Ezekiel Emanuel has a commentary in the New York Times criticizing plans to convert Medicare to vouchers (aka ‘premium support.’ He reminds us that we really need to control costs – not merely shift them. Austin Frakt of The Incidental Economist has also just wrapped up a series on Medicare premium support – which points out that premium support could be designed so that it didn’t cost shift (although that seems unlikely given political realities).
We have a multi-payer system, and there are many opportunities to shift costs from one party to another. No value is created in the system by cost shifting. Private health plans and the government both practice robust cost-shifting in our system. They do this because it is far easier to shift costs than to genuinely lower costs.
The Affordable Care Act takes aim at some of the cost shifting in the current health care market. However, it does not do nearly enough. It’s possible that regulatory action alone won’t be the cure for cost shifting.
Let me review some additional examples of cost shifting in the US health care system:
Medicaid Underpayment
Medicaid pays quite low rates in many states to most providers – rate that are below the real cost of providing care. Providers bill extra to private insurers to make up this shortfall. The state balances its budget by cutting Medicaid provider payments, but this makes private health insurance in the state even more expensive. Employers who might benefit from a tax subsidy that forces budget cutbacks pay for the health care of the uninsured through a nontransparent extra fee added to their health care premiums. Voila. Costs are shifted.
The Affordable Care Act addressed a very small segment of this problem by fixing Medicaid primary care payments and Medicare rates for a limited period of time with full federal funding.
However, states continue to ratchet down Medicaid fees to address their current budget shortfalls. More cost shifting is in the wind.
Dependent Audits
Many employers have been performing audits to be sure that their employees are not enrolling ineligible dependents. That makes sense – why should the employer pay for an uncle or a godchild that is not an actual dependent? On the other hand, when ineligible dependents are removed, there is no cost saving in the health care system unless they no longer access care. The cost is merely shifted to another party – in some cases to ‘free care’ which is an invisible surcharge on all health care charges.
The Affordable Care Act specifies that children up to age 26 can stay on their parents’ health plan regardless of college status, work status, and even their own marital status. This is not very expensive – since the average cost of those between 18-26 is very low. It gets rid of a whole series of administrative hurtles to coverage – so that parents don’t have to get paperwork from their children’s college.
Medicaid Funding
Many states have developed ingenious ways to get the Federal government to pay for a larger portion of total medical care. Massachusetts managed to get Medicaid to fund replacement of a University of Massachusetts hospital fascade based on some fancy legislative dance in 2001. In some instances, states agreeing to pay providers a higher fee (with the feds picking up more than half of the cost). Then, the states tax the providers to recoup some (but not all) of the excess costs. http://www.washingtonpolicy.org/publications/legislative/state-lawmakers-propose-using-phony-bed-tax-and-provider-tax-secure-more-fe The total cost of medical care goes up, but the state has constrained its own outlays.
Lifetime Limits
One thing that’s certain about hemophiliacs is that without blood factor concentrates they will have bleeding episodes, which can threaten their lives and cripple their joints. Many hemophiliacs require over $100,000 in biopharmaceuticals each year – so it’s easy to hit lifetime limits very quickly. This is a cost shift either to patients (few of whom could afford this) or more likely to state Medicaid programs, for which some hemophiliacs qualify if they hit the lifetime maximum in their employer-sponsored plan. The Affordable Care Act eliminated lifetime maximums as of this year – although there are still some employers who are “grandfathered” and will be allowed to maintain
Mini-Med Plans
These are health plans with very low premiums which pay benefits up to a very low total limit – as little as $5000 or even $1000. They are marketed to low-wage employees –often in retail or service industries, and often by companies that for competitive reasons simply can’t afford to pay the employer share of a more conventional health plan. The problem is that this is “upside down” insurance, which max out if a member has any significant illness at all. If a member gets leukemia – costs are not “controlled,” but are shifted to the patient, or again to state Medicaid plans if the member qualifies after hitting the employer plan maximum.
Raising Eligibility Age for Medicare
Austin Frakt has previously published data showing that raising Medicare eligibility age would save the federal government $5.7 billion, while it would cost individuals and businesses $11.4 million. A bad deal indeed.
Not all cost shifting is necessarily evil – and there are some examples which seek to change behavior by making health plan members responsible for a larger share of the costs.
For instance, reference pricing requires that health plan beneficiaries pay for any excess cost if they get elective care from providers who charge more than an allowed amount. These can save money for employers by shifting costs to the employees – but can also save money in the system by encouraging beneficiaries to choose lower cost providers. Reference pricing thus saves money for health plan sponsors through a mixture of cost shifting and actual cost saving.
Advocates also suggest that high deductible health plans save money through encouraging more responsible resource use. Studies have shown consistently that these plans do overall reduce utilization, but recent studies also suggest that these plans reduce both unnecessary and beneficial care.
Cost shifting will be a continued reality in our fragmented, multipayer system. Shifting costs to others is almost always easier than genuinely lowering health care costs, so we’ll need to continue to develop regulations to discourage cost-shifting. The Affordable Care Act is at least a start.
The managed care indicator will return with the next post.
Showing posts with label cost shifting. Show all posts
Showing posts with label cost shifting. Show all posts
Shifting Costs Is Not Saving Costs
5:16 PM
indigo
Today’s Managing Health Care Costs Indicator is $11.54
Today’s Boston Massachusetts
“We think it’s a good thing for people to use their insurance card when their insurance card will pay for a service.”
But he’s demonstrably wrong.
The state purchases vaccines for $1.44 less per dose than they can be acquired by private purchasers. While all of us can go to a CVS or a Walgreens to get a flu shot, the injection that would have cost the state under $11 costs our insurer as much as $30.
Influenza vaccines save lives – and they reduce overall health care claims costs. They’re a good deal for insurers to cover – even if they pay physicians just about $20 for the vaccine and administration. But they’re an even better deal for the state to purchase (at a discount). Vaccination is a classic public good ; when I get vaccinated, not only am I protected, but I’m less likely to infect everyone I meet.
State purchase of vaccines has helped Massachusetts
So – the federal government will lower state aid, and the state will cut flu shot budgets. Either health insurance will purchase these vaccines for an even higher price, or people will go without the vaccinations, and suffer from worse health and sometimes die. Either way, for lack of paying for flu shots, health care will cost more – not less.
While I’m on the topic of cost shifting, Austin Frakt had a post in the Incidental Economist last week that mentioned another unpardonable cost shifting proposal, the proposal to raise the Medicare eligibility age. Raising the age from 65 to 67 would ‘save’ the federal government $5.7 billion. But it would cost those who would have otherwise been eligible for Medicare $3.7 billion, employers $4.5 billion, and would cause other premiums to rise by $2.4 billion due to the influx of older, sicker people into the health insurance exchanges.
Total “savings”: $5.7 billion
Total “costs”: $11.4 billion
This is a terrible deal. To lower health care costs we have to lower resource inputs – we can’t simply cut spending in one place (the federal government) and ignore how those costs will be borne by others.
(12-22-11 I corrected an error in earlier version which suggested Frakt was critiquing the Ryan plan. He's since done a multipart series on Medicare premium support proposals. )
(12-22-11 I corrected an error in earlier version which suggested Frakt was critiquing the Ryan plan. He's since done a multipart series on Medicare premium support proposals. )
The Great Cost Shift -- The Ryan Medicare Plan
4:52 AM
indigo
Today’s Managing Health Care Costs Indicator is 68%
Ryan would convert Medicare into a voucher program (he calls it "premium support," but it's really a voucher). Seniors would get a federal subsidy that varied based on income or wealth, and would be on their own to purchase insurance in the "free market." The vouchers would increase in value at the rate of the consumer price index, while health care expenses have historically increased at 3-4% or more greater than the CPI increase. Therefore, seniors would go from personally paying 25% of the cost of Medicare under the current plan to paying 68% out of pocket under the Ryan plan.
Medicare as we know it would persist for those already on the program, and those 55 and over. For those under 55, the requirement to save for post-retirement medical expenses would grow massively -- a special problem for a generation already without adequate savings for their projected expenses.
Government's worries about Medicare would diminish over time, as the "risk" for medical inflation would be passed directly on to the next generation of senior citizens.
There is a lot of talk about consumerism - and how Sadie will shop smarter and avoid unnecessary care when her dollars are at risk. That's true - higher patient cost share leads to less utilization. However, utilization of services in Medicare is not exceptionally high compared to other industrialized countries. The problem we have is a problem of cost per unit. The Ryan plan does..... nothing about this at all.
Further, we know already from US experience through the early 1960s that health insurers will not be eager to sell insurance to sick elderly people - just like they property insurers don't sell home insurance to those with houses on fire. The exchanges envisioned in the Affordable Care Act (which Ryan opposes) could provide a way for elderly to purchase insurance - but without an individual mandate, such insurance would either require underwriting (excluding the sickest) or be so expensive that few could afford it.
Medicare is a behemoth designed by committee. At its best, it has offered guaranteed access and dramatically decreased impoverishment of the elderly. Its administrative fees are low, and it has driven quality reporting, quality improvement, and dramatic decreases in hospital length of stay through its payment policies. At its worst, Medicare can be bureaucratic, is inept at fighting fraud, and has a payment system that encourages procedures and technology and disheartens primary care providers.
Ryan's plan is a potential game changer - in that it does threaten to take away guaranteed Medicare benefits, albeit for people who are only now reaching middle age. It's gotten plaudits for making us think about the unsustainable cost of Medicare.
As a debating point, this is very helpful. As public policy, the Ryan plan would lead to a substantial diminution of health, wealth, and happiness of the next generation of senior citizens.
And by the way - it would add more layers of administrative expense, and not save a penny in the health care system!
A few other takes on the Ryan Plan:
Ezra Klein
Alec Vachon (Former GOP Staffer via Kaiser Health News)
Robert Pear, NYT Analysis today
CBO Options to Lower Budget Deficit
7:43 PM
indigo
Today’s Managing Health Care Costs Indicator is $2.8 Trillion Dollars
The Congressional Budget Office has released its 192 page analysis of ways to reduce the budget deficit. Kaiser Family Foundation has redacted the document to concentrate on just the 39 pages of health care proposals.
The CBO proposals could chop over $2.8 trillion from the deficit. They are also a road map for why it’s so difficult to make these sorts of changes. The biggest chunk of deficit reduction comes from increased Medicare taxes, Medicare premiums, and premiums from those on military insurance. Medicare is restricted to those over 67, and some moderate income military veterans without a service-related disability would lose Veterans Administration benefits. Federal employees would get vouchers which would over time cover less of the cost of health care, and Medicaid subsidies to states would be slashed. The NIH research budget would be cut, and providers would see cuts. Drug companies would have to give larger rebates. The individual mandate would be eliminated – saving dollars since fewer people would avail themselves of federal subsidies to purchase insurance. We would have many more uninsured.
Here’s what’s most striking about the CBO recommendations. They virtually all decrease the federal deficit without lowering the resource cost of health care. That cost is merely redistributed away from the federal government. Almost all of the recommendations would also be vigorously opposed by important advocacy groups.
It’s not hard to come up with a list of potential ways to shift health care costs. Lowering the overall resource costs in health care is very difficult indeed. Managing health care costs is not easy.
A brief summary of each of the initiatives with my assessment of how the deficit is lowered and who will object is at this link
click to enlarge image
Limits on Age Differentials Will Penalize Young
2:45 AM
indigo
Good article in Washington Post yesterday pointing out that the health care reform bill’s restriction on age based premium can only vary by a factor of 3 means that young insured adults will be subsidizing older insured adults. This change has the largest impact on young adult males ; they have low costs actuarially, so in the past were able to purchase very inexpensive insurance (as long as they had no preexisting illness).
There is no free lunch. Restricting the ratio between the highest and lowest health care premium is great for those on the upper end – but this ‘compression’ of rates means higher rates for those at the lowest risk. In the end, we have to manage the total costs we incur – just shifting costs from one group to another is painful, and threatens to be a “wedge” issue to make health care reform less popular.
Will Shaving a Half Trillion Dollars from Medicare Save Money?
5:21 AM
indigo
It depends.
The Medicare cuts will certainly save the federal government money – that’s why the Senate and House health care reform bills cut the deficit over the next ten years. However, whether they lower the overall cost of health care really depends on whether resource costs are diminished, or whether costs are just shifted from Medicare to other payers.
Here’s a graphic from Tom Bodenheimer seven years ago, showing that Medicare has been very effective at lowering rate of health care inflation – a contrast to the sustained high rate of inflation of private health insurance premiums .
Here is the counterpoint, also a graphic from Health Affairs, showing the estimated cost shift from Medicare (and Medicaid) to private payers.
So – will the half trillion in Medicare cuts lead to cost shifting to other payers?
David McGuire, VP for Contracting at Partners, is quoted in today’s Boston
The Medicare cuts (from a memo from the CMS Actuary)
- Medicare Advantage Plans ($201billion)
- Provider payment cuts – adjusting for productivity increases over time ($282 billion)
- Pharmaceutical cuts ($129 billion)
Medicare Advantage cuts will likely lead to lower enrollment in the private plans, and increases in premiums and cuts in benefits for some beneficiaries. This is not likely to create much cost shifting.
Provider payment decreases could mean increased cost shifting to the private sector. It’s likely that this will lead to some substantial efforts to lower the cost of care delivery. Note also that some provider fee cuts might just not happen. The AMA has successfully pressed for reversal of physician fee cuts each year, and hospitals are now complaining that their agreed-to lower increases were contingent upon a more substantial decrease in the uninsured than would be accomplished under the current Senate bill.
Pharmaceutical cuts are likely to lead to higher utilization – so overall costs might not decrease. Assuming that the higher utilization is for cost-effective medications, we could be purchasing high value from the increased drug spend (but we probably won’t save money).
Health care cost increases are complex and multifactorial. Large Medicare cuts could lead to higher value from health care delivery – but are not likely to lead to dollar-for-dollar decreases in overall health care costs.
