The Illusion of Health Reform?
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As the Senate begins debate on its health reform bill we should ask whether the bill is really about reform. I say this because it appears to be about covering the uninsured (a good thing) potentially at the expense of the currently insured and the federal budget (a bad thing) and about replacing the commercial health insurance marketplace with a government-run plan (also a bad thing).
Consider a few ways the bill is not about reform:
1) Yesterday’s CBO report notwithstanding, the bill will raise health insurance costs. Beginning in 2010 a new premium tax on health plans; new taxes on pharmacy and equipment manufacturers; a mandate that dependents up to age 26 be covered by family plans; the elimination of annual benefit caps; and cuts in Medicare provider reimbursements will all increase private insurance costs. How much, we don’t know. In the case of Harvard Pilgrim, we know that the cost of the insurer premium tax alone is $30 million + per year. These increases will be in place for four years before the market reforms go into effect in 2014.
2) When the market reforms go into effect in 2014 they will further increase costs by triggering adverse selection among the uninsured. A nominal penalty for non-compliance with the requirement to purchase insurance will mean that only those in immediate need of health care services will be willing to pay insurance premiums, thereby raising costs for everyone. CBO thinks the current penalty will cause all the insured to be willing to pay for coverage. I wonder.
3) Meaningful measures to reduce underlying medical trend as a source of savings to finance coverage for the uninsured are absent. This means that premium increases will continue at current rates in addition to the increases already noted above.
4) The new public option will further distort the marketplace by either exacerbating the cost shift from public plans to private plans, if insurers don’t reimburse doctors and hospitals at public plan rates, or driving doctors and hospitals out of business, if they do.
Under the Senate bill it is hard to see how the cost of insuring the uninsured (or rather, some of the uninsured) will be borne other than by consumers in the form of higher insurance premiums and by the federal budget in the form of increasing amounts of federal subsidies needed to fund low-income purchasers. Are insurance market reforms that will insure only a portion of the uninsured and are delayed until 2014 worth a cost burden that will be imposed immediately? I would submit that the bill in its current form fails to meet the conditions established by the President in his speech a few months back, since only some of the uninsured will be covered, prices for the currently insured will rise, and in the long run the federal budget deficit will likely worsen.
If we want reform, and not just the illusion of reform, a few things should happen:
1) Financing for the bill should come from system-wide medical cost savings, not from health care taxes and Medicare reimbursement reductions, which will only make matters worse in the commercial market. A collaborative effort with sector-specific annual targets monitored and enforced by government should be undertaken by all health care system stakeholders – health plans, hospitals, doctors, pharmaceutical manufacturers, equipment manufacturers, etc – to lower projected medical trend increases by 1.5 – 2% to fund the bill. This effort could begin immediately without raising insurance costs.
2) The requirement to purchase insurance coverage must be enforceable enough to create a healthy risk pool rather than adverse selection.
3) The public option is not needed if market reforms are properly designed and financed by lowering health care trends.
In the intensely partisan environment within which this debate will occur and in the rush to do something by the end of the year, it may be easier to create the illusion of reform, but the results will not be to our liking. Didn’t we see something like this play out in the financial sector recently?
Bruce I do agree with you about the bills presently in Congress since none of them wring out any excess in the system except Medicare Advantage that is being over financed.
Other than that and hoping the newly insured use less intensive resources allowing reductions of staff. This wish will not come true however.
Everything else adds to the cost and I also agree a single risk pool is needed but not by punishing people into it.
As for medical cost reduction this has always been a hard nut to crack. It will mean Breast Centers, Radiation Therapy, outside Labs, etc will have to be eliminated and the personnel transitioned to other areas where there is need. It probably won’t be in health care unless more nurses are moved back into the hospital. The savings here is suppose to be $200 billion a year but I doubt it. Other countries with half our costs deliver about the same level of medical services. So let’s see the specific list of what can be removed without disrupting the system according to fellow bloggers.
I have been scolded on harping on single payer but the insurance industry keeps touting the multi insurance market as the solution. How does that work?
Bruce, while I completely agree with your first two goals of reducing medical costs and strengthening the mandates, I don’t think you are providing a fair assessment of the CBO report on premiums that was published on Monday:
1. CBO did not say that most people would comply with the mandate just because of the small fine. They provide a number of other reasons as well, first of which is the creation of an annual enrollment period for the exchange.
2. You claim that the Senate bill provides no system-wide cost reductions. This is contradicted by CBO which states that there will be a 7-10% reduction in premiums due to new market rules and another 7-10% reduction due to healthier people entering the insurance pool.
3. You claim that cuts in government payments will raise private insurance rates. CBO again contradicts this. In their view, cost-shifting will be negligible and will be balanced by the lower burden of uncompensated care.
4. You claim that the public option will undercut private insurance prices. CBO says the opposite: the public option will be slightly more expensive than private insurance for the simple reason that it will tend to attract less healthy individuals.
5. You claim that the new taxes on insurers will lead to higher premiums. The CBO analysis does take this into account and still concludes that the cost of a given amount of insurance will go down 7-10%.
Overall, the CBO report shows that the average premium and value for group insurance will essentially remain unchanged, while for non-group, the average value would go up 27-30% and the average premium would go up 7-10% pre-subsidy (down 50% post-subsidy).
I am sure a lot more can be done, but this is better than nothing. And by the way I am interested in knowing why the insurance does not believe CBO, but please provide specific reasons.
Amen to the comments. I have been saying all along that the “solution” to the “problem” of so called uninsured/underinsured needs to be a market driven issue where ALL of the players need to come to the table and be rational about working through the issues. That means the consumers, the insurance companies, the drug companies, the equipment manufacturers, hospitals, doctors, etc. and come to terms that are WIN-WIN for ALL of the parties to health care. Consumers need to also become more pro active in working to maintain better healthy lifestyles and to work on better managing conditions that evolve over their lifetimes instead of just expecting that “insurance will cover it for me”. Doctors and hospitals need to be paid fairly for their education,experience, etc. Additionally I firmly believe that (1) the cost of goods and services needs to be completely open to the consumer to make the intelligent decisions that they need to make to purchase health care that they need and want. (2) a high deductible HSA option where the employee, employee, and where applicable the government under subsidies for lower income individuals funds this account. Then the consumer will become more informed and want to make more consumer driven decisions so that market forces will eventually have better control of this issue.
Gary A. Gahan, LUTCF, Esq.
Bruce -
I’m not sure about your numbers 1, 2 and 4. Forecasters differ, as in your first comment to the effect ‘the CBO forecast is wrong’.
But I’m pretty sure about your #3 point: absent structural reform, clearly lacking in this legislation, we’re in deep doo-doo. My current worry-du-jour: We spend about $8000/capita and live about 79 years. The Chinese spend about $400/capita and live about 73 years. How can we compete with them economically?
My reading of history: every single market reform effort at least since Nixon’s HMO Law of 1973 has failed to improve our systemic efficiency / value. The reason is probably special interest negotiating power.
This reform effort seems to fit the historical mode. But at least it will cover a bunch of currently uninsured folks. And hey! - I’d rather spend a bunch to get healthcare to all Americans than flush more money down the Iraq hole. Forecasters can find lots of productivity gains in that somehow.
Governments waste money - we all know that. But this reform seems about as good as humanly / politically possible today.
Now isn’t that depressing?
Bruce, I think that what’s lost on most is the true grease on the political squeaky wheel. For me, this entire Health Overhaul stopped being about health care (insurance) reform, and what’s best for our country and our families months ago. It’s all about mid-term elections, protecting seats, and the NJ Governor’s election results.
In my opinion, the failure of achieving meaningful reform was sparked by a curious little piece of pending legislation - cap and trade…boiling it down to its essence, the bill increases the cost of energy - which can be positioned as a “tax” on all american consumers. The Bill roars through the House and gets jammed up in the Senate. Sound familiar? The moderate dems that voted for it in the House (and report to wealthy constituents) became understandably nervous about recording a vote for a Bill that raises taxes, particularly when their vote does not end up in legislation. Even more so when they are trying to get re-elected with the GOP nipping at their heels. This debate has become all about three dirty words - Mid Term Elections.
So here come’s another Bill on Healthcare. Which we all thought would plow through the left of center House months before it actually did. Surprisingly, the Bill stalls. Why? The moderate Dems realize that they can’t possibly vote for another Bill that raises Taxes - and won’t become legislation. Way too much of a re-election issue. So the House narrowly passes their Bill (with Pelosi approving which Dems can vote “no” to save their voting record).
Now the Bill hits the more conservative Senate. In the interim, Obama heads to NJ five (5) times to campaign for Corzine, who fails to get re-elected despite Obama’s efforts - losing to a Republican. If I were a moderate Dem facing Republican opposition for re-election, this sends a clear message that the President’s coat tails are not what they once were. (Even more so with his decision for a troop surge in Afghanistan).
So what’s a moderate Democrat to do? Sadly, their first priority is themselves (don’t get me wrong, the same would be true of Republicans if the shoe were on the other foot). In the end, the American people suffer with an inferior Bill to satisy the ego and election needs of our champions.
Just a little food for thought…
Sell your stock in health reform!
Questions about whether access, quality or cost are the most important are moot: the ONLY issue now is cost!
There is NO HEALTH BILL on the president’s desk today, but today the nation IS committed to 30,000 new troops in Afghanistan at a cost of $1,000,000 each for 2010.
The Urban Institute’s “Roadmap to Coverage” (http://www.urban.org/UploadedPDF/411327_roadmap_synthesis.pdf) emphasized ACCESS first and COST second. That approach worked in our state because the economy was strong in 2006, We had much higher incomes and a smaller percentage uninsured than the rest of the US. None of these things is true of the US as a whole, so ACCESS is knocked out and COST must be addressed first.
And while I’m at it, let’s make sure TRANSPARENCY is on the table. Both the current House bill and the Senate bill address benefits and costs over the next 10 years. Who, in this marvelous business of healthcare/healthinsurance has a time horizon that far out? Congress has always had a penchant for providing BENEFITS in the short term but allocating COSTS to the distant future. Using this approach with health reform, while also postponing responsibility for Social Security, Medicare, Medicaid, ongoing bailouts and the costs of war will only be possible if the Chinese continue to buy our debt and we are willing to enslave our children.
Phewww!
Paolo: Thoughtful comments. Your first point is well taken, but you should factor in the new restrictions on age rating, which will increase costs for the young. I don’t see that a $95 penalty will cause anyone young and healthy to buy insurance. On point two, I think that adverse selection will wipe away any other “savings” that might be associated with the reforms. On point three, I would like someone from CBO to accompany me on negotiation sessions with providers. If there are uncompensated care savings they will accrue to providers, not plans. On point four, I have no doubt that the federal government will set, not negotiate rates. They don’t have the staff, and the process would be too complicated. They will issue a fee schedule and give providers the option of participating ot not. On point five, CBO did not address the 2010 tax.
The problem as I see it is that rates are going to skyrocket and no one is going to be able to afford anything.
No disrespect to Harvard or any other HMO, but HMOs created this problem. Health insurance was meant to pool insured’s money to cover unforeseen events. By paying for routine, etc., you have added levels of administrative burden by–the doctor must bill an insurance carrier for a service he would have been paid for outright–he has to pay a biller–the insurance company has to pay for someone to process extra claims that they would not have paid–therefore, the cost of the service increases on both sides. $50 becomes $150 and so on.
The burden of paperwork keeps physicians bogged down and people aren’t seeing the forest for the trees. Just like the sales we see. Why not just put the right price out there instead of all the games.
Insurance carriers keep increasing their premiums by offering all kinds of fluff–take this survey on line and get $100. It’s my $100 to begin with. Get rid of all this mumbo jumbo and get down to the business of paying when people get sick.
Let’s face it–you can’t keep me well. I’m going to die someday of something. You can try to prevent all you want, but I’m going to die and chances are, not without a medical fight. Let’s save all the money for when we really need it–to fight the last fight.
If you ask me to work out, I’m going to have knee injuries, foot problems, hip problems, etc. The medicines that lower my cholesterol also rot my liver. No matter how you slice it, you’re going to pay. Why not just wait and pay for the end?
Imagine how much we would all save in waste and fraud and frivolity.
If doctors want to offer Wellness programs, let them. Let them get paid for the services they provide directly from the patients they service–why add administrative burdens. I’m sure they can design wellness programs for $70 per month–2 sick visits per year and a physical per year. Let the insurance pick up the unforeseen events.
I know–it’s the government who decides–but someone should sit with them and show them what they are doing to responsible Americans who want to take care of their families by buying insurance and who will soon give up in desperation of unaffordable rates.
We’re doomed unless someone bigger than me can get these legislators to understand what they’re doing.
Bruce, I was on the contract committee for our IPA for five years and I can tell you the first offerings from insurers left much to be desired and at times were insulting. Usually at the end each side felt they had a good deal. Budgets were met and surpluses produced. At least in our hospital catchment area. Physician fees represent 10% of the health care pie while hospitals represent 60%. Any words on the latter?
In other countries physicians do negotiate their income with the government. Our neighbor Canada does this province by province. This method has produced satisfied participants. The largest doctors’ organization in Canada, CMA, represents 85% of physicians and they strongly support their system. There is greater satisfaction among the physicians in Canada than there is in this country. Nothing is ever 100% in human endeavors so there will always be some squeaky wheels among the minority who take a different view of their system. By the arithmetic above they are 15% of physicians. However physician migration was actually negative last year. More doctors moved back to Canada than left.
It is interesting how commenters dance around how to get everyone in a single risk pool. This seems to be a sub rasa understanding that this is a necessary step to achieve savings and provide efficient care. It just is hard coming to the realization that this is the only way to go and every Rube Goldberg scheme has to be tried before it will happen. Punishing by fining or taxing, avoiding “adverse selection”, community standards, managed care have not put the brakes on the problem. You can fill in my next sentence.
Bruce, I appreciate and respect your explanation of how things look like from the insurance industry’s point of view. However, you lost me on this statement:”If there are uncompensated care savings they will accrue to providers, not plans.” Are you saying that if the government reduces the provider costs by $1, the entire $1 will go to provider profits (and not lower prices)? Yet at the same time you have been saying that if government increases provider costs (or reduces provider payments) by $1, the entire $1 will be passed on to private insurers (and prices will increase by $1).
How is this possible? The price that a provider charges a customer is either based on the provider’s costs of doing business or it is not. But it cannot be both at the same time!
Regarding the fee or tax on insurers, the impact is indeed addressed by the CBO report. See page 15: http://www.cbo.gov/ftpdocs/107xx/doc10781/11-30-Premiums.pdf . The CBO states that the cost per fixed amount of insurance would go down by 7-10% after taking the tax into consideration. Without the tax, the price reduction would be greater.
At the same time, I think you make good points on the risks of adverse selection. This is an issue that everyone should be familiar with (most people currently are not) and most everyone should be able to agree to. I wish AHIP had made this argument on its own without mixing it with other much more controversial arguments like cost-shifting.
Paolo:
I am not the government and cannot set prices based on cost. I negotiate prices. Cost and price are not the same, unfortunately. With respect to the 2010 tax on insurers, I was referencing the period prior to health reform.
The CBO analysis is based on what happens at full implementation. For many years prior there will be higher premiums.