THCB

Will There Be An Obamacare Death Spiral in 2015? Probably Not.

By ROBERT LASZEWSKI

If the Obamacare health insurance exchanges are not able to get a good spread of risk––many more healthy people than sick––the long-term viability of the program will be placed in great jeopardy.

Given the early signs––far fewer people signing up than expected, enormous negative publicity about website problems, rate shock, big average deductibles, narrow provider networks, and a general growing dissatisfaction over the new health law––it is clear to me that this program is in very serious trouble.

But that trouble would not necessarily transfer to the health insurance plans participating on the state and federal health insurance exchanges.

Obamacare contains a $25 billion federal risk fund set up to benefit health insurance companies selling coverage on the state and federal health insurance exchanges as well as in the small group (less than 50 workers) market. The fund lasts only three years: 2014, 2015, and 2016.

The government’s risk management program for the insurers has three parts:

A revenue neutral Risk Adjustment System designed to level adverse claim costs between health plans.
A Reinsurance Program that caps big claim costs for insurers (individual plans only).
A Risk Corridor Program that limits overall losses for insurers.
Of the $25 billion, $20 billion is earmarked for the Reinsurance Program and $5 billion goes to the U.S. treasury.

First, the Reinsurance Program caps big individual claim costs for insurers––in 2014, 80% of individual costs between $45,000 and $250,000 are paid by the government, for example.

Then comes the Risk Corridor program. Participating health plans will receive payments from the federal government in any of the following circumstances:
The plan’s costs for any benefit year are more than 103% but not more than 108% of the health plan’s targeted amount. The feds will reimburse 50% of all costs in excess of 103% of the medical cost target.
If the plan’s costs are more than 108% of the annual target, the feds will first pay the health plan a flat 2.5% of the target and then reimburse the plan for 80% of their claim costs above the targeted amount––with no upside limit.
Target cost is simply defined in the new law as a health plan’s “total premiums (including any subsidies) reduced by the administrative costs of the plan.” It is whatever the health plan projected its premium needed to be to pay medical costs.

So, a plan is on the hook for all claim costs up to 102% (2% more) than the target cost.

But, if the health plan has costs at 110% of the medical cost target, it will be responsible for only 102.4% of the target (a 2.4% shortfall)––only about a quarter of its losses.

If the health plan’s medical costs come in at 120% of the expected claim cost target level, the health plan will only be responsible for 104.4% of the target (a 4.4% shortfall)––again only about a quarter of its losses.

While health plans won’t be losing anywhere near as much money as they would have if the medical loss ratio were a disaster, because of the claim Reinsurance Program and the Risk Corridor Program, they will be losing money.

If the health plans have claim costs below the expected target, they would have to pay the excess back to the feds using the same formula in reverse.

The statute very specifically limits funds collected to $25 billion over the three years––$12 billion in 2014. The source of these funds is the Obamacare $63 annual “Belly Button Tax” assessed on almost all people covered under a health insurance plan.

The reinsurance program has done and will continue to do what it was intended to do; help attract and keep more carriers in Obamacare than might have otherwise come. No matter who did health insurance reform, Democrats or Republicans, there was always going to be a transitionary period when those currently sick and unable to get coverage before would come flooding through the doors.

Does this mean that health plans would be happy to see their plans underpriced in the first year, as well as the second and third year? No, they will not have any incentive to see their products dramatically underpriced the first three years only to see their prices zoom in the fourth year and create havoc.

But, my sense is that health plans, because they are so insulated from big losses, will generally stand pat with their 2014 rate structures for 2015––no matter how bad the early claims experience looks. I expect that the health insurance industry will be content to give the Obama administration one more chance to reboot Obamacare in the fall of 2014, when the 2015 open enrollment takes place.

But that is all the patience I see the industry having. While they will continue to be protected from losses in 2016, two years will be enough patience for them and they will be eager to at least begin to transition their rates to the proper level in 2016 rather than face a huge adjustment in 2017 when the reinsurance program ends.

What consumers/voters will be thinking about Obamacare come November 2014 is still to be determined. But insurers won’t be losing a lot of sleep over it.

Robert Laszewski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.

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  10. To the title of the post:

    No spiral.

    It will just auger in like a meteorite……splat!!

  11. What if $25B isn’t enough? Early enrollment results show that enrollees aged 55 or more make up 33% of enrollees, but only 11% of the uninsured. Did the carriers with plans on the exchange account for this much of a skew when they were putting together their rates? I can’t imagine that the administration will be able to increase the $63 belly button tax when their own supporters (the unions) are already trying to weasel out of it.

  12. Right you are.
    And the Scandinavian countries have the advantage, in addition to smaller populations, of fairly homogeneous social profiles, not to mention Norway’s deep, deep pockets from North Sea oil. I read somewhere that Norway is the only country with an ongoing budget surplus. As the saying goes, rich or poor it’s nice to have money.

    I suppose we will always have a segment of the electorate willing to put poison pills into social programs lest a growing population of ingrates learn to abuse them.

  13. Thanks, Bob. I’m sure it’s good. I may get to it sometime but I have a feeling I’m already in the choir. I also already watched the Blyth talk linked by Peter above and gave it a push at my Facebook page a few weeks back.

    Sometimes I wonder if I’m an echo chamber of my own making like the atavistic masses drinking the Fox koolade, but I really don’t think that is the case when I discover I’m in the company of others whose universe is diverse enough that links like these are not remarkable. For reflecting people these ideas are part of the landscape. (It’s a sad commentary, isn’t it, when the best I can do on a Sunday morning is a comments thread at The Health Care Blog?)

    Carry on, gentlemen.
    ~~~~~~~~~~~~~~~~~~~~~~~
    Before I quit, I have to mention something I saw lately in my post-retirement work as a caregiver, a suprapubic catheter. This is another example of a medical advance in the miracle category that makes life better for many. A You Tube search even includes a quadriplegic changing his own suprapubic catheter! (And who hasn’t already seen the TV ads for catheters?) These medical devices appear to be a growth sector of the economy.

    But I have to wonder, as vast numbers of the population are uninsured or under-insured, if medical technology is not creating the same type of social divide between the haves and the have-nots that dental care has done for years. Years ago it was brought to my attention that early childhood nutritional deficiencies and neglect often leads to problems in dental development later in life. That, together with the lack of money, results in millions of people with dentures instead of crowns, caps and implants.

    As medical science continues to get better (and more widely available for those who can afford it) I am more convinced than ever that if we don’t find a way to make these resources available to as many people as possible, regardless of their economic status, we are setting the stage for increased class division and possible social unrest.

    Another ethical challenge we must confront is how much of this modern magic is appropriate for us if our bodies keep living long after our minds have left. I don’t have any easy answers, but it’s time to start raising the questions. I’m glad for a young person who is able to produce his own You Tube video but I’m not sure I feel the same about someone in his nineties with Alzheimer’s, no longer able to respond to those around him or feed himself. (Which doesn’t even broach the subject of pacemakers that can continue to operate on a corpse or implanted filters that prevent pulmonary embolisms.)

  14. Pter1 –

    The employer doesn’t know what anything costs either until the bills arrive after the insurer paid them on its behalf. The employee doesn’t care if he or she is insulated from the cost and has access to a broad network of providers. The doctor, who makes the referral to a hospital or imaging center or whatever doesn’t consider it part of his job to know or to care about costs unless the patient brings it up as an issue of concern due, usually, to a high deductible.

    The Certificate of Need program was intended to help government control supply, especially of hospitals and freestanding surgical centers. However, they’ve been largely ineffective in accomplishing that. The long term trend, fortunately, is toward fewer hospital beds per 1,000 of population. I think price transparency would be enormously helpful for hospital based care especially. Surgical procedures lend themselves to bundled payments. Specific outpatient procedures can be priced pretty easily. Other inpatient care could be priced on a per diem or case rate (DRG) basis no matter how much care is needed with one per diem price for a standard room and a much higher price for an ICU bed.

    To cite one extreme example of the benefits of price transparency, a couple of years ago I called five local pharmacies out of curiosity to get their cash price for several drugs I was taking. One of those is Simvastatin, a cholesterol lowering generic drug. My local supermarket, Stop and Shop, quoted $546 for a 90 day supply. The price at Costco: $9.99! That’s a 55 to 1 difference. That’s crazy. I was already getting them from a mail order pharmacy (Optum Rx) at reasonable cost.

  15. John –

    Unemployment benefits, food stamps, and Medicaid are all counter-cyclical. As more people meet the income criteria to receive benefits in a weak economy, enrollment increases. On the other hand, programs that need to be funded by state and local government like K-12 education and subsidies for higher education are indeed cut back during economic downturns as state and local tax revenue shrinks.

    Many countries in Western Europe are having increasing trouble financing their generous social safety nets especially as their population ages. You might also want to check the unemployment rate in most of these countries. It’s significantly higher than ours, especially for young people including those with college degrees. With all due respect, I don’t think anyone here should be in a rush to copy France. Germany is doing OK but only 40% of the population owns a home. Switzerland and the Scandinavian countries are also OK but they are small homogeneous societies. The four Scandinavian countries combined have a population of only 23 million. Switzerland has a bit over 7 million. They’re all content to pay half or more of their income in taxes. We aren’t.

  16. note to John Balland –

    you would enjoy an article by Joseph White called ‘The Politics of Belief and US Health Care Reform.’ Anything by Prof White is worth reading, of course, starting with his book Competing Solutions that is still my bible on health policy.

    America has a large group of voters who really believe in the freedom of the individual. (some of these voters eagerly accept Medicare and Social Security, but I digress.) Anyways, this contingent of voters will vigorously oppose any new social insurance.

    Most European nations have no such contingent, or a very tiny one. Their entire electoral map is way to the left of ours.

  17. “Imagine if we had single payer supermarkets or single payer gas stations with no money exchanged at the point of service.”

    Barry, we don’t have or need those, and I don’t advocate that.

    “In New York City, newly elected liberal mayor, Bill DiBlasio, ran, in part, on working to oppose the closing of any more hospitals even if they aren’t needed.”

    A bad economic decision is just, that no matter who advocates.

    Barry, I don’t know how much price transparency government health care has in other countries, not much I think. When you’re not paying directly the prices are just a meaningless blur anyway – would you really look at the bill. Would you really care how much the price sticker is on a Mercedes when you’re not paying? Price/cost control has to be in the system. I can’t imagine in employer subsidized care that the employer does not have price transparency, yet they seem no better at system cost controls.

    Make everyone self insured on the individual market and let’s see who screams for single-pay first when not even that controls prices.

  18. “I think government run/controlled health systems more efficient because they operate on scare(r) dollars, here it seems there are no scarce dollars just higher billings. Imagine if the price of food went up 6% -10% compounded yearly, would people complain.”

    Peter1 —

    Imagine if we had single payer supermarkets or single payer gas stations with no money exchanged at the point of service.

    Numerous countries, in effect, make a political decision as to what percentage of GDP they want to spend on healthcare and they get there by restricting supply. The thing is that the politically determined GDP percentage to be spent on healthcare has little or nothing to do with the actual healthcare needs of the population. Restricting supply means making people wait, sometimes for lengthy time periods, for non-emergent care.

    In New York City, newly elected liberal mayor, Bill DiBlasio, ran, in part, on working to oppose the closing of any more hospitals even if they aren’t needed. NYC hospitals have a lot of employees who belong to the SEIU, a politically favored group in liberal circles which worked hard to elect him.

    Healthcare costs escalated faster than general inflation for a long time because well insured people, including those on Medicare and Medicaid, are largely insulated from costs and healthcare prices are opaque and kept that way through the enforcement of confidentiality agreements. There is no reason, aside from politics, why these can’t be outlawed.

    A relatively low percentage of care must be delivered under emergency conditions and we can have special rules that cover how much can be charged for that. For the rest, let’s have price (and quality) transparency like we do throughout the rest of the economy. People will be much more price sensitive when they know exactly how much their employer provided health insurance premium is including the share nominally paid by the employer and when they are spending their own money on the portion of their care that is within the deductible amount.

  19. If I may jump in, part of the dynamic is how we in America regard how social benefits relate to economic and living cycles. Countries with strong social safety nets have crafted them to be counter-cyclical, but ours tend to be pro-cyclical. We tend to be generous when the economy is flourishing and tight-fisted when times are tough — the very times that a large number of people are struggling to make ends meet. But countries with generous unemployment support systems, reliable universal health systems, old-age pensions, maternity benefits that make ours look Dickensian — they take a longer view of the economy, knowing that better employment opportunities lie ahead, old people eventually die, support for new parents makes for stronger families, etc.

    Much of America still subscribes to the old Puritan work ethic, that those who are rich are enjoying God’s blessings for thrift, hard work and clever enterprise. And the poor are being punished for sins they or their families committed, with the list of sins started with sloth, gluttony and greed. So our so-called “safety nets” include the punishments of COBRA (health insurance rates double the moment your income vanishes and even that vanishes after eighteen months), drug screens for those getting public assistance and EMTALA which mandates nothing more than literal life-saving “stabilization” of medical emergencies but nothing in the way of aftercare. The list is longer but you get the idea.

  20. I guess my point Bob was that government knowingly uses job lose all the time in economic policy so why should the hospital sector be exempt.

    Ontario Canada did a purge of some underused hospitals years back then built some new ones later. People naturally want walk to convenience but always want the other guy to take the tax savings hit. There would have to be controls on political hospital building for purely election gains. People in remote and sparsely populated areas just live with longer drives to everything.

    I think government run/controlled health systems more efficient because they operate on scare(r) dollars, here it seems there are no scarce dollars just higher billings. Imagine if the price of food went up 6% -10% compounded yearly, would people complain.

  21. Bob —

    I’m pretty sure that dividends and other investment income would count as part of the income amount used to calculate the health insurance subsidy. Withdrawals from savings would not. Even if he has an IRA or 401-K, he can’t withdraw the money before age 59 1/2 without incurring a 10% tax penalty on top of regular income taxes. I agree that he is probably looking at total modified adjusted gross income in the $30K range which is less than 200% of the FPL for a couple. He is too young to be eligible for social security unless he is disabled in which case he would be eligible for Medicare two years after being declared eligible for a social security disability benefit. If he has a pension, it’s probably quite small based on his age.

  22. Note to Archon 41:

    In order for the retired engineer to get such a large subsidy, he and his wife must be living on a taxable income of about $30K a year.

    Maybe withdrawals from savings or dividends are not counted as income for purposes of ACA subsidies?

    I am not sure we know the whole story here.

  23. Note to Peter1:

    I am not sure that the federal government cut very many employees due to austerity. Even if they did, the political impact of a job loss in Alexandria VA is much, much less than the impact of closing an un-needed hospital in Billings MT.

  24. The NYT here gives us a revealing insight into the liberal psyche: The primary function of government is to provide benefits, and is to be judged in terms of the amounts it can spew out, whether interminable SNAP and unemployment benefits, “prosperity zones,” communication devices, “tax refunds” for those who don’t pay taxes, health insurance, etc. You can sneer at “trickle down economics,” but diverting to government benefits and services funds that should be flowing into reinvestment, while “maxing out” our lines of credit, can’t end well. We seem to be following the playbook of the Robert Mugabe school of economics.

  25. “I cannot imagine a federal agency causing large numbers of nurses and hospital-based doctors to lose their jobs.”

    Like the Fed, SEC, Fanny/Freddy Mac pre-crash policies causing massive layoffs and the government employee austerity cuts post crash? Republicans always seem supportive of dissolving government programs and jobs, why not the hospital sector.

    Bob, I can’t imagine this happening over night or without compensating adjustments. But if present cost projections occur for health care how do we pay for it if wages do not parallel?

  26. From “Enrollees at Health Exchanges Struggle to Prove Coverage,” Robert Pear, NYT, 1-10-14: “…Mr. Donahue, 58, a retired software engineer, is delighted with his new coverage from BCBS of Texas. The monthly premium for him and his wife is $1,062, but the federal government pays a subsidy of $903. The couple pay the remainder, $159 a month. “It’s a superb deal,” Mr. Donahue said.”

    Is this a great country or what? Wonder how much he has stashed in his IRA?

  27. Another problem with single payer is that the government would feel obligated to keep all current hospitals in business. I cannot imagine a federal agency causing large numbers of nurses and hospital-based doctors to lose their jobs. (Canada has actually done this, but Canada ain’t us.)

    In other words, even if a single payer authority imposed lower fees and price controls, there would have to be other government aid to prevent hospital layoffs and outright closings.

    Sort of like aid to farmers, but at much greater dollar figures.

  28. “Virtually every hospital currently claims that it couldn’t make money if it had to accept Medicare rates from all comers even if there were no uncompensated care and it received more than it does now for Medicaid patients.”

    So you believe that every hospital is operating at it’s lowest margin/best efficiency. If other industries operated like hospitals (just can’t stand the cuts) they would not be as sustainable as the health system. Other industries get edicts from the top – cut or else managers get the cut.

    “there is enormous potential for improvement within the current structure. ”

    Not from how you describe the present system – unflinchingly unable to change.

  29. Peter1 –

    Medicare filled a need for the retiree population that was not being adequately addressed by private insurance. Medicaid did the same for the non-working poor and those with very low incomes. More than 150 million working Americans get their health insurance through an employer today. The vast majority of those, including union members and people who work for large companies that offer comprehensive health insurance, are generally satisfied with what they have and are not willing to trade it for the unknown quantity of a taxpayer financed single payer system.

    Moreover, the most likely financing mechanism for a single payer healthcare system would be a dedicated value added tax which would probably start out at a level too low to pay the bills and would then be quickly raised. People don’t trust the government on something like this especially after the botched Obamacare rollout and its associated broken promises including the if you like what you have you can keep it line.

    If Medicare were extended to the entire population, there would no longer be a private sector to shift costs to. Virtually every hospital currently claims that it couldn’t make money if it had to accept Medicare rates from all comers even if there were no uncompensated care and it received more than it does now for Medicaid patients. Doctors find Medicare’s documentation requirements burdensome and they know that Recovery Audit Contractors (RAC’s) can review their billing up to three years after the date of service and demand payments for issues as minor as inadvertent coding errors. The RAC’s receive a 9% commission on all the money they recover for CMS.

    The potential for unintended adverse consequences is enormous here. If we were starting with a clean sheet of paper, we probably wouldn’t replicate the system we have now but that’s not possible. We have to build on what we have and there is enormous potential for improvement within the current structure. There are lots of strategies to pursue as I outlined earlier.

  30. Barry, thanks for your mention of facility fees. They are pure price gouging.

    Massachusetts passed a recent law calling for mandatory price disclosure before scheduled care when a patient requests it

    There will probably be a lot of legal dodges and lax enforcement (just like the timid ACA regs on overcharging the uninsured), but the law is a step in the right direction.

    If I were the czar of health care I would go much further. I would require that if a patient is not informed of the cost of care at least 5-15 days beforehand, then they do not need to pay the bill.

    The world still runs on fear and greed, and for a long time hospitals have had no fear in terms of billing. That must change.

  31. Thanks again, Barry Carol, for taking time to reply. I guess we need to keep fingers crossed for the ACO experiment.

    I switched PCPs a couple of years ago when a family member died as the result of unconscionable neglect on the part of a nearby small practice which had served our family the few times we needed medical attention over several years. Since I am a Medicaid beneficiary (and learned early on about MA) I deliberately looked for a convenient office which would be part of a very large local network, deliberately looking for a local group most likely to become an approved ACO. That may or may not happen, but I have been more than pleased with my PCP and his staff. The landscape is changing rapidly in the Atlanta area and this year I took the leap to another MA plan.

    Four years ago the only MA plan available in our county ended and none were offered so my wife and I returned to original Medicare for a couple of years. In the short span of three years we now have half a dozen MA options from which to choose, one of which includes — you guessed it — the PCP I already have, picked almost from the Yellow Pages.

    My wife remains with Medicare because her medical history and needs during the last few years have been more than mine. She will have more options with Medicare than I have with an HMO. But since my premium is zero at this point and the plan included prescriptions, I expect to save a lot by letting myself be kidnapped by a private plan, even though I will face a much higher supplemental insurance premium should I decide to return to original Medicare.

    In any case, none of us can predict the future and as a senior caregiver I know first-hand how close we all are to that final appointment. Meantime, I’m keeping an eye on healthcare reform with the intensity of a cat watching a mouse hole.

  32. “The issue isn’t fraud in Canada. It’s fraud in the U.S. The CBO and others that have looked at this issue estimate improper payments in the Medicare and Medicaid programs could be as high as 10% of total spending though it’s difficult to quantify precisely.”

    Well Barry, I can’t account for the U.S. being a culturally dishonest nation, but there are ways to curb it if legislators (culturally dishonest?) change the way Medicare and Medicaid are structured – but IF it’s 10% what do you want to spend to get it to 2%?

    “As for the healthcare systems in Canada and the UK, they both restrict supply to help control costs”

    “there are lots of examples like tiered and narrow networks; tiered drug plans; high deductible and low deductible plans;

    Benefit cut, benefit cut, benefit cut – all tied to restrict access (rationing) and help control costs.

    “Standard fee for service Medicare didn’t even offer a drug benefit for the first 41 years of its existence while private insurers offered it for decades.”

    If you’re talking about Med Part D then you know why it was finally “offered”. Seniors were having to drive to Canada (that socialist gulag) to buy drugs or go without – yes Barry a real private sector success story.

    “If Americans wanted a single payer healthcare plan, we would have had one a long time ago.”

    Medicare?

    “While people in Western Europe may be highly satisfied with their healthcare system and the rest of their social safety net and don’t mind paying half their income in federal, state and local taxes to support it”

    Well Canadian income taxes are higher but pretty close to U.S. They also pay provincial sales tax of about 7% (not oil rich Alberta), but our state sales tax here is also 7%. They pay a 7% GST federal VAT tax but when that was instituted the wholesale tax was lowered. In Ontario they levied a health care surcharge tied to income, which was I believe, about $800 for upper income group. Gas is about double, food about the same, housing in big cities quite costly, but so it is here. Local property taxes are quite high, at least compared to my county tax, but I bet I could find comparable rates here in U.S. But here’s the kicker – they get single-pay health care with no deductibles, no narrow tiered networks and they also have a drug benefit plan.

    “Even if we somehow got a single payer plan, it would cost a lot more here because our doctors will expect to be paid more for a variety of reasons, our litigious society will drive more defensive medicine, our patients’ expectations are higher and there would be more fraud.”

    What you’re describing Barry is the present system morphed into single-pay – not the best success prescription.

  33. John –

    We may eventually reach the point in the U.S. where empty hospital beds are considered a good thing. To do that, however, we need to move away from the fee for service / DRG / case rate payment model of reimbursement in favor of shared risk / shared savings contracts and, eventually, capitation and global budgets. The big stumbling block, I think, is that most hospitals, and other providers for that matter, are not very good at estimating their costs (actuarial risk) a year in advance. They don’t feel comfortable assuming the risk and may feel that they don’t have adequate financial reserves to absorb the consequences of a bad forecast. For all the liberal complaints about insurers adding no value, one thing they are good at is estimating and assuming actuarial risk.

    While consolidation in the hospital sector leads to increased market power and the likelihood of higher prices per service, test, procedure, DRG and case, it should also improve the financial ability to absorb financial risk. Indeed, some of these large hospital systems are already in the insurance business with Kaiser the most prominent but there are others and more will probably enter the market over time.

    The Accountable Care Organization (ACO) concept may also help to move our health care system away from the fee for service payment model. To the extent that the ACO can control the entire continuum of care, it should be better able to estimate and control overall healthcare costs. For sophisticated care that the ACO may not be able to provide in house, it could establish contractual arrangements to treat its ACO members for that care at a price known to it in advance. The problem with the early Medicare ACO’s, I think, is that patients with FFS Medicare still have the right to go to any provider they choose whether in the ACO or not. It’s unreasonable to hold an ACO responsible for care costs beyond its control.

  34. Thanks. Barry Carol. That helps explain the origin and need, I suppose. I know hospitals are expensive places and a lot of what they do can be done elsewhere at much lower costs. When you mention the metric of beds per thousand population I think of something I came across by a doctor from Finland who said they don’t regard empty beds as a problem. Empty hospital beds, he said, mean the community is more healthy — totally alien idea to the US need to squeeze ROI out of every dollar, even money spent for good health care.

    I know there is a range of financial pictures from one hospital to another. A few in the Atlanta area have had to close while others have prospered. I know when Grady, the downtown hospital serving the urban poor, was facing financial problems a few years ago, it sent shock waves to a few suburban hospitals who knew without Grady they would be hit with even more indigent cases than they already had. I sensed a powerful coming together of those suburban hospitals to insure the continued viability of that place. I don’t know if any Certificates of Need were involved but I am certain that a serious effort was made to keep that institution from failing — and it seemed to have more to do with it’s role in charity cases than the fact that it may be the most important and efficient trauma center in the Southeast.

    I have a real problem balancing the challenges of that community hospital with the fact that it is surrounded by several so-called “non-profit” hospitals awash with money and upscale resources — marble floors, live plants, TVs everywhere, plush waiting areas, valet parking, etc. It seems so inequitable, even if the quality of medical care is excellent in all those places.

  35. John –

    The CON regulations came into being in the mid-1970’s and I think 36 states still have them in some form. There is no doubt that they’re controversial but there is plenty of doubt that they’ve had much effect in slowing the growth of healthcare costs. In 1945, the number of inpatient hospital beds per 1,000 people in the U.S. was about 10. Now it’s just over three and the long term secular trend is down. Yet, most of the upward healthcare cost pressure is coming from the hospital sector because of the combination of market power and the proliferation of new technology from MRI machines to robots used in surgeries to medical devices.

    An increasing percentage of hospital revenue is coming from outpatient services many of which probably don’t need to be done in a hospital setting. One thing I think payers should push for is to eliminate facility fees for any services, tests and procedures that can be done just as safely and easily in a doctor’s office, independent clinic or freestanding non-hospital owned imaging center. Also, price and quality transparency is most needed for hospital based care. That’s where the highest costs and the biggest cost disparities are concentrated.

  36. My favorite comment about cultural attitudes regarding health care was something Maggie Mahar said about the French.

    My friend who lived in France said that there health care system is so good because “The French feel that nothing is too good for another Frenchman.”
    Unfortunately, Americans do not feel that way about each other.

    ~~~~~~~~~~~~~
    Changing the subject a little (or adding something to the discussion I have not seen mentioned) I was not aware of the “certificates of need” until I worked in a health care system. The implication is that a state authority gives permission on a case by case basis for additional hospitals, specialty centers and/or procedures before they can be made available.

    I found this is a widespread practice involving thirty-five or more states, referred to as CON states. (Something ironic about that acronym.) On the face of it the purpose seems to limit replication of unneeded services. But looked at another way, it sets limits on what other industries regard as competition. What business it is of the state to mess with competition among private operations, even if they are non-profit? Everybody else is in a dog fight for survival, why not health care providers? “Certificates of Need” strikes me as just another political wrinkle in an already byzantine system calculated to grant cartel status to big providers. If certificates of need are really what they sound like instead of a grant for franchise territory, they should oblige any new providers to furnish meaningful services to rural or other under-served areas in return for getting that status.

    Maybe someone can help me get a better attitude about this.

  37. Peter1 –

    The issue isn’t fraud in Canada. It’s fraud in the U.S. The CBO and others that have looked at this issue estimate improper payments in the Medicare and Medicaid programs could be as high as 10% of total spending though it’s difficult to quantify precisely. When it comes to government social programs, I think there is more of a fraud culture in the U.S. than in other countries.

    As I keep saying and you keep ignoring, different countries have different cultures and different values. While people in Western Europe may be highly satisfied with their healthcare system and the rest of their social safety net and don’t mind paying half their income in federal, state and local taxes to support it, most U.S. citizens don’t share that view. The Europeans may be perfectly fine with living in a small house and driving a tiny car and paying the equivalent of $8.00 or $9.00 for a gallon of gas and a 20%-25% VAT on most of their purchases. In the U.S. there is a different view.

    As for the healthcare systems in Canada and the UK, they both restrict supply to help control costs which results in sometimes lengthy wait times for non-emergent care. U.S. citizens wouldn’t stand for it and higher income Canadians know they can always come to the U.S. for faster treatment if they are prepared to spend their own money and pay our higher prices.

    Regarding insurance plan design innovation, there are lots of examples like tiered and narrow networks in exchange for a 25%-30% lower premium than a broad network plan. There are tiered drug plans. There are high deductible and low deductible plans so people can better a tailor a plan that best meets their needs. Standard fee for service Medicare didn’t even offer a drug benefit for the first 41 years of its existence while private insurers offered it for decades. FFS Medicare still has no out-of-pocket maximum for Part B services while Medicare Advantage plans do.

    The other point I want to make is the U.S. is a big and diverse country. Kaiser, for example, has great acceptance in Northern CA but they bombed in Ohio. The Mayo Clinic has a great process in Rochester, MN but it hasn’t been able to completely replicate its culture in Jacksonville, FL or Phoenix, AZ. What works in one locale often does not always work in another.

    If Americans wanted a single payer healthcare plan, we would have had one a long time ago. However, people with great insurance including members of public sector and private sector unions and others who work for large companies with comprehensive insurance don’t want to give up what they have. Even if we somehow got a single payer plan, it would cost a lot more here because our doctors will expect to be paid more for a variety of reasons, our litigious society will drive more defensive medicine, our patients’ expectations are higher and there would be more fraud.

  38. “A single payer tends to be just that, a payer and one more vulnerable to fraud at that.”

    Care to show some figures on health fraud in Canada? I can’t even find a figure from the Canadian Health Care Anti-fraud Association, which I also can’t figure out what they are and who pays them.

    “It also lacks the ability and flexibility to innovate and develop new plan designs.”

    Barry, what innovative plan designs do U.S. insurers have in their bag of tricks – other than benefit cuts to “save” us money?

  39. Washington Post columnist, Ezra Klein, had a story the other day that appeared on Bloomberg that explained what liberals don’t get about single payer systems. He made the point that most countries, other than Canada and the UK use insurers to negotiate reimbursement rates with hospitals and doctors. They do so as a group while the doctors and hospitals also negotiate as a group so there is countervailing power on each side. We would need an anti-trust exemption to replicate that approach in the U.S. While the foreign insurers are non-profit and tightly regulated, Klein also made the point that U.S. insurers earn comparatively tiny profit margins compared to, say, drug companies and device manufacturers.

    The article noted that Germany has some 150 sickness funds (insurers). Switzerland has 84 insurers in a country of only 7 million people though the six largest control 80% of the market. Sweden used to have a single payer system but switched back to using insurance companies. A single payer tends to be just that, a payer and one more vulnerable to fraud at that. It also lacks the ability and flexibility to innovate and develop new plan designs.

    Some people may conflate taxpayer financing with single payer but that is not correct. Even in business friendly Switzerland, though, 45% of the population qualifies for a subsidy. In this country, Republicans don’t seem to get the need for subsidies to help lower and middle income people buy health insurance while Democrats don’t get the need for tort reform and that a single monolithic payer which would be unduly influenced by political considerations is not the answer in our society and our culture. Besides, potential savings in administrative costs aren’t anywhere near what groups like PNHP claim they are.

  40. Very informative link. Many thanks.

    There is no way to eliminate private pay. Look no further than abortion to find where there is a will and a need, a way will be found — legal or not. (How do you spell “p-o-t”?) Concierge practices have been gaining in the US for some time, I’m sure you know. I’m not informed about Canadian politics but sooner or later that is a reality that will have to be faced. I’m aware of at least one older couple whose PCP collects an extra thousand dollars a year to be available for their needs. I don’t know if that arrangement is coupled with any other billing credits, but I don’t believe it is.

  41. In the remote northern villages of Canada, one will observe two very long lines forming early in the morning–one for the government liquor store, and the other for the medical clinic. The lines are much better concealed in urban areas.

  42. Excellent list. Every point is good but two stand out for me.

    First, safe harbor reform is way overdue for reasons that any rational observer can grasp, although it still seems to be in the ponies for Christmas category.

    Second, the advance directives is still not employed widely enough. I favor a surcharge to all medical bills (hospital, PCP, Rx, other) for anyone sixty or older without a properly signed, verifiable advance directive as part of their medical records, updated every five years or less, with three or more listed agents who know who they are and have agreed to the responsibility.

    (I so hope some of the Congressional staff are paying attention to discussions like this. None of their bosses are but we need as many seeds in the ground as possible.)

  43. Wait times vary across Canada and for different inflictions. The government established a commission to examine the matter and establish wait time targets after the public demanded more timely access. Things have improved and there has been more money put into specific specialties where the aging population put pressure on services, but keeping up with aging afflictions is difficult while keeping within budgets – you know, those things that this system does not have.

    “In 2012, 80% of patients received hip replacements within the benchmark wait time, compared with 84% of patients in 2010. The proportion of patients receiving knee surgery within the benchmark also declined during this period, from 79% to 75%.”

    Not bad numbers even though these particular surgeries saw a reduction in percentages, but it’s regional.

    I can link you to the CIHI documentation but since you don’t read links or want to move off your mark I won’t bother. I guess though you expect us to search your one person blog quotes to want Canadians to abandon what they have for what we have.

    Ask Canadians if they would want to pay U.S. costs for better access – I think you’ll find the answer to be no.

  44. O Canada!

    “Rationing and waits are endemic to our public healthcare system. . . . Across Canada, it can take months just to see an orthopedic surgeon and more months for the operation.” (I’m Waiting Months to See a Specialist. What Can I Do?, Lisa Priest, Globe and Mail, 9-10-12)

    The astute will have noticed that the advocates of “single payer” have fallen strangely silent about health care in the UK.

  45. While I agree that too many people, especially among the low income population, are too quick to go to emergency rooms for non-emergent care, I don’t think it is a significant driver of high healthcare costs in the U.S.

    To improve quality and reduce costs in the U.S. healthcare system, I think we need the following: (1) Robust price and quality transparency tools for both patients and referring doctors to make it easier to identify the most cost-effective high quality providers in real time and direct our business to them. (2) Insurers should implement reference pricing for all care that lends itself to it. (3) Sensible tort reform including safe harbor protection from failure to diagnose lawsuits for doctors who follow evidence based guidelines where they exist could reduce defensive medicine, at least over time. (4) Broader use of living wills and advance directives could reduce futile or marginally useful care at the end of life. A more honest assessment of the patient’s prognosis, especially from oncologists, would be helpful here. (5) Limit how much can be charged for care that must be delivered under emergency conditions to 115%-125% of Medicare. (6) Employers should shift from a defined benefit model to a defined contribution for employees’ health insurance. (7) Eliminate the tax preference for employer provided health insurance as part of a tax reform effort that does not increase net federal revenue. (8) Invest more in data analytics to reduce fraud in the Medicare and Medicaid programs.

    The issue of defining quality in healthcare is difficult but not impossible to tackle. Quality encompasses four main factors, I think, which need to be appropriately weighted. They are (1) Process which means following evidence based guidelines and protocols, (2) Outcomes which need to be risk adjusted for patient age, frailty and co-morbidities, (3) Safety which means minimizing hospital acquired infections and preventable readmissions and (4) Patient satisfaction which can mean anything from the quality of the doctors to the attentiveness of the nurses to the quality of the food to the availability of valet parking and flat screen televisions.

    On tort reform, Dr. Ezekiel Emanuel recently wrote a paper supporting the concept of safe harbor protection for the liberal think tank, Center for American Progress. Maybe there’s hope after all.

  46. John, private pay has been creeping into the Canadian system for some time now. Hospitals are all public supported but outside clinics have been wedging in. Doctors trying to return system to all private – same attitude there as here for the medical community. Costs are shared by federal and provincial governments with the feds using their share to keep national consistency of the act.

    Some time ago extra billing by docs was banned. There are some problems getting primary care, but you know, here in Chapel Hill NC my wife can’t find a PCP as most are not accepting new patients – even before ACA.

    Here’s an old article from Canadian magazine:
    http://www.macleans.ca/article.jsp?content=20060501_125881_125881

  47. The LA Times reveals that delays in processing the applications of the newly enrolled, occasioning extraordinary distress, is due solely to the ineptitude and cold indifference of the insurers (Chad Terhune, 1-10-14.)

  48. I can’t understand why we require, or encourage, emergency rooms to provide routine, nonemergency care 24/7. Community facilities do exist. To top it off, we now read that Medicaid recipients are 40% more likely than the uninsured to turn up in emergency rooms for routine care. This is also becoming a problem in the UK.

  49. John and Bob –

    Regarding the community health clinics, I define these as capable of providing basic primary care, limited imaging like x-rays and EKG’s, and technicians who can draw blood and send it to a lab. While I’m not an expert and would welcome comments from anyone who is, my perception is that emergency room care is expensive not because the ER is located within a hospital but because it needs to be staffed around the clock. For a given shift, there is a significant minimum commitment of staff, space and equipment that needs to be in place to treat even one patient. To staff such a facility around the clock requires workers to staff each shift though the exact number needed could vary from one shift to the next depending on projected patient volume.

    By contrast, urgent care clinics that have proliferated in recent years with capabilities comparable to those described above are usually open no more than 12 hours per day and may even be closed one day per week though not usually on a weekend. They are generally somewhat more expensive than a visit to a primary care doctor during normal business hours but less costly than an ER visit. I’ve never seen one open after about 9:00 PM. Overhead would increase dramatically with around-the-clock staffing.

    Regarding reference pricing, the large CA pension fund, CALPERS, recently implemented reference pricing for hip and knee replacement surgery in southern CA. Previously, they were paying anywhere from $15,000 to $110,000 depending on the hospital for the same procedure with no discernable difference in quality. There were over 100 hospitals in the original network. They settled on a reference price of $30,000 and, I think, 46 of the hospitals agreed to do the procedures for that price and the list was provided to the insured members. Within a couple of months, another dozen hospitals agreed to the $30,000 price in order to get on the approved list. Members who wanted to go to a more expensive hospital paid the difference out-of-pocket. This concept works fine for care that can be scheduled well in advance.

    As noted, there needs to be special rules governing how much can be charged for care that must be delivered under emergency conditions. I think a limit of between 115% and 125% of Medicare would be about right and probably closer to the lower end of the range.

  50. Note to John:

    Good point about community clinics. But the federal government would have to pay for them, at least in large part, as many communities will not raise taxes for anything.

    Note to Barry:

    Reference pricing is indeed the way to go. One step would be demanding clear price quotes before any scheduled care. In other words, the provider would have to provide a price quote, and the insurer would have to sign off and indicate their reimbursement level, and have this all done in writing at least 15 days before the care.

    A new Massachusetts law takes some baby steps in this direction.

    As you have mentioned before, we need something close to “mandatory assignment:” for emergency non-discretionary care. Something like a price ceiling of 150% of Medicare.

    This will require a federal enforcement procedure.

  51. Good point. It’s worth noting the difference between the Canadian and UK models regarding insurance — none allowed in Canada but Britain has private insurance in addition to NHS. Both work well enough (sick, hurt people and families always find shortcomings) and in both cases costs are lower than here.

    Canadian Medicare is totally tax-supported and administered at the Provincial level. It might be more impressive if the politics of taxation allowed more money (I read somewhere it’s about 11% of the budget) but it’s not the overpriced scandal of US health care.

    In the UK many people never darken the door of an NHS facility, but costs of the private provider and insurance segments appear to be kept down by the presence of NHS. This paragraph by Dr. Wachter stuck in my head when he posted his report in another THCB post two years ago:

    Interestingly, while the care is clearly more patient-centric, it’s not a slam dunk that the quality of care is better in these private facilities (particularly the freestanding ones) and there are even legitimate concerns about whether it’s as good. Sure, the thread counts are nice, and who wouldn’t prefer to stay in a single room rather than the six-bedder typical of many NHS wards. But there have been poor outcomes born of understaffing, the lack of on-site resources to manage critically ill patients, or limited availability of the specialists (who may pop in to see their patients once a day but then rush back to their NHS hospital across town). The accreditation process for private hospitals and clinics has been far more lax than in NHS facilities, though it has tightened up recently. When a patient crashes in a private hospital, he or she is transferred to – you guessed it – the nearest NHS facility.

    I was once a single-payer purist but Maggie Mahar convinced me otherwise. Two reasons. First, a totally single-pay system gives political types too much control over an essential social need (too easily abused for any number of political reasons not related to science or medicine). And second, competition in the private sector is where innovative progress more likely.

    So I favor some balance of both. And with a pretty good network of state and community health centers the US could have both if the medical and drug lobbies would allow. Imagine how many non-emergency ER resources would be saved with 24/7 community health clinics serving anyone needing medical attention, priced according to actual *costs* for anyone paying cash and able to serve Medicare beneficiaries as well.

  52. In single-pay both providers and insurers (if any) loose their market power to control.

  53. It’s the large hospital systems that have excess market power and exploit it. When they’re not killing us with hospital acquired infections, they’re killing us financially. Drug and device manufacturers, for their part, also charge too much. However, high drug prices could be dealt with, at least to some degree, through reference pricing rather than tiered copays. This is basically what other countries do. For surgical procedures that include implanting a medical device, insurers often pay for these procedures on a case rate basis with a carve-out for the device. They could use reference pricing for both the procedure itself and for the device or they could offer an all-inclusive reference price that covered both. I think we could see a lot more of this in the future. If insurers make these reference prices available to both patients and referring doctors along with a list of hospitals that accept them as full payment, it would go a long way toward moving market share away from the dominant high cost systems to the most cost-effective high quality providers. It’s not that hard. It just takes some guts, in my opinion.

  54. And he’s right. Most people don’t know (or care) but until the Sixties all hospitals in America were non-profit — and that was before the day when “not-for-profit” morphed into money-laundering schemes for a symbiotic raft of FOR-profit ventures peddling goods and services.

    It was about that time that Hospital Corporation of America went public with the aim of doing for health care what McDonald’s did for hamburgers.. making lots of money in the process. Economy of scale, you know. (That was where the current governor of Florida cut his teeth, discovering how much money can be made selling health care for profit. It’s a better gig than televangelism if you do it right.)

    Shameless self-promotion here — a post I put together in October. According to Mr. Google it’s now approaching a thousand page views.

    http://hootsnewplace.blogspot.com/2013/10/hcr-reading-links-ppaca-and-exchanges.html

  55. Ezra Klein opens fire on Michael Moore: “It’s health care providers–not insurers–who have too much power in the U.S. system” (What Liberals Don’t Get about Single Payer, Bloomberg, 1-8-14.)

  56. Thanks for this.
    Here is the link:

    http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/09/a-health-industry-expert-on-the-fundamental-problem-with-obamacare/

    The comments thread is the usual mish-mash of stuff. I haven’t read the comments closely but the interview is a pretty good long view is ACA. It’s a bleeding shame that so much of health care is rationed by the insurance industry, but that’s the price of treating health care as a market commodity instead of a public resource.

    Klein is becoming a force of his own. He, Skiff and the rest of his staff are emerging as one of the best-informed sources of all that’s happening. Anyone who follows them and Kaiser will be as informed as possible.

    (Yo, all you guys getting this? Not naming names, but a few commenters on this thread can benefit from these two sources.)

  57. Mr. Laszewski was interviewed by Ezra Klein of the Washington Post yesterday. One of his comments: “The problem with the enrollments today is they’re so small, it’s less than 10 percent of the uninsured coming in, it really can’t be anything but sick people.” (A Health Industry Expert on ‘The Fundamental Problem with Obamacare,’ 1-9-13)

  58. “I don’t open links posted here, Peter”

    Yes, a closed mind is a terrible thing to waste.

    “but I can see you remonstrating with a property underwriter that you shouldn’t be “penalized” just because your residence is located 10 miles from the nearest fire hydrant, in an area prone to forest fires.”

    As usual you assume incorrectly and your example has nothing to do with health care. I am not in favor of subsidizing bad decisions before they happen and with full knowledge of the possible outcome. Charging higher rates for at risk homebuilding does not prevent a person from having a place to live. I am also not in favor of FEMA “rescuing” people who inadequately build in a known hurricane zone or flood plain – usually with support of state government and the powerful building lobby.

    Here in NC (from wealthy lobbying) the legislature capped insurance coverage requirements on the coast while also legislating the taxpayer pay for any rebuilding not covered by the diminished coverage. This was mostly to appease wealthy homeowners, many of who rent their vacation homes for several thousands per week. I would image that many of those subsidized homeowners are Republicans (even insurance executives) who rave, as you, about “subsidizing” health care for lower incomes.

  59. ” Mr. Laszewski opined that the 2.1 million said to have “enrolled” in the exchanges are probably those in most need of medical care.”

    And how many of these are those that lost their insurance due to the policies not being “compliant”.

  60. In paging through the blog (ACA Death Spiral) of Seth Chandler, the University of Houston law prof who occasionally contributes here, I note that he remarks, in his entry of 11-13-13, “Insurers are not without recourse. There is little I know of that prevents the insurers from walking out of the Exchanges.” In a recent televised interview (day before yesterday, I think) Mr. Laszewski opined that the 2.1 million said to have “enrolled” in the exchanges are probably those in most need of medical care. Given the ways in which the playing field has been tilted against them, I am hard-pressed to think of incentives for insurers to remain, for long, in the exchanges. Their bread and butter is group business, Medicare Supplement, and Medicare Advantage.

    The advocates of “health care reform” can run, but ultimately not hide from, one central question: Why did they not propose a straightforward measure to assist those who can’t afford or qualify for insurance, to be funded from the general revenues? Even the dullard “masses” know the answer: because it could not have garnered sufficient support to become law. Thus the contrived and convoluted devices necessary to create the illusion of “deficit neutrality.” ACA policies don’t cost more (for the unsubsidized) simply because they are “better.” They cost more because they are instruments of selective taxation.

  61. Aurthur, please do us both a favor and let me rave away in my own ignorant manner. I’m just blowing off steam — an intellectual pygmy, simply not in your league. Reprimands like yours make me want never to leave any more comments.
    Thanks,
    JB

  62. @MrBallard “@archon41 The exchanges are not insurance.”

    True and the products sold through these exchanges are not insurance either. When you legislatively remove underwriting and risk management, it is no longer insurance,

    “Their accuracy depends on how many policies they sell, to whom, and how much medical care they need.”

    True, but when you require these carriers to submit rates for approval based on The Act as passed and lock these carriers into these rates for 15 or more months, and then you change the law through delays and capricious selective enforcement of the law, “actuarial predictions” are only slightly more reliable than an Obama promise.

    “It’s way too soon to think about any single-payer system (other than what we already have in the form of Medicare and Medicaid, both of which are single-payer).”

    The guy whose name is on this Act has been thinking about single payer (aka government takin’ care of it) for at least 5 years…

    http://www.youtube.com/watch?v=fpAyan1fXCE

    “ACA is all about private insurance. Period. It is not “government medical care.” It is not “government controlled.” It IS, however, the first time that the same rules apply to all health care insurance plans across the country. All private plans, both individual and group, are now supposed to be playing by the same rules.”

    This is just silly. Even the rules that are contained in the law do not apply to all plans. And as anyone who has been paying attention knows, the daily changes in the rules and who they apply to and who they will be enforced against contradict the statement that they “are supposed to be playing by the same rules”.

    “Also, small group plans have been given an additional year to get ready, and it seems every week or so someone else wants to delay this or that change.”

    This would be news to both small groups and small group carriers.

    “But ACA has only just started.”

    It was started before 2009 and signed in 2010.

    “Early indications are that despite all the bad press, a few million people previously uninsured now have insurance, one way or another.”

    How do you know this since the administration refuses to release any data about who is signing up and if they had previous coverage. I can state that only 28 people that were previously uninsured are now insured due to The Act, and there are no government reports to refute this.

  63. As I have said repeatedly, I’m not an expert and this is not aimed at starting any arguments. I do know, however, that Enthoven has been a name long associated with the idea of managed competition and if anyone might be called father of the exchange idea it would be he.

    As for market competition as an answer to prayer, I am still waiting to see price competition among health care OR insurance providers without pages of mouseprint. Indeed, what passes for “single payer” in America (which is how Medicare and Medicaid are usually generously tagged) still has no meaningful controls over costs. The drug companies’ biggest customer is Uncle Sam but do Medicare beneficiaries get the same price breaks as Medicaid or the VA? Perish the thought. And the same applies to about any product or service on the “market” (which it really is — a glamorous array of designer devices and drugs, competing with countless marketing efforts, every dime of which will be paid for by revenue from — wait for it — our medical bills). Don’t get me started. The day is still young…

  64. I am surprised that you would offer such a quote John, in view of the incantation of deliberate falsehoods essential to bringing this beast to life.

    I don’t open links posted here, Peter, but I can see you remonstrating with a property underwriter that you shouldn’t be “penalized” just because your residence is located 10 miles from the nearest fire hydrant, in an area prone to forest fires.

  65. “reference pricing is much feared by the providers – physicians, hospitals, pharmaceutical companies and others.”

    Gee, aren’t those the groups that claim “competition” will save us?

    Thanks for the link John. But in this country where “class” means more than effective cost control I would be wary of:

    “Reference pricing also leads to concerns that it could be used simply for rationing by income class in disguise, unless good care is taken to enforce high quality standards for the health care being delivered.”

    http://pnhp.org/blog/2013/06/24/the-good-news-on-reference-pricing-isnt-all-good/

    I also have some reluctance trusting someone else picking my surgeon, even my PCP, without the proper full story to choose. How do you see this working?

    However, I would be willing to try this to at least move us off a stagnated loosing position and fear to change mentality.

  66. Subscribers to this thread will be interested in this piece by Ewe Reinhardt in NY Times.

    “While reference pricing for prescription drugs is now employed in many countries outside the United States, American insurers and pharmaceutical benefit managers have so far relied mainly on tiered co-payments or co-insurance as forms of cost-sharing by patients in drug therapy, probably because the American pharmaceutical industry strongly objects to reference pricing and the insured might as well.

    “In health care in the United States, the first proposed application of reference prices actually appeared in quite another context, namely, Prof. Alain Enthoven of Stanford’s concept of “managed competition.” He first developed it in 1977 for the Carter administration under the label Consumer Choice Health Plan.

    “At its core, the Enthoven plan is a defined-contribution plan for health insurance, pegged to the premium quoted for a relatively low-cost health plan – the reference price. Crucial to the design is a common, standard health benefit package and some mechanism for ensuring that the quality of the care rendered under each plan meets a satisfactory standard of quality in the eyes of the plan’s sponsors. The chart below illustrates the core of the idea.”

    More at the link.
    Much more.
    http://economix.blogs.nytimes.com/2013/08/02/the-sleeper-in-health-care-payment-reform/?_r=0

  67. or Medicare-for-all, a good start to single-pay over time.

    Health care is not about insurance and its investors. The point you missed entirely from Bobby Gladd’s link. “Actuarial soundness” is not just raising premiums, as the insurance industry seems to think.

  68. Thank you for your reply. I didn’t mention “fairness” deliberately. The concept is alien to democracy (hence the caveat about a tyranny of the majority). There is no doubt that upcoming elections will reflect a whiplash from millions of voters, many of whom have no idea that they are voting against their own interests. I live in the South where that phenomenon has been going on for generations. Your expectations about upcoming elections may be negative but they are totally realistic. H.L.Mencken said it well:

    “No one in this world, so far as I know — and I have searched the records for years, and employed agents to help me — has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby.”

  69. Well, Mr. Ballard, whether you think it “fair” or “unfair,” the charge that a “bailout” is in the offing has already been made, and is going to become louder. You can protest that it was “baked into the cake,” but that takes us back to the issue of inadequate disclosure. “They said we had it pass it to see what’s in it, etc.” Those who feel that they have been singled out to fund the needs of those who can’t afford or qualify for insurance will be receptive to this charge. They believe, with reason, their premiums were jacked up with a view to lowering the premiums of others. They have already shown themselves receptive to the thought that this burden should have been equitably distributed, rather than imposed on those who, for the most part, happened not to be covered under group plans. Congratulating them on the sacrifices they are making for the benefit of others is tantamount to waving a red flag. The many millions of employees who toil for small employers are likely to take the same view. The jury isn’t going to give you a couple of years, because the “writing on the wall” will be evident, long before that. It will return its verdict this fall.

  70. @archon41 The exchanges are not insurance. They are markets where various private insurance plans are sold. The actuarial predictions are not calculated by the government or “the exchanges” but by each company participating. Their accuracy depends on how many policies they sell, to whom, and how much medical care they need.

    As Mr. Laszewski explained, participating companies have a safety net in the form of “reinsurance” funded by the government — a kind of insurance for the insurance companies.

    The reinsurance program has done and will continue to do what it was intended to do; help attract and keep more carriers in Obamacare than might have otherwise come. No matter who did health insurance reform, Democrats or Republicans, there was always going to be a transitionary period when those currently sick and unable to get coverage before would come flooding through the doors.

    Does this mean that health plans would be happy to see their plans underpriced in the first year, as well as the second and third year? No, they will not have any incentive to see their products dramatically underpriced the first three years only to see their prices zoom in the fourth year and create havoc.

    But, my sense is that health plans, because they are so insulated from big losses, will generally stand pat with their 2014 rate structures for 2015––no matter how bad the early claims experience looks. I expect that the health insurance industry will be content to give the Obama administration one more chance to reboot Obamacare in the fall of 2014, when the 2015 open enrollment takes place.

    It’s way too soon to think about any single-payer system (other than what we already have in the form of Medicare and Medicaid, both of which are single-payer).

    ACA is all about private insurance. Period. It is not “government medical care.” It is not “government controlled.” It IS, however, the first time that the same rules apply to all health care insurance plans across the country. All private plans, both individual and group, are now supposed to be playing by the same rules.

    There are still rough edges to be cleaned up, including the details of what “preventive care” really means, how some group plans will handle contraceptive issues, and whether there will be adequate care in under-served areas both urban and rural. Also, small group plans have been given an additional year to get ready, and it seems every week or so someone else wants to delay this or that change.

    But ACA has only just started. The jury is out. We won’t know for a couple of years — maybe more — how well it will work. Early indications are that despite all the bad press, a few million people previously uninsured now have insurance, one way or another. (And American health insurance still considers dental and vision care off limits except for Cadillac plans, so plenty of people who can’t afford those expenses on their own will still have to get by one way or another as in the past.)

  71. And if the exchanges turn out to be actuarially unsound, that limits our options to an “insurer bailout” or “single payer,” right?

  72. “and they will be eager to at least begin to transition their rates to the proper level in 2016”

    So that means we could see premium reductions in 2014?

  73. This will be excellent news to those parasites that prefer the pedantic over the productive.

  74. Nor does the attempt to equate “welfare” to “insurance,” as those terms have been understood for generations.

  75. Very good article… It will be interesting to see how much good information and data gets released when the time comes. Also wonder who will be checking any IBNR calculations the insurance plans may be able (allowed) to use in their loss calculations.

  76. The thrust of the “insurance as redistribution” meme seems to be that the guy with a history of catastrophic auto mishaps should be rated the same as everyone else because, gee, he’s really strapped, and no insurer wants to touch him.

  77. Well, yeah, but only part of health “insurance” is truly “insurance” (hedge against disaster), a good bit of it is “pre-payment.” That differs materially from classic insurance.

    Call it whatever you want semantically. I don’t really care. Insurance re-distributes money from the larger risk pool to those with claims.

  78. There seems to be a shared belief here that deception and obfuscation are perfectly acceptable, even laudable, when necessary to overcome the “obstructionism” of the lower moral orders. As for the insurers, they have acted prudently to protect their lawful interests, and will not be greatly troubled by rhetoric about “bailouts.”

  79. Medicare and Medicaid have never been “insurance”. They always have been redistribution.

  80. So, are you suggesting that since this is not insurance anymore that this is not redistribution?

  81. Exactly.
    Every every premium dollar is one you hope never to get back.
    Who wants to have a wreck to “get their money’s worth” from auto insurance?

  82. That he did. I had a few productive exchanges with him toward the end, despite our differences (and his tendency to knee-jerk responses).
    I know of no precedent, but I would be okay with clemency on the part of the moderator if he resumed commenting.

  83. Sigh. I wish Nate were back. He brought expertise about the insurance industry, how it works and what drives it that contributed to the discussion, in my opinion. We hear more than enough, I think, from the single payer / government knows best / profit is evil crowd.

  84. Insurance is voluntary shared risk.covered by voluntary premium payments with the hope you will not soon be a beneficiary.

    There is nothing redistributive about insurance.

  85. “Wrong”? The “comeback” to that will be that it was “wrong” to enact this scheme with so little transparency. The public was certainly left with the impression that it wasn’t going to require funding by the taxpayer. Arguably, that impression was deliberately fostered and encouraged, presumably on the “noble lie” line of rationalization. But I wouldn’t wish to be understood as trying to dissuade you from telling John Q. that he should have been playing closer attention.

  86. I think it is unfortunate and wrong for politicians of either party or anyone else for that matter to call this program of risk adjustment, reinsurance and risk corridors a potential bailout for insurers. Insurers are being told to take all comers on a guaranteed issue basis coupled with a very weak mandate to purchase. They have no real idea what the age and risk composition of their insured pool will be while their profits are capped by the minimum medial cost ratio rules – 80% for individual and small group policies and 85% for large groups. Presumably, the three year time limit is intended to give insurers enough time to build a sufficient body of claims experience under the new rules to more accurately price their products starting in the 4th year. Without this backstop, I don’t know what insurance company in its right mind would participate in the exchanges.

    Personally, I like the risk adjustment idea conceptually. As I understand it, Germany uses 80 different metrics to measure actuarial risk. Premiums in Germany, though, are paid into a Central Fund which then distributes premiums to individual sickness funds (insurers) with risk adjustment payments made later on an as needed basis.

    An industry funded reinsurance pool might also be useful for the longer term. I would view that as similar to the mutual aid pacts electric utilities participate in to access help from other utilities to restore power after storms.

    The risk corridors can and probably should be ended after their scheduled three year life expires.

  87. Try that line of thought with your auto underwriter, after you’ve been tagged with a couple of speeding violations and a DUI.

  88. Obamacare is so central to the polarizing theme of “redistribution” that I suspect rational dialogue is no longer possible here. As many see it, a select group of worker bees, those without benefit of group insurance, were singled out here to carry the load for a multitude of those who couldn’t afford or qualify for insurance. The lack of transparency with which this hive was put together is an exacerbating factor. Heart-warming anecdotes about the joys of the subsidized isn’t going to neutralize the resentment of our “worker bees.” Although their number is relatively small, the uproar has been great. I expect the ambrosia to hit the fan when it sinks in on the far greater number of employees of small businesses what lies in store for them. There will also be a great outcry about “bailing out insurance companies” when they seek their due under the reinsurance agreements. No quarter will be given here. I don’t expect the employer mandate to be enforced.

  89. Excellent post, thanks.

    This is more or less exactly the kind of program that European countries put in play when they have invited private insurers to supply universal health care.

    In the Swiss or German or Dutch versions, I believe that any insurer which cherry picks good risks actually sends some of their profits to the less adept insurers.

    That would be rather a stretch for the USA.

    Anyways, I think that Charles Krauthammer and other Repubs are already out to cancel the reinsurance program outlined here.

    Look out if that happens after the 2014 elections!

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