A recent study, for instance, finds that many veterans lack health insurance.  As summarized in the National Journal:

“About 10 percent of U.S. veterans under the age of 65 lack health insurance and are not being cared for by the Veterans Affairs Department, either, according to a study published on Thursday.

The study estimated that 1.3 million veterans and nearly 950,000 members of their families lack health insurance. These uninsured military families account for 4.8 percent of the 47.3 million uninsured Americans, the Urban Institute and Robert Wood Johnson Foundation reported.”

The share of veterans without health insurance varies widely across states.  According to the study,

“Just four states have uninsurance rates below six percent—Massachusetts, Hawaii,Vermont and North Dakota.  Meanwhile,four states—Louisiana,Oregon,Idaho, and Montana—have uninsurance rates above 14 percent.”

But doesn’t the Department of Veterans Affairs (VA) provide health insurance to all veterans?

It is true that the VA is “the nation’s largest health system and provides health care for many veterans through a system of medical centers, clinics, and other facilities…However, some veterans do not use VA health care services. Eligibility is based on veteran status, service-related disabilities, income level, and other factors, and even within the groups eligible for VA care, other factors, such as their proximity to VA facilities and the cost-sharing requirements, may affect the likelihood
that they seek care in the VA system.”

Source:

• Haley J and Kenney GM. Uninsured Veterans and Family Members: Who Are They and Where Do They Live? Urban Institute, May 2012.

Based on data from Virginia looking at surgery wait times and rates of breast re-construction surgery, the answer appears to be ‘no.’  A 2012 study by Bradley and co-authors finds the following:

“There is little evidence to suggest that safety net hospitals attenuate treatment differences between insurance and racial groups. The time between diagnosis and surgery was longer in safety net hospitals for all patients, regardless of insurance source or race. Perhaps safety net hospitals are operating at capacity and are unable to schedule surgeries in a timely manner. If this is the case, their resources may be further stretched following the passage of the PPACA. Alternatively, as these hospitals are teaching hospitals, they may perform additional diagnostic tests prior to scheduling surgery or physicians who treat low-income patients may have a slower referral process.”

Source:

• Bradley, C. J., Dahman, B., Shickle, L. M. and Lee, W. (2012), Surgery Wait Times and Specialty Services for Insured and Uninsured Breast Cancer Patients: Does Hospital Safety Net Status Matter?. Health Services Research, 47: 677–697. doi: 10.1111/j.1475-6773.2011.01328.x

“Grand Junction ranks near the top in Medicare’s Composite Quality of Care index, with a score of 91. That’s 21 points higher than McAllen.

But costs in Grand Junction are among the lowest in the nation, sixth from the bottom among 307 cities.

Medicare spends just $5,873 per year on the average recipient here, compared to a national average of $8,304, according to the Atlas of Health Care published by Dartmouth University. Grand Junction’s costs are well under half the $14,946 average in McAllen, which is second most expensive.”

How does it do it?  One reason is its integrated model for caring for patients.

“The doctors told the insurer that they didn’t want to stratify their patients — favoring those with private health insurance, reluctantly treating those on Medicare and Medicaid, the government programs for the elderly and the poor, which pay doctors less than private insurers. In many parts of the country, Medicare and Medicaid patients have trouble finding physicians who will treat them.

So, RMHP [Rocky Mountain Health Plan] said the physicians of Grand Junction did not have to know which of their patients are on which plan. To do this, RMHP pooled the incoming fees for private, Medicare and Medicaid. Then it reimbursed the doctors the same for all their patients.”

Uninsured individuals can even get free care.  The local hospital donates a million dollars per year to support care for the uninsured at the Marillac Clinic.

Is this model replicable in other areas?  Unless there is structural change, I would say no.

Implementing this type of system requires a number of institutional attributes.

First, there is a near monopoly by insurers and providers.  Rocky Mountain Health Plan has over 60 percent of the market.  Mesa County Physicians Independent Practice Association represents about 85 percent of the region’s physicians.  Since there are two dominant forces in the market, cost-sharing agreements are feasible.  In the current system, Medicare and commercial patients are subsidizing those with Medicaid or no insurance.  If an insurer wanted to gain market share, it could offer more generous benefits to Medicare or commercially insured individuals.  That strategy may work in certain cases, but if there are significant economies of scale, it is possible that Medicare and commercially insured patients could still receive better care at lower cost than with a smaller, more tailored plan.

The near monopoly in Grand Junction, but implementing monopolies in other cities could mean that everyone receives poor care rather than excellent care.

Second, doctors have to be willing to accept lower incomes, particularly specialists.  Grand Junction saves money by performing fewer procedures, but it is these expensive procedures are what generates high physician incomes.  ”Dr. David West, a member of the physicians’ association, says specialists are generally paid two to four times as much per year as primary care doctors, and he thinks that’s too much. In Mesa County, specialists are hired to think, not to run up the procedure count, and that means they give up income to benefit their patients, their community and the family doctors.”

Can Grand Junction be replicated?  Maybe.

One question is why don’t insurance companies just charge high-risk individuals higher premiums?  Why would they want to lose this business?

A paper by Nathaniel Hendren aims to answer this question.

“This paper finds evidence consistent with the hypothesis that private information leads insurance companies to choose to not sell insurance to a subset of the population. We provide a new “no trade” theorem which shows why insurance companies may choose to not offer insurance at any price acceptable to anyone in the market…Across all of our settings, we find evidence of more private information for the rejectees, and we find its magnitude large enough to plausibly explain an absence of trade. In short, our results suggest that if insurance companies were to offer any contract or set of contracts to those currently rejected, they would be too adversely selected to yield a positive profit…Our results suggest a new interpretation of the role of private information in insurance markets: its most salient impact may not be the adverse selection of existing contracts, but rather the existence of the market itself.”

The paper is interesting throughout.

The reason Obama claims the individual mandate is necessary is due to the prohibition of setting premiums based on pre-existing conditions.  Currently, if you don’t have insurance, you become ill and try to buy insurance, it is very expensive.  The ACA, however, would prohibit insurers from price discriminating based on your health status.  Although this may sound good in theory, there are problems in practice if the individual mandate is not in place.  Many individuals will have an incentive not to buy insurance when they are healthy.  When they become sick, they can purchase an insurance plan for the same price as someone who has had insurance for 10 years.  Because only sick people will be insured, the average cost of health insurance will rise for everyone.  Hence, the need for the individual mandate arises.

The individual mandate, however, may not be constitutional.  Can the government compel individuals to buy something?  Many states already require auto insurance.  This requirement is only applied to those who own a car whereas the only condition for the health insurance mandate is that you are alive.

Americans have already found a way around this problem, however.  Medicare’s prescription drug program (Medicare Part D) is an optional program.  No one has to buy prescription drug coverage.  Further, premiums do not vary based on health status (although insurers receive different subsidies based on individual’s health conditions).

To incentivize individuals to purchase prescription drug coverage while they are healthy, Medicare Part D relies on a late enrollment penalty.  Any individual who does not purchase prescription drug coverage when they are eligible has to pay an increased premium when they are eligible.  This increased premium depends not on your health status, but on the number of months you were not enrolled when eligible.  From the Medicare website:

The late enrollment penalty is calculated by multiplying 1% of the “national base beneficiary premium” ($31.08 in 2012) times the number of full, uncovered months you were eligible but didn’t join a Medicare drug plan and went without other creditable prescription drug coverage. The final amount is rounded to the nearest $.10 and added to your monthly premium.

This approach could solve both problems.  The one short-coming is determining how much the late-enrollment penalty should be for private plans.  Allowing the government to set prices is generally a poor idea.  One could allow private plans to set the late enrollment penalty, as long as this were regulated to prohibit price discrimination based on individual health status.  Although this approach certainly has a number of challenges, it may be more palatable to the American public (and the Supreme Court) than an individual mandate.

In 2006, the Netherlands instituted a form of managed competition. According to Van Dijk et al (2012) ”Before 2006, inhabitants had either compulsory social (sickness fund, 62%) or voluntarily private (36%) health insurance depending, among others, on income (below a gross annual income of €33 000 people were socially insured).  This combined system of social and private health insurance was replaced by a compulsory single universal basic health insurance covering a legally defined package of basic benefits including GP care. GPs act as gatekeepers for secondary care…”

The implementation of a managed competition system in the Netherlands cause two major changes to the primary care payment system.   First, cost sharing was abolished for privately insured individuals.  Second, whereas previously doctors treating socially-insured patients received a capitation payment and physicians treating  privately-insured beneficiaries received a fee-for-service payments, after 2006 all physicians received a mixed capitation/fee-for-service payment system.

How did these changes affect the number of primary care visits in the Netherlands?  The authors of the study used a sample of GP practices participating in the 2005-2007 Netherlands Information Network of General Practice (LINH) study to conclude the following:

“Abolition of cost sharing led to a higher increase in patient-initiated utilisation for privately insured consumers in persons aged 65 and older. Introduction of fee-for-service for socially insured consumers led to a higher increase in physician-initiated utilisation.”

Source:

• van Dijk, C. E., van den Berg, B., Verheij, R. A., Spreeuwenberg, P., Groenewegen, P. P. and de Bakker, D. H. (2012), MORAL HAZARD AND SUPPLIER-INDUCED DEMAND: EMPIRICAL EVIDENCE IN GENERAL PRACTICE. Health Economics. doi: 10.1002/hec.2801

Although Medicare typically has not required patients to seek prior authorizations to use specific services, this may be changing with the start of the Prior Authorization for Power Mobility Devices Demonstration.

“This demonstration will implement a Prior Authorization process for scooters and power wheelchairs for all people with Medicare who reside in seven states with high populations of fraud- and error-prone providers (CA, IL, MI, NY, NC, FL and TX). This demonstration is designed to develop and demonstrate improved methods for the investigation and prosecution of fraud in the provision of care or services under the health programs established by the Social Security Act. This demonstration will also help ensure that a beneficiary’s medical condition warrants their medical equipment under existing coverage guidelines.”

Even though this prior authorization application seems reasonable, this could be the start of additional forms of rationing.  Rationing, however, may not necessarily be a bad thing.  Reducing unnecessary expenditures so that Medicare can become more fiscally solvent is a desirable outcome.  The key is how services are rationed.

“In the late forties, over a hundred small rural health cooperatives were founded.  Nearly all of these were in the Southwest, fifty in Texas alone.  But, opposed by doctors and short of resources, few of them survived for as much as a decade.  Such small cooperatives were not actuariallly sound.  They might perhaps have been saved by an extended, federated form of organization that would have allowed them to gain stability from larger scale, but this they never achieved.  So although they originated as a rural movement, the medical cooperatives, such as they were, survived primarily in cities.”

Who governed these cooperatives?  There were three general models.

“Group Health Cooperative was owned by its membership, who voted on a one-member, one-vote basis to elect trustees and to make major policy decisions.  The cooperative sought active participation by conducting referenda by mail and periodic assemblies.  Kaiser, on the other hand, declined to give its subscribers any role in governing the plan.  Power resided in two corporations controlled by the Kaiser family and its company executives.  HIP, yet a third type, was governed by a self-perpetuating board that included liberal representatives of business, labor, the medical profession, and government.”

• The Social Transformation of American Medicine, Paul Starr.

For more information on the history of managed care, see also this Brief History of Managed Care from the Tufts Managed Care Institute.

Another possibility is consumer-driven health plans.  These health plans not only have higher deductibles, but they provide their beneficiaries with information on the price of services across different providers.  Although federal and state laws not require hospitals to list standard prices each year, price information available to consumers is still fairly limited.

The Economist reports that this is changing.

“GE, for example, hired Thomson Reuters, an information firm, to show employees the cost of different services. Thomson Reuters analyses prices from prior purchases—by workers at GE and other firms—to show the cost of a given procedure at different hospitals and clinics.

Another company, Castlight Health of California, has made transparency its sole mission. Working with big firms, Castlight assembles data from past transactions so that employees can shop for doctors online and read reviews posted by patients. Castlight wants to do for health what Travelocity did for air travel, explains Giovanni Colella, the founder. Mr Colella’s co-founder is now the chief technology officer for Mr Obama’s health department.”

Some insurers are resistant to price transparency.  “If an insurer has a contract to pay one hospital $7,000 for a caesarean and a contract to pay another hospital $10,000 for the same service, and this information leaks, the first hospital will lobby for a higher price. “

The ACA requires health insurers in the individual and small group market to spend 80 percent of their premiums (after subtracting taxes and regulatory fees) on medical costs.  The corresponding figure for large groups is 85 percent.  According to a recent Kaiser tracking poll, 60 percent of the public views the MLR concept favorably, although only 38 percent was aware that the provision is in the ACA.  Insurance brokers may be getting squeezed for insurers to meet this amount.

Even though the MLR is a national law, it may not apply in your state.  Why?  Because many States are petitioning for a waiver.  HHS is currently reviewing applications from six states: Florida, Kansas, Michigan, Texas, Oklahoma and North Carolina.  According to The National Association of State Budget Officers, HHS has granted waivers to seven states: Maine, New Hampshire, Kentucky, Nevada, Iowa, Georgia and Wisconsin. The department has denied them to Delaware and North Dakota.

Why did these States receive waivers?  For a variety of reasons, but one of the reasons is due to the fact that some states have a less competitive medical market.  Maine, for instance, requested a MLR of 65%.  The reason was that State only has two large commercial insurers, Anthem Blue Cross Blue Shield (with 49% of the market) and MEGA Life and Health Insurance Company (with 33% of the market).  A public-private partnership, DirigoChoice, makes up most of the rest of the market.  Three HMO’s have less than 1% of the market combined between them.  To avoid the case where a large insurer would leave the market due to minimum MLR requirements and create a near monopoly, HHS decided to approve Maine’s request.

Notes:

• Section 2718 of the Public Health Services Act implements the minimum medical loss ratio requirement.

The National Association of State Budget Officers