As we enter summer, the health reform process is moving into its Newtonian phase: irresistible forces meeting immovable objects. In both health cost and access, the trend is not our friend. There is ample evidence not only of intolerable inequities, but also intolerable waste and inappropriate use of expensive clinical tools. President Obama embodies the need for change. He has assembled a very talented and politically savvy crew of helpers. He confronts the sternest test of any Presidency, fixing a poorly tuned and fragmented health system that is, by itself, larger than either the French or British economy.
In the course of dispatching two formidable election opponents, the President made a number of campaign promises: cutting taxes for nearly everyone, raising them only for the “needlessly wealthy”, not taxing health benefits (since that was a central tenet of John McCain’s health platform, vigorously opposed by a core constituency, organized labor), not changing the health coverage or providers of voters (93% of whom already have health insurance), a new publicly sponsored plan for those under 65, and, in the end, covering 46 million people who presently do not have health insurance.
While these pledges are not as intractable as George HW Bush’s famous and politically costly: “read my lips, no new taxes” pledge, taken together, they create formidable barriers to a signable bill. President Obama is now, under cover of Congressional negotiation, gingerly walking his way back from most of them.
The pledges not to change anything for those currently satisfied with their existing health insurance or providers, and to create a new Medicare-like public plan may prove to be the most troublesome. As it turns out, these two pledges work against one another. The new public plan is supposed to offer an affordable alternative to private insurance by “using the purchasing power of the government” to achieve savings. This offering is not targeted solely to the uninsured, but rather to anyone who wishes to sign up.
The political symbolism of the public plan is compelling, and 120 members of the House have told the President they will not vote for a bill that does not include one. The public plan is viewed, both by proponents and opponents, as the opening wedge of a gradual (or not so gradual) widening of the public role in health insurance provision, ending in a single payer government health plan.
Medicare is widely popular among current beneficiaries. A major reason is that the program is massively subsidized by general tax revenues, (39% of total Medicare in 2008), as well as by payroll deductions of non-Medicare users (including many uninsured younger workers)- another 40 % of total funding in 2008).
Thanks to supplemental insurance, 85% of Medicare beneficiaries are completely insulated from the cost of care, leaving them completely free to be “mined” by avaricious physician communities like those in McAllen, Texas (recently profiled by Atul Gawande in his widely read New Yorker article). The largely open ended Medicare system has, by some estimates, left future taxpayers as much as a $50 trillion unfunded future liability.
So when the general public thinks of a “Medicare like” public plan, one can reasonably assume they think it is something that will be largely free to them. A recent New York Times poll found that 72% of those polled approved of a “Medicare like” public plan. No wonder. When an anonymous White House aide was asked to comment on the poll findings, they compared its popularity to that of “free ice cream and puppies”. How people feel about the public plan when they realize that they might have to pay most of the costs themselves remains to be determined.
The idea that you can simply insert a new public plan into the existing insurance market without the presently insured noticing any difference is political fiction, not market reality. Think of the private health insurance market as a $900 billion pool of money held back by a vast earthen dam consisting largely of provider/payer contracts. This pool has shrunk by some estimates by as much as 9 million lives due to the recession, due to people losing employer provided coverage.
Obviously, some of those newly insured through health reform will choose private plans and the size of the lake behind the dam could thus grow. Even with no public plan, it is absolutely appropriate for health reformers to demand concessions from private insurers for creating all these new customers.
However, if you also drill, say, a 3 foot wide hole in the dam, (the width of the hole depends on the cost difference between the new public plan and existing private offerings) both lives and dollars will gush out. Depending on the width of the hole, many previously private health plan enrollees will defect to the public plan, and the composition of the risk pool remaining behind the dam will change in completely unpredictable ways. Health plans will have to lower their premiums to avoid being run out of business, and many will gush red ink until they can revise their existing network contracts, many of which contain multi-year rate guarantees.
At the risk of being washed away by the metaphor, the width of the hole has a major bearing on whether the dam merely leaks or simply gives way, and destroys the economic foundation of the health insurance industry. This is Corps of Engineers big-league hydraulics we are discussing here.
How wide the hole in the dam will, in turn, depend on the rates paid to providers by the new public plan. Achieving significant savings over private insurance would require the public plan to exploit the government’s unparalleled ability to set unit prices below the cost of caring for government funded patients. Medicare has excellent control over unit payment rates, and virtually zero control over healthcare utilization (where most of the present cost problem resides).
As the controversial Lewin study established, if the public plan pays prevailing private insurance rates, it would not attract enough new enrollees to justify the political costs of creating it in the first place. Achieving a significant cost advantage over private insurers could require the new public plan to compel hospitals and physicians who do business with Medicare to accept Medicare rates to provide care for those who choose the new public plan.
In the inelegant lingo of the business world, this is called a “cramdown”. The cramdown would be needed because relying on voluntary sign-up by hard pressed primary care docs and hospitals serve a large new segment of below-cost customers would likely be unsuccessful. Selling the original Medicare program to hospitals and doctors in 1966 actually required paying them on a cost-plus, not cost-minus basis.
Hospitals are already losing some $30 billion treating publicly funded patients, and have been hammered by investment losses (which markedly reduced their capacity to subsidize those losses). To force them to widen those losses in exchange for more publicly funded patients would engender loud and broad based political opposition to the public plan from hospitals and physician groups (which has, interestingly, yet to materialize).
The more serious problem is on the physician side. Some 36% of the physicians in the United States are over age 50. About 18% of them have closed their practices to new patients, including Medicare patients. Appeals to patriotism will not suffice to re-open their practices to public plan enrollees. Something like one-third of physicians over fifty would retire tomorrow if they could afford to do so (which they are presently unable to do owing to massive damage to their retirement portfolios).
My forecast is that as the economy and, more importantly, the stock market recovers, we will see a rapid exodus of boomer docs from practice across clinical disciplines, and a wave of further practice closures to new patients, as those patients displaced by practice closures cascade down on the docs who remain in practice (more hydraulics, I’m afraid).
If the experience in Massachusetts is any guide, the creation of 400 thousand newly insured people led to immediate increases in waiting times to see a doctor across the state, principally because of a shortage of primary care doctors and the fact that many existing primary care practices were already closed to new patients. A recent Merritt Hawkins survey revealed that wait times to see a physician in Boston (49 days) were almost double those of the next closest city, Philadelphia.
There is an excellent chance that even without the new public plan or accompanying Medicare payment reductions, we will have a crisis of access to physician services in the next five to ten year as boomers flood onto the Medicare program and boomer doctors retire.
Unless it is handled carefully, this looming physician access problem will be blamed on health reform. The campaign promise that “you can keep your doctor if you choose” will be meaningless if exhausted and disillusioned physicians retire in large numbers, as I expect they will. Many of their retirement letters could well blame
a poorly conceived reform plan passed by Congress and signed by President Obama for problems which, in reality, pre-dated health reform.
From the employer side, it is worth remembering that the majority of employers offer employees only a single choice of health plan. If a new public plan is offered that is, for argument sake, 30% cheaper than the local Blue Cross Plan, employers will switch to the public option in a New York minute, leaving their employees in the new Medicare-like public plan with a bunch of angry hospitals and doctors. Small employers, including this writer, who are most disadvantaged by the present health insurance market, will be gone from their current coverage in sixty seconds. So the campaign promise that “you can keep your existing health plan if you like it” will also be meaningless if peoples’ employers decline to continue to provide it.
Many policy advocates who argue that we need a new public plan to “discipline the market” do not appreciate that Medicare already functions as the price benchmark for private insurers. When Medicare cuts its payments, as it last did most vigorously in the Balance Budget Act of 1997, private health plans experience a surge in costs from providers attempting to recover their losses, and then have to respond by tightening utilization controls and/or negotiating lower rates of increase in costs.
Medicare will inevitably cut payments to hospitals and doctors to fund health reform, as well as to reduce future year federal deficits. Further payment reductions from the public plan could force private health plans to make even deeper cuts in payments to doctors and hospitals (to avoid ruinous losses in their core enrollment). These twin pressures could create a nuclear winter in a provider community already struggling through the recession with diminished assets and patient volume.
In a 25 June New York Times Op-ed piece, Alain Enthoven, a health policy veteran, argued persuasively that the ability to set health insurance market groundrules through a national health insurance exchange already hands the government sufficient power to curb private health costs, as well as to make covering the newly insured more affordable. This power, properly employed, makes the public plan completely unnecessary.
Enthoven is exactly right. He proposed merely setting the maximum amount of tax-free pass through of health insurance premium costs to employers and employees at the amount of the least expensive exchange offering (a familiar remedy for those who have followed his work). People who want more expensive plans will be free to pay for them with after-tax dollars. Since the exchange will also constrain underwriting practices and set minimum benefit levels, meet that price challenge by marketing only to the healthy or offering a stripped benefit will not be possible.
While health insurers and providers and the commentariat are engrossed in the contentious public plan debate, attention has been distracted from the crucial decisions regarding the shape of the federal regulatory regime embodied in the health insurance exchange. This exchange will have immense power. Health plans which do not adhere to its rules will be unable to serve their customers through the exchange and be locked out of access to a large fraction of their current market, as well as to the newly covered.
The exchange’s rules will likely include underwriting standards that limit pre-existing conditions exclusions, recissions of coverage, requirements of guaranteed issue, limits on the mark-ups for older and more costly patients, as well, crucially, the minimum benefit package and cost sharing provisions plans must meet.
These latter issues – benefits package and cost sharing- are both highly political and extremely important, as an excessively generous benefits package (containing ever-popular service mandates for chiropractic care, in vitro fertilization, acupuncture, you name it) or elimination of high-deductible plans (another thing that happened in Massachusetts) could markedly increase employer costs, as well as the federal subsidies required to permit employers to participate.
While they made historic progress in reducing the number of insured citizens, Massachusetts health reforms have made a major contribution to the state’s $5 billion budget deficit by leaving intact an absurdly generous benefits package, and a highly concentrated provider market, while relieving patients of the need to manage their own costs more thoughtfully.
The real political problem for Congress and the Administration will be with self-funded employers (e.g. most everybody who has more than 200 employees), not with a politically weakened health insurance industry. If Congressional drafters aren’t careful, the blanket ERISA pre-emption which has protected self-funded employers from state service mandates and premium taxes could be replaced by a politically defined benefit package that relieves employees of cost-sharing liabilities, opening the door to future ruinous increases in their benefits costs, which under an employer mandate, they would be required to pay. Employers large and small will fight that form of mandate until the last dog dies.
For what it’s worth, Tom Daschle saw far enough down the road to realize that employer trust of the political system was so low that unless you removed decisions about the benefits package and coverage/payment policies for specific services from Congress, business would never support health reform. That was the genesis of his suggestion for a National Health Board that insulated benefits and payment policy from Congressional micromanagement. Letting Daschle go has been the only visible mistake Obama has made so far in this remarkable process. His leadership would have been immensely valuable this summer.
Most of the key Congressional leaders have spent anywhere from twenty to, in Ted Kennedy’s case, an unimaginable 45 years wrestling with this issue. Even if they get past the public plan, they’ve still got a long way to go to get this horse in the barn. Congressional leadership more than a little resembles Tommie Lee Jones’ world-weary sheriff in the recent, bleak Coen Brothers film, a tired good guy facing a resourceful and implacable foe. Health reform is no country for old men.
It is possible that, for the second time in fifteen years, divisions inside the Democratic Party might doom health reform. President Obama will need all his skills and persuasive powers to save his Congressional party from itself. Rather than wasting scarce political capital on the public plan, health reformers need to focus on hospital and primary care physician payment reform, expanding Medicare coverage for the almost 11 million uninsured boomers and sensible design of a federal health insurance exchange. It isn’t going to take a miracle to get this important public task done, just focus and discipline.
Jeff Goldsmith is president of Health Futures Inc. He
is also the author of a book released this year titled “The Long Baby
Boom: An Optimistic Vision for a Graying Generation.” Health Futures specializes in corporate strategic planning and
forecasting future health care trends.
Categories: Uncategorized
I have a better idea.
Revert back to knowing your general practioner, and pay him directly.
See, that gets you those buzzword things you want:
“single payer” = YOU
“waste, abuse, and fraud” control/oversight = YOU
“healthier lifestyle education” = YOU and YOUR doctor reviewing your bill from the last visits you had when you were living like a sloth.
That would then leave, say, I dunno, 10% needing help with their medical bills. Much less of a problem to handle, and something clearly within the perview of each individual State.
Yeah. I like it. Worked before.
Instead of whining back to me in your response, why don’t you spend the quality time trying to research and UNDERSTAND why it worked before?
(sigh) Probably fell on deaf ears.
Perhaps the key to breaking through this informative yet frustrating series of posts is a simple conceptual change. Why not build a health care system consisting of a single payer with multiple insurers?
In other words, build an independent agency which would contract with medical care providers, receive their bills and reports electronically, process and evaluate them against evidence-based standards (lean medical care), and pay them. A single payer system would build the foundation needed to accurately measure care provider performance and set standards that providers could follow.
Assuming that this independent agency could optimize care by assuring appropriate care for patients, the cost for care could be rationalized. From evidence that I have seen, such a system would benefit the insurers as much as patients and care providers.
Nate, in his initial comments to Greg and Margalit states, “If I read you correct you both advocate passing reform with an until now unknown new payment method that magically aligns provider and payor goals, leads to better care, and is more cost efficient. This never before used or known payment method will apply to all health plans and solve all of our problems. This doesn’t sound absolutely ridiculous to either of you?”
I think that if Nate had worked for The Managed Care Alliance in the 1990’s, he would recognize immediately this “new payment method” actually did exist. It was a single payer system which brought care providers, patients, and insurers together by respecting their needs. It really wasn’t all that difficult to build although insurers took some convincing that they did not need to managed medical claims. But, when they saw that their medical costs had fallen by an average of about 40%, they went with the flow.
I really think that what is needed in the health care reform discussion is this change of reference and the open mindedness to consider disrupting the status quo.
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Margalit Gur-Arie wrote: “As to employers, they better concentrate on their core business and leave health care to the individual.”
Employers “concentrate” on outcompeting rivals in part by seeking out competitive advantage. In service businesses this frequently means fielding a more capable workforce; the health of that workforce is of course a significant element of its capability. Workforce health is a strategic consideration for any competently managed enterprise.
So no business with competent management will ever entirely “leave health care to the individual” even if single-payer is implemented.
Greg,
Because you’re wrong, wrong, and wrong.
“the public option plan would receive no federal funding, be financed entirely by premiums and have to abide by the same insurance regulations as private firms.”
Medicare was legally required to pay providers a fair price and would prevent seniors from suffering financial hardships due to medical expenses. Both where huge lies. The stories politicians tell to get support for a bill are worth less then the paper they are reported in. Nothing you cite above will happen if it actually passes. Government will subsidize the plan both directly and indirectly, they will operate under favorable law, and have protections private insurance does not.
“It is said that having the government have a plan to compete with the private sector is unfair, because the government has no cost of capital.”
That is said but it is said at the bottom of a list of 20 other things. You can’t ignore the 19 more important claims and pick one from the bottom. Government dictates pricing, cost shift to private plans, doesn’t pay state taxes, and covers cost through the budget of other agencies. Address those then worry about no cost of capital.
“But those benefits aren’t being paid for by the efficiencies of the private market, they are being paid by a 17% federal premium.”
He is wrong, MA delivers the same benefits as Medicare for roughly 97-98% of the cost. That means they deliver 19-20% in perks for 17% increase in premium.
“The larger insurers have a huge advantage.”
What huge advantage and in what market? In Ohio I can rent a PPO stronger then Anthem and United and drastically undercut them on fixed cost. I have no problem competing with them. In MA and CA where over regulation and crooked politics reign I don’t have access to the discounts and can’t compete. The size of the insurer has no relevancy as long as they both have the same pricing from providers. Only when providers maniloualte the market or collude with the large insurer, see most favored nation contracts, does one have an advantage over another. Insurance, as a true transfer of risk actuarially underwritten, is highly competitive, risking JDs rath see the self funded market as a perfect example.
How can a private plan compete with a public plan when the government taxes the private plan to subsidize the public one?
Tcoyote did you see today’s news? Hospitals are supposedly about ot agree to cut Medicare and Medicaid reimbursements by 155 billion over the next 10 years. That cost will be directly passed through to private insurance in the form of lower discounts, after a couple years of hospitals BLEEDING money, then congress will insist on getting rid of private insurance due to its inability to control cost.
Things are going to get real ugly before 2012
The VA, Medicare, Medicaid, private insurance, and now a new “Public Plan” to “fix” the “system”? Is this any way to run healthcare? Tcoyote’s right when he says “. . . Lord help us all”
Nate, Greg, and Margalit
Contrary to Nate’s comment,”If I read you correct you both advocate passing reform with an until now unknown new payment method that magically aligns provider and payor (sp) goals, leads to better care, and is more cost efficient.”, there was precisely such a system in existence in the 1990’s.
It was called, The Managed Care Alliance(TMCA).
This was a single payer system in which TMCA paid all medical bills. In turn, insurers or employers paid TMCA, not the providers. It was a non-adversarial system since it aligned the interests of providers, patients, and payers. While I no longer have the exact numbers in medical cost savings, they averaged around 40% when contrasted with previous medical costs managed by the insurer or or claims organization.
TMCA was a lean medical care system. See http://www.leanmedicalcare.org for a discussion of the elements and how it worked.
Briefly, TMCA worked because we paid doctors fairly and promptly with no pre-authorization required. In order to participate, however, they had to voluntarily agree to follow some rather basic lean medical care guidelines. I’m not kidding, the rules were very basic and doctors would have to have been crazy not to agree when they were gaining access to patients and doctor friendly payment schedules. If I were to lay out the rules here, you would probably laugh – so unsophisticated, but it worked.
Patients benefited by having an independent agency, TMCA, watching out for them, helping to assure appropriate care.
Payers benefited by lower medical and administrative costs since they no longer managed care. All they had to was pay TMCA’s bills when submitted.
If medical costs had increased under this system, it would have failed out of the gate. But it didn’t. It worked successfully for large national employers such as A&P.
I cannot be certain that this single payer model and its success in building a non-adversarial alliance between insurers, care providers, and patients would translate exactly into a national health care system. On the other hand, why not try. We have not seen many suggestions for improving care while lowering costs. This model at least has a track record.
The astute health care analyst, Brain Klepper, tells us it is impossible to know exactly how much waste there is in America’s single-profiteer heath care system, inappropriate, preventable, or the result of errors or administrative inefficiencies in every part of the system. There are many drivers: inadequate management tools, enormous workloads, greed, defensive medicine and perverse financial incentives.
FFS rewards more care rather than the right care. More procedures and products producing more revenue. Doing less produces less revenue, so health care organizations have little reason to invest in efficiency.
The Medicare system has been struggling with the myriad inefficiencies and other economic dysfunctions associated with the FFS private health insurance system on which it is modeled.
Congress had used the MMA to reform Medicare’s payment system for injectable drugs when it had the political opportunity. The system had been broken for decades and constituted one of the more bizarre shell games in a Medicare payment system. Reimbursement by CMS for injectable drugs involved what has long been an arbitrary cross-subsidey, known as the chemotherapy concession.
It IS time to drastically change the health care system!
Greg:
The 17% “premium” you cite is a half-truth because roughly half of the additional payments go to the beneficiaries enrolled in Medicare Advantage plans in the form of lower co-pays and deductibles. In other words, they do not go to health plan shareholders or CEO bonuses.
Skeptic
Greg, read the original post. There ain’t nothing level about using Medicare’s pricing leverage to give the new plan its “competitive” rate structure. Schumer I think also advocates paying prevailing commercial rates, which puts the whole idea back on the “why bother” category.
A new health plan would need infrastructure to “compete: claims management infrastructure, provider contracts, means of communicating with beneficiaries, actuarial data, medical policy staff, . . . Lord help us all. Maybe you could call the relentless Len Schaeffer out of retirement out in California to do all this. I believe Pete Stark’s “reinvent the marshmallow” could be invoked here.
Loaning government money (which comes from hard pressed taxpayers) to create a new “national” health plan is a speculative waste both of resources and time. Medicare already has huge influence on private health plans, and employer cost, by the decisions it makes on how and what to pay for. Making more sensible use of that power is a way better idea than Schumer’s “fig leaf” for the left.
U.S. Senator Schumer said over the weekend, his proposal, which closely resembles what the House and the HELP Committee are considering, the public option plan would receive no federal funding, be financed entirely by premiums and have to abide by the same insurance regulations as private firms. It is said that having the government have a plan to compete with the private sector is unfair, because the government has no cost of capital.
The chairman of MedPac said the private Medicare Advantage plans offer patients enhanced benefits (perks). But those benefits aren’t being paid for by the efficiencies of the private market, they are being paid by a 17% federal premium. The MMA program wasn’t “neutral” in how it supported the traditional and private Medicare options.
Uwe Reinhardt pointed out that large for-profit insurers and small for-profit (or non-profit) insurers don’t compete on a level playing field. The larger insurers have a huge advantage. And no one objects to that!
Capitalism is not about level playing fields. “What’s good for the goose is good for the gander.” If for-profit Medicare Advantage plans receive a 17% federal premium for their services, why not allow the public option plan to receive some federal funding?
Jeff:
Great post. Your paragraph citiing Eintoven is worth emphasizing:
_______________________________________________ Enthoven is exactly right. He proposed merely setting the maximum amount of tax-free pass through of health insurance premium costs to employers and employees at the amount of the least expensive exchange offering (a familiar remedy for those who have followed his work). People who want more expensive plans will be free to pay for them with after-tax dollars. Since the exchange will also constrain underwriting practices and set minimum benefit levels, meet that price challenge by marketing only to the healthy or offering a stripped benefit will not be possible.
__________________________
And I think you also correclty emphasize that the health insurance exchange “ground rules” will be important in determining whether that approach would result in a reasonable system.
I would like to see more dialogue comparing and contrasting the U.S. proposals for health reform with the systems in the Netherlands, Switzerland, and France. These appear to be working reasonably well. Personally I am very skeptical of a public option for the reasons that you have cited, but I know also that universal coverage is very difficult to achieve without it. But we do have Medicare and Medicaid today. Though they are imperfect, they do provide access that would otherwise not be there.
I do feel strongly that payment reform is essential to achieve the goal of affordability and quality. It should also help keep physicians practicing longer if there are rewards for good outcomes. Implementing this, however, will very very challenging, and will take at least several years.
Finally everybody needs to understand that all covered people need to have some “skin in the game” so that they don’t use healthcare services unnecessarily. Your information on Medicare recipients underscores that point.
You are priceless, Nate. Actually made me laugh out loud. Thank you for letting me know what I do and do not understand, but I’m afraid I understand even less than you assume. For example I don’t understand why you keep going back to Medicare and Medicaid. The assumption was that public plans are off the table, for the sake of argument.
The exchanges in MA and CA do not offer identical plans. It’s the same convoluted bureaucracy with myriads of small prints and variations. The cost savings, IMHO, will come from the uniformity of the basic plans.
You have been arguing all along that private insurers are more efficient than Medicare, so please, since these plans are private, show me… (I am from Missouri).
Comprehensive plans by themselves will not curb utilization. A change in the reimbursement model (paying less for procedures and more for primary care) will. I am glad that CMS is starting to see the light in that direction.
I am not suggesting that insurance finances research and I don’t really care about their profits. Sorry. Patients should be able to take advantage of whatever is out there. If the research is paid for by someone else, great. If not, and the treating physician thinks that it has a good chance to work, even if it’s still considered “experimental”, than the insurer will have to pay.
The taxes for premiums are not for discretionary spending by the government. They should go directly to the insurer. Could the government default on that? Sure, it’s possible. I guess the payers will have to take a chance and draft solid agreements.
I was not saying anything about risk adjustment. I don’t believe in risk adjustment. I believe in large enough pools. The pools for these handful of plans should be large enough and insurers will not be allowed to turn anybody down anyway. They can compete on networks, customer service and such things that commodities usually compete on. If they want to increase profits, then by all means, go ahead and manage costs down just like everybody else. They may find that they don’t really need all those office folks and all those middle managers. Who knows, maybe they will get really slim and trim….
As to employers, they better concentrate on their core business and leave health care to the individual. And by the way, nobody said anything about these exchanges being local or state specific.
If you are concerned about consumers and who will assist them if there is a problem, then see above. Competing on customer service may be quite refreshing.
Cosmetic surgery was just an example. Some really wealthy folks may buy it just in case they get an unsightly scar here and there, or knowing that everybody gets wrinkles eventually. There are many other perks that can be bought as supplemental (private hospital rooms, private nurses, all sorts of goodies… I’m sure you have a pretty good idea of what these things are).
People that work are subsidizing those that do not in many other ways, so I don’t see anything particularly shocking here. Americans that liked their insurance liked it because it had proper benefits and lovely providers. That will not dramatically change. The comprehensive plans should be as good as what they have now and, if they really liked their carrier, sign up with them again. I assume all the big players will stay in the market.
Employers should feel relieved having the health care burden removed. Of course, they are going to have to increase salaries by whatever premiums they were paying before.
All in all, I think it’s pretty equitable….. Will there be problems with the execution? Of course, but where there’s a will, there is a way.
I wouldn’t worry about it too much Nate, the insurance companies and their lobby will never allow anything like this to actually happen.
Roger,
No offense although I am neither an insurer or broker. Do have a could questions for you and Margalit though;
1. We already have exchanges in CA and MA and they are two of the most expensive markets in the world; what would you change about those existing exchanges that would suddenly make this an efficient and effective delivery mechanism?
2. We already have a system in place that sounds almost identical to what Margalit describes, Medicare and the Medigap market. Again this is a highly enefficient and expensive segment, why would you model after it?
3. OOP spending has dropped from 50% of care to 18%, history has shown when care doesn’t cost a consumer they consume more of it, how is your comprehensive benefit plan going to control cost? It is utilization that is bankrupty the system now after all and you seem to propose feeding into it.
4. Do you really think insurance is the best way to finance research? Experimental care is research why are insurance companies paying for research? Will they get to share in the profits of successful treatments and drugs? Is it efficient to pay premium tax on research dollars?
5. Medicare and Medicaid are funded through taxes and this is the major reason both are failing, when the budget is bad and DC cuts spending how do you want the new system to ration care? Or are you assuming we will never again have budget shortfalls and this is a mute point?
Margalit you can skip the rest of these as I doubt you understand the complexity, Roger you should know better.
6. If 12 plans, or 100, offer identicial benefits, receive risk adjusted tax dollars for funding, are enrolled through an exchange what differentiates any of them? What is the purpose of having more then 1 plan? They can’t compete on price, marketing, or anything else meaningful so why offer them?
7. By what measure are these other systems more cost effective? Your comparing their results to the aggregate results of our systems. This is inaccurate. I’ll put an American large self funded plan up against any other system in the world. Medicare, Medicaid, MA, and other failed US systems drag down our results when comparing us aginst the world, and ironically these are the systems you model change after.
8. How does your exchange(s) handle employers with offices or employees in multiple or all 50 states, does each location need to purchase coverage independently from the local exchange?
9. It seems you are taking the Medicare approach to reform, ignoring total cost in favor of finding the cheapest delivery possible. While this might be required for you to “sell” your plan shouldn’t the country be more concerned about the total cost then saving 1-2% on distribution? Under your system who advocates for consumers when there is a problem? Do they call the 800 number like Medicare and hope it is a good budget cycle and someone answers? Or should we epxect Medicaid customer service, i.e. none?
Margalit your supplemental plans can not exist, if they did they would be an abomination of insurance. They only person who would buy a cosmetic surgey supplemental plan would be someone wanting to have cosmetic surgey, the premium would be the cost of the surgery they want to have plus overhead, which would make no sense to either sell or buy such a policy. In fact this would be illegal under most state insurance laws because your really not selling insurance.
“socially equitable solution”
by what measure? People that work are subsidizing those that don’t. 80% of Americans that liked their insurance and didn’t want it to change just lost it. Employers that had control over their spending now don’t. I don’t see anything socially equitable about this.
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Hey Margalit, that’s pretty much what I’d like to see, too, especially with funding through the taxation process (as in all those evil socialist countries that have far more cost-effective systems than ours). However, you would still have to have some kind of exchange mechanism to allow folk to pick from a menu of fifty (or whatever) plans — and since most plans aren’t nation-wide, it would peobably be necessary to have multiple regional exchanges. But this should still be less costly than purchasing from insurers or through brokers (sorry, Nate!).
Roger,
Let’s assume, for the sake of argument, that a single payer system is politically impossible.
How about a dozen, or more, or even fifty privately administered plans that offer a federally imposed, comprehensive set of benefits, including everything from well child care to transplants and experimental treatments, according to the physician/patient choice. The benefits should be identical. A public plan could be one of these plans, or not. The payments will be collected through progressive taxation and paid out to the plans. Individual may switch plans during open enrollment periods.
Supplemental plans, for nice to have care, like cosmetic surgery and brand name medications can be sold separately by insurers. I assume that’s were the large profit margins will occur. The catch is that an insurer would be mandated to offer a basic plan if they want to be in the supplemental business.
There are various other measures that must be taken in order to be able to afford this structure. The number one item in my book would be to tilt the reimbursements towards primary care and away from wasteful and unnecessary procedures. There are many more things that can be done in order to improve quality and reduce costs, as some of our premier medical groups have shown.
I think that a system like that will reduce multiple layers of bureaucracy and therefore costs. It should also provide a socially equitable solution. The insurers will probably not like it one bit.
Peter writes:
> Laetrile, that’s your example?
If you don’t like my example, go read Shannon Brownlee’s book.
t
I’m not sure what system Margalit Gur-Arie would propose, but she asks some reasonable questions about a possible insurance exchange structure.
1. “Does that mean if I can afford it, I get all the health care I need, and if I cannot…” — Just as in the USA today, as well as in other countries with far more cost-effective health care systems, an exchange would be expected to allow individuals to purchase supplementary coverage in excess of the standard benefit. And yes, this does mean that wealthier folk will get more coverage. On the other hand, in contrast to our current unfair and dysfunctional system, the less well-to-do will also have coverage – and by the way, recent research does NOT show that more is necessarily better.
2. “How much out of pocket…have to spend when he gets really sick?” – Obviously we don’t know this, but it seems reasonable to expect that the basic benefit will balance affordability with adequacy of coverage. What we do know is that the USA can’t afford to provide its citizens with comprehensive coverage without imposing some out-of-pocket costs for all but the low-income group.
3. “How will the exchange monitor quality of providers…?” – Depending on the way in which the basic benefits are defined (care versus providers), the example Margalit offers may or may not be possible. However, in general, it seems reasonable to assume that individuals choosing coverage will consider the capabilities of the plans or networks offering it.
4. “This added bureaucracy is meant to accomplish what exactly?” – It’s not clear that the exchanges will necessarily involve more administrative effort than the burden currently placed on individuals and small businesses seeking insurance, while the opportunity for price competition is surely a huge advantage. Certainly, compared with a single-payer system without insurers, a structure of exchanges and insurers is more elaborate – but a single-payer system isn’t going to happen.
“We cannot afford to botch this.”
Someone’s going to feel it was botched, otherwise all stakeholders will get what they want and costs will be paid by printing money.
Laetrile, that’s your example? Will anyone object to not covering vitamines, I doubt it.
Peter writes:
> Tom, please give me a specific example of
> your explanation to Margalit.
Laetrile.
t
The fun part of this blog is how much you learn about an issue when you post something. Several learning points:
1) How big a deal this is. $1.6 trillion sounds like a lot of money, but over ten years, it’s less than 1% of the cumulative GDP over those ten years (which I grew to $16.8 trillion from its present $14t in 2019). In other words, it’s peanuts. Cumulative health spending over this time looks like over $40 trillion, so even $600 billion in Medicare cuts looks like peanuts. These are small numbers made to look big because of the ten years. Plus ten year numbers are BS anyway because you never get a linear increase over that type of time span. $1.6 trillion actually sounds like Dr. Evil’s ransom demands in Austin Powers. . .
2) An employer mandate will have a major bearing on whether there is a recovery in time for Obama to avoid being blamed for: no recovery but a massive increase in the deficit. He’s got about eighteen months of no growth before he’s in deep political trouble. An employer mandate will increase the cost of hiring new workers, and slow or halt any employment growth (more because of damping expectations than anything else).
3) Obama and Congress probably do not have the political capital to cut provider payments enough or increase taxes enough to fund the $1.6 trillion. Without the mandate, they don’t have a bill, or the bill doesn’t come close to universal coverage, even in year seven or eight of a ten year bill.
4) Making the mandate affordable? This means an affordable benefit package and some type of firewall to prevent the Medicare cuts blowing back into the private insurance market in a massive cost shift, of the type that appears we’re having in Massachusetts.
5) The only ways I can think of to do this don’t get political support: price controls (not a peep on this from anyone), draconian payment restrictions on PRIVATE insurance (e.g. some form of provider risk sharing like “capitation”) or something so incredibly confusing that it freezes the provider community for three or four years
(like bundling, which ignites a war with their docs). Daschle’s idea for a National Health Board would freeze everyone while they wait for the rules.
6) How bad do we want this? We cannot afford to botch this. We really need health reform to happen. We’re probably going to get a 1200 page bill full of mistakes and cringe-worthy pork hurling. But the core structure of it has to be sound or we end up wrecking either our economy or our health system in the process.
Tom, please give me a specific example of your explanation to Margalit. You seem to be putting the needed medical knowledge with the patient and not the doctor. If getting affordable healthcare is nothing more than playing disease roulette then again, like high deductible plans, the risk is passed to the patient. As I understand the Dutch “basic” plan is comprehensive with even dental covered to age 18.
Margalit, if you can afford it, you’d be free to buy whatever you want, whether or not there is any reasonable chance it’d help you. If you can’t afford it, you’d get whatever the consensus is about care paths for your condition and perhaps more, but procedures and so-forth that have no reasonable chance of helping you will not be offered. This is called a “coverage decision” as in “we’re not going to cover that procedure that has no reasonable chance to help you. If you want it anyhow, then you pay for it.”
To answer the bulk of your questions, I expect it’d all be approximately the way you find it in Germany, Holland, Sweeden, and so-forth. If you want to know how governments manage “Enthoven-ish” systems and understand why they maintain intermediaries, study those. Since there is no concrete proposal that’s the best you can do. But I seriously doubt it’ll become an issue here anytime soon.
t
I guess I don’t understand how one makes “coverage decisions” based on “real cost incentives”. Does that mean that if I can afford it, I get all the health care I need and if I cannot, then I make a “coverage decision” to have less/worse health care. How is that different than what we have today, other than providing second rate coverage to the currently uninsured, “the poor plan for the poor”?
There is an implicit assumption in Enthoven’s article regarding minimum quality of all plans on the exchange and Jeff, above, is assuming that the government will be able to ensure that minimal quality.
What I would like to know is how much out of pocket will the proud holder of a brand new policy from the cheapest bidder on the exchange will have to spend when he gets really sick.
I would also like to know how will the exchange monitor quality of providers, so it can compare apples to apples, when deciding who the cheapest bidder is. For example if a plan offers access to only NPs for primary care, it will be cheaper than a plan that offers regular MD visits. Will the exchange regulate that as well?
And all this added bureaucracy is meant to accomplish what exactly? The survival of the commercial insurers?
A great piece by Jeff Goldsmith!
If we want to avoid health care reform breaking the budget — and leaving aside possible needed changes to Medicare and Medicaid — we have four options:
1. Public plan — The only way a nationally-based public plan (as opposed to one available only where there would otherwise be inadequate competition) can limit the additional costs of reform is by paying less than Medicare rates, something that would be anathema to providers, as well as to the insurance industry. It’s not going to happen. (And by the way, in the much-criticized Medicare Advantage program, the costs of traditional Medicare are higher than the base bids from HMOs and some PPOs.)
2. Controls over resources — No-one familiar with the subverting of states’ CON regulations by the health care industry can have any confidence that either comparative effectiveness studies or a CON revival will have any major near-term impact on costs.
3. Limited standard benefits — While using FEHBP as a starting point for benefit design may seem overly generous (except maybe to members of Congress), a significantly constrained standard benefit package could create a real gotcha for lower-income individuals unable to pay the out-of-pocket costs that would go along with limited benefits.
4. Competition — As Jeff says, Alain Enthoven is right. Our best bet for limiting the costs of reform is to create a competitive market in which individuals have real cost incentives to make coverage decisions on the basis of value — not on the basis of what insurers and brokers are pitching.
“options in plan designs does not equate to inefficency.”
Maybe, but the pool of premium payers is reduced for any group of options and that raises costs. A basic plan that covers most major and necessary treatments would provide a large pool of payers to keep premiums down. It would also enable equal price/service comparisons for premium payers. The Dutch system is touted even by some conservatives and it mandates a basic plan, but Nate, the government rides close herd on the insurers with rules and regs. The Dutch pay about 9% GDP for healthcare. Maybe we should get the Dutch government to manage our system?
You assume that insurance should be monolithic like Medicare, that is not efficient. Look how many options of cars, housing, food etc we have. Different people have different needs, options in plan designs does not equate to inefficency.
With EDI and computers it is very easy to determine eligibility and benefits. I disagree with it but their are TPAs doing real time adjudication.
There is far more waste in public letheragy then private insurance profit chasing. A government worker that doesn’t care will cost you ten times as much as a person trying to make a fair profit.
Healthcare use to be simple before the government got involved. In the 60s and 70s we had what you described above. To try and help a couple percent of the population they screwed the entire group of systems. Government will never deliver what you seek, yet you keep relying on them to do it. How many times do they need to make things worse before you think maybe they are the problem?
Nate, this is not a question of optimism. It’s more a question of frustration. We have a gigantic system with hundreds and thousands of rules a regulations, with thousands of variations on what is covered and what is not and when and how and for whom.
Is it not self evident that all this bureaucracy is costing us many, many millions of dollars, more likely billions? Maybe the profit margin for commercial insurers is in the single digits, but the amount of waste must be larger than that.
Health care is a simple thing. You get sick, you get care. Whatever you and your doctor decide is necessary. And this holds true for everybody. If you start from this basic axiom and add a corollary that physicians will do the right thing if properly reimbursed and patients can be properly educated to wisely utilize the system, then you have something to build on.
There should be enough money in the current system to pay for this simplification.
Nate – According to AHIP, 23 of the 50 states have Any Willing Provider (AWP) laws. Fifteen of those apply to pharmacists only which shouldn’t create undue problems for insurers. Only six states (GA, ID, IN, KY, WI and WY) have broad AWP rules – requiring plans contract with any type of provider that applies for membership in their network. Those six states have a combined population of about 28 million or less than l0% of the U.S. total.
If the insurer develops a payment approach for doctors and hospitals similar to a tiered drug formulary, I don’t see why that should be a problem if it is part of their contracting rules. If you want to be in our preferred tier, you have to meet our cost-effective practice pattern metrics. If membership requires providers to accept the plan’s rules and not just its payment rates, why should that be a problem? If it is a problem, it should be addressed in conjunction with broader healthcare and health insurance reform.