Healthcare-Related Comments

Medical R&D:“We’ll invest in biomedical research, information technology, and especially clean energy technology -– (applause) — an investment that will strengthen our security, protect our planet, and create countless new jobs for our people.”

Health Reform: “And it’s why we passed reform that finally prevents the health insurance industry from exploiting patients. (Applause.)

Now, I have heard rumors that a few of you still have concerns about our new health care law. (Laughter.) So let me be the first to say that anything can be improved. If you have ideas about how to improve this law by making care better or more affordable, I am eager to work with you. We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses. (Applause.)

What I’m not willing to do — what I’m not willing to do is go back to the days when insurance companies could deny someone coverage because of a preexisting condition. (Applause.)

I’m not willing to tell James Howard, a brain cancer patient from Texas, that his treatment might not be covered. I’m not willing to tell Jim Houser, a small business man from Oregon, that he has to go back to paying $5,000 more to cover his employees. As we speak, this law is making prescription drugs cheaper for seniors and giving uninsured students a chance to stay on their patients’ — parents’ coverage. (Applause.)

So I say to this chamber tonight, instead of re-fighting the battles of the last two years, let’s fix what needs fixing and let’s move forward. (Applause.)”

Cuts to Medicare and Medicaid: “And their conclusion is that the only way to tackle our deficit is to cut excessive spending wherever we find it –- in domestic spending, defense spending, health care spending, and spending through tax breaks and loopholes. (Applause.)

This means further reducing health care costs, including programs like Medicare and Medicaid, which are the single biggest contributor to our long-term deficit.  The health insurance law we passed last year will slow these rising costs, which is part of the reason that nonpartisan economists have said that repealing the health care law would add a quarter of a trillion dollars to our deficit.  Still, I’m willing to look at other ideas to bring down costs, including one that Republicans suggested last year — medical malpractice reform to rein in frivolous lawsuits. ”

Health IT:“Veterans can now download their electronic medical records with a click of the mouse.”

The Healthcare Economist’s Take

Your response to these comments are likely, ‘that’s it?!?!’  If you look at the State of the Union address from 2010, you’ll notice that health care reform played a large role in the President’s State of the Union address.  In this address, the President largely avoided the topic. This is not a huge surprise since the President’s Health Reform package (the ACA) is proving unpopular.

Tellingly, the phase “health reform” is never once mentioned in the speech.

He did mention reducing paperwork for small businesses and maintaining the provision to forbid insurers to adjust health insurance premiums based on the patients’ pre-existing conditions. A policy that prohibits rating policyholders based on pre-existing conditions is only tenable with an individual mandate; otherwise healthy people will have no incentive to buy insurance until they are sick. Obama does not mention the individual mandate at all in his speech, however.

The President also says that we need to cut spending for Medicare and Medicaid. He does not, however, offer specifics. In 2010, the President established the bipartisan Fiscal Commission to reduce the cost of Medicare, Medicaid and Social Security. Those efforts largely failed. With so little effort directed towards these cuts in his speech, there is little chance that these cuts materialize or if they do they will be large in magnitude.

In short, on the health care front there is no new news…this would of course change significantly if a Republican takes office in 2013.

Increased cost sharing is a common theme in Medicare, Medicaid, but also for other programs as well.  For instance, the proposal includes increases to TRICARE pharmacy benefit co-payments to be fall more in line with the most popular Federal employee health plan

The proposal, however, also has some interesting provisions.  For instance, it would require providers to secure prior authorization to perform advanced imaging.  This is one of the first moves away from the fee-for-service free-for-all towards managed care (read: rationing).

A pro-competition rule would prohibit ‘pay-for-delay’ where brand drug companies pay off other drug makers to delay their introduction of a generic into the market.  The FTC is charged with enforcing this requirement. The proposal also would reduce the exclusive period of generic biologics.  Weakening patent protection, for this authors perspective, is likely a good idea.

Specific changes under consideration which are related to medicare are highlighted below (with potential savings per year in parentheses):

• Reducing in bad debt coverage.  Currently, Medicare covers 70% of bad debts for providers, but will reduce this figure to 25% ($2 billion)
• Reduce IME.  Reduce indirect medical education (IME) payments by 10% ($0.9 billion)
• Reduce CAH payments.  Reduce payments to critical access hospitals (CAHs) from 101% of cost to 100% of cost.  The proposal would also reduce special add-on payments for rural hospitals and providers ($0.6 billion)
• Post Acute Care adjustments. Eliminate Payment updates for SNFs, LTCHs, IRFs, and home health providers.  ($3.2 billion).  Equalize payments for certain conditions commonly treated in IRFs and SNFs ($0.4 billion)
• Decreased payments for preventable readmissions. Reduces SNF payments by up to three percent beginning in 2015 for facilities with high rates of care-sensitive, preventable hospital readmissions.
• Drug Rebates. Medicare to benefit from the same rebates that Medicaid receives for brand name and generic drugs provided to beneficiaries who receive the Medicare Low-Income Subsidy beginning 2013 ($13.5 billion).
• Require Prior Authorization for advanced imaging. ($0.9 billion)
• Medi-gap surcharge.  Charging an extra 15 percent premium on people who have especially 1st dollar coverage through a Medi-gap plan ($0.3 billion)
• Increased deductibles.  Increasing the deductible for doctors’ services (part B of Medicare) by $25 in 2017, 2019 and 2021 ($0.1 billion)
• Home Health Copays. Requiring $100 co-payments for home health care visits.  MedPAC made a similar proposal for home health beneficiaries admitted from the community (rather than the hospital).  ($0.1 billion)
• Premium hikes for the wealthy. Hiking the premiums by 15 percent for Medicare recipients who earn from $85,000 to about $210,000, to raise about ($2.0 billion)

Source:

• Office of Management and Budget (OMB), “Living Within Our Meansand Investing in the FutureThe President’s Plan for EconomicGrowth and Deficit Reduction.” September 2011.

1. Progressive tax code
2. Permanently link taxes to the unemployment rate
3. Backstop rules
4. Independent institutions

I have my doubts…

Take less of your income when economy is bad and more when economy is good.  The degree of progressivity of the tax code, however, is an item up for much debate.  There is not one clear method to make the tax code progressive.  Further, the question is complicated by the fact that newly poor individuals receive in-kind benefits (e.g., Medicaid, TANF, food stamps) but it takes some time before these benefits arrive.

Permanently link the tax to the unemployment rate works if there is an equilibrium unemployment amount that policymakers can estimate.  In practice, however, difficult to determine if changes in unemployment are cyclical shifts around a stable equilibrium unemployment value or a change to a new equilibrium value.  Orzag’s recommendation #2 works if it is the former, but if it is the latter, taxes will consistently be too low (or too high).

Backstop rules are events that take place if Congress doesn’t act.  However, these are only effective if there is not a big lobby to fight against these default changes.  Once lobbyists are appraised of automatic changes in spending to their constituents, one can be sure that politicians will be informed of these ‘automatic’ changes and many will get reversed.  For instance, the sustainable growth rate (SGR) aims to reduce Medicare spending for physician services gradually over time. However, Congress has reversed these ‘automatic’ changes each year and thus the backstop rules—for Medicare payments at least—have been wholely ineffective.

Independent Institutions are generally a good idea when tough decisions need to be made. Orzag cites a commission that was established to close military bases in the 1980s.  The reason Orzag needs to use this example is that independent institutions are not always as independent as intended.  The recommendations of the most recent fiscal commission to reduce the deficit were largely ignored.  Further, choosing an impartial group of individuals to sit on any committee is difficult.  Once must balance the additional expertise insiders bring to the discussion against the vested interests these individuals may have.  Further, voters may not like independent institutions because they are not held accountable by voters.  Orzag also cites the Independent Payment Advisory Board (IPAB) created by health reform, by IPAB’s is so new its success cannot be judged.

Partly.

Policy explains a lot, however. Sweden has the most generous parental paid leave benefits of any country in the world.  Parents are entitled to 480 days (16 months) of paid leave.   The next closest country is Norway with 13 months, and a number of countries (e.g., Albania, Bulgaria, Denmark, Slovenia) offer 12 months paid leave.

As reported in theLocal.se, State-sponsored parental leave (‘föräldraledighet’) can be split between both parents (unless the parent is a single parent in which case they can use all the days).  However, the mother cannot use more than 420 days of the paid leave, 60 days are reserved for the father.

According to Mats Mattsson, head of the parental insurance section at Försäkringskassan “The principle is that you split it in half, but that the father can donate part of his leave to the mother, or vice versa.”

Why would employers allow their workers to have so much paid leave?  Simple, the state pays parents salaries.  Most Swedish parents receive 80 percent of their salary through a government subsidy.  The maximum subsidy is 27,300 SEK per month ($4,087 USD).  The benefits are targeted to those who have worked in Sweden for over 240 days, but parents who have worked less that 240 days in Sweden still can receive 180 SEK ($27 USD) per day in benefits.

Parents can also get state compensation when they need to take time off work to look after a sick child.

Although Swedish birth rates are low compared to the U.S., they are much higher than many southern European countries.  The generous parental leave benefits are certainly part of the reason.

Total Fertility Rates

• Mexico: 2.29
• USA: 2.05
• France: 1.96
• UK: 1.91
• Denmark: 1.74
• Sweden: 1.67
• Canada: 1.58
• China: 1.54
• Spain: 1.47
• Germany: 1.41
• Greece: 1.38
• Italy: 1.37
• South Korea: 1.23
• Japan: 1.21

“Between 1966 and 2007, the entire increase in the size of government relative to the economy resulted from growth in tax-financed health spending.

… as a share of GDP, publicly financed health spending in 2007 was five times as large as it was in 1965 (the year immediately before Medicare and Medicaid began). In contrast, the share of the economy attributable to government spending on all other activities unrelated to health was identical in 1966 and 2007.”

Although the CBO projects that Medicare and Medicaid spending will top $850 billion in 2011, we should not forget about another federal health care system on this 4th of July: the VA.

The VA operates 152 hospitals, 133 nursing homes, 824 community-based outpatient clinics and other facilities to provide care to veterans.

According to this Healthcare Finance News article, the federal government is increasing funding for the VA in 2012 and 2013.

“President Barack Obama requested $54.9 billion in funding for the Department of Veterans’ Affairs (VA) for fiscal year 2012 and $56.7 billion for fiscal year 2013, according to a report released by the Government Accountability Office this week.

VA officials said the new budget estimate was increased overall by about $1.4 billion for fiscal year 2012 and $1.3 billion for fiscal year 2013 to support healthcare-related initiatives proposed by the Obama administration, such as expanding homeless veterans programs, opening new healthcare facilities, offering additional services for caregivers and providing benefits for veterans exposed to Agent Orange.”

On this 4th of July, let’s ponder how the U.S. can best provide effective health care for our nation’s veterans at a reasonable cost.

In terms of increasing access to health care, it has been an unqualified success.  According to the Economist, only1.9% of Massachusetts residents were uninsured in 2010.

Massachusetts’ health reform has not been able to offer universal access to health care or to constrain costs. “ One in five working-age adults say they have trouble finding a doctor who will see them…Spending on MassHealth, the programme for the poor, rose 40% between 2006 and 2010….average monthly premiums rose by 12% between 2006 and 2008. True, a higher share of firms now offer coverage, but they are also shifting costs for that coverage to employees”

Massachusetts is trying to legislatively block health premium increases.  Reducing health insurance cost, however, will likely drive down provider reimbursement and either increase cost sharing or decrease access to health care.

The key takeaway from this post is the following: “Access to health insurance does not guarantee access to health care.”

• Access to care determined by the number of providers and volume of services.
• Quality of care
• Provider access to capital
• Provider margins.

Although these measures do provide valuable information, they are far from perfect.  Access to care basically means whether beneficiaries have the opportunity to use medical services should they need it.  This could be defined as the proximity of the closest provided or the length of time a beneficiary must wait to receive services.  If certain types of people use lots of services whereas others use few, overall volume of services will be an imprecise measure of access.  Further, the number of providers may obscure geographic variation where certain areas contain too many providers whereas others have too few.

Provider margins is also problematic.  Although aiming to set payments to produce moderate margins (i.e., not excessive, but sufficient to ensure continued provider operations) is reasonable, cost information comes directly from the providers.  Acute care hospitals, skilled nursing facilities (SNFs), home health agencies (HHAs), outpatient dialysis facilities, inpatient rehabilitation facilities (IRFs), long-term care hospitals (LTCHs) and hospices all must submit cost reports.  However, these providers may decide to inflate their costs.  Reporting higher costs will decrease their margins and may cause Medicare to increase payment rates.  At the very least, these providers can argue for higher reimbursement because of artificially low margins.  Medicare must be sure to carefully audit these reports if it plans to continue using them for payment purposes.

Medicare Part B pays outpatient physicians according to the billed Current Procedural Terminology (CPT) codes, which differ in procedure and intensity….Using nationally representative data from the 2001 to 2003 Medicare Current Beneficiary Survey, this paper…finds strong evidence that these fee differentials influence physician’s coding choice for billing purposes across a variety of specialties. For general office visits, Medicare outlays attributable to upcoding may sum to as much as 15% of total expenditures for such visits.

Likely no. For physicians paid by private insurers, they would still have an incentive to upcode. It is possible that private insurers may be better at policing upcoding, but their extra vigilience may also cause physicians to hesitate from providing necessary services since they fear they’ll be targeted for upcoding. On the other hand, for integrated managed care organizations like Kaiser Permanente, they have the opposite incentive. These providers are rewarded for reducing cost and thus insurers may claim to have providers services they did not in fact perform.

Although privatizing Medicare and/or Medicaid could solve some problems, upcoding is not likely to be one of them.

• Brunt, C. S. (2011), CPT fee differentials and visit upcoding under Medicare Part B. Health Economics, 20: 831–841. doi: 10.1002/hec.1649.

Congress did save $78.5 billion in their latest agreement. Since the original budget deficit for fiscal year 2011 was $1.6 trillion,  however, the negotiated savings only amounted to 5% of the deficit.

Lots of rhetoric; little action.