• The political context of cost shifting and Medicare Advantage payments

    John McDonough recounts the lead up to the cost shifting studies released by the insurance industry in 2009. To help pay for health reform,

    AHIP was prepared to negotiate as much as $80 billion in Medicare Advantage reductions, but Finance Committee staffers wanted at least parity with savings agreed to by the hospital industry, $155 billion. By late July [2009], the parties stopped meeting. Attacks on the insurance industry by House and white House leaders were escalating. In August, with funds from large insurers, including Aetna, CIGNA, Humana, UnitedHealthcare, and WellPoint, AHIP began secretly funneling financial support to the U.S. Chamber of Commerce to bankroll its major advertising campaign against reform, done in the name of small business. In all, AHIP gave $86.2 million to the Chamber, well more than half the business group’s available money to attack the Democrats’ reform agenda. Within five days in October, AHIP, the Blue Cross and Blue Shield Associations, and insurance giant WellPoint–the most antagonistic of the largest companies to reform–each released actuarial studies claiming huge premium increases resulting from the pending Senate Finance health reform bill. From then on, any collaboration with insurers was off, and so were the gloves.

    The unsubstantiated claims of cost shifting in those actuarial studies–that a dollar shortfall in public payments to hospitals would lead to 50 cents to one dollar increase in private payments–are what motivated me to undertake a comprehensive review of the hospital cost shifting literature. So, in a way, I’m personally grateful for the political war that led to the reports funded by the insurance industry in 2009.

    Perhaps the political battle was well fought by the insurance industry because they won a key concession in the final version the 2010 health reform legislation. As McDonough explains,

    When House and Senate staffers sat down to negotiate differences in [how to pay Medicare Advantage plans …] the only option was to devise a third way resembling neither branch’s ideal. […] The final agreement, hammered out in mid-January, was incorporated into the “reconciliation sidecar” legislation signed by President Obama one week after he signed the ACA. It was not competitive bidding [as proposed by the Senate] and not 100 percent fee-for-service [as favored by the House]. It was, like the House’s plan, administered pricing–a new set of benchmark payments for Medicare Advantage plans at different percentages of Medicare fee-for-service rates, by area, with bonuses for quality and enrollee satisfaction, and lower play payments for “low-quality” plans. […]

    There is one irony in the final result. Although the compromise structure did not resemble either the Senate or House version, it did resemble the proposal advanced by AHIP’s Karen Ignagni in the summer of 2009, not in the actual dollar savings, but in the revised program structure.

    Well played, I guess.

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    • It seems like the major unstated premise here is that you could immediately universalize Medicare prices without affecting the supply of care available.

      If not, then either Medicare patients have access to capacity that Medicare payments don’t fully cover, any payments above Medicare reimbursement rates are excess rates that we can eliminate without losing any capacity.

      How many physicians, hospital CFO’s, etc would agree to the latter?

    • This weekend I went out and bought a copy of John McDonough’s new book. My wife couldn’t believe that I would find a book on national health reform to be enjoyable reading, but it is–and incredibly informative, even for someone who was close to the process. It’s nice to be able to look back at what happened and see all the individual events in the larger context. McDonough also provides accessible summaries of each of the major portions of the health reform law. I suspect that I will put the book aside temporarily, though, when Neal Stephenson’s new novel comes out tomorrow, but nothing can compete with that.