Tuesday, December 30, 2014

Patient migration between high and low health care utilization regions

National Bureau of Economic Research
December 2014
NBER Working Paper 20789
Sources of Geographic Variation in Health Care: Evidence from Patient
By Amy Finkelstein, Matthew Gentzkow, and Heidi Williams


We study the drivers of geographic variation in US health care
utilization, using an empirical strategy that exploits migration of
Medicare patients to separate the role of demand and supply factors. Our
approach allows us to account for demand differences driven by both
observable and unobservable patient characteristics. We find that 40-50
percent of geographic variation in utilization is attributable to
patient demand, with the remainder due to place-specific supply factors.
Demand variation does not appear to result from differences in past
experiences, and is explained to a significant degree by differences in
patient health.

From the Introduction

Health care utilization varies widely across the United States.
Adjusting for regional differences in age, sex, and race, health care
spending for the average Medicare enrollee in Miami, FL was $14,423 in
2010, but just $7,819 for the average enrollee in Minneapolis, MN. The
average enrollee in McAllen, TX spent $13,648, compared to $8,714 in
nearby and demographically similar El Paso, TX.

In this paper, we exploit patient migration to separate variation due to
patient characteristics such as health or preferences from variation due
to place-specific variables such as doctors' incentives and beliefs,
endowments of physical capital, and hospital market structure. As a
shorthand, we refer to the former as "demand" factors and the latter as
"supply" factors.

Like past decompositions, ours is not sufficient to draw strong
conclusions about the efficiency of observed geographic variation.
Though it may be tempting to see supply-driven heterogeneity as evidence
of waste, such variation could reflect different allocations of physical
or human capital, and so be consistent with efficiency. Conversely,
demand-driven heterogeneity could reflect patient misinformation, and so
contribute to inefficiency. We view our findings as both a first step
toward a more welfare-relevant understanding and a clarification of an
influential body of existing evidence.


We find robust evidence that 40 to 50 percent of geographic variation in
the log of health care utilization is due to fixed characteristics of
patients that they carry with them when they move. Our examination of
mechanisms suggests that a large part of this demand-side heterogeneity
may be due to patient health. The remaining 50 to 60 percent of
variation is due to place-specific factors, possibly including doctor
practice patterns and characteristics of health care organizations.

These results suggest that demand-side factors play a larger role in
geographic variation than conventional wisdom might suggest. This does
not translate immediately into conclusions about efficiency. The
correlation of utilization with demand-side factors (and with patient
health in particular) may reflect differences in the marginal impact of
treatment or the marginal utility from a given impact, and so be
consistent with efficiency. But it could also reflect differences in
other demand drivers, such as patient information or beliefs. A more
careful examination of the efficiency implications of the geographic
variation is an important direction for further work.

Our findings have implications beyond our patient-place decomposition.
The fact that habit formation seems limited implies that demand-side
differences in utilization are unlikely to change quickly in response to
policy, at least among the 65 and over population, a population that
accounts for about a third of total annual health care spending. The
fact that a large part of demand-side geographic variation reflects
variation in patient health may also point to limits to the
effectiveness of demand-side policies aimed at changing patient beliefs
or preferences. At the same time, the sharp adjustment we observe around
moves suggests policies that affect the supply-side can have immediate

While we have taken a first step toward understanding the origins of the
patient component we measure, it remains for future work to better
understand the mechanisms behind the place component. Particularly
interesting questions concern the role of physicians' training and
practice patterns, and the role of health care organizations.



Comment by Don McCanne

Although this article is technically challenging to read and absorb, and
the authors caution that more work is needed to understand better the
implications of their initial results, nevertheless, this is a very
important article because it improves our understanding of geographic
variations in health care utilization as related to "patient
characteristics such as health or preferences" (demand-side) and to
"place-specific variables such as doctors' incentives and beliefs,
endowments of physical capital, and hospital market structure"
(supply-side). Because of concerns over global health care spending,
many important demand-side and supply-side policies are being put in
place without an adequate regard of the policy science behind those
decisions, both known and unknown.

On the demand side, it appears that the health of the patient is far
more important in patient decisions on utilization than are patients'
beliefs, preferences and habits. This is as it should be. The health
care system should be there to serve the health care needs of the
patient. Yet the leading efforts to control demand-side over-utilization
include measures that impair access, particularly financial barriers
such as high deductibles and tiered layers of coinsurance, and provider
barriers established through the use of narrow- and ultra-narrow
networks. Policies that prevent patients from getting the care they need
should be rejected. The claim that these policies control excess patient
demand is based on the fiction that patients are demanding excessive
care; they are not.

On the supply side, much has been written about excess capacity that
results in excessive utilization, including the alleged excessive supply
of high-tech specialized services. The authors of this study state that
we need to learn more about the role of physicians' training and
practice patterns, and the role of health care organizations. Yet the
leading efforts to control supply-side over-utilization include the use
of accountable care organizations, in spite of the lack of evidence of
their effectiveness, and the use of dubious pay-for-performance levers
to guide physicians' practice patterns. Many contend that about
one-third of care provides marginal benefits that could be done away
with, since the the overall negative impact would be small (but not
zero). But it is very difficult to prospectively select the care that
could be omitted. That is what the accountable care organizations are
supposed to be doing, yet, to date, there has been very little reduction
in spending under these programs, and often that reduction is erased by
the performance rewards.

We already know of very effective policies that could control excesses
on the supply side. Our prices are created on the supply side, and they
are too high. They could be brought into line through public policies
that would ensure adequate funding of services and products while
reducing the waste of excessive pricing. The complexity of the
supply-side administrative services wastes tremendous resources. That
waste could be dramatically reduced through an administratively
simplified single payer financing infrastructure. Excess capacity that
invites over-utilization could be reduced through central planning and
budgeting of capital improvements - a step that would also address our
even greater need to improve capacity in regions wherein services are

So let's get to the basics. Demand side? Remove barriers to care. Supply
side? Begin by replacing our dysfunctional health care financing system
with a single payer national health program. Once we have those in
place, then we can sit around and have intellectual discussions about
physicians' training and practice patterns, and the role of health care
organizations. But we can't waste our time with decades of esoteric
policy studies when we have important work to do right now.

Monday, December 29, 2014

Tiered pharmacy benefits can be lethal

Annals of Internal Medicine
September 16, 2014
Comparative Effectiveness of Generic and Brand-Name Statins on Patient
Outcomes: A Cohort Study
By Joshua J. Gagne, PharmD, ScD; Niteesh K. Choudhry, MD, PhD; Aaron S.
Kesselheim, MD, JD, MPH; Jennifer M. Polinski, ScD, MPH; David Hutchins,
MBA, MHSA; Olga S. Matlin, PhD; Troyen A. Brennan, MD; Jerry Avorn, MD;
and William H. Shrank, MD, MSHS

Background: Statins are effective in preventing cardiovascular events,
but patients do not fully adhere to them.

Objective: To determine whether patients are more adherent to generic
statins versus brand-name statins (lovastatin, pravastatin, or
simvastatin) and whether greater adherence improves health outcomes.

Design: Observational, propensity score–matched, new-user cohort study.

Setting: Linked electronic data from medical and pharmacy claims.

Participants: Medicare beneficiaries aged 65 years or older with
prescription drug coverage between 2006 and 2008.

Intervention: Initiation of a generic or brand-name statin.

Measurements: Adherence to statin therapy (measured as the pro- portion
of days covered [PDC] up to 1 year) and a composite outcome comprising
hospitalization for an acute coronary syndrome or stroke and all-cause
mortality. Hazard ratios (HRs) and absolute rate differences were estimated.

Results: A total of 90 111 patients who initiated a statin during the
study was identified; 83 731 (93%) initiated a generic drug, and 6380
(7%) initiated a brand-name drug. The mean age of patients was 75.6
years, and most (61%) were female. The average PDC was 77% for patients
in the generic group and 71% for those in the brand-name group (P <
0.001). An 8% reduction in the rate of the clinical outcome was observed
among patients in the generic group versus those in the brand-name group
(HR, 0.92 [95% CI, 0.86 to 0.99]). The absolute difference was -1.53
events per 100 person-years (CI, -2.69 to -0.19 events per 100

Limitation: Results may not be generalizable to other populations with
different incomes or drug benefit structures.

Conclusion: Compared with those initiating brand-name statins, patients
initiating generic statins were more likely to adhere and had a lower
rate of a composite clinical outcome.

Primary Funding Source: Teva Pharmaceuticals.

From the Discussion:

In a head-to-head comparison, we found that patients initiating generic
statins were more likely than those initiating brand-name statins to
adhere to their prescribed treatment and had an 8% lower rate of a
composite end point of cardiovascular events and death. Generic drug use
has been widely recognized to reduce patient out-of-pocket costs and
payer spending. Most persons in the United States are enrolled in
prescription drug insurance programs with tiered benefits that require
higher copayments for brand-name prescriptions than bioequivalent
generic versions. Among patients in our study, the mean copayment for
the index statin prescription was $10 for generic drug recipients and
$48 for brand-name drug recipients. Our finding that adherence is
greater with generic statins than with brand-name statins is therefore
not surprising and is consistent with other studies that have shown a
direct relation between higher copayments and lower adherence.



Comment by Philip Verhoef

This study further dispels the notion that more skin in the game leads
to better outcomes.

The researchers prospectively examined 90,111 patients who received a
new prescription for statin therapy and divided them into receiving
generic (83,731 patients) versus name-brand (6380 patients) for the 3
statins that were generic at that time. They used propensity scores to
"match" patients since they weren't able to properly randomize patients
to generic versus name-brand. They then measured adherence and outcomes
and found the following:

* 77% adherence in patients receiving generics versus 71% adherence in
patients receiving name brand

* 8% reduction in the rate of pooled clinical outcomes (stroke, acute
coronary syndrome or all cause mortality) for patients receiving generics

* They note that the out of pocket costs to fill the generic was 10
dollars and the branded was 48 dollars

They basically conclude that patients who have to pay more for their
medications are less likely to be adherent, and that the difference in
clinical outcomes occurred as a direct result of the increased cost,
leading to poorer adherence and consequently more strokes/ACS/death.

There's lots in here:

* Generics work

* Generics are cheaper

* Relatively small differences in adherence can lead to substantial
clinical outcomes (ie, perhaps we should focus on improving adherence to
prescribed therapies)

But I think that the biggest take-home is that if patients have to pay
more for medications, they will not take them and then they will die.
Ergo, shifting costs to patients leads to more death.

(Philip Verhoef, MD, PhD is Clinical Instructor of Medicine at The
University of Chicago Medicine, a member of the PNHP Advisory Board, and
co-president for PNHP-Illinois.)

Wednesday, December 24, 2014

John McDonough on what follows Vermont

December 23, 2014
Vermont ends single payer bid
Feds now left to confront the issue
By John E. McDonough

Many American dislike the Affordable Care Act not because it goes too
far but because it does not go far enough. About 24 percent of
Americans believe the ACA should be expanded, and by that, many mean a
Medicare-for-All single payer financing scheme that takes insurance
companies out of the equation.

Since the ACA is nothing like single payer, for four years now, the
candle in the window for single payer advocates has stood in the
governor's office in the Vermont State House. Gov. Peter Shumlin got
elected in 2010 promising to bring a single payer health financing
scheme to Vermont, and various people in his administration have been
hard at work figuring how to make it happen. Last Wednesday, though,
Shumlin snuffed out the candle, admitting that he couldn't make the
numbers work.

So what is single payer's future? Like all good Democrats, I harken to
the words of my late boss, Sen. Kennedy: "…the work goes on, the cause
endures, the hope still lives, and the dream shall never die."

Today, in the United States, we have three-plus mega-health insurance
programs in Medicare, Medicaid, and the new ACA subsidy/exchange
structure. Medicare is actually two programs when you count Medicare
Advantage. Medicaid is nearing 70 million covered lives. And as
employer coverage continues its 25 year plummet, the ACA subsidized
exchange world is going to grow in size and importance.

It may take 5, 10, 15 years, or even longer – but at some point, some
Republicans and Democrats will propose federal health insurance
consolidation. The illogic and wastefulness of running these enormous,
siloed health insurance behemoths will become clear – that will be the
backdoor start and momentum will grow.

The Vermont failure, I believe with regret, signals the end of serious
efforts to achieve single payer at the state level. It's too big a
lift, economically and politically. Shumlin inadvertently blew out the

At the federal level, I do expect it – but through the backdoor, not the
front, and no time soon.

(John McDonough is a professor at the Harvard School of Public Health
and the author of Inside National Health Reform.)



Comment by Don McCanne

John McDonough is one of the nation's most astute observers of health
care reform. We can take solace in his prediction that the entire nation
will eventually achieve single payer reform, while regretting that it
will be a slow process.

For those who differ, prove him wrong.

Tuesday, December 23, 2014

WSJ on Vermont’s single payer effort

The Wall Street Journal
December 22, 2014
Vermont's Single Payer Washout

Last week, in a reversal that deserves more attention, Democratic
Governor Peter Shumlin announced that Vermont would no longer create
America's first statewide single-payer health system.

Single payer is the polite term for socialized medicine and the ultimate
goal of the political left.

At least the Governor deserves credit for admitting failure. His
ideological comrades are rarely dissuaded by the prospect of economic
damage, as ObamaCare proves. But Mr. Shumlin has succeeded in making
Vermont a national model: By admitting that single payer will make
health care both more expensive and less efficient, he has shown other
states what not to do.



Bill as Passed by the House and Senate, 2011

"An act relating to a single-payer and unified health system"
changed to
"An act relating to a universal and unified health system"

(H.202 is a 213 page bill. The first 135 pages were deleted and the
remaining pages are a rewrite of the entire bill.)


The director, in collaboration with the agency of human services, shall
obtain waivers, exemptions, agreements, legislation, or a combination
thereof to ensure that, to the extent possible under federal law, all
federal payments provided within the state for health services are paid
directly to Green Mountain Care. Green Mountain Care shall assume
responsibility for the benefits and services previously paid for by the
federal programs, including Medicaid, Medicare, and, after
implementation, the Vermont health benefit exchange.



Comment by Don McCanne

As was fully expected, the conservative and libertarian pundits are
inundating the Internet and other media vehicles with celebratory
commentaries on the theme that Vermont Gov. Peter Shumlin's withdrawal
of his single payer proposal is proof that single payer is more
expensive and less efficient than other health care financing systems.
The Wall Street Journal editorial excerpt above is selected as a leading
example of these right-wing responses. The problem with these comments
is that H.202, the Vermont reform legislation, IS NOT A SINGLE PAYER

Even many single payer supporters have it wrong. They claim that Gov.
Shumlin gave up for political reasons, and, if he had persevered, he
would have been successful in establishing the first state-level single
payer system in the U.S. Again, the problem is that H.202, the Vermont
reform legislation, IS NOT A SINGLE PAYER PROPOSAL.

Posted above is a link to H.202. During the legislative process, the
bill was renamed, deleting "single-payer" from its title. If you check
the document at the link, you will see that the original bill was
red-lined out, and the bill was entirely rewritten. All references to
"single-payer" were removed.

The crucial phrase in the except above regarding waivers and agreements
is "to the extent possible under federal law." It was known at the time
the revisions were being made that Sec 1332 ACA waivers, Sec 1115
Medicaid waivers, the narrowly defined Medicare demonstration waivers,
and the ERISA limitations on employer-sponsored plans were so limited
that it would be impossible to establish a bona fide single payer system
through unilateral state action alone, nor through a cooperative effort
with the Obama administration. Comprehensive federal legislation would
have been required, and that clearly was not forthcoming from this or
the next Congress. Legislating a wish list does not equate with clearing
all of the hurdles that only Congress can effectuate.

The reason that this message is being reemphasized again today is that
there has not been a loud enough voice in unison emphatically rejecting
the claim that Vermont's experience is proof that single payer cannot
work. Single payer never had a chance, considering the inertia in
Congress. This was not a single payer failure. Do not remain silent when
that claim is made. Single payer has been proven to work well in many
other nations.

Monday, December 22, 2014

Will the Supreme Court require enforcement of the Medicaid equal-access provision?

The New England Journal of Medicine
December 18, 2014
Medicaid Payments and Access to Care
By Sara Rosenbaum, J.D.

With more than 66 million beneficiaries, Medicaid is the United States'
largest insurer, and its impact on health insurance coverage, access to
care, and the health of the poor has been substantial. But historically,
Medicaid has faced a major challenge — a relatively low rate of
physician participation. In its March 2011 report to Congress, the
Medicaid and CHIP (Children's Health Insurance Program) Payment and
Access Commission (MACPAC, Congress's Medicaid advisory panel) pointed
out that the Medicaid population disproportionately resides in medically
underserved communities with serious shortages of primary care providers
and that the problem of isolation is confounded by low
physician-participation rates.

Extensive research suggests that many factors contribute to low
physician participation: complex program requirements, payment delays,
and concerns about managing the care of patients with high levels of
health and social risk. But research also shows that low fees play a key
role and that substantial payment increases may be needed to alter
physicians' behavior. In a study conducted for the Kaiser Family
Foundation, the Urban Institute estimated that in 2012, Medicaid
physician fees averaged about 66% of Medicare payments and that the
Medicaid–Medicare pay disparity was widening.

For good reason, primary care tends to be the first area of focus in any
discussion of access in Medicaid. With a pronounced and growing shortage
of primary care professionals — a shortage that's estimated to reach
30,000 by 2015 — depressed Medicaid participation among available
physicians is a major cause for concern. In the case of primary care,
mitigation strategies exist. Safety-net providers such as community
health centers play a vital role in reducing the access gap in the
communities they serve.

Specialty care arguably presents the more serious Medicaid access
problem, especially since there is no obvious mitigation strategy for it
comparable to that offered by community health centers. The Commonwealth
Fund reports that low payment rates are the principal cause of reduced
specialist participation.

Among the hot-button issues that define the tense federal–state Medicaid
relationship, no issue has historically been hotter than access to care,
because of fierce state resistance to federal oversight of provider
payment. This tension has led Congress to gradually strip most
provider-payment provisions out of the Medicaid statute. But one basic
legal principle remains: the so-called equal-access provision, which
specifies that as a condition of federal funding, states' Medicaid
provider payments must be "sufficient to enlist enough providers so that
care and services are available under the plan at least to the extent
that such care and services are available to the general population in
the geographic area."

The Department of Health and Human Services (HHS), however, has never
implemented this provision through regulations.

Under the Affordable Care Act, Congress funded a 2-year pay increase for
Medicaid primary care services in order to boost primary care payment
rates to Medicare levels. In its Kaiser study, the Urban Institute
estimated that the pay bump would increase fees by 73%. But the
increase, which took effect in 2013, expires at the end of 2014, with no
renewal in sight. News reports suggest that nearly all states plan to
roll back primary care payments to 2012 levels, despite anecdotal
evidence reported by some states of increases in provider participation.

Faced with payment rates that in some cases may be dangerously low,
beneficiaries and providers have turned to litigation. A fundamental
question, however, is whether providers and beneficiaries can go to
court when provider payments may be too low to ensure appropriate access
to care. In 2012, in Douglas v. Independent Living Center of Southern
California, which involved a challenge to deep rate cuts enacted by
California's legislature, the Supreme Court deflected this question.
Now, however, the issue is back; this term, the Court will hear
Armstrong v. Exceptional Child Center, Inc., which again raises the
question of whether beneficiaries and providers can protest low Medicaid
payments in court. Douglas involved a rate cut; Armstrong, in contrast,
involves a state's refusal to pay properly. The situation here is one of
a state's failure to pay a provider an HHS-approved rate, with no HHS
effort to enforce its own requirements.

Observers do not expect another deflection; in his Douglas dissent,
Chief Justice John Roberts made clear his objection to court involvement
in Medicaid-access cases, arguing that HHS — not the courts — should be
the sole enforcement authority.

The Armstrong situation may be more serious than that in Douglas.
Douglas involved an ongoing and active federal review, however slow it
may have been. In Armstrong, the federal government has chosen to play
no affirmative role whatsoever.

There is a deeper issue here, of course: getting the federal government
to do what it is supposed to do. That means issuing the long-delayed
access regulations, providing technical assistance to states, and
maintaining active and ongoing oversight of state program management.
Medicaid beneficiaries deserve no less.



Comment by Don McCanne

Medicaid has traditionally underpaid physicians for their health care
services. That has resulted in low participation rates, especially by
specialists, which, in turn, threatens health care access for Medicaid
patients. The Medicaid statute requires that states' Medicaid provider
payments must be "sufficient to enlist enough providers so that care and
services are available under the plan at least to the extent that such
care and services are available to the general population in the
geographic area." Failure of our government to enforce this equal-access
provision will now be heard by the Supreme Court.

The Affordable Care Act (ACA) greatly expanded eligibility for Medicaid,
though the increase was not quite as large as anticipated because of the
Supreme Court's previous ruling allowing states to opt out of the
expansion. Nevertheless, in an effort to ensure that enough physicians
would participate at a level to assure adequate access for the new
Medicaid enrollees, Congress included a temporary provision in ACA that
would increase primary care payments to Medicare levels. Next week, that
increase ends, and most states will revert to pre-ACA payment levels.

Most states are shifting their Medicaid patients into managed care
organizations for the purpose of reducing their spending for this
program. With the low payment rates, it is difficult to see how these
organizations can afford to finance their patients' care except by
significantly reducing the frequency and intensity of services
delivered. This is not a population that has been receiving an excess of
health care services. Quite the contrary, they were already doing
without services that they should have. These further reductions likely
will be able to be measured by an increase in suffering and death.

Although Chief Justice Roberts has already indicated that he does not
believe this is a matter for the courts, even if there is a ruling that
the equal-access provision must be enforced, it is likely that only
nominal adjustments will be made and that Medicaid will continue to be
critically underfunded.

Instead of tweaking Medicaid, we need to enact an improved Medicare for
all that would include implicitly an equal-access provision that applies
to everyone.

Crediting VTDigger.org as qotd source

The source for the Quote of the Day, "Listen to Deb Richter" (Dec 19),
was an excerpt from an article by Morgan True that originally had been
published at VTDigger.org, but the source and title given in the Quote
of the Day were from another website that had republished the original

Because of the excellent coverage and high credibility of the VTDigger
team, we have corrected the posting on the PNHP website to be sure that
they receive credit for their outstanding work.

Morgan True, "Protesters Demand Action on Single Payer, Condemn
Shumlin's Reversal," VTDigger.org, Dec. 18, 2014:


Corrected posting on the PNHP website:


VTDigger.org has been an excellent resource for us, especially for
following the Vermont efforts on single payer.

Don McCanne

Thursday, December 18, 2014

Americans prefer public option to single payer

The New York Times
December 18, 2014
How the High Cost of Medical Care Is Affecting Americans
By Elisabeth Rosenthal

The Times designed a questionnaire with CBS News and conducted a
national poll this month.

Americans are eager for relief.

There seems to be widespread agreement that medical prices are
burdensome for American patients, and new solutions are needed. But will
the answer be a market-based approach involving greater price
transparency? More regulation, focusing on price? A government-sponsored
single-payer health system, like that in Canada? Or allowing younger
people to join Medicare, the popular health insurance program for
seniors? Many readers surprised me by saying they could not wait to turn
65. As one reader from Texas said: "I bought medicine in Mexico for 23
years before I became eligible for the promised land of Medicare."

NYTimes/CBS Poll

Would you favor or oppose a government-administered health insurance
plan — something like the Medicare coverage that people 65 and older get
— that would compete with private health insurance plans?

59% Favor
34% Oppose
8% No opinion

Would you favor or oppose a single-payer health care system, in which
all Americans would get their health insurance from one government plan
that is financed by taxes?

43% Favor
50% Oppose
7% No opinion



Comment by Don McCanne

During the health care reform debate there was considerable support for
a "public option" - providing individuals an option of choosing a
Medicare-like program, administered by the government, that would
compete with the private health plans. During the legislative process it
received much publicity, but it was eventually eliminated from
consideration under pressure from the insurance industry that did not
want any competition from the government. A vote on a single payer
proposal also was promised by the Democratic leadership in the House,
but eventually the opportunity for that vote was traded away in politics
as usual.

We still hear calls for a public option that many contend would address
the high costs of health care, though few seem to understand that it
would hardly have any impact on costs since it would be only one more
player in our dysfunctional multi-payer financing system. But we also
hear calls for a single payer system - an improved Medicare for all -
that actually would slow spending while meeting other important goals
such as universality and equity.

How are these messages resonating with the public? The competitive
public option concept is supported by 59% of those polled, whereas the
single payer concept is supported by only 43%, with 50% opposed.

Although some might dispute this polling based on the phrasing of the
questions or whatever, to me these results seem to suggest a much more
serious problem. Instead of the national debate that we should be having
- single payer versus our fragmented multi-payer system - the debate is
being shifted to our private insurance-dominated multi-payer system
versus a multi-payer system with a public option - a Medicare-like
program that you can purchase in place of private insurance.

What does that shift in the debate do? Well, first of all, it ensures
that single payer will continue to be left off of the table as we move
forward. Second, it allows the insurers to exercise damage control by
ensuring, through their ownership of Congress, that the public option
would be prohibited from gaining an "unfair" competitive advantage
against the private insurers. During the reform debate the insurance
lobby was successful in selling the concept that the public option had
to be removed from the control of government and have restrictions
placed on it that would make it worse than the private plans. Just
opening that door was still too much for the insurers, and so the
concept was tabled. But when it comes back up again, the insurers want
to have that debate rather than the single payer debate, and they are
ready for it.

Another concern about the public option debate is that the concept is
being deliberately conflated with the premium support concept as a means
of ensuring that there is strong public support for improving health
care value through competition - competition of private health plans,
that is. The government would provide support for the insurance premiums
through virtual vouchers that would provide an option to purchase
various plans through the public exchanges. Thus the insurance industry
gets precisely what it wants with the debate being limited to how much
damage can be done to the free-standing public option, public in name
only, to be sure that it does not unfairly compete with the private
insurers (inadequate funding of reserves, prohibition of "advertising,"
increasing adverse selection through the requirement of being the
safety-net insurer, requirement to maximize cost sharing, requirement of
using ultra-narrow networks, etc.).

Maybe some of this is a stretch, but we really have to be concerned when
the perception of the public at large is that we don't want a single
payer system but we do want a government plan that competes with private
insurers. The issues are complex. We have a lot of work to do to educate
the nation on the true facts behind reform options. As far as messaging
is concerned, right now the single payer opponents can dismiss our model
with just one word: competition. Now just try to find one word or phrase
that explains why single payer is vastly superior to private plans
competing in the marketplace.

Tuesday, December 16, 2014

Why do insurers set out-of-pocket maximums lower than required?

Kaiser Health News
December 12, 2014
Many Obamacare Plans Set Out-Of-Pocket Spending Limits Below The Cap
By Michelle Andrews

Seventy-four percent of 2015 silver level plans' out-of-pocket spending
caps are below the $6,600 spending limit allowed for individual plans
and $13,200 maximum for family plans, according to Avalere, a consulting
firm. The average out-of-pocket maximum for 2015 individual silver plans
will be $5,853, says Caroline Pearson, a vice president at Avalere.
Silver was the most popular plan type this year, selected by about
two-thirds of enrollees.

After a policyholder reaches the out-of-pocket spending limit during the
year, the insurer pays all the bills, unless, for example, they involve
doctors and hospitals not in the health plan's network.

The vast majority of other plans also feature lower limits on
out-of-pocket spending—which includes deductibles, copayments and
co-insurance, but not premiums. Seventy-one percent of bronze plan
spending limits were below the allowed maximum (with an average spending
limit for single coverage of $6,381), as were 94 percent of gold plans
(average limit, $4,458) and 98 percent of platinum plans (average limit,

The tradeoff for lower out-of-pocket spending maximums may be a higher
deductible, says Pearson. The average deductible for silver plans will
increase 7 percent in 2015, to $2,658. Other metal-level average plan
deductibles are increasing as well.

Higher deductibles are likely helping keep premiums low, and low
premiums are what consumers are looking for, Pearson says.

Kaiser Health News



Comment by Don McCanne

This Avalere report reminds us that, at a given actuarial value of a
health plan (average percent of the health care costs covered by the
plan), there is a reciprocal relationship between the maximum
out-of-pocket spending for which the insured is responsible and the
deductible that must be met before the plan begins paying for health care.

Ignoring other variables, such as waiving the deductibles for certain
preventive services, let's look at the 2015 average deductibles and
average maximum out-of-pocket spending (MOOP) for the four metal tiers
representing different levels of actuarial values (AV) in the insurance
exchanges. The numbers are for individual plans that must be capped at a
MOOP of $6,600 or less.

* The bronze plans (AV 60%) have an average deductible of $5,249 with
an average MOOP of $6,381.

* The silver plans (AV 70%) have an average deductible of $2,658 with
an average MOOP of $5,853.

* The gold plans (AV 80%) have an average deductible of $1,080 with an
average MOOP of $4,458.

* The platinum plans (AV 90%) have an average deductible of $189 with
an average MOOP of $2,145.

It is obvious that, in these examples, as AVs increase, both the
deductibles decrease and the MOOPs decrease. The higher the AV value,
the more complete is the coverage. But then why are both adjusted? Why
didn't the actuaries set the MOOP for each plan at the statutory maximum
($6,600) and simply adjust the deductibles? That way the higher the
premium paid, the lower the deductible would be.

If you look at the platinum plan (90% AV) the average deductible is only
$189. With the essential health benefits and the networks remaining the
same, in order to push the AV up to 90%, the actuaries had to reduce the
maximum out-of-pocket to an average $2,145. For the gold plans, in order
to have a product with a standard $1000 deductible ($1,080 with 2015
adjustment), the actuaries also had to lower the MOOP to meet the 80% AV.

The bronze plans, with the lowest AV (60%), had to push their MOOP up to
close to the statutory maximum - $6,381, just below $6,600 - but then
that required an average deductible of a whopping $5,249 - quite a blow
for the low-income individuals and the young invincibles who would be
attracted to the low premiums of these plans.

The silver plans, which about two-thirds of exchange purchasers select,
have a more balanced deductible and MOOP. So why didn't they push the
MOOP up to the maximum ($6,600) so that they could offer a more
reasonable deductible? For one reason, having greater cost sensitivity
through higher deductibles advances the consumer-directed approaches of
those ideologues who place more importance on the theory of moral hazard
than they do on patients getting the care that they need.

Another reason is that, since about 80% of the population uses only
about 20% of health care, most insurance plan enrollees would never meet
their deductible. With the silver plan deductible of $2,658, insurers
would be paying for almost no care for about four-fifths of their
enrollees (except preventive services - a very small part of our health
care services). The extra that would have to be paid by the insurers for
having a modestly lower MOOP would apply to only about one-fifth of
their enrollees, most of whom would far exceed their deductibles anyway.

Left out of this are considerations of the consequences of obtaining
care out-of-network, even if inadvertent, and of being required to pay
retail prices for services that are later determined to not be covered

Seems like a pretty good deal for the insurers. Isn't it our turn to get
a good deal? We would have to get rid of the insurers first.

Monday, December 15, 2014

Two Memes that Undercut Medicare-for-All: Managed Care and Competition

Health Affairs Blog
December 11, 2014
Two Theologies Have Blocked Medicare-For-All
By Theodore Marmor and Kip Sullivan

In the 50 years since Medicare was enacted, Congress has never seriously
considered extending Medicare to all Americans, nor even lowering
Medicare's eligibility age below 65. This pattern persisted even during
those periods when national health insurance was at the top of the
national agenda. This is not what the original advocates of Medicare
anticipated when Medicare was enacted in 1965. They saw Medicare as the
cornerstone of a national system of health insurance that would
eventually cover all Americans.

Two Myths that Undercut Medicare-for-All: Managed Care and Competition

In the paper we presented at the Yale conference (Yale Law School,
November 6 & 7) , we reviewed short- and long-term factors affecting the
debate about Medicare over its lifetime, and then turned to a discussion
of two long-term factors: the rise of what came to be called the managed
care movement, and the resurgence of a longstanding campaign promoting
the idea that competition can right the wrongs of American medicine.

The managed care movement helped marginalize support for Medicare's
expansion primarily through its influence on the proponents of national
health insurance. It did so by persuading many potential proponents of
Medicare expansion to pursue a different reform strategy. Insurance
companies practicing managed care, the rhetoric claimed, were more
efficient than Medicare. Managed care kept Medicare-for-all off the
congressional agenda primarily by inducing potential proponents of
Medicare expansion to support managed care rather the expansion of the
traditional Medicare program.

The rise of the pro-competition movement constituted another significant
impediment to Medicare expansion. It did so by strengthening the belief
that market competition among private health insurance firms could be
invigorated, largely by eliminating tax subsidies for insurance and
shifting more costs onto patients, and that vigorous competition would
make the health care sector much more efficient than Medicare could ever
be. But because this movement appealed primarily to conservatives who
did not support universal coverage in the first place, its impact on the
debate about Medicare's expansion, although powerful, was less direct.

To sum up, the pro-competition movement contributed to keeping the
expansion of Medicare off the national agenda by keeping national health
insurance off the national agenda throughout most of Medicare's 50
years. And the managed care movement contributed by persuading liberals
to endorse managed care proposals, not the expansion of Medicare, during
those infrequent periods when universal coverage was at the top of the
national agenda.

Why have the Managed Care and Competition Movements been Politically

The answer, in our view, is two-fold. First, both movements acquired
immense economic power compared with supporters of Medicare expansion.
Second, both movements clothed their diagnoses of and solutions to the
health care crisis in rhetoric that induces listeners to overlook
unproven assumptions that underlie those diagnoses and solutions. This
permitted both movements to present their solutions in idealized,
oversimplified forms, and to compare their idealized forms to real-world
Medicare. Over the years both movements have developed cultures which
resist acknowledging the discrepancy between their assumptions and the

In the first few months of 1970, Paul Ellwood and representatives of the
Nixon administration agreed to promote an unproven diagnosis of the
health care crisis and an unproven solution. The unproven diagnosis was
overuse of the health care system induced by the fee-for-service method
of paying doctors. The unproven solution was a new form of insurance
company they called the "health maintenance organization" (HMO).

Ellwood and Nixon administration officials made the deliberate decision
to refrain from describing how HMOs were supposed to achieve the powers
attributed to them. As assistant HEW secretary Lewis Butler put it,
"Let's specify what we want it to do…. Let's describe the thing by what
we want it to do, not how it's formed."

This convention – describing an entity that will supposedly alleviate
the health care crisis according to what "we want it to do" – was
quickly adopted by Democrats. The convention encouraged, and to some
degree forced, HMO advocates to explain their support for the concept in
highly abstract terms. It also encouraged the use of opinion and wishful
thinking as substitutes for evidence and scientific discourse.

The tendency to adopt abstract concepts defined only by the aspirations
of their proponents, to give these abstract concepts labels designed to
influence rather than illuminate, and to ignore or downplay evidence
contradicting claims made for these concepts has persisted within the
managed care movement ever since. These habits of thought can be seen in
the movement's support for other managed care proposals, including
"pay-for-performance" and "accountable care organizations."

The pro-competition movement has exhibited similar traits – a tendency
not to examine fundamental assumptions and to gloss over evidence
contradicting them. Like the managed care movement, the pro-competition
movement rests its diagnosis on the unproven assumption that financial
incentives are the single greatest cause of health care inflation.
Unlike the managed care movement, which sees physician incentives as
paramount, the pro-competition movement claims patient financial
incentives are the fundamental cause of high medical costs. Like the
managed care movement, the pro-competition movement bases its solution
on unproven assumptions, the most important of which is that patients
can shop for medical care just as they do for food and other commodities.

The willingness of the two movements to compare real-world Medicare with
their idealized proposals has contributed significantly to their ability
to keep the expansion of Medicare off the table. It has also contributed
significantly to their inability to address the problems that bedevil
the American health care system – a chronically unacceptable rate of
uninsured, barriers to care even for the insured, and rising costs.


Comment by Don McCanne

The dream of expanding Medicare to cover all of us has failed to
materialize in a large part because of the nation's obsession with
marketplace concepts of health care financing. On the supply side,
health care providers are responding to financial incentives that
maximize their revenue. On the demand side, patient-consumers are
responding to financial incentives that minimize their out-of-pocket
spending. In both instances, health care access is compromised - in
managed care by erecting structural barriers to care ("managing" the
care), and in competition by erecting financial barriers to care (buying
competitively-priced plans with lower premiums that have higher
deductibles and other cost sharing).

Where did this obsession come from? Gilens and Page have shown that the
very wealthy and large business interests have control over major
legislation. These interests benefit from marketplace approaches to
health care through investments in for-profit insurance companies and in
health care delivery organizations, including for-profit hospitals. In
contrast, their tax burden in publicly-financed health programs is
greater when taxes are progressive. Also many other important government
programs are financed through progressive taxes, so the moneyed
interests benefit by privatizing government functions to the maximum
extent possible.

These interests, along with ideologues, have made a meme of the concept
that private markets are always more efficient than massive government
bureaucracies, when the evidence is almost always to the contrary.
Unfortunately, much of the media have accepted this meme as a given.
Since everyone "knows," based on a lifetime of exposure to these memes,
that the private sector can always do it better, they are quite willing
to support private solutions to problems such as the financing of health

Whenever proposals such as expanding Medicare come up, the insurance
industry pulls the puppet strings in Congress, and the public is
reminded how well UnitedHealth and the other for-profit insurers are
doing in creating private products that have lower out-of-pocket costs
than Medicare (not mentioning that they are doing that with one-third of
the overpayments they receive while keeping the other two thirds for
profits and to pay for the excessive administrative services that they
are selling us - a bad deal for taxpayers).

So those who support the intrusive managed care organizations and who
support shifting more costs directly to patients under the false banner
of marketplace competition (see Kenneth Arrow) have been effective in
suppressing any serious consideration of improving Medicare and
expanding it to cover everyone. As long as the public continues to buy
their meme, there is little likelihood of change.

We need to continue to inform the public on the legitimate findings of
health policy science (national health programs that include everyone
while providing higher quality at a lower cost), but that is a daunting
task considering how difficult it is to communicate complex policies to
a population blunted by unfounded memes.

Friday, December 12, 2014

Alan Weil opposes payment reform

Health Affairs Blog
Once in A Weil
December 12, 2014
Why I Oppose Payment Reform
By Alan Weil, Editor-in-Chief, Health Affairs

I had my epiphany shortly after I announced my departure from the
National Academy for State Health Policy (NASHP) about nine months ago.
In an effort to help find my successor, I contacted some executive
search firms. One firm quoted what they referred to as the "market
price." When I pressed them to tell me how much effort this price
represented, they declined to do so. Ultimately, I recommended that
NASHP contract with a search firm that charged by the hour.

It was then that I realized that, given the choice between capitation (a
fixed fee for the outcome I desired) and fee-for-service (an hourly rate
with no accountability for the outcome), I, as a purchaser, chose
fee-for-service. Only a hypocrite would go around talking about the
importance of payment reform, while secretly conducting business the old

Having given the matter some further thought, I present my five reasons
for opposing payment reform:

1. The premise of payment reform is flawed.

The major actors in today's health care system have thrived in the old
payment model, which rewards volume: filling beds, making referrals,
conducting tests, and the like. We now say we want them to improve
population health and clinical outcomes while holding down costs.
Different competencies are required to achieve these different
objectives. There is no reason to expect that the people and
institutions that were successful under the old model are the best
people and institutions to charge with carrying out the new model.
2. Payment reform is insufficiently disruptive.

As we capitate or bundle payments, these aggregated payments are
generally given to the highest cost actor in the system: the hospital,
health plan, or large medical practice that already has the most
resources. We expect that, due to new incentives, they will share those
resources with other, lower-cost professionals like dieticians, social
workers, and community health workers, whose efforts may improve health
outcomes. But this may be wishful thinking. Hospitals and health plans
operate with inertia and under constraints that may prevent them from
having what an observer might consider a rational response to the new
incentives. Marginal changes in payment policy fail to disrupt the
concentration of power held by expensive institutions, thereby limiting
the likely effects.

3. There is no evidence to suggest that payment reform will achieve the
goals we need it to achieve.

The Institute of Medicine tells us that 30 percent of health care
spending is wasteful. Only nineteen of the original thirty-two Pioneer
ACOs remain in the program, and only twelve are producing enough savings
to be shared. Only 58 of the more than 200 participants in the Medicare
Shared Savings Program are saving more than 2 percent. For all the
effort we are putting into payment reform, at this point, we don't have
an evidence base that shows what we are doing will achieve the end
result we desire.

4. The original rationale offered for payment reform doesn't match the
current objectives.
The current iteration of payment models began with integrated health
systems, like Geisinger and Intermountain, complaining that they were
financially penalized when they delivered high quality care. They had a
point. Efforts to, for example, improve birth outcomes, yielded
financial losses due to reduced revenue from Neonatal Intensive Care
Units. Today's narrative is that we need payment reform to leverage a
system that is resistant to change to fundamentally alter the model of
care. The original rationale required only that incentives be
directionally correct — keep your savings when you invest in better
quality. The more ambitious goal of payment reform opens up tremendous
risks such as providers gaming quality metrics and avoiding complex
patients. The payment reform movement has been hijacked to suggest it
can accomplish things its founders never imagined.

5. Payment reform poses a risk for the growing understanding of the
importance of patient-centered care.

Imagine the following scenario: three people come to the doctor with
knee pain. Each person has their own goal for the outcome of their
treatment: one wants to manage pain during her daily activities, one
wants to play tennis again, and one wants be completely pain free. Now
try and imagine a "value formula" for providers to achieve these three
patient-centered outcomes. Even if you could come up with one,
operationalizing it would be nearly impossible. And what provider would
be willing to accept financial risk for achieving such varied patient
goals? When we implement payment for "value" we oversimplify to make the
methods administrable, but lose all nuance of patient preference.

Despite all of these reservations, I do not actually oppose payment
reform. We all know current payment methods system are seriously flawed
and that we can do better. But this list serves as a reminder that
payment policy, like grass, is always greener on the other side.



Comment by Don McCanne

The health policy literature is saturated with expressions of the
concept that we are no longer going to pay for health care based on the
volume of care delivered, but rather we are going to start paying for
quality instead. Traditional fee-for-service medicine encourages greater
use of resources simply because that increases revenues. Innovations in
payment reform are being proposed that supposedly will change
fee-for-service to a system rewarding quality. Alan Weil,
Editor-in-Chief of Health Affairs, provides us with insight on what
those innovations might do.

Some of the proposals include accountable care organizations, pay for
performance, bundling of payments, Medicare shared savings, capitation,
and increased transparency combined with placing the upfront financial
responsibility on patients so that they are forced to be better-informed
shoppers. Each of these has its own problems and some could actually
cause worse outcomes than our traditional fee-for-service system.

Perhaps the most important point that Weil makes is that those who have
thrived on the volume-driven model are the same individuals we are
asking to improve clinical outcomes while holding down costs. As he
states, "There is no reason to expect that the people and institutions
that were successful under the old model are the best people and
institutions to charge with carrying out the new model."

In the video at the following link, after presenting the five reasons
for opposing payment reform, Weil suggests five elements that should be
embraced when considering payment reform. I found them to be
disappointing. For instance, he suggests that we should allow the
leaders to lead and then follow them as we implement the payment reforms
under a multi-payer system. He makes no attempt to distinguish these
leaders from the MBAs who are already maximizing their business models
while basically ignoring patient service concepts.

Perhaps more important is what is missing from Weil's comments. He says
absolutely nothing about concepts of social insurance, particularly the
single payer model. Yet single payer would be far more effective in
improving health care value than would any of the payment reforms under
consideration today.


Wednesday, December 10, 2014

Just try to get an appointment with a Medicaid managed care provider

Department of Health and Human Services
Office of Inspector General
December 2014
Access to Care: Provider Availability in Medicaid Managed Care

Examining access to care takes on heightened importance as enrollment
grows in Medicaid managed care programs. Under the Patient Protection
and Affordable Care Act, States can opt to expand Medicaid eligibility,
and even States that have not expanded eligibility have seen increases
in enrollment. Most States provide some of their Medicaid services—if
not all of them—through managed care. The Office of Inspector General
received a congressional request to evaluate the adequacy of access to
care for enrollees in managed care.

We found that slightly more than half of providers could not offer
appointments to enrollees. Notably, 35 percent could not be found at the
location listed by the plan, and another 8 percent were at the location
but said that they were not participating in the plan. An additional 8
percent were not accepting new patients. Among the providers who offered
appointments, the median wait time was 2 weeks. However, over a quarter
had wait times of more than 1 month, and 10 percent had wait times
longer than 2 months. Finally, primary care providers were less likely
to offer an appointment than specialists; however, specialists tended to
have longer wait times.


* Half of providers could not offer appointments to enrollees

* Forty-three percent of providers were not participating in the plan
at the listed location

* Another 8 percent of providers were not accepting new patients

* Among the providers who offered appointments, the median wait time
was 2 weeks; however, over a quarter had wait times of more than 1 month

* A small number of providers required patients to submit medical
records prior to scheduling an appointment or would not accept patients
with certain medical conditions

* Primary care providers were less likely to offer an appointment than
specialists; however, specialists tended to have longer wait times

* The median wait time for specialists was twice as long as that for
primary care providers


Our findings demonstrate significant vulnerabilities in provider
availability, which is a key indicator for access to care. These
findings also raise serious questions about the abilities of plans,
States, and CMS to ensure that access-to-care standards are met. Without
adequate access, enrollees cannot receive the preventive care and
treatment necessary to achieve positive health outcomes and improved
quality of life.

Notably, 51 percent of providers were either not participating in the
plan at the location listed or not accepting new patients enrolled in
the plan. When providers listed as participating in a plan cannot offer
appointments, it creates a significant obstacle for an enrollee seeking
care. Moreover, it suggests that the actual size of provider networks
may be considerably smaller than what is presented by Medicaid managed
care plans.

Among the providers who offered appointments, the median wait time was 2
weeks. However, over a quarter had wait times of more than 1 month, and
10 percent had wait times longer than 2 months. Long wait times can have
a significant impact on patient care. It also raises questions about
whether these plans are complying with their States' standards for
access to care, as most States have access standards that require
appointments be provided within 1 month or less. That so many providers
could not offer appointments within a month raises concerns about
enrollees' ability to obtain timely access to care.



Comment by Don McCanne

One of the major features of the Affordable Care Act was to expand
Medicaid to cover a greater number of low-income individuals. Although
many states opted out of the expansion, nevertheless Medicaid enrollment
increased in those states as well. Because of the expansion of state
budgets required to cover the burgeoning Medicaid population, most
states have moved most if not all of their Medicaid patients into
Medicaid managed care plans.

Although states claim that this benefits patients by placing them in
organizations that are designed to manage their health care, the real
reason is that the states wanted to save money. The managed care plans
agree to provide care at a cost lower than the costs of comparable care
provided by community hospitals and physicians. Because of the increased
enrollment, the total costs of Medicaid are increasing, but the payments
per individual are not.

Medicaid, being a welfare program, was already chronically underfunded.
Further limiting payments per patient can place a serious strain on
resources that would pay for all of the promised care. This OIG study
was done in the summer of 2013, before the surge in enrollment that
began later that year. If half of providers could not offer appointments
to patients at that time, what is happening now that the managed care
organizations must accommodate the added demand?

Although there are already many anecdotal reports that the managed care
organizations are not meeting their obligations under these state
contracts, we will have to wait longer before we have a comprehensive
objective evaluation of the extent of the deficiencies in health care

Isolating low-income individuals and placing them into an underfunded
welfare program will certainly perpetuate disparities in care. Yet the
deficiencies in health care services are even worse in those states that
opted out of Medicaid expansion, and they are worse for the undocumented
residents who are prohibited from participating in Medicaid or in the
subsidized plans offered by the exchanges.

Under a single payer national health program - an improved Medicare for
all - everyone would have access to a system that met the highest
standards of care. The wealthy would still have their high standard of
care, but with their special amenities paid for separately, such as
private hospital suites, whereas low-income individuals could have the
same high standard of care, but without the amenities. Because of the
efficiencies of the single payer model, it would not cost the nation any
more than we are now spending on health care.

Tuesday, December 9, 2014

Employer-sponsored plans taking a greater share of employee income than ever before

The Commonwealth Fund
December 9, 2014
National Trends in the Cost of Employer Health Insurance Coverage, 2003–2013
By Sara R. Collins, David Radley, Cathy Schoen, Sophie Beutel

Looking at trends in private employer-based health insurance from 2003
to 2013, this issue brief finds that premiums for family coverage
increased 73 percent over the past decade—faster than median family
income. Employees' contributions to their premiums climbed by 93 percent
over that time frame. At the same time, deductibles more than doubled in
both large and small firms. Workers are thus paying more but getting
less protective benefits. However, the study also finds that while
premiums continued to rise through 2013, the rate of growth slowed
between 2010 and 2013, following implementation of the Affordable Care
Act. While families experienced slower growth in premium contributions
and deductibles over this period, sluggish growth in median family
income means families are paying more in premiums and deductibles as a
share of their income than ever before.

Premium Increases Outpace Growth in Family Income

Despite the recent slowdown in growth, insurance premiums have risen
faster than median incomes for the under-65 population. While average
family premiums have climbed by 73 percent since 2003, median family
income has risen by 16 percent over the same time period. As a result,
total premiums (including the employer and employee shares) relative to
income have continued to climb for middle-income working-age families.
In 2013, average annual family premiums were 23 percent of median family
income, up from 15 percent in 2003 and 21 percent in 2010. There are
similar trends in premiums for single coverage: average premiums have
climbed 60 percent over the decade, while median income for
single-person households has grown by only 11 percent.

Although workers are paying more for their health insurance, their
premiums are buying less financial protection, partly because more plans
include deductibles and the size of those deductibles has spiked
dramatically. In 2013, 81 percent of workers were enrolled in a health
plan with a deductible, up from 78 percent in 2010 and just over half
(52%) in 2003. As with employee contributions to premiums, incomes have
lagged growth in deductibles such that deductibles are consuming an
ever-growing share of worker income.

Research has shown that the slower growth in wages during the past
decade has been part of a trade-off to preserve health benefits. But
while growth in premiums and deductibles has slowed over 2010–2013,
median family income, when adjusted for inflation, remains below 2010
levels. Indeed, U.S. families are still trying to recapture lost income
from the financial crisis and recession of 2008: real median income is 8
percent lower than it was in 2007. It is unlikely that most families at
the middle and lower end of the income distribution are able to detect
or feel the premium slowdown in their pocketbooks since they are paying
more in premiums and deductibles as a share of their income than ever



Comment by Don McCanne

Both premiums for employer-sponsored health plans and employee
out-of-pocket expenses for health care have continued to increase well
in excess of employee income, in spite of a general slowing in health
care spending. Employees "are paying more in premiums and deductibles as
a share of their income than ever before," and it is likely that there
is no relief in site, in spite of the enactment of the Affordable Care Act.

We desperately need public policies to correct the excessive and
increasing inequality in America, and a good start would be to replace
our current inequitable health care financing system with an
equitably-financed and more efficient single payer national health
program - an improved Medicare that covers everyone.

Monday, December 8, 2014

Slowing health care costs - the wrong way

The New York Times
December 5, 2014
The Health-Cost Slowdown Isn't Just About the Economy
By David Leonhardt

It's one of the most important economic questions today: Is the
snail-like growth of health costs over the last several years a real
trend, or is it merely a temporary part of the Great Recession's aftermath?

The data experts who compile the government's official numbers on health
spending lean toward the more pessimistic view. They think the slowdown
– to the lowest level of growth on record – stems in large part from
Americans skimping on medical care during tough times.

In the aftermath of the 1990-91 recession and the slow recovery that
followed, health spending stopped growing more quickly than the rest of
the economy. It accounted for 13.4 percent of economic output in 1996,
the same share as it had in 1993.

But the weak economy doesn't seem to have been the main reason. The rise
of health maintenance organizations (or H.M.O.'s) – along with other
attempts by insurers to hold down costs – was.

Then a backlash against H.M.O.'s took hold, and health spending started
growing rapidly again. The surge didn't end until the last few years,
when the efforts of the reformers began to have a widespread effect.

It's simply not true that G.D.P. and health costs have historically
moved in tandem. On the other hand, the experience of the 1990s
demonstrates that a slowdown in health costs isn't guaranteed to persist.

If patients start to rebel against some of the changes that have held
down health costs – like narrow networks, which restrict which doctors
they can see – spending may start to rise again. It also may start to
rise if labor unions manage to undercut a tax on generous health plans
or if Republicans succeed in stopping efforts to make Medicare more
efficient. (Yes, that's related to the infamous death-panel debate.)

The American health care system really is changing. What happens next
will be one of the biggest economic stories of the coming decade.


NYT Reader Comment:

Don McCanne
San Juan Capistrano, CA

There are several factors contributing to the slowdown in health care
spending, but one of the most important is insurance innovation that is
impairing affordability and access. These innovations include "consumer
empowerment" measures, such as ever-higher deductibles, shift from
co-payments to higher coinsurance, establishment of higher-cost tiers,
and narrower provider networks that impair access.

The supporters of consumer-directed health care celebrate these
"savings" that we are seeing, but this represents forgone health care -
much of it beneficial health care. While some cite studies such as the
RAND HIE and the Oregon natural experiment as showing no harm done, in
fact, these studies were not powered to shown harm, but only to show a
difference in spending.

People are doing without the care that they should have. Based on my
clinical experiences, people really do suffer and die merely because
they delayed care when they could not afford it.

Today, because of the transfer of health care costs to patients, being
insured is no longer enough to prevent personal bankruptcy. It is not
even enough to ensure that you will not die from causes for which
intervention is effective.

There are far more effective ways to control health care spending,
beginning with a single payer system. The recovered administrative waste
alone would be more than enough to pay for care that patients are now
avoiding due to our ill-advised and inhumane "skin in the game" policies.

Tuesday, December 2, 2014

Amy Finkelstein: Moral Hazard in Health Insurance

Columbia University Press
December 2014
Moral Hazard in Health Insurance
By Amy Finkelstein

In 1963, Ken Arrow proposed the concept of moral hazard in health
insurance, the idea that health insurance may increase the demand for
medical care. That creates a fundamental tension for health policy that
is trying both to cover the uninsured and simultaneously reduce the
level and growth of health spending.

The challenge posed in Arrow's paper to subsequent generations of
economists was whether we could verify that this theoretical notion of
moral hazard and health insurance actually existed, and whether we could
quantify its magnitude and explore its nature and implications.

How have we risen to this challenge? There is compelling evidence from
randomized trials that health insurance affects medical spending. Those
who say otherwise are ignoring the evidence at their own peril. This is
a fact of life. It mat not be what we wished for, but we have to think
about it, grapple with it, and think about its implications for policy.



Journal of Economic Perspectives
Winter 2013
The RAND Health Insurance Experiment, Three Decades Later
By Aviva Aron-Dine, Liran Einav, and Amy Finkelstein

Our reexamination concludes that despite the potential for substantial
bias in the original estimates stemming from systematically differential
participation and reporting across experimental arms, one of the central
contributions of the RAND experiment is robust: the rejection of the
null hypothesis that health spending does not respond to the
out-of-pocket price. Naturally, however, these potential biases
introduce uncertainty about the magnitude of the impact of the different
insurance plans on medical spending. Moreover, the translation of these
experimental estimates into economic objects of interest—such as a price
elasticity of demand for medical care—requires further assumptions and
machinery, which go beyond the "raw" experimental results. While
economic analysis has made progress in the intervening decades in
developing techniques that may offer new approaches to the economic
analysis of moral hazard effects of health insurance, it will always be
the case that, like the famous –0.2 price elasticity of demand estimate
produced by the original RAND investigators, any attempt by researchers
to apply the experimental estimates out of sample will involve more
assumptions—and hence scope for uncertainty—than the direct experimental
estimates themselves. This point, while straightforward and
uncontroversial (we'd think), may have become somewhat lost in the
intervening decades of use of the RAND estimates. Our hope is that this
essay may help put both the famous experiment and its results back in



Comment by Don McCanne

This short book by Amy Finkelstein, "Moral Hazard in Health Insurance,"
provides an excellent update that can be used to better understand the
application of the concept of moral hazard to the design of health care
financing. But more must be said.

The book is based on the fifth annual Kenneth J. Arrow Lecture presented
at Columbia University in April 2012. Finkelstein's lecture is covered
in 30 pages. An introduction is provided by Joseph P. Newhouse (RAND
HIE). Commentaries are provided by Jonathan Gruber (provider-side moral
hazard), Kenneth J. Arrow himself (asymmetry of information), Joseph E.
Stiglitz (markets and health care), and a brief discussion follows.
Finally, Kenneth Arrow's seminal 1963 paper, "Uncertainty and the
Welfare Economics of Medical Care," is included. This book should be in
every library covering health policy.

As applied to health insurance, the concept of moral hazard is quite
simple: many people will use more health care if they are protected from
the out-of-pocket costs of that care. What is not so simple is how much
of an impact that has and what the ramifications are. Amy Finkelstien
helps us by explaining that there is much unknown, and that even the
classical studies must be interpreted with great care as they are
applied to today's insurance models. Nevertheless, she makes the case
that the evidence that health insurance affects medical spending is

One important concern about her presentation is that she attacks what
she calls "the rhetorical case against the notion of moral hazard and
health insurance" by criticizing the "alternative view" that "medical
care is determined not by price but by needs." She then seems to dismiss
the great work by John Nyman plus the input by Uwe Reinhardt, not
directly, but by merely including them in a quote from Malcolm
Gladwell's New Yorker article, "The Moral-Hazard Myth." When she writes,
"Those who say otherwise are ignoring the evidence at their own peril,"
it seems that she is referring to Gladwell, Nyman and Reinhardt.

Unfortunately, she seems to be guilty of using a straw man analogy. I do
not recall ever reading that either Nyman or Reinhardt said that price
was not a factor in medical care. In fact, Reinhardt is coauthor of the
Health Affairs article, "It's the Prices, Stupid." However, they have
both made the point that need is a very important factor in accessing
medical care, even when there are price barriers. Moral hazard
enthusiasts need to address medical need.

The greatest problem with this book is that it advances, without
requisite criticism, the widely accepted thesis that having insurance
increases health care spending . This concept has resulted in the
widespread application of countermeasures that erect financial barriers
to care - high deductibles, greater coinsurance, tiering of benefits,
and narrow networks. All of these impair patient access to beneficial
care - the opposite of what a well-functioning system should be
providing for us.

Is depriving patients of beneficial care harmful? Many economists seem
to glibly dismiss the potential harm if it is effective in reducing
spending. They cite the RAND HIE and the Oregon natural experiment as
showing that harm is negligible or non-existent. Yet Finkelstein and her
colleagues, in the Journal of Economic Perspectives paper on the RAND
HIE, state, "attempt by researchers to apply the experimental estimates
out of sample will involve more assumptions - and hence scope for
uncertainty - than the direct experimental estimates themselves."

It is frequently stated in the lay literature that the RAND HIE and the
Oregon experiment showed that the decrease in care caused by patient
out-of-pocket spending does not result in adverse outcomes. That
statement is incorrect. There were some adverse outcomes in both
studies, but, more importantly, the studies concentrated on spending and
were not powered to detect impaired health outcomes. The facts are that
we do not have studies that can reliably assure us that no harm is done.
Such studies would be complex, expensive and unethical.

We have a century of experience with our health care delivery system.
The beneficial effects of modern health care far outweigh the
detrimental effects. We do not need policy studies to try to counter
this observation. It is intuitive that having better access to health
care is beneficial, and, in this case, intuition is more than enough to
drive policy.

From the perspective of optimal patient care, the thesis of this book
is upside-down. Rather than looking at the increase in spending that
occurs when a person is covered with insurance, we should be looking at
the impaired access that results from the reduction in spending due to
ill-advised financial barriers erected through insurance innovations.
Our efforts should be directed toward removing those barriers.

But then what about the spending that economists characterize as
"increases" due to moral hazard? The answer is simple. Instead of
depriving patients of beneficial care we should turn to the other
methods of containing costs that have been proven to be effective in
other nations.

We could start with the administrative waste that would be recovered
simply by converting to a single payer system (not to mention the many
other financial benefits of single payer). Just the administrative
savings alone would be far more than could ever be saved through the
application of moral hazard policies.

We already have high deductibles and coinsurance, and yet our health
care costs are much higher than in those nations that do not use such
detrimental interventions. Application of moral hazard theory has been a
failure primarily because it diverted our attention away from social
policies that would advance health care justice.

Monday, December 1, 2014

Prevalence of underinsurance unimproved and likely worse under ACA

November 28, 2014
Cost Still a Barrier Between Americans and Medical Care
By Rebecca Riffkin

One in three Americans say they have put off getting medical treatment
that they or their family members need because of cost. Although this
percentage is in line with the roughly 30% figures seen in recent years,
it is among the highest readings in the 14-year history of Gallup asking
the question.

Last year, many hoped that the opening of the government healthcare
exchanges and the resulting increase in the number of Americans with
health insurance would enable more people to seek medical treatment.
But, despite a drop in the uninsured rate, a slightly higher percentage
of Americans than in previous years report having put off medical
treatment, suggesting that the Affordable Care Act has not immediately
affected this measure.

The percentage of Americans with private health insurance who report
putting off medical treatment because of cost has increased from 25% in
2013 to 34% in 2014.

This year, 22% of Americans say they have put off medical treatment for
a "very" or "somewhat serious" condition.

Bottom Line

One of the goals of opening the government exchanges was to enable more
Americans to get health insurance to help cover the costs of needed
medical treatments. While many Americans have gained insurance, there
has been no downturn in the percentage who say they have had to put off
needed medical treatment because of cost.



The New York Times
December 1, 2014
Underinsurance Remains Big Problem Under Obama Health Law
By Aaron E. Carroll

The A.C.A. has not done as much as many had hoped it would to reduce
underinsurance. In fact, it may be helping to spread it. And proposed
modifications to the law, like those that would introduce a new tier of
"copper" plans in addition to bronze, silver, gold and platinum, might
make underinsurance worse.

The point of having insurance is to be able to get care when you need
it, without too large a financial burden. Underinsured Americans are not
receiving this benefit, though. They can't get the care they need.
Twenty-seven percent of adults with a deductible large enough to render
them underinsured didn't see the doctor when they were sick; 23 percent
didn't get a preventive care test; 29 percent skipped a test, treatment
or follow-up appointment; and 22 percent didn't see a specialist to whom
they were referred. Forty percent of them had at least one of these
cost-related access problems.

These are people who had private health insurance for the full year.
They are not the uninsured.

In the quest for universal coverage, it's important that we not lose
sight of "coverage" in order to achieve "universal." The point of
improving access is, after all, to make sure that people can get, and
afford, care when they need it.



Comment by Don McCanne

Health care reform should have eliminated underinsurance, not create
more of it. The private insurance industry will not fix this problem but
only compound it as it strives to keep its premiums competitive.

We need to replace the private insurers with our own single payer
program. For some, Medicare is also underinsurance. We need to fix that
and then provide it to everyone.

(Posted as a comment on the NYT website as a response to Aaron Carroll's