Many thoughts in one quick post

I’ve been taking a much needed break from work, so let me reassure those of you who’ve written me that nothing’s wrong. I will likely be back at this tomorrow. But so many of you have written me about Governor Romney’s proposal, that I’m going to pop my head up here and say a few things.

First of all, I think Austin has done a bang-up job on covering the specifics (and lack of them) here and here. Austin also expressed some reservations about competitive bidding, which I agree, I don’t see specified in Gov. Romney’s proposal either. Also, I’ve always been a little more skeptical than Austin on this issue, so it’s only fair that since he has dragged me more towards support, I’ve dragged him a little away. Yes, I’m taking credit for that. Deal with it. [Ed: For the record, this was a joke! Austin is very consistent. – AC]

Finally, a number of you have asked for my thoughts on Yuval Levin’s piece on Medicare that’s making the rounds. Again, read Austin. It’s almost to the point that we’re sharing a brain, so there’s not much daylight between our thoughts here.

I’ll add one thing, before I bail on the blogosphere for one last day. It’s a repost, but a good one, and it adequately describes why I’m always a little less optimistic than a lot of you on how setting up fair markets, even in the Medicare system, doesn’t prevent adverse selection:


In an important paper in the New England Journal of Medicine in 1997, researchers examined how people moved in and out of Medicare HMO plans and traditional Medicare.  See, back in the 1990′s there was a swing to “managed care”.  Private HMOs began to offer their services to Medicare recipients.  If you were over 65, you could choose a Medicare HMO or regular Medicare on a month-to-month basis.  If you chose the Medicare HMO, you had to use their providers and hospitals, but otherwise it should be similar.  So, here were the rules if you were eligible for Medicare:

  • You could choose any plan
  • You could switch up and back
  • No one could deny you access to their plan
  • The benefits in the plans could go over a specific minimum (public Medicare), but not below

Got that?  No cherry picking allowed.  It’s Medicare, so it’s one big community rating.  This looks very similar to how plans would function in the exchange (except here, there was a public one).  So what happened when this was set up and let loose?  Guess:

Methods: We used Medicare enrollment and inpatient billing recordsfor southern Florida from 1990 through 1993 to examine differencesin the use of inpatient medical services by 375,406 beneficiariesin the Medicare fee-for-service system, 48,380 HMO enrolleesbefore enrollment, and 23,870 HMO enrollees after disenrollment.We also determined whether these differences were related todemographic characteristics and whether the pattern of use afterdisenrollment persisted over time.

What did the researchers do?  They looked at Medicare billing records for over 375,000 elderly Americans over a number of years.  This allowed them to look at how much inpatient care those people used.  They also looked specifically at how much care they used in the year before anyone went to an HMO and the three months after they left an HMO.  If there is no cherry picking, then they should find that the amount of care used should be the same in all of those groups and times.

Results: The rate of use of inpatient services in the HMO-enrollmentgroup during the year before enrollment was 66 percent of therate in the fee-for-service group, whereas the rate in the HMO-disenrollmentgroup after disenrollment was 180 percent of that in the fee-for-servicegroup. Beneficiaries who disenrolled from HMOs re-enrolled atabout the time that their level of use dropped to that in thefee-for-service group.

What did the researchers find?  People who wound up joining the (private) HMOs used 66% less care before joining than those who stayed in the (public) Medicare group.  Somehow the private insurance HMOs figured out a way to get the healthy people to jump ship out of the another plan into theirs!

Not only that, but people who left the (private) HMOs and went back to the (public) Medicare used 180% more care after leaving than the people who stayed.  Somehow the private insurance HMOs figured out a way to convince the sicker people to jump ship back to the public plans.

So we had a system where plans were in an exchange like environment.  Regulations prevented cherry-picking.  And yet, the insurance companies figured out a way to preferentially cover healthy people.  And this was competing with a giant government program.

Insurance companies are very, very good at what they do.  I don’t doubt that they will find ways to remain profitable. That’s not a moral judgment.

UPDATE: Made my joking clear.

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