quinnscommentary

The June 19, 2009 issue of the Wall Street Journal contains the following statement in an editorial.

“Mitt Romney pitched his 2006 health reform — which Democrats view as a model for universal coverage — as modest and affordable, yet already its public option is annihilating the Massachusetts fisc. The original cost estimate for last year was $472 million; final spending came in at $628 million. Spending this year is at least $75 million over initial budget, while projections for next year range as high as $880 million — and even those are probably too low.”

I wrote the following article in March 2008, do you see a pattern?  As the federal government moves in this direction, be prepared for unintended consequences.  Expanding coverage without addressing the underlying causes of health care costs is a recipe for disaster.

Guess Where? 

State officials, struggling to keep down the cost of the subsidized insurance program at the heart of healthcare law changes, abruptly pulled back from new contracts with insurers this week, according to three sources close to the bidding process. 

In December, before bidding began, authority staff predicted that state costs per member could rise as much as 14 percent without any changes in coverage or co-payments, an increase officials said was unsustainable. Initial bids from some insurers came in even higher, sources said, followed by second bids that were more moderate, but apparently still too high for the state. 

Governor XXXXX, in his proposed budget for next year, included $869 million for the subsidized program, called Commonwealth Care, up from $618 million this year. The program currently serves more than 170,000 low-income people and is expected to grow to 225,000 by June 2009. 

In addition, the board has been considering raising premiums and co-payments to help reduce the state’s costs. 

Over the last few weeks, as the state negotiated new contracts with four insurers who have managed the program since it began in October 2006, lobbying intensified against the proposed premium increases. 

The authority’s staff had proposed that the premiums and co-payments be adjusted depending on the insurers’ final bids. About 75 percent of members currently pay no premium, while the rest pay $35 and up a month. The state has proposed increases of $5, $10, or $15 a month, along with similar increases in co-payments. Higher bids could mean higher premiums and co-payments to offset the state cost. 

Three sources close to the bidding process, who asked for anonymity because of the confidentiality of the negotiations, said some of the four insurers’ initial bids came in even higher than 14 percent increases and were rejected by the state. After a second round of bids, the state and insurers reached preliminary agreement on new contracts with at least a 10 percent increase for some of the plans, the sources said. 

Celia Wcislo, assistant division director of Local 1199 of the Service Employees International Union, said the state needs to look broadly for ways to pay for growing costs. 

“If the bids are high, extreme co-pay and premium increases for low-income families are not a morally or fiscally sound solution,” she said. “Massachusetts healthcare reform, which has been successful so far, was built on a foundation of shared responsibility.” 

Excerpts from the Boston Globe © Bay State pulls back on health contractsOfficials struggle with rising costs of subsidized plan Officials struggle with rising costs of subsidized plan By Alice Dembner Globe Staff / February 29, 2008 

It is Massachusetts, surprised. 

Wave a magic wand and costs will come under control, just look for other ways to pay for growing costs, health care reform was built on a foundation of shared responsibility…reform you say. What reforms in Mass control costs? Mandating coverage, and allowing people to pay premiums based on their age, has nothing to do with health care costs.  The problem now in good old Massachusetts, where I sit at the moment, is that they don’t know the difference between premiums and costs and perhaps have not made the connection that the cost of health care drives premiums. 

March 2008

No co-pay so I thought, what the heck?

No one change or combination of changes will immediately control health care costs, there are too many factors involved.  The aging population, the ongoing development of new technology, new diseases, and the health status of the population all contribute toward costs.  Health care costs will continue to go up no matter what we do; the challenge is to normalize the rate of increase to no more than general inflation. 

However, there are a number of issues, which form the fundamental basis for the current level of health care spending and future escalation.  Following are some of those items with suggested changes. 

Ban all advertising for medical products, care or services

Watching television or listening to the radio you are barraged with advertisements for drugs, hospitals and various screening services.  These do not add to the quality of care, but they sure do add to the quantity.  I have even seen billboard advertising for physician services like “1-800-Hernia.” Slogans like “best care anywhere” and claims such as if you go to this facility, you will have a better outcome are not subjects for advertising. 

Patients need an objective, statistically based source of information on hospitals, prescription drugs and yes, even doctors.  Our objective should be to build those resources and stop revenue-generating advertising.  If you think about it, why should a hospital have to advertising at all?  If it provides high quality services, that information should be easily accessible.  Why do physicians or others who invest in scanning equipment advertise other than to generate income?  How do such services add to the quality or affordability equation?  Some would argue that this is free enterprise and anyone should be able to advertise.  Perhaps, but health care is not like selling any other service or commodity and should not be marketed as if it is.

Promote Wellness for Long Term Value

Promoting wellness is certainly a valuable goal. In the end, it may save money, in the short run it will not.  To use wellness as a funding source for expanded health care in America is an illusion.  Similarly, promoting

Hey, Mary can you hand me the remote?

screenings and other preventive services may have long-term value, but will likely increase short term costs as more people seek such services, and if these services turn into money makers and are advertised as some are today they will substantially increase costs.  This is especially true if services are covered without a deductible, co-pays or coinsurance.  Spending money on health care is no different than spending money on other services, but logic is not part of health care costs.  While we would not pay to have a preventative oil change included in automobile insurance, we seem to have no trouble with the idea that such personal responsibility should not apply to health care.

Improve Patient Education about Health Care and health Care Services

Patient expectations and perceptions about health care are generally unrealistic.  For example, the doctor is always right and the insurance company wrong, the insurance company just denies claims to make money; a higher price means higher quality, more services mean better healthcare.  Americans must be educated regarding the delivery, quality and expectations for their health care.  If this is not accomplished, there will be ongoing conflict between patient expectations and the reality of what the system can and should deliver and of course, the related cost.

Eliminate negotiated fees and the concept of “participating” providers

Under the current system health insurance companies develop networks of participating physicians and negotiate a fee structure with each provider.  An individual doctor may contract with several different insurers each with slightly different fees and claim procedures.  The promise to the physician is to bring in patients or to keep existing ones who are covered by the given insurer or plan administrator.

This process not only adds administrative complexity but it also masks the cost of health care.  There should be no “participating” physicians or other health care providers.  All providers should be required to accept payment directly from a health plan and then bill the patient for the portion of the fee not covered by the plan.  The patient will then see the true cost and will be more inclined to select providers that are more efficient.  The health insurer or plan is free to set allowable fees thus retaining the flexibility to remain competitive.  The patient then becomes the main driver for selecting an efficient provider.  Physicians and others are relieved of an additional administrative burden and know that they too must compete at the patient and not insurance company level.  Insurance companies are relieved of the cost of establishing and maintaining networks.  The cost for services is equalized across all patients regardless of their insurance coverage.  The burden for controlling costs moves directly to the health care providers.

Develop a centralized uniform claim processing and adjudication system

Any given physicians’ office deals with a number of different health plans each with different claim filing procedures, perhaps different forms, different electronic systems, different payment processes, etc. we should ask why?  Why can’t we have a single clearinghouse for claim submission and routing to the individual health insurers?  Is the process so complicated that insurance companies cannot agree on a single claim submission process?  Back in the days of the Clinton health care reform initiative Bill Clinton held up a mock insurance card during a State of the Union Address, the idea was a single clearinghouse, much as we use in banking.  That is certainly technically possible.  The administrative savings for insurers and all health care providers would be significant.  Any insurer that does not play by the new rules does not provide health insurance; there are too many companies anyway. This is separate from the idea of centralized patient records, which also would help.

Reform Malpractice

While the cost of malpractice insurance is not a major driver of overall health care costs, it is a contributor especially in some specialties.  The idea that a physician is sued to an unlimited extent is absurd; the idea that an attorney is paid based on the size of an award is equally absurd.  There must be some meaningful reform in the adjudication and settlement of claims of malpractice.  In addition, in the event of true malpractice there needs to be transparency for the public to learn and then make an assessment regarding the use of a provider with proven malpractice.  In other words, in some cases the penalty should not be an insurance company payment, but specific action against the physician.

Move all health insurance oversight to the federal level under ERISA, including banning state level benefit mandates

One of the major contributing factors in the cost of health care is state mandated benefits.  Estimates range as high as 25% of the cost of health insurance is due to these mandates.  State legislators are easily influenced by special interest groups and have little or no stake in the cost generated by such mandates.  The minimum design of all health insurance should be determined on a cost-benefit basis and on a uniform level across the country.  Each employer or other entity providing health benefits would be free to add additional coverage.

Require all employers in the US to provide a minimum level of health benefits or contribute 105% the cost of coverage to an entity providing such coverage.  

Many employers, especially small employers are opposed to this idea on the basis they cannot afford it.  However, if all employers are required to participate no one company would be placed at a disadvantage.  Further, without such a mandate what vehicle other than a government run program will be able to expand coverage?  Employers should be free to aggregate their employees into larger groups managed jointly similarly to what happens in union multi-employer welfare trusts.

Define quality and make data available in a common database available to all Americans. Ban physician ownership of health care facilities

Revenue generating advertising is not the way to learn about new drugs, medical treatment and the like, nor is it a way to assess quality and alternative services.  Every American should have access to independent evaluations of health care providers, facilities and treatments.  In addition, evaluate treatment variations and outcomes that vary by geographic location and force best practices throughout the system without regard to financial incentives that may drive such practices in certain areas.

Along these lines, prohibit health care professional from investing directly or indirectly in any health care service or product.  Some will say that singling physicians out for investment restrictions is wrong, but the reality is that the provider of health care services can drive the purchase of health care like no other product or service.

Bring back the (staff model) HMO

If you think about many of the things wrong with the deliver of health care (perverse incentives to provide care, lack of coordination of services, duplication of services, lack of peer interaction, etc.) they can be resolved in a well run staff model HMO. Provide the majority of care under one roof, provide centralized medical records, provide peer consultations among physicians employed by the same entity, compensate physicians on a salary basis not fee for service, enhance the ability to review and monitor the quality of care. Such a model allows a physician to focus on medicine rather than running a small business.  America destroyed the HMO concept with bad publicity and a watering down of the pure model, patients wanted the ability to go to any doctor no matter that they had no way to evaluate who the right provider may be. 

Done right, the staff model HMO as a viable option for all Americans will go a long way toward achieving affordable, efficient and quality care.  One of the objectives of reform is to make health care “affordable.”  In some context, that means limited or no deductibles or co-payments.  Unless there is a managed environment, allowing the patient open access to coverage and services they perceive as free, leads to unnecessary costs and unnecessary care.  The HMO can both provide the truly needed services and control the cost.

Permit the establishment of buying cooperatives within and across state lines for the express purpose of small employers aggregating their employees into larger groups.

If you listen to President Obama, he will tell you that health care reform is essential from an economic point of view to help control the future federal deficit.  Health care reform is certainly important but it must be done right. That means find real meaningful ways to control costs at the point of service.  The cost of health care, the real cost, not the administrative costs, or insurance company costs, but the cost of care which is a combination of the cost per unit of care, i.e. the cost of an office visit and the number of units used, how many office visits or hospital admissions or CAT scans. 

However, we do not seem to be heading in that direction.  In a June 15 letter to Senator Kennedy, the Director of the Congressional Budget Office says, “According to that assessment (the one performed by the CBO), enacting the (health reform) proposal would result in a net increase in the federal budget deficits of about $1.0 trillion over the 2010-2019 period.” 

These are preliminary estimates, the legislation is far from final and the estimate does not include some additional mandates on health care. Some revised predictions place the cost at $1.5 trillion over the ten-year period.  In the same letter to Senator Kennedy, the CBO director says the net decrease in the uninsured would be about 16 million.  They also estimate a decline in the number of people covered by employer plans by 15 million. 

Health care reform is going to happen in a form yet to be defined, but in our haste to get something done, we are missing the crucial point.  It is not the lack of coverage that is the problem; it is the cost of the care provided at the point of service.  Every issue we have flows from that, except perhaps the health status of the American people and correcting that is a very long term effort generating few if any savings within the next ten years.

Some employers would be delighted to see a government run health care system in the US.  What could be better than business getting out from under the burden of health care costs?  Perhaps the real question is what could be worse? 

Well, higher taxes could be worse, higher wages, less control over health care spending could be worse as well.  Those companies who naively believe that shifting health care to a government run plan will relieve them of some financial burden, make them more competitive are quite frankly naive.  Look at it this way, if the employer who spends say 6% of payroll on health care suddenly finds that expense gone, does it save 6%?  I think not.  In a union environment the unions would seek some replacement perhaps in wages.  Even without a direct payment to workers, most if not all (or more) of that 6% would be replaced by taxes to pay for the expanded coverage.  If workers paid most of the tax which is unlikely, they would certainly seek higher wages to offset the additional tax burden.  In France for example, nearly 50% of the employee costs for a worker go to government to pay for health care and other social services, in Germany it is 52% and in the US it is currently 30.1%. 

Moving to a government run health care system is not a matter of saving money, it is simply a matter of who you pay and how you pay them.  But it is also a matter of the worker, the union and the employer losing control over what is spent and what it is spent on.  Currently state mandated provisions to health insurance  add nearly 25% to the cost of coverage.  Imagine that at the federal level. 

The question we need to ask and the problem we need to solve is why does an MRI of the back cost $1,100 and why does an initial office visit to a specialist cost $225?

There is a high probability that a public plan option will be in the final legislation. Question is in what form.

There could be a trigger mechanism that puts it in place only after certain reform metrics are not met in a few years. Members of Congress are also discussing consumer cooperatives as an alternative. But the strength of the Democratic majority and the parliamentary rules will allow the Democrats to pass health reform even without any Republican support. So far, most Republicans have been opposed to health reform as it is being discussed. So if they don’t support a compromise, then a more ambitious public plan is more likely.

A public plan option will likely lead to full government run health care in a few years, which is the ultimate objective of many in Congress and perhaps the American people. But government run health care does not automatically lead to cost savings or the quality of care we all want.

For examples we only have to turn to Medicare and Medicaid.  Successive Congresses have modified these plans, created numerous mandates, failed to adequately fund them and shifted billions of dollars in costs to the states and the private sector in failed attempts to control costs.  Yes, these programs provide some level of coverage to millions of Americans, but they are also creating intolerable financial burdens that are approaching crisis levels.  Much of this is due to federal manipulation of the programs and the creation of expectations that cannot be reasonably fulfilled.  The same objective of providing coverage could be achieved without a federal bureaucracy running them.

Get ready for a cap on the tax free benefit you can get from your employer health plan. A tax cap is becoming more and more likely. The expectation now is that it will be at about $13,000 in the first year. But here is the catch; the cap will count employer contributions, employee pre-tax contributions and contributions toward an FSA and HRA.

Forget what you hear from Republicans, they can’t do a thing, the Democratic majority and congressional rules allow the Democrats to do as they want.

Needless to say this means more administration for employers, especially self-insured plans that will have to make the calcuations and no doubt support them to the federal government in some way.

Here is an excerpt from a portion of the report from the Medicare Trustees

Do you think there is a problem?  Of course, this was the assessment of the previous administration.  Today, it appears that this is not so relevant because the President is proposing cuts in Medicare, mostly cuts in payments to hospitals and other providers and cuts in payments under the Part D prescription drug program to correct the problem…

but wait, it is a different problem the President is attacking.  President Obama is proposing these cuts to find money to spend on health care reform and government involvement in health care for all Americans.  Who is doing this math anyway?

Here is how it can work for you.  Take that credit card debt you are loaded down with, and then take a serious look at your expenses.  Lucky you, you find money you can save and put toward your debt.  Heck no, take the money you save and go buy a new car.

The front page of the latest issue of Time ® says, “It’s All About Prevention.” “The first step toward containing health care costs is to avoid getting sick.  Here’s what it takes.”

Do you wonder why all of a sudden health and wellness is an in thing; it is a smart idea, and it may save money some day.  However, the real reason is that the administration is counting on wellness initiatives to help fund expanded health care in America.  The logic sounds quite reasonable; if people are healthier, they will consume less health care now and in the future.  The problem is that it is mostly in the future to the extent it happens at all.  It certainly does not save money in 2010, 2011, or 2012.  The financing estimates prepared for the Obama administration simply do not add up just like the cost of Medicare drug coverage did not add up, or Medicare for that matter and just like the Massachusetts health care experiment failed to take into consideration that covering more people meant generating more costs.

In short the selling job is in full motion, the facts be damned, full speed ahead to health care reform by October.  Health care reform within the context of the current Congress may represent a very radical change in our system.  It will never be reversed once enacted and we had better be sure we get it right.  To date it is more a game of getting it fast.  Americans need to ask the hard questions about what changes will mean what they will cost and how they will actually be paid for.

The following is from a summary of draft legislation from several committees in the House of Representatives. Do you see anything that will help control your health care costs and the rate of increase in health care spending?  No, that is not a trick question; it is a reflection of the (perhaps intentional) political view on what it takes to get health care legislation fast at almost any cost.  While one would have to admit these are noble goals, they in fact increase health care spending overall.  Keep in mind that the goal for universal coverage means a growing utilization of health care services and if we do not make fundamental changes in the COST of each those services (not premiums, not insurance, not cost shifting) and the frequency of utilization, we have not solved a problem, but rather created a larger one.

I have been scanning the proposed health care legislation from the Senate Health, Education and Labor Committee and have extracted from a summary prepared by the American Benefits Council some of the proposed provisions that will most affect large employers.  At first glance, this is more cost shifting, increased administrative costs, increased benefit costs via mandates and a great potential for many more as the program goes into effect.  There is also a major conflict in what is called patient rights and an entities ability to control costs where there is a conflict between what a patient and doctor want and what in reality may be medically necessary. 

The government run Affordable Access Plan alternative is especially troublesome as it will shift more cost to the private sector as does Medicare and will eventually make the cost of private plans prohibitive beyond what they are today and thus gradually force everyone into a government plan.   Before that happens private plans will face increasing costs. 

There is little in the Senate draft that actually controls costs especially in any near term. 

Key Points Summarized 

If an employee opts-out of health coverage offered by an employer and obtains coverage though a health plan offered through a state-based health insurance Gateway (i.e., an insurance exchange or connector), employer must pay the federal government an amount it would have paid to cover a fulltime employee under its employer plan:   Increased administrative costs, potential adverse selection. 

Affordable Access Plans would reimburse health care providers at Medicare payment rates plus 10 percent (rather than establishing reimbursement rates as private health plans would, based on negotiations with participating health providers):  Payments below market rates transfer costs to private sector. 

Includes a Declaration of Rights relating to patients choosing doctors, the doctor patient relationship and health professionals’ determination of “what is best” for their patients: Conflicts with case management and standard medically necessary provisions. 

Establishes a Medical Advisory Council (“MAC”) with authority to determine “essential benefits” and determine “affordable, available coverage” for purposes of the individual and employer mandates; MAC recommendations become effective automatically unless disapproved by Congress within a specified number of days: Groundwork for growing mandates in coverage, state level mandates are already estimated to add as much as 25% to the cost of insured health care plans. Firmly establishes government role in employer plans. 

Establishes a new federal disability/long-term care plan with automatic enrollment and voluntary opt-out:  Additional tax on workers for the coverage based on age; may create demands for higher wages to offset. 

Requires all insurers and self-insured group health plans to develop and implement reimbursement structures that provide incentives for:

1. the provision of high quality care, case management, care coordination and chronic care management, conflicts with bill of rights
2. reduction in preventable hospital readmissions through discharge planning,
3. improvements in patient safety and reduction in medical errors through the appropriate use of best clinical practices, evidenced based medicine and health information technology
4. wellness and health promotion activities, child health measures, as defined under the Social Security Act,  may add costs
5. culturally and linguistically appropriate care, as defined by the Secretary of HHS, and generally reflects Medicare and Children’s Health Insurance Program (CHIP) payment policies with respect to any “generally implemented” payment incentives to promote high quality health care.

   All of the above appear to change the relationship between the self-insured plan and the plan administrator and create substantial addition work for the self-insured plan.

 
Requires first dollar coverage (i.e., no cost sharing) by insurers and self-insured group health plans for preventive health services included in the  recommendations of the U.S. Preventive Services Task Force, immunizations recommended by the Centers for Disease Control and preventive care and screenings for children based on guidelines issued by the Health Resources and Services Administration: Increases costs immediately, by eliminating cost sharing discourages patient from cost base decisions which should include preventive care, reinforces the “it’s free” mentality.

 Requires insurers and self-insured group health plans that cover child dependents to make coverage available until the child dependent reaches age 26: As there appears to be no student requirement, this could represent a substantial increase in employer costs, it may provide an incentive for a child with medical bills to remain dependent on the parents longer than otherwise would be the case.