Tag Archives: health care inflation

Progress on Medicaid Reform

Posted on by
Reply

 

It is widely understood that the rapid increase in spending for entitlements (Social Security, Medicare and Medicaid) is the main driver of our debt problem.  Anything that can be done to get spending for these programs under control is of great value.
The problem with Medicaid is that a fixed percentage of each state’s costs is paid for by the federal government.  The more a state spends, the more that is contributed by the federal government which is a disincentive for states to control their own spending.  From 1989 to 2013, the share of state budgets devoted to Medicaid rose from 9% to 19%.  This upward trend is a problem for both state and federal government and is clearly unsustainable.
One way to change the spending incentive is to turn Medicaid into a block-grant program whereby the federal government contributes a specific amount of money to each state each year and gives states more leeway in designing their own programs.  States would then have a much bigger incentive to hold down costs and the flexibility to be able to do it.
CaptureProgress is being made in this direction with the use of waivers:

  • Rhode Island received a waiver in 2009 to try out various cost-saving measures such as wellness programs, co-payments, etc. It has been quite successful and very well received.
  • Last year Pennsylvania agreed to expand Medicaid to an additional 500,000 people along with a waiver allowing people above the poverty line to be charged premiums of up to 2% of their household income as well as being charged an $8 copayment for use of emergency rooms.
  • Now Indiana (http://www.wsj.com/articles/indiana-governor-to-expand-medicaid-coverage-1422371729) has agreed to an expansion with a waiver under which beneficiaries above the poverty level would be charged premiums of 2% of income and would be locked out of benefits for six months if they fall behind in their payments.
  • Additional states such as Idaho, Wyoming, Utah, Tennessee, Alabama and Florida are also considering Medicaid expansions and likely will be influenced by the possibility of receiving similar waivers.

Waivers are not as cost effective as block-grant funding but they are an improvement over the existing one-size-fits-all federal rules.  If more individual states are able to show that waivers really do work to reduce costs, this will increase the likelihood of implementing a block-grant system.

America’s Best Health Care Practices

Posted on by
Reply

 

Peter G. Peterson is an 88 year old billionaire from Kearney NE.  His Peterson Foundation has just established the Peterson Center on Healthcare whose purpose is “developing a comprehensive approach to finding existing innovative solutions in healthcare that improve quality and lower costs, and accelerating their adoption on a national scale.”
Working with Stanford University’s Clinical Excellence Research Center (CERC), the Peterson team looked at 15,000 single and multi-specialty physician practices around the country and winnowed the list to those practices which were in the top 25% on quality measures and in the lowest 25% in cost.
CaptureThe second step was to identify the features of practices that help explain their exceptional performance.  This led to the identification of the 11 most exceptional physician practices (see above map) around the country.  The study found that total annual health spending was 58% lower for patients cared for by these exceptional practices compared to their national peers.  Further analysis finds that nationwide adoption of the observed features of these practices would conservatively save $300 billion per year.
These extraordinary high-performing practices shared three basic features distinguishing them from others as follows:

  • Their patient relationships are deeper: always on, conscientious observation, and complaints are gold.
  • They have wider interaction with the healthcare system: responsible in-sourcing, staying close, and closing the loop.
  • They have a team-based practice organization: upshifted staff roles, hived (highly collaborative) workstations, balanced compensation, and investment in people rather than space and equipment.

These findings debunk the myth that excellent value only exists by replicating methods used by very large health systems with an efficiency culture cultivated over many years.  For example, “an independent three physician practice in a low-income neighborhood can be among the best.”
The Peterson Center on Healthcare is in the process of showing that free enterprise health care can achieve remarkable gains in both high quality and low cost.  This is hugely important at a time when total U.S. spending on healthcare is already way too high and growing rapidly.
If private enterprise and the free market cannot figure out how to provide quality healthcare at a much lower cost, it is almost inevitable that the U.S. will eventually end up with a single-payer national healthcare system like most of the rest of the world.

Why the U.S. Needs True Health Care Reform

Posted on by
Reply

 

The Affordable Care Act has improved access to healthcare by already enrolling over 7 million Americans who were previously uninsured.  It is estimated that there will be a total of 20 million new enrollees by the end of this decade.
CaptureBut as the above chart from a recent Gallup survey indicates, the cost of healthcare is now a big barrier for an increasing number of people with health insurance.
The University of Chicago economist, Casey Mulligan, discusses the cost issue in a recent Wall Street Journal article “The Myth of ObamaCare’s Affordability” as well as in a new book.  He makes the following points:

  • Although the ACA helps specific populations by giving them a bigger piece of the economic pie, the law diminishes the pie itself by reducing the amount that American’s work and making their work less productive.
  • 35 million men and women currently work for employers who don’t offer health insurance. These tend to be small and midsize businesses with lower paid employees. The result of penalizing businesses for hiring and expanding will be less hiring and expanding.
  • The “29er” phenomenon is a good example of how the law harms productivity. If a business has 50 or more employees who work over 30 hours a week, it is required to offer health insurance. Many employers have thus adopted 29-hour work schedules which lessens overall productivity.
  • Mr. Mulligan estimates that the ACA’s long-term impact will include about 3% less weekly employment, 2% less GDP and 2% less labor income. He also claims that these effects will be visible and obvious in just a few years by 2017!
  • The ACA is thus weakening the economy. For the large number of people who continue to pay for their own healthcare, healthcare is now less affordable.

Conclusion: we need true healthcare reform which addresses cost as well as access and this can be achieved by fixing Obamacare.  It is not necessary to repeal it.  The Manhattan Institute’s Avik Roy has developed a plan to do this: ”Transcending Obamacare.”  Mr. Roy’s Plan would keep the exchanges, end both the individual and employer mandates, and migrate both the Medicare and Medicaid programs onto the exchanges over time.  These features will greatly reduce the cost of American healthcare.  Check it out and see for yourself!

The Reality of Today’s Healthcare: Cost Is Critical

Posted on by
Reply

 

My last two posts have been devoted to discussing the prospects for a true free-market healthcare system in the U.S.  Let’s bring this discussion down to earth with two specific examples.
CaptureIn Omaha NE, where I live, there are three major hospital systems and one of them, Catholic Health Initiatives, is 30% more expensive than the other two.  The major insurer, Blue Cross Blue Shield, has reacted by canceling its contract with CHI, making it out-of-network for Blue Cross policy holders.
As reported in today’s Omaha World Herald, “Non-CHI health clinics, hospitals handling influx,” the Nebraska Medical Center and Methodist Hospital System are seeing a large influx of Blue Cross insured patients.  This is exactly what has been expected to happen and will eventually put pressure on CHI to lower its prices in line with the other two hospital systems.
The second example, “Unable to Meet the Deductible or the Doctor” is the title of an article in yesterday’s New York Times.  The article reports that 7.3 million Americans are now enrolled in insurance coverage through the Affordable Care Act.  However the average deductible for a bronze plan on the exchange – the least expensive coverage – is $5,081 for an individual.  This compares to the average deductible of $1,217 for individual coverage in employer-sponsored plans.
Not surprisingly, relatively low-income people obtaining subsidized coverage through an exchange are likely to want a low cost policy.  But with a high deductible they will then be hard-pressed to have to pay the full price of routine care out of there possibly meager budgets.  This is going to be a larger and larger problem as more and more people obtain coverage through the exchanges.
Since all of an individual’s medical bills should go through the insurer for processing, insurance companies are in a position to, and should be expected to, help control costs by bargaining with providers to make sure that prices are not excessive.
Conclusion: here are two examples of price competition in today’s healthcare market place.  This is the reality that more and more Americans are going to have to learn to live with.  It is the only way that our excessive healthcare costs can be brought under control.

Is A Free Market Possible in Health Care?

Posted on by
2

 

With a total national debt of $17.8 trillion, of which close to $13 trillion is public debt (on which we pay interest), it is easily understood that the U.S. has a very serious fiscal problem. At the present time the public debt is 74% of GDP and this already high percentage is predicted by the Congressional Budget Office to keep growing indefinitely.
The biggest driver of spending growth going forward is the cost of healthcare.  For example just the three programs, Medicare ($492 billion), Medicaid ($280 billion) and Veterans Healthcare ($54 billion), cost a total of $826 billion per year in federal dollars.  And these costs are all increasing rapidly.  Of course, private healthcare spending, currently about $2 trillion per year, is also growing rapidly.  Overall, the U.S. spends 17.3% of GDP on healthcare spending, public and private, almost twice as much as any other developed country.
How are we going to address this enormous cost issue going forward? The Affordable Care Act (aka Obamacare) doesn’t do it.  What it does do is to provide healthcare to more people under our current model of employer provided health insurance with Medicare for the elderly and Medicaid for the poor.  It is this model which is broken and must be reformed. Basically we have two choices for how to do this.  Either we switch over to a “single payer” system like most of the other developed countries have or we establish a far more efficient free market system.
Capture  As the above chart shows, right now we have a composite system and it is just not cost-effective. There are plenty of experts who claim that a free market cannot work in healthcare.  For example, the tax lawyer, Edward Kleinbard, in a new book, “We Are Better than This: how government should spend our money” argues that what a free market gives us is:  unavoidable controversy for excluded pre-existing conditions, moral hazard for risky behavior, uncertain premiums for permanent insurance, fragmented healthcare markets, monopoly provider organizations leading to price opacity, very high administrative costs, etc.
Capture1The Manhattan Institute’s Avik Roy has a different point of view.  In his proposal, “Transforming Obamacare,” (http://www.manhattan-institute.org/pdf/mpr_17.pdf) he points out that there are two countries, Switzerland and Singapore, which operate highly regarded free-market healthcare systems at very low public cost. Stay tuned for further discussion!

Income Inequality and Rising Health-Care Costs

Posted on by
Reply

 

There seems to be a general consensus on the reality of increasing income inequality in the U.S. and even some agreement on its two main causes: globalization and the rapid spread of technology. The slow growth of the economy since the end of the recession has made the inequality problem that much worse.
CaptureNot surprisingly, slow economic growth in the past five years has led to stagnant wages for many workers.  My last post addressed this problem.  The above chart from the New York Times shows that incomes for top wage earners have been rising in recent years while they have been stagnant for middle- and lower-income workers.
But there is more to it than this.  In yesterday’s Wall Street Journal, Mark Warshawsky and Andrew Biggs point out that, “Income Inequality and Rising Health-Care Costs,” in the years 1999 – 2006, total pay and benefits for low income workers rose by 41% while wages rose by only 28%, barely outpacing inflation.  For workers making $250,000 or more total compensation rose by a lesser 36% while wages grew by a greater 35%.  This apparent anomaly is explained by the fact that health insurance costs are relatively flat across all income categories, thus comprising a much larger percentage of the total pay package of low-income workers than for high-income workers.
Capture1In fact, the Kaiser Foundation has shown that low-wage workers tend to pay higher health insurance premiums, as well as receiving lower insurance benefits, than higher paid workers (see the above chart).
Overall, what this means is that employer provided healthcare is taking a huge chunk out of the earnings of low-income workers which makes income inequality much worse than it would be otherwise. Of course, the cost of healthcare is a huge burden for the entire U.S. economy, currently eating up 17.3% of GDP, twice as much as for any other developed country.
For both of these reasons it is an urgent matter for the U.S. to get healthcare costs under control.  Avik Roy of the Manhattan Institute has an excellent plan to do just this as I have discussed in several recent posts.

Three Cheers for Blue Cross Blue Shield Nebraska!

Posted on by
2

 

As I reported in my last post healthcare costs in the U.S. are expected to start climbing rapidly in next few years as the economy continues to recover and insurance coverage expands.
The Manhattan Institute’s Avik Roy has proposed a comprehensive new plan, ”Transforming Obamacare” to achieve, at the same time, both near-universal coverage and stringent cost control for healthcare.  Mr. Roy emphasizes the need to regulate hospital system consolidation which is especially responsible for driving up the cost of healthcare.
CaptureIn Omaha NE, where I live, there are three hospital systems: Catholic Health Initiatives, the Nebraska Medical Center and the Methodist Hospital System.  According to the insurance company, Blue Cross Blue Shield Nebraska (OWH 9/6/14), “CHI prices are 10 to 30 percent higher than for the Nebraska Medical Center and Methodist Hospital System.”  BCBS insists that CHI cut its prices.  As of September 1, CHI hospitals are out of network for BCBS and so patients who are insured by BCBS have to pay higher hospital rates.
“We are ready and willing to meet with them when they propose an agreement that gets serious about the cost issue,” said Lee Handke, a senior vice-president for Blue Cross Blue Shield.
Reports the OWH  “Blue Cross’ biggest customers are the region’s employers, whose 560,000 workers and family members supply 80% of Blue Cross’ revenue each year.  A big share of these people are CHI customers, too. … Blue Cross has told us (an insurance benefits broker) they understand that they might lose some business over this deal, but they feel that the point they have to make on the cost disparity is more important.”
For one hospital system to charge 30% more than two others for the same services is totally unacceptable.  It means that customers for the other two systems are paying higher insurance costs in order to subsidize the system with the higher prices.
In the Omaha market, Blue Cross has the clout and the will to force CHI to lower its prices.  But many other communities may not be as fortunate.

The High Cost of U.S. Health Care and What To Do About It

Posted on by
2

 

The United States spends 17.2% of GDP on healthcare costs, public and private, almost twice as much as any other developed country, and this percentage is gradually increasing.  In today’s New York Times there is a good discussion about these rising costs (see below).
Capture1My recent post, “Fixing Obamacare Rather Than Replacing It,” discusses a comprehensive new healthcare reform proposal by Avik Roy of the Manhattan Institute.  Mr. Roy’s plan both expands health insurance coverage beyond ACA levels as well as reining in the huge costs of healthcare. As Mr. Roy says “Among the industrialized member countries of the OECD, the average hospital stay cost $6,222 and lasted 7.7 days in 2009.  In the United States, the average hospital stay cost $18,142, despite lasting only 4.9 days.  In other words, the average daily cost of a hospital stay in the U.S. was 4.6 times the OECD average.”  Mr. Roy goes on to show that it is hospital system consolidation which is especially responsible for driving up the cost of health insurance.
CaptureThere is a clear example of this situation in Omaha NE where I live.  There are three hospital systems here: Catholic Health Initiatives, the Nebraska Health System and the Methodist Health System.  As stated by the CEO of Blue Cross and Blue Shield of Nebraska in the Omaha World Herald on August 28, 2014, “Our experience in addressing health care costs is precisely what led us to our current negotiations with Denver-based Catholic Health Initiatives.  CHI’s Alegent Creighton Health network of hospitals and physicians charges our members up to 30 percent more than other providers in Omaha for the same services. … These numbers reinforce a simple truth: We cannot allow one provider group to charge our members more for the same services they can receive elsewhere.”
We are fortunate in Omaha to have a choice of three different hospital systems and an insurance company with sufficient clout and integrity to fight price gouging by one of these systems.  But not every community is as fortunate as Omaha in this respect.  This is just one simple example of why cost control needs to be at the center of healthcare reform.

A Global Perspective on Income Inequality II. Where Are the Jobs?

Posted on by
Reply

 

My last post on January 23 shows vividly what the challenges are in restoring the American middle class to the prosperity which existed up until the Great Recession hit in late 2007.  The problem, of course, is the gale strength force of globalization which is lifting up low wage workers all over the developing world and creating huge competition for the many low-skilled workers in the United States.
In today’s New York Times, the former Obama Administration car czar, Steven Rattner, writes about “The Myth of Industrial Rebound” in the United States, explaining why manufacturing jobs are coming back much more slowly than other jobs.  “Manufacturing would benefit from the same reforms that would help the broader economy: restructuring of our loophole-ridden corporate tax code, new policies to bring in skilled immigrants, added spending on infrastructure and, yes, more trade agreements to encourage foreign direct investment.”
CaptureThe above chart shows the huge decline in manufacturing jobs relative to other parts of the economy such as the education and health sector as well as the professional and business sector.  Of course, these more rapidly growing service sectors are the ones benefitting from the information technology revolution.  In manufacturing, on the other hand, the low skill jobs are going overseas while the high skill jobs, using technology such as robots, are much fewer in number.
Conclusion: in order to increase manufacturing jobs in the U.S., we better government policies, as outlined above by Mr. Rattner.  But we also need to recognize that there aren’t going to be as many high skilled manufacturing jobs in the future.  We are going to need much better K-12 and post-secondary educational outcomes to prepare the middle class for the high skilled service jobs which will predominate in the future.

Beyond ObamaCare: Where Do We Go From Here?

Posted on by
Reply

Last Sunday’s Washington Post has an Op Ed column by Jon Kingsdale, “Beyond Healthcare.gov, Obamacare’s Other Challenges” which describes the many challenges confronting ObamaCare besides just the website problems and the millions of individual policies which will be cancelled for not meeting the minimum requirements of the Affordable Care Act.  Based on his experience setting up the Massachusetts Health Insurance Exchange from 2006-2010, there will  be huge problems in getting enrollment, billing and premium collections working smoothly for such a large government program.  For example, an estimated 27% of those who will be eligible for tax credits under the ACA do not have checking accounts.  How will their monthly premiums be paid and tracked for these people if they’re late?
Considering all of the problems involved in the implementation of ObamaCare, and the fact that it does not really reform our current very costly healthcare system but rather just extends it to cover more people, it makes much sense to move toward real healthcare reform, which will control costs.
A column in today’s Wall Street Journal by Ramesh Ponnuru and Yuval Levin, “A Conservative Alternative to ObamaCare”, lays out several basic features which should be included in a sensible, market oriented approach to healthcare reform.   The principles are:

  • A flat and universal tax credit for coverage which applies to everyone and not just for employer provided healthcare.  The (refundable) credit would be roughly the amount necessary for catastrophic coverage.
  • Medicaid could be converted into a means-based addition to this tax credit.
  • Everyone with continuous coverage (which would be provided by the tax credit) would be protected from price spikes or cancellations if they get sick.  This provides a strong incentive to buy and retain coverage without the need for a mandate.

A market oriented healthcare system like this is not only preferable to all of the mandates and restrictions of Obamacare, it also improves our current system by both expanding coverage to more people as well as controlling costs by giving health consumers (all of us) a much bigger stake in purchasing healthcare.
The United States spends 18% of GDP on healthcare, twice as much as any other country in the world.  Our fiscal stability and future prosperity depend on getting this huge and growing cost under control.  The ObamaCare fiasco provides an excellent opportunity to get started on doing this.