The Wonk Room

Bush Admin Issues New Medicaid Rule That Forces Struggling Americans To Pay More For Health Care

As rising unemployment swells Medicaid rolls, the Bush administration issues a new federal rule that would allow states to “deny care or coverage to Medicaid beneficiaries who do not pay their premiums or their share of the cost for a particular item or service.”

In what the New York Times describes as a “sea change” in Medicaid, states will now “charge premiums and higher co-payments for doctors’ services, hospital care and prescription drugs provided to low-income people under Medicaid“:

The administration acknowledged that ’some individuals may choose to delay or forgo care rather than pay their cost-sharing obligations’…The Congressional Budget Office has estimated that 13 million low-income people, about a fifth of Medicaid recipients, will face new or higher co-payments. Most of the savings result from “decreased use of services,” it said.

Rather than the Bush administration’s approach of forcing poor Americans to pay more for health care during an economic crisis, the federal government should increase FMAP — the percentage the federal government reimburses states for Medicaid — and expand the program to allow more Americans to buy affordable health coverage.

Growing health costs are now “the primary driver of the fiscal challenges facing the state and local sector over the long term.” At least 27 states are facing budget gaps and most are simultaneously experiencing an increase in Medicaid enrollment. A survey by the Kaiser Foundation concluded that “Medicaid enrollment across the country grew 2.1 percent in fiscal year 2008″ and “states expect to see even larger increases in Medicaid enrollment and spending” in fiscal year 2009.

But as more Americans are relying on government safety net programs for health care — or forgoing care altogether — the Bush administration is banking on “reduced use of services” and co-payments to help recipients become “more educated and efficient health care consumers.”

Why Big Reform Should And Could Happen In 2009

In a post titled ‘Why big reform won’t happen in 2009,’ Joe Paduda of Managed Care Matters responds to our argument that the economic crisis demands health care reform. While recognizing, to some degree, that Congress cannot help American families or address the economic woes “in a lasting, meaningful way without health care reform,” Paduda argues that a lack of cost containment measures render comprehensive health care reform unaffordable:

While I applaud their motives, perspective and logic, I would also note that their piece completely misses the big point, a point they themselves explicitly acknowledge. None of the health care reform initiatives presently before Congress (except for the Wyden-Bennett bill), nor President-elect Obama’s health reform platform address costs.

A recent analysis of Barack Obama’s proposal by PricewaterhouseCoopers’ Health Research Institute priced Obama’s plan at $75 billion a year, with over one-third of the costs coming from existing funding for the uninsured. The group did agree with Paduda, noting “unless successful cost containment strategies were put into place, growing health care costs will increase the costs of Obama’s plan.”

Fortunately, Obama did not leave cost contain containment out of his proposal. In fact, just this summer CAPAF released an analysis of Obama’s cost-containment strategies. The report recognized that while universal health care reform would require an upfront investment in coverage and health care infrastructure, Obama’s containment measures would also help bring down health care costs and make covering all Americans more affordable.

Here are the specifics:

- Expanding Access Contains Costs: By extending coverage to all, Obama can achieve efficiencies, end cost shifting and rationalize
financing mechanisms. As Bookings Institute economist Henry Aaron points out, broadly expanding coverage is “a precondition for effective measures to limit overall health care spending.”

- Harness Market Power of Group Purchasing: Through Obama’s proposed insurance exchanges, small purchasers and individuals achieve greater clout vis a vis insurance companies. Small purchasers would enjoy greater choice of health plans, greater choice of provider networks, and lower premiums than they experience today.

- Emphasize Prevention: While the United States spent $132 billion in 2002 treating Americans with diabetes, just $70 billion went to the prevention of all diseases. It can be difficult to quantify the possible savings from expanded prevention efforts, but experts estimate that just ensuring that every child receives every routine vaccination could reduce direct and indirect health care costs by up to $40 billion over time.

- Improve Information On Effective Treatments: Today, Americans are likely to receive the appropriate care just half of the time, and approximately one-third of individuals seeking care are likely to experience a medical error such as a medication mistake or the wrong lab results. Improving quality could help save lives and contain costs. Estimates of savings go as high as 150,000 lives and $100 billion every year.

- Greater Use Of Information Technology: Less than 25 percent of hospitals, and less than 20 percent of doctor’s offices, employ health information technology systems. Estimates vary, and real-life experience is limited, but one group of researchers finds that implementing health IT would result in mean annual savings of $40 billion over a 15-year period.

- Better Management Of Chronic Disease: Treating the 90 million Americans with chronic conditions costs about $1.2 trillion a year, or approximately two-thirds of national health care spending. Better care for individuals with these conditions can translate into substantial savings. If every diabetes patient received the appropriate primary care for their condition, for instance, then national health care spending would fall by $2.5 billion.

First Shot Fired: Conservatives Attack Universal Health Care Reform

The Washington Times fired off two separate editorials today criticizing incoming Health and Human Services secretary Tom Daschle’s Federal Health Board initiative and progressive health care reform. Universal health care “would also reduce consumer choice and drive many private insurers out of the market,” the Times claimed:

Although his board would technically have no say on the 68 percent of health care that is provided through the private sector, Mr. Daschle modestly adds: “Congress could opt to go further with the Board’s recommendations. It could, for example, link the tax exclusion for health insurance to insurance that complies with the Board’s recommendation.” Those last 19 words would spell the end of independent private-sector health care in America. [Tony Blankley]

It would result in massive increases in federal spending, higher federal taxes and taxpayer debt being passed on to our children and grandchildren. It would also reduce consumer choice and drive many private insurers out of the market, leaving all but the wealthiest Americans with little choice but to receive care from the resulting government monopoly. [Washington Times]

The attacks are certainly reminiscent of the conservative effort to mischaractarize President Clinton’s health care reforms. In 1993, the Heritage Foundation labeled Clinton’s plan “a massive top-down, bureaucratic command-and-control system that would meticulously govern virtually every aspect of the delivery and the financing of health care services for the American people.” An influential editorial published in the Wall Street Journal by the Manhattan Institute similarly described the Clinton plan as a “coercive” proposal that “takes personal health choices away from patients and families.” [Health Plan's Devilish Details, WSJ, 9/30/1993]

Fifteen years later, conservative talking points — however consistent — still don’t match reality. In truth, Tom Daschle supports the breadth of progressive health care initiatives: 1) an insurance exchange that allows private plans to compete with a new public plan 2) expansion of Medicaid and SCHIP 3) subsidies for Americans who can’t afford to buy insurance.

Rather than relying on the government to provide care, progressive prescriptions are rooted in the philosophy of shared responsibility in which every player in the health-care arena — the government, employers, doctors and hospitals, insurers, and individuals — help support a rational, sustainable system.

Daschle’s Federal Health Board that would resemble the current Federal Reserve Board for the banking industry. The Board would ensure harmonization across public programs of “health-care protocols, benefits, and transparency” and would set “evidence-based standards for benefits and quality for federal programs” in the hopes of lowering the complexity of different insurance regulations and ultimately lowering costs. “These standards would apply to federal health programs and contractors and serve as a model for private insurers,” Daschle writes in his book.

Reigning in unsustainable health care spending and providing a model for private insurers is far from a doomsday conspiracy. Consider Massachusetts’ landmark health reform law. The legislation built “upon the existing health care system, with expansions to Medicaid, subsidized coverage for people with low incomes, and reform of private insurance markets.” Far from forcing bureaucrats into consult rooms or spelling “the end of independent private-sector health care,” the legislation increased access to meaningful coverage. In fact, since the program’s launch in June 2006, 439,000 more people have enrolled in health insurance, and nearly half of them signed up for private insurance not funded by taxpayers.

Without offering any alternatives, ideological conservatives are now gearing up for another health care fight. Unfortunately for them, things have changed since the 1990s. This time around, “what’s really exciting about the stakeholders is no longer are they saying that the second-best choice is to do nothing.”

Small Businesses Open To ‘Any Kind’ Of Government Intervention In Health Care

Bob Laszewski points to an article by John Sinibaldi, a “well-respected health insurance agent in St. Petersburg, FL , [who] has become prominent in Florida’s broker community.” Sinibaldi argues that many small businesses would now accept some sort of government intervention in health care:

Across the board, the 100+ businesses I represent, all of them two to 50 full-time employees, have received increases between 13 percent and 75 percent this year. The average has been around 20 to 24 percent. That’s on top of more than 15 percent average increases last year, the year before, and the year before…So an increasing percentage of small businesses now feel that governmental intervention of ANY kind is preferable to the present untenable situation. In the small group marketplace, the pinch has been here for a long time, and has turned into a hard squeeze. Soon, it will squeeze the life out of the markets — at which point the small group market will implode.

The acceptance of “any kind” of government intervention is a departure from the rhetoric of 1993/1994, when the National Federation of Independent Businesses (NFIB) misrepresented Clinton’s employer-mandate as a crushing financial burden that would cost thousands of jobs.

Under Clinton’s proposal, “most small businesses that currently insure would have seen significant declines in cost.” Clinton’s plan capped total health care costs for companies participating in the new state-based alliances at 7.9 percent of payroll — dropping as low as 3.5 percent for the smallest businesses — provided discounts for the smallest low-wage companies and offered 100 percent tax deductions of health costs for the self-employed and independent contractors. But as Paul Starr explains, “few small employers understood that this obligation was limited to a share of payroll” and most “business simply did not trust the administration.”

Fifteen years later, small businesses may be more trusting of comprehensive reform. In fact, small business owners and their employees account for the largest share of the uninsured population—an estimated 27 million of the 47 million Americans without health insurance. Generally, small businesses have three major disadvantages when it comes to providing insurance:

- Risk is shared by a smaller number of workers, which makes them more expensive to insure as a group

- Small businesses lose economies of scale, which makes their administrative costs more expensive

- Small business premiums can vary more from business to business and year to year, making premiums unpredictable and, in some cases, exorbitantly expensive.

Progressives have long maintained that insulating small businesses from growing health care costs would require “all interest groups — business owners, employees, the health care community and government” to contribute through the concept of shared responsibility. Such an approach would save small businesses from the inadequacies of the current system.

President-elect Barack Obama proposes establishing a health insurance exchange to connect individuals and employers to affordable insurance options. The plan establishes a large risk pool, spreads the cost and risk of insurance across a broad population, reduces the administrative costs of purchasing coverage, and ensures that premiums are set fairly and consistently. Small businesses would compare private coverage options with a public plan and purchase the most appropriate policy.

Can Wyden’s Call For The Elimination Of Employer-Based Coverage Survive New Congress?

On Friday, the 13 co-sponsors of Sens. Ron Wyden’s (D-OR) and Bob Bennett’s (R-UT) Healthy Americans Act wrote a letter to President-elect Barack Obama outlining their shared principles for reform:

Ensure that all Americans have health care coverage;
Make sure health care coverage is affordable and portable;
Implement strong private insurance market reforms;
Modernize federal tax rules for health coverage;
Promote improved disease prevention and wellness activities, as well as better management of chronic illnesses;
Make health care prices and choices more transparent so that consumers and providers can make the best choices for their health and health care dollars; and
Improve the quality and value of health care services.

Most progressive champions of health care reform — Kennedy, Baucus, Clinton, Obama and grassroots organizations — warmly embrace Wyden’s principles but oppose the crux of his plan. As Ezra Klein explains, Wyden’s plan would dissolve employer-based insurance and mandate every employer who had covered his employees to “convert the total they spent on insurance into salary increases creating, in one day, the single largest pay raise America has ever seen.”

Individuals would be required to purchase health care from “one of the options offered by their state’s newly formed Health Help Agency (HHA). The HHA’s will have a menu of private insurance plans, all of which must provide coverage equal to or better than the Blue Cross Blue Shield Standard Plan used by Congress. All plans will be community rated by the state, meaning an end to adverse selection and preexisting condition problems,” the government would offer subsidies of “up to 400 percent of the poverty line,” and “employers will contribute through a set equation related to business size and yearly profits.”

Conversely, the Baucus, Clinton, and Obama health care proposals all build on the employer-based model, thus ensuring that workers keep the insurance that they currently have.

This position is quite popular. According to a recent Gallup poll, for instance, 67 percent of Americans said that they were either completely or somewhat satisfied with the health insurance benefits that their employer offered and businesses seek to build on the employer model.

For these reasons, Wyden’s proposal is politically tricky. Congressional forces for reform and the various coalition groups that are pressuring Obama to make a major push for universal coverage, are all rallying around the employer-system. Wyden’s plan does have bipartisan support, but as other more employer-friendly plans start to wind their way through the new Congress, expect some Democrats and moderate Republicans — who may have signed up for his plan to be “for” something — to support a more mainstream version of reform.

Medicare Advantage Overpayments Don’t Improve Quality Of Care

This summer, Republicans argued that curbing the excessive federal reimbursements to Medicare Advantage plans would undermine choice and strip millions of enrolless of insurance. Conservatives also claimed that the private insurance plans that participate in Medicare Advantage provide better care than traditional Medicare and should not be cut.

Responding to these arguments, the Wonk Room pointed out that while Medicare Advantage plans “are paid 13% more than traditional Medicare pays for similar seniors,” there is no evidence to suggest that they deliver “a better cost/quality result” than traditional Medicare programs. Today, three studies published in Health Affairs concur, finding that private plans “have increased the cost and complexity of the program without any evidence of improving care.”

One paper by Carlos Zarabozo and Scott Harrison explains that private plans were intended to “achieve efficiency through care coordination.” The initial design “called for plans to be paid 95 percent of projected fee-for-service spending for each enrollee — generating a 5 percent savings to Medicare.” Policy makers hoped to encourage private plans to compete on efficiency and offer extra benefits to enrollees. However, since “payment increases have been so large that plans no longer need to be efficient to offer extra benefits,” Medicare now pays “an average 12.4 percent more per enrollee in 2008 compared to what the same enrollee would have cost in the traditional Medicare fee-for-service program”:

The higher MA payment rates have financed what is essentially a Medicare benefit expansion for MA enrollees, without producing any overall savings for the Medicare program, and with increased costs borne by all benefices and taxpayers…the additional benefits have not resulted in improved quality among MA plans.

Insurance companies pocket the extra dollars. In fact, according to a Government Accountability Report (GAO) released just in June, private plans participating in Medicare Advantage earned greater profits and spent less on benefits:

Because organizations spent less revenue on medical expenses than projected, they earned higher average profits than projected. On average, MA organizations’ self-reported actual profit margin was 5.1 percent of total revenue, which is approximately $1.14 billion more in profits in 2005 than MA organizations projected…Nearly two-thirds of beneficiaries were enrolled in health benefit plans offered by MA organizations for which the percentage of revenue dedicated to profits was greater than projected and the percentage of revenue dedicated to expenditures (medical and non-medical combined) was lower than projected.

Fortunately, President-elect Barack Obama has promised to eliminate this subsidy to insurers and use the extra savings ($62 billion over 5 years, $169 billion over 10 years) to finance comprehensive health care reform.

Insurance Industry Proposal Fails To Control Costs

Earlier this week, America’s Health Insurance Plans (AHIP) and the BlueCross BlueShield Association issued statements agreeing to offer every applicant health insurance if all Americans purchased coverage. Insurance profits aside, a universal mandate makes sense. If the young and healthy avoid preventive care and only enter the health care system at the onset of sickness, they will require more expensive treatments or develop costly chronic diseases. To contain costs, better manage chronic diseases and improve preventive care, everyone has to be part of the system.

But while the insurance industry has shrewdly co-opted the rhetoric of universal coverage, they have not adopted the necessary affordability measures that progressives typically advocate for. For instance, while most progressives support community rating — everyone pays the same prices for coverage, regardless of health status — and a new health care exchange in which private plans are forced to compete with a public option, the insurance industry would be happy to see the government subsidize coverage for those who can’t afford it.

Since insurance companies will likely conflate universal coverage with affordable coverage and resist cost-containment measures that could undermine industry profits, progressives need to clarify their goals for reform and delineate the differences:

Community Rating:

- Progressive argument: Replacing underwriting with a “community rating” system would set premiums based on age and location instead of the health status of the individual. This would bring down the cost of insurance for higher risk populations and guard against radical changes in premiums from year to year.

- Industry argument: Looking at the experience that states have had who have done guarantee issue, who have done community rating…they’ve had some prices increase, individuals have actually had a reduction in coverage in their market.

- Industry debunk: The problem with community rating is that if all health plans in an area don’t stick with it, it falls apart. If insurance companies to underwrite healthy applicants, the plans that are still community rating will be left with sicker populations and higher premiums. Community rating only works if underwriting is restricted and universal coverage is extended.

Competing Public Plan:

- Progressive argument: A competing public plan would use the administrative efficiencies of government-run health insurance plans, as well as the purchasing power of government to control costs. Insurers do not have (or are unwilling to use) the market power to counter the pricing power of many hospital systems or physician specialties.

- Industry argument: Where there’s a public option where they got to set the rules when competing with private companies, that would not achieve the type of goals on improving coverage and improving access, and making healthcare coverage more affordable.

- Industry debunk: Allowing private insurers to compete with a new public plan will lower costs and force companies to compete on quality and value instead of risk.