Healthy Policy

Things that don't make sense

From the things that don't make sense to me about Consumer Directed Health Care File, we have this recent news:

CMS likely will reduce Medicare reimbursements to physicians by 4.6% in 2007 because of increased program spending on physician services, Herb Kuhn, director of the Center for Medicare Management at the agency, said on Friday in a letter to Glenn Hackbarth, chair of the Medicare Payment Advisory Commission, CQ HealthBeat reports. 

Cuts were supposed to be 4.4% in 2006 but political forces were able to put them off for a year.  The announcement last year was met with much vehemence -- mostly complaints over the fiscal stability of physician practices.

Now let's take a look at this comment from Matthew Holt's post on health savings accounts from yesterday:

Transparency is a problem... but will not be solved by legislation. People and employers will begin demanding better cost information as time goes on with HDHP. I am not sure what the magic number is in terms of market penetration, but it will occur.

As a practicioner, once all of the insurers post prices online, I no longer need to participate, and I can reduce my overhead expenses by setting prices at levels I deem reasonable. If that idea became widespread, then costs would decrease for most Americans.

First, isn't this comment presupposing the insurer is gone?  Isn't that the case if the physician is doing the underwriting?  And why, exactly, when doctors complain again and again about how salaries have fallen, would they decide that prices should be lower than what the underwriter forces upon them?  But let's suppose that's not what the commenter means, the insurer is still around.  The administrative costs saved from this particular  excisement are quite small, and if you really want to save administrative costs, go single-payer.

But here's my real question: if doctors are rebelling this much against Medicare-led payment rates, and consumer directed health care largely functions on the idea that consumers will force providers to lower payments, why should we expect CDHC to work?  It's not like patients can say, "gee, I guess I won't have that coronary bypass after all..".  The administrative overhead is still in place, because you still go through insurers, you have even more billing because now a good portion is going directly to the patient rather than the insurer.  I just can't understand how this kind of push for price transparency is actually going to bring down prices.  Refer, as well, to Paul Ginsberg on the relatively nontransparent prices for Lasik. 

Or South Africa, where their HSA experiment led to a race to the bottom, and did not, in fact, reduce prices. 

I invite anyone who strongly believes otherwise to try and convince me, because I honestly cannot see how it would work.

Adults say we can measure quality, but it doesn't really matter

A new survey flushes out opinions on rating health care quality.  According to the poll, forty-nine percent of U.S. adults believe there are "fair and reliable" methods to measure and compare hospitals' and medical groups' quality of care. 

Well, this bodes badly for those pushing substantial reforms based on better information on prices and quality.

But really, your average U.S. adult has no idea what they're talking about on this issue, so I wouldn't take it too much to heart.  And if they think they have such good indicators of quality already, they probably don't really care about actual stats on quality (i.e. the eyes and ears method), and they won't use new resources for doing so.  The real question is how high these adults judge their current quality of care. 

Words of Wisdom

Everyone knows Paul Ginsberg is just freaking awesome.  Hop over to the Health Care Blog and read his testimony on price transparency and consumer directed health care. 

Exactly what price transparency isn't going to do

From the opening paragraph of this WaPo article:

Hospital bills are about to become less mysterious. Within a few weeks, the Bush administration plans to publish the prices Medicare pays for common medical procedures, a move that advocates for the poor say will pressure hospitals to give uninsured patients the discounts provided to people with insurance.

I hate to get all nit-picky on this, but I have to.

First of all, this is not going to make hospital bills less mysterious AT ALL.  There will still be five million billing codes, five million acronyms and foreign phrases, and lists and lists of things patients are charged for.  No, this has nothing to do with simplifying bills.

What it does do is list the price Medicare pays for certain procedures. 

But I'd like to see just exactly how, especially in the light of Medicare Part D, this listing is going to "give uninsured patients the discounts provided to people with insurance."

Really though, in the interest of fairness, let's look at how hospitals work with insurance companies.  The insurance company agrees to cover services at a given hospital, and the hospital agrees to charge discounted prices because of the guarantee of patients. 

What happens when an individual comes to the hospital?  They have no contract with the hospital.  If they're uninsured, they have no guarantee (nor can they make one) that they will return to the hospital for further business.  And lastly, if they're poor and uneducated, they have no access to these price lists, have never heard of these price lists, and certainly have no clue how to use price lists to leverage their payment.

That being said, Medicare, with its huge bargaining power, should have control over how much it pays for services, and use that as general tool to influence more uniform pricing.  Price transparency is generally a good thing, and something that we could certainly use more of.

But let's not be naive about what price transparency will accomplish. 

Association Health Plan Primer

cross-posted from tpm

The Senate Health, Education, Labor and Pensions Committee on Wednesday voted along party lines to approve an association health plan (AHP) bill.  President Bush pointed to AHP’s in his state of the union address as one of many reforms to help individuals attain health insurance.  But AHP’s expose individuals to another frontier of risk, where their health benefits are paltry, uncertain, and expensive. 

The key complaint driving the creation of AHP’s is that state regulation bars insurers from offering affordable health plans.  If insurers could offer plans on a national market, bypassing any state regulations, more plans would be offered and more individuals would become insured. Unfortunately, this type of thinking isn’t supported by reality.

Bare-bones plans have been offered for years, and people don’t want them.  But more than that, Ezra Klein takes a look at why we have state regulations in the first place:

The reason states mandate that insurers cover certain procedures is so insurers can't price folks who are likely to need those treatments out of the market. Insuring young women, if you didn't need to cover anything related to pregnancy, would be relatively cheap. Pricing the pregnancy package through the roof would be relatively easy. And denying the claims of those who bought the base package and then got pregnant would be trivial -- and would save you a ton of money. So almost all states mandate that you cover maternal care. And this goes across the board, from procedures the old use but the young don't need to packages that target specific lifestyles. If you allow the insurance companies to subdivide the market by treatment needs, what you'll have is bargain-basement pricing for the young and healthy coupled with unbelievable premiums for their less-lucky friends.

But this statement from Committee Chair Mike Enzi (R-WY) on the purpose of AHPs is the most revealing:

Let us put the power in the hands of small employers and family-owned businesses, rather than in the hands of insurance companies or the government. Let the consumers band together to drive the change that we want to see happen

Enzi is completely wrong about where the power in this situation is going.  It’s funneled directly to the insurers!  They’ll be offering bare-bones plans to these small businesses, who will have no ability to negotiate higher benefits.  Why?  Because there’s nothing barring them from trying to negotiate plans with insurers now.  Insurers simply aren’t interesting in offering an affordable but comprehensive product to small businesses. 

But why trust history?  Enzi wants consumers to band together and force doctors/ hospitals/ insurers/ employers to provide them with cheaper health care.  Because they surely haven’t had enough time to do so the last forty years. 

The bill has already passed committee.  If it passes the Senate, it will only continue to weaken health insurance as we know it.  The way to solve our health insurance problems isn't by cutting benefits, it's by fixing our fragmented system that costs twice as much as our more generous international counterparts.

More employers to offer HSA's

Via Kaiser, a recent survey  of mid-size to large employers found that 30% are currently offering high deductible health plans.  This is a significant increase over the previous year.

Keep in mind here, though, that a high deductible plan is not necessarily coupled with a Health Savings Account. 

I'll be interested to see what the pick-up rate is (i.e. how many employees choose these plans), and how many of those employees stay in the plans after a year. 

Holt and Reinhardt

Matthew Holt is quite enamored with Uwe Reinhardt's discussion of HSA's at a recent KFF event.  Matt pasted the transcript over at THCB, but the gist is that using HSA's as a way of controlling costs actually shifts the responsibility of cutting back on health services principally on the backs of the lower third of the U.S. income bracket.  It's well put and worth reading if you have a few minutes.

Uwe Reinhardt also spoke at the National Health Policy Conference in February.  He's a fantastic, engaging speaker.  I don't think I've ever seen someone able to make health policy so funny.  Any Democratic candidate with health reform on the brain would be genius to just bring him along on campaign stops to go after HSA's.  He's damn convincing.

Skin in the game?

Ezra continues on his health care beat with an examination of "skin in the game":

This "skin in the game" phraseology has emerged the leading trope of the HSA-movement, so much so that it was a running joke throughout a recent health policy conference I attended. But its weirdness transcends its linguistically resemblance to George Allen's politics-as-football-metaphors language. In health care, all your skin is in the game. If you don't seek out the right care from competent professionals in sanitary environments, you...die. And if the threat of death, or illness, or amputation (as seen in the negligent self-care of many diabetes-sufferers) doesn't put your "skin in the game," Huckabee thinks moderate financial exposure will?

Something else I've been pondering is the flawed way HSAs are being introduced into the market.  If they're supposed to introduce more risk then the employee should feel like it's their money they will have to spend in order to get care.  But if their employer is putting in money up to the deductible (in the case of several companies), doesn't that erase the incentive to be "cost-conscious"?  Isn't their skin not really in the game?

Speculation aside, how much skin should people have in the game?  Many compare the cost of insuring your car, or your house, to insuring your health.  But let's play a game.  Let's say you take away the insurance --- how much is your car or your house?  A house is really a one-time expense, something that you pay for over decades.  With health care you continue to rack up costs.  I, for example, am only 22, but I've racked up well over $200,000 worth of health care costs at this point in my life.  The ability for me to pay for that expense, versus my ability to pay for a house over the course of my lifetime are quite different.  You simply can't have the same amount of skin in the game as you would with houses or cars. 

So what is the right level?  What is the moral level?  Right now there are positions in the great health care debate that advocate for extreme personal responsibility.  Under these kinds of Utopian spending arrangements, I would have a fraction of the care I've received. 

Underlying all these arguments needs to be the recognition that, for the most part, individuals don't choose their health status.  They get a terrible illness, have a costly genetic defect, are hit by drunk drivers.  Conversely, we choose how fancy a car, how big a house we will buy.  When it comes to health decisions, the amount we're able to choose, regardless of whether that's in a libertarian Utopian way (between prices for procedures) or whether we get procedures at all, is quite limited.  Theoretically we could choose not to have cancer treatment, or not to have pacemakers, but no one should have to make that choice. 

So I ask again, as Americans, how much skin do we think people should have in the game?

HSAs and Wendy's

Yesterday the Washington Post featured an article examining whether HSAs are working for employers adopting them and employees trying them.  The most interesting tidbit was this:

Last year, Wendy's eliminated its old insurance plan for about 9,000 managers and administrators and offered them only an HSA instead. The company has not offered such a plan to its hamburger cooks and the rest of its front-line crew, most of whom do not work enough hours or are not in the right parts of the country to qualify for health insurance -- and tend not to buy it, even if they qualify.

Jeffrey Cava, Wendy's executive vice president of human resources and administration, said the company now insures about one-third of its U.S. workforce, the same as it did before. And although insurance premiums for its HSAs rose much less than the company's old insurance would have done, Wendy's still spent more money overall on health benefits during its first year with health savings accounts than the year before.

First, Wendy's switch to HSAs obviously isn't insuring more workers.  This is something to keep in mind, because if HSAs aren't going to lead to more people being covered, that should really be the key argument against them.   What good is a revolutionary new type of insurance if it's only covering the same people?

Next, it's quite shocking that Wendy's ended up spending more this year than before.  If premiums are lower and it's insuring the same amount of people, where is that discrepancy from?  It's important to look at these actual cases, rather than the theories of HSAs, to see how they're working.  In Wendy's experience, they most likely had a ton of employees dip into their deductibles, costing the company money beyond the former higher premium.

South Africa and the HSA Experiment

HSA's are a relatively new idea in the U.S., so it may come as a surprise that another industrialized nation has several years experience with the accounts.  But they have enjoyed good market penetration in South Africa for long enough to examine some of the results, and yesterday the Wall Street Journal took a look. The majority of the population has publicly funded insurance, mostly due to ability to pay.  About 15% have private insurance, most of which are HSA-style plans. Discovery Health, the key HSA provider, has had extensive success with HSA plans and seen its stock price double in a year.

As President Bush proposes changes to make HSA's easier to purchase, it's important to look at other nation's experience with them.  And South Africa serves as a troublesome teacher.

The introduction HSAs had some unexpected effects which have wreaked havoc on the country's insurance system.  For one, plans are keeping costs low by competing over the healthiest customers.  David Adler of the New Republic explored the effect of HSAs in South Africa and wrote:

The South African story, then, is a move from a noncompetitive insurance environment to a competitive one, but the competition wasn't by hospitals to provide the best or cheapest care, but rather among insurers to get the healthiest patients. Consumer-driven plans are central to this process, because they are ideal for "risk-selecting" the young and fit, who have flocked to the new plans. Not in need of expensive medical care, the healthy could watch their account balances grow, leaving the truly sick behind in traditional plans.

Fortunately, South Africa is stepping in to keep insurance companies from this practice.  As the Wall Street Journal noted,

Starting in about a year, companies whose insured populations are disproportionately filled with the young and healthy will have to pay a penalty.

The strategy has gotten so out of hand that South Africa, a nation that has in the past accepted very little insurance regulation, is intervening.

Unfortunately, it gets worse.  Not only has have the plans stratified the sick versus the elderly, they haven't contained costs at all.  In fact, costs have risen.

Between 1996 and 2001, the cost of specialty care increased 43 percent, and the cost of hospital care rose 65 percent. This represents a marked increase from the inflation rates for the five years prior. There have also been substantial increases in plans' administrative costs (which include profits). 

So there you have it.  The two things that U.S. policy makers fear (decimation of insurance and inability to restrain costs) have already played out in South Africa.  HSA backers make a lot of promises, but there's little evidence that all of their lofty goals will play out in the actual U.S. insurance market.  South Africa's experience alone is reason to be very skeptical.

Problematic

Via Matt Holt

A new analysis by one of the nation's leading health economists finds that the Administration's proposals to expand tax breaks for Health Savings Accounts (HSAs) would cause a net increase in the number of uninsured Americans.

The analysis, conducted by Jonathan Gruber of M.I.T., projects that while 3.8 million previously uninsured people would gain health coverage through HSAs as a result of the President's proposals, 4.4 million people would become uninsured because their employers would respond to the new tax breaks by dropping coverage and they would not secure coverage on their own. The net effect would be to increase the number of uninsured Americans by 600,000.

"The Administration estimates that its HSA-related tax proposals would cost $156 billion over the next ten years, which would worsen the nation's fiscal problems," Robert Greenstein, the Center on Budget and Policy Priorities' executive director, noted. "Professor Gruber's study raises very serious questions about the wisdom of these proposals."

New research on high deductible plans

A new Commonwealth Fund/EBRI report has some unsettling findings about CDHP's:

Everything you wanted to know but were afraid to ask...

About HSA's!  Joe Paduda has a great round up.

HSAs and the uninsured

Matthew Holt has an excellent post on why HSA's won't solve our insurance blues:

We have had “cheap” high deductible insurance products for years and years. I personally have had one off and on since 1998 and they were around for long before that. And as the old high deductible “major medical” policies were around when health care was cheaper, and therefore were less expensive than they are now, according to Hubbard’s logic we should never have had any uninsured in the first place. And yet in California we have more than 6 million uninsured who somehow have failed to buy one. Is it possible that price isn’t the only issue here?

He's absolutely correct -- most people envision health insurance as something  that covers medical expenses.  The majority of people with catastrophic plans aren't going to see their worse-case scenario of $50,000 medical bills.  What they will see are cases of the flu, annual exams, random aches or pains. And catastrophic plans don't cover those expenses.

Besides the fact that certain aspects of these plans are unappealing, there's no evidence that HSA's are going to solve our "uninsured problem".   Studies estimate that 2.9 million more people will enroll in health insurance via HSA-type plans.  That's 2.9 out of our 46 million uninsured, or approximately 6%. 

Make no mistake, HSA's will be lauded as a cure-all in tomorrow's SOTU.  They're anything but.

HSAs on the horizon

A few more points on CDHC.

The New York Times is reporting on banking industries and their plans to get in on the CDHC gold:

By 2010, more than 15 million Americans, or about 10 percent of all those insured, will have a health savings account, according to an estimate by DiamondCluster International, a management consulting firm.

The average individual's account balance, it projects, will grow from $1,500 today to about $3,500 in 2010. Even if people pull out some or all of their money to pay their medical bills, the ballooning balances may mean that $75 billion or so in new money to manage will soon be at stake.

So here's the thing.  We've already discussed the 80/20 rule, and why HSA's don't make a lot of sense when you factor in the way health costs are distributed.  But we're talking about a substantial period of time to even see HSA's supposed effects if only 10% of the population is projected to have them in 5 years. 

Further, the amount of money in most accounts is projected to be $3,500?  That will barely cover an individual's deductible, and only about a third of a family's.  Looking at those stats, I really can't see how they'll make a dent in actual spending. 

Trends, however, catch on easily.  And the trend of shifting costs to employees is already among us. 

Against HSAs

Longtime readers are familiar with my skepticism towards HSAs. Fuchs and Emmanuel, in the last Health Affairs offer an excellent and succint commentary on why HSAs won't deliver:

Health savings accounts. Some incremental reform proposals have objectives other than reducing the number of uninsured people. Consumer-directed health care, subsidized by favorable tax treatment of HSAs, aims at making patients more cost-conscious, leading to usage reductions and possibly more price competition among providers. It is also said that if costs to individuals vary with use, they will have an incentive to choose healthier behavior, such as stopping cigarette smoking. Out-of-pocket payments do give patients an incentive to use less care; whether they are able to make appropriate choices is much more doubtful. The RAND Health Insurance Experiment showed that patients with a higher percentage of out-of-pocket expense use less care, but the proportion of care that experts deem "appropriate" did not vary with the extent of insurance coverage.

There are several reasons for thinking that HSAs, or large deductibles in general, would not have as favorable an effect on utilization as advocates claim. First, a large fraction of health spending is accounted for by a small proportion of patients—patients whose spending levels will be far above their deductible. Second, even for those who have not yet exceeded their deductible but expect to do so before the end of the year, any particular test, visit, or procedure will effectively be free because the patient’s total outlay (the deductible) would be the same, regardless of whether or not they get the particular service. Third, a considerable amount of care is elective with respect to timing. People who have exceeded their deductible have a great incentive to undergo in the same year all of the tests and other procedures that they are contemplating because there will be no cost to them. Finally, a deductible that might be reasonable for a high-wage worker would be unreasonable for one making much less. Thus, there will be pressure to have the deductible vary with income, and that will give rise to other problems, including increasing the administrative costs of such plans.

Great points, and one that should have been obvious to me but I never quite realized: If 20% of Americans account for 80% of spending, how much, really, can be saved? If the majority of people are spending hardly anything, and the rest would blow their deductibles regardless, net savings will be small. Why punish 80% with high deductibles ($2,000 at least for individuals) should they be unlucky enough to get sick that year when the other 20% will spend their deductibles anyway? Put that way, the whole thing is really twisted. We're making life harder for the generally healthy by charging them expensive deductibles when they're the ones using the least care. Only in American health care would this be a good idea.

If you're new to the HSA debate, I recommend my Campus Progress column summarizing the rules and controversy around HSAs.

All About HSAs

My latest column over at Campus Progress is up. This week's installment focuses on HSAs, as in, what exactly is that?

My employer offers Health Savings Accounts. Um, what exactly is it and should I get one?

Health Savings Accounts, known in the health policy world as HSAs, are a new way of paying for your health expenses. HSAs are a type of bank account offering tax benefits that you use only to pay for medical bills. HSAs were authorized by the Medicare Prescription Drug, Improvement, and Modernization Act in 2003 (of the confusing new drug benefit fame), and they’re becoming quite popular. Insurance companies like Blue Cross and Blue Shield, Aetna, and United Health Group sell them, and employers like Wal-Mart offer them to their employees. Over 2.4 million people have signed up for HSAs, and analysts estimate that by 2010 there will be $10 to $26 billion dollars in such accounts

And will they cover the uninsured?

Why is there so much hype over HSAs? Are they going to cover the uninsured?

I’m glad you asked. So far there aren’t any concerted efforts to make HSAs the main cure for the uninsured. This is, in part, because many employers of the uninsured don’t offer health insurance, period, let alone HSAs.The hype is about health care spending in general, which has been steadily rising, and premium costs in particular, which have increased 73% over the last five years.

HSAs are part of a new brand of health care initiatives known as Consumer Directed Health Care (CDHC). These initiatives, chiefly supported by free-market advocates, seek to control health care spending by shifting more of the cost onto patients. The idea is that if people see the bill for their health care, they’re more likely to seek out the lowest price for care and cut out unnecessary spending. The landmark RAND Health Insurance experiment, which used high deductible health plans, demonstrated that patients will reduce their consumption of care in these insurance arrangements. The problem is that they sought less care in all areas – necessary and unnecessary both.

Dying to know more? Go read it all.

South Africa, or what we could become

I know there's been a lot of talk on Consumer Directed Health Care (CHDC) on this site lately. I'm going to continue on that meme today, because there are some fundamental issues worth considering if we're going to continue down that road (we're already on it, you can be sure of that).

David Adler over at The New Republic has an interesting piece on Consumer-directed health care in South Africa. Basically about half of the country's privately-insured are enrolled in high deductible plans. But the introduction of HDHPs (high deductible health plans) has had some unanticipated side effects:

The result was an unprecedented restructuring of the insurance market. The young and healthy migrated to the new consumer-driven plans and away from traditional employer-based schemes. Meanwhile, the old and infirm were left in traditional insurance schemes.

That seems like a predictable response, right? Is it really such a big deal to have insurance segmented in this way?

The answer is, absolutely. Health insurance in the U.S. went through a massive restructuring after commercial insurers switched to experience rating and drowned Blue Cross in the 1950's. Blue Cross had offered moderately priced health plans to all workers through community rating, but other commercial insurers could offer cheaper plans to select groups of individuals through experience rating. The inevitable result was that all the young and strapping moved over to cheaper plans while the old and infirm had to stay with Blue Cross. Stuck with a bunch of high-cost patients, Blue Cross had no choice but to switch to experience rating as well. Which they did.

Now South Africa has experienced the same thing, except this time it was brought on by HDHPs. It's reasonable to believe the same could happen here as well as more and more people enroll in HDHPs. If that's the case, all these plans are going to do is cause a fundamental restructuring of health insurance as more and more people are sectioned off according to their health status. Again.

And what's worse?

At a macroeconomic level, however, there is less cause for celebration. Private health care costs have hardly been contained. In fact, the opposite is the case. Between 1996 and 2001, the cost of specialty care increased 43 percent, and the cost of hospital care rose 65 percent. This represents a marked increase from the inflation rates for the five years prior. There have also been substantial increases in plans' administrative costs.

It's a temporary fix. Look at the graph again. Why, after forty years of trying these different private market solutions, should we believe it's going to be any different this time?

Especially when another country has proven exactly what we fear.