 120%-130% of Medicare rates and 135%-150% of Medicaid rates. To the extent that Medicare rates do not keep up with provider cost growth, cost shifting to private payers, continues.
    There is an interesting contrast between two states where for profit insurers have little or no presence. Minnesota is a 100% non-profit insurance market by law. It is also home to the very highly regarded Mayo Clinic. Health outcomes are generally above average, compared to the rest of the country, while costs are low. At the same time, the Massachusetts insurance market is almost completely non-profit has well. The major insurers include BCBS of Massachusetts, Harvard-Pilgrim Healthcare, and Tufts. Yet healthcare costs in the state are among the highest, if not the highest in the country. Whatever accounts for the difference, it has nothing to do with for profit insurers or administrative costs.
    I’ll end with a personal anecdote that illustrates at least one example of an astounding rise in healthcare costs since 1999. From time to time, I need to visit a podiatrist for a minor procedure to relieve foot discomfort. I had not been to see him since 1999 until recently. He took care of my 1999 issue in a 15 minute or so office and billed $75 of which insurance paid $44. He now has two partners. I saw one of them about a month ago. Same 15 minute office visit for basically the same work. The bill this time: $715 of which insurance paid $300. I’ve had other providers break down what used to be an office visit into what is now a separate code for the office visit and another code for advice. Perhaps providers should look inward for an explanation of why healthcare costs are persistently rising much faster than general inflation.

  28. Maggie state earlier:
    “There are actually two types of Medicare Advantage (MA) plans. The larger one, by far, is an HMO product, and the smaller one is called Private Fee For Service (PFFS). Managed care companies are paid about 10% above standard Medicare on average for the HMO plan and a 19% premium for the PFFS approach. The PFFS plans are most common in rural areas by design in order to bring more provider choices to seniors in those locations. For perspective, of United’s approximately 1.3 million Medicare Advantage members, 1.2 million are HMO members and only about 100,000 or slightly more are in PFFS plans.”
    -What I really want to see is the margins that United is making with their two Medicare products. Everyone screams about the 19% premium on the PFFS approach and automatically assumes that United pockets that as a straight pass though.
    If you are a rural hospital and your health system doesn’t have any major competition around you for 50-100 miles, you have a lot more flexibility on pricing with an insurer. I would be willing to bet that a decent portion of that 19% premium gets sucked up by increased prices and losing economies of scale. In the end, I bet that two products are both quite profitable for United but I don’t think the PFPS plans are quite the golden egg that some people assume.

  29. Another great article on a very relevant topic and important topic in health care. This bill is very important for health insurers and their profitability but a few points have been overlooked or not discussed on the employer-sponsored market:
    -The employer-sponsored insurance market never rebounded after the most recent recession and coverage has been gradually eroding since. The next recession is really going to knock down employer-sponsored coverage offerings.
    -Health insurers have been seeing growth in individual policy segments and with niche products that target specific populations (e.g., Tonik for Wellpoint) but this growth still pares in comparison to enrollment declines in the group-sponsored segment.
    -Large employers have gradually been shifting to self-insure to avoid ERISA requirements and state regulations. That has been occurring for a long time and health plans make a lot less money on their ASO products. Additionally, health insurers generally make less money on their CDHP products unless they can figure out a way to recoup the admin fees and other revenues attached to being an HSA custodian.
    -Their really aren’t that many attractive M&A opportunities out there right now in the health insurer segment. Eventually, it is likely that one of the smaller regional guys (Health Net, Coventry) will get bought up and you might see a few more Blue conversations but that market is pretty tapped. Not to mention the days of cheap credit and free money appear to be ending.
    -Health insurers are looking to expand into alternative businesses (dental, vision, worker’s comp) but again this won’t have a huge impact on increasing profits either.
    That is why this bill is so critical to health insurers. It really is a matter of just what there revenue streams are going to look like over the next several years. Lose this Medicare Advantage money and it creates huge problems.

  30. “How did United, along with Wellpoint, Aetna, Cigna, Humana, Coventry, etc. all get to be as big as they are by ticking off customers, doctors, hospitals?”
    What about employer group customers? They seem to be plenty happy with the value that they’re receiving from plans.
    Not.

  31. Dr, Thom, Barry, jd and Sonoma:
    Dr. Thom—I find what you say about “HMO programs administered directly by physician groups without the middleman” very interesting. I too have seen examples of such groups providing very efficient care.
    My only caveat comes when you talk about “practicing medicine as I think best,” You sound like a very intelligent person and I’m willing to believe that you are an excellent doctor. But like everyone else (journalists, plumbers,teachers) doctors live on a bell curve. At one end, the excellent ones, at the other end, the lazy ones who graduated at the bottom of their medical school class –and in the middle the vast majority who are, by definition “mediocre.”
    This doesn’t mean they are bad or incompetent–just average.And particularly today, when medicine is so complicated it is impossible for an average (or even a brilliant) doctor to know everything there is to be known in his specialty.
    That’s why we don’t want a lot of Lone Rangers out there practicing “as they think best.” We need guidelines (not rules, but guidelines) for “best practice” and those guidelines need to be established by group of doctors at some of our best hospitals and academic medical centers.
    Barry–You ask: “How did United, along with Wellpoint, Aetna, Cigna, Humana, Coventry, etc. all get to be as big as they are by ticking off customers, doctors, hospitals?”
    The answer: deep pockets (to pay for advertisiing marketing, etc while taking market share away from non-profit insurers ) and lobbyists (to ensure that they get the government business they need at the price they want to be paid.
    The truth is that they have, in fact, ticked off customers, doctors and hospitals. Do you know a single person who has been seriously ill and still likes his insurance company? (If you look at polls, health insurance companies are about as popular as oil companies.) As for doctors and hospitals, the vast majority hate insurers. They tend to prefer Medicare because it: pays promptly and doesn’t try to micro-manage the practice of medicien by requiring doctors to spend hours on the phone . . . )
    So while, as always, I appreciate your commets, I have to say the large insurers have not gotten where they are today by pleasig their customers.
    J.D. I agree with virtually everything you say in your first August 2 post–except I’m not convinced that I’m exaggerating how difficult it is for a for-profit HMO
    to compete with Medicare and offer better care at the same price.
    You are right that some insurers did hang in under Medicare + Choice–though from 1998 to 2003 about half bailed out. More importantly, during that period seniors began leaving the plans in droves. The reason?
    Medicare + Choice plans were raising co-pays on
    expensive services like hospital care, chemotherapy, radiation therapy, oxygen and dialysis. They did this in order to discourage the sickest patients from siging up (or staying with the plan). It worked–the HMOs wound up with a relatively healthy pool of customers.
    Meanwhile, Medicare paid the plans a lump sum per enrollee–without adjusting for the fact that insurers had winnowed out so many of the most expensive patients.
    As a result, in 2003 Medicare shelled out roughly 4 percent more for Medicare + Choice enrollees than it would have spent if those seniors had reminaed in traditional fee-for-service Medicare–where they would have used relatively few services. This is all documented in a Health Affairs article: Brian Biles, et. al., “Medicare Advantage: Deja Vu All Over Again?”
    Web Exclusive 15 December 2004.
    That said, I agree that, in theory, a well-managed, capitated HMO should be able to offer better care at the same price than fee-for-service Medicare since fee-for-service encourages so much wasteful and potentially dangerous over-treatment.
    Nevertheless, the HMO faces many more expenses which makes it very, very hard for it to offer greater value at the same price. Just enrolling and disenrolling customers as they move in and out of plans is costly. And unlike Medicare, for-profit HMOs have to advertise, market, pay lobbyists and come up witih profits for investors. Indeed in teh fall of 2005 Dow Jones Newswires reported that managed care companies like UnitedHealth and Humana were spending tens of millions of dollars on mareketing, expanding call centers etc. as they prepared for a flood of new Medicare customers,
    I also agree with your ideas for reform: ” I’m talking about things like online health insurance exchanges, a national floor benefit set for everyone (to which supplemental insurance could be added), community rating, and a move towards integrated delivery systems.
    “Oh, and I’d add to that list the ability to give very substantial rewards for meeting health outcomes targets. CDHP defenders were right that Americans could use better incentives to stay healthy, but they were wrong to think that high deductibles and quality/cost information were the way to go.”
    But I’d point out that many of these recommendations were included in the Medicare Payment Advisory Committees most recent March and June reports. (See wwww.Medpac.gov) So why couldn’t Medicare do all of these things? Why does it necessarily need a for-profit middle-man?
    I’m not against a middle-man if it can add value. But I’m more inclined to think that a private sector non-profit could do it better than a group that has
    the added burden of trying to make profits for investors and satisfy Wall Street’s sometimtes unreasonable expectations.
    Sonoma–You are absolutely right. Only 5 Republicans crossed over to vote for the House bill while 10 Democrats defected. I am afraid that that is the only point on which you are right.

  32. A bigot is someone who hates a whole class of people without reason. If you’re against gay marriage, and I actually don’t feel that strongly about it, you’re simply trying to defend core social values. A conservative wants to defend traditional values, not expand them willy-nilly. Most conservatives are not against gay marriage because they dislike gays. They are against it because they fear that new social rules will, little by little, undermine the society altogether. That’s not bigotry. You see the difference?
    Take a look at Europe, where all manner of liberal positions are widely accepted. Europe is pretty much a dead-ender continent. They don’t have children to the extent their populations will decline by half this century, barring massive immigration. They have totally unafforable social welfare systems which must, eventually, be severely pruned. The immigrants they do have do not wish to integrate. Many envision an end to European social democracy and its replacement with Sharia law (where homosexuality is punished by death by stoning). Crime in many European cities far exceeds that here, dispite the constant closed-circuit monitoring. The EU is a highly undemocratic and mildly repressive structure, from which many Europeans have begun to flee (more Swedes and Dutch left in 2006 than at any time since the 19th century migration to America).
    That’s what conservatives fear. Total social breakdown as we see in Europe.
    Is that bigotry?

  33. “While gym memberships are nice, this is not a necessary health care benefit and with Medicare going broke, we can’t afford it.”
    To borrow lessons from our “leaders,” they can always get exercise walking, limping, crawling or rolling to the emergency room.
    Ok. That wasn’t at all pointful, and I actually agree with the quote, but I had to use that line somewhere.

  34. sonoma,
    I’m not guessing that you are a bigot, you actually quite unambiguously (and I thought proudly) declared yourself one by mentioning gay marriage in your list of bad liberal ideas. The other things on your list largely related to traditional small government ideology, and then out of the blue comes hatred of homosexual rights.
    You do admirably keep up the hyperbole, though. “Just as there won’t be any medical research in your utopia, neither will there be any HCIT innovation.” Just like there isn’t any medical research or innovation in Europe? To point out one of thousands of facts that disprove you: the implementaion rate of EMRs is substantially higher in Europe than it is is in the US. “Socialized” medicine is actually more innovative and technologically advanced in some very important respects.
    But I don’t expect you to start acknowledging facts that tell against your ideological extremism.

  35. Ah, tried and true strategy of the left: if you disagree with me, you must be a “bigot” or a
    “(fill-in-the-blank)phobe”. My point: the left will stop at nothing, including using the “kids” as virtual human shields, to achieve their nefarious ends.
    Here’s a great article on the ugly consequences of socialized medicine in Italy (in today’s WSJ):
    http://online.wsj.com/article/SB118610945461187080.html?mod=opinion_main_commentaries
    Bottom line in the socialized system (ie, Europe):
    Drug and medical device research: gone
    Dramatically higher cancer death rates: check
    Access to the best treatments: forgedda’ bout it
    HC 2.0 or 3.0: IT WILL NEVER HAPPEN, MATTHEW and MAGGIE, in a socialized system because bureacrats will decide how money is spent, not VC’s or private equity. Bureaucrats, such as we see in Italy, will spend money boosting the salaries of politically powerful public sector unions and giving money to politically connected hospital construction contractors.
    Just as there won’t be any medical research in your utopia, neither will there be any HCIT innovation. In 20 years’ time, you’ll be saying, “boy, that Sonoma was right. We shoulda’ listened.”

  36. sonoma, you just revealed way more than you needed to about how deep your bigotry extends.
    Ask not for whom the knee jerks. It jerks for thee.

  37. Here’s David Frum’s take: hip to sinister forces on the left who slyly seek to turn the US into Cuba, or Sweden (the most highly-taxed and repressive Western industrialized country, not counting Russia):
    http://marketplace.publicradio.org/shows/2007/08/01/PM200708016.html
    Hey Maggie, here are some more ideas:
    Capital gains tax rate of 50%, you know, “for the kids”
    Maximum personal income tax rate of 75%, “for the kids”
    Destruction of Israel, you know, “for the kids”
    Open borders and unrestricted immigration, “for the kids”
    Gay marriage and abortion on demand, “for the kids”
    Union card check, altogether now, “for the kids”

  38. BTW, Maggie, only 5 House Republicans voted for Socialism, whereas 10 Dems jumped ship. As in most cases, Democrats regard facts and truth as casualties of war.

  39. Here’s Heritage’s report: all you need to know about the 465(!) page bill:
    http://www.heritage.org/Research/HealthCare/wm1580.cfm
    BTW: The insurers are making big strides in disease and care management. A company called Trizetto does lots of work for Humana, trying to ID and help nurses target the large numbers of chronic disease patients who account for most of the costs but currently receive no intervention. There is zero chance Medicare would be capable of these initiatives. Zero.

  40. As usual when things get political, hyperbole abounds.
    Maggie, you overstate the case against the ability of private insurers to compete and add value to Medicare. Once upon a time, as you know, when it was called Medicare+Choice, there were no overpayments. And still there were a few health plans willing and able to compete and grow membership. As far as I know, these were all traditional HMOs that were either integrated delivery systems or paid on a capitated basis. None of the FFS crap. I would guess that this is where the Medicare Advantage market is going again if the premium cuts stick.
    Now, those of you who demand “honesty” from supporters of this bill, are you willing to admit that you want 12% subsidies to continue simply because you want private enterprise to get priority even when it isn’t more efficient than a government-run system? Why not support the idea that Medicare Advantage and Medicare have to compete on an equal basis?
    I also don’t accept that anyone who supports expanding CHIP also wants the state to take over the insurance business. I support it, and I don’t have any interest in “socialized medicine.” I would rather that a system be set up in which most of the frictional costs are taken out of the system so that private insurers can compete in a sensible manner and actually manage to control costs, for once. I’m talking about things like online health insurance exchanges, a national floor benefit set for everyone (to which supplemental insurance could be added), community rating, and a move towards integrated delivery systems.
    Oh, and I’d add to that list the ability to give very substantial rewards for meeting health outcomes targets. CDHP defenders were right that Americans could use better incentives to stay healthy, but they were wrong to think that high deductibles and quality/cost information were the way to go. It is less effective to give someone a $2,500 deductible and say “deal with it,” than it is to give them a $2,500 deductible and say, “you can lower it by $500 for each health target you meet: cholesterol, Ha1C, BMI, etc.”
    But that’s another topic.

  41. Tom – That’s a good line about Medicare being Hillarycare on the installment plan. You recommended Paul Starr’s book earlier this year, and I bought and read it at that time based on your recommendation. It was well worth the read. I was especially fascinated by the doctors’ very long and successful history of thwarting competition at virtually every turn. They are at it again now in trying to beat back the threat from retail clinics. I wish them total failure in that endeavor.
    Drthom – How did Evercare get to be a $2.5 billion business if all they do is get in the way? Isn’t it fair to conclude that CMS is generally satisfied with their performance if they keep awarding them contracts? I appreciate the case you made for large physician practices being able to do this job better on a risk adjusted capitation basis, but I don’t understand why they aren’t bidding for that business. Does CMS consider the practices not big enough or financially strong enough? Is Kaiser bidding for any of this work. With their heavy use of salaried doctors, electronic records, evidence based medicine, and well above average generic drug utilization, shouldn’t they be able to do this cost-effectively, at least in CA where they have a large presence?
    I admit to a free market bias, and I also admit to owning stock in United, both personally and professionally (in our corporate pension fund). I find it a little hard to believe, however, that United, along with Wellpoint, Aetna, Cigna, Humana, Coventry, etc. all got to be as big as they are by ticking off customers, doctors, hospitals and generally doing everything wrong. Conversely, I also find it hard to believe that Medicare for All will deliver us to the healthcare promised land.

  42. Barry
    Don’t be fooled by Evercare. United adds nothing in terms of value getting these folks cared for except as to provide a conduit through which private physician groups can participate in total risk contracts. The majority of their contracts are with systems who rarely share the largesse with the docs who, having no skin in the game and will not aggressively manage these patients.
    All United does is get in the way.
    The proper population to study is folks in HMO programs administered directly by physician groups without the middleman. Based on the internal data I have seen from a half dozen or so large practices, I would emphatically say such groups provide excellent care in an efficient way. Preventative care measures done for appropriate indications are almost twice as high across the board in those places I have had access to. NOt surprising considering aggressive medical therapy is much cheaper than a by-pass or two weeks in the ICU with AMI/CHF.
    I personally would love to take care of Medicare patients in a risk-adjusted HMO at 100% of Medicare rates. I like 112% better, but if the cuts prevent my competition from outbidding me on benefits, so much the better. The capitation removes the hassles of dealing with Medicare billing, I can practice the way I think is best, not based on what Medicare will cover, and I know I would do better.
    I have never in twenty years seen an insurance company manage a patient.
    Incidently, whoever said the MA pharm benefit is inferior to Medicare D is sadly misinformed. Having studied this extensively, while no plan gives near comprehensive coverage, MA plans uniformly outstrip D plans in cost, pharmulary and copays. This is intentional, the insurance companies use it as a loss leader to get the covered lives.

  43. Why are people on the left so reluctant to tell the truth? Just tell us, “yes, we think government should be providing health coverage, and this program is designed to move things gradually in that direction.”
    Why dissimulate? Everyone wants poor kids to have health coverage, but that’s not what this is about. At least Michael Moore is honest about his objectives. That’s more than I can say for some people who post here. Yuk!

  44. Anyone who thinks the SCHIP legislation is not about
    the kids should read Kaiser’s August 2007 brief on the legislation here http://www.kff.org/medicaid/upload/7675.pdf.
    In the House 10 Republicans crossed over to vote in favor of the SCHIP legislation, and in the Senate the bill is expected to pass by a wide margin becaue it has strong support from Republicans –Socialists, all, no doubt.
    It’s possible that the support in the Senate could be strong enough to override a Presidential veto.

  45. Can we please stop pretending the SCHIP bill, in its current form, is about kids?
    It’s one thing for politicians to pretend its about children. It’s a bloody disgrace for alleged policy wonks to promote this charade.

  46. Can this otherwise serious blog stop frickin’ pretending this is “about the kids.” This is an obnoxious partisan lie. The goal is slow-creep socialized medicine via Schip expansion to upper-middle income children AND their parents. Medicare Advantage is a wildly popular private program. Of course, private is “bad” no matter how good the program or how satisfied its participants, and every survey shows they are extraordinarily satisfied.
    This is a Michael Moore-inspired socialist Jihad, plain and simple. The bill as written is a gross ideological overreach, and it’s all coming to come backfiring on the Dems (just like their blind support for Iraq withdrawal).
    Socialism failed. Get over it!

  47. Zach, Brad and Barry-
    Zach–You’re right. What is frustrating is that Congressmen who oppose the House version of the SCHIP bill are suggesting that the bill would cut benefits to
    seniors. It wouldn’t–it cuts the over-payment to private insurers while giving seniors a couple of things. The AARP realizes this which is why, when House Republicans tried to enlist the Association’s support in opposing the SCHIP bill, AARP policy director John Rother refused, saying that funding for Medicare physician reimbursements and free medical screenings included in the SCHIP bill more than makes up for any difficulties managed-care companies might face when they get the same reimbursement rates as the core Medicare program.” (This was in the Washington Post today.)
    But Senate Democrats are worried that seniors will think that the money is coming out of benefits that they need, and so the Senate’s version of the bill doesn’t cut the overpayments to insurers. (Their bill also doesn’t expand Schip as much to include all children who need it.)
    Once the Senate’s bill passes, the Senate and the House will have to come up with a compromise bill. It will be interesting to see what happens.
    Brad–You say “insurance companies will take their profit”–and that is true. But they shouldn’t be getting their profit from Medicare. Medicare was set up to provide healthcare for the elderly–period. It’s not supposed to be a bail-out program for the insurance industry. Moreover, while only 20% of Medicare patients have chosen to be on Medicare Advantage, all Medicare patients are helping to fund the 12% premium by paying higher co-pays and premiums.
    In terms of quality, both the Congressional Budget Office and the Commonwealth Fund have tried to compare the quality of care under Medicare Advantage to quality
    under traditional Medicare. They point out that it’s hard to compare outcomes, but as far as they can tell those in no differnce–even though Medicare Advantage is costing the government (ultimately taxpayers) more money. They also say that patients on Medicare Advantage seem somewhat less satisfied because they complain that they have a hard time getting access to
    specialists. If you are on traditional Medicare, you can go to virtually any specialists you want to–most take Medicare. But if you are in a Medicare Advantage HMO you generally have to go to a specailist in the HMOs network, which limits your choices and also may mean that you have to wait a few weeks (or more) to get
    an appointment. (This is a problem in Manhattan)
    Finally, you ask if the HMOs who pulled out of Medicare + Choice really weren’t being paid enough. It depends on how much of a profit margin you think they should be making on seniors. At the time HMOs claimed they could
    provide coverage if they were just paid the same amount
    that Medicare spends per beneficiary. That turned out not to be true. For-profit HMOs have expenses that Medicare doesn’t have: marketing, advertising, paying
    lobbyists, and of course profits for their shareholders.
    They also have higher administrative costs than Medicare. Bottom line– it’s always going to be more expensive if you funnel Medicare through a for-profit
    middleman. So why do it unless there is some evidence that the for-profit HMOs provide better quality care?
    (And by and large there isn’t.)
    Barry–You’re right, there are of course Medicare Advantage HMOs (which manage care) and Medicare Advantage fee-for-service insurance which doesn’t try to manage care and costs in the same way. And Medicare
    Advantage fee-for-service costs the government even more than Advantage HMOs.
    In terms of the “value” of the extra services they provide, the only estimates I’ve seen say that it’s a about half of the average 12% premium–though both the premium and the amount that goes to patients in the form of benefits and lower co-pays varies widely in different parts of the country.
    As for the notion that the co-pays are always lower–this just isn’t true. I have a neighbor on Medicare Advantage and co-pays on one of his medications have gone form $25 to $75 since he has been on Medicare Advantage. Surveys now show that, overall, Medicare
    Advantage patients are paying slightly More for medication than they did under traditional Medicare (presumably with Medigap.)
    And there has been a lot of bait & switch. In the first year of the program Medicare Advantage insurers were offering so many extras that Wall Street analysts wondered how they would be afford them. Of course the answer was that these were just come-on’s. Once seniors
    signed up, insurers they started hiking coppays,etc in the second year of the program, There have been a number of newspaper stories about this.
    Meanwhile seniors had such a hard time sorting through their options when they first signed up that many can’t face the idea of switching to a different insurer–or even going back to traditional Medicare. And that’s exactly what Advantage insurers are counting on.
    In terms of whether Medicare should finance “extras” like gym memberships (which UnitedHealth Advantage offers for free in Manhattan) I have to say “no.” While gym memberships are nice, this is not a necessary health care benefit and with Medicare going broke, we can’t afford it.
    Moreover, the reason for-profit insurers like to offer gym memberships is that this attracts healthy, robust seniors–just the type of customers they want. Most people don’t realize that while Medicare Advantage insurers are required to offer benefits that, when added up, equal the value of Medicare Benefits, they can cut certain benefits that Medicare offers while adding other extras–so long as the total value remains the same.
    So, in an effort to “cherry-pick” health seniors (who won’t use the insurance) they offer the gym memberships while raising co-pays on, say, cancer drugs, or drugs that diabetics need . . . Meanwhile, all of us are paying for a well-heeled 67-year-old Manhattanite to go to a rather nice gym–at no cost–under United’s “Silver
    Sneakers” program.
    Finally, there just isn’t evidence that for-profit insurers can deliver better care for less. In theory, at least, a really good HMO could do such a good job of co-ordinating care, provididing preventive care, avoiding over-prices drugs and treatments etc. that it could provide more efficient, higher-quality care for less. But it would have to be so efficient that efficiency alone woudl save enough money to cover all of the extra costs that private sector insurers have–advertising, marketing, enrolling and dis-enrolling patients–plus providing profits for shareholders(who are looking for double-digits.)
    It would be much better if Medicare itself borrowed a page from the very best managed care outfits and began
    doing a better job of taking a close look at the comparative effectiveness of various drugs and procedures, refusing to cover those that are more expensive but no more effective –while adding coverage of more preventive care.
    And this is exactly what Medicare’s independent Payment Advisory Committee (MedPac) is recommending that they do. The Medicare trust fund is being depleted, and people in Washington realize that they must begin to manage care–and focus on providing evidence-based care. Medicare is likely to get funding for independent studies of comparative effectivenss fairly soon.
    Finally, I agree it’s very foolish for Republicans to
    try to deny care to children. Some of these kids who would be covered by Schip do have some form of insurance now, but in most cases it’s very poor insurance. In other words, they are underinsured.

  48. Barry writes:
    > To argue that SCHIP expansion is just
    > Hillarycare on the installment plan
    > is misleading
    Naaaah, Barry. Its pretty much spot-on. Never mind it came first, but Medicare is just Hillarycare on the installment plan too. The only political feasible way to overcome the medical lobby seem to be to expand “coverage” to the most sympathetic one sub-group at a time, and this with all sorts of restrictions that maintain the fragmententation which keeps the economic power of patients vis a vis the industry to a minimum. If you haven’t, read Paul Starr’s famous book The Social Transformation of American Medicine. You can get a paperback edition delivered to your door for less than ten bucks or a hardcover edition for less than twenty.
    But you’re right; Republicans should stop wasting so much political and emotional capital fighting SCHIP expansion. Instead they should waste it extending the Medicare Advantage HMO plans to anyone who wants to buy in on reasonably “fair” terms. Now that would be something to see.
    t

  49. There are actually two types of Medicare Advantage (MA) plans. The larger one, by far, is an HMO product, and the smaller one is called Private Fee For Service (PFFS). Managed care companies are paid about 10% above standard Medicare on average for the HMO plan and a 19% premium for the PFFS approach. The PFFS plans are most common in rural areas by design in order to bring more provider choices to seniors in those locations. For perspective, of United’s approximately 1.3 million Medicare Advantage members, 1.2 million are HMO members and only about 100,000 or slightly more are in PFFS plans.
    I’ve seen estimates (can’t remember where) that peg the value of extra services provided beyond standard Medicare at about $86 per month or $1,032 per year. MA plans are especially popular among lower income and minority seniors because the extra benefits including low (or no) deductibles and copays make the benefit almost equivalent to standard Medicare + Medi-Gap insurance. Medi-Gap policies can easily cost $150-$250 per month. Most people who have them are either higher income seniors or seniors who receive the benefit from their former employer as part of their retirement benefit.
    There is a legitimate argument to be made as to whether Medicare should finance these extra benefits when the standard program is under perennial financial stress. The whole concept would be more credible if private insurers could demonstrate clearly that they can deliver like-for-like care cheaper than standard Medicare. Perhaps as the premium networks emerge that will give members a financial incentive to choose providers that the insurer has identified as among the most cost-effective, this will ultimately happen. I note that United’s Evercare Division, with revenues of more than $2.5 billion, provides care on an at risk basis to some of the very sickest seniors on Medicare and some dual-eligibles under contracts that pay United $20-$30K per year per senior to provide all necessary care. United makes this work by doing a better job of supervising and coordinating care which, they say, reduces both hospitalizations and nursing home / rehab days.
    I also think Republicans should stop wasting so much political and emotional capital fighting SCHIP expansion. Uninsured children are an especially sympathetic group. Moreover, insuring them is comparatively inexpensive at $2,000 per child per year or less each. Covering uninsured adults, especially pre-Medicare eligible retirees would cost far more. To argue that SCHIP expansion is just Hillarycare on the installment plan is misleading, I think, because the politics involved in passing legislation to cover the adults vs the politics to cover the kids are not in the same league.

  50. I am far from a free marketeer. In fact, I would call myself a leftie. However, as tempted as I am to blast the HMO’s, what I am seeking is the truth. Regarding above, insurance companies will take their profit, but what I do want to know: 1) is the extra money buying as yet to be measured better outcomes, 2) are folks more satisfied, 3) why when “subsidies” were pulled several years back, all the MCO’s left the market–?? were they really being underfunded. I could go on. Just looking for balance. Any answers would be welcome.

  51. I most enjoy the Republican claims that not-so-subtly imply that seniors enrolled in Medicare Advantage plans will essentially be left high and dry with no insurance as a way of justifying the denial of insurance to kids.

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