The Alan Katz Blog

Perspectives on Health Care Reform, Politics and More

So Here’s an Idea

If you spend any time writing or speaking about health care reform, eventually you’re asked the, magic wand question: what would you do? . Well, there’s an idea I’ve been thinking about. It’s not a Big Fix. It’s merely something that would improve whatever system is in place – I think – by making the system more simple and transparent. I’m sure it’s riven with problems. And maybe it’s a hot topic, but I’ve missed those articles. In any event, here it is. Please let me know what you think I’m missing.

The Mechanics

The idea is to have providers (physicians, hospitals, clinics, laboratories, etc.) publicize what they charge using a multiple of what Medicare pays. If Medicare pays $100 for a procedure and a doctor charges $300 for the same procedure, this doctor is a 300% provider.

Carriers, meanwhile, will set what they reimbursement providers as a percentage of Medicare as well. If an insurance policy pays up to $250 for this same procedure, it’s a 250% policy.

The key is that this percentage doesn’t vary based on the procedure. Once a provider or carrier sets their multiple, it defines the cost for all treatment and services. Consumers gain two bits of information they lack today: what their provider is charging (300% of Medicare in this example) and what their health plan pays (250% of Medicare here).

There’s two advantages to using Medicare as the benchmark for pricing. First, it’s already in use today. Second, it assures both providers and payers are using the same measurement. When you say “300% of Medicare” doctors and insurers know what you mean whether they’re in San Francisco or San Antonio. (If you’re from elsewhere, it means take the Medicare rate and multiply it by three).

Compare this today when all they know is that the carrier pays in-network services on a mysterious discount and out-of-network services based on an unknowable formula. What is reasonable and customary? Under this proposal, however, the consumer knows what the carrier will pay and what they’re responsible for before they walk through the door for medical care.

If implemented today, a number of things remain unchanged. Deductibles, co-insurance and co-pays: still allowed. The Affordable Care Act’s essential benefits: covered. Preventive care: not subject to deductibles and co-insurance. How emergency treatment is reimbursed will need to change to a standard multiple of Medicare for all payers regardless of the facility’s usual percentage so consumers aren’t subject to balance billing.

Simplicity and Transparency

As noted, this idea overlays the current system; it’s not a substitute. This is an overlay, however, that delivers substantial simplicity and transparency. Consumers know up front which providers they can afford. There would be no networks so there would be no surprises from out-of-network charges, Consumers choose any doctor fully aware of how much of their bill is covered by their health insurance. If they want more covered, they simply choose another provider.

Physicians wouldn’t have to guess what carriers will pay them. They’ll reduce their costs as a lot of unnecessary paperwork goes away. However, they’ll also have to compete with other providers in their community. If a doctor is going to charge 500% more than everyone else, she better have a good reason.

Hospitals could no long hide behind their charge masters– a menu of prices they charge for services that no one ever sees and few hospitals can explain or justify. These inflated costs are the starting point for pricing negotiations with carriers, so few people ever see them. (Steven Brill wrote a special report for Time magazine in 2013 that explains charge masters and should be required reading for anyone attempting to reform American health care).

Consumers and their brokers will be able to compare the value of plans on an apple-to-apple basis. If a 400% policy is more expensive than a competitor’s 500% policy, the carrier better be able to explain why. Consumers won’t face unexpected charges, either. They’ll know if their policy will cover all of a given provider’s expense or if they’ll need to pay a portion of the costs. And they can choose their providers accordingly.

Carriers benefit from this proposal, too (unless you’re employed in the networking department). Actuaries will have more certainty in determining the reimbursement required under each plan, regardless of whether the provider is in o out-of-network. With better information on their exposure, carriers can price more accurately. The simplicity of the system will also reduce operating costs and that’s critical for carriers needing to meet a legally required medical loss ratio.

An Improvement, Not a Revolution

I know this idea doesn’t fix America’s health care system. The goal is to inject greater simplicity and transparency into whatever system is in place. If transparency advocates are right, this will revolutionize health care. I’m not sure I buy into the idea that transparency is all that game changing, but to the extent it is, this proposal dramatically increases transparency throughout the health care system.

Single payer advocates will not be impressed by this idea. However, I believe, in spite of its current momentum, single payer is a long way away. Single payer proposals cost too much, impose too much centralized control and are too disruptive. The ACA cost Democrats Congress (and arguably the White House) and Obamacare is far less radical than any single payer plan out there. Imagine the political blow back at a government-run insurance by voters already fearful of death panels and distrustful of Washington?

ACA supporters should like this approach. A common criticism is that the ACA is that it doesn’t do enough to make health care or health care coverage affordable. Simplicity saves money. Transparency empowers consumers to reduce their health care costs. The ACA plus a Medicare-pegged health care system will help the ACA keep its affordability promise.

Advocates of reference-based pricing should also be happy. I’m proposing reference-based pricing on a nationwide scale with everyone using the same reference: the Medicare reimbursement schedule. This goes further than most of the reference-based pricing proposals or implementations I’ve seen, but it’s a logical expansion of the concept. And because both the provider and the payer are referencing the same benchmark, litigation — a too common result of current reference-based efforts — is unnecessary.

This proposal isn’t a panacea. The question is, it is a practical improvement? Please let me know what you think – and what I’m missing here – in the comments.

Senate Version of ACHA a Step in the Wrong Direction

If you’ve ever wondered why Americans hold the President and Congress in low regard, the health care reform legislation currently careening through the halls of Congress provides an answer. On Thursday Senate Republicans revealed their version of Affordable Care Act repeal-and-replace legislation. After working weeks in secrecy, this is what they came up with? It would be embarrassing if it wasn’t so sad.

The Senate Republican health care reform bill, officially entitled the Better Care Reconciliation Act or “BCRA,” is long and I haven’t read it all yet. But it’s clear from those who have that it:

  1. makes changes to the Obamacare health insurance exchanges.
  2. reshapes Medicaid.
  3. substantially reduces taxes, especially for the wealthy.

And it does all this in a manner that, depending on your ideology and level of cynicism, can be described as incompetent, mean, inept, savvy, inadequate, or malpractice. It makes one wonder why Senate Majority Leader Mitch McConnell insisted the bill be drafted in secret. At least if provisions had been debated in public we would have had a chance to get used to some of this foolishness. Seeing it all at once as a cornucopia of bad policy, however, only makes its flaws more prominent.

Why am I so disappointed with the BCRA? ? Why do I believe it will result in Congress (and, due to his support of the legislation, President Donald Trump) to fall further in the public’s regard. First, because meaningful, substantive health care reform is sorely needed. We need to address the ACA’s many shortcomings. We need to address the cost of medical care. We need to create a stable insurance market. There’s a lot that could — and should — be done.

Instead we get proposals that common sense makes clear are dangerous and unworkable. Consider:Republicans repeatedly claim their goal is to lower health insurance premiums. Yet a key provision of the BCRA does away with requiring consumers to buy health insurance coverage (an “individual mandate”), but still insists carriers issue coverage to all applicants regardless of their health conditions (what’s called “guarantee issue”). This out-of-balance approach guarantees the individual market will enter a death spiral in which coverage becomes increasingly affordable and, soon, unavailable.

Back in November, when I first wrote about what health care reform might look like under President Trump, I imagined what would happen if Republicans eliminate the individual mandate but kept guarantee issue of coverage. “Under this situation, few consumers — especially young, healthy consumers — will likely obtain coverage until they get sick or injured. This adverse selection would be cataclysmic and few, if any carriers, would want to participate in such a market. After all, insurers are in the business of spreading risk across a broad population. Guarantee issue without an obligation to buy coverage guarantees a concentration of risk across a narrow population.”

The title of that post was “Republican Health Care Reform: Destruction or Refinement?” Looks like Destruction is in the lead.

Or take the political gamesmanship at play. Many Republicans are expressing concerns regarding the bill in its current form. Some of these appear orchestrated. Senator McConnell will allow them to make certain amendments to the BCRA and add a few billions dollars more in spending to address a worthy cause. These current critics will then find the bill improved sufficiently to earn their vote — and make them look like tough negotiators. There’s nothing inherently wrong with this Kabuki dance, but it does make one skeptical of the process.

Then there’s the reality that much of the Republican health care reform plan (whether the Senate’s BCRA or the House’s American Health Care Act) has nothing to do with the effort to “repeal and replace” Obamacare. Yes, the ACA expanded Medicaid eligibility and whether to reverse that expansion is certainly germane. However, the BCRA and the AHCA go further. They not only refashion how states are reimbursed for Medicaid spending, they reduce the programs growth by hundreds of billions of dollars.That their “health care reform” legislation happens to cut taxes for the richest Americans by a nearly equal number of hundreds of billions of dollars only makes this approach more unseemly.

So is it a coincidence that the Senate health care reform bill delays substantial cuts to Medicaid until 2021? That’s the year, barring a change to the Constitution, in which there can legally be no President Trump — at least not the current President Trump. Or is this a way to reassure some moderate Republicans that a future Administration might support reforming the BCRA to do less harm to their constituents?.

Democrats are also contributing to the mess that is health care reform 2017-style, too. They delight in attacking Republican repeal and replace measures, invariably acknowledging that the ACA needs retooling. Yet Democrats fail to offer any hint of the reforms they believe necessary. This is as bad as President Trump proclaiming that Obamacare is dead while taking steps to kill it by threatening to withhold funds and generally creating uncertainty. When government leaders are consistently trying to have everything both ways it’s hard to respect them or the process.

June 22nd was a bad day for health care reform and American politics. Senate Republicans introduced a bill that does more harm than good, Democrats remain silent on alternatives, and the President adds chaos to the mix.

Still wondering why the public holds its leaders in such low regard?

This post was also published on LinkedIn. Please subscribe to my Flipboard magazine for curated articles on the issue: Alan Katz Health Care Reform Magazine on Flipboard.

 

Health Care Reform Math Adds Up To Compromise

When it comes to health care reform, it’s all about the math.

The First Element: Trump and Winning

President Donald Trump hates to lose. He’s about winning until we’re all sick of winning. (His words, not mine). The American Health Care Act, Republican’s attempt to replace the Affordable Care Act, also known as Obamacare, failed. Support was so scarce House Speaker Paul Ryan and the President didn’t even bring it to a floor vote in March.

The press said President Trump lost. Given his vocal support and strong lobbying for the bill, this assessment was accurate, but one the President cannot, and, apparently, will not accept. He sent his team to try to salvage the bill before the April recess. They failed. Which was a bit surprising given that President Trump seems more focused on passing a bill – any bill – than on the substance of legislation.

This is the first number in our health care reform equation: President Trump wants to win and doesn’t care how.

The Second Element: Divided Republicans

It takes a simple majority to pass a bill out of the House. With 434 current members (the elevation of Jim Price to Secretary of Health and Human Services leaves one seat vacant) 218 votes are required to pass legislation.  There are currently 246 Republicans in Congress. Having already shut Democrats out of the process, all but 28 members of the GOP caucus are needed to pass a bill; a 29th Republican “No ” vote and the bill fails.

There are about 40 members of the House Freedom Caucus, a group of the chamber’s most conservative lawmakers. The majority of the caucus were united in opposition to the AHCA. In March President Trump blamed them for the bills defeat. In April he sent his emissaries to get their votes.

The Freedom Caucus demanded elimination of some of the ACA’s most popular provisions as the price of their support. These provisions prevent carriers from excluding coverage for pre-existing and requiring health plans include certain essential benefits like maternity coverage. The White House reportedly considered acquiescing to these demands.

The problem, however, was that accepting the Freedom Caucus demands resulted in (relatively) moderate GOP Members abandoning the AHCA. Gaining conservatives votes doesn’t help if the cost is an equal number of moderate votes. There may be a path to pass the AHCA solely relying on solely on Republican votes, but given the divide between conservative and mainstream Republicans, it’s hard to find it.

Which provides the second number for our equation: Republican can’t pass health care reform on their own.

The Third Element: Democrats Want Repair

Democrats, believe the ACA has been good for America, especially for those who, but for the ACA, would have no health care coverage. Most liberal Democrats think the ACA doesn’t go far enough. They won’t be satisfied with anything less than a single-payer system.

Many Democrats, however, think the ACA is generally fine, but in need of critical tweaking to keep it working. Some liberals will hold out for their dream of “Medicare for All,” but even many in their ranks will take a repaired ACA over a broken system or what Republicans are offering.

Which is why Democrats united against the Republican plan. Not that it mattered. Republicans never sought Democratic votes for the ACA.

Democrats want to fix the ACA. That’s the third number and final number in our health care reform equation.

The Math of Health Care Reform Compromise

If President Trump wants to win he needs to move beyond a purely Republican formulation. Otherwise, as shown above, the math doesn’t work. Republicans need the larger numbers Democrats provide to pass health care reform legislation.

How does this math work? Let’s say a health care reform package reaches the floor of the House that attracts 164 Republicans – just two-thirds of their caucus. However, it gains support from 54 Democrats – only one-third of their caucus. The bill moves on to the Senate. In short, it’s easier to find 218 votes among 434 Members than from among 246.

This path makes the challenge before the President straightforward, if difficult: find a legislative package that attracts enough Democratic votes to offset the Republican votes it loses. In the old days (before Washington because hyper-partisan) pragmatists from both parties would meet and hammer out a compromise. That’s what’s needed now. Significantly, there’s plenty of common ground to be found.

There are ACA taxes neither Republicans and Democrats like. Eliminate them. The Shared Responsibility Payments that penalize Americans for going without coverage is universally acknowledged to be ineffective. Fix it. Both Democrats and many Republican want to keep the ACA’s Medicaid expansion. Preserve it.

The path to a compromise won’t be easy, but the equation is simple addition: President Trump wants to win and doesn’t care how PLUS Republicans can’t pass health care reform on their own PLUS Democrats’ want to fix the ACA. The result: compromise.

Political Cover

The biggest obstacle to achieving health care reform is not the math, it’s the politics. Incumbents in both parties dread being “primaried” – Republicans fear being challenged from the right; Democrats from the left.

This is not paranoia. The extremes of both parties will seek vengeance on their less pure teammates. Party leaders and the Administration will need to give these members extensive cover in terms of messaging, campaign money and resources to beat back these attacks. Or they will need to convince the public that failing to achieve health care reform is a worse outcome than the compromise.

This is where President Trump proves he deserves to win. He must demonstrate his self-proclaimed negotiating prowess and his proven marketing acumen can create a political environment where compromise on health care reform doesn’t doom incumbents.

In other words, for President Trump to win he needs to make sure that members of Congress win, too.  Otherwise, he loses. That’s politics—and math.

For curated articles on health care reform, please checkout the Alan Katz Health Care Reform Magazine on Flipboard.

Democrats Need an ACA Retain and Repair Plan

Even before President Barack Obama signed the Affordable Care Act into law, Republicans in Congress have sworn to repeal it. “Repeal and Replace” became a rallying cry that helped switch 63 House and six Senate seats to the GOP side of the aisle in 2010. Today Republicans have the majority in both chambers of Congress and occupy the White House. the GOP opposition to the ACA is not the only explanation for this pendulum swing, but that opposition was certainly a factor.

Republican votes to repeal the ACA became a Washington staple in the six years after the law’s passage. There’s no official count, but House Republicans may have voted 60 times or more to do away with Obamacare. And why not? With President Obama in the White House they knew their repeal legislation would never become law. Votes to repeal the law were an easy political statement.

Now Republicans hold the power to make repeal real and thing aren’t so easy. The House Republican Leadership, reputedly with input from the White House and Senate Republicans, drafted and put forward the American Health Care Act as the first step in the repeal and replace effort. The AHCA faces an uncertain fate in even in the House of Representatives. And a report by the Congressional Budget Office of the AHCA’s impact on the uninsured, the federal budget, premiums and the affordability of coverage has only narrowed the bill’s path to passage.

Republicans want to keep their promise to repeal Obamacare and fear the political payback if they fail to do so. They know they will own the results of any health care reform they pass. f that result includes higher premiums and fewer insureds, the political price could be both high and painful.

Thus the current Republican civil war. More moderate Republicans worry the AHCA doesn’t do enough to support Medicaid and keep Americans insured. Their conservative counterparts are lining up against the AHCA because they see the bill as creating new entitlements and failing to cut back on Medicaid fast enough. Whether the two sides can be brought together is unknown (although I’m skeptical).

Which leaves Democrats sitting back and enjoying the spectacle of Republican-on-Republican political violence. They’ll occasionally throw a sound bite over the transom keep things interesting and to remind their base that they’re fighting the good fight. Generally, however, Democrats are adhering to adage of avoiding interfering with the enemy when they are in the process of destroying themselves.

This is a dangerous strategy. Politics can take sudden turns and, if they’re not careful, Democrats could find themselves in the same predicament that Republicans are in today.

When attacking the GOP health care proposal, Democrats often recite a mantra along the lines of “Sure, the ACA has some problems. But we shouldn’t repeal the ACA, we should fix it.”  But what does that mean? Democrats are as shy about detailing what “retain and repair” means as Republicans have been about defining “repeal and replace.”

History may show Republican’s failure to devise an ACA alternative in the six years following its passage as political malpractice. Their civil war over the AHCA provides Democrats with a window of opportunity to avoid a similar judgment..

Republicans want Democrats to do more than gloat. The Hill reported that Senator John Cornyn challenged Democrats to offer an alternative to the AHCA. Senate Minority Leader Chuck Schumer response: we have and it’s called the Affordable Care Act.

That’s a good line, but that’s all it is. If Republicans fail to pass health care reform, things as they are remains. That status quo is the ACA, a law Democrats admit is flawed and should be fixed. Democrats can claim the high ground by identifying those flaws and offering remedies. Even if Democrats fail to gain Republican support for retain and repair, there’s a value to building a party consensus around a proposal now.

After all, President Donald Trump prides himself as a deal maker. It’s extremely unlikely, but if the AHCA fails, President Trump might look for an alternative and the Democrats should be ready with one. Again, a deal with President Trump is highly unlikely, but these are not likely political times.

Even if the Democratic retain and repair proposal goes nowhere in 2017, it could be useful later. Democrats will need something to run on in 2018. A consensus retain and repair platform might be helpful.

Then there’s the possibility that Democrats are in control of Congress and the White House come 2020. If so, today’s Republicans offer an important lesson. The year you take control of Washington is not the time to start debating a health care reform plan; it’s the time to present one.

 

Is All Payer Ready for a Comeback?

Congress is debating the American Health Care Act, the first of three steps in Republicans’ march toward repealing and replacing the Affordable Care Act. Things are not going smoothly. GOP conservatives, which have considerable clout in the House of Representatives, want the bill to repeal more and replace less. More moderate Republican Senators, of which there are enough to block any legislation, argue the legislation goes too far in some respects. Attempts to mollify one side hardens opposition on the other. And so far, no real effort has been made to entice Democrats to do more than watch Republicans fight one another.

It’s possible President Donald Trump, Speaker Paul Ryan and Senate Majority Leader Mitch McConnell can corral enough votes in each chamber to push the AHCA through Congress. It’s possible, but I’m skeptical. And what if they can’t?

Well, they could do nothing, leaving enough uncertainty laying about that the individual market, at least, collapses. That could make 2018 a tough election year for Republicans. Or they could offer AHCA version 2.0 and hope for better results. Wishful thinking is a great past time, but hardly a vehicle for making public policy.

All of which argues for doing something outside the proverbial box. Maybe Congress could even address the core problem facing America’s health care system: the cost of medical care. What might that look like? One option would be to look at an idea that’s been around since the 1990s if not longer: an all payer system. It would certainly be an interesting debate.

One idea that fits that bill is an all payer system. To oversimplify, under this arrangement providers and payers (usually the government) establish a price for each medical treatment and service. Every provider accepts this rate as payment in full and every payer (government, private insurance, self-funded plans and individuals) pays this rate.

As noted by The Hill, several states experimented with one version or another of all payer systems in the 1990s, although today only Maryland’s remains. As recently as 2014, academics at Dartmouth proposed using 125 percent of Medicare reimbursement rates for a national all payer program. Pricing transparency advocates like all payer systems because everyone knows the cost of care – the ultimate transparency. And this system eliminates the wide variance in pricing for identical treatment so prominent today.

A pure all payer system would be difficult to pass, however. Free market Republicans will not accept the government setting the price for all medical care payments. And pharmaceutical companies, doctors, hospitals and other providers are not going to take kindly to having anyone set a one-size fits all cost structure. There are variations on the all payer theme that might make such a system more palatable — and allow for a healthy (and entertaining) debate..

For example, consider an all-payer system in which Medicare reimbursement rates are simply a starting point; the benchmark used by all providers in setting their costs and all payers in determining their reimbursement levels. No more Alice in Wonderland pricing by hospitals and other providers. Each service provider would describe their fees as a multiple of Medicare. Insurers would offer plans that cap reimbursements at different multiples of Medicare.If the doctor’s charges are at a lower or the same multiple as an insurance policy’s, that provider would be fully reimbursed by the carrier and no charges beyond co-payments, deductibles and co-insurance (if any) would be required of the patient. If the practice has set a higher Medicare multiple than a patient’s policy covers then the patient is liable for the additional cost. The key, however, is that the consumer would know this before incurring the charge. (Which is why emergency care would be treated somewhat differently).

An all payer system requires higher cost providers to justify the extra expense. It eliminates the helter skelter of ever-changing networks. Health insurance premiums would reflect reimbursement rates and would correlate with the number of providers whose services would be covered in full.

Conservatives can’t claim all payer systems is a government takeover of health care. On the contrary, the only role Medicare plays is providing the baseline for reimbursement … a common language all providers and payers speak.  What they do with that baseline is up to them. Liberals won’t like that insurance companies remain in the health care system and will object to limiting, as a practical matter, poorer Americans to low reimbursement policies.

Right now, all attention is on the American Health Care Act. That’s as it should be. After all, it’s not dead yet. Given there’s a good chance the legislation will crash and burn, there’s no harm in thinking about what could come next. I’m rooting for something that isn’t just a rehash of the 2009 debate, but rather something bolder. An all payer proposal is just one idea and there are no doubt many better ones.

What’s your favorite?

The Math of Health Care Reform

The House Leadership’s plan for repealing and replacing the Affordable Care Act is now public for all the world to describe, dissect and debate. Entitled the American Health Care Act, the legislation first stop will be the House Energy and Commerce Committee. At the same time, the House Ways & Means committee will consider budget language to support the Republican repeal and replace effort. For articles on what it does, please check out my Flipboard magazine.

To call the legislation dead on arrival is unfair. However, even ahead of its first hearings, the proposal is looking under the weather. Conservatives in the House have long expressed their displeasure with key elements of the Leadership’s proposal like the inclusion of refundable tax credits to help Americans pay their health insurance premiums. And four Republican Senators with what the House bill would do to Medicaid. If the four Republican Senators hang together and together they could block any health care reform bill. Majority Leader Mitch McConnell needs at least 50 votes in the Senate to repeal the financial aspects of Obamcare through the budget reconciliation process. There are 52 GOP Senators in his caucus. If he loses four of them he’ll need two Democrats to come to his rescue. The price for their assistance will be extremely high.

In short, as I’ve posted previously, what Speaker Paul Ryan and the Republican Leadership put forward this week is highly unlikely to be what emerges from Congress … assuming health care reform does emerge from Congress.

Which may be a good thing. Because the American Health Care Act fails to address in any meaningful way what should be a critical goal of any health care reform proposal: making health care affordable. Washington is fixated on how Americans get health care coverage. Should there be government exchanges?. Should premiums be subsidized? Should there be restrictions on how insurers set premiums for coverage? And so on. All of these are vital, important issues. But they’re playing around the edges of public policy when the real solution is at the core.

This isn’t just opinion. It’s math. Consider: the Affordable Care Act requires carriers to spend the vast majority of every premium dollar they collect for medical care. In the individual and small group markets, 80% of premiums must go to cover medical care or carriers must refund enough premium to reach that level. For larger employers, the medical expense target is 85% of premium. The remaining premium dollars are what carriers can use for paying claims, customer service, negotiating discounts with medical providers, advertising, legal expenses, staffing, HR departments, distribution costs, profit (or retained earnings for non-profits) and any other administrative costs. (Incidentally, I don’t see any reference to these provisions of the ACA, which, I assume, means they stay in place. If I’m wrong, please let me know in the comments section.)

If lawmakers want to make health insurance coverage affordable, they’re going to have to make medical care affordable, because that’s where the money is. Zero out insurer’s operational expense and overall premiums would go down less than 20%. That’s a sizeable amount. However, in three or four years we’re back where we are today thanks to medical inflation. And there’s no way to eliminate all administrative costs. Someone has to process the claims or answer consumer’s questions. And they expect to get paid. And someone has to pay for their phone, desk and computers. And someone has to support their equipment. And so on.

Yet medical care representing 80-to-85 percent of health insurance premiums. Reduce this side of the ledger by 20% and premiums fall 17% — roughly the same as eliminating 100% of insurer’s operational costs.

If President Donald Trump and Congress are serious about reducing the cost of health insurance, they need to figure out how to reduce the cost of medical care. There’s plenty of ideas out there (a topic for a future post). And, to be fair, they’ve mentioned a few. But there’s a political reality that explains why most of the rhetoric around Pennsylvania Avenue concerns the cost of coverage: no one has lost an election by attacking health insurance companies. They’re one of the safest pinatas in American politics. On the other hand, doctors and hospitals are politically dangerous to take on. Voters actually like them.

Regulating health insurance so consumers get a fair deal is important. Lowering the cost of medical care is critical while also reducing insurance premiums. It’s just harder.Perhaps that’s why the Republican proposal is called the American Health Care Act. It would be wrong to use the word “affordable.”

 

Trump’s ACA Reform Principles and What They May Mean

President Donald Trump gave a speech to a joint session of Congress Tuesday night. A significant portion of his speech dealt with his commitment to repeal and replace the Affordable Care Act. What did he say, what does what he said mean, and what will be the impact on the ACA?

What He Said

President Trump devoted considerable time to discussing his goal to repeal and replace Obamacare. Here is what the President said, “Tonight, I am also calling on this Congress to repeal and replace Obamacare with reforms that expand choice, increase access, lower costs, and at the same time, provide better Healthcare.”

Then, after reciting his criticism of the Affordable Care Act he proclaimed, “We must act decisively to protect all Americans.  Action is not a choice — it is a necessity. “So I am calling on all Democrats and Republicans in the Congress to work with us to save Americans from this imploding Obamacare disaster.”

He then cited five principles that “should guide the Congress as we move to create a better healthcare system for all Americans:

“First, we should ensure that Americans with pre-existing conditions have access to coverage, and that we have a stable transition for Americans currently enrolled in the healthcare exchanges.

“Secondly, we should help Americans purchase their own coverage, through the use of tax credits and expanded Health Savings Accounts — but it must be the plan they want, not the plan forced on them by the Government.

“Thirdly, we should give our great State Governors the resources and flexibility they need with Medicaid to make sure no one is left out.

“Fourthly, we should implement legal reforms that protect patients and doctors from unnecessary costs that drive up the price of insurance — and work to bring down the artificially high price of drugs and bring them down immediately.

“Finally, the time has come to give Americans the freedom to purchase health insurance across State lines — creating a truly competitive national marketplace that will bring cost way down and provide far better care.”

What He Meant

I hesitate to try interpret what President Trump means when he, well, uses words. We’re talking a moving target here.  However, given the gravity of the speech, I assume what he said was thoroughly vetted and intentional.  So, I’ll go try to interpret the President’s message. Full disclosure, however, Republicans are already fighting over the meaning of his five health care reform principles, so there’s clearly room for differing interpretations.

Pre-existing conditions: In the past, President Trump has expressed the desire to keep the ACA’s guarantee issue provisions that prevents insurers from declining coverage due to a consumer’s health status.  Last night, however, he said used a different wording, stating that pre-existing conditions should not bar Americans from having “access” to coverage. These are two different things. The ACA requires carriers accept consumers, even those with expensive medical conditions, into any plan for which the consumer is eligible. Calling for access means that, as an alternative, these Americans could be shunted into high-risk pools or plans designed specifically for high cost insureds.

Offering access to high-risk pools means Americans with existing medical conditions would have fewer choices, limited benefits and pay higher premiums than their healthier neighbors. In testimony before a California legislative committee I once referred to high-risk pools as “a ghetto of second-hand coverage.” The author of the legislation establishing the state’s pool sat on the committee. Oops. But I stand by my description.

The President indicating a willingness to accept high-risk pools was good news for House Speaker Paul Ryan, who supports them. However, there are millions of Americans with pre-existing health conditions. How will they react to being removed from the “normal” market? And how will they, and their family and friends, express those feelings at the polls?

Tax Credits and HSAs: Health Savings Accounts have long been a staple of Republican health care reform proposals.  In a draft of Speaker Ryan’s Obamacare replacement bill, leaked last week, tax credits are the primary means of making health insurance premiums affordable. Conservatives have pushed back against tax credits calling them a new non-means tested entitlement program. The President’s backing of this approach will give the Speaker some leverage in negotiations with these members of the GOP caucus in the House.

Medicaid: President Trump’s call for giving governors more say in how their states implement Medicaid seems to support efforts to move federal payments for the program into block grants, which aligns the White House with Republicans in the House.  Currently states receive funds based on Medicaid enrollment (subject to a host of adjustments for a variety of factors, but let’s keep it simple for now). Block grants would give states a fixed amount to spend within very broad federal guidelines. This approach enables the federal government to cap their spending on the program and leaves it to states to manage the program.

Lowering the Cost of Care: Too often the debate over health insurance affordability ignores a harsh reality: the major driver of health insurance premiums is the cost of medical care. Most of the President’s principles concerning health care reform focuses on health care coverage. But he’s also seeking to lower costs through malpractice reform and through taking steps to drive down the cost of prescriptions. That the President is addressing medical expenses at all is a good thing. Hopefully as a replacement to the Affordable Care Act moves through Congress there will be an even greater emphasis placed on reducing the cost of medical treatments and services.

Interstate Sales: President Trump and many Republicans invoke letting consumers buy out-of-state coverage with the same passion as Hogwarts students learning their first spells. They proclaim it will increase competition and lower premiums across the country. Like that school of witchcraft and wizardry, however, this proposal is, unfortunately, a fantasy. I’ll write a post on why soon, but for now consider just one factor. Virtually all health insurance policies sold today rely on discounts offered by “in-network” doctors, hospitals and other providers of care. Plans sold in State A may look good to a consumer in State B, but if that carrier doesn’t have a strong network in State B, what good is that policy? In short,

The Impact

Let’s assume I’ve interpreted what the President said correctly. What will be the impact of his position on whatever Obamacare repeal and replace bill that emerges from Congress and lands on his desk to sign?

First, it is very significant that the President’s health care reform principles align as closely as they do with those of Speaker Ryan. This gives the Speaker a powerful card to play when herding his splintered caucus behind his preferred legislation.

Second, it seems to signal that the White House is ceding to Congress the responsibility to develop an ACA replacement. The President carved out no bold vision for what he wants nor are his principles in conflict with longstanding Republican positions. The only exception is his call for federal action to lower prescription drug costs. But would President Trump veto a bill that meets all of his principles except for this one? Doubtful.

Third, we’re only at the beginning of long, arduous march to reforming or replacing the Affordable Care Act. There’s many more parties will be heard from, including Senate Republicans, insurers, pharmaceutical companies, doctors, hospitals and other special interest groups. The public will have a lot to say on this subject, too. Plus, any reform package will likely require support from Democrats, and negotiations for those votes have not yet begun.

As I’ve written previously, what Republicans are putting forward now may bear only a passing resemblance to the health care reform we get at the end of what will be a very long, messy slog.

Please check out my health care reform magazine on Flipboard for constantly updated, curated articles.

Is the GOP ACA Repeal Strategy Taking Shape?

GOPThere’s politics then there’s governing. As former New York Governor Mario Cuomo put it, “You campaign in poetry. You govern in prose.” Republicans have been campaigning against the Affordable Care Act since its enactment with rhetorical flourishes along the lines of “repeal and replace” and “end Obamacare on Day One.” That is poetry (or at least what passes for poetry in politics). Come January, Republicans will need to prove they can handle the prose part. As discussed in my previous post, that won’t be easy.

Repealing the law outright would cause chaos in the health insurance marketplace and take medical coverage away from millions of consumers. However, doing nothing would break a promise central to the GOP’s electoral successes in the past four Congressional elections, not to mention the most recent presidential campaign. Either path could lead to voter retribution that would be devastating to the short- and long-term interests of the Republican party.

A GOP strategy may be emerging that aims to avoid this rock and that hard place. The idea involves passing repeal legislation as close to President Trump’s first day in office that is legislatively possible, but delaying the effective date of that legislation by a year or two. This enables Republicans to keep their promise to repeal Obamacare “on day one,” yet gives them time for the more difficult task of working out a replacement to the ACA. It’s a political two-step Joanne Kenen has dubbed “TBDCare.”

Yes, this would cast a dark cloud over the health insurance market for some considerable time and raises a host of questions: Is Congress capable of passing workable and meaningful health care reform? What happens if they don’t? What would those reforms look like? Who would the winners and losers be under Republican-style reform?  Not knowing the answers to these questions is terrifying. For GOP leaders trying to avoid the wrath of voters, however, living under a frightening dark cloud for a couple of years might look better than ushering in the health care reform apocalypse.

The repeal part of this two-step strategy is simple: Republicans in Congress eviscerate the financial mechanisms critical to the ACA through the budget reconciliation process. This type of bill requires only 51 votes, which means no Democratic support is needed. Meanwhile, President Trump dismantles other elements of the law by either revoking President Barack Obama’s executive orders or issuing new ones. Both the legislation and executive orders become effective at the end of either 2017 or 2018 to allow for a “smooth transition.”

Then the replace portion of the program would begin. Much of any new health care reform legislation would need to go through the normal legislative process and be completed before the effective date of the repeal. Given the Senate’s filibuster rules this means securing at least eight Democratic votes in the upper chamber. (Here’s a list of the Democratic Senators most likely to be recruited by Republicans).

Both Jennifer Haberkorn on Politico.com and Albert Hunt on Bloomberg.com do a great job in reporting on this evolving strategy.  Meanwhile, opposition to TBDCare is already building as evidenced by this editorial in the Denver Post.

What should not be overlooked in all this pain aversion is that the Affordable Care Act was neither the cause nor the solution to America’s deep-seated health care problems. Long before Senator Obama became President Obama everyone knew the key to successful health care reform was reducing medical costs. A few provisions in the Affordable Care Act address costs, but the legislation focused primarily on health insurance reforms because, well, reforming the health insurance market is a lot easier than reducing health care costs. If you were a politician, who would you rather take on, insurance companies or doctors, hospitals and pharmacy companies?

Whether using poetry or prose then, it would be nice if, once they get past the politics of health care reform, Congress and the new Administration addressed the substance of health care reform. Let’s hope that’s not asking too much.

Please check out my magazine on Flipboard for a curated collection of news and opinion concerning health care reform.

 

Update: The Supreme Court and Transparency

The United States Supreme Court recently rendered its decision in a case known as Gobeille v Liberty Mutual Insurance Company. The Court decision rests on an interpretation of ERISA. Nonetheless, in a result illustrative of the tangled complexity of health care coverage, the most profound impact the Court’s opinion may have is to undermine states’ efforts to control health care costs by making medical treatment expenses more transparent.

In an earlier post I provided some background on the case and discussed the import of the (then) pending Supreme Court decision. Now that decision is here and it’s time for a brief update.

Simply put, the Court, on a 6-2 vote, decided that ERISA overrode Vermont’s interest in requiring self-insured health plans to report claims data into a state’s all-payer claims database. As Ronald Mann lays out in his analysis of the case on SCOTUSblog, the Court majority found that Vermont’s requirements were inconsistent with ERISA’s preemption of all but the most trivial state record keeping requirements.

While the decision rested solely on the Court’s interpretation of ERISA, the case will have a substantial impact on the ability of states to use transparency to hold down medical costs. As Erin Fuse Brown and Jame King note in their post on the Health Affairs Blog, “63 percent of America’s workers with employer-sponsored health insurance are in self-funded plans. In Vermont, the ruling eliminates data from 20 percent of the total population ….” In some states this percentage will no doubt be much higher. Self-funding is the approach of choice for many employers with a large number of workers; Vermont has relatively few of these employers compared to other states.

States have sought to establish all-payer claim data bases to enable research into the variation in costs for similar medical procedures. The Court’s decision means these data bases will be unable to capture data from all-payers. It’s hard to see how America’s health care system can become more cost-effective in the future without the means to accurately measure how cost-ineffective it is today.

The majority on the Supreme Court indicated that ERISA may empower the Department of Labor to require self-funded plans to report claims data to state databases. The key word here is “may.” The Court isn’t definitive on the validity of this workaround. Any attempt by the Department to impose this requirement could wind up before the Supreme Court in another few years.

For now, however, Gobeille v. Liberty Mutual will make analysis of cost differences in America’s health care system much tougher.

 

When a Penalty is not a Penalty

The Affordable Care Act requires most Americans to buy qualifying health insurance coverage. Fail to comply with this mandate and there’s a financial penalty waiting for you come tax time. But when is a penalty not a penalty? When is a mandate not a mandate? Hey kids, let’s do some math.

The penalty for going uninsured in 2016 is $695 per adult and $347.50 per child up to a maximum of $2,085 or 2.5% of household income, whichever is greater.

To determine the cost of coverage we’ll use the second-lowest silver plan available in a state. That’s the benchmark used to calculate ACA subsidies and in 2015 silver plans comprised roughly 68% of policies sold through an exchange. Even more important, I found a table showing the cost of the second-lowest cost Silver plan for 40 year olds by state, but I couldn’t find a similar table for other metallic levels.

The least our 40-year-old could spend on the second-lowest Silver plan this year is $2,196 in New Mexico; the highest premium is $8,628 in Alaska. The median average is $3,336. Divide the penalty by the premium and you get 32% of the cheapest premium and 21% of the median average premium. Put another way, paying the penalty saves our 40-year-old  consumer $1,500 in New Mexico and over $2,600 in the mythical state of median average.

I did find a table showing the national average premium a 21-year-old would pay for a bronze plan: $2,411.  In this situation the $695 penalty amounts to just 29% of the policy’s cost, a savings of over $1,700.

The purpose of this post is not to encourage people to go uninsured. I think that’s financially stupid given the cost of needing health insurance coverage and not having it. And, personally, I support the individual mandate. I also understand the political obstacles to establishing a real penalty for remaining uninsured.

However, I also believe the individual market in this country is in trouble. (More on this is a later post). Adverse selection is a contributing cause to this danger. The individual mandate is supposed to mitigate against adverse selection. The enforcement mechanism for that mandate, however, is a penalty that, for many people, is no penalty at all.

That’s not just my opinion. That’s the math.

A version of this article was originally posted on LinkedIn.