The Senate’s Health Reform Bill
Now that Senator Reid has apparently found the path to 60 votes it is time to determine what the modifications were that produced agreement and take stock of what the impact might be if the bill were to become law. From the look of the finished product, most of the deals involved were unrelated to health reform, since the changes to the bill itself were marginal. The individual requirement to purchase has been tweaked, but still fails to ensure that individuals cannot delay buying coverage until they need it. A new Independent Payment Advisory Board will be created, but because its recommendations are not binding, its impact on meaningful cost containment is questionable. The most significant additions are new provisions directed at health insurers, including minimum medical expense ratio requirements, and a back-loading of the health insurance premium tax, designed to delay inevitable premium increases.
The flawed structure of the bill is therefore retained, which means that expansion of eligibility and other reforms are largely delayed to 2014, but changes having the effect of increasing health insurance premiums will take effect prior to 2014. Before seeing any material benefits of reform, some will see their Medicare payroll tax rate increase, many fully insured subscribers will, beginning in 2011, see the effects of the health insurance premium tax, and everyone in the commercial market will see the cost-shifting effects of Medicare payment reductions and the tax on drug and medical device manufacturers. Medicare Advantage plan enrollees will also see sharp increases in premiums. Since there is no significant cost containment in the bill, these increases will occur on top of normal medical trend. And because the universal requirement to purchase coverage is weak, adverse selection will further increase costs starting in 2014.
It is a shame that the bill has to be structured in this way, but it is a direct result of expanding eligibility and benefits, imposing health system taxes to pay for it, and ignoring the health care cost problem. While this approach may have short-term political benefits, it cannot work in the end because the underlying costs driving commercial health insurance premiums are unaddressed and are in fact exacerbated by the bill. We can focus on insurance reform all we want, but the medical cost tidal wave continues.
Imagine how this plays in Massachusetts, where the insurance market is already reformed, the cost of health insurance is already high, and the major health plans are not-for-profits. The impact of federal health reform will be little more than higher premiums. Massachusetts is already grappling with its own health care cost problem in the wake of a three-year old health reform expansion, and like the federal government’s approach the focus of the effort is on health insurers and not on the underlying drivers of medical costs. Our colleagues at the Massachusetts Hospital Association just released a “Health Plan Performance Report” which compares key financial indicators for the state’s health plans. It shows that in 2009 the four dominant not-for-profit health plans in Massachusetts all have less than a 1% profit margin and a medical expense ratio of 90% or higher. Not much room there to finance anything else.
Bruce -You did a really nice job summarizing the shortcomings of this legislation. I think one of the things you do not mention is the fact that one of the biggest ways they plan on providing coverage to thirty one million new people is a massive expansion of Medicaid. As you know, Medicaid is jointly funded by both the federal AND state government so this unfunded mandate will cause already stressed state budgets to be on the hook fo a LOT more money. Further, the very poor paying Medicaid program will be a disaster for providers who largely deal with this population (as seen at Boston Medical Center when we expanded Medicaid coverage in Massachusetts). I would even raise the issue of providers being able to handle thirty one million new patients who historically have probably used the ER for their healthcare services. Just a huge mess on so many levels but the Feds did what Massachusetts did by taking the easy road of providing coverage while not addressing the increasing cost issue. I think you are right about the impact in Massachusetts since we already have full coverage (or really close to it) all we will see is increased taxes and other costs to cover this give away to the thirty one million people uninsured in the other forty nine states.
I am disappointed that healthcare costs are merely looked at by cost for doctor visit, tests and hospital proecdures.
The costs are also controlled by paying earlier to keep folks healthier and not have them in emergency rooms or hospitalized. This in turn has potential to reduce healthcare cost as simple procedures are more profitable for providers.
The benefit amount in this bill has been computed in terms of reduced EMR visits and hospitalization.
A cost benefit spreadsheet would be really appropriate.
Vikram
Coverage is addressed in the senate bill, access us not. Every pilot program in the bill penalizes physician financially in some way for providing care to the most ill. The barriers to entry for physicians are unchanges. Look for significant workforce shifts and access. All of which will drive the most Ill into the ER where the cost and intensity of care is highest.
A journey of a thousand miles begins with one step. Let’s talk about the first step. This first step should address healthcare cost which is pushing us over the edge. Why has the concept of state Medical Public Service Commissions (PSC’s) not surfaced? We have seen in areas where there is a competition problem that PSC’s can do a good job. Let’s turn the problem of healthcare costs over to state PSC’s.
In so doing there are numerous hidden benefits that you would not expect at first blush as follows:
1. PSC’s will determine the basic cost of each Medical Charge Code used by providers to bill insurance. If the current medical charge code manual is not specific enough for some procedures, new medical charge codes can be added to help narrow these costs. Then these determined costs will be adjusted for inflation annually until reviewed again and a new cost basis set. In addition, the PSC will calculate a market adjusted mark-up percent for fair and reasonable provider profits for the coming year. The provider mark-up percentage will be determined by a new market ‘check and balance ‘ mechanism unavailable until now. More on this later.
2. Because some Zip Codes have inherently higher costs than rural areas, the co-pays may vary by Zip Codes to offset these cost differentials so the Medical Charge Code cost basis can be leveled across the state. These office visit co-pays would be standard across all insurers in a Zip Code and paid by the patient. These co-pays should not deter patients from seeing their doctor.
3. The PSC eliminates provider networks and provider service contracts. Thus, competition between providers is increased because insurance no longer delivers a pool of patients. Patients can go anywhere in the state and use their insurance because all insurers pay the same for identical services as set by the PSC.
4. Insurers now compete solely on the price of their policies because the doctors/hospitals are no longer tied to their networks. All insurance is accepted by the doctors/hospitals because they all pay the same PSC rates.
5. The elected State Insurance Commissioner may increase insurer competition quickly, if needed, by soliciting outside insurers to come into the state and compete. There are no network or provider service contract requirements.
6. The PSC can greatly reduce the over prescribing of medical services by the way the provider mark-up (profit) percentage is determined. It can tie the profitability of the providers to the profitability of the insurers. If the profitability of the insurers decline because of the overuse of medical services, then the mark-up percentage for the providers is reduced on every Medical Charge Code. The providers will then think twice about how they prescribe healthcare because it now directly affects their profits. This one feature alone will cut healthcare costs significantly.
7. Tying the provider mark-up to the net profit margins that private insurers earn in the state creates a healthy ‘check and balance ‘ mechanism. If provider costs go up, profits of both go down. If profits go up above what the average state business earns, the State Insurance Commissioner can intervene and license new outside insurers to compete and lower premiums, if necessary. But both the insurers and providers have a right to earn a reasonable profit, so the elected State Insurance Commissioner will only increase insurer competition when it becomes necessary to reduce average insurer profits for the benefit of the public when these profits noticeably exceed what other state businesses earn.
Note: If insurer profits surge due to the more efficient delivery of healthcare, then the insurer can invoke a mechanism to reduce gross profits with offsetting insurance policy premium reductions. This results in a lower net profit for the insurers which the PSC will use to determine the provider mark-up percentage for the coming year. Thus by lowering premiums, the insurer gains a direct cost reduction for the coming year from a lower provider mark-up percentage. This allows the insurers and providers to earn fair and reasonable profits and policyholders to pay lower premiums. If the insurer refuses to lower excessive gross profits, then the State Insurance Commissioner may intervene and policyholders may react by dropping the insurer for a new one during the end-of -year sign-up period while retaining their same doctors/hospitals.
8. The PSC does not make healthcare decisions and does not affect the doctor-patient relationship. The full time job of the state Medical PSC is determining the cost of Medical Charge Codes. The PSC will standardize these codes to make filing claims easier for doctors/hospitals.
9. The above discussion on computing the provider mark-up percentage eliminates the current adversarial relationship between providers and insurers and lets market forces determine the common profit. Another more simple but less ideal approach would be for the PSC to set the mark-up percentage based on some other criteria. The choice of method would be up to each state.
10. As you will note, the previous discussion portrays the Medical PSC as more a state Price Commission than a regulatory body. The role that this PSC plays in each state would be up to the state legislature and could evolve over time.
The state Medical PSC concept has amazing potential. Not only does it break the bond between doctors/hospitals and insurance companies, but it offers a ‘check and balance ‘ system to spread the wealth among providers, insurers and policyholders. Without a doubt, this approach has never been contemplated before and will position the American Healthcare system to control costs as healthcare is expanded by Washington. Congress does not know about this brilliant idea. Please write/call your representatives and tell them that we must have state Medical PSC’s.
Dear Anon,
Probably you are referring to outcome based programs. People on other side of the knife are saying that is something that should have been done long time back. Anyway that’s just a pilot as are some others.
I agree the bias against treating most ill exists. Even in current system as most ill patients are not most profitable. Most profitables are lapped up by ASCs.
The more critical thing is thing that you mentioned that now more folks will turn up in ER. Am just wondering how that could happen when more have folks insured. Traditional wisdom had it that only uninsured came to ER. I know it’s not ncessarily true because a study in 2003 showed that insured were more in numbers.
I also thought there was greater financing for residency program in the bill so that implies more doctor in long term.
I agree we will see some very apparent cost implications of the reform. Yet I would like to believe that it will be cheaper than status quo. Just because we are not doing anything about uninsured doesn’t mean it is cheaper for society.
Best ideas here I have heard all year.Foremost is the obesity problem in our country which leads to health problems and addicted to drug problems. conquer these problems and health care costs would drop to zero. Also if Schools had a baby hour and delivery room with life like babies that cry, wet and eat and make the youth care for the baby and yes a delivery plan, and several days a week the kids carried the babies around the school grounds, this would make the youth think twice or ten times before having children out of marriage als cutting health care costs or slashing costs. So many ways, when do we start?