Imperfect Timing, Interesting Findings

I’ve been reading a recent paper from the Committee for Economic Development, one of the less doctrinaire business research groups, that should give health care reform advocates (and opponents) food for thought.

Health Care in California and National Health Reform,” authored by health care economist Alain Enthoven and CED’s Joseph Minarik, was apparently written during the course of the lengthy debate on reform, with updates inserted after passage of PPACA. With an emphasis on CED’s own earlier proposals for reform rather than the new law, the timing of the paper’s publication was obviously less than perfect, but, even so, the findings are well worth examining.

The paper’s scope is limited to California, clearly not a typical state, given its considerable HMO enrollment and relatively low per capita health care spending, but one with the largest non-federal employer insurance exchange (CalPERS, the state employee benefit system), and the largest delivery system HMO (Kaiser), both of which have made great efforts to make health care more cost-effective. The paper includes reports of interviews with CalPERS administrators and employee benefits managers of major academic and business employers offering a range of health care coverage options to their employees, including a number who have adopted a managed competition model with fixed dollar employer contributions and choice of coverage from among a limited number of competing options.

There’s both good and bad news for health care reformers.

First, the good news:

Large employers who adopted a managed competition model, especially—like CalPERS—in conjunction with an insurance exchange, expressed great satisfaction (and indicated no employee dissatisfaction). Particularly for the large public and academic employers, the less costly options—notably Kaiser and other HMOs—have been the most popular with employees, in spite of their more limited choice of providers. Activist exchange administration can reduce costs, as CalPERS has demonstrated in pressing their major carrier to create a “value network,” in sponsoring a quasi-ACO, and in weeding out less effective plan options.

Now, the bad news:

In spite of the apparent success of managed competition in the largest employers interviewed, the California market remains dominated by what the CED paper’s authors call “cost-unconscious demand,” in the form of a single FFS plan or a choice of plans with the employer paying a percentage of the premium (as opposed to a fixed dollar amount).

Even with less costly options available, many employees choose more expensive (typically PPO) coverage, most likely because of greater flexibility of provider choice or because of existing provider relationships. In spite of its reputation for innovation in care coordination and IT, Kaiser’s premiums are only marginally lower than those of competing carrier HMOs (and, in one case, are slightly higher) suggesting that attempts in PPACA to simulate features of delivery system HMOs may yield smaller savings than hoped. (It is also possible that Kaiser could reduce its large group premiums further but sees no business reason to do so.) Hospitals can be key to health plan costs, with the most prestigious (and typically most expensive) often essential to the marketability of an HMO or PPO network. Hospitals have recognized this, with the most aggressive showing unwillingness to negotiate rates and—in at least one case—insisting that all hospitals in the chain be included. (In California, physicians have been equally aggressive in stifling competition by such approaches as backing a legal ban on physician hiring by corporations—such as hospitals.)

One question the paper suggests is: if the managed competition exchange model works as well as CalPERS and other employers cited in the paper believe, why haven’t large employers successfully grouped together to form their own exchange(s)? While small group exchanges have failed because of adverse selection, large groups should be able to avoid this problem. Possible answers include an unwillingness to cooperate with competitors, preference for self-insurance (avoiding state regulations and mandates), union refusals to modify coverage to fit a larger system, and a desire on the part of human resources executives to control their own benefits.

What does the CED paper imply for PPACA health care reform? Not a lot that’s encouraging, beyond the apparent success of the CalPERS exchange model. Exchanges are most efficient with a limited number of options; cost consciousness depends on individual subsidies (if any) being in the form of fixed dollar amounts; anti-monopoly measures may be needed to avoid creation of cost-effective networks being stymied by dominant hospitals or physician groups; and exchange administrators must be activist to minimize costs. Unfortunately, PPACA provides few incentives that might lead to any of these being achieved. Also, discouragingly, the relative rates of Kaiser versus its competitors suggest that innovations in payment methodology, care coordination, and IT, expected to be implemented for Medicare and then disseminated through the health care system, may produce only marginal savings.

Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies. He is editor of Health Care REFORM UPDATE .

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4 replies »

  1. No wonder they come off like clueless fools, he’s never worked a real job a day of his life. He has as much experience in healthcare as my dog, my dog’s idea for reform have a stronger logical base non the less
    From 1981 to 1986, Dr. Minarik worked closely with Congressional Democrats, including Senator Bill Bradley, on efforts to reform the federal income tax.
    In 1991-92, Dr. Minarik served as executive director for policy and chief economist of the Budget Committee of the House of Representatives under Chairman Leon E. Panetta. When Chairman Panetta was nominated as Director of the Office of Management and Budget in 1993, Dr. Minarik became OMB’s associate director for economic policy. He worked on the formulation and adoption of President Bill Clinton’s 1993 economic program. When the Federal budget became a leading issue in 1995-96, Dr. Minarik worked with then-White House Chief of Staff Panetta and new OMB Director Alice M. Rivlin to formulate the Administration’s program to eliminate the budget deficit, which evolved into the bipartisan Balanced Budget Act of 1997. From 2001-05 he served as policy director and chief economist for the House Budget Committee. He joined CED in 2005

  2. I thought Einthoven was in the mothflakes, mitigating larvae, after his failed propaganda esposusing and promoting the pre millenium Hillary Care program.

  3. quick question, why if your going to write a paper advocating exchanges do I not see a single mention of CA Choice in the first 15 pages? CA has one of it not the largest small group exchanges that comes very close to delivering what they claim the solution is but I don’t see any mention of it at all. Could it be becuase it has been a failure?
    Why would BC want to eliminate employer based coverage and fund “studies” supporting indiviudal exchanges. Individuals can’t aggregate their power to force savings or control cost. Take cell phones, Verizon has 30+ million customers and offers terrible service. No one would put up with them if Sprint wasn’t worse and there were other options. Becuase everyone is an individual customer though it is nearly impossible to force change. Thanks to government control over entry you don’t have a choice. Government keeps the market small and the handful of carriers keep the price high and service low.
    Now imagine of you got your sell phone from your employer who controlled thousands of lines. If he calls up AT&T and makes a list of demands to leave Verizon that is enough business to get results. What if thousands of businesses with thousands of employees are tired of the limited market and force government to expand it? Aggregation can provide efficincy hundreds of times stronger then any individual choice.
    BUCA is on the verge of illrelavance. Employers are waking up and realizing they don’t need to pay $500 per employee per month for a low deductible plan. They can do it themself. Self Funding already cost the carriers billions in revenue. Now that small employers are waking up to it they stand to lose billions more. BC doesn’t want a counter balance to their power so they pay CED to propose getting rid of it.
    Some poeple should know better and see through that…

  4. I was hoping to avoid reading the study but so much of what you said didn’t make sense I had to check it out to see where the confusion was. As expected it was written by academics that don’t know anything about insurance and delivery, and funded by BC on top of that.
    Page 6 small employers locked out by pre-existing conditions, can you name any state that doesn’t have guarantee issue under small group reform? This comment might have been true 10 years ago but is propaganda today.
    Vast majority of companies offer no insurance or one insurance company. Seeing as how the Vast majority of companies are small how many insurance companies do you want to offer a 2 life group? If a company has 2 employees and they are both covered by their spouse why do we care the company doesn’t offer insurance. It is a meaningless stat, the accurate way to make their argument would be to measure the number of uninsured working for companies then further break it down by uninsured who work for companies that do and do not offer insurance. More work but atleast the results would have meaning and some value.
    only way to reimburse doctors under wide access is FFS is a joke, the fact they said that in a study of the CA market shows true ignorance. CA is home of the capitated PHO, IPO, health system. You pick your HMO then pick which “health system” you want to go with. The HMOs then capitates up to a certain level of care with that organization. FFS isn’t the only option it just worked better then the HMO model that was tried 10-15 years ago. To further discredit this joke there are numerous carriers out there that offer choice of PPO which is often built around one hospital system or another.
    Employees can’t choose a cost effective high quality health PLAN, they put plan is bold, apparently to point out words they don’t know the meaning of so they can come back to them. Providers are high quality and cost effective, staff model HMOs are, health PLANS are neither. They are financial tools to spread risk and finance care. If they are all wide networks like the claim all of one paragraph prior then the cost effective high quality providers would all be available disproving their point.
    Employers dictate the system and that is why it is FFS. Everyone remembers how employers where blowing up the phone lines to DC to get rid of HMOs right? Remember how employers hated saving money and controlling cost? Consumers were pissed and demanded their right to keep non FFS plans, that is exactly how I remember it.
    Cost saving technologies like HIT, I must have missed the case where HIT now has across the board positive ROI.
    Little incentive to find a less costly way to solve ANY health problem. Interesting, its almost like this study was written by foreigners who have never even been to the US. Hospital makes $1200 per day the patient is there, if they find a way to reduce their cost from $1100 to $900 they just made $200 per day additional profit. Doctor got to E prescribe eliminating errors and calls to verify Rx, saves staff time and lawsuits. Electronic storage of records reduce time to pull records and cost to store them saving money. I think they forgot the M in many ways technology saves money.
    Alternative health plans might offer lower cost, fairies might provide it for free if we ask. Why did Kaiser not take over the world or any of the other numerous alternative health plans out there? I can name 30 hospital owned integrated networks that are no more cost effective then the FFS plans the authors bash. More ignorance of history and what’s out there. To their second point the fact there is no financial savings to be derived from giving up one’s freedom of choice might have a large part to do with that.
    Health-care system not oriented to early detection and treatment of chronic disease, in 1987 very true, in 2010 laughable.
    FFS is responsible for 23.2 billion in improper payments, wow talk about political spin, the fraud is because they are government ran plans not because of the FFS aspect. Only an idiot or a liar would ignore the simple test of comparing fraud in Medicare to private plans then dismissing FFS as the casue.
    Authors have no idea how HSAs work or how to do basic risk analysis.
    Roger this paper is a joke published for the financial benefit of the Blue’s who paid for it. The authors don’t have the slightest idea what they are talking about and frequently reference the 80s and 90s unaware that was a different system long dead.