TIME TO REVISIT WYDEN-BENNETT?

With the Washington insiders at politico.com reporting this weekend that health care reform appears to be in “real jeopardy,” and the Senate Finance Committee so uneasy that they have decided to delay reform bill markup until after the July Fourth recess, it’s increasingly clear that an approach of layering more and more fixes onto the present system isn’t going to work.

In a previous post, I suggested that reform should be guided by seven principles:

1. Affordable basic benefits
2. Fairness of tax treatment
3. Price competition without “cherry picking”
4. Individual choice, individual payment responsibility
5. Restrictions on monopolies
6. Realistic funding
7. Freedom from politics

With these as a starting point, this may be a good time to look again at Senators Wyden and Bennett’s Healthy Americans’ Act.

The Wyden-Bennett bill is unique in two respects: it is co-sponsored by Democrats and Republicans, and it doesn’t assume that major changes can’t be made to our present way of financing health care.

The bill doesn’t completely match the seven principles, but it does some critical things:

1. It establishes community rated basic benefits, with a ban on medical underwriting.

2. It levels the playing field for all Americans by eliminating the tax exemption for employer-paid insurance.

3. It moves the responsibility for choosing—and paying for—coverage to those who will use the care, but provides subsidies for the lower-income, as well as tax deductions to offset premium costs

4. It provides real competition among insurance plans, including plans offered by employers, and specifically bans insurer “cherry picking” of the best risks.

5. It mandates universal coverage, while limiting taxpayers’ liability.

6. It changes Medicaid into a wrap-around program accessing the same insurers as other individuals, potentially reducing some of the financial burden on states, and eliminating the “Medicaid program stigma.”

The bill is not beyond criticism, but anyone reading Senator Wyden’s speech on the Senate floor this past week on the challenges of health care reform, will be struck with how much closer he seems to be to addressing the key issues than the proposals that have been emerging from various congressional committees over the past month.

BACK TO THE DRAWING BOARD?

The current congressional approach to health care reform of adding ever more fixes without changing the underlying system looks increasingly shaky.

What are the some of the indications?

1. The public plan has generated enormous opposition—and not just from insurers. Whether anyone believes that a Medicare clone would reduce under-65 health care costs or not, it is unlikely that a final reform bill will include anything other than a weak compromise.

2. The health care industry “promise” of $2 trillion in savings was withdrawn almost as soon as it was made. Only the truly naïve believe that the industry would willingly reduce its revenues.

3. Employer mandates face a “heads we lose, tails they win” dilemma. Mandating that every employer pay a substantial part of employee premiums won’t fly, but imposing only a nominal levy on non-payers will result in many employers abandoning existing coverage.

4. Individual mandates face the same problem as for employers. They may work where pre-reform uninsured numbers are low, but imposing them on states like Texas and Florida with more than 20 percent uninsured looks overwhelmingly difficult.

5. The Congressional Budget Office analysis of the draft Senate Health, Education, Labor, and Pensions Committee bill estimates that it would cost more than a trillion dollars over ten years and still leave 37 million Americans uninsured.

The shakiness of the present congressional approach was underlined this week by CBO Director Doug Elmendorf. In a letter to Senators Conrad and Gregg, Elmendorf emphasized: “large reductions in spending will not be achieved without fundamental changes in the financing and delivery of health care.”

And that’s exactly the issue.

If we want to achieve something close to universal coverage without bankrupting the nation (although this may happen anyway, without health care reform), we have to rethink our approach.

So here are seven principles to consider:

1. Affordable basic benefits – Everyone should be guaranteed basic coverage, but we can’t afford Cadillac-level (or possibly even FEHBP-level) insurance. Ultimately, funding availability must dictate basic benefits, not the reverse.

2. Fairness of tax treatment – Employers should have the option of providing supplemental coverage, but this should not be subject to an inequitable tax exemption, available only to some.

3. Price competition without “cherry picking” – As in other industries, competition should be fostered by transparent pricing of basic benefits (e.g. through an insurance exchange), with supplemental benefits separately priced. Insurers should be restricted from selling directly to employers whose employees are able to buy coverage through an exchange.

4. Individual choice, individual payment responsibility – With the exception of existing government programs and self-insured groups (which, with no insurer risk or profit involved, are assumed to provide better value), individuals should have the responsibility for choosing coverage that best meets their needs and, subject to subsidies for the lower-income, their budgets.

5. Restrictions on monopolies – There should be effective constraints on insurer monopolies, as well as on provider monopolies in which specialists in an area group together to control prices.

6. Funding – Just as with Medicare and Social Security, there should be specific guaranteed sources of funding for basic benefits, rather than continuing to rely on the goodwill of employers and the financial abilities of individuals.

7. Freedom from politics – As proposed by Tom Daschle and others, health care policy should be set by an independent board. Consideration should also be given to moving Medicare payment policy to the same board.

The Senate Finance Committee’s decision this week to delay reform bill markup until after the July Fourth recess is a strong indication of their own unease with the current direction of reform. Perhaps they could use the holiday to consider these principles.

WE NEED SOUTHWEST AIRLINES!

Can price competition cut health care costs? There are lessons to be learned from the airline industry.

Over thirty years, per capita health care costs, adjusted for inflation, have increased two and a half times. In the same period, despite a doubling of fuel prices, airline fares have fallen by more than half.

Why the five-fold disparity?

It’s obvious the two industries have followed very different paths. While airline travel has become an experience of packed planes, crowded airports, and peanuts (or less) meal service, health care has seen dramatic advances. Treatments that a few years ago seemed unimaginable are now commonplace: heart transplants, anti-depression drugs, artificial joints, laparoscopic surgery using miniature television cameras, and—of course—Viagra.

That’s only part of the story, though. While air travel is now safer and more convenient, with more frequent flights to more destinations, health care in some communities is so inadequate that morbidity and mortality rates are comparable to those of third world countries.

Why have airlines been apparently so much more successful in giving value for money?

Led by Southwest, the airlines that sprung up after deregulation recognized that individual flyers were price-sensitive, and cut their costs accordingly. They faced barriers, though, many of them analogous to those in today’s health care system. Business travelers flying on their employers’ nickel resisted efforts to move them to crowded peanut-only flights, frequent flyers resisted having to switch from their favorite mileage plan to that of another airline network, and travel agents much preferred to send their customers on airlines paying higher commissions.

Southwest and its peers succeeded by marketing directly to the public, through relentless emphasis on lower fares, and by maintaining standards that were, if not luxurious, acceptable to travelers. Few businesses are now sympathetic to employees’ preferences for more comfortable higher-cost flights, frequent travelers have adapted to low-cost airlines’ mileage programs, and travel agents and their commissions are almost a thing of the past.

And now, just as Southwest Airlines travelers found that they reached their destinations as reliably—if not quite as comfortably—as before, so recent studies have shown that there is little or no relationship, within the range of acceptable medical standards, between health care costs and quality.

So, what must health care reform do to emulate Southwest Airlines’ effect on fares?

First, just as deregulation ended most legacy airlines’ government subsidies, the tax exemption for employer-paid insurance should be reduced or eliminated. Not only is the $300 billion a year tax subsidy needed to help pay for reform, but cutting the exemption will discourage overly-generous coverage and remove the inequity between employer-paid and individual-paid insurance.

Second, just as travelers can compare airlines’ fares for the same itinerary using Orbitz or Expedia, insurers should be required to price the same basic benefits, perhaps through insurance exchanges. Supplemental benefits could be offered and separately priced, but being able to compare prices for the same basic coverage is essential.

Third, just as individuals purchase most airline tickets, so individuals should be responsible for choosing insurance to meet their own needs. In practice, this implies subsidies for the lower-income, and perhaps also some form of voucher model to facilitate the process. It may be appropriate, also, to allow self-insuring companies to continue to provide employee coverage since, with no insurer risk or profit involved, they typically provide better value.

Fourth, just as airlines’ pay is negotiated only with their own unions—not every other union in each airport—so there should be more effective constraints on provider monopolies in which specialists in an area group together to control prices.

Emulating Southwest Airlines won’t result in the cost of health care falling by half, but it offers a far more promising approach to cost control than the expensive band-aid solutions, superimposed on the worst features of our present system, apparently preferred by congressional committees.

NEWS UPDATE 6/16: CBO SAYS HELP BILL DOES LITTLE, COSTS MUCH

The Senate Health, Education, Labor, and Pensions Committee’s 700-page draft reform bill ran into unexpected trouble today with the release by the Congressional Budget Office of a preliminary analysis of the bill.

According to the CBO, the HELP bill—as currently drafted—would cost more than a trillion dollars over ten years, but leave as many as 37 million still uninsured.

The CBO analysis found that while subsidies proposed by the bill would make insurance more affordable for many, with some 39 million individuals moving to insurance exchange coverage, 15 million would lose their employer-sponsored coverage and another 8 million would leave government programs.

Responding to Republican criticisms, Senate Democrats emphasized that the bill was still a work in progress, and that the draft reviewed by CBO did not include any form of employer (or individual) mandate, or a public plan, or an expansion of Medicaid. Collectively, these would be expected to substantially reduce the number of uninsured, but could also increase the total cost.

SEBELIUS ON THE INDIVIDUAL MANDATE: MAYBE, MAYBE NOT

HHS Secretary Kathleen Sebelius was in first-class waffling mode on CNN on Sunday, telling John King that the United States is not ready to mandate that every individual have health care coverage, but—in true politician speak—that a mandate might work if “the rules” were changed, thereby carefully not closing the door on the concept.

Since AHIP has stated that its agreement to eliminate medical underwriting and guarantee issuance is dependent on everyone having insurance, Sebelius may have few choices. Either health care reform must include an individual mandate, or it must create essentially an entitlement program like Medicare (as in Fuchs and Emanuel’s proposal). Any other solution gives AHIP an excuse to back out of their agreement.

DESIGNING AN EFFECTIVE INSURANCE EXCHANGE. OR NOT.

If health care reform legislation is passed, it will almost certainly include provisions for insurance exchanges. Theoretically, these could be key to controlling costs and expanding access to coverage. In practice (and in addition to assumptions about guaranteed issuance, community rating, and the elimination of medical underwriting) these goals will be achieved only if exchange design adheres to five basic principles:

1. Exchanges must be the only source of private coverage for individuals and small businesses.

Without this rule, insurers will be free to “cherry pick” the best risks, abandoning the less attractive to the exchanges and driving up the costs of exchange coverage. Conversely, a very large “unselected” exchange pool will reduce insurers’ risks, enhance competition, and result in lower premiums. Ideally, if we are really serious about maximizing price competition, all but self-insured and other large employers should utilize the exchange.

2. Insurance choices should be made by individuals, not employers.

Employees (and other individuals) are likely to be wiser consumers of care they have chosen to fit their own needs. In contrast, employer choice will tend to result in a “one size fits all” approach, increasing costs for the young and fit and possibly creating dissatisfaction among the less healthy, and potentially requiring employees changing jobs also to change providers—thereby disrupting continuity of care—as they switch to new insurers’ networks.

3. Exchange offerings must separately price basic benefits and any supplemental coverage.

The key to price competition is to have comparable products explicitly priced. Allowing insurers to offer differing benefits will undermine consumers’ attempts to determine best value. However, to avoid instability of enrollment that could result from large numbers of enrollees switching to a new lowest bidder at annual enrollment time, basic benefits below the median price should be listed at the median.

4. Exchanges should be state-based.

While state-based exchanges imply some administrative duplication, they offer three potential advantages. They would facilitate oversight of participating insurers, they would make possible the use of a state “trigger” to implement some form of public plan if insufficient or ineffective insurer competition is available, and they would allow subsequent optional inclusion of Medicaid eligibles.

5. Exchanges should protect insurers against the effects of adverse selection.

Insurers will not willingly participate in an exchange system that guarantees issuance, without protection against high-risk or high-cost individuals. This means that the exchange design must include either exchange-sponsored reinsurance or some form of risk adjustment.

So, are we likely to see reform legislation that includes insurance exchange design that adheres to these five principles?

Unfortunately not, based on what appears to be the reform approach being taken by congressional committees—applying a massive series of band-aids to the present system. And unfortunately not, if exchange design mimics that of their prototype, the Massachusetts Connector, which takes the same approach. If the only draft bill that has emerged so far from committee (Senate Health, Education, Labor and Pensions) is any guide, reform will replicate many of the worst features of Massachusetts’ system, allowing insurers to continue to market whatever they want to whomever they choose, and leaving the insurance exchange as the coverage source of last resort for those few who fail to be marketing targets for insurance salesmen.

The result? A triumph for the insurance industry—but not for consumers.

MANDATES: THE NEXT BATTLE?

Two big political battles are going on in Washington over details of health care reform. With more to come.

The public plan fight continues to dominate health care policy news, and was fueled this past week by a letter from President Obama, to Senate committee chairs Baucus and Kennedy, expressing his strong support for a public plan option.

How to pay for reform is the second and more fundamental fight. With current cost estimates of a trillion and a half dollars over ten years, and the President promising revenue neutrality, the pressure is on to find a credible and acceptable combination of savings and new revenues.

Both these fights continue to generate visible heat with television commercials from conservatives attacking the public plan (“the government is going to control your medical care”) and unions attacking proposals to tax health benefits (“the government is going to slash our paychecks”). Neither issue will be settled soon, although much of the public plan controversy is political posturing, with a compromise approach (for example, applying a trigger to the plan, as I suggested in a post some weeks ago) seeming most likely.

The next battle—also anticipated in the President’s letter— is likely to be over coverage mandates, imposed on individuals or employers or both.

There were hints of the upcoming clash in recent comments by Senator Baucus, in which he estimated that only 94 to 96 percent of Americans would be covered under reform, then was forced later to amend his remarks to “as close [to 100 percent] as we can.” The gap between Baucus’ two estimates could be critical, since health insurers have agreed to eliminate medical underwriting only if universal coverage is achieved—and mandates are the obvious approach.

Whether imposed on employers or individuals, or both, mandates will be a political hot potato. Small businesses will fight a play-or-pay mandate, while conservatives will battle any attempt to require individuals to carry a prescribed level of insurance. The bigger problems are likely to be more practical than philosophical, though.

To appease small businesses, an employer play-or-pay mandate will have to involve only very modest “pay” requirements (as in Massachusetts) and perhaps exclude the smallest employers (also as in Massachusetts). The first would put a hole in reform funding, the second could threaten the universal coverage goal.

Individual mandates face other problems. Tying them to income tax filings will not make them more attractive, and will raise questions of how to determine compliance, what penalties to impose for non-compliance, and how to relate a retroactive process (tax filing) to a current requirement (insurance coverage). States like California and Texas, with far larger numbers of uninsured than pre-reform Massachusetts, will present particular difficulties in requiring individuals to obtain coverage.

Together these difficulties imply an inherently weak and “leaky” system, with many individuals failing to be covered, in turn leading to insurers backing away from their promises of guaranteed issuance and elimination of pre-existing condition exclusions, and to higher costs for those who do have insurance—in other words, perpetuating today’s big problems.

An alternative to mandates is some form of tax-funded voucher, with funding shared by employers and employees. The Wyden-Bennett Healthy Americans Act proposed a version of this, while the concept of shared employer-employee levies that guarantee benefits is common to Medicare and Social Security. Guaranteeing coverage to everyone who files a tax return is simpler administratively than a mandate-penalty model, would spread costs more equitably, and would reduce insurance risk.

As in the Wyden-Bennett bill, a tax-funded voucher model could allow exceptions for self-insured or other large businesses. It could also—if employer tax payments are tied either to revenues or net income—similarly allow exceptions for non-profit and governmental entities. Otherwise, the model is vastly simpler and results in lower insurer risk and enhanced price competition.

The concept of a health care “tax” is obviously politically unappealing, but only the most naïve will believe that a mandate is much different in its effect. The issue that congressional health reform designers should be considering is whether pretending that mandates are not taxes—and so can be sold somehow to the American public—is worth risking health care funding viability and universal coverage.

THE WRONG WAY TO DESIGN A HEALTH CARE SYSTEM?

It’s hard not to be impressed.

The effort to enact national health care reform legislation has become a massive political crusade.

Starting even before the 2008 election, dozens of Senate and House committee members, along with scores of congressional and administration staffers, have been working to identify elements of a reformed health care system. A parade of experts from academia, business and the health care industry have testified before congressional committees. Senate and House and administration staffers have developed hundreds of pages of proposals for change. The Congressional Budget Office has weighed in with its own hundred-plus options for improvement. Thousands of hours have been spent in meetings in Washington and across the country to consider what reform might look like. And now President Obama is becoming increasingly personally involved.

So, why might the end result be a disappointment?

The staff issue papers from the Senate Finance Committee and the Senate Health, Education, Labor, and Pensions (HELP) Committee provide a clue. Three hefty papers from Senate Finance spell out in a hundred and fifty detailed pages scores of possible changes to our present system, while Senate HELP has released its own dozen-page issue paper and is circulating a 171-page draft bill.

The focus in each issue paper is on repairing what (in the opinion of the authors) is wrong with today’s system. In fact, the HELP Committee paper is subtitled “Strengthening What Works and Fixing What Doesn’t.” What’s missing? Not one of these papers provides a vision of what we’d like our health care system to be—the system we’d like to have if we could forget some of our current dysfunctional model.

Why is such a vision so important? Without it, like physicians treating a sick patient without ever having seen a healthy one, we run the risk of just applying band-aids to something fundamentally diseased. We’re not going to get our ideal system—there are too many entrenched interests to allow that—but starting the design process by defining what we want is essential to creating a system that does more than just limp along until the next crisis hits.

It’s not that such visions can’t be found, even ones that retain the traditional roles of insurers, business, consumers, providers, and government. The Dutch health care system is a prime example of a cost-effective universal coverage system. Nearer home, Fuchs and Emanuel have proposed a comparable system, but with radically different financing. Senators Wyden and Bennett have written a bill that includes similar elements. The common feature of each of these is a simple cohesive competitive approach –not a multiplicity of discordant elements patched together in an attempt to please as many constituencies as possible.

There are other perils to the Senate Finance and HELP committees’ starting-at-the-wrong-end approach. The more complex the system—and imposing layer on layer of band-aid repairs will make it very complex indeed—the more opportunities there will be for manipulating it. If there’s one thing we’ve learned, it’s the health care system balloon effect: squeeze costs in one area and they are likely to explode in another.

There’s another problem with the band-aid approach. Complexity is a hard sell to the public. As the Clinton administration discovered, the more complicated reform becomes, the less likely it is to gain public support. Sadly, there are few signs among the various congressional papers that the authors understand this. The 150 pages of detailed proposals from Senate Finance for “fixing the system,” but leaving almost every present feature in place, epitomize the problem (perhaps not surprising given that these are the folk who brought us the United States tax code) but hardly give hope for a cost-effective future for American health care.

NEWS UPDATE 6/6: DRAFT REFORM BILLS EMERGE

The past couple of days have seen some of the veils lifted from congressional health care reform proposals.

In the Senate, the Health, Education, Labor and Pensions Committee is now circulating a 171 page draft of its proposed bill. In the House, the Energy and Commerce Committee (one of three House committees with health care legislative responsibilities) is close to releasing its own version, with some details already being publicly discussed.

Neither bill contains big surprises (although both include proposals certain to infuriate various groups), and neither deals in any detail with reform funding issues.

The Senate bill, from the ailing Senator Ted Kennedy’s HELP Committee, includes the expected public plan provision—an expansion of Medicare, but one in which providers would be paid ten percent above standard Medicare rates—along with requirements for individuals to have insurance (with subsidies for lower-income individuals) and for businesses to provide employee coverage or pay a fee to the government. The bill provides standards for guaranteed issue and rating of insurance, and provisions for helping states establish insurance exchanges (referred to as health benefit gateways). It also proposes expansion and some standardization of Medicaid, and provides for a new long-term care program, Community Living Assistance Services and Supports (under the heading of the CLASS Act!).

The House bill, from Representative Henry Waxman’s committee, is expected to include many provisions similar to those of the HELP bill, including requirements for individuals to purchase insurance and for employers to help cover the cost, for establishment of insurance exchanges, and similar insurance market rules to the HELP bill. The big unknown—until a draft becomes available in the next few days—is the approach to a public plan.

An equally big unknown is the shape of the draft Finance Committee bill, with Democrats and Republicans still battling over the public plan issue, but other details (insurance market reform, individual and employer responsibility, insurance exchanges) looking likely to parallel the other bills. The even bigger question, though, for Senate Finance is: how to pay for it all?

NEWS UPDATE 5/30: THE KENNEDY PLAN?

Politico.com this weekend includes news of what it describes as Senator Ted Kennedy’s “reemergence” in the debate on health care reform with proposals that are distinctly to the left of those of Senate Finance Committee Chairman Max Baucus. It also includes the staff working paper being circulated among members of Kennedy’s Senate Health, Education, Labor, and Pensions Committee, and which presumably reflects Kennedy’s positions.

The Politico report and a parallel piece in the New York Times both emphasize significant policy differences between Kennedy and Baucus. The writers of the two pieces stress Kennedy’s liberalism and Baucus’ more moderate (or conservative, depending on one’s viewpoint) policies. The New York Times article focuses on the inclusion of a public plan as the key difference between the two senators, and notes Baucus’ committee efforts to develop compromises with ranking Republican Senator Chuck Grassley, which would presumably move the Senate Finance bill further to the right. So, what’s the truth?

Comparison of Finance Committee comments with those of the HELP Committee working paper does show differences, but in most cases these are ones of nuance. Much of the working paper reads like a campaign manifesto, and is correspondingly vague about details—and silent on financing. (What are “reasonable limits” for premium variations? Is there any real evidence of the effectiveness of “medical homes”?) On the other hand, it is also quite comprehensive in scope, including a major section on long-term care, something that has been almost totally ignored in the reform debate.

The HELP paper does call—as reported by Politico and the Times—for creation of a public plan. However, no specifics are provided, and the words used could be as applicable to the “weak” models suggested by Senator Charles Schumer and the New America Foundation’s Len Nichols as to the “strong” Medicare-based models suggested by liberals.

The conclusion: obviously there are differences between Senators Kennedy and Baucus and between their respective committees, (notwithstanding the two senators’ latest joint announcement but there is certainly no deal-breaker at this point.

MANDATES: THE NEXT BATTLE?

Things have been quieter on the health care reform front this past week, as the two biggest current fights—over the public plan proposal and over taxation of health care benefits—moved behind closed doors on Capitol Hill.

Both of these fights are still generating visible heat—literally visible, in fact—with television commercials from conservatives attacking the public plan (“the government is going to control your medical care”) and unions attacking the proposal to tax health benefits (“the government is going to slash our paychecks”). Neither issue will be settled soon, and either could derail reform permanently.

There are more battles coming, too, as lobbyists for insurers, drug manufacturers, providers, businesses and unions try to fight off any proposal that might curtail their incomes.

The next one is likely to be over coverage mandates, imposed on individuals or employers or both.

There were some hints of the upcoming clash in recent comments by Senate Finance Chair Max Baucus. In a breakfast meeting sponsored by the Kaiser Family Foundation, he estimated that only 94 to 96 percent of Americans would be covered by the reform model he expected, then was forced later to amend his remarks to “as close [to 100 percent] as we can.” The gap between Baucus’ two estimates could be critical, since AHIP has publicly agreed to eliminate medical underwriting only if universal coverage is achieved—and a mandate is the obvious way to do so.

Whether imposed on employers or individuals, or both, coverage mandates will be a political hot potato. Small businesses will fight a play-or-pay mandate (and one that they are willing to accept may leave a big hole in reform financing), while conservatives will undoubtedly battle any attempt to require individuals to carry a prescribed level of insurance. An individual mandate may have been—for the moment, at least—successful in Massachusetts, where the percentage of uninsured was low, but it will present severe problems in states like California and Texas, with very large numbers of uninsured who would be expected to contribute towards coverage.

Mandates also face other problems. Tying them to income tax filings—as Massachusetts has done—will not make them more attractive, and will open up questions of how to determine compliance, what penalties to impose for non-compliance, and how to relate a retroactive process (tax filing) to a current requirement (insurance coverage).

Given these difficulties, an alternative that may get more attention is some form of voucher, as suggested by Fuchs and Emanuel. While the VAT levy that they proposed is almost certainly not politically viable as a funding mechanism, building some part of the coverage cost into the tax system, as in the Wyden-Bennett Healthy Americans Act, might gain support. From an administrative viewpoint, guaranteeing coverage to everyone who files a tax return is simpler than a mandate-penalty model, and could be more politically acceptable.

What’s clear is that insurance system stability depends on getting very, very close to universal coverage, and that either an individual mandate (most likely combined with an employer mandate) or a quasi-voucher system is the only way to get there.

THE GREAT $2 BILLION COST CUT “PROMISE” MEETS ANOTHER OBSTACLE

It turns out that the hospital, insurance and pharmaceutical organizations who announced with great fanfare a couple of weeks ago their plan to cut/maybe think about cutting* $2 trillion/maybe nothing* from their costs may have been even more devious/disingenuous/stupid* than was apparent at the time. [*choose one]

The New York Times points out today that any such organized effort to reduce prices could face antitrust charges. In the Times’ words: “Antitrust lawyers say doctors, hospitals, insurance companies and drug makers will be running huge legal risks if they get together and agree on a strategy to hold down prices and reduce the growth of health spending.”

The drug manufacturer lobbyists who so eagerly participated in the May 11 meeting with President Obama, when the cost-cutting promise was made, should have been especially aware of the issue. Back in 1993, it was their trade group that, in an effort to soften the threat of Clintoncare, offered to limit pharmaceutical price increases to the CPI rate, then were told by the Justice Department that this would violate antitrust laws.

And, again according to the Times, it was the AHA who complained recently to the Federal Trade Commission that antitrust laws make it difficult for providers to collaborate and lower costs.

So, first these organizations promise to cut costs by $2 trillion, then they say they didn’t really mean it, and now it turns out that it would probably be illegal (which they should have been fully aware of, anyway). Who’s trying to fool whom?

LEARN FROM AN EXPERT!

At a time when too many political staffers and ivory tower academics are presenting themselves as health care experts, it’s a pleasure to read the words of someone who actually has the expertise to justify the term.

Dr Jaan Sidorov writes a terrific health care blog—the Disease Management Care Blog—focusing primarily on disease management, but also ranging across much of the spectrum of health care policy.

Two things set Dr Sidorov’s blog apart. First, he has real world experience—including serving as Medical Director of the Geisinger Health Plan, where he initiated Geisinger’s disease and case management programs. Second, he writes one of the most literate—and often witty—columns in the blogosphere. If you want to track what’s really working or not working in the area of care coordination and disease management, or just get a different view of the health care world, take a look at DMCB.

CHRONIC CARE COSTS, MEDICAL HOME HOPES…A SKEPTICAL VIEW

One of the continuing themes of the health care reform debate over the past weeks has been the opportunity for cost savings in treating the chronically ill.

It seems like a no-brainer. Close to 90 percent of Medicare spending is for just 25 percent of beneficiaries, with almost half of the expenditures due to the top five percent of those covered. Three quarters of these high-cost patients suffer from multiple chronic conditions, with the number of physicians involved in a patient’s treatment typically more than the number of conditions. So, efforts to manage and coordinate care should show significant savings, right?

Not so, if the federal government is involved. A MedPAC report summarizing the results of four Medicare chronic care demonstration programs concluded: “Costs: Little evidence of cost neutrality or savings…Quality: Scattered evidence of success improving process, satisfaction, outcomes…”

None of this bodes well either for further chronic care demonstrations or for the great white hope of many Medicare policymakers: the medical home model, with—as defined by CMS—twenty-eight specific capabilities including electronic medical records, care coordination, treatment planning and reporting.

Aside from the lack of success so far, why should we be skeptical about savings from care coordination in Medicare? There are two simple answers.

First, the process of demonstration and evaluation is so lengthy that—even when an approach can reduce costs—general implementation may not occur for years.

Second, in order to encourage providers to participate, CMS has discovered that additional payments are necessary, thereby eliminating most or all the potential savings.

The attitude of physician organizations is clear. In announcing their support of the medical home model, the American Academy of Family Physicians (AAFP), the American Academy of Pediatrics (AAP), the American College of Physicians (ACP) and the American Osteopathic Association (AOA) demanded: “additional reimbursement for participating practices to adequately compensate for the increased physician and administrative staff time necessary to provide care…” In other words, if you want us to do things right, you’ll have to pay us more.

SENATE FINANCE COMMITTEE TESTIMONY—FIRST PRIZE!

Over the past three weeks, a procession of health care experts have wended their way to the halls of Congress to testify before the Senate Finance Committee. Collectively, the testimony (available on the Senate Finance website) looks at almost every aspect of health care reform. There’s plenty for any one person to disagree with, but—overall—it’s like having a free subscription to Health affairs.

If one had to pick just one paper to read, an excellent choice would be Len Nichols’ testimony on expanding health care coverage. It’s better written than most of the others, and far more objective than the self-serving comments from industry insiders. Here are my own comments on Nichols’ recommendations:

1. Elimination of the employer coverage tax exemption – Not only is it probably key to financing reform, it removes the unfair advantage that large employers have over small ones, and also potentially moves coverage choice and payment to those who will actually be covered. Allowing ERISA and other large employers to continue to offer direct coverage is a reasonable compromise, and one that would reduce the risk of destabilizing the insurance industry (and alienating big business). It’s also consistent with the successful Dutch system, which uses an insurance exchange model but allows large employers to contract directly with insurers.

2. Separate pricing of a minimum benefit package – I think this is essential, and I would much prefer to see price competition based on fixed benefits than benefit competition based on a fixed budget (as Fuchs and Emanuel have suggested). I don’t see how we can be confident about controlling costs if purchasers can’t see which choices are less expensive. Models like FEHBP that offer different benefits at different prices are the worst possible combination.

3. Risk adjustment – We clearly have to have some form of this, and again the Dutch system offers an example (as does Medicare Advantage – hah!). However, I wonder if a reinsurance approach might be simpler.

4. Play-or-pay – Eliminating the employer coverage tax exemption would remove the need for play-or-pay, which has inherent problems of unacceptability to smaller employers and also is liable to manipulation (Hawaii’s employer mandate is a good example of how this kind of approach can be finessed to a point at which it is meaningless).

5. Medicaid – Not only do we have a separate health care program for the poor, it’s one that too often limits access to care. It may not be politically feasible currently, but turning Medicaid into a wraparound subsidy program (as the Wyden-Bennett Healthy Americans Act proposes) would also achieve continuity of care.

6. Medicare – It’s essential that we wring some savings out of Medicare, but I’m not hopeful about the Finance Committee staff’s proposals for using payment changes to make delivery systems more efficient. So far, it hasn’t worked in the chronic care demonstrations and I’m always skeptical about CMS’ ability to make things happen. The one essential change is neutrality between Medicare Advantage and FFS, and this would be even more effective in terms of cost control if MA savings were shared with beneficiaries directly as offsets to Part B premiums.

7. Public program option – The self-funded state employee program option is a reasonable compromise. An alternative that I’ve proposed is a combination of a trigger (the public plan is only implemented in certain circumstances) and the availability of public plan payment rates to all private plans (in effect, a PPO-for-all).

It would be nice to think that common sense and experience will trump industry lobbying and political timidity, but meanwhile it’s a pleasure to read such a thoughtful and articulate paper as that of Nichols.

THE COST OF HEALTH CARE REFORM--$1.5 TRILLION OR?

Putting the political cart firmly before the horse, the Senate Finance Committee heard testimony last week on how to pay for reform—before they had reliable estimates of how much it is likely to cost.

It’s not that there aren’t plenty of estimates to choose from. A recent Associated Press report offered ten-year forecasts ranging from “the president’s $634 billion…is likely to be the majority of the cost” (White House budget director Peter Orszag) to “$125 billion to $150 billion a year” (New America Foundation economist Len Nichols) to “$1.5 trillion to $1.7 trillion would be a credible estimate” (Lewin Group consultant John Sheils). Take your pick.

What’s really the number that Senate Finance members must find a way to fund? Leaving aside mythical savings like the $2 trillion sort-of promised by health care industry bigwigs, and the almost as questionable cost reductions for delivery system tweaks offered at previous Senate Finance sessions, the question becomes: how much new spending will universal coverage add?

Despite the willingness of numerous experts to offer estimates, only one detailed study has been published. Urban Institute researchers projected in 2008 that additional spending would have been $122 billion, in 2008 dollars, if universal coverage had been in place in that year. At current health care cost growth rates, this would equate to $135 billion in 2010 and a ten-year estimate of close to $1.5 trillion, both in 2010 dollars.

But could this number be too high?

Maybe. Here are some reasons:

1. The Urban Institute study projected a total of 54 million uninsured in 2008. The Census Bureau CPS estimate for 2007 was 45.7 million. The current CBO estimate for 2009 is 45 million. Using the lowest of these estimates would reduce the ten-year cost projection to $1.25 trillion.

2. The Urban Institute study assumed that the newly-insured would be split between public and private insurance in the same ratio as lower-income individuals already with coverage. If reform were based on private coverage expansion, the ten-year estimate could fall by another $250 billion, to around $1 trillion.

3. A combination of the effects of insurance exchange price competition and some taxation of employer-paid benefits could further reduce the projection, perhaps by another $100-200 billion.

Unfortunately, the Urban Institute estimate could also be too low:

1. Continuation of the recession combined with possible CPS undercounting could put the actual number of uninsured close or even above the number projected by the Urban Institute. (This would be consistent with Massachusetts’ reform experience of the actual uninsured count proving to be significantly higher than estimated by state analysts.)

2. The Urban Institute study did not include the underinsured, estimated to be as many as 16 to 25 million, who might be expected to incur additional costs if they had better coverage. (Both estimated counts are from Commonwealth Fund papers, which defined underinsured as expending more than 10 percent of income on out-of-pocket health care costs.)

3. In addition to those counted as underinsured, many others individuals might also incur additional costs with improved coverage.

It’s your choice, Senate Finance Committee!

THE PUBLIC PLAN -- YET MORE!

Jeff Goldsmith has a new piece on the Health Affairs blog listing reasons why he opposes the public plan. It's worth reading whether you agree or not.

Here are my own reactions:

I agree with Jeff’s conclusions about the risks of a “purely public” plan for both political reasons (it has become a lightning rod for anti-reform sentiment) and pragmatic reasons (it could destabilize the private insurance structure). However, a number of the points that he makes need some comment.

The Lewin estimate of public plan premiums 30 percent below those of private plans is almost certainly exaggerated, due to its dependence on raw payment rates. The 30 percent figure is at odds with the experience of Medicare Advantage, in which the average differential is only 14 percent and some plans’ initial bids are below FFS projections. It also overstates private sector administrative costs (insurance exchange pools should be similar to large groups) and understates or ignores differences in utilization due to private plan UR and other controls (a point that Jeff makes in the context of his remarks about the Kronick paper).

Kronick’s spending growth numbers, taken from CBO data, seem to be at odds with CMS national health care expenditure figures and also (as he notes) with other researchers’ figures. And, as always, it is possible to select a different span of years for data analysis and reach a different conclusion. Even assuming that the CBO growth rates are accurate, some part of the differential may be due to differences between the two populations and the resulting medical trends in the care provided.

One risk not mentioned by Jeff is that of implementing a public plan in combination with a play-or-pay mandate (still the political favorite, in various guises). The more financially attractive the public plan, the more employers who will dump their group coverage. Since almost all play-or-pay proposals assume that players’ premiums will be higher than payers’ payments, the result is likely to be a further shortfall in reform funding.

In spite of my agreement with Jeff’s basic conclusion about the risks of a public plan, I found his suggested alternative options a little puzzling. Allowing the over-55s to buy into Medicare sounds like a public plan to me, while expanding SCHIP puts more pressure on private plans that already charge below market rates for SCHIP eligibles. It’s hard to disagree with his recommendation for on-line enrollment in an insurance exchange, but the real savings from an exchange will come from price competition, not IT (and as a former CIO, I wouldn’t want to bet health care reform on a government-inspired electronic exchange).

THE PUBLIC PLAN ARGUMENT—AGAIN!

As Republicans gear up to attack Democratic-sponsored reform proposals as “putting the government in charge of your health care,” today’s closed-door Senate Finance Committee meeting is focusing on the controversial public plan issue.

Senate Finance members will be looking at four specific options:

1. A single national Medicare-like plan, administered by a new agency within HHS, and most likely with start-up funding from a separate appropriation. All Medicare providers would be required to participate in the plan, and payment rates would probably be tied to those of Medicare.

2. A single national plan, established and administered by regional private sector TPAs, who would also determine provider payment rates. Generally this plan would be required to comply with the same regulations as private sector plans.

3. Multiple state-operated plans, perhaps based on existing state employee plans.

4. No public plan.

It’s anyone’s guess which, if any, of these options will find its way into the final bill, but with Finance Committee chair Max Baucus still proclaiming his desire for bipartisan support, the third option may have a lot of appeal, especially if the decision to offer such a plan is left up to the states.

On the other hand, the second option will attract more enthusiastic support from Democrats, with new-Dem Senator Arlen Specter—previously a strong anti-public-plan voice—already saying that it’s a possibly acceptable compromise.

Don’t expect a final decision anytime soon. As the Committee and the Obama administration grapple with issues of how to finance reform, it’s still possible that cheaper (like option number one) may trump political acceptability.

NEWS UPDATE 5/14: A TIGHTER SCHEDULE?

The target date for passage of health care reform just got a little clearer—and perhaps earlier.

After meeting with President Obama yesterday, House Speaker Nancy Pelosi and Majority Leader Steny Hoyer announced their intent to pass a reform bill in the House no later than July 31.

Senate Democrats are hoping for a similar schedule, but with October 15 as an absolute drop dead date, already written into the budget as a reconciliation process cut-off date. However, Senate Democratic leaders are still making optimistic sounds about producing a bill that will attract enough Republican votes to avoid the battle that reconciliation would involve.

A SHAKESPEAREAN APPROACH TO HEALTH CARE REFORM (REVISED)

(A previous version of this recipe was published in The Health Care Blog.)

One thing about Washington DC, there’s never a shortage of diverse ideas, and with the possibility of passage of some version of reform, there’s an especially impressive number. The problem is how to pick and choose among them.

Every reform plan—whether from Baucus, McCain, Obama, Clinton, Wyden-and-Bennett, Kennedy, Stark, Dingell, or elsewhere—comes with its own strengths and weaknesses, and cross-aisle consensus is certainly missing. But maybe it’s possible to take a little of this plan, a little of that, and so on, to create the magic mixture that can reform our system and achieve the critical sixty vote support in the Senate.

Perhaps it’s time to consider a recipe from Macbeth:

Eye of newt, and toe of frog,
Wool of bat, and tongue of dog,
Adder's fork, and blind-worm's sting,
Lizard's leg, and howlet's wing…

Shakespeare’s witches didn’t provide precise measures, and we may have to substitute for some of the ingredients, but we’ll go ahead and start adding items to our cook pot anyway...

Eye of Newt—

Well, it’s more like website of Newt. Former Speaker Gingrich is promising his own reform plan, but we can’t wait, so in our magical broth we’ll use his statements supporting an individual mandate and the development of a national electronic medical record system.

We’ll take a large cupful of individual mandate, since it’s hard to see how reform can succeed without it. No mandate means some non-covered population, and experience shows such a population can only grow as health care costs increase. However, we’ll use just a small amount of EMR, because although we want to include it in our broth, it’s a very expensive ingredient.

Toe of Frog —

There was always something tentative—a toe in the water?—about Senator’s McCain’s reform plan, but his proposal to eliminate the tax deduction for employer health care payments earns a big tablespoon’s worth in our broth. The present deduction creates a huge inequality among large and small employers and individuals, while a play-or-pay alternative is likely to result in an employer coverage death spiral as current players rush to the less costly payer option.

Wool of Bat—

It’s really wiles of Baucus, with our ingredient taken from the Senate Finance Chair’s recent carefully-crafted policy paper. Because the flavor is so much like that of our next ingredient, we’ll use only a few teaspoonfuls, to include the Health Coverage Council that would set minimal coverage levels, the prohibition on pre-existing condition exclusions, and increased funding for primary care. We’ll make sure that our teaspoon avoids the proposal to allow buy-in to Medicare, since this would add adverse selection to a program that is already a fiscal disaster.

Tongue of Dog —

Or, at least, the tongue of Daschle, in his book Critical. Our spoonful will avoid his proposals for play-or-pay and the expansion of Medicaid, but we’ll make sure our broth includes turning FEHBP into a health insurance marketplace. FEHBP has political credibility, an existing administrative mechanism, and the appeal of a program that is offered to members of Congress.

Adder’s Fork —

Bennett added to Wyden has produced a particularly well-flavored ingredient, so we’ll take a large forkful of their Healthy Americans Act, including replacing the employee health care tax deduction with employer contributions tied to business size and payroll, establishing a basic set of benefits but allowing insurers to offer separately-priced additional benefits, and rolling much of Medicaid preventive and acute care into the overall system—a big help to cash-strapped state governments in a recession.

We’ll stir the contents of our pot at this point, since the most flavorful ingredients have been added.

Blind-Worm’s Sting —

Lower-income people might well feel stung by Ezekiel Emanuel’s proposal to fund health care through the inherently regressive and recession-vulnerable mechanism of a VAT, but we’ll take a teaspoonful from his plan for a voucher system. With our national emphasis on buying things, a tax-funded voucher that forces a deliberate choice among carriers and coverage is likely to be a more effective tool for informed purchase of individual insurance than alternatives like tax deductions and tax credits.

Lizard’s Leg —

With lizard’s legs unavailable, even via the internet, we must make a complete substitution, and use instead a slice from Elizabeth Swartz’s book, Reinsuring Health. Reinsurance is unlikely to make any significant difference to total costs, but it is less complex than risk-adjustment and could be funded through a separate catastrophic coverage program to reduce insurer premiums.

Howlet’s Wing —

Our final ingredient, (h)owlet’s wing, turns out to have flown a long distance, from the Netherlands, where we’ll take a pinch of the recent Dutch reforms. Since they have the experience and the purchasing power to demand lower premium rates, large employers are allowed to negotiate with insurers in order to offer discounts to their employees, thereby providing continuity from the prior system and reducing the administrative burden on the individual marketplace.

So, how does our magical broth taste?

It’s one that could appeal to both liberal and conservative palates. It establishes an individual mandate but guarantees issue and portability of coverage, shares responsibility more equitably among all employers and all individuals, encourages price competition by requiring insurers to offer a basic set of benefits but allows them to offer additional coverage, and eliminates the Medicaid “second class care” that is bankrupting state governments, while building on the strengths of the present administrative capabilities of FEHBP and large employers.

Will everyone love the result of our classic cookery? It should please many diners, but there will be some who will resist such a recipe. No matter how good the final mixture, Shakespeare also anticipated the political stewing process of the congressional debates:

“…For a charm of powerful trouble,
Like a hell-broth boil and bubble."

NEWS UPDATE 5/6: SENATE FINANCE COMMITTEE GETS ADVICE ON COVERAGE EXPANSION

The Senate Finance Committee held another session on health care reform issues this week, focusing on ways to move towards universal coverage.

The major news—at least as reported—was the non-event of total lack of agreement on the public plan option.

Most Dems on the Committee are for it, the Republicans are opposed. Senator Charles Schumer attempted to offer a compromise which would allow creation of a public plan, but with a more level playing field than prior proposals. Schumer’s suggestion, for a plan subject to the same regulatory requirements as private plans and with no government subsidy (for example through an initial appropriation), produced little enthusiasm. AHIP’s Karen Ignagni reiterated the insurance industry’s position that any public plan would overpower the private market, force insurers out of business and reduce coverage options. Given the skepticism already expressed by newly-minted Dem Arlen Specter and a number of other centrist Dems, the public plan concept appears to be in trouble.

As with the previous session on improving the efficiency of health care delivery, the Committee invited a dozen or so representatives of insurers (including Ms Ignagni), employers, consumers, and policy groups to provide their—very disparate—opinions. Not surprisingly, most of these individuals pressed their own agendas: The Chamber of Commerce, Business Roundtable, and NFIB representatives supported universal coverage but were appropriately conservative about changes to the insurance system. The AARP representative focused on Medicare affordability and subsidies. The representative of the Kaiser Commission on Medicaid and the Uninsured focused on Medicaid expansion. And so on.

The more interesting testimony was provided by two policy experts from different ends of the political spectrum: Stuart Butler of Heritage Foundation and Len Nichols of the New America Foundation.

Butler expressed the usual conservative fears about government involvement. He then proposed putting much of the burden for reform onto states, but in accordance with federal guidelines and with some federal funding, along with the replacement of the current employer coverage tax exemption by an individual tax credit. Nichols also (but much more cautiously) expressed concerns about employer-sponsorship, along with (in the long run) replacement of Medicaid by subsidized insurance exchange coverage. Butler (obviously) was opposed to the public plan option, while Nichols suggested a softer option akin to self-insured state retiree plans.

With the next Finance Committee session devoted to funding, we are likely to see more discussion of the elimination of the employer tax exemption. ( If reform is to happen, funding has to be convincing, especially now that the Administration has expressed support for pay-as-you-go legislation.)

THE OBAMA-BAUCUS-WYDEN-BENNETT PLAN?

Health care policy consultants Lewin and Associates have just released a new working paper, “Harmonizing the Obama, Baucus and Wyden/Bennett Health Reform Proposals: Technical Feasibility,” pointing out the common features of the various proposals.

Given Senator Baucus’ hope for seventy votes for reform in the Senate, there is obviously political appeal in trying to combine two purely Democratic proposals with one that has achieved a degree of bipartisan support. However, while emphasizing the commonalities has obvious merit, it is disappointing that the working paper doesn’t quite live up to its billing.

Despite the title, there is no discussion of the plan that President Obama proposed during his campaign (although this now seems to be a dead issue). More importantly, there is no analysis of the major differences between the Baucus and Wyden-Bennett proposals, and certainly no suggestions for “harmonizing” them. These differences include:

Insurance exchange role – The exchange concept is central to the Wyden-Bennett bill, offering coverage to everyone, but in the Baucus plan is only an add-on to the present structure, serving individuals and small groups without other coverage. The weakness of Wyden-Bennett is the potential destabilizing of the insurance system due to the changeover to individual coverage, while the Baucus plan perpetuates many of the problems of today’s system.

A harmonized solution might take the Wyden-Bennett approach as a starting point, allowing self-funded groups and other large employers (as in the Netherlands) to arrange their own insurance, consistent with national standards, with all other employees and other individuals purchasing coverage through the exchange.

Financing – Wyden-Bennett provides for a mix of employer levies and personal income taxes, coupled with removal of the tax exemption for employer-paid insurance. Baucus proposes to continue the tax exemption (and enhance it through Section 125 plans), to offer tax credits to small employers, and to impose levies on employers not providing coverage. One problem with Wyden-Bennett is in the transition from (mostly) employer-paid coverage, requiring employers to increase wages by the value of prior coverage, while the Baucus plan has the disadvantage of perpetuating the unlevel playing field of non-taxed benefits.

A harmonized solution may be impossible, given the differences between these approaches. Wyden-Bennett offers a much simpler structure that would remove a burden from employers and make for fairer tax treatment, but could be further simplified by requiring only that employers report the value of employee benefits during the transition period, leaving it to employees to determine if their wages were fair.

Medicaid – Wyden-Bennett would incorporate Medicaid coverage into the exchange mechanism, with subsidies for deductibles and co-pays. Baucus proposes to expand Medicaid and to make it more consistent across states. The problem with Wyden-Bennett is that although it would allow individuals to remain in the same health plan if they become Medicaid eligible, and would provide more budget stability for states, it could create insurance instability and high premiums if all Medicaid eligibles are channeled into the exchange structure.

A harmonized solution might be to enhance the present Medicaid program for an interim period and then to transition eligibles to the exchange structure.

Public Plan – Wyden-Bennett includes no provision for a public plan option, while Baucus would allow individuals aged between 55 and 65 to buy in to Medicare during a transitional period.

A harmonized solution could allow some form of temporary Medicare buy-in, but provided that Medicare provider payments are more tightly controlled.

While the similarities noted in the Lewin paper are valid, philosophically the two proposals are very different. The Baucus plan accepts most of our present system and attempts to fix the biggest problems, while Wyden-Bennett attempts to create the health care system that we might have if we could start with a clean sheet. The weaknesses of the two proposals flow from these two philosophies: the transition to Wyden-Bennett is a risky one, while Baucus leaves us with many of the problems of the present system. Consensus (or at least compromise) may lie in trying to incorporate features of the Baucus plan into the Wyden-Bennett model, rather than the other way round.

THE PUBLIC PLAN OPTION: Health Affairs ROUNDTABLE

Health Affairs blog recently posted the transcript of a roundtable discussion of public plan issues, featuring Len Nichols (New America Foundation), Stuart Butler (Heritage Foundation), and Jacob Hacker (University of California, Berkeley), with Health Affairs’ John Iglehart and Chris Fleming as co-moderators.

Most of the participants’ comments were predictable, given their prior public statements, but made rather more interesting by the discussion format that forced them to respond (at least sometimes) to criticisms of their positions.

Hacker was a strong proponent of a Medicare-like public plan, Nichols reiterated his proposal of a couple of weeks ago for a public plan similar to existing self-funded state employee plans, while Butler described the whole idea as “a nuclear minefield on the road to getting agreement on universal coverage.”

The transcript made one thing clear: there was no “Ah-Hah” moment when any of the participants produced a proposal that responded to the others’ concerns.

Hacker emphasized that a public plan was essential since “the private insurance market, even if regulated, is not going to have enough pressure on it to provide affordable quality care without a public plan competing with it,” but failed to explain exactly how this could be achieved without giving a government-sponsored plan an unfair advantage in a government-regulated competition.

Nichols pressed the advantages of self-funded plans administered by insurers, but failed to quantify the extent to which such plans—which typically utilize the insurers’ own networks—would serve as effective controls over the same carriers’ insured products.

Butler condemned the public plan concept as being incompatible with a level playing field, but failed to explain how private plans would control increases in provider rates without a public plan comparison.

So, given these divergent opinions, is there some compromise that would ensure true competition without threatening the future of the health insurance industry and risking the failure of reform legislation?

One possibility might be to combine one of Hacker’s roundtable suggestions—to give private plans the right to pay providers using the public plan’s rate structure—with some form of delayed-action trigger.

In this model, private plans would be able either to pay providers at rates set by the public plan or to negotiate their own contractual agreements. The trigger implementing the public plan could be tied to average insurer premiums (do they exceed a level set by government actuaries?), or to premium increases (do they exceed CPI increases?), or simply to time (perhaps with the public rates implemented only in year two or three of the reform structure), and could be either regionally- or nationally-based.

A second possibility is to establish “public plan rates” without necessarily implementing a public plan. This should further remove insurers’ objections, and provide a structure comparable to that of the much admired Netherlands system, where price competition among insurers has been especially effective.

In either case, tying a public plan to a trigger should alleviate some of the publicly-expressed concerns of insurers, but still provide an effective mechanism to control insurers’ desire for profitability, while the establishment of public plan rates—regardless of plan implementation—would impose similar controls over providers.

LEAVE IT TO DARWIN?

I’ve been reading some of the testimony on delivery system reforms from the House Ways and Means Committee meeting earlier this month, in particular the lengthy statements from MedPAC Chairman Glenn Hackbarth and Urban Institute Senior Fellow Dr Robert Berenson.

Hackbarth and Berenson are each distinguished health care figures, and their remarks are worth careful study. Together, they paint an all too familiar gloomy picture of a system whose costs are out of control, in which quality is often poor, and where there is little correlation between expenditures and outcomes. Few would disagree with the causes that they identify: payment structures that reward volume, lack of coordination among providers, an overemphasis on specialty care, and a system that seems more often driven by supply than demand.

The two sets of testimony include several very important recommendations, like more emphasis on public health, dissemination of comparative effectiveness information, and higher payments for primary care (although several years will elapse before this makes a real impact on physician career choices).

Other testimony proposals, however, especially those focused on Medicare, carry the risk of distracting us from more important changes. Chronic care coordination (including the medical home model) has not yet convincingly been demonstrated to cut costs. Accountable care organizations (this year’s buzz-phrase) require more willingness to cooperate than many providers have so far shown. Bundled hospitalization payments make good sense but require the same kind of willingness to cooperate. Tying payments to quality introduces questions of data interpretation and validity of guidelines.

Aside from their uncertainty of success, these proposals share two problems. Each offers potentially inadequate incentives for changing entrenched provider behavior, and each represents yet another government attempt to make an inherently inefficient and ineffective system work just a little better.

Rather than trying to breathe life into a system that might be better left to wither and die, perhaps we should focus on the potential of market Darwinism—in which the most cost-effective survive, and the less fit fall.

In the context of Medicare, Darwinism means redesigning Medicare Advantage so that private plans compete with the FFS program on the basis of price alone—without subsidies. While Hackbarth’s testimony noted the need for financial neutrality between MA and FFS, he stopped short of the recommendation that would make survival of the fittest a reality: allowing beneficiaries to offset any MA savings against their Part B premiums, and requiring that they assume the full additional burden when MA premiums exceed FFS costs.

In the context of national health care reform, Darwinism means setting a standard benefit package that insurers must offer through an insurance exchange. Insurers should be allowed to offer separately priced supplemental coverage, but again—except for low-income individuals—there should be no counter-productive government subsidies that disguise differences in premium cost for the basic benefit.

What might be the results? Assuming a functioning risk adjustment mechanism to discourage “cherry picking,” the least cost-effective insurers should rapidly disappear, the better HMOs should thrive, while the best managed other insurers should apply the kind of cost pressures and pricing innovations that Hackbarth and Berenson have presented (and should rapidly abandon them if they are ineffective).

This doesn’t mean that Medicare FFS demonstration projects aren’t worthwhile. It would be wonderful if the costs of traditional Medicare could be controlled. However, we should be focusing more on the kind of health care system that will work long-term, rather than expending too much of our energies on the application of band-aids and baling wire to something that is inherently faulty.

MAKING PRICE COMPETITION WORK—PART 1: THE INSURERS

Wall Street Journal editorial writers and other folk with touching faith in classic economic theory wonder from time to time why competition doesn’t work better in our health care system. (Actually, the WSJ people are sure that it could, if it were not for government bureaucrats and their spendthrift liberal friends).

It does seem as if Adam Smith’s “invisible hand” is affected by a strange palsy as it nears the realm of health care. But why, given the legions of insurers all apparently eager to edge each other out in the race for our dollars?

Theoretically, employer-sponsored insurance—more than 90 percent of non-government coverage—provides two competition opportunities: when an employer selects plans to be offered, and when employees choose from these plans.

Unfortunately for the reputation of the invisible hand, employers picking insurance options don’t necessarily choose the best value plans. Cost issues aside, they are influenced by the need to avoid the disruption and employee unhappiness that could result from changing plans. Employees won’t want to travel further to a provider, or switch specialists in the middle of treatment, or be forced to leave a well-liked family physician. Large employers may try to sidestep employee concerns by offering a choice of plan types (like a PPO, an HMO, and a HDHP/HSA), but rarely competing plans within a type; smaller employers may be unable to provide any choices at all, unless provided by the same carrier. The result: incumbency may allow insurers to bid higher premiums, even though experience should mean lower risk, while employers may prefer to shift costs to employees rather than switch carriers.

Not only are employers likely to lean towards an incumbent, they may find competing proposals impossible to compare. Large employers have the clout to demand that insurers bid against the same benefit specifications, but others will struggle to compare whatever off-the-shelf packages insurers believe fit their needs. Small groups—even those using a broker—may not have that luxury; insurers will offer take-it-or-leave-it choices of their standard coverage. And, as in other business arenas, volume counts for a lot. Smaller employers face a double cost whammy: their business isn’t important enough to attract aggressive pricing, and individual risks can’t be pooled among thousands of other employees.

The invisible hand doesn’t shake off its palsy at the employee level, either. Although most workers will have some choice, it will be limited, and “best value” may be impossible to determine. Even more than at the employer level, employees—assuming the employer is paying most of the premium—will pick their coverage to maintain existing provider relationships; only those without such relationships or who must pay a substantial part of the premium themselves are likely to put cost first. If it’s available, HDHP/HSA coverage may appeal to the youngest and healthiest, but—alas again for classic economics—at the expense of increasing premiums for other options.

Current government programs do no better than employers. Medicare Advantage, far from allowing health plans to go head-to-head with traditional Medicare, subsidizes plans by several percent while encouraging add-on benefits that make comparison impossible. Medicare’s drug program is so popular (read profitable) with insurers that in urban areas there can be fifty or more plan choices, with different combinations of formulary, pharmacy network, deductible, and monthly premium, proof that more competitors doesn’t mean more effective competition. (Pity the eighty-year-old who must navigate this muddle to pick the best value plan.)

Outside of Medicare, state Medicaid programs have tried to create competition among contracted health plans, but such attempts are undermined by inability to pass cost differences on to patients. FEHBP—suggested as a model for a national insurance exchange—does rather better, offering a shorter list of choices, but unfortunately one in which there is no actuarial equivalence to help determine best value.

So what might make health insurance more price competitive? Reform proponents’ suggestions to help the invisible hand include:

1. Move the primary responsibility for insurance choice to individuals (for example, via an insurance exchange) and require that—except for low-income persons—they bear some meaningful part of the premium cost.

Not everyone in this scenario will make a best value choice, but it should result in greater price sensitivity and greater awareness of the implications of personal health decisions. However, while this would lower costs for small groups and individuals, premiums for large employers (or their employees, depending on the financing structure) would increase if they were forced to switch to the exchange.

2. Establish a standard set of benefits, so that price differences between insurers are apparent.

This doesn’t have to mean “one-size-fits-all;” supplementary benefits (perhaps including alternate deductible levels) could be priced separately, as they are in other nations with guaranteed coverage. The standard benefits could be adjusted periodically to reflect insurance costs and funding availability, although this would shift consumer dissatisfaction from insurers to the government entity administering the exchange function.

3. Guarantee portability, without pre-existing condition limitations.

Essential to universal coverage, this would eliminate the medical shackles that tie workers to their employers (and their insurers) solely to maintain coverage, but would increase insurers’ risk.

4. Provide a risk-adjustment mechanism for insurers participating in the exchange.

Any major change to the insurance system will increase actuarial risk. Insurers participating for the first time in an exchange may have little experience to help set premiums, and will build in a risk factor—unless they receive some protection, either though a risk-adjustment formula (as in the Dutch system) or through reinsurance (a simpler mechanism).


The difficulties facing employers and employees are not the only failures of price competition in our current system. Elsewhere in the health care jungle, insurers face their own competition issues, which will be discussed in Part 2 later this week.


(An earlier version of this piece appeared in The Health Care Blog.)

CONSERVATIVES START TO PUSH BACK

Today’s Politico reports that Conservatives for Patient Rights is launching a million dollar television advertising campaign focusing on the pitfalls of government-run health care systems.

The ads are reported to feature British and Canadian physicians talking about the problems that patients experience due to their nations’ systems.

Conservatives for Patient Rights is headed by former Columbia/HCA CEO Rick Scott, who featured prominently in the federal investigation of improper Medicare claims by Columbia that led to a $1.7 billion settlement. Scott presented his views on reform in a controversial March 2009 article in The Health Care Blog—one that generated scores of comments ranging from enthusiastic support to virulent opposition.

RECONCILIATION—OR WAR?

Reconciliation. It’s an odd word for something that could precipitate a knock-down, drag-out fight in Congress, but the process that Senate Democrats agreed this week to adopt if health care reform legislation isn’t passed by October 15 was originally intended to reconcile differences among House and Senate budget bills. What the process does is to replace the usual Senate requirement of a three-fifths majority—needed to end a filibuster, but also consistent with Senate traditions of compromise—by a simple majority.

So, with the Democrats having decided on an aggressive approach (Republican Senator Michael Enzi has called it “like a declaration of war”), what are the implications for the reform legislative process (beyond making Congressional Republicans mad)?

First, is October 15 an absolute drop dead date?

The answer is, not quite. Not only does the reconciliation process provide for up to twenty hours of debate (which could move the deadline out by just two or three days), but Senate Democratic leaders might prefer to continue negotiations on a reform bill if they felt they were close to the magic sixty votes. This would require the vote of at least one Republican, as well as the only Independent (Joe Liebermann), but would allow Democrats to claim bi-partisan support—even if only a little.

Second, will the threat of reconciliation result in the refusal of Republicans to compromise on reform language?

This is the big gamble that the White House and Senate Democrats are taking. No one likes to negotiate with a threat hanging over their head, and most Senate Republicans are already strongly opposed to much that is being proposed from the other side of the aisle. The risk is that Republicans who might be willing to support a reform bill in some form—for example, the handful who have signed on to the Wyden-Bennett bill—could be so alienated that they too will be unwilling to compromise.

On the other hand—and presumably this is Democrats’ hope—at least some Republican senators may prefer to negotiate in order to try to protect the interests of their business, insurance, and medical backers. Grudging support of a reform bill that they have made more tolerable for their constituents—and that will get fifty-one votes in any case—may seem like a rational strategy.

Third, will the reconciliation process do what Democrats hope it will?

Maybe, but there’s more to the process than just changing the majority vote rules. A key part of the reconciliation structure is the so-called “Byrd rule,” named for long-time (fifty years) Senator Robert Byrd. The Byrd rule, part of the Budget Act, provides a point of order in the Senate against extraneous matter in reconciliation bills. Determining what is extraneous can be a procedural quagmire requiring resolution by the Senate Parliamentarian.

To make matters even more tricky, the Byrd Rule and other Budget Act rules, including a prohibition on provisions that would cause the deficit to increase, may only be waived by a three-fifths vote—potentially bringing the issue full circle. Thus, the result of stretching the reconciliation process too far beyond its original intent can be passage of the legislation shielded against filibustering—but with the original bill emasculated by the deletion of the “extraneous” material.

NEWS UPDATE 4/25: A DROP DEAD DATE FOR REFORM?

The New York Times and New Republic each report that Democratic leaders—albeit in some cases unwillingly—and the White House have agreed on a “reconciliation instruction” that would potentially protect health care reform legislation from the Senate filibuster process.

Under the agreement reached after a multi-hour negotiating session in Majority Leader Harry Reid’s office, the Congress will have until October 15 to pass reform legislation under the usual rules. After October 15, the Senate will be able to pass a reform bill by a simple majority, rather than the requirement of a three-fifths vote.

The agreement was apparently reached only after considerable pressure from the White House. Senate Budget Committee chair Kent Conrad was quoted in the New York Times as stating “Virtually everyone who has been part of these discussions recognizes that reconciliation is not the preferred way to write this legislation, but the Administration wants to have a reconciliation instruction as an insurance policy.” Senate Finance Committee chair Max Baucus also was quoted as preferring not to pursue health care reform legislation through the reconciliation process, and hoping instead to produce a bill that would “get significantly more than sixty votes.”

BAUCUS’ REFORM CLUES: SOME THOUGHTS

Senate Finance Committee chair Max Baucus offered some intriguing clues in his breakfast meeting today (see previous post) about the direction that reform legislation might take.

Baucus’ comments, mostly relating to the roles of insurers, seemed carefully calibrated to gain support from—or at least neutralize opposition from—business and the insurance industry. In general, he avoided discussion of provider payment and system costs, financing, and individual or employer mandates. However, he did point to his November 2008 White Paper as a foundation for his proposals.

Baucus made three key points: coverage should be available to individuals through an insurance exchange but a public plan option might not be essential (but he reserved the right to revisit the issue); the present structure for self-insured employers should be preserved; and the insurance market should be reformed to eliminate pre-existing condition limitations and to guarantee the right to coverage. Each of these points has important implications.

Proposals for a public plan option have aroused fierce resistance from insurers and have been a focus of Republican attacks on Democrats’ reform efforts. Insurers perceive a public plan, particularly one based on Medicare (as suggested in Baucus’ 2008 White Paper) as a double threat. First, it would create government-sponsored competition in a government-regulated market. Second, it would further increase cost-shifting as individuals moved from private insurance to government coverage. Together, these factors could have a huge and destructive impact on the insurance industry. (In its February 2009 report on possible costs and savings due to reform, the Commonwealth Fund estimated that a Medicare-based government program would drive provider payments down by thirty percent and attract up to two-thirds of the individual and group markets.)

Not having a public plan has its own implications. While the insurance exchange concept favored by Baucus would presumably put price pressure on competing insurers, the pressure would likely be less without a public plan than with one—at least in any region in which there were not efficient HMOs or PPOs, the two private structures that under Medicare Advantage have costs closest to the Medicare FFS program. (With less than one percent of Massachusetts residents covered by its Connector, there is probably insufficient current evidence to determine the price effects of insurance exchange competition.) On the other hand, avoiding undermining the traditional insurance industry, for all its faults, would reduce the risk involved in transition to a reform structure.

Preserving the present structure for self-insuring employers would also minimize the transition risks of reform. As presented at the breakfast meeting, the intent seems to be to insulate large employers—those most likely to self-insure—from the potential impacts of reform. Self-insurance is regulated by the terms of the Employee Income Retirement Security Act (ERISA), which presumably would remain unchanged. One feature of ERISA is that it reserves to the Federal government the regulation of self-insured plans, something that has been a concern of health reformers at the state level, who feared that employers not wishing to comply with state reform requirements could decide to self-insure, in effect hiding behind ERISA. In Massachusetts, the only state to have fully implemented reform, this has not so far been a problem, perhaps because the Commonwealth’s business community has generally been supportive of reform. However, if Federal reform allows any employer to self-insure and so avoid other reform requirements, this could become an issue.

The final key point, insurance market reform, also involves risk, but here it is an actuarial concern. Guaranteeing issuance and eliminating pre-existing condition exclusions obviously increase insurance risk. Assuming that market reform will include provisions for minimizing “cherry-picking,” large insurers will have a considerable advantage over their smaller rivals, unless the insurance exchange system provides for either very extensive risk-adjustment or very generous reinsurance. All these options imply increased costs and/or endless argument with government regulators.

NEWS UPDATE 4/24: BAUCUS OFFERS REFORM CLUES

Senate Finance Committee chair Max Baucus offered several clues today about features he hopes to include in his committee’s version of a health care reform bill.

Backing off somewhat from earlier strong backing of a public plan option to be included among insurance exchange offerings, Baucus told reporters at a breakfast meeting hosted by Health Affairs that he wanted to focus first on preserving the insurance structure for larger employers while expanding private insurance and public programs like Medicaid and SCHIP.

Baucus did express considerable support for the insurance exchange structure, citing Massachusetts’ Connector as a model, but emphasized that the benefits to be offered would have to meet (or, presumably, exceed) national—rather than state—standards.

Baucus emphasized his desire to retain much of the present system, and especially to minimize the impact of reform on employers that currently have insurance. However, his remarks focused almost entirely on self-insured companies covered by ERISA. It was not clear if he intended to exclude only current ERISA employers from the potential requirements of reform, or would also exclude any employer wishing at any future time to self-insure.

Among other comments, Baucus noted his intent that reform legislation should provide for guaranteed issuance and elimination of pre-existing conditions. He also remarked that he had not abandoned the public plan concept and might return to it.

A much more detailed presentation of Baucus’ proposals is expected to be provided when he meets in closed-door session with other Finance Committee members on April 29.