By Evan Falchuk
Today the Commonwealth Fund came out with a chart that it says is a “grim reminder” of what happens when health care doesn’t get reformed.
If only we had listened to Richard Nixon or Jimmy Carter. We would have saved tens of trillions of dollars in health care spending.
Click to enlarge
By Evan Falchuk
Massachusetts Governor Deval Patrick announced this week he has had enough of rising health care costs.
So he is proposing a novel solution: make them illegal.
By Evan Falchuk
A friend sent me this interesting graph from the blog of the National Geographic.
You’ll have to click on it to see a bigger version. It captures a lot of data very elegantly on a single graph– Professor Tufte would love it.
What it shows is health care spending per person across a group of countries, along with life expectancies, average number of doctor visits per year, and whether a country has a system of universal health coverage. Although putting all of this data on one graph is novel, the graph makes what by now is one of the oldest political arguments for reform – for all the money they United States spends on health care we don’t get a good deal.
So why blog about this graph?
By Evan Falchuk
Is the health care bill the Senate passed a good thing or a bad thing?
It depends on who you ask. Which ought to be your first clue that it is really an exercise in politics.
I’ve been warning for months that the rushed process and soaring rhetoric veiled the reality of what was happening. And that is this: no one really can describe what health care reform is about.
There are a lot of reasons for this, but the biggest one is that very few people on either side seem to understand the health care “system.” In fact, calling it a “system” is part of the problem. So let me try to help.
Our health care “system” like one of those pictures from an I Spy book. Here’s one.
The US health care system
What do you see? There are some coherent things about it. First, someone put all of those pieces there. They seem to be set up haphazardly, but they’re actually set up in a way that’s convenient for the publisher of the book. They also have a general Christmas theme to them.
But that’s about it.
Now, say someone wanted to “reform” this picture. How would you do it? You could put everything in some kind of order. But what order? Red things on the left, yellow in the middle, blue on the right? Or the other way around? Or why not order it by size or shape or type of object? Why not reform it to make it easier to find the items on that list at the bottom – clear out everything else and just leave behind the thimble, four birds of red, two fuzzy chickens and a gold-trimmed sled? That would be simple, but it wouldn’t make the game very good.
You could forgive someone who wanted to reform this picture from doing what a lot of people looking at these pictures do – give up and go to sleep.
But would-be health care reformers are cleverer than that. They decided to change the problem. Instead of trying to reform the messy health care system, they said let’s reform the health insurance system. A picture of that looks like a map of the United States. Now this is a system that can be reformed.
At the federal level it’s a blank slate, so anything you do counts as reform. And, since we’re in a hurry, you can take a short-cut and just put in place federally something like what the states have been doing for decades. Presto! Reform.
I poke fun, but what’s so bad about a federalized version of state insurance regulation?
The problem is this: the way states regulate insurance is one of the major reasons why health insurance is so expensive. Heavily laden with thousands of rules dictating what they have to cover, how much they can charge, who they must accept as insureds, only a few insurers are able to compete. A cynic might say the rules have become rigged in favor of these few companies. A kinder person might say that these are the unintended consequences of good intentions. But whatever the reason the result is the same: a very small number of companies dominate the markets of every state. Where competition is low, prices are high.
This is the great irony of reform. The things that have made health insurance so expensive in the states are the very things reformers want to use federally to make it more affordable.
So what do political advocates think about all of this?
Progressives don’t like it because they think it benefits the insurance companies, and they’re probably right. Conservatives say, no, the insurance companies are getting taken over by the federal government. They’re probably wrong. In fact, it’s the machinery of regulation that’s getting taken over by federal government. And that, should this bill become law, is a bigger deal than most people realize.
By Evan Falchuk
The Healthcare Economist points to a study from late last year about the impact of state insurance regulation on the price of health insurance policies. It’s a subject I’ve blogged about many times before (like here, and here and here and here).
The study tried to quantify the impact of the types of mandates used by states in their insurance markets: guarantee issue, community rating, mandated benefits, and so-called “any willing provider” rules.
It found that all of these increased the price of health insurance, but there were limitations in the study. They had a “rich data set based on actual insurance contracts” only for guarantee issue and community rating mandates on individual policies. Still, this is a big segment of the market – perhaps 30 million people buy insurance in this way – and the data are revealing.
But first, what do these terms mean?
“Guarantee issue” means that an insurance company can’t deny you coverage because of a pre-existing condition. So if you are sick you can buy a policy and the company has to accept you. “Community rating” means that an insurer can’t charge you more because you are sick, or because of your age or gender. Different states put different spins on these concepts, or don’t have them at all. They typically exist together as part of one regulatory scheme. They are both part of reform bills in Congress.
According to the study, community rating increased individual premiums by as much as 17%, and family premiums by as much as 33%. Guarantee issue increased premiums by well over 100% for individuals, and by as much as 191% for families.
Why does this happen?
If the law says insurers have to treat every person the same, without taking into account whether they’re sick or healthy, young or old, a rational insurer will do some rational things. For example, it will assume disproportionate numbers of people who buy a policy from them will be sick and old.
Of course, when they do this, the product becomes expensive, and young, healthy people start to wonder if they should even buy it in the first place. After all, they don’t really need insurance, right? They’re young and healthy and can wait to buy insurance when they get sick. So, the insurers’ assumptions on the age and health of their portfolios come true, or are worse than expected. Coupled with the overall rise in the cost of health care, insurers now push through new rounds of price increases, which, in turn, create more uninsured people. It is a very nasty cycle.
Which brings us to reform, circa 2009.
As Congress debates the politics of reform, there seems to be a lack of recognition of what makes health insurance so expensive in the first place. The great irony of reform is that lurking in the bills our representatives have written are precisely the kind of regulations that got us here in the first place.
By Evan Falchuk
Blue Cross Blue Shield of Massachusetts and Caritas Christi Health System are announcing a new agreement that some suggest may be a model for the rest of the country.
Under it, the non-profit insurer will stop paying the non-profit hospital on a fee-for-service basis for certain insureds:
Under the deal expected to be announced Friday, Caritas . . . will be paid to take care of about 60,000 Blue Cross members in its new program — whether or not they get sick. Caritas will use some of the payments for preventive services to help keep patients healthy. If Caritas can keep health-care costs under a certain budget, it can make a profit. But if health-care costs go over the agreed-on amount, Caritas is on the hook. . . . . Blue Cross is adding a carrot: If doctors and hospitals can meet certain quality targets, they can earn a bonus of as much as 10% on the value of the deal.
It sounds like a new approach to health costs. But it reveals more about how the same old ways of controlling health care costs continue to thrive.
Here’s what I mean.
The model of the last few decades has been this. Insurers and hospitals negotiate rates to pay for care. The bigger and more important the hospital, the more leverage it has over the insurer. The bigger and more important the insurer, the more leverage it can have back over the hospital. So in Massachusetts, like other states, hospitals have consolidated into a small number of big hospital “systems.” In turn, the health insurance business has become dominated by a small number of insurers, chief among them Blue Cross.
Simplified, here’s how these negotiations go. The insurer threatens that if it doesn’t get what it wants, it will change its plan designs to make it less likely that patients will seek care at the hospital. The hospital, says if it it doesn’t get what it wants, it will stop accepting the insurer’s customers. It’s a game of high-stakes chicken, but deals usually get made. They typically involve the hospitals agreeing to lower rates of pay for more routine care, and preserving higher rates of pay for more specialized care. It’s a set up that encourages big hospital systems to get bigger, so they can capture more patients, and more focused on highly specialized care. It also makes it far more likely that smaller insurers will end up paying more for the same care at the same hospital, as the hospitals try to offset lost revenue from them.
So what does this have to do with the new deal between Blue Cross and Caritas?
Well, less significant hospital systems like Caritas (which has very good doctors but has been notoriously troubled in recent years) have very little negotiating leverage with the big insurance companies. For them, the game isn’t so much getting a good rate of pay for their services as it is getting patients through the door. And so they need to figure out ways to get the insurer to encourage patients to go there. What better way to do it than to enter into a high-profile new contract with the biggest insurer in the state?
Now, take a look at the numbers. If I’m doing the math right, Caritas is going to get about $6,000 per insured per year. With state Medicaid payments running at about $5,500 per insured, these Blue Cross patients not particularly interesting, financially. Unless, that is, the program works as expected and Blue Cross ends up changing its plan design to encourage more people to go to Caritas for care, as opposed to the other major Massachusetts hospital systems. And you know Blue Cross would love to be able, one day, to use its deal with Caritas as part of its negotiations with those other systems.
“It’s a bet,” said Caritas Chief Executive Ralph de la Torre.
That, it is. But some new paradigm for health care? Not so much.
By Evan Falchuk
The strangely out-of-touch comments by proponents of reform legislation continue.
Yesterday, Christina Romer, the head of the President’s Council of Economic Advisers was asked about the proposed excise tax on so-called “Cadillac” health plans. Romer said:
Part of the idea of how that is going to work is precisely because it does empower consumers. It empowers each of us to have an employer-sponsored plan to call our HR office and say, ‘Would you negotiate harder? Would you think about (whether this) is the most efficient plan out there, because I don’t want my plan paying an excise tax.’ So I think that’s something that is very much empowering consumers.
It’s a bizarre statement. Roemer has impressive academic credentials, but this kind of statement betrays a profound ignorance of how employers actually buy health benefits. She’s not the only one with such strange beliefs.
So, let me make it simple.
Companies across America use skilled and experienced benefits professionals to design and implement their health plans. The bigger the employer the better they are at this. In fact, big employers are such smart negotiators that they manage to get the services of the insurance companies without paying them a dime for health insurance. It’s true: they just use the insurance companies to mechanically pay for the cost of their employees’ care, which comes out of the pocket of the employer.
Now, the smaller an employer is, the more difficult it is. If you’re a company with 20 employees, your problem isn’t whether you are any good at negotiating. It’s that you probably live in a state where one or two insurance companies dominate the market. Your choices are limited, and because you’re too small to self-insure, you need to buy insurance from one of them.
But it’s worse than that. State laws make it so that even if you were to try to “negotiate harder” (whatever that means), there isn’t much the insurance company is allowed to do.
So what is Professor Romer talking about? Frankly, I have no idea. So many reform proponents in Washington have never run a business or designed a benefit plan, so I’m becoming less and less surprised when they come to strange conclusions about these things. But what doesn’t help is that they seem to prefer to spend so much time behind closed doors in Washington, or on TV, and so little time out talking to people actually in this business to see what works and what doesn’t.
This is hubris. And it bodes very ill for the likelihood that plans coming out of Washington are going to make things better and not worse.
By Evan Falchuk
Health care reformers say they want to improve the quality and affordability of health care.
It sounds good. But it’s not like there’s no one out there trying to do that. Employers of all sizes have been working on this problem for a long time, and they’ve come up with a great many interesting successes and failures.
So what’s the problem?
Well, it seems like reformers in Congress are completely uninterested in these things.
Yesterday I had the opportunity to speak to and in front of two very prominent groups. Without saying who they were, I will say that one is doing some very interesting work with smaller employers, the other focuses solely on very large employers. Both are at the leading edge of successful efforts to improve health care quality and cost. Neither has been asked by Congress to share with them what they are doing.
There is, in short, an enormous divide between what reformers in Congress are trying to do and what people who are in the business of health care understand about the reality of this kind of work.
Let me give you two examples.
One group has banded together hundreds of smaller employers – representing tens of thousands of employees – to try to control rising health care costs. Unlike large employers, small employers can’t self-insure for health care risk, so they have to buy insurance from an insurance company.
You would think that this group could go to the insurance companies and negotiate some kind of a group rate for their members, right? Well, they can’t – it’s illegal. The state in which these employers are located has mandated the rates that insurers must charge small employers. They can’t give a price break, or have the flexibility to create something that would suit these employers.
The only escape for these small employers would be to pool their insurance risk so they could self-insure like the big employers. But this is a very complicated exercise. And why should they have to go through this trouble, when all they really want is to negotiate rates with the insurance companies? It makes little sense. But you know what’s worse? As reform moves along in Congress, this kind of thing may become federal law.
Who benefits from this?
Well, on one level the health insurance companies do. They don’t really need to compete for business, they just charge what the government tells them and collect the money. It will be the same if a government-run insurer shows up to compete, they will just get to do the same thing. It’s almost as easy as collecting taxes.
But there’s more to it than this. It turns out that many insurers in that state are working with small employers on innovative programs that improve the quality and cost of care. Things like helping employers get their employees to stop smoking, lose weight, control their chronic illnesses and many others. They’re working with hospitals and physician practices to create changes in how care is delivered, and they’re seeing results. The trouble is, insurers aren’t able to reflect the impact of this work in the cost they charge to an individual small employer. Well, it’s trouble if you’re a customer, it’s not so bad if you’re the insurer.
It’s something you see large employers doing all the time. And since they can self-insure, they get the economic benefit of these programs. In my series on Real People, Real Reform, I’ve shared a very small taste of what major employers in America are doing. It’s programs like the ones I’ve just mentioned, and many others, and many of them seem to work.
But when you talk to these large employers, like I did yesterday, there is a sense of disconnectedness over what’s happening in Washington. Few can explain what the government is up to, exactly, and there is a sense of cynicism that Congress hasn’t spent its time in rooms like the one I was in yesterday. Why aren’t they talking with large employers about the successes and failures they have had with health care?
It’s enough to make you think reform is more about politics than health care. Or, to give reformers the benefit of the doubt, maybe they just don’t realize they are heading down a misguided path. It’s as if the government decided in the 1980s that the best way to reform the telecommunications business would be to mandate lower prices for rotary phones, and wanted to set up a government manufacturer of these phones to create competition for them. It might have worked, but mostly at locking in place a stagnant and deeply unimaginative status quo.
And this is the larger point.
What’s wrong with health care reform isn’t that people have bad intentions. It’s the total failure of imagination. As one reform proponent told me the other day, “we’ve been waiting 16 years to do this.” Well, the world has changed an awful lot in the last 16 years, and one thing should be clear. We should spend far less of our time trying to settle old political scores, and far more time listening to people who are actually doing real and meaningful things to improve health care.
There is no more difficult art to acquire than the art of observation. – Dr. William Osler
By Evan Falchuk
Here are a few quick reactions to the House’s passage on Saturday of its health care reform bill.
1. It’s a huge bill, and that’s the problem.
It’s 1,990 pages long, and it’s trying to do an equally massive number of things. It would create a public health plan; establish insurance exchanges; federalize much of state insurance regulation; change the ways in which the federal government pays for health care; address issues in medical education; try to deal with fraud and abuse in Medicare; make changes to dental care, hospital price transparency, health care for native Americans, long term care insurance; establish subsidies and taxes for individuals, taxes on pharmaceutical and medical device makers, spending on public health programs; eliminate the anti-trust exemption for health and medical malpractice insurers, and on and on and on. You can get a taste of the bewildering extent of this legislation by just scrolling through its table of contents.
I’m not sure there’s ever been such a big piece of health care or health insurance legislation ever passed. I mean, like, ever. It’s not going to become law, though, since the Senate has yet to pass its own bill and the Senate and House versions will need to (somehow) be reconciled. And if one of the problems with reform is the public anxiety its complexity creates, this bill won’t help. Still, it’s a big milestone and should be recognized for that.
2. The stock market seems to like it.
The stocks of a broad range of health insurance companies were up as much as 3% today. The market doesn’t seem to think this bill is bad news. Why?
Maybe the market likes that the House bill brings back the mandates on individuals and employers that will create the bounty of new, paying customers Vice President Biden promised. Or maybe the market thinks the bill is so complicated it won’t become law, which might also benefit the insurers. Or maybe when the market closed Friday it expected the final bill to be much worse than it ended up being. Or maybe health insurance company stocks go up every time the Patriots beat the Dolphins.
What is clear is that the market did not treat the passage of this monumental legislation, designed to completely transform the health insurance industry, to be an especially significant event.
3. Health care and politics mix badly
Back in July, I warned that abortion would end up being part of the fight over health care reform, and it was. A bi-partisan group of 240 representatives (20 more than voted for the final bill) voted for an amendment to the House bill dealing with abortion. The amendment would ban the sale of insurance policies that cover abortion in the government-sponsored exchange that the bill would create. However you feel about abortion, this is an example of the same old way of regulating health insurance that the states have been doing for generations. It’s what created such an uncompetitive market for health insurance in the first place.
The states, which until now (perhaps) are the sole regulators of insurance, regulate health insurance by telling insurance companies what they have to cover if they want to sell in their states. In all, states impose nearly 2,000 mandates on health insurance policies in this way. Of course, whether something is mandated or not depends on the political clout of the group lobbying for it. Now, the federal government seems to want to try its hand at this same old approach to regulating insurance. Abortion, it seems is the first of what promise to be many such mandates.
Don’t believe me? Take a look at the action in the Senate. Last week, Senator Hatch proposed that policies sold in the Senate’s version of the exchange be required to cover Christian Science prayer treatments.
By Evan Falchuk
So here are some thoughts following my talk last night at the “Israel: A Prescription for Healthcare Reform” event:
1. Yes, we can learn from the health care systems of other countries…but they’re all unique.
Every country’s health care system has developed in the unique circumstances of that country’s economy, culture and history. It’s an obvious, but important, insight, and Israel is no exception.
Israel was founded in 1948, but there were health care organizations in existence there long before that. From the start these organizations were based on the culture of communal self-reliance that characterizes much of Israeli society. From an American perspective, these organizations, called ‘kupot holim’ in Herbrew, look something like an HMO. Today, there are four of these health plans, which provide a basic level of coverage to 100% of the population.
Israeli law requires that all residents join one of these four health plans, which is how they achieve universal coverage. The plans cannot exclude anyone for pre-existing conditions, and are required to provide at a minimum a standardized basket of basic coverage. The plan collect premiums from a combination of the government, employers and the individual insureds, with the extent of individual premium responsibility graduated on the basis of income. Those who earn more, pay more. Many people who can afford it buy supplemental policies on top of these plans.
It seems to function well for Israelis, and includes a greater emphasis on primary care than we see in the United States. From Professor Altman’s description, and that of some of the Israeli audience members, it sounds like it also brings with it limitations on access to specialists, diagnostic testing and medical devices that would be difficult to accept in the United States. And while the system is cheaper as a percentage of GDP than what Americans pay, Israel also struggles with questions of rising health care costs.
2. Regular people are getting very sophisticated about health care reform
The audience of about 100 wasn’t made up of health care wonks, but there were two questions about state versus federal regulation of insurance. If the questions reflect anything about public sentiment, there was a sense of surprise that insurance companies in one state aren’t allowed to sell in another. There was also a question about whether the federal reform will undo the important reforms Massachusetts has done in the last few years. Professor Altman, who spoke on the panel with me, and who has worked on this very issue, seemed to think it was too early to tell. More unintended consequences?
Overall, there was a sense of puzzlement over how our health care system could have ever become so complicated. Professor Altman said it takes him an entire semester to teach the system to his students. I had ten minutes.
3. Health reform in 2009 is about health insurance not health care
There’s little question that some changes to insurance regulation would be helpful. But the soaring rhetoric of reform is terribly disconnected from the reality of the proposals. Maybe this is a good storyline for getting a law passed, but it’s not a recipe for righting what is wrong in our system.
The really important stuff in health care happens where insurance intersects with care, where money mixes with medicine. If the purpose of reform is to save money, we have to change our way of thinking about it. Health care – the relationship between a patient and their doctor – must be at the center of everything we do. But it’s not, and it’s because we keep trying to same old solutions to the same old problems. Medical care too expensive? Pay doctors less. New drugs and technology? Limit their use. No one likes this approach – least of all patients and their doctors. And what’s worse, it doesn’t work.
So, yes, the focus on health insurance reform will lead to many changes, and more complexity. And some day, years from now, someone will be explaining the American system to an audience, and people will wonder, how did anyone ever create a system such as this?
