There is No Free Lunch and There is No Free Contraception

The otherworldy Obama Administration solution to the contraception firestorm might work politically but it makes no sense in the real world.

The President, hoping to quell a growing political firestorm, today announced a new policy that no longer requires religiously affiliated organizations to provide employees with contraception coverage in health-insurance plans.

Under the new policy, insurance companies will be required to offer free contraception for their employees and dependents. The administration’s idea is to shift the onus for the coverage from the employer to the insurer. Catholic leaders, and lots of other people, had objected to the requirement, which exempted churches but not hospitals, charities and universities with religious affiliations.

So, let’s just play a game here. The religious organization just pretends that it has nothing to do with it but the insurance company pays for it anyway. Hey, the insurance companies are rich.

Of course there is a cost. Today, contraception is almost universally covered in health insurance policies. The argument that forcing insurers to pay for it, without deductibles and copays, saves money because it avoids pregnancy costs is just plain silly. If insurers saved money handing out contraception for free in the first place, they would have started to hand it out for free years ago. Add to that the insurance company must absorb a not insignificant administrative cost for adding a person-by-person "rider" for free contraception.

In addition, we have the unique situation where a business (insurance companies) will be required to provide a product to a specific market (religious organizations not wanting to provide the coverage) but prohibited from charging for it--apparently because the government has done the cost calculation for them and in their sole discretion has decided they don't have to.

The administration is arguing that offering contraception actually lowers costs and therefore forcing insurers to waive copays won't mean higher costs. If this were 1970, when modern contraception was first offered, that might be true. But now plan sponsors are expected to waive copays and deductibles on something that is already virtually universally available. There will be an incremental cost.

If the program is self-insured, the insurer will not get any of the benefits from lower pregnancy cost--it will all go to the plan sponsor--but the self-insured administrator will be expected to cover the entire cost of the contraceptive services.

This is simply an attempt by the administration to backpedal from a firestorm of controversy they should have never been in in the first place. They are caught between the left that is not about to back down over what they see as a critical women’s health issue and the right that is not about to countenance the government ever telling a church what to do.

But insurers will likely just shut up and go along with it. They have no intention of getting into the middle of this political mess—but they will quietly pass the costs along. In fact, for any large religious organization that is self-insured, they won’t have much choice but to pass the costs on to the employer. But that won’t be a problem so long as everyone just agrees to pretend.

This is a clumsy attempt on the part of the Obama Administration to be on both sides of a thorny issue.

The problem is that there is no free lunch and there is no free contraception.

Dismantling the Affordable Care Act: The Obama Supreme Court Argument + 51 Republican Senators

I have no idea which way the Supreme Court will rule this year on the Affordable Care Act. Let me go out on a limb and predict a 5-4 vote on the question of whether the individual mandate is Constitutional. Just don’t ask me which way the vote goes.

I found the recent Obama administration brief submitted to the Court on the mandate question somewhat ironic. Not surprisingly, the Obama Justice Department argued that a finding by the Court that the individual mandate is unconstitutional should not jeopardize the vast majority of the new health law.

But the Obama Justice Department did concede that there are two provisions of the Affordable Care Act that should also be declared invalid if the Court rules the individual mandate is unconstitutional—the health insurance guaranteed issue and community rating provisions.

Now, I know there are lots of other people, many of them filing briefs with the Court, that disagree arguing that the whole law needs to be found invalid because the mandate is the lynchpin for all of it. But I will suggest it is significant that the administration would appear to be building a firewall for the rest of the law as they concede these points.

But consider this potential scenario.

First, if the Republicans win the Senate come November—not a certainty but very possible—they will do it with only one, two, or three seats to spare. That would be way short of the 60 votes necessary to get rid of the entire law. You will recall it took 60 votes to pass the entire law in the first place. I fully expect Republicans will hold their House majority and a Republican House would be only too willing to support whatever the Senate could accomplish in repealing the Affordable Care Act.

Many Republican legislative strategists have already concluded they can get rid of all of the new health law having to do with the budget—with a House majority and only 51 Senate votes. The insurance subsidies are the biggest part of the law and they are budget related. Of all of the non-budget items needing 60 votes, the biggest are the insurance reforms—the guaranteed issue and community rating provisions.

The Obama Justice Department, in conceding these insurance reform provisions would have to go if the mandate falls, may have just potentially paved the way for getting rid of effectively the entire law should the Court throw out the individual mandate: The Court knocks out the mandate and with it the insurance reform provisions and a 2013 bare Republican majority gets rid of almost all of the rest of the law.

That just leaves one detail. Will it be a Republican President or President Obama that would have to sign any Republican repeal legislation?

Medicare Advantage Premiums Drop an Average of 7% and Enrollment up 10%—That Must Make Republicans Just Want to Cry

Medicare Advantage would appear to be a fantastic success—senior premiums are dropping and enrollment is increasing.

Listening to Health and Human Services Secretary Sebelius last week, you would think private Medicare plans were a Democratic idea and this is their success. Many industry observers, including me, have worried that Medicare Advantage benefits would shrink and premiums would rise because the new health care law reduced federal payments to the plans by $136 billion over the next decade.

“The Medicare Advantage program is stronger than ever,” said Secretary Sebelius. “Premiums are down on average, enrollment is up, and thanks to the Affordable Care Act we have unprecedented new tools to ensure that seniors and people with disabilities are getting the best value out of their coverage.”

Of course, privatizing Medicare has always been a Republican idea and most Democrats would like nothing better than to kill it dead out of fear that Medicare Advantage plans will undermine the financial integrity of Medicare—private plans get paid more than Medicare gets for the same enrollees—and that the private plans risk turning the Medicare entitlement into a two-tiered program—one for the rich and one for the poor.

And, Democrats can’t wait to use the Paul Ryan Premium Support plan, which would rely exclusively on private Medicare plans, as an election issue charging that the Republicans want to kill Medicare as we know it.

But instead the Obama administration used last week’s announcement of lower Medicare Advantage premiums and solid enrollment growth as evidence of just how successful they’ve been at running the program and how overdone Republican charges were that the Medicare cuts in the Affordable Care Act would wreck private Medicare.

There is that old saying, “Sometimes it’s better to be lucky than good.”

First, the entire health insurance industry is experiencing an unexpected drop in health care trend rates—costs are escalating far less than expected. When that happens, health insurers generally see their bottom line improve in the form of windfall profits.

What Medicare pays Medicare Advantage plans is a function of the last year’s experience. With the expectation that care costs would be higher than they turned out to be, private plans were inadvertently paid more, as well as charged seniors more, than they needed. That typically goes on for as long as health care cost trend decelerates.

The good results in Medicare Advantage were also helped by the Obama administration, which declared a “Lake Wobegon” moment. They took $6.7 billion intended to be paid as bonuses to the highest quality plans under the new health law and instead declared just about all of them “above average” or better and infused those billions among almost all Medicare Advantage contractors, further improving their bottom lines.

Why did the Democrats who hate Medicare Advantage so much find an extra $6.7 billion for them? Because it’s an election year. Seniors vote and the Democrats very quickly concluded that having seniors lose their private plans, or have to pay more for them because of payment changes due to the new health law, wasn’t going to help their reelection chances in places like Florida.

So, ironically, the Democrats were so scared Medicare Advantage premiums were going to soar that they dumped billions into the program to offset the expected.

But the expected didn’t happen when cost trend came in lower than everyone predicted. The result was even better profit results for the industry, better than expected prices for seniors, and enrollment growth.

Now, Sebelius could have said, “Whoops, we just flooded the health insurance industry with billions they didn’t need.” But why do that when you can take credit for a popular program you really want to kill?

Does this mean Medicare Advantage is out of the woods? No, more like there is a cliff still coming.

First, no more $6.7 billion gifts to the insurance industry from the Obama administration are in the pipeline.

Second, trend can’t keep falling. At best, it will stabilize and erase the windfall profits. At worst, it will start climbing and we’ll have the opposite impact on profitability and pricing.

Third, the $136 billion in cuts to Medicare Advantage the Affordable Care Act makes to the program really doesn't begin for another two years—the new law just froze payments this year at unintentionally generous levels.

Medicare Advantage plans are now benefiting from a perfect storm of good things. In a couple of years, it could be a perfect storm of bad things— no more “Lake Wobegon” payments, rising trend rates resulting in inadequate payments to insurers, and the $136 billion in real cuts finally kicking in.

Until then, we can expect to see President Obama campaigning in front of seniors taking credit for all the good things his new health law has done for Medicare Advantage.

It must make Republicans just want to cry.

The Wyden-Ryan Plan Will Be the Foundation for Serious Medicare Reform—and Maybe More

In two companion articles in January’s New England Journal of Medicine, Henry Aaron with Austin Frakt, and Joe Antos critique the Wyden-Ryan Medicare reform proposal.

Senator Ron Wyden (D-OR) and Representative Paul Ryan (R-WI) are proposing a hybrid Medicare reform proposal combing both Republican defined contribution free market principles—a premium support scheme—with Democratic defined benefit principles—a baseline guaranteed plan and premium support.

In, “Now is Not the Time for Premium Support,” Aaron and Frakt argue that there is a market history of Medicare experimentation that hasn’t accomplished much and that a premium support scheme could well leave beneficiaries the victims of cost shifting:

Advocates of premium support claim that Medicare Part D, which has a premium-support structure, shows that competition holds down spending and that beneficiaries make wise choices. Their claims are unjustified. Although Part D drug spending per enrollee is lower than was initially forecast, non-Medicare drug spending is even further below past projections. Furthermore, enrollees have, on average, chosen plans that exposed them to greater financial risk than the best options available to them. Most important, because Part D has no public option, it cannot provide evidence on whether private plans are better or worse than a government plan would be.

So, although it's true that Medicare is a key driver of long-term federal spending, we don't believe that recently proposed premium-support reforms are the solution. They lack safeguards for beneficiaries. They threaten to shift costs to the elderly and disabled and force them to shop for coverage in a confusing insurance market. And the ability to run health exchanges for the Medicare population is currently in doubt.

Even the more pro-market Antos, in an article titled, “The Wyden-Ryan Proposal--A Foundation for Realistic Medicare Reform,” offers only limited praise for the plan:

Ryan and Wyden hint at the need for commonsense reforms to traditional Medicare, including a new structure of deductibles and copayments, a cap on catastrophic costs, and a new physician-payment system. They skirt the central problem: a disorganized fee-for-service system and top-down limits on prices paid for services drive the use of more, and more complicated, services. The program's survival depends on our willingness to make substantial changes over the next few years — before the major reform is implemented — so that traditional Medicare can provide cost-effective care without draining the Treasury.

The current proposal also offers a more politically palatable fiscal target at the cost of achieving fewer “scoreable” savings. Under Ryan's earlier proposal, the federal subsidy would grow only with general inflation (1.5% in 2012, according to the CBO) instead of the more generous target of GDP plus 1% (a rate projected to total 4.8% in 2012). Not coincidentally, that is the same fiscal target established for the Independent Payment Advisory Board (IPAB) under the ACA.

A 3.3-percentage-point difference in fiscal targets translates to a 1-year increase in program spending of about $20 billion, or about $300 billion over 10 years. Adopting the weaker target means a substantial loss of budget savings, but only if Congress would actually enforce the stricter limits. That may be unlikely given recent history. Over the past 8 years, Congress has overridden even relatively small reductions in physician payments called for by the sustainable growth rate formula. Clearly, a favorable score from the CBO does not guarantee lower program spending.

But then Antos suggests Wyden-Ryan could be the basis of real reform:

Given the serious fiscal problems facing this country, slowing the growth of Medicare spending is no longer optional. The only question is how to do it. The Wyden–Ryan proposal outlines a strategy for Medicare reform that harnesses market forces to control costs. It provides a real alternative to the top-down controls favored in the ACA. Paul Ryan and Ron Wyden have defined the policy parameters that could be the basis for real Medicare reform in 2013.

I will suggest that the last point is key.

Wyden-Ryan is now little more than a policy outline. It does fall short on real reform because it offers only a bare outline for how it will contain costs—there will be a still undefined fallback mechanism if costs exceed targets.

But what Wyden-Ryan does do is offer a political roadmap for how we could well see Medicare reform addressed after the election—particularly if Republicans gain control of the Congress.

Any successful reform has to achieve two things:

1. It has to be politically feasible in the first place.
2. Then it has to work—in this case it has to control costs and provide quality health care.

What Wyden and Ryan have given us is a very well developed political strategy for reform and only the outline for policy reform.

As I said in an earlier blog post:

What is elegant about the Wyden-Ryan compromise is that they have proposed a hybrid plan—it contains significant elements of both a Republican defined contribution and a Democratic defined benefit approach.

Republicans get an affordable cap on what the federal government would spend on Medicare—that growth would be no more than GDP+1%—and they would get a program built on a free market platform where consumers would have the incentive to maximize their premium support by shopping for the plan that best met their needs.

Democrats would get a plan that still contained the traditional government-run Medicare plan as one of the options and they would have a plan where all seniors were guaranteed a federal premium support level good enough to buy at least the two lowest cost Medicare plans available in their community—albeit maybe not the traditional Medicare option.

If there was ever a place for Republicans and Democrats to compromise on Medicare reform this is it. It is an elegant compromise—a hybrid—of both defined benefit and defined contribution principles.

Sooner or later all of this partisan bickering has to end. A Republican sweep in the November elections would do it. Wyden-Ryan would be on top of the health care agenda if that happened.

Even if we faced a divided government in 2013, the imperative for entitlement reform makes addressing Medicare costs unavoidable. In that case a basis for ideological compromise will be necessary. Wyden-Ryan presents that opportunity.

It will be the next part of the plan that is still too vaguely defined—how costs would be controlled and beneficiaries therefore protected—that Wyden and Ryan must address. Both Antos and Aaron/Frakt are right in pointing that out.

How will we achieve the needed “scoreable” savings a future Congress can’t easily override and do it in a way that will be politically palatable in the first place? That is the big question. Wyden-Ryan is just an empty political box without answering that.

But do not underestimate how important this first bipartisan step is that Ron Wyden and Paul Ryan have taken. Unless the Democrats sweep the November elections, this is what the next debate will revolve around.

In fact, one can foresee this same bipartisan political formula as a means to eventually deal with the under-age-65 health insurance market. Remember Wyden-Bennett? Could there be another under-65 version of Wyden-Ryan?

The New Health Law Needs to Be Repealed, Expanded, and Replaced—So Long As It Doesn’t Have a Mandate

Last week’s State of the Union speech was notable because the President hardly mentioned the new health care reform law.

Avoiding what is supposed to be the centerpiece domestic accomplishment of President Obama’s first term stuck out like a sore thumb.

He said almost nothing because the Obama team simply doesn’t know what to say.

The fact is the Affordable Care Act (ACA) is generally unpopular, and its best-known provision, the individual mandate, is wildly unpopular.

Two years after passage and, the implementation of the law’s first steps all designed to build support, the public’s opinion of the law is unchanged and not good. The just out January 2012 Kaiser Health Tracking Poll leaves no doubt:

• Only 37% of those surveyed have a favorable view of the law.
• 44% have an unfavorable view of the Affordable Care Act.
• But even some of those who don’t like it don’t like it because it didn’t go far enough—31% of all of those surveyed want to expand the current law while 19% want to keep it in its current form. That’s a total of 50% that want to keep or expand it.
• 22% want it repealed outright and another 18% want it replaced with a Republican alternative—a total of 40%, fewer than want to expand it or keep it as it is.
• On the individual mandate, 67% have an unfavorable view of requiring everyone to buy coverage, while 30% have a favorable view of the requirement.
• While a total of 50% of those surveyed think the law should be kept or expanded, 54% say the Supreme Court should throw the mandate out, while only 17% say they think the mandate should be upheld.

So, let’s summarize. Only 37% have a favorable view of the law and 67% don't like the mandate. But 50% think the law should be kept as it is or even expanded.

No wonder Obama and his political team can’t figure out how to play this.

Perhaps even more intriguing is the dilemma the eventual Republican presidential nominee is about to find himself in—everyone of the candidates is telling voters lots of times a day that the first thing they will do as President is to get rid of "Obamacare."

For the Republican presidential candidates, that is a safe thing to say among Republicans—73% of Republicans have an unfavorable view of the ACA, while 62% of Democrats view it favorably.

But come the fall, when the eventual winner will need lots of independent voters, the Republican nominee will have to face the reality that only 40% of the overall electorate wants the ACA repealed or replaced.

Then Obama’s dilemma will have to become the Republican’s dilemma.

I guess the voters are telling us that to get a majority of support, the ACA needs to be repealed, expanded, and replaced—so long as it doesn’t have a mandate.

Important Research From Medicare Demonstration Projects: Almost Nothing Works

I will suggest that most of us believe the way to control health care costs, and at the same time maintain or improve quality, is to both use the managed care tools we have developed over the years, and perhaps more importantly, change the payment incentives so that both cost control and quality are upper most in the minds of providers and payers.

The Congressional Budget Office (CBO) has just released an important review of Medicare's results in testing those ideas. The news is not good.

From the CBO's blog post:

In the past two decades, Medicare’s administrators have conducted demonstrations to test two broad approaches to enhancing the quality of health care and improving the efficiency of health care delivery in Medicare’s fee-for-service program. Disease management and care coordination demonstrations have sought to improve the quality of care of beneficiaries with chronic illnesses and those whose health care is expected to be particularly costly. Value-based payment demonstrations have given health care providers financial incentives to improve the quality and efficiency of care rather than payments based strictly on the volume and intensity of services delivered.

In an issue brief released today, CBO reviewed the outcomes of 10 major demonstrations—6 in the first category and 4 in the second—that have been evaluated by independent researchers. CBO finds that most programs tested in those demonstrations have not reduced federal spending on Medicare.

Looking at 34 disease management programs and care coordination programs, the research found "little or no effect on hospital admissions." The CBO went on, "In nearly every program, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program, when the fees paid to the participating organizations were considered."

Looking at the Medicare demonstration projects for value based purchasing, "Only one of the four demonstrations of value-based payment has yielded significant savings for the Medicare program. In that demonstration, Medicare made bundled payments to hospitals and physicians to cover all services connected with heart bypass surgeries, and Medicare spending for those services declined by about 10 percent. The other demonstrations appear to have resulted in little or no savings for Medicare."

The good news here is that when put on a budget, when the payment system was changed to create a downside if results weren't improved, one of the studies did identify "significant savings." But only about 10%.

Thirty years into managed care, the stark reality is that we aren't yet smart enough to get things under control.

Medicare is now about to test the Accountable Care Organization (ACO) concept. In an earlier post, Why ACOs Won't Work, I argued that this approach couldn't work unless we change the game--we change how providers are paid so that there is a significant downside if results aren't achieved. I said, "Here’s a flash for the policy wonks pushing ACOs: They only work if the provider gets paid less for the same patient population." At least one of the studies the CBO is citing would appear to support that notion--but only one.

When Medicare first announced their ACO demonstration project, the providers all howled--they were being put at too much risk for too little return. The feds then lowered the bar by improving the odds there could only be winners and not losers––eliminating participant risk in the first of two ACO tracks. The second track continues to carry risk but offers larger potential rewards.

Medicare policymakers may have had no choice but to placate the providers in order to entice them into the new system in order to get it off the ground. That said, Medicare's strategy of overpaying HMOs to entice them into the Medicare Advantage business hasn't exactly worked out toward the goal of lowering costs.

This CBO study makes it very clear that ACOs with little risk, just layering these tools over the top of the fee-for-service system, is a pointless exercise. When we just provide incentives to do the right thing, we don't do the right thing.

What we need to be testing and perfecting is the combination of the best tools we have and significant risk--changing the payment incentives for real.

Unless ACOs, or any other managed care scheme for that matter, start out paying less, and the tools we have are then used to achieve a profitable result, there is no evidence there will be savings.

Will the Feds Be Ready With the Fallback Insurance Exchanges by October 2013?

Insurance exchanges have to be up and running in all of the states by October 2013 in order to be able to cover people by January 1, 2014.

If the states don't do it, the feds have to be ready with a fallback exchange. States have to tell HHS if they intend to be ready by January 1, 2013.

The White House just released a report saying that good progress is being made in 28 states. That begs the question, what about the other 22?

Writing in Kaiser Health News, Julie Appleby recently reported that HHS has let just two contracts toward building the federal fallback exchanges. One is for $69 million to build the data hub so that federal agencies can share data with the exchanges--the IRS for example. The other contract is more directly related to building federal fallback exchanges, a $94 million contract.

But in their progress report today, the administration said that they have already advanced $729 million to the states for exchange construction––17 of those states receiving $1 million, or less. So, more than $700 million has gone to 33 states--and that is just federal money to date.

If the feds are going to be ready to launch 10 or 20 federal fallback exchanges these numbers just don't compute. It is going to take a lot more than the $94 million HHS has contracted for to launch that many federal exchanges in the states that refuse to do so.

HHS says they will be ready. But they have been awfully secret over just how they are going to have lots of exchanges ready to go in 20 months. It is hard to see how that $94 million contract is more than just a down payment.

Whatever the threats are to the Affordable Care Act from the 2012 elections and the Supreme Court ruling expected by July, the market has no choice but to spend lots of money and resources toward being ready on October 1, 2013. HHS has an obligation to tell the market more than "don't worry about us." Market players are investing considerable resources and deserve to see the plan.

Right now, the numbers don't compute--the number of states that could well not be ready, the federal money being spent by states that say they will offer exchanges, and the much less money HHS admits to be spending for those that will not be ready.

Where's the plan?

I Hope Trustmark Tells HHS to Go Pound Sand

Today, the Department of Health and Human Services announced that, "Trustmark Life Insurance Company has proposed unreasonable health insurance premium increases in five states—Alabama, Arizona, Pennsylvania, Virginia, and Wyoming. The excessive rate hikes would affect nearly 10,000 residents across these five states."

The HHS statement continued, "In these five states, Trustmark has raised rates by 13 percent. For small businesses in Alabama and Arizona, when combined with other rate hikes made over the last 12 months, rates have increased by 27.2 percent and 18.1 percent, respectively. These increases were reviewed by independent experts to determine whether they are reasonable. In this case, HHS determined that the rate increases were unreasonable because the insurer would be spending a low percent of premium dollars on actual medical care and quality improvements, and because the justifications were based on unreasonable assumptions."

I hope Trustmark tells HHS to go pound sand.

Here inside the Beltway, there is this assumption that the health insurance market is not competitive and health insurance consumers--in this case small employers--are helpless without the federal government. From the HHS statement: "Before the Affordable Care Act, consumers were in the dark about their health insurance premiums because there was no nationwide transparency or accountability."

Baloney.

We can all have a vigorous debate about just how well the health insurance market has worked to control health insurance costs and readers of this blog know I haven't exactly been an insurance industry apologist on that score.

But anybody who thinks there is no "transparency" or no "accountability" in the small group market has never been there.

Small group carriers regularly see 30% of their block "churn" in a given year as they lose business to competitors. It is not unheard of for an entire block to turn over every few years. There are tens of thousands of health insurance agents and brokers tripping over each other out in the market--their trade association claims 100,000 members. If the incumbent agent isn't continually "check bidding" for his customers that agent can be sure lots of his competitors will be knocking on that client's door with lower rate quotes.

There is no market in America any more competitive than the small group health insurance market. Does competition work to control costs? That's another story. But a lack of competition is not what ails the small group health insurance market.

I have no idea whether Trustmark's rate increases are reasonable or not, or whether they made mistakes in calculating them. I am certain they know they will lose lots of business if these increases are not competitive.

Is a 27% rate increase justifiable at a time when health insurance cost trend is at historic lows? I don't know--it depends where the rates started. My point is that knowing a carrier's rate increase percentage tells you nothing about whether that rate is reasonable or not. It is the absolute rate that matters. Maybe Trustmark erred in setting these rates in the first place and is now playing catch-up.

What matters to a health insurance buyer is not the rate increase or even the medical loss ratio, what matters is the price--which insurer has the lowest price for the same benefits.

Who will know whether the final price is reasonable or not? The small group customer who, upon getting a 27% rate increase, will demand the business go out to bid--presuming the agent hasn't already done that. It the rate is not competitive, the business will very quickly be moved to another insurer where it is.

This rate increase action by HHS is just political grandstanding as the Obama administration tries to sell a still unpopular law.

But it is dangerous grandstanding.

Let me tell you something you may find counterintuitive about the small group and individual health insurance markets. It is the little and often "inefficient" carrier that keeps the big guys honest. These guys often come in and out of markets necessarily undercutting the dominant players' rate base to get a foothold in the market. And, by the way, Trustmark is a mutual company owned by its policyholders. The big guys would like nothing more than to get rid of these little "pests" that upset the market order. And, HHS appears to be doing its best to comply.

This rate oversight action by HHS amounts to nothing more than the jumbo insurance company full employment act. If HHS thinks an oligopoly in the health insurance market, where only a very few big guys dominate the market, is the way to create competition, they are well on their way.

Unless Trustmark, and the little guys like them, just tell HHS to go pound sand.

2012: A Year of Huge Uncertainty in Health Care Policy

2013 may be the most significant year in health care policy ever.

But we have to get through 2012 first.

Once the 2012 election results are in there will be the very real opportunity to address a long list of health care issues.

If Republicans win, the top of the list will include “repealing and replacing” the Affordable Care Act. If Obama is reelected, but Republicans capture both houses of Congress, we can still expect a serious effort to change the law. Then there is the granddaddy of all problems, the federal debt. The 2012 elections could well prepare the way for entitlement reform—particularly for Medicare and Medicaid. Even if Obama is reelected, the 2013 agenda will include a serious debate about Republican ideas to change Medicare into a premium support system and block grant Medicaid to the states.

If the election is a draw with neither side able to unilaterally move their agenda—likely in the form of Obama still in the White House but facing a Republican Congress, the pressure to deal with the growing costs of Medicare and Medicaid as well as nagging concerns about the implementation of the Affordable Care Act will create an imperative for action in 2013.

That first year after a presidential election is the time when things can get done. After a long and drawn out campaign, that is the year that everyone expects action. With 2014 being another election-year and 2015 and 2016 years in the run-up to another four-year presidential election cycle, passing big legislation only becomes more difficult as time goes on.

What does this mean for 2012? Look for most health care action to be out on the campaign trail as both sides try to achieve a mandate to act in 2013.

That doesn’t mean 2012 won’t be short on drama.

The big show will be up at the Supreme Court starting in late March. Will the Supremes uphold the whole Affordable Care Act, tell everyone to come back in 2014 when someone is actually harmed by the individual mandate (citing the Anti-Injunction Act), throw the individual mandate out and send the law back to lower courts for a many months process deciding what else has to go, toss the Medicaid expansion, or some combination of all of the above?

About the only certain judicial path over whether and how the Affordable Care Act would be implemented is for the Court to uphold the whole thing. The alternatives could be any number of combinations that would present the market with a nothing short of an implementation nightmare.

Can you even imagine the run-up to full implementation on January 1, 2014 if President Obama were to be reelected, the Republicans were to capture both houses of Congress, and the Court overturned the individual mandate and any number of related items? The law would have to be fixed. A Republican Congress would want to “fix” it one way and Obama would be determined not to see the Affordable Care Act gutted, with neither side able to unilaterally advance a solution.

Or, we could have a majority of Republicans in the Congress, and a Republican President in the White House, that would certainly kill at least the budget related parts of the bill before Valentine’s Day 2013 no matter what the Court said—it would take 60 votes in the Senate to get rid of all of the law. That would leave a market that had already implemented the first elements of the law and was almost ready to implement the rest of a long list of huge new changes that would have just evaporated but still leaving some of the law's items dangling if the two sides couldn't find a way to work together.

Or, the Court could throw out the individual mandate and the related insurance elements of the new law with a Republican Congress and President eager to throw out the rest of it, needing only 51 Senate votes to get virtually all that was left.

Will the Supreme Court throw a wrench into the Affordable Care Act? I have no idea and I don’t see any evidence anyone else does either. The chances they could throw out the mandate and other key parts of the law look to be about as good as their upholding the whole thing or citing the Anti-Injunction Act in telling everyone to come back in 2014. Don’t underestimate the Court’s interest in not fiddling with the Anti-Injunction Act any more or less than any other part of the law they are going to review.

The first half of 2012 will be the quiet before the potential storm as we await the Supreme Court’s decisions.

If they uphold the law we will need to await the election. With Republicans poised to hold the House and capture the Senate, the real question looks to be whether President Obama will be reelected and therefore able to defend the Affordable Care Act with his veto pen.

If the Court throws out key moving parts in the law, the only way to avoid real market problems will be for the 2013 Congress and President to work together.

If this spring the Court cites the Anti-Injunction Act and tells both sides to come back in 2014, we will just have more uncertainty with nothing decided and the same Constitutional issues still festering.

And, then there are the still growing federal debt and the Medicare and Medicaid entitlement issues to be decided. The 2012 elections are setting up to be a referendum over Republican proposals to limit federal entitlement liabilities by implementing a Medicare premium support system as well as shifting responsibility for Medicaid to the states via block grants versus Democrats who will defend the traditional structure of these entitlements.

What will 2012 give us in 2013?

A Litmus Test for Elected Officials

by Brian Klepper and David C. Kibbe

Six months ago, who could have imagined that a large percentage of rank-and-file Americans would support the Occupy Wall Street (OWS) against special interests’ rigging of the American dream? So why not go to the next step? Why not pointedly ask political candidates, “Will you take money from lobbyists?” and “If elected, what will you do to stop special interest influence?”

Most Americans are deeply disturbed by this issue. In a recent Time Magazine poll of people familiar with the OWS protests, 86 percent thought that “Wall Street and its lobbyists have too much influence in Washington.” Gallup found that 68 percent of Americans think corporations should have less political influence.

These trends didn’t just happen. They resulted from special interests’ vigilant attention to legislative possibility, lubricated by the exchange of money for votes. Influence peddling is now so accepted in American politics that the Center for Responsive Politics (CRP) has established a lobbying data base, Open Secrets. But making lobbying contributions transparent hasn’t slowed the torrent of money that re-shapes law and wealth distribution.
Since 1952, the percentage of gross domestic product (GDP) represented by corporate taxes has plummeted from 6.1 to 1.0 percent, while the percentage represented by employment taxes has skyrocketed from 1.8 to 6.3 percent. Meanwhile, a just released Congressional Budget Office study confirmed that the top 1 percent of earners more than doubled their share of the nation’s after tax income over the last 30 years.

CRP’s numbers show that 13,000 lobbyists contributed $3.5 billion in Congress in 2010. Considering that Congress influences the flow and distribution of a $15 trillion national economy, these investments promote unfair advantages extremely cost-effectively. Politicians from both parties fund their campaigns with the money, shrug off the system’s financial conflicts, and apparently avoid thinking too hard about the consequences.

The intensifying ability of the powerful to buy America’s lawmakers’ votes is the greatest threat to the America that most of us grew up believing in. It is why the rich have gotten much richer, why large, profitable corporations pay no taxes, why health care costs have continued to explode, and why Americans’ social mobility is at an historic low. America has many difficult problems, but lobbying and the way we finance elections are among the deepest, facilitating many others.

Voters can facilitate rapid change by holding their representatives accountable. Asking our political candidates who they think they’re working for would be a simple but powerful way to bring America back into balance.

Brian Klepper, PhD is a health care analyst and the Chief Development Officer for WeCare TLC Onsite Clinic. David C. Kibbe, MD, MBA is Senior Advisor to the American Academy of Family Physicians and an industry advisor on health information technologies.

Paul Ryan and Ron Wyden Blow the Medicare Reform Debate Wide Open!

House Budget Chair Paul Ryan (R-WI) and Senator Ron Wyden (D-OR) have embraced a Medicare reform plan that in concept borrows heavily from one championed by former New Mexico Senator Pete Domenici and former Clinton budget chief Alice Rivlin.

Specifically, Wyden and Ryan are proposing to alter the earlier Ryan Medicare plan by:

1. Continuing to offer the traditional Medicare plan—Ryan would have eliminated it—in addition to a range of private Medicare plans offered by health insurers.
2. Tying federal Medicare premium support to an amount equal to the second lowest cost Medicare plan—public or private—available to seniors in each market. Ryan would have set a flat premium support amount in year-one and increased that only at the rate of inflation.
3. Instituting a series of consumer protections and medical underwriting rules designed to protect seniors.
4. Instituting an annual cap on what the federal government could pay for Medicare at an amount equal to the increase in the nation’s GDP + 1%—Ryan would have capped annual increases in the federal premium support amount at the increase in the consumer price index.
   

On this blog I have been arguing that the risk for health care costs rising too quickly should not be borne entirely by seniors--that the stakeholders who really run the system should be most accountable. And, that is what the Wyden-Ryan plan would do: "Any increase over that cap will be reflected in reduced support for the sectors most responsible for cost growth, including providers, drug companies, and means-tested premiums,” their plan states.

The Wyden-Ryan plan would begin in 2022.

Under Wyden-Ryan, if Medicare costs increased at a rate greater than the cap, the Congress would have to determine where to make reductions in spending—they could not directly cut senior benefits. Just what would force them to do that is unclear.

The new Wyden-Ryan Medicare policy proposals accomplish an elegant combination of key progressive and conservative health care reform principles. Their proposal also produces an enormous political bombshell on the eve of the 2012 elections.

Wyden and Ryan also propose to improve the under-age-65 employer health insurance market by allowing businesses with fewer than 100 workers to move to a defined-contribution model without tax penalties—something that is very similar to the earlier Wyden-Bennett health reform plan.

An Elegant Policy Compromise
Republicans have supported a defined contribution approach to Medicare reform. Already, House Republicans have voted in favor of the first Ryan proposal. That proposal would eliminate the traditional Medicare plan and replace it with a premium support system, or voucher, with which to buy from a range of private Medicare offerings. Any annual increase in the value of the premium support under the first Ryan plan would be capped at the rate of annual inflation as defined by the consumer price index—health care costs have consistently risen at much faster levels.

On this blog, I have been very critical of that proposal because it would shift all of the risk for the adequacy of any future federal premium support entirely onto the shoulders of seniors.

Democrats generally believe in the current Medicare plan, that seniors should be guaranteed a defined Medicare benefit and that the government pay a fixed portion of all Medicare costs as it does now—a defined benefit plan.

The problem is that the defined benefit Medicare plan we now have, and the government’s guarantee to pay most of its costs, is literally bankrupting the country.

So, something has to give.

What is elegant about the Wyden-Ryan compromise is that they have proposed a hybrid plan—it contains significant elements of both a Republican defined contribution and a Democratic defined benefit approach.

Republicans get an affordable cap on what the federal government would spend on Medicare—that growth would be no more than GDP+1%—and they would get a program built on a free market platform where consumers would have the incentive to maximize their premium support by shopping for the plan that best met their needs.

Democrats would get a plan that still contained the traditional government-run Medicare plan as one of the options and they would have a plan where all seniors were guaranteed a federal premium support level good enough to buy at least the two lowest cost Medicare plans available in their community—albeit maybe not the traditional Medicare option.

If there was ever a place for Republicans and Democrats to compromise on Medicare reform this is it. It is an elegant compromise—a hybrid—of both defined benefit and defined contribution principles.

The Political Bombshell
Frankly, the way Washington normally works, I would have expected this kind of compromise a year from now—after the 2012 elections.

But if an idea like this is ever going to make it into law, the right thing to do is to get it out there now so that the coming election debate over Medicare has all of the good ideas on the table.

Maybe a good sign is that both sides are claiming victory. Ezra Klein at the Washington Post says, "But the secret of these types of premium-support platforms is that they are, in essence, a vindication of the Affordable Care Act." The Wall Street Journal is out with an editorial on Thursday claiming the Wyden/Ryan proposal is a Republican victory “because it shows that the serious entitlement debate is taking place within the camp of choice and incentives, not the Obama status quo.” Nice try guys.

But politically, it is unavoidable to conclude that Ryan has given all of those Republicans in the House, who have already voted for his first Medicare plan, a severe case of heartburn—not to mention all of those Republican presidential candidates who have made the first Ryan Medicare plan a virtual litmus test for who really is a conservative Republican.

To say Ryan’s first Medicare plan was controversial and a huge political risk is a pretty big understatement. And, many Republicans, particularly in the House, unconditionally embraced it.

But, here is what Ryan said in Politico on Wednesday:

“If you wait and allow the political paralysis to stop us from fixing and saving this program then you’re not going to be able to grandfather people. Then you’re not going to have severe disruptions in seniors lives that would just be, I think, morally wrong because we see this problem coming. What Ron and I are trying to do is to prepare the ground for a consensus to be accomplished as soon as the politics allow it to happen.”

Can’t disagree with that logic—that bipartisan logic, in fact.

But what does that do for all of the House Republicans who stepped out on that risky Medicare limb for Ryan and now have to defend their vote on the eve of an election? A vote that would have “killed Medicare as we know it?” Or, those Republican presidential candidates who couldn’t wait to out do the other candidates with their zealous support of it?

Gingrich and Romney embraced the Ryan Medicare plan—albeit with the key modification that the Ryan plan should keep Medicare as one of the options. Smart on their part. But Ryan goes a lot further than that in his bipartisan proposal with Democrat Wyden by, among other things, increasing the rate at which premium supports—and therefore the federal entitlement—would increase and by creating a defined benefit Medicare floor in the new proposal as well as conceding consumer protections to Wyden (make that more regulation than most Republicans would like to see).

Democrats may now be mourning the loss of the first Ryan plan they thought was a big fat political target going into 2012. But, by coming on board with Wyden, Ryan has all but conceded his first proposal wasn’t politically acceptable. Democrats who said they would never alter the Medicare entitlement, an unrealistic promise in the face of the debt crisis, can't be happy a leading progressive has found a way to do it.

Democrats jumped all over Gingrich’s original rejection of the Ryan plan, when he called it “right wing social engineering.”

You have to believe they are now going to have a better time jumping on all those Republicans who voted for, or have unconditionally supported, that first Ryan plan now that that key parts of that idea have been abandoned by its author.

But that analysis focuses on the partisan politics that are sure to follow in this town.

I will suggest that this proposal represents something above all of that.

Who is the winner here?

Bipartisanship. This compromise carefully recognizes and balances important principles from both sides toward a solution to a major problem and I hope people who really want to fix things will appreciate that.

This is a good day for the country—and we haven’t had one in a while.

The Super Committee Failure—What’s Next?

The stock market today was shocked, simply shocked, that the Super Committee didn’t come up with a debt deal.

I don’t know why. Republicans can’t vote for more taxes unless they're willing to get “primaried” from the right and risk losing their seat. Ditto for Democrats who would face the same punishment from their base if they voted to change the sacred defined benefit entitlements without at least getting tax concessions from the Republicans.

Obviously, neither side has a lot of statesmen in their ranks who would actually be willing to compromise.

In this hyper-partisan environment, where both parties are effectively in the control of their far left and far right bases, it is simply not possible for any meaningful bipartisan compromise.

Some time ago on this blog, I said that we wouldn’t get any meaningful effort to deal with the federal debt and entitlement challenge until there was a bond crisis—when investors would no longer be willing to lend to the U.S. government at reasonable rates without our first getting our unsustainable debt under control. Right now the U.S. government is borrowing about forty cents of every dollar it spends!

We are now watching just such a bond crisis force government into action. But it isn’t our government—it’s happening before our eyes in Europe.

Ironically, and it’s a huge irony, U.S. government bond prices continue to rise and interest rates continue to fall because as bad as our problems are, Europe looks worse. But with the latest American failure to govern, how long will that last? The flight to American “quality” that is propping up our deficit spending is as irrational and unsustainable as any of our other recent economic “bubbles.”

To fix the American debt crisis we will need to fix our entitlement problems. To do that, there will have to be major changes to the biggest entitlement driver—health care costs in Medicare, Medicaid, and even federal employee benefit costs.

As long as we have a divided government we are stalemated—not only over what to do with Medicare and Medicaid but over what we will eventually do about implementing the Affordable Care Act as well.

All of this will now effectively be on hold waiting for the results of the 2012 elections. If the outcome of those elections continues to be a divided government it is hard to see how we’ll have a solution even after 2012—short of an American bond crisis forcing things to change.

I can’t realistically see a Democratic sweep in the next election—that they recapture the House and hold the Senate and the White House.

But it is possible that Republicans will win all three. That would end the deadlock and likely mean the effective repeal of the Affordable Care Act (at least 51 votes in the Senate could gut it), as well as serious efforts toward the Republican “solution” to the entitlements and the under-age-65 health insurance market along the lines of the Ryan defined contribution proposals.

It is also possible that Obama could be reelected and have to face a Republican House and Senate—and even more political confrontation with a Republican Congress sending a Democratic President their health care and debt fixes. Maybe, after the election, both sides would be willing to deal. Maybe not, the current political environment that abhors compromise would have to change dramatically.

Layer on top of all of this the sharp cuts the defense and homeland security budget will now get because of the debt deal fallback provisions—defense will have to sustain $600 billion in cuts. I don’t consider myself a deficit hawk but it is hard to see how these defense cuts can be implemented. Combat forces are already at half of 1990 levels and the defense budget spending is already on its way to the lowest level as a percentage of GDP since 1940.

That the defense cuts are unsustainable likely means the Congress will find a way to reverse them and make the federal debt situation even worse than it is today.

This country is facing one of the greatest domestic political and economic challenges in its history—our debt level as a percentage of GDP is double what it was at the end of the Great Depression! The modern economic way of life we have become accustomed to is literally hanging in the balance. But our political institutions are now clearly unable to confront the problems. The 2012 elections could finally give one side or the other the ability to confront these issues in a way that is starkly different than the way the other guys would have. Or, the election could just give us another divided government still unable to deal with the growing crisis.

More stalemate would leave only one outcome I can foresee—a global U.S. bond crisis that would literally stop the federal government in its tracks and the entire American economy with it. Such a sobering crisis could well force political moderation and compromise—hopefully before it was too late.

The 2012 elections are a big deal. But it will likely take even more—lots of something we haven’t seen in a long while—statesmanship.

Romney Jumps on the Waiver Bandwagon--And Creates Even More Uncertainty Over the New Health Care Law

Republican presidential frontrunner Mitt Romney has pledged to end “Obamacare.” Upon taking office, he would immediately begin the process by granting the states waivers from having to implement it:

“I’ll grant a waiver on Day One to get repeal started. On Day One, granting a waiver for all 50 states doesn’t stop it in its tracks entirely. That’s why I also say we have to repeal Obamacare, and I will do that on Day Two, with a reconciliation bill [requiring only 51 votes in the Senate] because as you know, it was passed by reconciliation with 51 votes.”

Romney appears to be on thin ground in making his waiver promise and his promise to use reconciliation to stop "Obamacare" could lead to chaos in the market and among consumers.

The waiver promised is based on a provision in the law authored by Senator Ron Wyden (D-OR). Wyden’s provision was designed to allow states to petition the feds to opt out of the new health care law by taking the federal money that was going to be spent in their state under the Affordable Care Act and draft a comprehensive plan of their own that covered at least as many people as well as the Affordable Care Act would have.

Here is the provision straight out of the Affordable Care Act:

"(1) IN GENERAL.—The Secretary may grant a request for a waiver [to a petitioning state]...only if the Secretary determines that the State plan...will provide coverage that is at least as comprehensive as the coverage defined [by the new health law] and offered through Exchanges established under this title as certified by Office of the Actuary of the Centers for Medicare & Medicaid Services based on sufficient data from the State and from comparable States about their experience with programs created by this Act and the provisions of this Act that would be waived; [that the state] will provide coverage and cost sharing protections against excessive out-of-pocket spending that are at least as affordable as the provisions of [the new health care law] would provide; [and] will provide coverage to at least a comparable number of its residents as the provisions of [the new health care law] would provide; and...will not increase the Federal deficit."

And, in any event, this waiver provision in the law will not take effect until 2017. How Romney could use this waiver provision to stop the law in its own tracks on its primary effective date of January 1, 2014 is not at all clear.

Romney is arguing that this language is written in a way that would give his Health and Human Services (HHS) Secretary the ability to just grant a waiver to the states to skip most of the law!

For example, the Romney camp is suggesting that the requirement to provide coverage to a comparable number of people doesn’t refer to how many people are covered but instead allows them to interpret that as just making a comparable number of health insurance plans available in the market.

Say what?

It is possible that a Romney administration could try to delay implementation of critical parts of the law from the scheduled January 1, 2014 implementation date. With so much of the implementation of the law up in the air waiting for a Supreme Court ruling and the 2012 election results, it is not out of the question that there will have to be delays past 2014, no matter who is president.

But if Romney tried any delays intended to derail the law, I would have to believe that about every liberal and progressive group in America would instantly be in front of about every federal judge in the land—likely with success.

Romney has also argued that he would use the Senate budget reconciliation process to repeal the new health law, “on Day Two.” Presuming the Republicans continue to control the House, and have a simple majority in the Senate, as well as the White House, they can do lots of damage to the law with the 51 votes needed to pass a budget reconciliation bill. But a budget reconciliation bill would have to apply only to the budget-related elements of the new law—such as the premium subsidies. That procedure could also kill the individual mandate, Medicaid expansion, money for the insurance exchanges, and the employer mandate.

Key non-budget elements of the bill—such as the insurance underwriting reforms—would take 60 votes to repeal—a big stretch for the Republicans most likely to capture Senate seats in the low 50s. Even with a couple of Democratic defections, it would be very difficult to get to 60-votes for a full repeal.

So, Romney and Republican majorities could create a scenario where any budget items, like premium subsidies, would be stripped from the law. But non-budget items, like the insurance reforms granting coverage to all comers, would remain in effect. The impact of that kind of situation would be sizeable for the insurance risk pool where insurance companies would have to take all comers but have little growth in the number of people they would insure.

And, don’t look for Democrats to come to the rescue of the insurance industry in this kind of scenario. They would use every bargaining chip they had to try to preserve the law Romney has promised to kill.

In trying to keep his promise to kill the law, Romney could end up creating a chaotic environment driven by enormous uncertainty over just which parts of the new health care law would be implemented--for consumers, health care providers, and insurers.

Doesn’t that make you feel better?

The Ryan Health Care Proposals—Not Your Congressman’s Health Plan

Update: The New Wyden-Ryan Plan - Paul Ryan and Ron Wyden Blow the Medicare Reform Debate Wide Open!

In a speech at the Hoover Institution today, Representative Paul Ryan (R-WI) argued again that his proposal to reform Medicare, and now his tax credit proposal for replacing the Democratic health care law for those under-age 65, would guarantee to citizens “options like the ones members of Congress enjoy.”

His proposals would not give people the guarantees members of Congress, and all other federal employees for that matter, now enjoy.

This is not a small point.

Previously on this blog, I have argued that many of the defined contribution reform proposals, Ryan’s included, should be faulted for putting all of the future risk of health care costs on beneficiaries.

Ryan’s Medicare plan would create a premium support system for seniors. The premium support amount would increase each year by the rate of basic inflation, even though health care costs have historically increased much faster. Seniors would then take this premium support payment to the market and buy their own private health insurance policy. Another recent Medicare reform proposal by the health care industry would increase a similar health care premium support payment each year by the rate of increase in the gross domestic product (GDP) +1%.

In both cases, neither insurers nor health care providers would have any of the risk, and therefore responsibility, for keeping costs under control. The entire burden for the adequacy of these premium support payments would be with the beneficiary. If health care costs rose faster than these premium supports, tied to these indexes that have always trailed health care inflation, too bad for the beneficiary. Any excess cost is borne by the individual.

Ryan and his colleagues would argue that this is just what we need to create—a market so robust we can finally begin to control costs. Beneficiaries struggling to make their health care dollars stretch would seek out those health insurance plans that really did control costs. From his speech at the Hoover Institution today:

“The growth of these [health care] defined contributions should be capped, to reduce the inefficiencies that have led health-care costs to spiral out of control.”

As I have said before, after more than 20 years of defined contribution health insurance experience in the market there is no evidence this will occur. The Ryan school of health care thought argues that, “By putting the power into the hands of individuals, we can let competition work in health care just as it does everywhere else.”

I am continually amazed at those who argue the health care market can work, as Ryan put it today, “as it does everywhere else.” They are right that the health care system is too much driven by third-party pay and its beneficiaries have historically had too little incentive to be prudent buyers. But the health care market is also a one driven by complex science, major and legitimate philosophical differences about treatment choices, and enormous supply-side powers.

In short, grandma, or you or me for that matter, is no match for the American health care system.

That aside, Ryan is wrong when he says his plan is just like the plan members of Congress have. These schemes to cap health care premium support are fundamentally different from the Federal Employee Health Benefit Plan (FEHBP) that members of Congress enjoy.

From the federal employee handbook:

“The [federal employee health insurance] premiums for your enrollment are shared by you and your Federal agency or retirement system. The government pays the lesser of: 72% of the average total premium of all plans weighted by the number of enrollees in each, or 75% of the premium for the specific plan you choose.”

So, the federal government guarantees to Congressman Ryan, all of his Congressional colleagues, and all federal employees, that it will pay for at least 72% of the average cost of the health plans offered to and selected by federal workers—no matter how much the cost of the program rises over the years.

Ryan’s proposal would make no such guarantee.

I am not arguing that the federal government must guarantee that everyone should have 72% of his or her health care costs underwritten by the federal government year after year—or by anyone else for that matter. Nor am I arguing that defined contribution health care should not be part of any solution.

What I have consistently argued on this blog is that everyone—individuals, health care providers, and insurers—must all have some skin in the game in order for us to have the systemic change needed to finally reform our health care system.

The problem I have with the Ryan plan, and those plans similar to his, is that they give beneficiaries 100% of the risk and then just tell them to trust the market. If costs grow faster than the inflation indexes that underlie these premium supports, as they always have, tough luck.

For the Ryan plan to really be effective, and fair, he and the others proposing this kind of solution must put the same kind of responsibility on everyone else—particularly the most powerful in the health care system.

More, I will suggest that hospitals, doctors, drug companies, and insurers have the potential to affect the cost of health care far more than your grandmother will ever have.

The Health Leadership Council Medicare Proposal: Too Much Responsibility on Beneficiaries and Not Enough on Providers

The Health Leadership Council (HLC), a coalition of CEOs from many of the leading health care companies, has created a list of Medicare reform recommendations for the Super Committee tasked with finding at least $1.2 trillion in budget savings.

As we begin the national debate over what to do about Medicare's unsustainable costs, I will suggest that the HLC proposal gives us one, of what will have to be many, outlines for discussion.

Their recommendations include:

• Creating a new Medicare Exchange, beginning in 2018, where beneficiaries would have the choice of private Medicare plans as well as the traditional Medicare plan. The HLC proposal would be a defined contribution program much like the Republican Ryan plan but would differ from Paul Ryan’s in a couple of key ways. First, in the HLC proposal traditional Medicare would continue to be one of the options. Second, the annual increase in the beneficiary support premium would be more generous—the HLC is proposing an annual premium support increase equal to GDP plus 1%.
• Gradually increasing the Medicare eligibility age from 65 to 67—starting in 2014.
• Reforming Medicare’s cost sharing structure by increasing deductibles and co-pays as well as requiring high-income beneficiaries to pay the full cost of Medicare Part B.
• Implementing medical liability reform including a cap on non-economic damages, a one-year statute of limitations, and a “fair share” provision that would limit damages commensurate with responsibility for the injury.

The HLC estimates that its recommendations would generate savings of $410 billion over ten years—about a third of what the Super Committee is charged with finding.

The HLC’s suggestions have merit but, I will suggest, make the same fundamental mistake the Republican adopted Paul Ryan proposal made: They put all the onus for Medicare savings on the beneficiary—not the providers and not the insurance companies.

No Medicare reform proposal can be enacted if it does not protect Medicare beneficiaries by assuring them that it can achieve affordable costs.

The HLC would create a Medicare premium support based upon the average cost of a Medicare plan—and then increase that by GDP+1% in each subsequent year. That makes sense—the beneficiary support starts where costs are at inception and then increases by a factor (GDP+1%), which is reasonable for beneficiaries and providers and sustainable for the country.

In fact, I will suggest, that any final Medicare reform proposal will likely contain a cap of GDP+1% both because it gives the country an affordable objective and because it preserves spending at current levels plus a reasonable rate of growth.

But the problem with the HLC proposal is just what risk and responsibility does it transfer to health care providers and insurers? If the government premium support isn’t enough, providers can just demand more from insurers, and insurers in turn can just make up the difference by increasing premiums for seniors. There is certainly some upward limit on what people can pay, but the tension will always be to shift costs to the beneficiary as costs escalated.

More, the system would almost certainly become even more tiered than it is today. The Medicare option could easily look more and more like Medicaid as those able to afford better coverage fled to the more expensive private plans and those unable to pay the free market increases would have no alternative but the Medicare fee-for-service plan that stayed viable by paying providers less—and as a result looked more and more like Medicaid.

The HLC’s suggestion to increase the eligibility age for Medicare beginning in 2014 is a non-starter. The Congress might end up increasing the Medicare eligibility age at some point. But it won’t be done for people nearing retirement age—who have done their retirement planning presuming an age-65 eligibility. The Super Committee must come up with savings in the 10-year budget window—and that is too soon for any Medicare eligibility age change.

There is also growing evidence that pushing back the retirement age simply shifts costs to the pre-retirement market at an even higher cost than what it costs for Medicare to cover these beneficiaries.

The HLC's means testing recommendations call for more cost sharing as a strategy to focus seniors attention on cost control. As a concept, this makes sense and could well be part of any final Super Committee plan--but it all depends upon the details.

The HLC’s tort reform ideas are far too incremental—they call for capping payments on what is a fundamentally flawed system. Why not fix the system rather than Band-Aid it? Proposals for health courts and no-fault resolution that emphasize data collection and quality improvement would have been more the kind of proposals I would have expected from the HLC.

The Health Leadership Council’s recommendations do create a structure that gives seniors more incentives to purchase the most efficient health plans, put a reasonable limit on what our country can spend on the Medicare entitlement, and recognize that more cost sharing, particularly for higher income beneficiaries, and a later eligibility age, will ultimately be part of the solution.

But just what are all the insurance companies and drug companies that are part of this group willing to do to put some of their “skin” in the game?


For those convinced that just putting the market in charge will control costs and produce affordable premiums, a recent post: Inconvenient Facts for Both Republicans and Democrats—Neither Side’s Health Care Proposals Are Supported By Past Performance

The Debt Super Committee—Will We Get a Deal?

It’s back to work in Washington, DC and all the attention is now on the Super Committee and their goal of cutting spending by at least $1.2 trillion over ten years.

If the committee fails to come up with a plan that passes the Congress, there would be $1.2 trillion in automatic cuts. The health care special interests have reason to hope they will fail—the fallback cuts would only impact Medicare providers in a small way—2% in provider cuts—and not directly impact beneficiaries or Medicaid generally. Any Super Committee deal would likely be more far reaching if for no other reason than to protect the defense budget from the huge cuts the fallback would require.

But the fallback would not solve any of the systemic problems the health care entitlements face and only prolong the inevitable day of fiscal reckoning.

Even a $1.2 trillion reduction—$2.1 trillion with the additional $915 billion reduction in discretionary spending that was part of the deal—is only a down payment on solving America’s fiscal woes—we face a $10 trillion budget shortfall over the next ten years.

Will the Super Committee succeed? That’s the big question in Washington.

Many believe it cannot succeed because all of the fundamental policy differences between conservatives and liberals remain while many in both parties think failure and taking the issues to the next election makes political sense.

Others worry that the fallback cuts to defense are so great that outcome has to be avoided and the committee just has to be serious about finding a solution. Add to that the political consequences of failure with voters, who watched the debt ceiling talks and are more disgusted than ever before. The latest polls say the voters are now looking to “throw the bums out” no matter which party they’re in if they don’t grow up and start solving problems.

With federal health care costs being the biggest deficit driver the Super Committee has another impossible challenge. No one wants to cut the Medicare benefits of current retirees or those who will retire in the near-term. But the Super Committee has only a ten-year budget window that it has to work within. How do you reduce Medicare spending between now and 2021 but not hurt a current retiree or someone whose plans for retirement assume Medicare benefits won't change?

My sense is that if we see another messy political stalemate in the Super Committee the next election will be about throwing the incumbents out—Democrat and Republican. I am hopeful both sides understand they need a deal, or the 2012 political consequences will be dire for anyone now holding a federal office.

But, as I said during last summer’s debt ceiling debate, just exactly how both sides, which have been so intransigent, can find a way to compromise isn’t clear to me.

One scenario for what could will happen suggests that the Super Committee will not be able to come to an agreement, the $1.2 trillion fallback trigger's automatic cuts would take effect, and the impact of that trigger, primarily on defense, would be so bad that the Congress would be forced to revisit the entire deal in 2013––after the election. Think of the annual Medicare physician Sustainable Growth Rate fiasco but every year for the whole budget until a consensus in the country can develop about how to permanently fix this.

But more failure at reaching a deal will only make the voters more mad then they already are--if that is possible.

Some have suggested the real solution is to "go big"--agree to a real longer-term solution that begins the process of entitlement reform that is inevitable. While "going big" is arguably the right thing to do it would also mean a "great compromise." Something both the far left and the far right would find anathema in this hyper-charged 2012 election environment. A grand compromise would likely mean more taxes and deep entitlement cuts--something that members of Congress aren't likely to do for fear of retribution from their respective base with the primary season just months away. Can you imagine what the Tea Party would do during primary season to any Republican who voted for a tax increase? Or, what the left would do to a liberal that "sold out" the entitlements?

Another scenario, suggested by a report last May from the Committee for a Responsible Government, details almost $1 trillion in a wide variety of smaller scale common ground budget cuts already proposed by both Republicans and Democrats. This list illustrates that there might be a means to eek out $1.2 trillion in savings and avoid having to deal with the most controversial ideas--tax increases and at least far reaching entitlement reform.

The Super Committee has an almost impossible job in front of them. Any "go big" and systemic solutions I can think of would appear to be politically impossible. Maybe they can kick the can down the road one more time. Maybe not.

What a mess.

Rethinking the Value of Medical Services

by Brian Klepper and David Kibbe

One of American politics’ most disingenuous conceits is that health care must cost what we currently pay. Another is that the only way to make it cost less is to deny care. It has been in industry executives’ financial interests to perpetuate these myths, but most will acknowledge privately that the way we value and pay for medical services is a deep root of America’s health care cost explosion.

When the Resource-Based Relative Value Scale (RBRVS) became the framework for Medicare payment nearly twenty years ago, it equated a medical service’s “value” with four categories of physician work inputs: time, mental effort and judgment, technical skill and physical effort, and psychological stress. The assessment process, handled from the outset by the American Medical Association’s (AMA) secretive, specialist-dominated Relative Value Scale Update Committee (RUC), delineates and quantifies a service’s inputs in terms of its Relative Value Units (RVUs) which, with a monetary multiplier, define its worth.

In 1989, RBRVS’ lead architect, William Hsaio, confidently suggested that the process would be rational and reliable:

We found that physicians can rate the relative amount of work of the services within their specialty directly, taking into account all the dimensions of work. Moreover, these ratings are highly reproducible, consistent, and therefore probably valid.

But Dr. Hsaio did not anticipate that special interests would capture the process and manipulate it to financial advantage. Twenty years after RBRVS was adopted, “mental effort and judgment” has been hijacked to favor specialist physicians and hospitals, primary care has been stifled, and the relative value system has become a study in caprice and distortion.

Getting Values Wrong

The resulting inconsistencies in how we value services are breathtaking. For an unexceptional example, compare the reimbursements for a moderately complex primary care office visit for an established patient (CPT 99214) with an ophthalmologist’s 10-15 minute cataract extraction with implantation of an intra-ocular lens.

A primary care office visit can be classified as a 99214 if it requires 25 minutes of face time and has two of three components: a detailed history, a detailed examination or medical decision-making of moderate complexity.

Keep in mind that, in primary care, new signs and symptoms must be weighed against the whole of medicine. Is a persistent cough a bronchial infection, tuberculosis, lung cancer or something else? The variation across patients is staggering as well. Primary care doctors typically see conditions ranging from sprains and hernias to infectious diseases and vascular ailments, and must be a specialist in dealing with this complexity. In 2011, Medicare pays $111.36 for a 99214.

By contrast, specialist physicians in many disciplines face less patient variation, at least compared to primary care doctors’ experience, but their work may have more “wow.” Cataract removal, a 50 year old procedure that has been highly refined and automated, immediately improves sight, a dramatic impact. Many ophthalmologists operate “focused factories,” processing an assembly line of 20 or more cataract patients. With pre-screened patients and a controlled clinical environment, the risks are relatively predictable, the mental demands limited and the work repetitive. For cataract extraction, Medicare currently reimburses the ophthalmologist $697.12, and requires a $139.24 patient co-payment, for a total of $836.36.

In other words, relying on the RUC’s assessment using RBRVS, Medicare values the ophthalmologist’s work 7.5 times more than the primary care specialist’s. The valuation assumes that the complexity and skill required in the two encounters are heavily weighted toward the ophthalmologist, though it could be reasonably argued that the mental effort, judgment and skill required by the primary care doctor are greater.

But there is a more serious flaw in the approach. RBRVS bases value on the demands of physician work, but ignores the actual benefit to the patient or society. It doesn’t consider whether the service followed evidence-based guidelines (and whether it was appropriate or even necessary) or whether the hoped for health outcome was achieved.

We need both primary care specialists and procedural specialists. The policy questions are whether one should be valued at so much more than the other, and whether we need more procedural specialists than primary care doctors, or the opposite as other developed nations have settled on. The way we pay for services should reflect our decisions. But also, we need a payment approach that is fair, consistent, transparent and more congruent with modern notions of value.

The flaws in our medical services valuation and payment system create incentives for unnecessary and unnecessarily complex services that expose patients to gratuitous risk (and sometimes, harm), and that artificially increase cost for purchasers. This one mechanism is largely responsible for taking the health care industry and the larger economy to the edge of an economic precipice.

What Should CMS Do Now?

Against the intensifying national economic crisis, CMS could immediately and substantially reduce unnecessary cost by revamping this system. It should aggressively identify and reassess over-valued specialty services, while re-valuing primary care. Equally important, the definition of value must be broadened beyond physician work inputs to quantitative measures of impact, efficacy and efficiency, using the plentiful evidence now available in both clinical encounter and financial claims data.

Adjusting the current approach to payment will be opposed by procedural specialists and powerful health care interests that have fed for decades off the specialty-based largess. But ultimately, it would serve their interests and those of the American people by stabilizing a system wildly out of control.


Klepper and Kibbe have been frequent contributors to this blog

Brian Klepper, PhD is a health care analyst, consultant and commentator. He is Managing Principal of Healthcare Performance Inc., a business development practice based in Atlantic Beach, FL, and Chief Development Officer for WeCare TLC, LLC, an onsite clinic firm based in Longwood, FL.

David C. Kibbe, MD, MBA is well known as an innovator and independent thought leader in the fields of primary care EHR technology and consumer health IT in the United States. HIs writings have had a strong influence on the "modular approach" to EHRs, and to the development of Clinical Groupware. A co-developer of the ASTM Continuity of Care Record standard, or CCR, that utilizes XML for computable health information exchange, he is an experienced clinician who practiced medicine in private and academic settings for more than 15 years. Dr. Kibbe has taught informatics at the School of Public Health, University of North Carolina at Chapel Hill, and founded two health care IT companies.

The Debt Deal: There Will Be Blood on the Floor on November 23rd

The debt deal is finally done. But it really isn’t an agreement on what cuts will be made, just the process that will be used to make them.

The real work is left to the Congressional appropriators for the first $917 billion and for a super-committee of Congress for the second $1.2 trillion to $1.5 trillion in ten-year cuts.

That second tranche is where health care will make its contribution. The super-committee has to make its decisions by November 23rd and, as a practical matter, the Congress can only accept what the super-committee decides or face the consequences of the automatic $1.2 trillion fallback cuts.

When it comes to health care and the super-committee, all federal health care spending is on the table—–Medicare, Medicaid, the new law, benefits, and provider payments.

Since the budget window for the deal is ten years, it is not likely that any changes will be made to entitlement eligibility—such as delaying the Medicare eligibility age from 65 to 67. It just wouldn’t be fair to tell a 60-year-old their Medicare eligibility age is being raised. But we could see more means testing of Medicare premiums.

It is possible that the super-committee could deal with real systemic health care reform—–particularly in the way we pay providers. But I doubt it. The committee isn’t going to have a lot of time to take up so complex a matter as systemic health care payment reform given that they will have to deal with hundreds of billions more in cuts from lots of federal programs. I don’t see the committee as having the expertise, will, or the time to tackle real health care reform.

The real potential for cuts will be to provider reimbursement.

So, all of those provider organizations that thought they scored big by limiting their contribution during the health care reform debate are likely be on the defensive in ways they could not have imagined 18 months ago.

Physicians, facing a 29.5% Medicare Sustainable Growth Rate (SGR) fee schedule cut on January 1, 2012, need to be really worried. That 29.5% cut is part of the existing budget baseline from which the super-committee needs to cut hundreds of billions more—much less find tens of billions of dollars to put these doc cuts off again. Hospitals who got off with a $150 billion contribution to the Affordable Care Act have to be in the bull’s eye this time. Drug companies are a particularly juicy target for liberals who don’t like them and conservatives who wish the Part D program had never been passed. Medicare Advantage insurers have recently been reporting record profits—not something you want to be doing when the Congress is looking for lots of cash.

While there is a 2% cap on any cuts that could occur to Medicare in the $1.2 trillion default trigger, there are no limits to what the super-committee can cut. As an order of magnitude, it looks to me like the cuts Medicare will have to eventually sustain from the super-committee will have to approach to the cuts the program saw under the new health care law--largely because of the impact the SGR formula has on the baseline the committee will have to use.

Medigap insurers could also be at risk. A proposal to reduce first dollar Medigap coverage continues to hang-on and would likely at least be on the super-committee’s table. Its $50 billion value is just too big to ignore. But that is offset by how unpopular such direct cuts to millions of Medigap policyholders would be.

I would not be surprised to see the super-committee take a hard look at reducing Medicaid spending by giving the states more flexibility and less money.

The debt ceiling formula the Congress and the President just agreed to is a particular problem for the physicians. They are the ones who agreed to support the new health care law (the AMA anyway) without getting a fix to the Sustainable Growth Rate dilemma. Now, the debt deal seals the physician fee baseline at a level that presumes the 29.5% fee cuts are in effect. It is from this point that the super-committee has to start its work.

Given how reluctant Congress has been to cut the docs in past years, just how the heck are they going to accomplish net Medicare cuts and take care of the docs this time?

And just think of the impact big provider cuts could end up having on health care cost trends as providers attempt to shift the impact of these cuts to the entire health care system--just as health care cost trend has finally been slowing down.

If you thought we had a tense few weeks over the debt ceiling, you had better clear your calendar for the weeks leading up to the November 23rd super-committee deadline. The debt deal was only about process, this next big fight is going to be about real and significant cuts and there will be be some significant blood on the floor when it is over!

We Are Reaping What We Have Sown—The Debt Standoff

On this blog a month ago, I said the politicians were starting to scare me with the apparent eagerness of some to actually take the government to default to make a political point.

For weeks we have heard political leaders on both sides tell us there would be no default.

But the two sides have so backed themselves into opposite corners that they have left no opportunity to meet in the middle. Democrats say they have to have a tax increase, or failing that no cuts to entitlements. Republicans say absolutely no tax increases and they need to see entitlement cuts.

This only gets fixed if somebody capitulates. The consequences for any side doing that might be the loss of their own base going forward.

There isn’t any middle ground here because there is no middle ground left in Washington, DC. The last few elections have seen the replacement of “moderates” by evermore far right or far left senators and representatives. This process has only been exacerbated by the gerrymandering of Congressional districts to ensure they were safe for either side but at the same time leading to their coming under the control of party activists pushing their representatives either far left or far right. It also hasn't helped that each side is so certain of their cause and only has to dial their favorite channel to be assured of that.

Yet, ironically, the last three elections have been decided by where independent voters have gone—not by the far left or the far right.

Obama and his leadership can’t afford to offend their base and Boehner and McConnell can’t afford to offend theirs. Boehner’s biggest problem right now is not Nancy Pelosi, it is his Tea Party wing that, as of this writing, is so far denying him the votes he needs for his debt limit proposal. Already, a few of the Tea Party folks are whispering that they need to get rid of Boehner because of his latest debt proposal.

Both sides also believe a standoff helps them in the next election. I don’t think it helps anybody. My sense is that the first Wednesday of November 2012 neither side will have the votes to unilaterally drive their agenda through.

Many on both sides have recently argued that compromise is what has gotten us into our fiscal problems (and that might be right) and that compromise is now the wrong thing to do. But it will be impossible for either side to "fix" things their way unless they come to dominate the Congress and capture the executive branch--something that is mighty hard to do in the American political system.

The fact is no progress can be made in a divided government without compromise.

But leaders on both sides are all confidently telling us a debt limit deal will get done.

I will tell you that all over corporate America companies are thinking through their liquid cash positions and getting any borrowing done before August 2nd.

I suggest you also be ready just in case.

It looks like we are on the way to reaping what we have sown--not just this month but for some time to come until both sides finally come to the conclusion they will have to work together.


Earlier post: The Debt Ceiling Debate—Some of These People Are Nuts

The Awful Dichotomy Between Health Care Politics and Policy

Amy Goldstein has an important article in today’s Washington Post detailing the place Don Berwick, the Medicare and Medicaid administrator, finds himself in.

It is all but certain he will have to leave his post at year’s end, when his recess appointment expires, because the Senate will not confirm him for a lack of Republican support.

Berwick is one of the most respected health care experts in the country—his career has been dedicated to improving quality first and with that the cost of care. With the new law giving his agency more opportunities to experiment with new approaches and the ability to more quickly implement the things that work, he was the ideal choice.

But with the Democrats ramming the law through without a political consensus to support it, Berwick also became the political whipping boy for opponents to pile on. That he has been willing to point to the things that work in places like Britain only gave the political opportunists plenty of red meat to throw into an already red hot ideological debate.

In my mind, the great frustration in health care is that we really aren’t so far away from being able to make the system far better than it is—in both its quality and its cost. To test and perfect the best ideas we need to be willing to try new things—many of which won’t work but can form the basis of finding out what does work.

His proposed Accountable Care Organization (ACO) rules were a disaster and he should have known better. But there is also no reason why that failure can’t lead to a better outcome—if finding the right answer is what we are all ultimately interested in.

But, particularly in this red hot political environment made more red hot by one side always more willing to jam their ideas down the other side’s throat—whether that be a new health care law or a debt ceiling solution—people like Berwick get caught up in the bigger political fight.

My sense is that a Republican President, as much as a Democratic one, could have as easily appointed Don Berwick CMS administrator.

People say Don Berwick’s failing is that he is a “political neophyte.” It is the reality that once you get to Washington having the right answer isn’t enough—you have to be able to get it through the system. What does it say about Washington when a first class expert speaking what he sees in good faith as “truth” is seen to be naïve and can be quickly dismissed for “having a record on rationing care?”

But Don Berwick never had a chance in an environment where trying to find the right answers takes a back seat to scoring political points.

With health care costs and the nation’s debt crisis now coming to a place where change is unavoidable, we can’t afford this toxic take no prisoners political environment much longer.

In fact, August 2nd might be the day it all comes home to roost.