• When half a loaf is worse than none

    It’s possible the Supreme Court will hand down its decision on the ACA today. I honestly have no idea what they will do, of if we’ll have another week to wait. But some reports put out recently by AHIP are making me nervous. I grant you, they’re not an unbiased player here, but the story is compelling:

    In 1993, Washington adopted what then was one of the most extensive health-care reforms ever enacted by a state.

    The law promised the grail of near-universal coverage while controlling costs. Waiting periods for pre-existing conditions were effectively abolished and insurers were required to sell policies to anyone who could pay. To attempt to control costs, the law provided for premium caps to be phased in only if competition among insurers failed to moderate increases. It also included mandates that uninsured individuals buy their own policies and that employers pay at least 50 percent of the cost of insuring their workers, and that uninsured individuals buy their own policies.

    But the law was not implemented as originally intended, and as Washington residents soon discovered, unless these types of insurance market reforms are paired with an effective requirement for everyone to purchase coverage, serious market disruption is likely, creating real problems for employers, families and individuals.

    Critically, key features of Washington’s Health Services Act of 1993 were repealed within 18 months, including provisions that individuals be required to purchase coverage and that employers be required to
    offer it to their employees. At the same time, legislators left in force new consumer protection provisions, such as eliminating waiting periods for pre-existing conditions and guaranteeing that an insurance policy would be issued to anyone who could pay. Well-intentioned as these protections were, keeping them in force without strong, effective mechanisms to get everyone in the insurance pool, produced a “death spiral” in the individual market. Higher-risk individuals bought policies that were previously unavailable to them causing premiums to rise, and some healthy people took their chances and dropped their coverage

    This is the nightmare scenario for the insurance companies. Forced to issue insurance and prohibited from individually rating plans, sick people flood the market. this raises prices, further driving out healthy people. Premiums go up and up and the market enters a death spiral. Insurance companies realize they can’t possible function in this environment, and they leave. Here’s a nice graphic demonstrating the number of insurance companies offering individual policies in WA state over time:

    When the law was enacted, there were 19 such companies. Then the individual mandate was struck down. Since the other regulations remained intact, a death spiral started. By 1995, 16 companies remained. By 1999, only 2 companies remained. The rate of uninsured in WA state was 13% in 1993. By 1999, it was 15%.

    Years later, other policies have tried to fix this. There are now waiting periods for buying insurance, and government plans for the sickest patients, to remove them from the risk pool. Still, the number of insurance companies offering plans in WA state is less than half that before “reform”.

    Lately, there’s been some talk of keeping the “nice” parts of the bill around, while getting rid of the icky mandate. That makes for nice soundbites. It could, however, make for policy that is worse than what we had before. There’s a reason that the mandate, as unpopular as it is, was stuck in the law. There are ways to make the ACA work without a mandate, but all require some sort of legislative action from Congress and the President. That seems unlikely in the near future.


    • When is a mandate not a mandate?

      When the penalty is 1/30th the cost of the required action. It is disingenuous to call the penalty in ACA a mandate. It’s a polite request to buy coverage at most.

      We would be better off with no mandate then the faux mandate in ACA. The confusions from those who wrote and support the bill when it fails even though it contains a mandate would be worse then just admitting it doesn’t really exist.

      For once when it comes to HC reform it would be nice to stop one of these obvious disasters before it creates more problems. COBRA and the way it was written, or not written at all actually. Medicare as passed not as promised. Everyone that actually works in the business sees these problems, we just need to get the “experts” to come out of their towers long enough to listen.

      Small group reform passed as part of HIPAA nationwide is a more recent example, if you guarantee coverage and cap risk distribution you drive away healthy risk and don’t do anything to motivate bad risk to get better. If the concept worked we would have seen small group rates at least stabilize and the number of small group insured increase, instead we got the exact opposite.

    • I don’t know. Going from 13% to 15% uninsured doesn’t seem like a big deal, when on average, 5% of the population has individual insurance. Nor does it seem all that far from the national trend.

      The problem with the individual market is that it’s a strange market with a lot of unemployed. The self-employed are a smallish percent and there are lots of students, unemployed or other people of no or very low income, where even a fairly reasonable plan is expensive. Further, they often hope they’ll become employed and get a good plan soon. That was certainly what I did when, upon graduating from college, I became unemployed and uninsured.

      • If dramatic reform meant to eliminate uninsured and lower cost instead increases cost and the number of uninsured that is a pretty big failure. Doing nothing would have yielded better results.

        Half of the uninsured are already eligibile for free coverage or very cheap coverage through Medicaid, SCHIP, VA, etc. The low income and no income are not being asked to purchase polices in the “expensive”: individual market.

    • I think this is the problem with a 3rd party payer driven healthcare system. Private, for-profit insurance companies cause healthcare costs to increase, leaving those without insurance to pay a hefty bill if they seek care and those with insurance to continue paying premiums over the fear of not having health insurance. It sometimes amazes me to hear that insurance companies fear financial strains if there is no mandate but a provision to cover pre-existing conditions when their profits are so high year after year. I believe I read somewhere that the two largest lobbying groups in D.C. are pharma and insurance groups. Obamacare should be considered health insurance reform more so than healthcare reform. If you got rid of tax loop holes for large companies and made healthcare single payer, wouldn’t the country save money? I often wonder that if you slightly increase taxes, get rid of tax breaks/loop holes so that everyone (or at least mostly everyone) is paying their fair share in taxes, and provide single payer health insurance, consumers will actually pay out less in total each year. However, this would require providers to stay honest about health care costs as if a direct payment model was the going rate. For example, a $2 blood test (if it actually costs that much) should cost something like $5-$10 instead of the $15-20 copay on top of premium costs. These are just estimates and may be unrealistic as well, but if more people are participating in healthcare, providers should still be able to make some form of a reasonable profit even while charging for slightly greater than face value. Finally, everyone one would be able to receive their right to healthcare.

      • “made healthcare single payer, wouldn’t the country save money?”

        Have you ever heard of Medicare? The most expensive and inefficient health plan in the world, also single payor. It loses more to fraud then the entire administrative cost of private insurance.

        No, single payor would not save money unless it rationed. If private insurance were allowed to enforce the same rationing it would be cheaper then single payor.

        • Disclaimer- I did a quick search for this information…

          Medicare Fraud is a $60 billion crime

          Insurer overheard and paperwork cost- almost $300 billion

          From the “Physicians for a National Health Program” website (so there is bias):
          “The General Accounting Office projects an administrative savings of 10 percent through the elimination of private insurance bills and administrative waste, or $150 billion in 2002. This savings would pay for providing medical care to those currently underserved.”


          “The Congressional Budget Office projects that single payer would reduce overall health costs by $225 billion by 2004 despite the expansion of comprehensive care to all Americans. No other plan projects this kind of savings.”
          (I wish their information on this page was more up to date)

          • “In 1965, as Congress considered legislation to establish a national Medicare program, the House Ways and Means Committee estimated that the hospital insurance portion of the program, Part A, would cost about $9 billion annually by 1990.v Actual Part A spending in 1990 was $67 billion. The actuary who provided the original cost estimates acknowledged in 1994 that, even after conservatively discounting for the unexpectedly high inflation rates of the early ‘70s and other factors, “the actual [Part A] experience was 165% higher than the estimate.”

            Medicare (entire program). In 1967, the House Ways and Means Committee predicted that the new Medicare program, launched the previous year, would cost about $12 billion in 1990. Actual Medicare spending in 1990 was $110 billion—off by nearly a factor of 10.”

            CBO scores what they are told to under the conditions they are told to, no matter how unrealistic they are.

            Your 300 billion number includes provider cost for Medicare, Medicaid, and all other public plans as well according to what I see. That was not specific to private insurance. Spending also doesn’t tell you where the problem is. Doctor offices are none for not hiring the most inteligent staff nor being very good at business in general. A knucklehead billing clerk billing Medicare wrong still cost more money then spening a couple extra dollars for someone with an ounce of common sense. The study is really junk propoganda not anything close to science. From what I know Canada has much better education system then we do. If the staff at doctors offices in Canada are smarter and better trained then here in the US then it stands to reasons they would be more efficient and productive. None of that speaks to the efficency of the healthcare system nor it’s administrative cost.

            It also doesn’t account for regualtory cost, does Canada have HIPAA, COBRA, GINA, Red Flag and any of the other crap I have to deal with? MI now taxes me 1% of claims I pay in MI, does that mean I am 1% less efficient today then I was Dec 31, 2011?

            There is also the question of what is waste and what is investment in better work? All of my clients would fire, then sue me, if I was losing 10% of their claim dollars to fraud. The investment and level of service required to not lose 10% to fraud is obviusly greater then just paying everything that comes in, is one dollar of extra admin to save $10 of fradulent claims waste?

            I am required by law to accept EDI claims. That cost the industry billions. Doctors are not required to actuallky bill electronically, is that provider inefficency or system inefficiency? If we mandated that effective 1/1/13 all providers must bill electronically and submit Rx electronically we would save 10s of billions. These are all provider issues that would only change under single payor if they were mandated, if you can mandate them under single payor why not multi payor?

            • You said, “Your 300 billion number includes provider cost for Medicare, Medicaid, and all other public plans as well according to what I see. That was not specific to private insurance.”

              Fair enough.

              The study says, “In 1999 U.S. private insurers retained $46.9 billion of the $401.2 billion they collected in premiums. Their average overhead (11.7 percent) exceeded that of Medicare (3.6 percent) and Medicaid (6.8 percent). Overall, public and private insurance overhead totaled $72.0 billion — 5.9 percent of the total health care expenditures in the United States, or $259 per capita”

              So private insurances pay more in overhead. Also, sounds like a nice retained figure of $46.9 billion. I would like to know how much of the $401.2 billion they actually payed out to providers.

              The study says, “The average U.S. hospital devoted 24.3 percent of spending to administration. Hospital administration consumed $87.6 billion, or $315 per capita (Table 1). In Canada, hospital administration cost $3.1 billion — 12.9 percent of hospital spending, or $103 per capita.”

              Canada uses provincial insurance plans, which I think would result in less fragmentation than dealing with multiple players. There is a clear difference in expenditures that the hospitals in the US and in Canada are devoting to administrative costs.

              You say, “Doctor offices are none for not hiring the most inteligent staff nor being very good at business in general.”

              I guess you can say it’s a shame that doctors are not more business savy, but why should that be the case? You comment seems to suggest that medicine is more market driven than patient driven.

              NEJM study: http://www.nejm.org/doi/full/10.1056/NEJMsa022033#t=abstract

            • you can’t compare admin cost as a %, the underlying premium distorts the comparison. For example if my average premium is $1 and medicare is $3 then if we both use a stamp to mail a check it cost me 45% to mail and Medicare only 15%. Does that mean Medicare is more efficent at mailing then me?

              That Medicare figure also doesn’t include all of its cost. It leaves out GOA, congress, printing and everything not directly paid to the intermedaries. Very terribly flawed study and very throughly debunked.

              Those numebrs also leave out self funded plans which make up 60% of the private market,. they just happen to be by far the most efficent plans in the country…thus the partisans writing those studies leave them out of these discussions.

              And premium taxes, can’t forget Medicare doesn’t pay those.

              In regards to administration again its a flawed study published for propoganda not accuracy. How many hospital CEOs in Canada make 7 figures? How many nurses in Canada make 6 figures? Americans have far bigger problems then the nature of our system.

              Why should doctors be better at business? Becuase they are running businesses. Office leases, system purchases, technology, salaries, etc. If doctors make poor decisions in these matters it drives up cost. These are not flaws resolved by changing to single payor.

              When you want to understand how the system works and why cost are what they are you really need to find sources that actually work in the system and have a clue what they are talking about. Those that wrote the NEJM article clearly have never worked a minute in the system and thus don’t understand the full picture. That is how terrible science like the Medicare is efficent in regards to admin fees studies come about.

    • The “nice graphic” has an all-too-common error that exaggerates the differences. It uses radius as the proportion instead of area.

      You can see this best (and do the math easiest) in the difference between 16 in 1995 and 2 in 1999. 16 is 8 times bigger than 2, so 8 of the 2-sized circles should fit in the 16 circle. Instead, 64 do. This is because the area of a circle is related to the radius squared.

    • I’ve thought about this whole insurance issue for many years and have redefined by position many times. IMHO the best solution seems to be vouchers. The way it would be funded is though a mixture income, payroll and corporate taxes and everyone gets a voucher to buy basic health insurance at some minimum level set by law. It would be easy to develop a plan where screenings, preventive services, some office visits for chronic disease management and generic rx’s are all part of this plan. Then insurance companies could also offer additional riders to be purchased by an employer or individual (i.e. an oncology rider or brand rx rider). Anyone who doesn’t use the voucher by the deadline (e.g. their birthday) would be autoenrolled into Medicaid.

      • Insurance is a very ineffecient form of financing. Instead of giving a person $100 to buy an insurance policy that would pay for a screening why not just cut out the middle person. Save 15-20% MLR load and X% fraud and waste and pay for the screening direct. Build on the Indiana HSA Medicaid model. Put the vouchers in HSA or like accounts and require catostrophic insurance that relieves hospitals of their EMTLA liability. Other then that allow people to make their own decisions. If they want to buy a Kaiser 100% coverage plan so be it, if I want to buy a $10,000 deductible and pay my doctors direct so be it.

        The only reason we need people to be insured is as a society we supposedly agreed to not leave people untreated in an emergency. One of the many many shortcommings of that bill is it didn’t pay for this promise. We should solve that small defined problem and get out of the healthcare business.

        • Here we agree:
          “Insurance is a very ineffecient form of financing. Instead of giving a person $100 to buy an insurance policy that would pay for a screening why not just cut out the middle person. Save 15-20% MLR load and X% fraud and waste and pay for the screening direct. Build on the Indiana HSA Medicaid model. Put the vouchers in HSA or like accounts and require catostrophic insurance that relieves hospitals of their EMTLA liability. Other then that allow people to make their own decisions. If they want to buy a Kaiser 100% coverage plan so be it, if I want to buy a $10,000 deductible and pay my doctors direct so be it.”

          However, I think this would only work if services were priced according to how much they really cost, and the cost of these services should be advertised. A free market would allow someone to choose between doctors that advertise their prices for their services. Doctors, diagnostic centers, etc. will still make a profit as they would mark up the price higher than their actual cost to perform, but more people would be able to afford such services if they were priced accordingly. Thus, they would be able to serve a greater population. I agree with you on catastrophic insurance, as well.

          • Couple reasons for why insurance is a good idea IMHO: 1) buying in bulk (an insurer can negotiate a better rate than an individual); 2) instead of physician offices having to deal with a few options from payers, now they have to deal with everyone’s ability/inability to pay; 3) vetting of physicians (usually insurance requires someone if board certified or eligible for sending you there for treatment); 4) insurance drives quality (insurance companies go through annual NCQA accreditation annually. In turn they enforce these standards on the provider community).

    • Nate,

      You make some pretty serious allegations towards those who did the study. Granted, the physicians seem to be part of an organization that calls for a single payer system so there probably is bias, but to say, “Those that wrote the NEJM article clearly have never worked a minute in the system and thus don’t understand the full picture,” seems a little outrageous as I can guess you have no idea who these people are. It makes me feel that I should or could make the allegation that you sound like someone who works for or owns an insurance company and are only looking out for your best interest instead of the interest of those that are to be served by a healthcare system. Debating with you over administrative costs being too high and contributing towards wasteful spending seems moot as we see things differently. I would like to strive towards a much simpler system that would cut administrative costs instead of having the multitude of payers that we have now, who seem to have the most control over how care is administered and financed. You like to look at technicalities instead of looking at the big picture yourself because you fail to mention that many who buy private insurance still do not have adequate healthcare access due to costs. So just continue thinking that putting “band aides” on our system will fix so much even though the system is flawed to begin with. If you were a provider, which I have no idea if you are or not, I would hope that you would keep your business and market driven critique and supposed “expertise” out of the clinical picture. I do not know the CEOs of insurance companies, but I would think that they are business entrepreneurs and not actual providers.