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The Biggest Health Care Controversy on the Hill

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Since when was a two-tiered health insurance system a Democratic policy goal?

Among Democrats in the Congress and at the White House there is a great deal of interest in creating a government-run health plan in the under-age-65 market. Such a plan would compete with the existing private health insurance market in a head-to-head showdown between private and public health insurance.

Such a plan was part of the President Obama's campaign health proposal—albeit limited to the small employer and individual market. We are told the President’s greatest interest here is in “keeping the private health insurance market honest.” That is, creating competition in order that private insurers do a better job of controlling costs.

While
most observers assume that this would mean paying providers at
Medicare—or even Medicaid—rates the administration says not necessarily.

The respected and non-partisan Lewin Group recently issued a report evaluating the idea, “The Cost and Coverage Impacts of a Public Plan: Alternative Design Options.”
It looks to me to be a credible job. They made the assumption providers
would be paid at Medicare rates—a logical conclusion if the objective
is lowering costs.

Among Lewin’s findings:

  • “If the public plan
    is opened to all employers…at Medicare payment levels we estimate that
    about 131.2 million people would enroll in the public plan. The number
    of people with private health insurance would decline by 119.1 million
    people. This would be a two-thirds reduction in the number of people
    with private coverage (currently 170 million people).”
  • The
    study also examined what the proposed plan might do to provider
    reimbursement rates. Lewin says that if current Medicare payment rates
    were to be used for a public plan option,
    physicians would see their net income drop by $33 billion (-7%), and
    hospitals would see their revenue fall by $36 billion (-5%) in just
    2010.
  • “If Medicare payment levels are used in the public plan,
    premiums would be up to 30 percent less than premiums for comparable
    private coverage. On average, the monthly premium in the public plan
    for a typical benefits package would be $761 per family compared with
    an average of $970 per family in the private market for the same
    coverage.”
  • “If as the President proposed, eligibility is limited to only small employers, individuals and the self-employed, public plan enrollment
    would reach 42.9 million people. The number of people with private
    coverage would fall by 32.0 million people. If private payer
    reimbursement levels are used by the public plan, enrollment would be
    lower, with only 10.4 million people switching to the public plan from
    private insurance.”
  • Medicare premiums would be lower
    than private premiums because of the exceptional leverage Medicare has
    with providers. Medicare pays hospitals about 30 percent less than
    private insurers pay for the same service. Physician payments are about
    20 percent less than under private coverage. Also, because Medicare has
    no allowance for insurer profits or broker/agent commissions,
    administrative costs for this population are about one-third of
    administrative costs in private health plans.

As Lewin
found, a government-run Medicare-like plan in the commercial market
covering those under-age-65 would save an enormous amount of money.

It would do so in two ways:

  1. By
    eliminating the higher expense factors that private health plans have
    in order to do business. Right at the top of the list are costs built
    into insurance plans to pay brokers and agents, health plan profits, as
    well as state and federal taxes.
  2. By paying providers less. Simply, the government plan would pay providers just as they now pay for Medicare and Medicaid—Lewin
    presumed providers would be paid at the Medicare level that is
    typically 20% to 30% less than what providers get from private plans.

All
at once, in what would be almost a simple wave of the hand, doctors and
hospitals would see their reimbursements cut by 20% to 30%.

Provider cuts would be across the board.

Doctors
and hospitals that provided unnecessary and wasteful care would see
their reimbursement cut 20% to 30%. However, providers delivering
appropriate care would also be cut 20% to 30%. That would be sort of
like the difference between carpet-bombing and laser guided
bombs—somewhat effective but totally inelegant as a solution.

But
cutting provider payments across the board in a government plan would
reduce the cost of providing insurance to the two-thirds of the
population that Lewin
estimates would ultimately gravitate to the public plan because these
provider cuts and overhead savings would make the cost of insurance
about 20% less.

But there is also a concern that a public plan would lead to two-tiered health care for those under-age-65. That is the proverbial “push it here and it pops out there” result.

Today,
the concern goes, 85% of our under-age-65 citizens arguably get access
to first class health care because they have insurance. Granted, it may
be a level of health care that produces enormous waste but at least 85%
of us get it while 15% of us under the age of 65 struggle because they
are uninsured.

If a public health care plan
is created the current equation may just get turned upside-down. The
two-thirds of the market Lewin estimates may shift to the public plan
may no longer be in first class—they may be in coach.

The first
tier would be composed of those in the public plan—presumably a public
plan that balanced its books as Medicare does now by cutting provider
reimbursement as needed to meet the federal budget. Doctors and
hospitals would be “negotiating” with the federal government for their
reimbursement to serve these people—not a long list of private
insurers. And, it’s hard to see how any discussion between the
“thousand pound gorilla” that is government and health care providers
would be other than a very unilateral discussion.

Medicare has a
history of rarely if ever cutting benefits instead continually
tinkering with payments to providers—payments very few providers find
adequate.

On the positive side, even a 20% to 30% cut in
reimbursements by a government plan paying at Medicare rates would be
better than getting nothing from those who can't now pay. Lewin
does assume this advantage would be somewhat limited with the number of
those uninsured only cut to about half under an Obama campaign-style
plan.

The second tier of coverage would be for those who could
still afford to pay the higher premiums for the better reimbursing
private plans. It is likely that the higher reimbursement levels
providers of these plans would get, as well as the likely desire for
private plans to keep their customers happy by granting them better
access to care, would create a “first class cabin” for health care.
Just as it is in Great Britain where citizens can opt out of the public
system, those wealthy enough to be able to afford, or have their
employer pay for, private insurance will have it.

A government-run health plan for those under-age-65
would also do nothing to bring our long-term Medicare entitlement costs
under control. This is a plan for the under-65 market—it would do
nothing to solve Medicare’s solvency problems.

In fact, a government-run plan for the under-65 market would likely make matters worse for Medicare’s long-term fiscal outlook.

Today,
the government making lower provider payments for those covered under
Medicare is possible because health care providers have a huge private
population of under-age-65 people to shift costs to in order to make up
for the lower payments they get from the government. The private pay
market has been large and rich enough to absorb these shifts from
Medicare providers, which have generally kept the provider community
whole.

But with two-thirds of the population in a Medicare-style
government-run plan, cost shifting would no longer be a tenable way for
the private sector to subsidize the public sector. Medicare providers
would pretty much be on their own with a much reduced ability to shift
costs.

It’s also ironic that Democrats have been fearful of doing anything that would create a two-tiered Medicare system
for seniors. The reasoning goes that if the rich and powerful are in
one plan and everyone else is in another there will not be the
political will to sustain a solid Medicare program for regular folks.
That reasoning has always made political sense to me. And, it has been
at the core of their opposition to the privatization of both Medicare
and Social Security.

Which makes the notion that Democrats would now support what will almost certainly evolve into a two-tired system of health insurance for those under-age-65 perplexing.

A public health insurance plan of the kind envisioned in Lewin’s
analysis is perhaps one way to pay for covering more people by cutting
out insurance company overhead and reducing provider reimbursements by
20% to 30%.

It is also a way to change the American health care
system—for consumers, providers, and insurers—in a dramatic way. “Push
it in here and it pops out there.”

America’s health care system
is unsustainable because it is too expensive partly because of the high
overhead produced by so many competing health plans. But mostly it is
unsustainable because we waste so much money on unnecessary and
wasteful care.

Fixing that problem, and therefore crafting a
sustainable system will require entirely new incentives and a focus on
paying for value.

It is also entirely possible that insurers, who would be desperate to survive in competition with a “Medicare for all model
would create their own “coach product” by doing everything in their
power to just whack provider reimbursement levels to Medicare levels
irrespective of which providers create value and which ones waste
money. What would they have to lose?

Making the politically
problematic decisions that would end the waste in our system is proving
to be very hard. It’s entirely possible there will be proposals to
create a government-run health plan to compete with the private sector and leave for another day dealing with the enormous waste already embedded in the system. Already, the Congressional Budget Office has said
that programs that the administration claims will deal with this
waste—introducing health information technology, comparative
effectiveness reviews, prevention, and wellness—will have only minor
impacts on spending.

If we kid ourselves into thinking that a public health plan program
will by itself create real savings—instead of artificial savings
produced by underpayments—and continue to avoid the real issue of value
for what we pay, we will only end up with a two-tiered health care
system (coach for most and first class for a few) for those
under-age-65, providers just as underpaid in most of the working age
market as they now are in Medicare, and nothing done to stem the
unsustainable cost of Medicare’s entitlement benefits.

For providers this would be a disaster—at
least two-thirds of the under-65 market would now be paid at Medicare
rates and the best providers would be hit as hard as those who under
perform. At worst, even the private health plans could be desperate to
drive the rest of the market down to Medicare payment levels in an
attempt to avoid losing two-thirds of their market share. There would
also be about no one left to shift costs to!

I’m trying to understand how a government-run health plan alternative in the under-age-65 market
that focuses on payment rates to control costs, absent changes that
produce a value-based payment system, would be any kind of policy
victory for Democrats—or the rest of us.

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REVIEWjenniferLaura GMark HutchersonBarry Carol Recent comment authors
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REVIEW
Guest
REVIEW

FEDERAL JUDGE SAYS IF THEY DID NOT PROMISE OR SIGN ANYTHING, KICKBACKS ARE OK??? WHICH IS NOT TRUE BY THE WAY. Turning next to relators’ claims based on alleged violations of the Anti-Kickback Statute, the court concluded relators failed to allege “that United Health certified compliance with the Anti-Kickback Act, nor did they allege that such compliance was relevant to the Government’s funding decisions.” The court then declined to exercise supplemental jurisdiction over relators’ state law claims and refused to grant relators leave to amend. MEDICARE FRAUD, MEDICADE FRAUD, AND KICKBACKS AND BRIBES BUSINESS AS USUAL,INSIDER INFORMATION GIVEN. 9B BS… Read more »

jennifer
Guest
jennifer

i think that more money should be spent towards medicine. it takes time and effort for doctors to work on patients and to save them. im not saying that they will save them all im just saying that they have to have medicine to give to the patients and how can they do that if they run out of money to buy the medicine for the patients. but im just a 15 year old high school student and one voice but until we can all come together as one and stop being so hostile towards each other then we will… Read more »

Laura G
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Laura G

Excuse me but…..How about making individuals be accountable for their own health? Incentives to STAY HEALTHY? Our Health Care costs are thru the roof due to PREVENTABLE life style diseases. Let’s stop the problem at the root cause and then maybe we may have a chance to fix this system. TOO MANY PEOPLE USE IT!!! Because they want an “after the fact” fix instead of thinking to prevent it in the first place. Americans have become the laziest people on the planet they don’t even want to get up from a couch to change a channel. We created this monster… Read more »

Mark Hutcherson
Guest

For a long time I was totally against any type of government health care program, but as the cost of simple medical treatments continue to rise – I see no choice. While most people look at a government run health care system as the only affordable way for most people to obtain health insurance – I see this issue differently. Yes, there would be a benefit for the people who cannot afford health insurance – but there is a bigger side issue as well. If there was a government run health care system, the U.S. federal government could mandate changes… Read more »

Nate
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Nate

Hi Peter, I agree UMC is a mess, they are bleeding something like 50 million a year, they hired some crook Administrator from Chicago who ripped them off big time and hired a bunch of unqualified friends who ripped them off. They ran their employee health plan illegally, and pratice systemic insurance fraud in billing for their services. They are a complete disaster. For those that don’t know UMC stands for University Medical Center and is a public hospital. Another example of why I don’t want government running my healthcare. To your other questions the same income you would need… Read more »

Peter
Guest
Peter

Nate, what kind of an income in NV would you need to afford the $9,746? Of course you didn’t tell us what that covers (or doesn’t cover), the deductibles and co-pays, or the age to qualify for that rate, and if that’s the individual rate or employer rate. CBS 60 Minutes did a story on Las Vegas a week or so ago and hospitals (UMC) are cutting off (increased)charity and low income care due to the economic collapse while private insurance cuts coverage. I won’t justify how the NV economy was bubbled and preped for collapse, but that still doesn’t… Read more »

Nate
Guest
Nate

Barry, Insurance premium in MN is cheaper then in NJ. Employer Family policy in MN is $11,395 versus $12,233 in NJ. Neither are considered good markets, MN is heavily regualted and sorta socialist. NJ is NJ, throw them NY, and MA out of the Union and half our problems would be solved. Compare to a couple less regualted markets; TN $9,996 NV $9,746 my home…see how well I control cost:) OH $10,967 my other home, working on it, lots of corn fields to drive through to reach everyone. Hi Peter, how you been? Hope all has been well. Just wanted… Read more »

Peter
Guest
Peter

If low utilization is the answer in “this system” then talk to the hospitals in financial difficulty because of economic low utilization going on right now. As for driving procedures I don’t think the pressure comes from docs, I think it comes from hosptials – unless the docs have a scratch my back, I’ll scratch your back agreement between them. As for the threat of lawsuit excuse I just don’t buy it and think it is used for cover to drive revenues. Rbar, when you came to practice here did you come with a fear of lawsuits, or did your… Read more »

Barry Carol
Guest
Barry Carol

First, a correction for rbar. The web address for Maggie Mahar’s blog is: http://www.healthbeatblog.com. Peter, CMS will tell you that Medicare spends less than half as much per beneficiary in Minneapolis vs. Miami with no difference in outcomes. I’m quite sure that health insurance in general is cheaper in MN than in my state of NJ, though I don’t have access to insurers’ rates. Perhaps Nate or one of the other insurance industry folks on the blog could provide that. You might be interested to know that only non-profit insurers are allowed to sell health insurance in MN even though,… Read more »

Peter
Guest
Peter

Is Mayo charging more per procedure to make up for less less tests and unneccessary care – so where’s the saving? Do patients using Mayo pay less for insurance, or if there are savings do those savings go to the insurance company and not the patient? Are the “savings” encouraged by insurance that says, “If you use Mayo your co-pays and deductibles will be x less?

Barry Carol
Guest
Barry Carol

rbar,
I’m afraid I can’t answer your question directly. I was basically relaying information that was originally posted on Maggie Mahar’s blog, http://www.healthbeatblog.org, by a recently retired Minnesota doctor who posts frequently and very knowledgeably there under the name Pat S. He had extensive experience with Mayo.

rbar
Guest
rbar

Barry, I have a question re: “the Mayo Clinic, which is widely cited as the gold standard for cost-effective care, actually charges more per procedure than just about anyone including Partners in Boston, which owns Massachusetts General and Brigham and Women’s Hospitals. Mayo just does far fewer tests and procedures per thousand patients served than most other providers.” When I refer patients to the Mayo Clinic (usually for a nonsurgical subspecialty tertiary care opinion, they are about 6 hrs or a very short plane ride away), they get basically every test under the sun … I seriously wonder whether they… Read more »

Barry Carol
Guest
Barry Carol

“Deron, it’s the rates that’s killing us. Addressing volume may make GDP/health costs look better but we still won’t be able to afford the procedures.” Peter, Believe it or not, the Mayo Clinic, which is widely cited as the gold standard for cost-effective care, actually charges more per procedure than just about anyone including Partners in Boston, which owns Massachusetts General and Brigham and Women’s Hospitals. Mayo just does far fewer tests and procedures per thousand patients served than most other providers. Bottom line: Deron is right. It’s the utilization that’s killing us. On rates, more price and quality transparency… Read more »

Peter
Guest
Peter

“It will be far more effective to address the volume of services than to address the rates.”
Deron, it’s the rates that’s killing us. Addressing volume may make GDP/health costs look better but we still won’t be able to afford the procedures.

Deron S.
Guest

It will be far more effective to address the volume of services than to address the rates. If we continue to keep rates flat or drive them down further, we will have additional volume problems.
How do we address volume issues? 1) Have providers, payers and public health departments team up to improve the health of the population. 2) More aggressively measure utilization of services and adjust provider fee schedules upward or downward based on utilization as compared to risk-adjusted benchmarks.