For information on Cost of health Care

December 28, 2008
Op-Ed Contributors | Transitions
Health Care With a Few Bucks Left Over
By ALAIN ENTHOVEN
Stanford, Calif.

HEALTH care drained the federal budget of more than $1 trillion this year. That includes direct health care programs like Medicare, plus insurance for federal employees and the cost of excluding employer health-care contributions from workers’ taxable incomes. If present trends continue, in 10 years the number will almost double.

President-elect Barack Obama has proposed some good ideas for cutting health care costs, but his proposals will not create the savings we need.

He has suggested, for example, that electronic medical records could save Americans nearly $80 billion per year. But information technology cannot bring meaningful savings if it is used in a health care system that regularly rewards waste and punishes efficiency, as ours does.

Similarly, Mr. Obama proposes to save more than $80 billion per year by better management of chronic conditions like high blood pressure, heart disease, diabetes and asthma, and by preventing more diseases in the first place. It is true that most American doctors are weak on prevention and chronic disease management. But they will not improve until they are given economic incentives to buy the equipment and hire the personnel they need to actually deliver these services.

The only truly promising way to save money is to change the way health care is organized and delivered. In the United States, 85 percent of doctors work in small, fee-for-service practices. Many of these doctors are very good and hard-working. But they are autonomous, not members of teams. They do not systematically share information with one another. They are unable and unwilling to be held accountable for the quality and cost of the care they deliver.

The employment-based health insurance system has created this situation by not encouraging people to consider the value for their money when they choose doctors.

Some American medical practices do emphasize economy. They are very large, multispecialty group practices in which doctors work together to improve quality and keep costs low. Their doctors share values and cultures of teamwork. They keep comprehensive electronic medical records, they share information, and they emphasize disease prevention and chronic disease management as a matter of course.

These doctors are usually paid salaries, not fees for services. Research and experience suggests that these practices — which exist in all regions of the country, including both rural and urban communities — can reduce costs by 30 percent.

And a few employers — some universities and companies, the federal government, the state governments in Wisconsin and California — allow their workers to choose such practices, and then keep the money saved by that choice. At least 70 percent of employees offered this option choose it, even when it involves restrictions on doctor selection.

Unless all Americans are given this choice — along with the right to keep the savings — we will not be able to get health care costs under control. But making this change won’t be easy. Employers and insurance companies are likely to resist it. Doctors and consumers will have to change. It will take time.

Right now, most employers offer workers no choice of insurance companies. They say it would be too expensive to administer more than one. And insurance companies offer employers better deals when they can be the sole supplier.

Even at companies where employees have choices, many employers pay 80 percent to 100 percent of the premiums of an employee’s chosen plan, so there is little opportunity for the employee to realize savings. This market does not reward cost-conscious behavior. The tax code makes this problem worse by exempting employer contributions to health insurance from taxes, no matter how large they are.

Efficient, organized medical systems need to be able to compete with — and ultimately replace — the fee-for-service model. Working with Congress, the next president should establish a national health-insurance exchange, through which people can choose among several competing health plans, including those affiliated with organized systems of care. Individuals could then select which plan they judge best to meet their needs, and save money by choosing less expensive options. The insurers in the exchange would agree to accept all who want to enroll, and to charge their same price to all individuals, no matter the state of their health.

Then, to ensure that enough people participate in the health-insurance exchange, Mr. Obama and Congress should phase in a requirement that the tax-free status of employer contributions to health care be dependent on employers buying health care for their workers through the exchange — and making fixed-dollar contributions, so workers can reap the savings when they choose less expensive plans. All employees would have a wide range of choices, with an incentive to be cost-conscious. (Eventually, the government should help everyone buy insurance through the exchange, regardless of employment.)

Right now, Mr. Obama’s plan is to create an exchange through which people who have difficulty buying affordable health insurance could buy coverage. Unfortunately, participation in exchanges cannot be voluntary. Voluntary exchanges have been tried and failed. The first people to join are the sickest, which drives up the premiums.

To make exchanges work, a broad sample of people, healthy and sick, must be included so that health risks can be spread widely. Large exchanges would also lower the administrative costs for insurers.

By combining organized systems of medical care with the competition created by a health insurance exchange, Mr. Obama could achieve large savings. In 10 years, costs could be reduced by 30 percent, saving more than $700 billion a year — all driven by incentives and voluntary actions.

Alain Enthoven is a professor of management at Stanford.



Home
World U.S. N.Y. / Region Business Technology Science Health Sports Opinion Arts Style Travel Jobs Real Estate Automobiles Back to Top

Computer Health Records

Modern computerized systems have links to online information on best practices, treatment recommendations and harmful drug interactions. The potential benefits include fewer unnecessary tests, reduced medical errors and better care so patients are less likely to require costly treatment in hospitals.

The widespread adoption of electronic health records might also greatly increase evidence-based medicine. Each patient’s records add to a real-time, ever-growing database of evidence showing what works and what does not. The goal is to harness health information from individuals and populations, share it across networks, sift it and analyze it to make the practice of medicine more of a science and less an art.

Commonwealth Care

Boston - The state’s subsidized health insurance program for low-income residents, Commonwealth Care, an exclusive network of four insurers since its inception, is preparing to throw open its doors to new bidders in an effort to cut costs, stabilize premiums and pay fair rates to carriers.

“It’s really about achieving those three things,” said Jon Kingsdale, executive director of the state’s Connector Authority, which oversees Commonwealth Care. “We don’t want the premiums going all over the place and people having to switch plans.”

With a three-year deal of exclusivity for BMC HealthNet Plan, Fallon Community Health Plan, Neighborhood Health Plan and Network Health expiring in July 2009, the Connector board on Thursday explored ways to bring new insurers into the fold and to provide incentives to bring costs down for taxpayers and program enrollees.

Under the upcoming round of bidding, carriers would be limited to offering plans with maximum $404 monthly premiums, a 2 percent increase from this fiscal year and a figure that includes $35 per month in administrative costs, according to a plan proposed by Connector staff at a board meeting at One Ashburton Place. Rates would vary based on the health of the covered population, and plans would be rewarded financially if their enrollees more regularly receive primary care.

The premiums envisioned contrast sharply with actual increases in health care premiums over the years. Last year, Commonwealth Care premiums rose more than 9 percent, a lesser increase than in previous years but far above the 2 percent cap proposed by Connector staff.

A spokesman for the Connector said the trend of double-digit increases in the rate of health care costs “appears to have certainly slowed down in Massachusetts.” The spokesman, Dick Powers, added that under the proposal, the state would share half the burden with carriers whose costs exceed the cap set by the Connector.

Powers said that if trends continue, the $869 million budgeted for Commonwealth Care this fiscal year would be sufficient, despite warnings from lawmakers during budget debate that the account was underfunded.

Dr. Marylou Buyse, president of the Massachusetts Association of Health Plans, said health care costs continue to outstrip inflation, even though the explosion in costs has somewhat slowed. She said she hadn’t reviewed the Connector board’s proposal but that “we don’t want this to adversely affect any of the health plans.”

Kingsdale said increasing the pool of insurers, or managed care organizations (MCOs), would loosen a rigid system that failed to fully account for the sickness of the populations covered and could not protect against drastic shifts in premiums.

Under the proposal, insurers bidding 2 percent below the maximum premium would be eligible to win a share of enrollees who are auto-assigned to carriers in their region. Enrollees are auto-assigned when they sign up for Commonwealth Care but fail to select a specific carrier.

Patrick Holland, chief financial officer of the Connector Authority, estimated that 7,500 new enrollees sign up each month, including 1,800 who are auto-assigned. Despite the stream of new enrollees, program enrollment remained flat this month at 162,726 members as departing members offset the gains.

Board members weighed incentives for enrollees to choose the lowest-cost plans but worried that longtime patient-doctor relationships could be disrupted, which would undercut the fiscal benefits.

“They’re not just commodities that we can, kind of, move around,” said board member Nancy Turnbull.

Health Care for All officials agreed.

“We absolutely oppose disrupting people’s relationships with their providers,” said Lindsey Tucker, reform policy manager for the consumer advocacy organization.

“There’s a lot of questions that still have to be answered,” she said. “Until there’s a sort of next draft, I don’t feel like I have any idea of what the plan will be.”

Tucker said the Connector should avoid plans that result in an increase in redeterminations because confusing paperwork required to enroll in Commonwealth Care could lead to unnecessary loss of coverage or plan changes.

Among options staff recommended included inducing patients with $10 or $15 cards for certain health care services or to designate a two-month period in 2009 to require enrollees to actively choose a carrier. Those who don’t would be auto-assigned to the cheapest available plan.

Dolores Mitchell, a board member and executive director of the state Group Insurance Commission, described herself as “lukewarm” to using cards to sway people to switch plans.

“Something about it doesn’t feel comfortable to me,” she said, calling it “an inappropriate use of financial incentive for people making an important personal decision.”

The proposal also included increasing from $1 to $2 the co-pay for most generic medicine for non-premium paying enrollees, a change mandated to comport with Medicaid rules.

The board will meet next week to finalize a procurement plan for new carriers. If an existing insurer fails to win the state’s blessing, its members would have the opportunity to pick a new plan or be auto-assigned.

Medicare Advantage Plans

Beneficiaries choose from an average of 35 private Medicare Advantage plans in each county, Mr. Zarabozo and Mr. Harrison report. But they say, “Payment increases have been so large that plans no longer need to be efficient to offer extra benefits.”

Payments to health maintenance organizations are, on average, 12 percent higher than what the government would spend for beneficiaries in traditional Medicare, they write, while payments to private fee-for-service plans were 17 percent higher.

Insurance company executives and Bush administration officials defend the role of private plans.

“Medicare Advantage plans are offering an average of over $1,100 in additional annual value to enrollees in terms of cost savings and added benefits,” said Kerry N. Weems, the acting administrator of the Centers for Medicare and Medicaid Services.

Karen M. Ignagni, president of America’s Health Insurance Plans, a trade group, said two types of plans — H.M.O.’s and preferred provider organizations — had produced tangible benefits by coordinating care. As a result, she said, disease is detected earlier and people have fewer visits to hospital emergency rooms.

But, Ms. Gold said, “these are not the types of plans that have been growing most rapidly.” Instead, the private fee-for-service plans are growing fastest, and they, she said, “are not set up to coordinate care.”

The Medicare Payment Advisory Commission has said the payments to private plans should gradually be reduced to the level of traditional Medicare.

In a campaign statement, Mr. Obama declared, “We need to eliminate the excessive subsidies to Medicare Advantage plans and pay them the same amount it would cost to treat the same patients under regular Medicare.” In a debate on Oct. 15, Mr. Obama described the subsidies as “just a giveaway” to private insurers.

Similar views have been expressed

SINGLE PAYER HEALTH INSURANCE

Leaving the bloated insurance industry in place perpetuates the pain and cost of the current health care system.

Massachusetts pays the most in the nation for its health care, and yet it’s plagued by an ongoing crisis of access, affordability, and quality. Although our experiment in health care reform already has deep problems, policy wonks influencing the country’s health care debate tout Massachusetts as the model for universal health care nationwide.

If Massachusetts is a model, it’s a model of what not to do.

When the legislature passed “shared responsibility” legislation two years ago, nearly every suit in the state’s health care industry celebrated. The concept grew from an October 2005 assembly convened by the Blue Cross-Blue Shield Foundation of Massachusetts that made a bald assertion: there was no way to achieve universal coverage in Massachusetts without an “individual mandate,” the enforceable legal requirement that everyone have health insurance.

OFF THE TABLE

The problem was that the assembly was not allowed to consider Canadian-style single-payer health care—which would eliminate private insurance companies—as an option. It was off the table.

So a new bureaucracy was established, the Commonwealth Health Insurance Connector Board, with broad powers to set rates, approve cut-rate private policies, and define affordability.

Subsidies are offered on a sliding scale for those earning up to 300 percent of the federal poverty line (about $63,000 for a family of four). Those earning below the line are covered free.

The tangle of private insurance companies, with their expensive bureaucracies and profits, remains in place.

The only new source of revenue for these subsidies is the $295 per employee fee paid anually by employers of 11 or more workers who fail to show that they are making a “fair and reasonable” contribution to their employees’ coverage.

The tangle of private insurance companies, with their expensive bureaucracies and profits, remains in place.

Given these constraints, how does the system measure up?

Access. The ability to get care has expanded for some, with an increase in Medicaid enrollment for some of the poorest. But this comes at the expense of many, particularly undocumented workers and their families, who in the past had depended on the uncompensated care pool, or free-care pool, through community health centers and safety-net hospitals.

The pressure is now on to deny free care to low-income immigrants who would be eligible for subsidized programs if their papers were in order.

Out of a population of six million, a quarter of a million residents remain uninsured. About 60,000 have been granted waivers as unable to afford even the subsidized plans.

Others fall through the cracks of a complex bureaucracy, and an unknown number simply defy the system and refuse to fill out the additional pages of questions about their insurance status with their state income tax form.

Affordability. For many, paying for health care without the threat of bankruptcy or giving up other necessities of life remains impossible. Governments and many employers are staggering, too.

Rising costs for public employees’ and retirees’ health insurance has led to round after round of service cutbacks, affecting every resident who uses public services. Attempts at cost-shifting have provoked strikes by teachers and turnovers in city halls.

Employers successfully pressure the Connector Board to keep copays and deductibles high in the subsidized health plans. This keeps those covered by commercial plans from switching to the public ones.

But ironically, those high deductibles and copays are not counted when calculating who qualifies for taxpayer subsidies.

A diabetic stay-at-home mom on the subsidized plan, for example, pays $110 a month for insurance. But the array of drugs and procedures she requires and the limits on her coverage leave her with copayments of about $165 a month.

Quality. The new system doesn’t seem to have improved patient outcomes. A recent study showed that 45,000 patients are injured and 2,000 patients die in Massachusetts each year from hospital-acquired infections and accidents. That’s six patients dying each day.

And hospital executives fiercely resist steps to improve quality. In July they blocked a bill—again—to establish minimum nurse-to-patient ratios. Such ratios have made California hospitals much safer.

STILL NEED SINGLE PAYER

In July Massachusetts Senator Ted Kennedy announced a bipartisan initiative to achieve “universal health care” quickly, in the first days of a new administration. And then came Health Care for America Now, a new 80-member coalition that includes the AFL-CIO, SEIU, and AFSCME. HCAN champions a system—similar to Massachusetts’s—that would leave the insurance companies at their troughs.

During the Great Depression, FDR was elected with a mandate for change, but the specifics were vague and the direction of the new administration nebulous. Like today, an upsurge of grassroots action was needed to set a progressive agenda.

It took 3,000 locals, for example, ignoring AFL President Bill Green’s aversion to “the dole,” as he called it, to establish unemployment insurance.

This may well prove to be just as fluid a moment in history. Nothing of consequence—like universal, single-payer health insurance—will succeed without solid grassroots organizing that sets the agenda for the next administration.

Sandy Eaton is Region 5 president of the Massachusetts Nurses Association and vice chair of the Massachusetts Campaign for Single Payer Health Care.

Email this • Subscribe to this feed