9. Why a Public Plan Will Encourage Unfair Cost-Shifting

The second reason a public health insurance option is a bad idea is that it will encourage unfair cost-shifting.

Proponents of a public health insurance plan concede that Medicare and Medicaid pay much lower rates to providers than private insurers.  For example, on average, hospitals are paid 9% below the costs of care by Medicare and 15% under costs by Medicaid.  Similarly, Medicare pays physicians 22% less than they are paid by private insurers, while Medicaid pays 47% less.  Yet public plan enthusiasts do not view Medicare’s pricing power as a problem; instead, it is part of their publicly stated rationale for a public plan: to leverage purchasing power on behalf of members to get the best rates and lower premium costs. In fact, the House Tri-Committee bill explicitly ties provider payment rates to Medicare levels for the first three years and allows for nationally negotiated rates thereafter. While Senate bills do not legislate where to set rates relative to Medicare, there are likely to be strong political pressures to keep payment rates under new public plan as close to Medicare rates as possible.

However, while experts disagree on the amount, most evidence suggests that for hospitals and pharmaceuticals, at least some portion of the sizable discounts obtained by public plans such as Medicare and Medicaid are passed along to private health insurers. While some experts have suggested that there is no cost shifting of Medicare underpayments (or negligible amounts), the available evidence does not entirely resolve the issue. This claim contrasts with more than a half dozen empirical studies suggesting hospitals recover at least 28 cents of every dollar of Medicare underpayments in the form of higher prices for private patients (and a more typical figure may be closer to 40 cents). Similarly, there is good evidence that for every dollar saved by Medicaid due to mandatory price rebates, the savings are more than made up by increased prices for private patients. But by lowering its own costs at the expense of private plans, a public plan will amplify its competitive advantage unfairly.

By the very nature of the politics required to sustain it, a public plan also is likely to keep its true costs hidden by subtly shifting burdens onto its own members.  These are not hypothetical concerns.  They are based on decades of actual experience with the largest public plan ever run by the U.S. government: Medicare.  Medicare has grown increasingly stingy over time, with the consequence that the financial burden imposed on Medicare beneficiaries by medical expenses relative to their income has grown in the past and is projected to rise dramatically in the decades ahead.  Within 75 years, the premiums, deductibles and copayments that seniors will have to pay for their Medicare benefits will absorb 97% of the average Social Security check; for the average 85-year-old, the share will have risen to 117%. This reinforces the view that the federal government should focus its energies on fixing the public plans it already manages rather than taking on the responsibility of a new public plan.

Not convinced?  Here’s the evidence to support those conclusions.

Next Installment: 8. Why a Public Plan Will Have an Unfair Competitive Advantage

10. Why a Public Plan is Unnecessary

There’s at least 10 good reasons a public health insurance option is a bad idea. The first is that a public plan is unnecessary.

Proponents of a public health insurance plan, including President Obama, claim it is needed to stimulate competition. There are five good reasons to question this claim.  First, the evidence shows that at the national level, the health insurance market generally is highly competitive for a large fraction of privately insured individuals. Second, both at the state and local level, markets that appear to lack competition are dominated by non-profit firms whose economic incentives are no different than a public plan. Moreover, insurance plan concentration to some extent appears to have been a helpful counterweight to the growing market power of providers in recent years. Third, in areas where lack of competition is an issue, there are tools to restore competition that would be vastly superior to reliance on a public plan. Finally, real world experience demonstrates that head-to-head competition among private insurers can produce sizable premium savings even without a public plan.

Not convinced? Here’s the evidence to support those conclusions.

Next Installment: 9. Why a Public Plan Will Encourage Unfair Cost-Shifting

Facing the Abyss

Call it a “fiscal tsunami,” a “fiscal train wreck,” a “fiscal cancer,” a “frightful storm,” or just simply “a looming fiscal crisis.” What we call it matters far less than what we do about it. Projected spending on health care entitlements portends a crisis that without exaggeration has the potential to topple our republic.

• How Deep is the Hole? Twitter this: $104 TRILLION.  In policy-speak, the net present value of unfunded liabilities for Medicare alone now equals $88.9 trillion*–more than six times the annual output of the entire U.S. economy in 2009 (and, coincidentally, nearly six times the equivalent tab for Social Security, i.e., $15.1T). This unfunded liability is the amount that Medicare will cost U.S. taxpayers over and above what current revenues would provide assuming no statutory changes in the program. Essentially, it is the net amount of money Medicare would need today to cover the gap between all projected spending on future promised benefits and all projected revenues that are dedicated to Medicare (i.e., payroll taxes, Part B and D premiums, and interest earnings on the Medicare Part A Trust Fund). This unfunded liability would either have to be financed through general revenues (mostly income taxes) or future borrowing. [Note to Medicare-for-all enthusiasts: perhaps handing responsibility for the entire health care system to the same folks who created this Medicare fiscal mess is not such a good idea after all? When you're in a hole, aren't you supposed to stop digging?]

• Why Taxpayers Should Care. To fully address this unfunded liability so that everyone (including all future generations) could be certain of receiving promised Medicare benefits in perpetuity would require each of us to pony up $290,000. Today! [Yes, Scarlett, you can think about this tomorrow, but then the tab will be even higher. Did I mention that with Social Security included, the total actually comes to $339,000? Oh, you wanted to pay off the national debt too? Add another $30,000: for you and Rhett together, that works out to about $738,000. I may be wrong, but I don't think Uncle Sam takes VISA (or Confederate dollars, now that I think about it). Please makes checks payable to U.S. Treasury (and it might be a good idea if you got a receipt)]. That would be a cool $2.2 million for my family of 6 [Admit it: it would be pretty cool if I had that amount of spare cash sitting around to contribute to the cause: it would be even cooler if I had $1.75 trillion just to pay off this year's deficit.], though “only” $956,000 for a typical U.S. household. I can only speak for myself: even leaving aside willingness-to-pay, that greatly exceeds our family’s ability to pay [Note to self: if you would stop making bad "investments" in the Yankees and Blue Devils at Tradesports.com, you probably could afford your share of this tab]. “We have a huge implicit mortgage on every household in America — except, unlike a real mortgage, it’s not backed up by a house,” says David Walker, former U.S. comptroller general, the government’s top auditor. The magnitude of tax increases required to solve this problem is unprecedented, and perhaps politically impossible. But every promised dollar of benefits that we can’t bankroll somehow is going to have to be cut. What’s politically viable may simply be whatever path minimizes the collective screaming from those who have to pay more versus those whose benefits must be cut.
• Why Non-Taxpayers Should Care.   With policymakers caught between a rock and a hard place, there’s a serious concern that they might opt to press the Easy button by monetizing our debts.  The resultant price inflation will affect all Americans, not just the ranks of taxpayers.  Inflation effectively is a tax (albeit hidden) that hits poor and elderly families particularly hard.  Ironically, just the massive short-term deficits projected under the Obama administration budget (through 2019) are contributing to the perception that “government is now the most serious source of systemic risk.” Yet these additional deficits are a pittance compared to the entitlements deficits to come. What’s scarier is that even monetizing the debt won’t get us out of this hole.
• Why Young People Especially Should Care. In more concrete terms, absent reform, by 2078, the average out-of-pocket health expenses of a typical 65-year-old Medicare beneficiary–including premiums for Parts B and D of Medicare and the deductibles and copayments–will absorb 97% of the average Social Security check. For the average 85-year-old, that fraction would be 117%. [Note to GenX, GenY and Millenials: save early and save often. I realize President Clinton's claim that "young people in their twenties think it's more likely that they will see UFOs than that they will ever collect Social Security" may have approximately the same truth value as his assertions about a former WH intern. But for the brightest and best among you, a word to the wise is sufficient.]

The magnitude of this entitlements crisis will make today’s financial meltdown look like a tempest in a teapot, a molehill in a mountain or any other apt metaphor that springs to mind. This “domestic” policy issue also poses threats to our national security to the extent that spending on health care gradually squeezes out our capacity defend ourselves, much less maintain the umbrella of protection that has benefited literally billions of people worldwide.

Heck, I’m parochial and shameless enough to call it a global health crisis, to the extent that spending on this country’s own bloated health care system crowds out our ability to keep bankrolling initiatives such as PEPFAR or the billions we spend annually through USAID (President Obama has asked for $9.1 billion in spending on global health in 2010). This is a problem that should concern all of us regardless of what policy domains usually preoccupy our attention.

Because above all, it is a moral crisis: the “greatest generation” spawned a generation of Baby Boomers whose legacy in the worst case might be setting into motion the chain of events that led to toppling the greatest nation on earth. At minimum, i.e., even in the “best case” (should we lack the political will to address this), my generation is now on the road of engineering the greatest intergenerational transfer ever seen in the history of the world. “Leaving our children and grandchildren with a burden they cannot possibly manage” is unconscionable. Likewise, making promises to them that the government has no realistic hope of being able to fulfill is outrageous.

Is this what our Founding Fathers risked their lives, their souls, their fortunes and sacred honor to achieve? Would Lincoln think this was worthy of his efforts to save the Union and achieve “a just and lasting peace, among ourselves and with all nations”? We can do better. Way better. If we can’t, we are in deep doo-doo.**

_______________________________________________________________________________________________________________

* Lest I be accused of cherry-picking the evidence, let me stipulate that yes, yes, the $88.9 trillion figure is over an infinite time horizon. Over a 75-year time horizon, the Medicare hit is “only” $38.2 trillion (2009). ["I knew it!" some of you will shriek. "Figures lie and liars figure." While Mark Twain certainly said liars figure, he actually said figures don't lie, but that's a minor quibble].

Here’s why the infinite horizon figures are the most “fair and balanced” assessment of our plight. If we entirely paid off the $38.2 unfunded liability in Medicare through 2083, we would indeed get through that year without having had to raise payroll taxes or Parts B & D premiums above current statutory levels. The problem is that we will have used the lifetime payroll tax contributions of new retirees in 2083 to help cover all Medicare expenses up to that point. So looking forward to the next 75 years, we would face another mountain of unfunded liabilities representing the mis-match between projected spending and revenues for this new group.

So the only practical way to address this “bear went over the mountain” feature of Medicare (and Social Security) funding is to bite the bullet and pay the $290,000 per person that would eliminate the mismatch between revenue and costs forever, not just 75 years. [Note to Bernie Madoff: your only mistake was trying to do what you did as a private citizen. We should have had the good sense to exploit your unique Ponzi scheme skills by appointing you Social Security director (a win-win situation for all concerned and arguably less of a drain on taxpayers than your jail term is likely to be).]

**Watch the 30-minute video IOUSA for a history of how we got into this mess. Watch this shorter video of just how quickly we are speeding towards fiscal insolvency.

Nerd Alert: Mind-Glazing Health Policy Wonkery Ahead
For those wishing to do their own calculations (or completely skeptical about whether a self-professed health policy skeptic could or should be trusted not to bend the truth):

• U.S. Population and Households. For simplicity I project the U.S. resident population for July 1, 2009 at 306.9 million based on Bureau of Census monthly estimates from July 1, 2008-April 1, 2009.  In the 2000 Census there were 2.59 persons per household, so I used this to calculate debt burdens for the average household.
• Unfunded Liabilities, Infinite Horizon. The infinite time horizon estimates of unfunded liabilities for Medicare all are reported in the latest Trustees Report.  Medicare Hospital Insurance, i.e., Part A=$36.4T (Table III.B10); Medicare Supplemental Medical Insurance (SMI), i.e., Part B=$37.0T (Table III.C16); Medicare Prescription Drug, i.e., Part D=$15.5T (Table III.C23).  Total=$88.9T [check my math]. The parallel figure for Social Security is in a different Trustees Report ($15.1T).
• Trust Fund Balances. Note that NCPA uses a figure of $106.8T, but that’s because they do not subtract the existing trust fund balances: strictly speaking, our future liabilities do not become “unfunded” until we first use up these amounts.  Admittedly, these are just paper promises, so we still would have to resort to raising taxes or borrowing to “pay ourselves back.”  Hence the rationale for ignoring such balances. But from an accounting point of view, that $2.8T is not an unfunded liability. Medicare/Social Security at one time really did collect this amount of funds to cover its future expenses, and those payroll taxes (even if now disappeared) should be counted as income which in a perfect world would have been used or available to pay for projected expenses. It’s just that policymakers grabbed this surplus and long ago spent it, leaving only IOUs behind.
• Unfunded Liabilities, 75-Year Horizon.  The estimates of unfunded liabilities over a 75-year horizon can be derived from the same tables cited above (Part A=$13.4T; Part B=$17.2T; Medicare Prescription Drug=Part D=$7.2T), for a grand total of $37.8T. For the morbidly curious, the 2007 figure was $34.1T according to the Peter G. Peterson Foundation (the $3.7T increase amplifies why waiting to fix this problem is not a good idea). The figure for Social Security is $5.3T.
• U.S. GDP.  As of March 2009, the Congressional Budget Office estimates 2009 GDP at $14.0T.
• U.S. Net Worth.  The Federal Reserve Bank releases these statistics quarterly. At the end of June 2009, the net worth of U.S. households and non-profit organizations was $53.1T (Table B.100).
• Current U.S. Debt. The U.S. Treasury conveniently reports The Debt to the Penny and Who Owns It. I used their figure of $11.3T for the U.S. debt as of May 11, 2009.  But this figure only includes total liabilities of the federal government and fails to account for its assets.  According to the U.S. Treasury Department, these assets amounted to $1,974.7B at  (p. 39) , so I used a net figure of $9.3T.

George Halvorsen | Health Care Will Not Reform Itself: A User’s Guide to Refocusing and Reforming American Health Care: George C. Halvorson: Books

George C. Halvorson. Health Care Will Not Reform Itself: A User’s Guide to Refocusing and Reforming American Health Care (Hardcover), Productivity Press; 1 edition (May 27, 2009)

Written by one of the leading authorities in the industry, this book provides a basic primer on the American health care system. Using simple-to-understand language supplemented by insightful anecdotes and examples, the author cuts through the thicket of health care reform rhetoric to offer a step-by-step blueprint for achieving real improvements in health care delivery, as well as putting curbs on growing health care costs. He explains how health insurance works in the U.S. compared with the rest of the world and outlines the barriers to American reform. He also discusses why health care costs are going up so rapidly and sets realistic goals for care improvement.

via Amazon.com: Health Care Will Not Reform Itself: A User’s Guide to Refocusing and Reforming American Health Care: George C. Halvorson: Books.

Illness, medical bills linked to nearly two-thirds of bankruptcies

Medical bankruptcy in the United States, 2007: Results of a national study,” David U. Himmelstein, M.D; Deborah Thorne, Ph.D.; Elizabeth Warren, J.D.; Steffie Woolhandler, M.D., M.P.H. American Journal of Medicine, June 4, 2009 (online). [Full text] [Fact Sheet] [Q&A]

Medical problems contributed to nearly two-thirds (62.1 percent) of all bankruptcies in 2007, according to a study in the August issue of the American Journal of Medicine that will be published online Thursday. The data were collected prior to the current economic downturn and hence likely understate the current burden of financial suffering. Between 2001 and 2007, the proportion of all bankruptcies attributable to medical problems rose by 49.6 percent. The authors’ previous 2001 findings have been widely cited by policy leaders, including President Obama.

Surprisingly, most of those bankrupted by medical problems had health insurance. More than three-quarters (77.9 percent) were insured at the start of the bankrupting illness, including 60.3 percent who had private coverage. Most of the medically bankrupt were solidly middle class before financial disaster hit. Two-thirds were homeowners and three-fifths had gone to college. In many cases, high medical bills coincided with a loss of income as illness forced breadwinners to lose time from work. Often illness led to job loss, and with it the loss of health insurance. More…

Full text of the study is on-line or through the American Journal of Medicine, ajmmedia@elsevier.com , (212) 633-3944.

The Commonwealth Fund | Issue Brief: The Massachusetts Commonwealth Health Insurance Connector: Structure and Functions

Amy M. Lischko, Sara S. Bachman, and Alyssa Vangeli, The Massachusetts Commonwealth Health Insurance Connector: Structure and Functions, The Commonwealth Fund, May 28, 2009. Full text of issue brief.

The Commonwealth Health Insurance Connector Authority is the centerpiece of Massachusetts’ ambitious health care reforms, which were implemented beginning in 2006. The Connector is an independent quasi-governmental agency created by the Massachusetts legislature to facilitate the purchase of affordable, high-quality health insurance by small businesses and individuals without access to employer-sponsored coverage. This issue brief describes the structure and functions of the Connector, providing a primer to policymakers interested in exploring similar reforms at the state and national level. The authors describe how the Connector works to promote administrative ease, eliminate paperwork, offer portability of coverage, and provide some standardization and choice of plans. National policymakers looking to achieve similar policy goals may find some of the structural components and functions of the Connector to be transferable to a national health reform model, say the authors. More at: The Massachusetts Commonwealth Health Insurance Connector: Structure and Functions – The Commonwealth Fund.

Access and Affordability: An Update on Health Reform in Massachusetts, Fall 2008 – The Commonwealth Fund

Sharon K. Long, Ph.D., and Paul B. Masi, Access and Affordability: An Update on Health Reform in Massachusetts, Fall 2008, Health Affairs Web Exclusive, May 28, 2009, w578–w587. Full text.

More than two years after implementation of its landmark health insurance reforms, Massachusetts had achieved historically high levels of coverage and widespread improvements in access to care, according to this study—the latest in a series of updates, funded by the Blue Cross Blue Shield of Massachusetts Foundation, The Commonwealth Fund, and the Robert Wood Johnson Foundation, on implementation of the state’s reforms. The authors find, however, that constraints on provider capacity and rising health care costs—trends that predate reform—have eroded some of the gains. Massachusetts is now seeking ways to contain costs and expand provider capacity, including a proposal to shift from fee-for-service provider payments to global fees that emphasize care coordination and collaboration. More at: Access and Affordability: An Update on Health Reform in Massachusetts, Fall 2008 – The Commonwealth Fund.

Book | Ethical Issues in Rural Health Care

Ethical Issues in Rural Health Care. Edited by Craig M. Klugman and Pamela M. Dalinis. Baltimore, MD, Johns Hopkins University Press, 2008. 224 pp, $50. ISBN-13: 978-0-8018-9045-1

Are ethics different in rural areas than in the big city? This collection of 12 essays provides a careful look at how ethical issues are perceived, noticed, ignored, or dealt with in rural health care. The contributors make clear that perceptions of ethics that come from urban and academic health care centers may need to be adjusted in dealing with the rural environment.

The book is divided into 3 sections. The first provides an overview of what is meant by rural and general ethical issues in rural health care. The second section consists of 3 essays by rural health practitioners. The third and final section examines specific ethical issues in the rural setting. The book provides an illuminating look at questions of culture, character, regulation, social justice, and organizational response. As a reader who has predominantly practiced medicine and taught ethics in urban medical environments, I found the book fascinating . . . [Full Text of this Article]

Myles N. Sheehan, SJ, MD, Reviewer
Leischner Institute for Medical Education
Stritch School of Medicine
Loyola University Chicago
Maywood, Illinois
msheeh1@lumc.edu

Source:  JAMA — Ethical Issues in Rural Health Care, May 27, 2009, Sheehan 301 (20): 2162.

CBO Brief: Budgetary Treatment of Health Reform Proposals

The Congress is currently considering various approaches for instituting major changes in the nation’s system of health insurance. Some of those proposals would significantly expand the federal government’s role in that system, thus raising the question of how such changes might be reflected in the federal budget. CBO has just released a brief describing the approach that CBO will take in judging the appropriate budgetary treatment.

Source: Director’s Blog » Blog Archive » Budgetary Treatment of Health Reform Proposals.

Study: Lower legal drinking age increases likelihood of poor birth outcomes

Amid renewed calls to consider reducing the legal drinking age, a new University of Georgia study finds that lower drinking ages increase unplanned pregnancies and pre-term births among young people. “Our findings suggest that a lower drinking age increases risky sexual behavior among young people, and that leads to more unplanned pregnancies that result in premature birth and low birth weight,” said study author Angela Fertig, assistant professor in the UGA College of Public Health. “The take-home message is that when it’s easier for young people to get alcohol, birth outcomes are worse.”

via College of Public Health: Health Policy and Management News.