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Subject: qotd: NAIC Senior Issues Task Force rejects cost sharing under
Date: Fri, 30 Nov 2012 11:25:24 -0800
From: Don McCanne <firstname.lastname@example.org>
To: Quote-of-the-Day <email@example.com>
National Association of Insurance Commissioners (NAIC)
2012 Fall National Meeting
November 30, 2012
Senior Issues Task Force
Patient Protection and Affordable Care Act
SEC. 3210. DEVELOPMENT OF NEW STANDARDS FOR CERTAIN MEDIGAP PLANS.
(a) '(y) '(1) IN GENERAL- The Secretary shall request the National
Association of Insurance Commissioners to review and revise the
standards for benefit packages described in paragraph (2) under
subsection (p)(1), to otherwise update standards to include requirements
for nominal cost sharing to encourage the use of appropriate physicians'
services under part B. Such revisions shall be based on evidence
published in peer-reviewed journals or current examples used by
integrated delivery systems...
11-5-12 Draft of proposed letter from NAIC to HHS Secretary Kathleen
(Excerpts of draft)
Pursuant to section 3210 of the Patient Protection and Affordable Care
Act (ACA) you have requested the National Association of Insurance
Commissioners (NAIC) to review and revise the NAIC Medicare
Supplement insurance (Medigap) model regulation to include nominal cost
sharing in Medigap Plans C and F to encourage the use of appropriate
The NAIC has performed its requested review of the standards for Plans C
and F under Section 3210 of the ACA. We were unable to find evidence in
peer-reviewed studies or managed care practices that would be the basis
of nominal cost sharing designed to encourage the use of appropriate
physicians' services. Therefore, our recommendation is that no nominal
cost sharing be introduced to Plans C and F. We hope that you will agree
with this determination.
Medigap is a product that has served our country's Medicare eligible
consumers well for many years, offering them security and financial
predictability with regard to their Medicare costs. Medigap's
protections are now inappropriately being held responsible for
encouraging the overuse of covered services and increasing costs in the
The statute requires the NAIC to base nominal cost sharing revisions on
"peer-reviewed journals or current examples of integrated delivery
systems". However, the Subgroup discovered that there is a limited
amount of relevant peer-reviewed material on this topic. None of the
studies provided a basis for the design of nominal cost sharing that
would encourage the use of appropriate physicians' services. Many of the
studies caution that added cost sharing would result in delayed
treatments that could increase Medicare program costs later (e.g.,
increased expenditures for emergency room visits and hospitalizations)
and result in adverse health outcomes for vulnerable populations (i.e.,
elderly, chronically ill and low-income).
The Subgroup also gathered information from integrated delivery systems
(Medicare Advantage plans) but concluded that, because these managed
care plans make medical necessity determinations for Medicare, that any
such practices were not directly relevant for Medigap.
In summary, based on our thorough review and deliberation on this topic,
we believe, and hope that you will agree, that no changes should be made
to Plans C and F to add beneficiary cost sharing at this time.
Comment: From a health policy perspective, this is a big deal. A very
big deal! The National Association of Insurance Commissioners (NAIC) is
perhaps the most credible and authoritative organization involved with
private health insurance. Although this decision by their Senior Issues
Task Force is limited to Medigap coverage of Medicare cost sharing, the
principles involved challenge the wisdom of trying to control health
spending by creating consumer sensitivity to health care prices through
deductibles, coinsurance and other forms of cost sharing.
One very fundamental issue with cost sharing is that now we have enough
studies to show that there is absolutely no doubt that exposing patients
to up-front costs causes many of them to avoid obtaining health care
services or products that are beneficial. Cost sharing should be
rejected on this basis alone, as the highly flawed policy that it is.
Another crucial point is that the policy community tremendously
overestimates the savings that could be achieved by expanding cost
sharing. They base their estimates primarily on the findings of the RAND
Health Insurance Experiment (RAND HIE). This was a large study of a
healthy workforce and their young, healthy families, during a few
healthy years of their lives. When they were faced with significant cost
sharing they did modestly reduce their use of health care. Obviously
that was selective since they would not be parsimonious when it came to
disease or injury that threatened life or limb (where most health care
Since the subjects in the RAND HIE were fundamentally healthy, most of
them used little health care during the year and so care forgone because
of the cost sharing proved to be a significant percentage of the total
spending on their health care. As an example, if $1000 of care were
recommended for a person who decided to forgo $300 worth of it but
accepted the other $700 worth, then the policy people conclude that cost
sharing reduces spending by 30%. They then apply this to total health
spending and conclude that we can save 30% of health care costs by
requiring deductibles, copayments, and coinsurance.
The defect with this reasoning is that these healthy people consume only
a minute fraction of our total health care. The 20% of people with more
serious problems consume about 80% of all health care. Because of their
serious problems, these people quickly use up their deductibles, and
then cost sharing plays only a very minor role. As a percentage of their
care received, forgone care rapidly approaches 0%. Thus the percentage
savings to the system for this high cost sector is almost negligible.
So the alleged 30% savings applies only to a very small portion of our
total health expenditures. Even there, the NAIC conclusion is that
forgone care can "result in delayed treatments that could increase
Medicare program costs later and result in adverse health outcomes for
vulnerable populations." The NAIC is right to reject this flawed cost
sharing policy that saves little and can have serious adverse outcomes.
After all, it is the patient that really counts.
Now, as far as the Medigap plans are concerned, they are outrageously
overpriced, largely because of their profoundly wasteful administrative
excesses. It would be much less expensive to roll the benefits over into
the traditional Medicare program. There would be zero extra
administrative costs, and even a net reduction since processing the cost
sharing has its own administrative costs.
Folding Medigap benefits into Medicare should be a no brainer,
especially since it is one of the steps that we want to take in order to
improve Medicare as we convert it into a single payer national health
program covering all of us - an improved Medicare for all.