qotd: Conservatives say health costs drive income inequality

The Wall Street Journal
October 6, 2014
Income Inequality and Rising Health-Care Costs
By Mark J. Warshawsky and Andrew G. Biggs

A new Kaiser Family Foundation survey reports that health-insurance
premiums rose by a "modest" 3% in 2013. Even more modest, however, was
the 2.3% growth of workers' earnings last year. These figures merely
illustrate a long-term trend of rising health costs eating away at
wages. The real story is even more dramatic: Government data show that
health costs are the biggest driver of income inequality in America today.

Most employers pay workers a combination of wages and benefits, the most
important of which is health coverage. Economic theory says that when
employers' costs for benefits like health coverage rise, they will hold
back on salary increases to keep total compensation costs in check.
That's exactly what seems to have happened: Bureau of Labor Statistics
data show that from June 2004 to June 2014 compensation increased by 28%
while employer health-insurance costs rose by 51%. Consequently, average
wages grew by just 24%.

But here's what the news headlines miss: Rising health costs don't
affect every employee the same. An average family health policy today
costs employers nearly $12,000 per year, up from only $4,200 in 1999.
Had employer premiums not risen, average salaries today would be around
$7,800 higher. For a lower-income worker who today makes $30,000, that
could have meant a 26% salary increase. By contrast, a "one percenter"
making $250,000 today would have seen his earnings rise only by 3.1%.
Health costs are a bigger share of total compensation for lower-wage
workers, and so rising health costs hit their salaries the most. The
result is higher income inequality.

These data give us a different perspective on the inequality debate.
Most people think of income inequality as money "redistributed" from the
poor to the rich. In reality, much of what we're seeing is more of
low-income workers' compensation going toward their health benefits and
less ending up in their pockets. That's a different problem and points
toward different solutions.

http://online.wsj.com/articles/mark-warshawsky-and-andrew-biggs-income-inequality-and-rising-health-care-costs-1412568847

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Comment by Don McCanne

This WSJ opinion article is from the conservative American Enterprise
Institute (AEI). When they say that "health costs are the biggest driver
of income inequality in America today," this should provide us with
common ground to simultaneously address both income inequality and the
health care crisis.

Unfortunately, in this article the authors further define the problem as
over-insurance and a need for high-deductible health plans. Reducing
benefits and increasing cost sharing would make the problems even worse
for low- and moderate-income individuals and families.

Nevertheless we can agree that the current inequities in health care
financing - which were inadequately addressed through the Affordable
Care Act - are a significant contributor to income inequality. The most
effective solution to address both would be to enact a
progressively-financed single payer national health program (though
further public policies would be required to temper the extremes of
income and wealth inequality).

There is a glimmer of hope when the opponents of single payer recognize
the problems, but that hope is dashed when they revert to ideological
approaches that place an even greater burden on those more vulnerable.

qotd: George Halvorson criticizes deductibles

Health Affairs Blog
September 30, 2014
An Interview With George Halvorson:
The Kaiser Permanente Renaissance, And Health Reform's Unfinished Business
By Jeff Goldsmith

Kaiser (Permanente) surprised the health plan community by announcing in
March 2002 the selection of a non-physician, George Halvorson, as its
new CEO.

During his twelve year tenure as CEO, Halvorson not only guided the plan
to solid profitability, but added a million members in California, its
largest market, despite a devastating recession and a national retreat
of commercial HMO membership.

The Growth Of High-Deductible Health Plans

Jeff Goldsmith: If you look at the Kaiser/HRET survey, which focuses on
the employer segment, the HMO wedge shrinks while the high deductible
health plan wedge seem to grow in proportion. In 2013, High Deductible
Health Plans (HDHPs) represented around 30 million lives. Are HDHPs
"managed care" in your view?

George Halvorson: Yes. I think they are a form of managed care. HDHPs
get involved to some degree in delivery of care. They require care/data
reporting. They have some care protocols or some care-related elements
they don't allow. So I would classify all those plans and products under
the broad category of managed care. If employers buy a $500 dollar
deductible plan from Kaiser Permanente — and about 10 percent of Kaiser
members are now in plans that have deductibles that are high or higher —
the employees still get their care at KP. When they pay the fee for the
office visit, they pay KP as opposed to paying it outside, so that the
cash flow for KP is basically the same. It just comes down two separate
channels, copays and premiums, instead of coming down one prepaid
premium channel.

Goldsmith: How hard was it for your colleagues, particularly the
Permanente physicians, to accept the philosophical change that
required? In the legacy Kaiser model, there was no cost to the patient.

Halvorson: Everyone at KP, including myself, strongly preferred the
model where there was no cost for the patient. However if 10 percent of
our employer customers want to buy a high deductible product and we
don't sell it to them, then they leave. Kaiser has hospitals, clinics,
pharmacies, lots of care-related infrastructure that would not do as
well if 10 percent of the patients were gone. It is important to point
out that we made a very conscious decision to not change care in any way
for those patients. That was a critical issue. It is easier to maintain
the old approach for all patients because 90 percent of the KP's members
are still in the older benefit model.

Goldsmith: Of the million people that were added to Kaiser in California
during your time as CEO in California, how many of them came because of
this change in your benefits strategy?

Halvorson: Now about 10 percent of Kaiser's members are in plans with
deductibles of some kind. I personally went to California's managed care
regulators and worked to persuade them to allow us to offer the
product. I had to give them assurances that we would not be changing
the delivery of care for those members in any way. Those members would
not be there if we had not offered a product with personal financial
exposure in it.

Goldsmith: Did the high deductibles make your job as a care system
easier or harder?

Halvorson: Harder.

Goldsmith: Why?

Halvorson: Because we had to bill the patient.

Goldsmith: What else besides the billing?

Halvorson: The billing was the major issue.

Goldsmith: It didn't make it more difficult for you to get them to do
things that were in their own health interest, even if it cost them money?

Halvorson: Because we are who we are and because we ask people to do
what we ask them to do in a very consistent and reasonable way, members
tend to follow. We didn't see a lot of people refusing to get needed
care based on the fact that they had deductibles. That was largely
because we are so committed to a particular set of care concepts and
protocols that the credibility of the individual caregiver for the
patient triumphed over the financial exposure.

http://healthaffairs.org/blog/2014/09/30/an-interview-with-george-halvorson-the-kaiser-permanente-renaissance-and-health-reforms-unfinished-business/

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Comment by Don McCanne

Former Kaiser Permanente CEO George Halvorson said, "Everyone at KP,
including myself, strongly preferred the model where there was no cost
for the patient." So why did they start selling plans with deductibles?

Simply stated, it was because many employers demanded deductibles and
other forms of cost sharing. Deductibles have become a standard
throughout the insurance industry, and most employers like them because
the premiums paid are lower since up front costs of health care are
being shifted to their employees' pockets.

Yet Halvorson said that deductibles made their job as a health care
system harder, mainly because of the administrative inefficiencies of
having to bill each patient for these charges. Kaiser received the same
total amount but they had to establish "two separate channels, copays
and premiums, instead of coming down one prepaid premium channel."

Either way, the employees were paying the costs - through forgone wage
increases that paid the premiums, or through direct out-of-pocket
payment of the deductibles. The only reason for making this change was
the pigheadedness of the employers who insisted, based primarily on
misguided ideology, that they wanted to join the high deductible,
consumer-directed bandwagon.

It is well known that deductibles frequently cause individuals to forgo
appropriate care which can then result in adverse health outcomes.
Halvorson said that they "didn't see a lot of people refusing to get
needed care." Without the data it is hard to know, but since most of
Kaiser's patients have decent jobs with employer-sponsored plans, these
are patients from a relatively healthy sector of the population, mostly
with reasonable incomes, so they may be less likely to forgo appropriate
care. But even amongst Kaiser's patient population, there will be some
who will find deductibles to be significant barriers to care.

There is nothing good about Kaiser's deductibles, but there are several
things that are bad. And this is in the best of circumstances.

With a single payer system there would be no deductibles, just as there
were not in Kaiser's legacy system. Perhaps the most revealing comment
Halvorson made is that before and after instituting deductibles, "the
cash flow for KP is basically the same." It didn't make a difference; it
just mucked things up!

qotd: HHS authorizes higher hypothetical cost threshold for privatized Medicaid

GAO
Released September 8, 2014
Medicaid Demonstrations:
HHS's Approval Process for Arkansas's Medicaid Expansion Waiver Raises
Cost Concerns

What GAO Found

In approving Arkansas's Medicaid Section 1115 demonstration, the
Department of Health and Human Services (HHS) gave the state the
authority to test whether providing premium assistance to purchase
private coverage offered on the health insurance exchange will improve
access to care for individuals newly eligible for Medicaid as a result
of the Patient Protection and Affordable Care Act (PPACA).

In approving the demonstration, HHS did not ensure that the
demonstration would be budget- neutral — that is, that the federal
government would spend no more under the state's demonstration than it
would have spent without the demonstration. Specifically, HHS approved a
spending limit for the demonstration that was based, in part, on
hypothetical costs — significantly higher payment amounts the state
assumed it would have to make to providers if it expanded coverage under
the traditional Medicaid program — without requesting any data from the
state to support the state's assumptions. GAO estimated that, by
including these costs, the 3-year, nearly $4.0 billion spending limit
that HHS approved for the state's demonstration was approximately $778
million more than what the spending limit would have been if it was
based on the state's actual payment rates for services under the
traditional Medicaid program. Furthermore, HHS gave Arkansas the
flexibility to adjust the spending limit if actual costs under the
demonstration proved higher than expected, and HHS officials told us
that the Department granted the same flexibility to 11 other states
implementing demonstrations that affect services for newly eligible
beneficiaries. Finally, HHS, in effect, waived its cost-effectiveness
requirement that providing premium assistance to purchase individual
coverage prove comparable to the cost of providing direct coverage under
the state's Medicaid plan, further increasing the risk that the
demonstration would not be budget-neutral.

As of June 2014, HHS has approved one additional state's — Iowa's —
demonstration to use premium assistance to purchase exchange coverage.
Iowa's demonstration is more limited in scope in that it covers a
portion of the expansion population, those with incomes of 101 percent
to 133 percent of the federal poverty level. As with its approval of the
Arkansas demonstration, HHS gave Iowa the flexibility to adjust its
spending limit and waived the cost-effectiveness requirement. According
to HHS officials, three other states as of June 2014 had indicated an
interest in implementing a similar approach.

In commenting on a draft of this report, HHS disagreed with GAO's
findings that HHS's approval process did not ensure that the Arkansas
demonstration will be budget-neutral. GAO maintains the validity of
these findings.

What GAO Recommends

GAO is not making recommendations in this report. GAO has had
long-standing concerns with HHS's policy, process, and criteria for
reviewing and approving section 1115 demonstrations, including the lack
of transparency in the basis for approved spending limits. GAO has
previously reported that HHS's budget neutrality policy and process did
not provide assurances that demonstrations would be budget-neutral to
the federal government. Among other concerns, GAO reported that HHS
allows methods for establishing the spending limit that GAO believes are
inappropriate, such as allowing states to include hypothetical costs —
expenditures that the state could have made under its Medicaid program
but did not — in establishing the baseline for the spending limits. As a
result, GAO has made a number of recommendations in the past to improve
the budget neutrality process for Medicaid demonstrations. In 2008,
because HHS disagreed that changes to the budget neutrality policy and
review process were needed, we suggested that Congress require the
Secretary of HHS to improve the demonstration review process by, for
example, better ensuring that valid methods are used to demonstrate
budget neutrality.

http://www.gao.gov/products/GAO-14-689R


From the full GAO report:

HHS's approval of $778 million dollars of hypothetical costs in the
Arkansas demonstration spending limit and the department's waiver of its
cost-effectiveness requirement is further evidence of our long-standing
concerns that HHS is approving demonstrations that may not be
budget-neutral. HHS's approval of the Arkansas demonstration suggests
that the Secretary may continue to approve section 1115 Medicaid
demonstrations that raise federal costs, inconsistent with the
Department's policy of budget neutrality. Moreover, the additional
flexibility granted to Arkansas and 11 other states to increase the
spending limit if costs prove higher than expected sets another
precedent, further eroding the integrity of HHS's process. If, as it did
with Arkansas, HHS allows states to use an approach to expanding
Medicaid that is expected to cost more than expansion under the existing
Medicaid program with fewer cost controls in place, there could be
significant cost implications for the federal government. Efforts to
ensure cost- effectiveness and budget neutrality in Medicaid expansion
demonstrations have even greater fiscal implications given that states
that choose to do so will receive enhanced federal funding for the newly
eligible population.

http://www.gao.gov/assets/670/665265.pdf

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Comment by Don McCanne

Our two major public programs for health care financing - Medicare and
Medicaid - continue down the path of privatization, with the complicity
of the Department of Health and Human Services (HHS).

We've reported many times that the private Medicare Advantage plans that
are displacing the traditional Medicare program have been deliberately
funded well in excess of that allotted for traditional Medicare, both by
acts of Congress and by administrative chicanery at HHS.

Now the GAO reveals that HHS has also used the section 1115 Medicaid
waiver process to allow states to not only transfer their Medicaid
patients to private health plans, but to also allow them to meet the
higher costs of private plans, through innovative chicanery such as
"allowing states to include hypothetical costs — expenditures that the
state could have made under its Medicaid program but did not — in
establishing the baseline for the spending limits."

Although privatization of Medicare and Medicaid has long been a
Republican goal, since the neo-liberals have dominated the Democratic
leadership, they have aided and abetted this effort. We are supposed to
be a democracy, yet no matter how we vote, we are electing politicians
who spend more of our tax and premium dollars on the administrative
waste and mediocre performance of the private insurers. Any suggestions?