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.