Kaiser Family foundation has an excellent slideshow introduction about the CDHP—how it works, what it’s supposed to do, who pays, etc, etc. Of course all you need to know is in the line below titled “Total Firm Contribution” as to why employers might think they like the HDHP.
Those of you who are bored this week can entertain yourselves pondering the planetary origins of this ditty called Health Savings Accounts: Do the Critics Have a Point? The answer according the to author, Michael Cannon of Cato is, of course, no. But he does at least burrow deep into the issues. You have to hand it to Cannon and Cato which is the sensible libertarian’s think-tank (I used to call it the thinking man’s right wing shop, until Trapper told me that it’s not right wing!) for at least trying.
Unlike Grace Marie Turner, Greg Scandlen, Ron Grenier, Sally Pipes and all the other loons on the HSA bandwagon, Cannon confronts what HSAs do to the risk pool head on! If you have the intestinal fortitude to dive into the guts of his 23 page report (Full PDF here) you’ll find that on page 6-8 Cannon describes accurately how the introduction of a high deductible low-premium plan for in a single unified insurance pool (which he divides up between two groups–the healthy “students” and the sicker “professors”) destroys that risk pool.
He suggests that basically the healthy members of the group are better off moving into higher and higher deductible plans. Eventually no one will be left able to afford the "sicker" plan, so the effect will have been the movement of everyone to a high-deductible from a low deductible plan.
This ignores two HUGE issues. The first is the loss of the money from the pool to pay for the care of the sick people in it. Unless miraculously in Year 1 overall health care costs collapse, the movement of all the healthy people into a lower premium insurance product will mean that there won’t be enough money in the pool to pay all the health care expenses of its members. Why not? Because it’s the premiums from those healthy "students" that’s paying for the care for the sick "professors". If you stop collecting premiums from the 80% of healthy people and allow them to keep them in cash, there is not enough money left in the pool to cover the care of those who get sick. The math just doesn’t work, as I showed here (and I’m by no means the only one who’s pointed this out). Someone has to make up the difference in year one. (This is BTW why social security privitization is a political non-starter because it demands more money in the first years).
The second issue is that he’s not even satisfied with moving everyone to a HDHP, and he wants an ever bigger selection of variation of insurance plans to offer up. In that case presumably a bunch of the "students" in Cannon’s ideal world won’t purchase any insurance at all (after all that’s what happens in the real world and is something he raises in his example), or perhaps they’ll buy a policy with a $100,000 deductible that costs them $10 a year. Now when the small percentage of the "students" who do need it require care, they’ll have to pay out of pocket.
Except that in reality, no one who needs catastrophic care can afford it out of pocket, and the people who are the least able to afford it should they need it are exactly the ones most likely not to buy insurance–because they’re relatively poor and relatively healthy (remember they’re "students"!). But don’t worry! According to Cannon they’ll have saved up for this eventuality! Which is where the HSA comes in. Of course in reality they’ll get treated and the providers will have to eat the costs. Which is why we have the recent fuss about who gets cost-shifted to whom.
Now there are plenty on the right on the Grover Norquist vein who want this whole thing to collapse and believe that all those "lucky duckies" should be, as Mr Potter is accused of demanding by George Bailey, saving and scrimping and paying cash for everything. But the reason that health nsurance exists in the first place is that people who get very sick can’t afford the costs of medical care because they’re very large compared to their incomes and other predictable expenditures.
Meanwhile those costs are usually incurred largely well beyond the amount of the deductible of a typical HDHP. So the whole cost conscious consumer/patient is largely a myth. Cannon knows this is true. In his book he devoted all of two sentences to solving the issue of the 80/20 rule (in fact in reality it’s 90/10). He claims in this paper (devoting a whole two paragraphs to the topic, so we’re getting some progress!) that people with HDHPs are cost conscious beyond the deductible (even though there’s no reason for them to be) and that if we just allow higher deductibles that’ll help here too. Of course that ignores 100 years of history in which doctors and the system largely decide what happens to very sick people, and all the evidence is that medical culture and the number of physicians per capita is the major determinant of costs. (Go hunt out the Dartmouth stuff for more). Maybe this will change by magic in some consumer nirvana, but count me as a skeptic.
I’m glad that he’s one of the few on his end of the political spectrum
to actually bother with some underlying theory about how this works.
The rest of them just say that HSAs/HDHPs are a minor incremental change– they
just don’t seem to realize that it’s a minor change that’s making an
already broken system worse.
So as far as I can tell Cannon has worked through all the logic of HDHPs/HSAs on a theoretical basis. He comes to the same basic conclusion that I do on how it will play out, but decides that a destroyed risk pool in which participation is voluntary, and a lack of control over provider behavior towards the very sick are not the problems that current critics of the system like me think they are. Even though those are the twin problems responsible for both driving up costs and the incredible injustices of the current insurance system which penalize people unlucky enough to be sick. And therefore he advocates policies that will logically make both of those problems worse!
I just wonder what color the sky is on his planet.
Quoting a bunch of head hunters and a rural doc who can’t find anyone willing to move to Ukiah, the Los Angeles Times says this:
A looming doctor shortage threatens to create a national healthcare crisis by further limiting access to physicians, jeopardizing quality and accelerating cost increases.
And so apparently we must build more medical schools and train more doctors, even though the doubling of the number trained in the 1970s hasn’t fully worked its way through the system and won’t for another ten years.
Momentum for change is building. This month, the executive council of the Assn. of American Medical Colleges will consider calling for a 30% boost in enrollment, double the increase it called for last year.
Meanwhile the Dartmouth guys (who maintain their starring role in THCB) say something oh so slightly different:
AMC inputs were highly correlated with the number of physician FTEs per Medicare beneficiary in AMC regions. Given the apparent inefficiency of current physician practices, the supply pipeline is sufficient to meet future needs through 2020, with adoption of the workforce deployment patterns now seen among AMCs and regions dominated by large group practices.
The powers that be in health care are advocating more money to come directly from the taxpayer into the system to train more doctors, who will then cost the nation much more when they go into practice. Of course that’s a much easier answer for them than rational reorganization of the health care system by somehow or other making it all look more like Mayo.
So how do they start using language to persuade those of us suckers who are going to have to pony up for this that they’re right and the Dartmouth crew are wrong?
The AMA changed its position on the physician workforce a year ago, acknowledging that a shortage was indeed emerging. The consensus has shifted so quickly that experts who view the physician workforce as adequate — though poorly distributed, inefficient or wasteful — now are seen as contrarians.
So that’s it. Wennberg (and Goodman and Fischer and the rest of them) are now officially “contrarians”. Hmm…aren’t they the ones who make all the money on Wall Street?
CODA: The same edition of the LA Times has an article about the international outsourcing of radiology reading, which gives a clue as to how some of that “rational reorganization” might happen.
Here’s my FierceHealthcare editorial this morning—Jon Cohn tells me that I’ve been a little rough on Milt Fredenheim lately. Any thoughts? (or have you all left for the Hamptons/Your Sonoma winery estate…)
The mechanics of healthcare reimbursement have been getting more inches than you might expect in The New York Times recently. We’ve heard in the last few days about the length of time it takes insurers to pay providers (too long), the rate of electronic claims submission (getting higher) and how much Medicare pays hospitals compared to private insurers (not enough). Is it just coincidence? Or can I detect a little preemptive strike here as the players start to jockey for position in the coming world of transparency and pay-for-performance. Last year health economist Uwe Reinhardt published a much-talked-about Health Affairs article in which he showed that hospital pricing–and presumably hospital cost accounting–was opaque and presumably mostly guesswork. Today CMS began to release information about what it pays for several common procedures.
If providers are moving to a world in which what they charge for procedures is exposed and vetted by payer-related organizations like Leapfrog–let alone Consumer Reports–then they want to make sure that they are getting their stake in the political ground first. Meanwhile, employers and insurers are trying to pass the buck (literally) to consumers and the taxpayer, before those two sleeping giants awake. Of course, this all puts off the inevitable day when we really take a deep look at why we spend so much on healthcare when luminaries like Don Berwick tell us that up to 50 percent of healthcare spending is wasted.
Joe Paduda says National health care is coming. in five years. I don’t know whether he’s an optimist or a pessimist.
Methinks that we can sustain much, much more of the status quo before we’re driven to radical change. But certainly sometime within the next 3–7 years the debate will come back.
I’ve had my say about these two before (or at least about Porter’s descent into the health care quagmire). Here’s a new interview with them. They talk alot about competition and nothing about structuring incentives. They ask health plans to steer patients to high quality providers, but say that plans shouldn’t limit networks. I really think that they understand the problem but are so determined not to ape Alain Enthoven’s solution, that they just haven’t got one of their own because it’ll look too much like his! Perhaps part of the criteria for getting tenured at Harvard Business School is that you have lots of ideas about healthcare which don’t require any unifying theory.
Apparently I’m going to be sent the book, so I’ll suspend judgment till then…..
Freudenheim has been the health care reporter at the NY Times for a long time — a quick Googling suggests 1993 was when he started. So letting this piece of propaganda from the health plans slip by him and writing an article about it called Low Payments by U.S. Raise Medical Bills Billions a Year is basically unforgivable. Especially after the article he wrote last week talking about delays in payments from payers, that completely ignored the huge lawsuits about the issue in the 1990s and again left his readers without most of the story.
The argument in today’s article is basically this. Evil Medicare and Medicaid pay hospitals and doctors so little that they are forced, forced I tell you, to bill private insurers more to make up the difference. We know that’s true because Millman & Robertson says so. (Those of you sniggering at the back of the class who thought that M&R’s job was to help insurers reduce their payments and spending obviously don’t understand….)
Except that halfway down the page the argument changes. Now it says, the huge unreimbursed cost of treating the uninsured is so great an extra burden on hospitals and doctors that they are forced, forced I tell you, to bill private insurers more to make up the difference.
The article then wraps with a grab-bag of quotes from random observers, none of whom suggest any solution to this and two of whom represent organizations (Employers and Health Plans) who have done their damnest over the years to scupper any solutions to the uninsurance problem that is now apparently just killing them. But let’s ignore that for now.
The one person who could have given Milt a good explanation was apparently not answering his phone. Uwe Reinhardt gave as good an explanation of this phenomenon as any at a 1994 HSR conference. The story is that sometimes costs go up faster in the public programs and sometimes they go up faster for private sector payers, but the difference between them is pretty minimal. At that conference Uwe put up a chart that I can’t find, but the data is in the table below (look at the bottom section which shows average annual increase in spending by source over time)
Essentially what this shows you is that in the 1970s public expenditure grew a bit faster than private sector spending (14% vs 12.0%), in the 1980s they grew at about the same rate (private grew slightly faster), in the 1990s public expenditure grew a bit faster than private again (5.9% vs 5.1%) and in 2000–20001 public spending grew even faster than private (9.4% versus 8.2%). Over time of course the overall share of public spending as a proportion of all spending has gone up, but not that much. Uwe’s explanation was that his friends in the insurance business told him that when public costs went up faster than private costs it showed how efficient the private sector was, and when it was the other way around, it showed that Medicare and Medicaid were cost shifting to the private sector!
Well, Freudenheim has bought that hook, line and sinker!
The truth is of course that providers will charge whomever they can whatever they can, and the balance of bargaining power providers hold over payers goes up and down (and in the last few years has been going up) with all payors across the board, while their ability to stick rate increases to different payors (public versus private) varies only slightly. But look again at the overall numbers, There’s never a time when the cost increases for private and public payers are radically different. If you read the NY Times article today you could be forgiven for thinking that Medicare is paying 20% less into the system and that the private side is paying 40% more.
It’s terrible to hear that the poor innocent health insurers have been forced, forced I tell you, to pay these huge extra amounts since the Medicare Balanced Budget Act of 1998 reduced Medicare payments. After all their huge profits of the 1990s have collapsed as they’ve been forced to absorb the extra costs, and the 2000s have been nothing but a sorry tale of woe as insurer after insurer has seen its profits and its stock price hurtle into the abyss, as you can clearly see from this chart
But from the Freudenheim article, the answer is obvious. We should just have Medicare and Medicare pay way more each year, and then the providers would charge everyone else much less! I wonder why CMS didn’t think of that? After all, far be it from health insurers to have to actually try to do something about reducing their clients costs when the solution is so obvious that a slap-dash M&R report identifies it for us.
Like me at Spot-on today, Arnold Kling is also writing about the US-UK health differentials in Minding the Health Gap. I basically agree with him (and at some point I’ll put up a review of his interesting book Crisis of Abundance). It’s good to see that he seems to have stopped the BS about how rationing happens abroad but not here. I have some nits to pick with his assessment of the It’s the Prices, Stupid argument. And his potential solutions which include multi-layered, multi-year high deductible insurance contracts are so complex as to be incomprehensible, let alone workable in a world where people don’t understand Medicare Part D.
But his identification of the lack of a link between health spending and overall outcomes is correct. Of course I think that logically that should lead us to both limiting the amount of premium medicine and the costs for it visited on those who need it. I’m not sure Kling joins me on that part of the journey.
I’m up at Spot-on talking about Her Majesty’s Healthy Service. Don’t ask—titles come from editors
The Industry Veteran is back. He notes a piece I’d missed in which the oh-so-rational editorial board of the Wall Street Journal declared Part D to be a future political liability for their desire to drown the government in a bath-tub. And it’s all or mostly the fault of poor Hank McKinnell. The Veteran’s not too impressed with their analysis:
In its May 19 editorial, the Wall Street Journal bitch slapped Pfizer’s CEO, Hank McKinnell, for strongly advocating the 2003 Medicare Modernization Act (i.e., Part D) before the legislation passed and since. In the week preceding the May 19 cuffing, McKinnell apparently did a panegyric for Medicare Part D in front of the Journal’s editorial board that the Goebbels Gang considered less than persuasive. Before writing their Night of the Long Knives editorial, the Journal’s editors knew that McKinnell’s partisanship for Part D was more than mere flack work, sycophancy or a simple affirmation of sound, eighteenth century economics. In his role as president of Big Pharma’s trade group, the Pharmaceutical Research and Manufacturers Association (PhRMA), McKinnell was a driving force behind the Medicare Modernization Act. Never more than six months behind the news, the Journal is finally reflecting some of the sotto voce criticism that McKinnell is receiving from within Pfizer itself.The Journal’s criticism of Medicare Part D and its advocates combines boilerplate, right wing economics with Monday morning political quarterbacking and crypto-fascist scare threats about single-payer health systems. The patellar reflex economics faults Part D for contributing to the federal deficit. In this respect the Journal aligns with Reaganite and other conservatives who label Bush a fraud for posing as a conservative when he is actually a big deficit spender who obtains Congressional acquiescence for his military Keynesianism by declining to veto porkbarrel legislation. The Wall Street Journal’s reproval of Bush’s spending, however, is less credible than Claude Rains’s declaration of shock at learning that there is gambling at Rick’s Cafe. Bush is only opposed to federal spending if it benefits the middle class and the poor. He doesn’t have the slightest problem with a fiscal deficit policy as long as the spending benefits his cronies and benefactors who run multi-billion dollar corporations. It is for this reason, rather than some fixation on 1960’s vocabulary, that I call George Bush a fascist. In siding with the stopped-clock conservatives who favor a balanced budget, the Wall Street Journal’s editors merely seek a cloak of principle for their Hjalmar Schacht economics.The Journal’s Monday morning quarterbacking faults Republicans for thinking that the Medicare Modernization Act would turn Medicare from a Democratic into a Republican issue. Instead the MMA gives Democrats a reason to call for constant improvements to the program that will require more federal spending. In the Journal’s horror scenario, the out of control spending will lead to calls for Medicare to act as a single purchaser that can constrain costs. The Journal holds some smelly socks and underwear between its thumb and forefinger to admonish thoughts of price constraint by claiming that the pharmaceutical industry will fail to discover new remedies if it can no longer gouge a cancer patient $300,000 a year for his medication. (I mean, is this a great country or what?) If a rejoinder to the Journal’s herring-stained fright-wig is necessary, it is the fact that the development of new molecular entities constitutes the sole reason for the existence and capital investment of branded pharma companies and biotechs. The aging demographics of the developed world, and our commitment to health and longevity, virtually guarantee a fair return on this investment for a biopharmaceutical industry. Not content with a fair rate of return, the Wall Street Journal, Hank McKinnell and George Bush take a unconscionable rate as their entitlement and that is where I want to see them bent, broken and humiliated. Is Medicare Part D turning out badly? If so, that’s good. When it comes to George Bush and all his constituencies, worse is better.
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