Author Archives: danieladougan

The “giant sucking sound” of waste in the health system

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I kind of miss H. Ross Perot. Whether you thought he would have made a good President or not, the man sure knew how to explain complicated issues to the public.

It’s also a bit strange for me to look back on this debate from 1992. I was only 12 years old at the time, but I followed politics even then along with my parents. Now, nearly 24 years later, we’re still debating many of the same issues we were debating back then.

Back in 1992, Perot described health care (he really meant employer-sponsored private health insurance) as “the most expensive single element” in making a car in the United States. And if he thought it was expensive then, just imagine what he would think now.

Health expenditures as percentage of US GDP

Health expenditures in the USA have grown considerably over the years as a percentage of Gross Domestic Product (GDP). In 1992, health expenditures accounted for just over 13 percent of GDP. In 2014, health expenditures accounted for 17.4 percent of GDP. Note: Percentage of GDP does not need to be adjusted for inflation or population growth…it’s a constant statistic.

It’s obvious that we’re spending a considerably larger share of our economy than ever on health care. That in and of itself is concerning, but what is even more troubling is how much of it we are wasting. A 2012 report by the Institute of Medicine estimated $750 billion in waste in the U.S. health care system in 2009 alone…nearly 1/3 of total health spending that year.

That’s right — out of every $3 we spend on health care, we’re throwing $1 right in the trash. Actually, it’s worse than that because many of those wasted dollars on unnecessary treatments have actually cost people their lives.

The responsibility for building a continuously learning health care system rests on many shoulders because the stakes are high. As the IOM committee reports, every missed opportunity for improving health care results in unnecessary suffering. By one estimate, almost 75,000 needless deaths could have been averted in 2005 if every state had delivered care on par with the best performing state. Current waste diverts resources; the committee estimates $750 billion in unnecessary health spending in 2009 alone…

…The entrenched challenges of the U.S. health care system demand a transformed approach. Left unchanged, health care will continue to underperform; cause unnecessary harm; and strain national, state, and family budgets. The actions required to reverse this trend will be notable, substantial, sometimes disruptive—and absolutely necessary.

Institute of Medicine, 2012. Best Care at Lower Cost: The Path to Continuously Learning Health Care in America

When we talk about health policy the one area that draws my attention is administrative costs. And, quite frankly, the USA has out-of-control administrative costs largely because our patchwork reimbursement scheme makes things needlessly complex.

In the U.S., there are almost as many different types of health coverage as there are patients. Even within the same insurance company, there are numerous variations from policy to policy. When I worked for a major health insurer, I answered calls from our insurance members but also from physician office and hospital staff who were contacting us just to verify a patient’s benefits, from whether the patient still had insurance to deductibles to coverage exclusions. They had learned that insurance cards weren’t always current or specific enough, so they had to call us one patient at a time because everyone was different…just to make sure they got paid.

Does that sound like an efficient system to you?

It’s a problem they don’t have to deal with in countries with single-payer  health systems…like Canada.

Reducing US per capita spending for hospital administration to Scottish or Canadian levels would have saved more than $150 billion in 2011. This study suggests that the reduction of US administrative costs would best be accomplished through the use of a simpler and less market-oriented payment scheme.

Himmelstein, et al. A Comparison Of Hospital Administrative Costs In Eight Nations: US Costs Exceed All Others By Far. Health Aff September 2014 33:91586–1594;

 

It’s called the Patient Protection and Affordable Care Act, not the Cheap Health Insurance Premiums Act

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I’ve heard people say that, since Obamacare passed, the cost of their “health care” went up. So much for it being affordable, right?

What did they mean by this exactly? Well, after probing a bit, I almost inevitably find out that people are talking about their health insurance premiums increasing. And certainly that has happened for a considerable number of people.

But, let’s remember what this law is officially called: The Patient Protection and Affordable Care Act (PPACA). It’s not called the Cheap Health Insurance Premiums Act. And that distinction is tremendously important.

Health insurance is not health care

Health insurance is not health care. People who are uninsured still get health care, after all.  Health insurance is merely a mechanism to pay for health care. Although health insurance in the USA is far from comprehensive today, consider the health care expenses that insurers could avoid paying (or carve out expensive riders and separate risk pools with higher premiums) for before Obamacare.

  • Health care for pre-existing conditions without prior creditable coverage. If you lost your job and spent a period of time unemployed, your new employer’s policy could deny claims for pre-existing conditions for the first 12 months of your policy. And even if you had prior creditable coverage from an employer, with pre-existing conditions you could have been denied insurance in the individual market until you first exhausted your pricey COBRA benefits for 18 months. (I learned this one firsthand.) People who were uninsurable were sometimes transitioned to state high-risk pools, although the premiums in these high-risk pools were typically much higher than premiums in the rest of the individual market because those high-risk pools were not generously funded.
  • OB/Gyn services, including maternity. In the individual market, many policies excluded maternity services entirely and, even if you paid for a separate maternity rider, it had a waiting period on it to prevent people from signing up just after learning about a pregnancy. Because OB/Gyn services can be expensive, women of childbearing age were often charged higher premiums than men of the same age and health status.
  • Health expenses exceeding annual or lifetime maximums. If you had too many physical therapy visits in a calendar year, regardless of medical necessity, you were out of luck. Likewise, if your care became too expensive — either within one calendar year or over your lifetime — you were also out of luck.

The PPACA also requires all health insurance policies to cover preventive care with no out-of-pocket costs. With community rating rules, there is no more medical underwriting…so a sick person pays the same premium as a healthy person.

Going broke from getting sick

Using a conservative definition, 62.1% of all bankruptcies in 2007 were medical; 92% of these medical debtors had medical debts over $5000, or 10% of pretax family income. The rest met criteria for medical bankruptcy because they had lost significant income due to illness or mortgaged a home to pay medical bills. Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance. Using identical definitions in 2001 and 2007, the share of bankruptcies attributable to medical problems rose by 49.6%. In logistic regression analysis controlling for demographic factors, the odds that a bankruptcy had a medical cause was 2.38-fold higher in 2007 than in 2001.

Himmelstein, et al. “Medical Bankruptcy in the United States, 2007: Results of a National Study.” The American Journal of Medicine, 122(8), 741-746. August 2009. [emphasis added]

You shouldn’t go broke just because you get sick.

President Barack Obama, July 19, 2012

Insurance is supposed to insulate us from expenses that can decimate us financially. Yet, as the study above shows, health insurance hasn’t done a particularly good job of that for Americans. As expensive as health insurance premiums could be before Obamacare, they were often artificially low because they were written to limit the insurer’s exposure to expensive claims for health care…putting those expenses right back on the patient to pay out of pocket. The PPACA mitigated this to some extent, particularly for the sickest of the sick, but a consequence of that was an increase in unsubsidized premiums and/or (as a tradeoff) an increase in deductibles.

Health insurance premiums are regulated by state departments of insurance. If an insurer wants to increase premiums, it must demonstrate to the state government that the increase is based on sound actuarial analysis. In other words, it must demonstrate that the premium increase is necessary to pay the claims, cover administrative costs, keep sufficient cash reserves on hand, and make a reasonable profit. (The PPACA mandates that 80 percent of premiums in the individual and small group markets and 85 percent of premiums in the large group market must be paid in claims or returned as a refund.)

Suppose an insurer has to cover 10 subscribers and expects to incur claims totaling $5,600 per month for all of them. Assuming that the insurer is operating on an 80% medical loss ratio, the insurer would need to collect $7,000 in premiums each month from the group. Before PPACA, the sickest members of the group ( Lois, Marcia and Randy) paid much higher premiums than the others. But after PPACA, community rating took away all medical underwriting, forcing insurers to charge everyone in the group the same premium, regardless of health status. That increased premiums for the healthier members of the pool but also decreased premiums for the sicker members of the pool who needed more health care.

Community rating effect on premiums. Suppose an insurer has to cover 10 subscribers and expects to incur claims totaling $5,600 per month for all of them. Assuming that the insurer is operating on an 80 percent medical loss ratio, the insurer would need to collect $7,000 in total premiums each month from the group. Before the PPACA, the sickest members of the group (Lois, Marcia and Randy) paid much higher premiums than the others. But the PPACA’s community rating rules took away all medical underwriting, forcing insurers to charge everyone in the group the same premium, regardless of health status. That increased premiums for the healthier members of the pool but also decreased premiums for the sicker members of the pool who needed more health care. Note: This chart is a gross oversimplification to illustrate the principle of community rating. It does not account for people who could not get into the pool at all before the PPACA, income-based subsidies, or out-of-pocket expenses not covered by insurance. It also assumes the insurer was operating at an 80 percent medical loss ratio even before being required to by the PPACA.

The problems in the health insurance market are merely symptoms of a far more complex problem: the high cost of health care in the United States. The PPACA merely took some of the tools insurers were using to avoid paying for that health care and to attract healthier subscribers (at the expense of sicker ones) out of their toolbox. And it’s the people who need health care the most — the “patient” that the act was designed to provide “protection” for — who benefited the most even though the healthier people who needed health insurance just in case took a hit. As a financing mechanism, insurance is about spreading risk, and the PPACA made sure that the risk was spread more broadly.

It’s 4 a.m. — is your doctor online?

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At about 7 p.m. last night, I went out to eat by myself at a watering hole (which is part of a large national chain). As I started to walk out to my car, I knew something was not right. I started sweating profusely, all of a sudden.

Having experienced food poisoning before, it didn’t take long for me to match the symptoms to the cause. But I went home and took it easy for a few hours hoping it was minor enough that my body could just fight it off.

I was wrong…so very wrong. I’ll spare you all the gory details, but this turned out to be the worst bout of food poisoning I have ever experienced. From 11 p.m. until 5 a.m., I was in a world of hurt.

At about 4 a.m., I decided I wanted to seek medical treatment. But all of the urgent cares were closed, and going to the emergency room seemed like overkill. Not to mention the very real possibility that driving myself anywhere was not the greatest idea.

Fortunately I had heard about some phone-based services available around the clock so I would at least know what to do next.

I didn’t know what number to call, so I logged into my Anthem Blue Cross and Blue Shield health insurance policy’s website and discovered that, in addition to the 24-hour nurse phone line, they also had a tool called Live Health Online that enabled me to have a teleconference with a physician for $49.00. I gave them all of my insurance information to file the claim and also my health savings account card information to pay the fee (since I had not reached my deductible yet for the year).

This was perfect for me and this particular situation. I filled out the paperwork and got on the conference. I was even able to specify a nearby 24-hour pharmacy in the event that the physician would prescribe something for me. I had to wait for about 5-10 minutes, and then I was able to have a video chat with a physician. She seemed a bit groggy herself, but it was 4 a.m. so that was understandable.

We did have an audio glitch (probably on my end) which made her unable to hear me, so she had to call me…but I could still see her on the screen. In the end, she told me all I could do was replenish the electrolytes I had lost with sports drinks.

If I found myself in that situation again, would I use the service? You bet. And not just at 4 a.m. I wouldn’t recommend it as a substitute for ordinary physician visits, but it’s nice to have access to an urgent care facility on your schedule, from your couch.

In broader terms, telehealth is an exciting new trend that uses the Internet to connect physicians with patients. It’s not only helpful in a situation like mine.

Suppose you live in a small town, and you need to see a specialist…perhaps the closest specialist in that field works at a hospital in the big city 100 miles away. If the specialist has a relationship with the little satellite clinic in town, then that specialist can examine you with help from the nursing staff at the local clinic and/or by controlling some instruments remotely. It saves the patient (or the specialist) an inefficient 100-mile trip unless it’s really necessary to have the visit in person.

Telehealth technology is a huge boon for rural health, but as I experienced last night, there are lots of useful applications for it.

The elephant (or donkey) in the room: Part 2 on the fiscal crisis facing Medicare and Medicaid

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In Part 1, I wrote about the extent of the trouble that the United States finds itself in when it comes to financing Medicare and the “dual eligibles” who also receive Medicaid benefits for the future. (Social Security is a problem too, but Medicare and Medicaid are even more pressing.)

Now that we’ve established just how deep the hole is, let’s talk about how we got in the hole in the first place.

How we got here

Medicare and Medicaid were created by the Social Security Act Amendments of 1965. Although you might understandably think of these as just do-gooder progressive programs from President Lyndon Johnson’s “Great Society,” part of the motivation for creating Medicare was a push from the business community for a bailout from their retiree health benefit plans.

For the arithmetically impaired, 1965 was 50 years ago. So, unless you’re old enough to be eligible for AARP membership (I’m not), you weren’t around for what life was like before the first enrollees joined Medicare on July 1, 1966. And, chances are even if you were around back then, you were just a kid or maybe a young adult. As of the time of this writing, there are only seven living Americans who had reached age 65 before the Medicare program took effect. So it’s a little hard for the rest of us to imagine life before Medicare.

Before Medicare, most older Americans did not have health insurance coverage. As a result, poverty rates among the elderly were high, and access to health care was poor. According to the U.S. Centers for Disease Control and Prevention (CDC), in 1960, the average life expectancy at age 65 was 14.3 years. In 2010, it was 19.1 years. Those extra 4.8 years of life can be attributed at least in part to Medicare, and those extra 4.8 years of life are also one reason why Medicare is in so much trouble.

Among the minority of the elderly who were fortunate enough to have health coverage before Medicare, most of them received that insurance as a retiree benefit through their former employers. Even then, rising health care costs and life expectancy due to technological advancements were costing these companies plenty.

Strange bedfellows

If there were any group you would think of as supportive to Medicare, it would be physicians, right? After all, they get nearly 1/3 of their income from government sources today.

Physician income by source, 2004

Take the red pill: Share of physician’s outpatient revenues from various payers, by physician specialty, 2004. Box identifying the line bars: Medicaid (blue), Medicare (red), Other Government (yellow), Private Insurance (light blue), Out-of-Pocket (purple).

Source: Lasser, K. E., Woolhandler, S., & Himmelstein, D. U. (2008). Sources of U.S. Physician Income: The Contribution of Government Payments to the Specialist–Generalist Income Gap. Journal of General Internal Medicine, 23(9), 1477–1481. doi:10.1007/s11606-008-0660-7

But this was not always the case. Indeed, the American Medical Association was so scared of Medicare (because they thought they would lose money) that they hired screen actor Ronald Reagan to record some scary speeches that demonized Medicare as “socialized medicine” in order to sway public opinion. (That’s where the phrase originated.)

Despite the opposition from the AMA, Medicare became law anyway. The program has ironically been a huge boost for the pocketbooks of physicians.

Inaccurate forecasting

It would be impossible to overstate just how disastrously wrong the initial budget forecasts were about Medicare’s costs, but it was about like predicting mostly sunny skies with a 20% chance of rain showers in New Orleans on the day Hurricane Katrina hit.

In 1965, the House Ways and Means Committee estimated that the hospital insurance program of Medicare – the federal health care program for the elderly and disabled – would cost $9 billion by 1990. The actual cost that year was $67 billion.

In 1967, the House Ways and Means Committee said the entire Medicare program would cost $12 billion in 1990. The actual cost in 1990 was $98 billion.

Editorial, The Washington Times, November 18, 2009

In Part 3, I’ll explore why Medicare has blown away its initial costs and what can be done to fix it.

More good news for Obamacare – and bad news for those who want to repeal it

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The number of uninsured people in the United States has dropped by the millions thanks to the Patient Protection and Affordable Care Act of 2010.

Just how many depends on how you count and who’s counting. Whether the number is 9.7 million (according to the Gallup-Healthways Well-Being Index) or 16.4 million (according to the Obama administration), that’s still millions of people who have been able to get health insurance who didn’t have it before.

So, for all of the Republican rhetoric about repealing the law, they will have to deal with millions of people who would lose their coverage altogether.

Be careful what you wish for, Republicans

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If the King v. Burwell decision goes in favor of King to eliminate the Obamacare subsidies in states that have not set up their own exchanges, you would think Republicans would be overjoyed. Instead, they’re divided and scrambling to find a fix…at least temporarily. This is the part of the law that people LIKE. If the subsidies in the federal exchanges are eliminated, then millions of people will lose the help they needed in order to get insurance. And then the exchanges would turn into an adverse selection death spiral.

This would not really be an issue in the first place if Republican governors and state legislatures in 34 states had just created their own exchanges with the federal money provided to do so. Instead, they chose to play politics and rebel. And now, if the Supreme Court rules in favor of King, they will be accountable to their citizens for the loss of subsidies.

The ruling is certainly far from guaranteed for King, as Yale Law professor Abbe Gluck explained very well.

But if King does win the case, Republicans can’t agree on a strategy for what to do next: do they provide some temporary fix to extend the subsidies until after the 2016 election, or do they just cut them off completely? A few million people losing the health insurance that Obamacare afforded them — based on a technicality — could make for some unpleasant town hall meetings for Republican legislators in red states as well as the 2016 GOP candidates for President.

Link

Ever since the Patient Protection and Affordable Care Act (aka Obamacare) became law in 2010, Republicans have been talking non-stop about repealing it and replacing it with a health care plan of their own. But they can’t even agree on what that plan should be in broad terms or if there should be a replacement plan at all.

Some replacement plans have been proposed by Republicans to give the impression that they care about the problem. And yet a lot of hard-core conservatives just don’t think the government should even be trying to expand access to health coverage at all. They just want to repeal Obamacare but not replace it with anything…perhaps their replacement plan should be called Wedon’tcare?

The elephant (or donkey) in the room: Part 1 on the fiscal crisis facing Medicare and Medicaid

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There’s a massive problem ahead that our political leaders are all dancing around: Medicare.

Sure, it comes up in broad terms from time to time…

But whenever someone proposes a plan to do something about it (or, in the case of Obama, actually passes a law that affects it), they pay a heavy political price.

Why is this such a toxic issue for politicians of all stripes? Why are they walking on eggshells? Because, unlike younger adults, a lot of senior citizens show up and vote on Election Day.

Some 61 percent of citizens age 65 and older voted in the November 2010 election, the best turnout of any age group. More than half (54 percent) of those ages 55 to 64 also cast a ballot. People under age 45 are much less likely to vote. Just 37 percent of 25- to 44-year-olds made it to the polls in November 2010. And not even a quarter (21 percent) of the youngest citizens—ages 18 to 24—entered a voting booth in 2010.

U.S. News and World Report, March 19, 2012

Medicare and Medicaid together: Dual eligibles

One thing that often goes overlooked in the discussion of Medicare is its peculiar relationship to Medicaid. Primarily because Medicare does not include room and board coverage for long-term residential care (i.e., nursing homes), elderly and disabled people who need long-term care are forced to spend their resources out of pocket. Many people are forced to sell their homes in order to pay for long-term care.

When those resources are exhausted (and they often are), Medicaid kicks in. As of 2008, there were 9 million “dual eligibles” in the United States — people who were on both Medicare and at least some level of Medicaid.

Dual eligibles

As of 2008, there were 9 million “dual eligibles” receiving both Medicare and Medicaid benefits.
Source: The Henry J. Kaiser Family Foundation.

For FY2010, Medicaid spending alone averaged $16,460 per dual-eligible beneficiary, and dual eligibles accounted for 36 percent of all Medicaid spending.

The good news from Obamacare

The Patient Protection and Affordable Care of 2010 (aka Obamacare) did make $716 billion in cuts to Medicare, especially with regard to waste, fraud and abuse as well as overpayments to private insurers that participate in the Medicare Advantage program. Yet PPACA actually enhanced benefits for Medicare beneficiaries (specifically for preventive care and prescription drugs) and extended the solvency of Medicare.

As of their most recent report, the trustees for Medicare and Social Security estimate that the Medicare Hospital Insurance (Part A) Trust Fund will remain solvent until 2030.

If there has been one consistent message from Republicans for the last several years, it’s that they want to repeal Obamacare. Doing that would actually bring the Medicare Trust Fund to insolvency much faster.

The bad news

Just looking at the far-distant insolvency date of the Medicare Trust Fund could lead to a false sense of security in the meantime. But the fact that there is an insolvency date at all means the program is unsustainable as it is currently designed.

Medicare Projections

It’s conventional wisdom that Medicare is funded entirely by the Medicare payroll tax and the premiums paid by those opting into Parts B (physician care benefits) and D (prescription drug benefits). But, in 2013, the Medicare received $237.7 billion in “general revenue,” that is, from the government’s general fund while only taking in $220.8 billion from Medicare payroll taxes. Even with that sizable extra bump, the program still spent $7.1 billion more than it took in. When people talk about the “Medicare Trust Fund,” they are specifically talking about the fund for Part A hospital insurance (HI). Part B and Part D are funded by the Supplemental Medical Insurance Trust Fund (SMI).
Source: 2014 Medicare Trustees Report

Just how big a problem is this?

CBO projections

In 1974, federal government expenditures on major health care programs accounted for 1 percent of gross domestic product. They have already ballooned to 4.8 percent and are projected to expand further to 6.1 percent by 2024 unless we change something.
Source: Congressional Budget Office. The Budget and Economic Outlook: 2014 to 2024

It’s gargantuan. It’s far bigger and more urgent than the crisis facing Social Security, defense spending or any of our other social programs.

In a future post, I will examine just how we got to this point, what solutions have been proposed, and the pros and cons of each.