Unbiased Analysis of Today's Healthcare Issues

Obamacare will Increase Use of Elective Surgeries

Written By: Jason Shafrin - Jul• 06•14

Expanding health insurance causes moral hazard.  Patients who bear a lower share of cost will inevitably use more health care serices.  On the one hand, this increases the cost of the health care system; on the other hand, the patients who receive the additional care likely have better health outcomes.

However, which services will patients who are newly insured through the Affordable Care Act (ACA) choose to use?  One way to predict this is to examine what happened after Massachusetts expanded their health insurance coverage (i.e., Romney Care).  It is likely that newly insured patients use more elective surgery. WonkBlog reports:


A new study published in JAMA Surgery suggests the immediate effects of the coverage expansion will be an increase in elective surgeries aimed at improving a person’s quality of life — think of things like knee replacements and back surgeries — as opposed to surgery immediately addressing life-saving conditions…

Michigan researchers examined surgery rates for people ages 19 to 64 between 2003 and 2010, which captured the experience just before and after the Massachusetts coverage expansion took effect in 2007. Comparing surgery rates to those in New York and New Jersey, the researchers found the coverage expansion in Massachusetts increased elective surgeries 9.3 percent three years after the law took effect. The increase was more dramatic among nonwhite populations (19.9 percent), who face disparities in care.



Written By: Jason Shafrin - Jul• 03•14

Are nursing home expenses driving savings?

Written By: Jason Shafrin - Jul• 02•14

From a working paper by Karen A. Kopecky and Tatyana Koreshkova.

…even though they are only a third of OOP [out-of-pocket] health expenses, the presence of nursing home expenses accounts for more than half of savings for all health expenses…We find that 27 percent of savings for old-age OOP health expenses, 3.7 percent of private wealth, is savings for cross-sectional OOP expense risk and that more than 80 percent of these precautionary savings…is accumulated to self-insure against cross-sectional OOP nursing home expense risk. This is a substantial amount: if savings for cross-sectional OOP nursing home expense risk were held in the form of vehicles, it is large enough to account for the entire stock of transportation equipment in the US.

HT: Marginal Revolution.

What’s in store for 2015?

Written By: Jason Shafrin - Jul• 01•14

PwC’s Health Research Institute projects what is going to happen to health spending in 2015.  According to their annual report, Medical Cost Trend: Behind the Numbers:


At first glance, the health sector [in 2015] appears to be reverting to historical patterns of bouncing back as the nation recovers from the economic doldrums. Whether spending more freely because of the improved economy or shopping with insurance provided through the Affordable Care Act, consumers triggered the first bump in growth in the first quarter of 2014. We expect that to continue through next year.

But other factors are helping to moderate that growth. The $2.8 trillion industry is becoming more efficient. Doctors and hospitals are adopting standardized processes that offer the prospect of better value for our health dollar. ‘At-risk’ payment models that hold healthcare providers financially accountable for patient outcomes are beginning to take effect. One tangible sign of shrinkage: growth in healthcare system administrative and clinical employment has declined since 2011.

And major purchasers—namely the federal government and large employers—are tamping down the spending growth rate analyzed in this report, in part by demanding greater value and in part by shifting financial responsibility to consumers.

SCOTUS Obamacare Ruling

Written By: Jason Shafrin - Jun• 30•14

The Supreme Court of the United States (SCOTUS) recently ruled that family owned and other closely held companies can opt out of the Affordable Care Act’s provisions for no-cost prescription contraception in most health insurance if they have religious objections.  Is this a blow to Obamacare?  Yes and No.  The practical implications may be small but the political ramifications are large.  Politico writes:

By letting some closely held employers — like family-owned businesses — opt out of the coverage if they have religious objections, the justices haven’t blown a hole in the law that unravels its ability to cover millions of Americans. They didn’t even overturn the contraception coverage rule itself. They just carved out an exemption for some employers from one benefit, one that wasn’t even spelled out when the law was passed.

But politically, that doesn’t matter.

What matters is that the Supreme Court has ruled that the Obama administration overreached on one of the most sensitive cultural controversies in modern politics. And in doing so, the justices have given the Affordable Care Act one more setback


Dissenting Supreme Court Justices agree. Justice Ruth Bader Ginsburg–one of the dissenting justices–stated that the majority opinion was a radical overhaul of corporate rights, one she said could apply to all corporations and to countless laws.

ACA, Uninsurance and American Cities

Written By: Jason Shafrin - Jun• 29•14

The Affordable Care Act (ACA) increased the likelihood individuals have insurance by: (i) offering states money to expand Medicaid eligibility, and (ii) offering individuals subsidies to purchase insurance through newly created health insurance exchanges.  Did it work?  A Robert Wood Johnson report examines at the effect of the ACA on uninsurance rates in 14 large cities: Atlanta, Charlotte, Chicago, Columbus,  Denver, Detroit, Houston, Indianapolis, Los Angeles, Memphis, Miami, Philadelphia, Phoenix,  and Seattle. They found:

  • Among the seven cities in states that have expanded Medicaid, the ACA will likely decrease the number of uninsured by an average of 57 percent. City by city, the reduction is projected to vary between 49 percent in Denver and 66 percent in Detroit by 2016.  New federal spending on health care from 2014 to 2023 would range from $4.1 billion in Seattle to $27 billion in Los Angeles.
  • Among the seven cities in states not expanding Medicaid, the ACA will likely decrease the number of uninsured by an average of 30 percent. The decrease would range from 25 percent in Atlanta to 36 percent in Charlotte by 2016.  New federal spending due to the ACA from 2014 to 2023 would increase by between $1.9 billion in Atlanta and $9.9 billion in Houston.
  • If Medicaid eligibility were expanded in these cities, the number of uninsured would fall by an average of 52 percent, ranging from 45 percent in Houston to 59 percent in Memphis. New federal spending would increase by between $4.8 billion in Atlanta and $16.4 billion in Houston from 2014 to 2023.

We certainly see some crowd-out employer-sponsored health insurance with Medicaid and private non-group health insurance. The report states that: “In most of the cities we considered, the share of adults
with employer-sponsored insurance is noticeably lower.”

Friday Links

Written By: Jason Shafrin - Jun• 27•14


Regional Variation in Medical Spending: A Texas Case Study

Written By: Jason Shafrin - Jun• 25•14

A large body of research (including my own) indicates that there exists significant regional variation in medical spending. What is the source of these differences: differences in the prices paid per service or differenes in the amount of healthcare services used? The conventional wisdom is that Medicare does a better job of controlling prices, and private plans do a better job of controlling volume. Is this true?

A paper by Franzini et al. (2014) examines regional variation in spending across hospital referral regions (HRRs) in Texas. They authors use data from Blue Cross Blue Shield of Texas (BCBSTX) to examine regional variation in spending for the privately insured population and data from Medicare to examine regional variataion in spending for the publicly insured. They find the following:

Price had a considerable impact on spending variation across Texas HRRs in the privately insured population, but a much smaller impact on Medicare spending. This is expected since Medicare rates are not negotiated but rather regulated to use nationally applicable price schedules. Price accounted for 32 percent of BCBSTX spending variation…

However, these results varied by service category. Only 15% of regional variation in outpatient spending and 12% of physician and other professional fees is explained by regional differences in price. fees (i.e., physician fees). The authors claim that:

In this case, it is likely that because professional service providers tend to be in relatively small practices, particularly in Texas where small and solo practices are the norm, they have limited market power and are likely to be price-takers from BCBSTX

On the other hand, hospitals use their market power to negotiate higher rates.

Our finding that a large portion of spending variation for inpatient services is due to price variation is likely due to many hospitals having significant market leverage in negotiating prices. In Texas, price negotiations in the inpatient setting revolve often on an overall spending increase; for example, BCBSTX may target a 5 percent spending increase for a given hospital but leaves it to the hospital to allocate the increase internally. Thus, high-priced markets for inpatient services continue to be high priced over time.

The authors find that in Texas, outpatient and professional services have little market power and are price takers from both private insurance and Medicare. Hosptials, however, have more market power and can negotiate higher prices from private insurers.


CoR #211

Written By: Jason Shafrin - Jun• 25•14

Julie Ferguson of Workers Comp Insider hosts this week’s electrifying round-up of risky posts.

Long-Term Care Hospitals

Written By: Jason Shafrin - Jun• 24•14

What are Long-Term Care Hospitals (LTCH)?  These facilities are different from nursing homes.  The New York Times explains the type of care they provide:

These are no ordinary hospitals: Critically ill patients, sometimes unresponsive or in comas, may live here for months, even years, sustained by respirators and feeding tubes. Some, especially those recovering from accidents, eventually will leave. Others will be here for the rest of their lives…

But more experts and policy makers are likely to have to start thinking about them soon. The cost of long-term acute care is substantial, about $26 billion a year in the United States, and by one estimate the number of patients in these facilities has more than tripled in the past decade to 380,000.

Doctors are getting better at keeping people alive. This is certainly a positive development. However, the expense to keep people alive on ventilators or other intensive devices is non-trivial. Although most patients in LTCH’s are initially covered by Medicare, the benefit runs out at 150 days. After this point, either private insurance or (more likely) Medicaid takes over or–in the worst case–the patient is unnecessarily discharged. Even those covered by Medicare are experiencing cuts.

Medicare, concerned about the high price of long-term acute care hospitals, is trying to trim reimbursements. Nearly half of the $7.3 billion cut from its budget by the Affordable Care Act came from reductions in payments to these facilities. Medicare officials argue that perhaps these patients could stay in regular hospitals or nursing homes instead, and say it’s unclear whether care is better in long-term acute care hospitals.

However, these dollar figures often hide the human aspect.

But while many of these patients may occupy a frightening middle ground between death and the lives they once knew, some do find happiness. The children, some abandoned by their parents, gurgle happily in the hands of volunteers careful not the disturb their respirator hoses. The couple who recently were married, Chris Plum, 38, and Margaret Lavigne, 43, share a room crowded with medical equipment, attended at all hours by determined aides. They kiss each other good night before being lifted into separate hospital beds.

Does hope spring eternal?