About healthreformtrends.com

Health Reform Trends, Research and Analysis Website

This website provides analyses into assorted health care issues in the United States. With the aging U.S. population, there will be a significant increase in demand for health care services.  Under the status quo, these demands will place an extremely heavy burden not only on Federal and state governments but on citizens as health care costs continue to rise faster than inflation, wages, salaries, and benefits.

In 2011 there was an increased interest in 2011 on funding issues. In response, the site adds analyses dealing with wealth and income that may provide potential funding sources, not just for health care but to reduce deficits that have grown sharply during the “great” recession. Analyses focusing on income and wealth issues are now noted separately on the “Research-Analysis” tab on this website.

The analyses on this site rely primarily on data provided by non-partisan government agencies, long-established research institutions, and enterprises whose business is to analyze aspects of health care, be it health insurance or hospitals or health care providers.

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Highlights for ACA Reinsurance Fix

Below is a process flow diagram of major components that impact ACA reinsurance. It contains three columns representing health claims process [1] before ACA, [2] the current ACA process, and [3] ACA with government Reinsurance.

Initially, the process is identical for all three, but it diverges when handling “excess” costs as shown by the three red bordered boxes. Shifting those excess costs to government as reinsurance dramatically drives down total costs for both insurers and users. The two boxes at top right add the effect of lower health care costs on government subsidies to arrive at the combined net savings from users and government.

This process diagram is a picture of an Excel spreadsheet in which one can change the assumptions in yellow highlighted cells.

Open Process Flow Diagram: ACA Flow Diagram

Download Interactive Spreadsheet: ACA Process Flow

The above diagram captures most of the effects of government reinsurance. An even more comprehensive analysis is provided in the Post titled:

Exchange Fix Stabilizes and Restores “Affordable” to Affordable Care Act

Both posts identify the multiple effects when government reinsurance is reinstated for ACA Exchanges. Both analyses show that government reinsurance when implemented:

  1. Can decrease health insurance costs by 40% or more for small businesses, key generators of jobs in the U.S.
  2. Is equivalent to a $25 Billion middle class tax break for Exchange members (difference between member savings and net new government spending)
  3. Clearly defines maximum risk for insurers, abolishing the costs of unlimited risk, leading to far lower premiums
  4. Increases competition and user choice as health insurers have positive incentives to participate in Exchanges
  5. Provides health insurers with a large built-in market to up-sell additional products and services
  6. Continues reliance on private health insurers to come up with creative solutions for cost containment and reduction

MSNBC misses on Medicare reforms

Lawrence O’Donnell commented on Medicare reforms in Obama’s State of the Union speech. He seemed to imply that Obama was shifting from “fee for service”, the current model, to  “capitation”, or HMO model. That is neither what Obama said nor implied.

What the Affordable Care Act (ACA) promotes is not the HMO or capitation model, but “payment for results”. This is something of a hybrid of “fee-for-service” and “capitation”. Fee-for-service IS unsustainable while a Medicare HMO would put the entire cost risk on the providers — both the risk [1] for the cost of each incident AND [2] for the frequency of incidents.  That is too much risk for Providers. But there is a middle road.

“Payment for results” in the ACA “constrains” the cost for an incident but for NOT the frequency of incidents. So if twice as many seniors got the flu, providers would receive flu reimbursement for each senior treated.  Just as occurs now, there is no added risk to providers if more people get sick or injured.

What changes is the reimbursement for an individual incident.  “Payment for results” ends the one-for-one fee-for-service where hospitals and doctors are reimbursed a dollar for every eligible dollar billed.

However, Medicare’s “results” payments would apply only to combined groups of hospitals and doctors called “Accountable Care Organizations” (ACO). To encourage formation of ACO’s, ACA offers a carrot. If the ACO members working together can treat, for example, a flu incident for less, Medicare will first pay the ACO that lower cost but it will also share with the ACO the savings between billed cost and an imputed fee-for-service cost.  Further, Medicare would make one combined payment to the ACO and not be involved in how the ACO divides that payment between hospitals and doctors.

Along with the carrot is a stick. If the ACO over-treated (higher cost) or mistreated that led to a relapse (poor result) and additional treatments,  the ACO would not get reimbursed the full amount for these “extra” services. The ACO’s have a two-edged incentive to become more efficient.

With fee-for-service, efficient providers that bill less are paid less. Medicare keeps ALL the savings, so why should providers bust their butts to lower costs. Under ACA these ACO providers now get to share in the savings.  This idea is not only good for providers and Medicare, but the entire health insurance industry. Providers are rapidly forming ACO’s across the country, not just for Medicare patients but for the entire population. Even some insurers are forming ACO’s, becoming both the insurer and provider.

For decades, hospitals or doctors have competed somewhat “softly” in that you never see price wars between providers.  The business model of for-profit insurers closely mirrored the “cost-plus” model of some  military contracts that led to $600 toilet seats.  Insurers had limited incentive (or success) to put heavy pressure  on providers. Instead, insurers spent more time cherry picking their membership to reduce claims instead of constraining  provider costs.

Under ACA’s prohibition of excluding people with pre-existing conditions, insurers will no longer be able to cherry pick their membership. To compete, they will have to focus more attention on lowering provider costs. Hence, their incentive is also to promote ACO’s.

Finally, the ACA made payment for results a pilot program since this model is untested in the United States. Not being mandatory, the CBO has not factored in any savings arising from this program.  The savings could be substantial and we have some evidence that savings will occur.

One analyses on this site, “Medicare – Fewer Benefits or Less Waste” compares Mayo Clinic’s all-in costs versus the highest cost 20% of hospitals. Mayo’s prices are higher than industry average, but their intensity was lower (fewer days, fewer treatments). If the 20% highest cost hospitals had costs comparable to Mayo’s, the savings could exceed $250 BIllion over 10 years. A significant savings indeed.

Tell Me Something I Don’t Know

Download PDF Report >>> Tell me something I dont know

You know the good features in the Affordable Care Act. You know Republicans want to repeal it.  Fine, so “tell me something I don’t know”.

REPUBLICAN PROPOSALS

For instance, did you know that Nixon proposed a comprehensive health reform plan in 1974, or that Republicans countered Clinton’s health reform with their own in ‘93? What were some of their reforms?

Start with the ever-popular individual mandate. Republicans were strongly for it. Now they are solidly against it.  Banning exclusions due to pre-existing conditions?  They were for that before they were against it.   Continue reading

Individual Mandate not necessary – But will you like the alternative?

Download PDF Report >>>Individual Mandate Alternative

SUMMARY

Of all the issues in the Patient Protection and Affordable Care Act (ACA or PPACA), one that has drawn an extraordinary amount of attention is the Individual mandate. Looked at in isolation, it may seem like an overreach. However, a broader view indicates why this provision or similar was included at all.

It is included because another section of ACA prohibits Health Insurers from rejecting people with pre-existing conditions as they do now. Some medical conditions may be avoidable, but the vast majority of pre-existing conditions occur through no fault of the individual. Insurance of all types is to spread risk, and the more skewed the risk the greater the need for insurance. Health costs are extremely skewed making health insurance vital to a modern economy.

ACA mandated that everyone buy insurance and that makes sense. However, the objection is forcing people to buy from a private company. There are several options to resolve that. One is to create a government-run insurer. That would eliminate forcing people to buy from a private insurer. A second is to make payment for any service obtained by an uninsured person a loan similar to student loans that could not be discharged for any reason. They would carry interest and be payable in full no matter the circumstances.

DISCUSSION

The percent of people with pre-existing conditions is small and to the majority of folks without such a condition, it may seem like a trivial matter. However, the number of people with pre-existing conditions is in the millions, and the cost to them has been and can be horrific. Medical expenses for these people have led to thousands of bankruptcies as health care costs sapped all their savings and more.

Insurers soon will be required to insure ALL persons regardless of medical condition. There is the very real risk of some people will avoid buying insurance, and then when they have an injury, or find they have a chronic condition like asthma or diabetes, they would only buy health insurance AFTER they know they have a medical condition.

One would think that any notion of personal responsibility would have all persons get insurance in order to spread health costs risks over the greatest population. The more people that buy insurance, the lower the cost per person. However, experience has shown that some people will NOT buy insurance if they feel they will not get sick or injured.

Fortunately, many employers offer health insurance for their employees, and by law, health insurers covering insurance through work (group insurance) MAY NOT exclude people with pre-existing conditions after some limited period of time, usually less than a year. However, the same did not apply to individuals until health care reform.

Note that employed individuals usually have access to health insurance.  Full time employees, that is. With rising costs, what have many employers done including some of the largest?  They have reverted to greater use of part time employees who do not enjoy the same privilege and access to health insurance as do full time employees. This is putting more pressure on reforming individual insurance plans.

People do not just dream up laws in a vacuum. Most fall into two categories. One is responses to maintain clean food, air and water, or help disadvantaged people, often the result of some abuse (social laws). The second are financial laws, like taxes or efforts to reduce taxes via special treatment for some (loopholes). ACA addresses the former by adding a financial provision, the individual mandate.

Everyone who works pays into social security and Medicare. Since Medicare is health insurance, there already is a mandate for working individuals to buy health insurance from the government. The only distinction is that Medicare is government-run insurance, while the ACA mandate applies to buying insurance from private companies.

ALTERNATIVE ONE

In the state run insurance exchanges to which any health insurer can join, add a government-run health insurer. Then the individual mandate does not require buying from a private insurer. However, if an individual decided against all private insurers they would have to buy the government-run insurance plan, just like Medicare and clearly legal.

However, politics intervened. Draft legislation DID INCLUDE a government-run insurer. They called it the “Public option”. It would operate on the same level field as private insurers and not be subsidized in any way. Private and government insurers would compete for business. Still, critics objected, and politicians stripped this provision from the final bill.

Why the objections?  Perhaps it was fear of competition.  To understand the public option, all one has to do is look at Medicare. Different in that it would cover people under 65 years old. In addition, women over 65 do not get pregnant, so there would be some differences in coverage.

What few know is government manages Medicare entirely through private health insurers. Insurers use a term Medical Loss Ratio (MLR) do describe how much of a premium dollar goes to pay health care costs. For Medicare, the MLR is over 95% meaning over 95 cents per premium dollar goes for health benefits. For private insurers, not so much. Their average MLR is in the low 80% range, and for individual insurance, which Medicare is, the MLR is even lower. How can private insurers compete with someone whose costs are less than one quarter of their own?

The honest answer is they cannot, at least not as currently structured. However, where does the constitution guarantee private enterprise continued profitability or even existence? “Destructive renewal” is a term used by business to explain competition that virtually by definition requires companies to fail as other more efficient companies market their goods and services for less; or whose new goods and services make prior ones obsolete (think cassette tapes).

It is worth noting that private health insurers used to have MLR’s in the mid 90%, but that was 30 years ago when nearly all insurers were non-profit.  Over time, for-profit insurers became more prevalent, and as they did, they had to show a profit for their investors. Some admin efforts were devoted to marketing. Some to reducing costs. Some to profits. The net effect, however, is that far fewer dollars went for health care costs and more went for overhead and profits. Yet some of these same companies administer Medicare contracts for less than 5 cents on the dollar. What is apparent is that insurers could cut back on what it now costs them to weed out people with pre-existing conditions, but more efficiency are needed to compete.

ALTERNATIVE TWO

Set the ground rules for individual insurance similar to that of group insurance obtained through work. If a person elects not to purchase insurance, and gets sick or injured, a person could still buy insurance but the law would allow pre-existing exclusions to extend for one year. Also like group insurance, if a person previously had health coverage, and not more than 60 days elapsed without coverage, then the person could buy health insurance with no waiting period.

This alternative needs to have a bit more teeth to be effective. This is because there is a law that hospitals have to treat EVERYONE, regardless of ability to pay, and a healthy person could delay for years purchase of health insurance. They would only buy insurance when they get sick.

The current Medicare drug program provides a template for solving this issue. If a senior fails to purchase drug insurance, the premium continues to rise for as long as one remained uninsured. One can apply a similar index to health insurance. But how does one provide assurance of payment? Since the person required services, it should be legal to require the person to purchase insurance to pay for those services, and if the person is unable or unwilling to pay, the government could advance a loan similar to student loans.

That loan would bear interest, need to be paid over time (though shorter than for student loans), and could not be discharged by bankruptcy. If not paid by retirement, payments would be deducted from that person’s social security, just like student loans.  Gone is the mandatory requirement. Replacing it is an automatic loan that the individual must repay in full with no exits.

Since the government would initially pay the hospital, it also could determine the ability to pay of the person getting treatment. If that person was indigent, they could be put on Medicaid, and no medical loan would be created.  If the person’s income were within the subsidized amount, they would have been eligible for had they carried insurance, the loan would be reduced by the amount of the subsidy. Since the hospital is paid in full, there would be no cost shifting to those who bought insurance.

ALTERNATIVE THREE

As noted above, a law requires hospitals to treat EVERYONE, regardless of ability to pay. One could rescind that law and force everyone to either have insurance, pay for service, or be denied service. But few would be willing to take that backward step. From a practical standpoint, this is not a viable option.

Download PDF Report >>> Individual Mandate Alternative

Surgical “Check Lists” Improve Quality, Lower Costs

Read Full Analysis at >>> New England Journal of Medicine – Check Lists

As most anyone who has ever looked into an airplane cockpit while boarding, the pilot and crew were going through a check list to insure nothing in preparation for the flight was overlooked, assuring safety to the crew and all the passengers.

This check list method, it was found, can similarly provide favorable impacts on surgical outcomes. A January 29. 2009 article by the New England Journal of Medicine noted some of the benefits from using this process.  To quote from the background of the article:

“Data suggest that at least half of all surgical complications are avoidable. Previous efforts to implement practices designed to reduce surgical-site infections or anesthesia-related mishaps have been shown to reduce complications significantly. A growing body of evidence also links teamwork in surgery to improved outcomes, with high-functioning teams achieving significantly reduced rates of adverse events.

In 2008, the World Health Organization (WHO) published guidelines identifying multiple recommended practices to ensure the safety of surgical patients worldwide.  On the basis of these guidelines, we designed a 19-item checklist intended to be globally applicable and to reduce the rate of major surgical complications.”

Read Full Analysis at >>> New England Journal of Medicine – Check Lists

Leapfrog Group Rates Hospitals

Additional consumer information regarding healthcare choices is one step in improving the healthcare system.  Among the organizations providing this type of data is Leapfrog Group.  Their website says it best.

From Leapfrog website:

The Leapfrog Group is a voluntary program aimed at mobilizing employer purchasing power to alert America’s health industry that big leaps in health care safety, quality and customer value will be recognized and rewarded. Among other initiatives, Leapfrog works with its employer members to encourage transparency and easy access to health care information as well as rewards for hospitals that have a proven record of high quality care.

The Leapfrog Hospital Survey is the gold standard for comparing hospitals’ performance on the national standards of safety, quality, and efficiency that are most relevant to consumers and purchasers of care. Hospitals that participate in The Leapfrog Hospital Survey achieve hospital-wide improvements that translate into millions of lives and dollars saved. Leapfrog’s purchaser members use Survey results to inform their employees and purchasing strategies. In 2009, 1206 hospitals across the country completed The Leapfrog Hospital Survey.

Go to Website >>> Leapfrog Group