Joe Paduda hosts the latest excellent edition of the Health Wonk Review. This one’s all about PPACA–the Affordable Care Act, Obamacare, or whatever else you call it. Check it out here.
Note: The following post was submitted to the blog by Matthew Nattinger. Matt is a doctoral student in the Department of Health Management and Policy at the University of Iowa. This is his first contribution to the blog, so if you like it, let him know in the comments and maybe we can encourage him to contribute more regularly–as long as it doesn’t detract from his studies!
Pending federal approval, Iowa Medicaid will change from a primarily fee-for-service (FFS) model into a risk-based managed care model beginning in January 2016 to reduce Medicaid expenditures. Under the current FFS model, Iowa directly pays providers about $2 billion annually for services provided to an estimated 564,000 Medicaid beneficiaries, but under the proposed managed care model, Iowa will contract with between 2 and 4 managed care organizations (MCOs) to operate Medicaid. According to Governor Terry Branstad’s (R) administration, Iowa will save an estimated $51 million within the first six months of the change. However, there are concerns in Iowa that the state is primarily focused on reducing program costs without considering the effects moving Medicaid from FFS to risk-based managed care may have on healthcare quality and access.
Iowa will pay each MCO a “per member per month” (PMPM) capitated rate to provide coverage for Medicaid beneficiaries. The MCOs profit if they provide the coverage for less than the capitated rate and take a loss if they are unable to do so. Thus, the state reduces costs by shifting the financial risk to MCOs. The change would mark a significant expansion of Medicaid managed care in Iowa. Since 1990, Iowa Medicaid has operated a primary care case management program, where primary care providers act as “care managers” for Medicaid beneficiaries, but still receive FFS. In 2012, Iowa first contracted with MCOs (Meridian and Magellan) to provide Medicaid coverage in 19 counties. Currently, Medicaid beneficiaries who live in those 19 counties are given the option to enroll in the MCO or stay in traditional FFS Medicaid. However, beginning in 2016, at least one Medicaid MCO will be available in every Iowa county and enrollment via MCO will be mandatory for all Medicaid beneficiaries who are not also enrolled in Medicare (i.e., dual-eligibles).
Iowa is not the only state that contracts with Medicaid MCOs. According to a Kaiser Family Foundation survey, 39 states and the District of Columbia contract with MCOs to provide coverage for over 26 million Medicaid beneficiaries, with many states having moved towards mandatory MCO enrollment in recent years. In 2010, 9 states reported that MCOs covered over 80% of their Medicaid populations. Moreover, as Medicaid expansion under the Affordable Care Act (ACA) moves forward, states are expected to rely more heavily on MCOs.
Thus far, there doesn’t appear to be a downside to Medicaid MCOs for states, but you may be wondering how Iowa can save $51 million with the MCOs simultaneously turning profits? Well, since MCOs only profit if they are able to provide coverage for less than the capitated rate, they must do an excellent job of controlling costs. Traditionally, Medicaid MCOs have controlled costs by implementing service review policies (e.g., prior authorization), developing narrow provider networks, reducing unnecessary services, improving care coordination between providers, and incentivizing preventive services (e.g., flu vaccinations) for beneficiaries.
While Medicaid MCOs can successfully reduce costs, there are concerns that their methods of cost control adversely affect healthcare access and quality for Medicaid beneficiaries. A study by the Robert Wood Johnson Foundation found that the available research is inadequate to determine how Medicaid MCOs affect the quality of healthcare, but found mixed results for how healthcare access has been affected. Thus, it’s difficult to say one way or another how contracting with MCOs will affect healthcare access and quality for Iowa Medicaid beneficiaries. As a result, advocacy groups, such as the Child and Family Policy Center, and Iowa state senators are calling for better state oversight of MCOs to ensure the quality of and access to healthcare are not adversely affected by the move. Since little is known about how risk-based managed care in Medicaid affects healthcare quality in other states, Medicaid officials in Iowa should carefully monitor how the change affects both healthcare access and quality for beneficiaries.
When I was a young violin student I had to change violin sizes at various times as I grew. Each time felt funny, and each time my teacher would say “You’ll get used to it”. The Affordable Care Act, i.e ACA, i.e Obamacare, is now hated by fewer people. Only 43% of Americans oppose it, down from 53%. Pundits are saying this is because the recent open enrollment period went smoothly. That may be true, but if we take a lesson from history we can see that slow acceptance of the ACA is to be expected. We’ve gotten used to it.
Take, for example, the New Deal. The New Deal was a set of laws enacted in the wake of the Great Depression. These laws resulted in policies and institutions such as the FDIC, the criminalization of child labor, the Fair Labor Standards Act that established the 40 hour work week, and Social Security. Most people today would consider much of the New Deal to have been a pretty good idea. But that was not the case in the 1930s when these laws were passed. Rich people didn’t like it. Republicans didn’t like it (they thought the Social Security Act smacked of socialism. Funny, huh?). Conservatives thought there was too much infringement on individual rights. A third of the public didn’t like it, as judged from the 1936 election. Doomsday predictions claimed that the legislation would take away human rights, create too much big government, and ruin the constitution. Some would still argue that these predictions came true to some extent, but no one wants a repeal of child labor laws, and Social Security is now a political third rail.
In the case of the ACA, the opposition has been remarkably similar. Infringement on individual rights, states rights, big government, socialism, unconstitutionality, all these accusations have been thrown at the ACA. Additionally we have been told that the ACA would bankrupt the government, limit physician choice, and establish death panels. Some of these claims are still under review. But health care spending has gone down, more people have access to health care, and no death panels have materialized.
Parts of both the New Deal and the ACA either didn’t work or were deemed unconstitutional. But some parts stayed, and eventually became part of life in America. People got used to it. Just as people are getting used to the ACA.
As Congressional Republicans are acutely aware, it is much easier to prevent something from happening than it is to take it away once it has happened. This fact is based in the human tendency to give much more weight to loss than gain. We see this in end-of-life discussions, where doctors find it is more painful for families to decide to remove life support than to decide not to institute it. Such tendencies can be positive or negative. At work it is well known that once a new rule gets instituted we’re stuck with it; a rule, once made, is virtually impossible to get rid of, even if it doesn’t have the desired effect. Standardized testing in public schools is here to stay too, even though such testing has been shown to be a poor measure of real learning. On the other hand, a rule that works and makes sense, like a seat belt law, will also never go away, and eventually people get used to it and lives are saved. Once people got used to Social Security it became impossible to take it away. Once people get used to having insurance it will eventually become impossible to take it away.
Once something becomes status quo people tend to forget what they were so worried about.
Well, we’ve come to the end. This is the final post in the multi-part series on the Burr-Hatch-Upton proposal known as the Patient CARE Act. This one is all about taxes. Specifically, it’s about repealing all of the taxes introduced under the Affordable Care Act (ACA), and introducing new taxes to replace them. The focus of the proposal is on “a distortion in the tax code–the unlimited exclusion from a worker’s taxes of employer-provided health coverage.” The proposal underscores that this is “important because economists across the political spectrum largely agree that the current distortion in the tax code helps to artificially inflate the growth in health care costs.” They’re right. It does.
During the second World War, there was a shortage of workers, and Congress also enacted a wage freeze that made it difficult for employers to compete for the limited supply of employees by paying them more. They found a loophole though. By offering employees benefits, including health insurance coverage, firms were able to recruit good workers. After a few years, Congress passed a law making these health insurance benefits tax exempt for both the employee and the employer. Making employer-sponsored health insurance tax exempt is akin to subsidizing it (from the government’s perspective), and it resulted in people purchasing more health insurance than they might have otherwise. Then, having the additional insurance, they became more likely to utilize health care and utilize more of it, which fueled the increase in costs in two ways: First, insurance shielded people from actual prices, so prices increased more rapidly than they would have otherwise. Second, utilization increased. Health care expenditures are simply the product of prices and utilization.
To address this issue, the ACA instituted the so-called “Cadillac tax” which, as the Burr-Hatch-Upton proposal states “imposes an across the board 40 percent excise tax on the benefit plans above its stated limit regardless of an individual’s income.” This tax is charged to insurers (or employers in the case of self-insured firms) in hopes that they will stop electing to provide such generous health insurance coverage. Of course, there is nothing to prevent an employer from passing these costs on to their employees, but it seems like they’d probably not want to touch their wages and would first elect to scale back their benefits. By contrast, the GOP proposal “caps the tax exclusion for employee’s health coverage at $12,000 for an individual and $30,000 for a family.” These amounts are indexed to the consumer price index plus 1 percentage point to account for inflation.
So, looking at these two options side-by-side, we have the current law, which charges insurers a 40% tax for overly generous insurance plans to discourage their issuance, and we have a proposed law that would require any individual whose insurance coverage costs more than $12,000 (or $30,000 for family coverage) to pay taxes on the amount of coverage above those levels as if it were income. What this guarantees is a shift in the tax burden from the insurer to the employee. Therefore, the proposal’s claim that “middle-class families with employer-sponsored coverage would fare better under our proposal than under ObamaCare” is not true. In the worst case scenario, the Cadillac tax and the cap on tax exempt benefits are practically synonymous, with the primary difference being that the GOP proposal actually raises the level for tax exemption (or thought of differently, it keeps the Cadillac tax, but raises the threshold for what is defined as a Cadillac plan). The other distinction is that the Cadillac tax is a flat tax (40%) of the value of the plan–therefore it treats all expensive plans equally. Meanwhile, the GOP’s proposal taps into the progressive income tax structure of the United States. This means that on the one hand, wealthy individuals will pay a higher tax rate on the amount of their plan’s value above the threshold, but it also means that, on the other hand, they are getting a bigger tax break on the amount of the insurance that they are getting tax-exempt. The reality is that most lower income people will not likely have an individual plan that costs $12,000, whereas higher income earners very well could. Thus, you have a situation wherein the low income person gets a tax break on their $5,000 policy, which saves them from paying their lower marginal tax rate on that $5,000, while the high income person gets a tax break on their $12,000 policy, which saves them from paying their higher marginal tax rate on that $12,000. Which is a bigger benefit: 10% of $5,000 or 35% of $12,000? You do the math.
The Burr-Hatch-Upton proposal known as the Patient CARE Act would like us to move towards a system of transparency in health care that will “inform and empower patients.” The longstanding belief is that if we just give consumers more information about their health care, they will make more rational decisions, there will be increased competition, and the quality of health care will improve as the cost of health care comes down. A little over a year ago, I wrote about why I think this won’t work. A lot of things have changed since then, but my opinion on this issue is not one of them. I’m not suggesting that improved transparency in health care is a bad thing. Far from it. It can certainly help by putting pressure on providers to improve quality, and for some more elective procedures, it may even bring costs down, but it’s not going to dramatically change our health care system. The simple reason is that health economics is a field unto itself. The typical notion of a rational consumer, supply versus demand, and the market clearing price are not givens in health care. On the contrary, when you fall to your knees with chest pain, you go to the nearest hospital that will take you when the ambulance radios them. You don’t comparison shop and insist on being taken to the highest quality hospital. But this rational model falls apart without requiring an emergency. Thanks to the asymmetry of information that exists between your highly educated and skilled health care provider and yourself, you are quite likely to get the test they order, take the medicine they prescribe, or undergo the surgery they recommend. You may Google your symptoms or see an ad for Cialis on TV and ask your doctor some questions, but most of us still defer to the person with the medical degree.
What types of information does the proposal want to make more transparent? Here’s a list:
- “Require health insurance plans to disclose covered items, drugs, and services; any plan limitations or restrictions; potential cost sharing; the actual cost of services; the claims appeal process; as well as the providers participating in the plan”
- “Incentivize states with enhanced Medicaid grants if they establish and maintain requirements regarding the disclosure of information on hospital charges and make such information publicly available”
- “Require hospitals who participate in Medicare to provide to consumers the average amount paid by uninsured and insured patients for the most common inpatient and outpatient procedures”
- “Publicly post their charity care policies along with the amount of charity care provided”
Again, none of the things in the above list are bad. I would be generally supportive of requiring health insurers to spell out more details about their plans (although I’d argue that most of this information is already made available to beneficiaries). I also think it’s a great idea to document charity care provision by non-profit hospitals that are enjoying a rather sizable tax break. On the other hand, I’m not too keen on the “enhanced Medicaid grants” if only because I don’t agree with the idea of block granting Medicaid at all to begin with. And I also don’t think that hospitals making their prices (well, amounts paid) public will do that much to bring prices under control. Still, this is, on the whole, one of my favorite sections of the Patient CARE Act.
Wing of Zock hosts the Spring Break edition of the Health Wonk Review. There’s stuff in there from Wright on Health and Health Affairs, and that’s just scratching the surface. Go check it out now!
We’re continuing along in our section-by-section analysis of the Burr-Hatch-Upton Proposal to replace the Affordable Care Act (ACA), and today’s topic is reforming the medical malpractice system. The goal, as is made evident by using the phrase 4 times in the course of 3 paragraphs, is the elimination of “junk lawsuits.” The basic argument is that physicians practice “defensive medicine” to protect themselves from frivolous lawsuits, and that this practice of defensive medicine results in overuse of healthcare, which is costly and perhaps even harmful. In fact, the proposal cites a report from the Pacific Research Institute, which claims that “America wastes $589 billion on excessive tort litigation” annually. Three things about that. First, that figure is not specific to healthcare related tort litigation, but encompasses all tort litigation nationally. Thus, the citation of that figure is a tricky way to overstate the size of the problem. Second, the Pacific Research Institute is a highly conservative think tank that believes that “public policy is too important to be left just to the experts.” That makes it a little bit ironic when their figures are being cited as an expert source.Third, there are significant issues with the way in which the number itself was calculated, as this working paper from faculty at Penn, Minnesota, and Duke outlines.
The proposed remedy is to place “caps on non-economic damages and limitations on attorney’s fees.” The idea is that this will ensure that in actual cases of medical malpractice, patients will be able to sue to recover damages, but that the amount of awards will be reduced significantly, removing an incentive for physicians “to order unnecessary tests.” Here’s the problem: This type of tort reform has been tried elsewhere and it hasn’t really worked. For example, I’ve written about the limited impact of tort reform in Texas. I’ve also written about studies that show that malpractice reform could reduce healthcare spending by as little as 1% or as much as 10%, the tremendous variation in malpractice insurance premiums (covered this twice actually), and that malpractice insurance costs don’t alter obstetricians’ practice patterns. The other thing is that the ACA already incentivizes a shift from volume-based payment to value-based payment through things like accountable care organizations, bundled payments, readmissions penalties, and public reporting of quality data. So eliminating our reliance on a fee-for-service system of reimbursement to one more focused on outcomes is likely to reduce unnecessary utlization absent any tort reform. That said, I’m not opposed to tort reform. I think it could be beneficial. I just don’t think it’s going to save the day (in a lowering healthcare cost sense) to the extent that some people think it will. With that, I leave you my favorite prior post on the issue of medical malpractice reform. Enjoy!