qotd: What do health care cost trends mean for us?

Health Affairs
September 2014
National Health Expenditure Projections, 2013–23: Faster Growth Expected
With Expanded Coverage And Improving Economy
By Andrea M. Sisko, Sean P. Keehan, Gigi A. Cuckler, Andrew J. Madison,
Sheila D. Smith, Christian J. Wolfe, Devin A. Stone, Joseph M. Lizonitz
and John A. Poisal (all affiliated with CMS Office of the Actuary)

Abstract

In 2013 health spending growth is expected to have remained slow, at 3.6
percent, as a result of the sluggish economic recovery, the effects of
sequestration, and continued increases in private health insurance
cost-sharing requirements. The combined effects of the Affordable Care
Act's coverage expansions, faster economic growth, and population aging
are expected to fuel health spending growth this year and thereafter
(5.6 percent in 2014 and 6.0 percent per year for 2015–23). However, the
average rate of increase through 2023 is projected to be slower than the
7.2 percent average growth experienced during 1990–2008. Because health
spending is projected to grow 1.1 percentage points faster than the
average economic growth during 2013–23, the health share of the gross
domestic product is expected to rise from 17.2 percent in 2012 to 19.3
percent in 2023.

Model And Assumptions

These projections remain subject to substantial uncertainty and reflect
the variable nature of future economic trends, as exemplified by the
prolonged and comparatively sluggish nature of the recovery from the
2007–09 recession. In addition, the United States has experienced only
the initial effects of the ACA's coverage expansions. The impacts of
reform on the behavior of consumers, insurers, employers, and providers
will continue to unfold throughout the projection period and beyond. In
particular, the supply-side effects of the ACA remain highly speculative
and are not included in these estimates.

Conclusion

Since the end of the Great Recession in 2009, economic growth in the
United States, as measured by GDP, has remained slow: just 3.9 percent
per year, on average, which is well below the average rate experienced
in the four years following the three previous recessions. The fact that
recent health spending increases have not returned to their prerecession
rates is consistent with the long-standing relationship between overall
economic growth and health spending growth.

Growth rates for both the economy and health spending have been slow.
However, the health share of GDP has remained relatively constant since
2009 and is expected to be 17.2 percent in 2013. Contributing to the
stable share in 2013 are continued low use of medical care and
provisions of both sequestration and health reform that constrain
payments to Medicare providers.

The period in which health care has accounted for a stable share of
economic output is projected to end in 2014, primarily because of the
coverage expansions of the ACA. It is anticipated that by 2017, once the
mostly one-time transition effects of expanded coverage have fully
transpired, the health share of GDP will increase, albeit at a slower
rate than its historical average, as an improving economy and the aging
of the baby-boom generation lead to faster health spending growth.

http://content.healthaffairs.org/content/early/2014/08/27/hlthaff.2014.0560.abstract

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Comment by Don McCanne

When people ask how much the United States is spending on health care,
it is the numbers from this report that are usually cited. So how much
are we spending now, and what will that spending grow to a decade from now?

Projected spending for 2014:

National health expenditures (NHE): $3.057 trillion
NHE per capita: $17,354
NHE as a percent of GDP: 17.6%

Projected spending for 2023:

National Health expenditures (NHE): $5.159 trillion
NHE per capita: $26,691
NHE as a percent of GDP: 19.3%

With the Affordable Care Act (ACA) the changes in spending represent not
only the usual factors that the actuaries consider each year, they also
include the changes in coverage due to the establishment of the
insurance exchanges and the expansion of Medicaid, along with other
direct and indirect results of implementing ACA. Considering all of the
variables, the actuaries once again have done a commendable job in
arriving at their estimates.

Although the authors do make it clear that there is substantial
uncertainty in these predictions, especially due to the variable nature
of economic trends, there is one aspect that should raise our concern.
Their results depend on the prediction that there will be faster growth
in disposable personal income. Yet when you read the work of Thomas
Piketty, Emmanuel Saez, Joseph Stiglitz, Robert Reich and others, there
is a very real concern that, though the economy may continue to reward
the rentiers generously, personal incomes for workers may well remain
stagnant. Many will have no discretionary income and may have to
continue to cut into the portions of their budgets that pay for
essential needs.

This will be of particular concern because of the increases in
out-of-pocket spending that will be required as more people are shifted
into lower actuarial value plans with higher cost sharing, especially
higher deductibles. Many policy experts believe that a significant
portion of the recent slowing in health care spending has been due to
the high out-of-pocket costs for upfront health care, causing patients
to decline care that they should have. This is not the way we should be
trying to put a lid on health care spending. People will suffer and some
will die simply because of their perception that health care is
personally not affordable because of the high upfront costs.

Another important consideration is that predictions of future health
care spending are dependent not only on expansion of health care
coverage and on the other variables, but they also are dependent on the
baseline costs of the existing health care financing system. As we all
know, the administratively complex multi-payer system that we have in
the United States is the most expensive model of financing health care
with its tremendous built in waste. If we were to change to an efficient
single payer system, not only would everyone have affordable access to
health care, we would not be talking about a trend in national health
expenditures that in a decade will consume almost one-fifth of our gross
domestic product.

qotd: Instruction sheets for completing ACA tax forms - a proxy for ACA complexity

Health Affairs Blog
August 29, 2014
Implementing Health Reform: Tax Form Instructions
By Timothy Jost

On August 28, 2014, the Internal Revenue Service re-released the draft
forms that will be used by employer, insurers, and exchanges for
reporting Affordable Care Act tax information to individuals and to the
IRS for 2014 and 2015, as well as the instructions for completing those
forms. The IRS also released in the Federal Register requests for
public comments on three of those forms – the 1094-B, the 1094-C, and
the 1095-C – under the Paperwork Reduction Act. This post reports on
these forms and instructions and on a guidance released by the Centers
for Medicare and Medicaid Services.

The tax forms had been published earlier and are described in an earlier
post. The instructions for the forms, however, had not been available
and had been eagerly awaited by employers, insurers, exchanges, and tax
professionals. Forms 1094-C and 1095-C will be used by large employers
with more than 50 full-time or full-time-equivalent employees to
determine whether the employer is responsible for penalties under the
employer shared responsibility requirements of the ACA. They will also
be used to determine whether employees have received an affordable and
adequate offer of coverage, rendering them ineligible for premium tax
credits. Employers are required to provide each full-time employee with
a form 1095-C and to file each of these together with a transmittal form
1095-B form with the IRS.

The instructions for the 1094-C and 1095-C are by far the most complex
of the instructions released on August 28, filling 13 pages with dense,
two column, print. Most of the complexity derives from the options for
complying with the employer mandate and the transition exceptions to
that mandate that the administration has created…

Implementing Health Reform: Tax Form Instructions, by Timothy Jost:
http://healthaffairs.org/blog/2014/08/29/implementing-health-reform-tax-form-instructions/

IRS - 2014 Instructions for Forms 1094-C and 1095-C (Draft):
http://www.irs.gov/pub/irs-dft/i109495c--dft.pdf

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Comment by Don McCanne

If you enjoy minutia, click on the links to the full blog post and the
draft instructions and read away.

Although today's message deals with only one minor provision of the
Affordable Care Act - the instructions for tax forms used to report ACA
tax information to individuals and to the IRS - the administrative
detail required is mind-boggling. Extrapolate that to all aspects of ACA
and it becomes obvious that, instead of gaining administrative
simplicity, ACA greatly increased administrative complexity - on top of
the most administratively complex health financing system in the world.
What a waste!

Timothy Jost's comment from yesterday's message can be repeated again
today: "We are doomed to continue to struggle with this complexity as
long as we stubbornly cling to a private health insurance-based health
care financing system."

Single payer.

qotd: Timothy Jost analyzes Avik Roy’s “Transcending Obamacare”

Manhattan Institute for Policy Research
August 2014
Transcending Obamacare
A Patient-Centered Plan for Near-Universal Coverage and Permanent Fiscal
Solvency
By Avik Roy

The proposal contained herein — dubbed the Universal Exchange Plan ("the
Plan") — seeks to substantially repair both sets of health-policy
problems: those caused by the ACA and those that predate it.

The Universal Exchange Plan would introduce major changes to the broad
set of federal health care entitlements: Obamacare, Medicare, and
Medicaid. The Plan uses a reformed version of the ACA's health insurance
exchanges as the basis for far-reaching entitlement reform.

The Plan would repeal many of the ACA's cost-increasing insurance
mandates, including the individual mandate. But it would preserve the
ACA's guarantee that every American can purchase coverage regardless of
preexisting conditions. And it would utilize the concept of using
federal premium support subsidies, on a means-tested basis, to defray
the cost of private health coverage.

It would gradually migrate most Medicaid recipients, along with future
retirees (N.B.: Medicare), onto these reformed exchanges.

The plan has its roots in real-world examples of market-oriented,
cost-effective health reform. Notably, two wealthy nations — Switzerland
and Singapore — spend a fraction of what the United States spends on
health care subsidies; yet they have achieved universal coverage with
high levels of access and quality.

http://www.manhattan-institute.org/pdf/mpr_17.pdf

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Following is a posted response by Don McCanne to an August 13 Forbes
article in which Avik Roy introduced his reform proposal:

Don McCanne:

"A 2011 OECD & WHO report of the Swiss health system revealed that it is
highly inefficient with profound administrative waste. It is inequitably
funded using regressive financing. It has excessive out-of-pocket costs
that can create financial hardships. And it has an increasing prevalence
of managed care intrusions through a private insurance industry that has
learned how to game risk selection. The problems are severe enough that
current polls indicate that a majority of the Swiss support their
upcoming ballot measure (September 28) that would convert Swiss health
care financing to a single payer system. Obviously the current failed
Swiss system should not serve as a model for U.S. reform."

http://www.forbes.com/sites/theapothecary/2014/08/13/transcending-obamacare-an-introduction-to-patient-centered-consumer-driven-health-reform/

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Health Affairs Blog
September 2, 2014
Transcending Obamacare? Analyzing Avik Roy's ACA Replacement Plan
By Timothy Jost

Avik Roy's proposal, "Transcending Obamacare," is the latest and most
thoroughly developed conservative alternative for reforming the American
health care system in the wake of the Affordable Care Act.

Roy's proposal is a curious combination of conservative nostrums
(limiting recoveries for victims of malpractice), progressive goals
(eliminating health status underwriting, providing subsidies for
low-income Americans), and common sense proposals (enacting a uniform
annual deductible for Medicare).

Most importantly, however, Roy proposes that conservatives move on from
a single-minded focus on repealing the ACA toward building upon the ACA
to accomplish their policy goals. He supports repealing certain features
of the ACA—including the individual and employer mandate—but would
retain others, such as community rating and exchanges. As polling
repeatedly shows that many Americans are not happy with the ACA, but
that a strong majority would rather amend than repeal it, and as it is
very possible that we will have a Congress next year less supportive of
the ACA than the current one, Roy's proposal is important.

Much of Roy's proposal is taken up with traditional conservative talking
points on health care reform. It is tempting to respond to these point
by point. For example, Roy trots out the health systems of Switzerland
and Singapore as models for the United States because they depend
heavily on consumer-funded health financing. The bottom line, however,
is that we are not Switzerland and we are certainly not Singapore, and
we cannot have their health care systems.

Roy also has his own hobby horses. He claims that people are better off
being uninsured than on Medicaid and trots out a long list of studies
that he claims show negative effects from Medicaid coverage.

Roy's Universal Exchange Plan

Rather than respond to Roy point by point, however, this review will
focus on the heart of Roy's proposal; his universal exchange plan. (To
access Jost's critique of Roy's universal exchange plan, use the link
below.)

Projecting The Benefits And Costs Of Roy's Proposal

In sum, higher cost-sharing should result in lower premiums for health
plans — a 40 percent actuarial value plan should cost less than a 60
percent plan. Skinnier benefits could also reduce premiums. Reduced
premiums should in turn draw more uninsured into the market and reduce
federal subsidy costs. But higher cost-sharing would reduce access to
care, decrease treatment adherence, and increase provider bad debt. The
savings Roy touts come at a high cost.

The Stubborn Problem Of Complexity

Another important point about the Roy plan must be noted: It does not
reduce the complexity of the ACA. Indeed, it might increase it.

The ACA has been woven inextricably into the fabric of our health care
system, and even ignoring, if that were possible, the millions of
Americans who are now covered under the ACA, it is simply not possible
to return to status quo ante through repeal. Roy reasonably recognizes
this and proposes instead to build on the ACA to move toward a system
that he finds more sympathetic.

But "transcending Obamacare" will not be easy. One of the greatest
defects of the ACA is its complexity. That complexity has required the
Obama administration to exercise considerable creativity in implementing
the law. But the law's complexity simply follows from the fact that the
drafters of the ACA attempted to build on, rather than to radically
change, our current, impossibly complex, health care system.

Much of Roy's proposal is still a broad conceptual framework. Even that
framework is complicated, but were the proposal reduced to actual
legislation, much less regulation, it would become far more convoluted
and politically contested. We are doomed to continue to struggle with
this complexity as long as we stubbornly cling to a private health
insurance-based health care financing system.

http://healthaffairs.org/blog/2014/09/02/transcending-obamacare-analyzing-avik-roys-aca-replacement-plan/

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Comment by Don McCanne

Avik Roy presents his model of health care reform as a plan that does
not require the repeal of the Affordable Care Act, but rather represents
a reform of the ACA insurance exchanges along with the eventual
elimination of Medicaid and Medicare. His proposed system is not yet
fleshed out, but to achieve his stated ends, tremendous administrative
complexity would have to be introduced.

There is much to criticize about Roy's conservative, consumer-directed
approach to health care financing - the worst flaw being the great
financial burden that would be placed on those requiring health care.
Should his proposal ever be seriously considered by Congress, a detailed
response should be effective in countering it.

But for now, Timothy Jost summarizes the fatal flaw of his approach in
two sentences:

"But the law's complexity simply follows from the fact that the drafters
of the ACA attempted to build on, rather than to radically change, our
current, impossibly complex, health care system."

and

"We are doomed to continue to struggle with this complexity as long as
we stubbornly cling to a private health insurance-based health care
financing system."

Avik Roy has contributed to the cause by showing us a proposal that
makes it ever more clear why we must change to a single payer national
health program. And we can thank Timothy Jost for clarifying that for us.