Throughout the presidential campaign, Mitt Romney has had an oddly reactive approach to putting out policy proposals, seemingly flying by the seat of his pants and offering almost spur-of-the-moment, invariably ill-thought out policy ideas and usually defining himself by what he's not (i.e. Obama). Who can forget his tax plan, developed during the Republican primaries, which turns out to raise the tax burden on the middle class (whoops!)? He's done it again now that Paul Ryan is his running mate.
He seems to have impulsively decided to move up the date at which the Medicare trust fund becomes insolvent.
As Rick Perry might say: oops.
But first some perfunctory background. Broadly speaking, Medicare pays for hospitals services, services from doctors (e.g. like your family doc), and prescription drugs. In table form:
Medicare Component
Pays For
Financed Primarily Through
Finances Go Into...
Part A
Hospital services
Payroll taxes
Hospital Insurance (HI) trust fund
Part B
Physician Services
General revenue/Monthly premiums from beneficiaries
Supplementary Medical Insurance (SMI) trust fund
Part D
Prescription drugs
General revenue/Monthly premiums on beneficiares
Supplementary Medical Insurance (SMI) trust fund
(Part C is the privatized portion of Medicare--Medicare Advantage--that generally combines these three benefits in a single private health insurance plan for the 23% or so of Medicare beneficiaries who choose to go that route: and at only ~114% of the price of traditional Medicare!)
As the table should make clear, there are two trust funds to think about: one funded primarily by payroll taxes that covers hospital services and another funded primarily by general tax revenue (with another significant component coming from insurance premiums on seniors enrolled in Medicare) that pays for doctors' services and prescription drugs. This excellent Kaiser Family Foundation primer on Medicare financing identifies a difference between these two trust funds that's worth noting:
A key difference in the structure of the HI and SMI Trust Funds affects their financial status. In the case of the HI Trust Fund, dedicated revenue may be greater or less than expenditures in any given year, so that in some years HI expenditures may exceed income, while in other years, reserve funds may be generated. By contrast, SMI Trust Fund financing does not produce excess revenue or shortfalls due to the way it is structured, with premiums and general revenue contributions adjusted each year in order to cover projected expenditures for that year. When
excess HI Trust Fund revenue is collected, the excess amounts are loaned to the federal government and used to pay for other federal obligations. Interest on the loans is credited to the Trust Fund as income.
So theoretically there is some money collected in the HI trust fund for spending on Medicare hospital services. Or rather, that money was loaned out to the rest of the government at interest to help pay for other things but it can be reclaimed when needed. But now that Medicare is paying out more than it takes in, at some point the money in that trust fund--or owed to it--will be exhausted. At that point, Medicare won't be able to fully pay for its obligations to cover hospital services, though it can still pay out whatever the Medicare payroll tax is bringing in. But the coming insolvency of the HI trust fund is a serious concern, particularly since the shortfall the trust fund experiences will just continue to grow with time.
In 2009, before health reform (or the Affordable Care Act or ACA or Obamacare--whatever the kids are calling it these days) passed, the Medicare Trustees forecast that the HI trust fund would be exhausted in 2016/2017. Then the ACA passed and the next year that number receded to 2029. The continuing stumbling of the economy put a little damper on that and for the next two years (including this year), the Trustees' report put the date of insolvency at 2024.
The point is that the ACA pushed the HI trust fund's insolvency date back from being a few years from now to being in the middle of the next decade. The catalyst for this change is the controversial savings (or cuts, as the GOP prefers to put it) that got so much airtime and ad time during the midterm elections two years ago. These Medicare savings showed up primarily in three forms:
1. As I intimated above, the privatized portion of Medicare (known as Medicare Advantage) costs more per enrollee than traditional public Medicare. The reason is essentially that the process by which the federal government's payments to these private insurers on behalf of Medicare beneficiaries are determined is currently rigged in the private insurers' favor, allowing them to pick up outsized federal subsidies. The ACA dials these back, reducing the government subsidy to these private insurers over time to largely bring them in line with traditional Medicare.
2. Traditional (public) Medicare pays for hospital services according to a fee schedule. The ACA, assuming certain "productivity improvements," requires that those reimbursements increase more slowly over the next decade than they were otherwise scheduled to. These assumptions aren't baseless, as the ACA also contains some mechanisms to help hospitals (and other providers) achieve them. But it's going to be a challenge to make it all work.
3. A hodgepodge of other savings/cuts (though not to physicians; their payments are governed by a different law). For instance, Medicare pays certain hospitals extra to cover some of the costs of the uninsured; the theory is if there are less uninsured people under the ACA, those payments can start going down.
Together those savings push back the date of the HI trust fund's insolvency by several years because the trust fund is paying out less over the next decade thanks to them.
When House GOP Budget Chairman Paul Ryan (now Mitt Romney's running mate) was putting forth his budget proposals this year and last, he sought to include a plan to transform Medicare into a voucher program. The merits of that plan aside, people tend not to like change, particularly when they've been expecting or experiencing something else. The bigger the change you're proposing, the more important it becomes to make the change's implementation minimally disruptive. So Ryan delayed implementation of his proposed Medicare reforms for a decade, stipulating that they wouldn't start until 2022. That allowed Ryan to claim that no one currently receiving benefits would be affected by the changes, nor would anyone 55 or older, i.e. folks within 10 years of Medicare eligibility. It was only folks who were 11 years away from hitting Medicare eligibility at 65, the 54-year-olds and younger, who would be given a voucher.
But there's a problem here. If the HI trust fund is exhausted in 2016--assuming the ACA is repealed--then how does Ryan wait until 2022 to implement any kind of Medicare reforms? The answer is that he can't. So in writing his budgets, he retained the ACA's Medicare savings (while calling for the repeal of the rest of the health reform law). The fact that Ryan tacitly endorsed them and virtually every federally elected Republican--in the House and Senate--voted for them didn't stop Ryan's party from shamelessly continuing to attack the President for his Medicare "cuts." (Now that he's in the national spotlight, Ryan has recently been called upon to explain why the cuts that his running mate routinely denounces were included in his budgets. His rather lame answer: "First of all, those are in the baseline, he [Obama] put those cuts in...It gets a little wonky but it was already in the baseline. We would never have done it in the first place.")
But running on Obama's Medicare cuts at the same time he was demonizing them on the campaign trail proved too much even for Multiple Choice Mitt. After being unable to describe any difference between his plan for Medicare and Ryan's (the plans are, after all, virtually the same), by mid-week Romney had found a major difference between his approach and his running mate's: “My campaign has made it very clear: The president’s cuts of $716 billion to Medicare — those cuts are to be restored if I become president and Paul Ryan becomes vice president,” Romney said on “CBS This Morning.”
Nice! Jettison Ryan's baggage by not following his lead in adopting Obama's Medicare savings/cuts. Why did Ryan even embrace those in the first place? Oh, right...
It turns out this creates a problem for Mitt. He too has pledged that under his Medicare plan "Nothing changes for current seniors or those nearing retirement," meaning that none of his reforms begin until 2023 (i.e. the year in which a current 54-year-old would hit 65 and become eligible for Medicare). But by "restoring" Obama's savings/cuts, Romney moves the date of the HI trust fund's insolvency up to 2016 from 2024. Whereas Ryan had retained the hated cuts to keep the trust fund solvent until his reforms could kick in in the early 2020s, Romney is explicitly saying he won't do that.
Meaning that the trust fund will be exhausted in 2016, but Romney's reforms (a voucherization of Mediare similar to Ryan's proposal) won't kick in until 2023.
That makes for seven lean years in which Medicare can't meet the entirety of its hospital care obligations to current beneficiaries. Indeed, the magnitude of the shortfall and thus the degree to which current beneficiaries' services are cut into grows each year. Again, ignoring the merits of Romney's proposed reforms, under his plan there will be a seven year gap between the HI trust found becoming insolvent and any reforms beginning.
To date he hasn't explained how Medicare beneficiaries are supposed to get by during their seven lean years and what, if anything, his administration is prepared to do to fix the problem. The Obama campaign seems to have noticed, mentioning at 1:38 of their latest video explaining Romney and Obama's differences on Medicare that "If Mitt Romney and Paul Ryan are elected, Medicare will be bankrupt by the end of their first term."
Good of them to reference it but this strikes me as a huge issue requiring more attention: Mitt Romney is pledging to accelerate Medicare's spending, depleting the HI trust fund more quickly, to the point that it will be exhausted within four years. And he's also promising not to reform Medicare in any way for a decade. That's huge. And I doubt it was intentional. More likely, it was an unintended (and unforeseen) consequence of Romney's constant ill-thought-out Not-Obamaism. But now is the time for the Obama camp to make him pay for it.
The 2010 election was a tidal wave that swept the Republican Party into power. I'm not talking about at the federal level (though the U.S. House elections could be described similarly), I'm talking about state-level elections. Take a look at where things stand at the state level now, in the wake of the 2010 elections:
And to condense that information into a single map I've put together myself (instead of stealing it from NCSL) with some shading to indicate the degree of Republican control over the levers of state power:
So now we've got an interesting situation. The Republican Party is typically--particularly during the 2010 election cycle--considered to be a conservative party. That often manifests itself as a declaration that the size of the federal government ought to be reduced and its powers and responsibilities pared down. "Let the states run their own affairs!" some of them exclaim. Their bias, rhetorically at least, is to leave governmental functions to state governments unless it's absolutely necessary for the federal government to assume them.
That party is now in a position of tremendous power in state governments across the nation (a reality that traditionally blueish states like Wisconsin are just waking up to now, apparently). So one might expect some of the Republican standby policy suggestions to be implemented in at least some states. Taking health care as an example, the national Republican party often likes to push suggestions such as insurance market deregulation, tort reform, and across-state-lines health insurance purchasing.
Good news for them: all of these things can be done at the state level. To take a Republican favorite: any state may allow out-of-state insurance policies to be sold in its insurance market. That would bring the insurer competition to the state's market that Republicans claim to desire and it doesn't require any federal action. So I perused the websites of the state legislatures of the red-tinted states to see what kind of action is happening on this front now that Republicans have such a prominent role in the nation's state-level politics.
As near as I can tell, interstate purchasing bills have been introduced in the legislatures of only six states (and of them, only the bill in Missouri seems to have actually made it as far as having a committee hearing thus far):
A bit of an anemic showing given the alleged Republican affection for this idea. Perhaps the Party of the Tenth Amendment is waiting for action at the federal level? Time will tell.
But the fact remains that the Republicans now hold power in quite a few states and they supposedly have a philosophical predilection toward letting states handle most kinds of policy reforms, leaving the federal government out of it. It will be fascinating to see how much of their erstwhile national agenda (e.g. the federalization of tort law or federal laws allowing interstate insurance purchasing) they push in the states. My guess is that it won't be quite as much as one might expect.
The other day, after the anti-ACA court ruling was handed down, over at the (great) blog The Incidental Economist Austin Frakt wrote:
The brilliant legislative logicians that dreamed up (or forced) a 2014 start date for the exchanges, Medicaid expansion, many of the health insurance market reforms, and, yes, the mandate, will be very nervous. Could they have made it much harder for the court to rule against the law?
Had the implementation been one to two years sooner, a nullification of the law, or part thereof, would be dramatically more disruptive. The pressure would be enormous for something to be done to prevent that possibility. I gather 2014 was a budgetary necessity. How much harder would it have been to buy another year or year and a half? Was that completely out of the question?
The conventional wisdom as to why 2014 is the start date of the coverage expansions in the health reform law is that it's largely a budgetary gimmick: conservatives charge that this is intended to mask the law's deficit impact, liberals generally seem to accept that this is to lower the price tag over the 10-year budget window that the Congressional Budget Office uses in its analyses (note that these are different suggestions).
I'm not sure I buy that fiscal forecast finagling is the reason the timeline is what it is.
Simplifying a scenario or concept can sometimes be helpful for working out its basic principles. A physicist putting Newton's laws to work might deal at first only with idealized point particles for conceptual and calculational simplicity. For identical reasons, students of government might choose to assume that laws--public policies--are born whole in a triumphant, poly-penned signing ceremony at the White House, the culmination of a winding legislative process. But real objects are extended in space, not points. And policies take shape during an implementation process, their final form is not reached instantaneously.
To a large degree, implementation of the Affordable Care Act lies in the hands of states. Certainly that's the case with the big ticket coverage items in the law. The two mechanisms by which millions of people will be gaining health insurance are: 1) expansions of state Medicaid programs, and 2) the construction, by states, of state-run health insurance exchanges.
What does that mean? That means instead of one particular top-down federal solution--a national Medicare-like payer or a single federally-administered health insurance exchange--you're potentially going to see 51 unique exchanges and 51 state-tailored solutions to the strains the expansion will put on their Medicaid program. That means you have to navigate state legislative calendars, state budget and procurement cycles, and state-specific troubleshooting and customization of the ACA. That takes time.
Take insurance exchanges, the new insurance markets that will be created under the ACA (if you want to see what that looks like in a concrete sense, Wisconsin developed a prototype of an exchange web portal that you can play around with). Given that they have to throw the doors open and be live on January 1, 2014 that really means that by the fall of 2013 they have to be in the final stages of implementing all the functionality they'll need; indeed, as you can see from this helpful timeline, exchanges will likely have to actually start selling insurance by the late fall of 2013. This means that thirty months from now, they'll have to have determined which health plans they'll allow to be sold through their exchange and negotiations/contracting with health insurers will have to be in full swing. And by that point, the construction of the infrastructure supporting their exchanges will have to be well underway.
Seems like a long time to get to those end stages, doesn't it? But it's not. A common motto in states is some variation of "2014 is tomorrow" and, indeed, it is.
It's been ten months since the ACA was signed into law in March of 2010. In most states, the exchange-building process remains in its infancy. 2010 was a year for reflection (and, in some states, acceptance). Planning and coordinating bodies were formed in states to assess the health care landscape in the state, analyze the contents of the ACA, and synthesize the two to chart a course for the coming years.
Some of the key questions facing states as they consider the design of their exchanges are laid out in this article from the Denver Post on the process in Colorado:
More than 500,000 Coloradans who lack health insurance will use a new state-run exchange to get generous subsidies and comparison shop for a health plan — that much is a given.
What that consumer website — the centerpiece of national and state health care reform — will look like upon launch in 2014 is the next great task for medical and insurance leaders in Colorado.
Will it be a bare-bones, three-choices- and-good-luck Web page? Utah is going that route.
Or will Colorado take the activist route pioneered by Massachusetts and California, adding mandates for coverage, negotiating directly with insurers and carefully policing rates, complaints and care? Will insurance plans created by the state Medicaid office and Denver Health compete for customers alongside big names such as Kaiser, Anthem, Cigna or Rocky Mountain Health Plans?
And even before that, who creates and operates the exchange that will guide billions of dollars in health spending? A state agency controlled by the governor? A private nonprofit? A quasi-governmental board where legislators, Cabinet secretaries and insurance interests will vie for appointments?
But the very first question to be answered is still being deliberated in many states: should the state build an exchange at all? While all states are required by the ACA to have an exchange, states aren't required to design, construct, and run an exchange. If they decline, the federal government will step in and run one in the state. While many states have recommendations on this question from their planning bodies, the issue is not yet settled in most states.
The only state whose legislature has passed the enabling legislation required to create an exchange at the state level is California. The matter has been complicated by the fact that 2010 was an election year. Indeed, 37 states had gubernatorial elections and the result is that this year we have 23 first-time governors taking office. And gubernatorial turnover ripples through the upper echelons of the state government's health policy leadership.
The point of all this is that as we sit at the beginning of 2011, states have a lot of ground to cover in the next two and a half years. In addition to building exchanges (a significant undertaking in and of itself), they'll need to modify their Medicaid programs to absorb significant numbers of new enrollees. And at the intersection of these two responsibilities is the imperative to revamp their IT systems to handle the new eligibility and enrollment burdens the exchange and Medicaid expansion will place on them. There are additional things for states to focus on in implementing the ACA but we need not go into them here.
In addition to the intricacies and idiosyncrasies of state-level implementation, there is still a federal element to consider. When it comes to exchanges, even though states will (in most cases) be building them, there will still be some sort of federal regulations guiding them. States were asked to submit initial suggestions for these regulations to the feds months ago. I don't know when a draft product will be out but from what I've heard, a final product shouldn't be expected before this fall.
Suppose the year 2014 had been scratched out of the ACA before passage and the year 2012 substituted. Could we make this deadline? I would say almost certainly not, given where we are now and all that remains to be done. The original House legislation had an implementation date of 2013, a full year earlier than the final product that became law. But even that strikes me as potentially overly ambitious (though, remember, the House bill didn't have 51 exchanges being developed by 50 states and D.C. at their own pace, it relied on a national exchange) given that many states are waiting until the final federal regulations on exchanges are released to begin their state legislative process. That means we can probably expect many state legislative debates to wrap up in 2012 and their bills creating exchanges to be passed around that time. Then comes the actual implementation period with about 12-18 months to go. With a 2013 deadline, that would be six months to completely build an exchange.
You might argue that setting a 2013 date would've lit a fire under both the federal and state governments and all of this would be moving at an accelerated pace--the federal regulations, the state legislation, the state implementation process. But I'm not convinced there's any reason to believe that would actually be the case. As I said, state legislative calendars and procurement cycles place obstacles in the path of any would-be speed demons. The politics and the fiscal challenges facing states would still be the same, and these are minefields that must be navigated carefully. Additionally, in fleshing out the details of the ACA on the regulation-writing front, the feds have a lot on their plates right now. And there's plenty of reason to be wary of overly ambitious implementation target dates. Arguably, with the spate of provisions required to take effect in the first 6-9 months of the law's existence (deadlines which were often missed, if not by much), some of the law's early implementation was rushed to generate solid products that could be pointed to by the administration. We want to make sure, particularly for the big, enduring things like exchanges and Medicaid program revisions, that states get this right. And that requires having not only the resources but the time to get it right.
All this is my long-winded way of saying I suspect the 2014 start date isn't really all that unreasonable, given the enormous role the myriad states have in bringing the text of the law (and yet-to-be-written regulations) to life. We might wish it took less time to get from Presidential signature to functional program but the real world is messy.
Back to musing about health care. The issue of rising costs comes up again and again whenever health care is the topic of discussion. But the word "costs" is, confusingly, often used to mean two fairly different things (often simultaneously) so it's worth thinking about the difference. They are:
1. Costs are the prices we pay for procedures or devices. They're a measure of how expensive the units of health care we're buying are. 2. Costs reflect total (national) spending on health care. This is the aggregate amount (>$2 trillion) we're spending every year, or the percent of GDP we put toward health care services. This number, however, depends both on how much individual units of health care cost and how many of those units we buy (volume).
To illustrate the difference, I'll use a mundane example from my weekly routine. I live in an urban area and don't own a car. As such, I shop in a nearby urban grocery store. If I had a car, I could shop slightly further from home at one of the larger grocery chains prevalent in this area.
Given that when I do my weekly grocery shopping I do so on foot, there is a natural limit to how many groceries I can buy. Even if I wanted to buy more than 3 or 4 bags of groceries (not that I do), I wouldn't be able to carry them all home. At the same time, it's worth noting that as a small, independent grocery store, the prices at my grocery store are in fact a bit higher than the prices across town at the larger chain grocery stores.
So let's consider two scenarios. The first is my current routine, in which the amount of groceries I can buy at one time is limited but the prices of individual items is higher than the alternative. In the second scenario I have a car and can load up my trunk as full of groceries as I please. As such, I start shopping at one of the larger chains or even a Costco and give in to the urge to buy in (greater) bulk. What's the cost of my groceries? Or, as a separate question, what are my groceries costing me? If I wanted to answer the first question, I'd probably check my receipt to see item-by-item what everything costs. On that kind of per-unit analysis, the bigger stories with lower unit prices will look better than my independent grocer. But if you ask what groceries are costing me, say per year, I might be spending more money if I'm shopping at the chain stores, simply because I can (and thus am tempted to) buy more every time I go shopping. When I'm not limited to buying only what I can carry home, I might buy lots of extraneous goodies.
The point here, of course, is that while these are very different questions, when it comes to health care people tend to conflate "how much does this cost" (unit price) with "how much is this costing me" (unit prices x volume). I myself am guilty of not specifying what I'm talking about and bouncing between meanings in different posts. As such, alarm over health care costs sometimes manifests itself as disbelief at an outrageous bill for a given procedure, and sometimes as alarm bells sounded over an uptick in national spending and increases in the fraction of our national income we're directing into the health care market.
When I wrote The Case Against Providers back in the summer, I was talking mostly about the component of the cost issue that stems from providers bargaining up the reimbursements (prices) they get for procedures from payers. The Demi-Decade of Coverage, on the other hand, discussed some of the long-term cost containment potential of the reform law and that touches more on the "how much is this costing me" issue. And that's because the tools offered by the Affordable Care Act--the scalpels and chainsaws I mentioned--are aimed largely at reducing unnecessary volume: comparative effectiveness research, payment reforms, more efficient and effective delivery models, efforts to reduce medical errors, and the like are all aimed at streamlining the health care system and make it better at doing what it does (read: achieve good results without flushing huge amounts of money down the toilet for no reason). What the scalpels and chainsaws "cut" for the most part is unnecessary volume. By and large, however, those reforms don't lower the unit costs of procedures. That doesn't mean they're not important steps to slowing our national cost growth, since total spending will equal the prices of our procedures multiplied by the volume of them we consume very year. But still, room for improvement.
The 2010 law does little to address this. Its many cost-control provisions are geared toward reducing the amount of care we consume, not the price we pay. The law encourages doctors and hospitals to join "accountable care organizations" that have financial incentives to limit unnecessary care; it beefs up "comparative effectiveness research" to weed out inefficient treatments; and it will eventually tax the most expensive insurance plans to restrain consumers' superfluous use of health care.
Such measures could reduce redundant tests, emergency room visits and hospital readmissions, which would help control the costs of Medicare, where the government sets rates. But they are less likely to lower prices outside Medicare and stem the growth of private insurance rates.
The author astutely points out something I've noted before: the robust public option that was proposed in early incarnations of the health care bill (but ultimately was dropped) was targeted at bringing down the actual prices of procedures charged by providers. This is something liberal supporters and conservative opponents alike failed to recognize, with the two camps wrangling over whether this would put the fear of God into insurers or drive them out of business with nary a word about providers.
And make no mistake, the prices of the medical services we buy from providers in this country can be substantial (relative to our counterparts in the rest of the developed world). The International Federal of Health Plans' Annual Comparative Price Report came out a week or two ago and it's full of charts like this one:
The average price for something here is generally more than almost anywhere else but not by a ridiculous amount; it's the huge variation in prices we experience/allow here--where prices are often a jealously guarded trade secret and vary depending on who's buying (the same hospital can charge two different insurance companies different prices for the same procedure in every state except Maryland)--that allows some of what we spend to stretch into the stratosphere.
And while I expressed optimism that the reform law provides the tools to get serious about cost containment--particularly after the first "demi-decade"--the actual prices of services are something we still have to address. And to leave this post with a cliffhanger, I'll note that in some future post I'm going to mention one possible tool for doing that.
A while back (in Unpersons) I mentioned an approach to the abortion question that, while maybe not a consensus among folks on the left, at least seems to be fairly common, if not always articulated: namely, that the question of whether or not abortion is acceptable hinges on questions of social personhood and not biological life.
In some ways this is a deeply philosophical point and when it comes to public life perfect intellectual consistency usually isn't the order of the day. Consider the Children's Health Insurance Program (CHIP), government-financed health insurance primarily for kids who don't quality for Medicaid. Both Medicaid and CHIP have special (higher) eligibility thresholds for pregnant woman. Since 2002 states have also been allowed to exercise a so-called "unborn child option" that allows them to consider a fetus as a "targeted low-income child" for CHIP coverage. Currently, 15 states do this: Arkansas, California, Illinois, Louisiana, Massachusetts, Michigan, Minnesota, Nebraska, Oklahoma, Oregon, Rhode Island, Tennessee, Texas, Washington, and Wisconsin.
Of course, it's not really possible to disentangle providing care to a pregnant woman from providing it to an unborn child so what exactly you call it is sort of academic. Is it a special benefit for a pregnant woman (a vulnerable member of society) or is it a benefit for an unborn child, implicitly acknowledging that fetus as a member of society? Whatever. But it does have philosophical ramifications because, at least ostensibly, that defines how you're thinking about it. And it would seem that designating a fetus--what I previously called an unperson--as a child, a person eligible for social benefits is a firm pronouncement that the unborn are not just biological lives but persons. And persons, presumably, are subject to societal protection, not just from ill health (thanks, CHIP!) but from termination.
So why have these states decided to exercise the unborn child option? Is it a bold philosophical statement about the ontological status of the unborn? In general, no, probably not. You see, unborn children don't have a citizenship status. Thus if you choose to provide care to them, you can do so without worrying about the citizenship or residency requirements that characterize public assistance programs. And, like I said, in a practical sense you can't really disentangle providing care to a pregnant woman from providing it to an unborn child. So states can use the unborn child option to provide CHIP health care benefits (in this case, prenatal care) to otherwise ineligible pregnant illegal immigrants* by (*wink*) targeting it at their unborn child.
So an ostensibly key piece of the philosophical puzzle here turns out to be a policy tool to get around some practical political constraints. Pragmatism might arguably have desirable outcomes but it doesn't do much for producing a cohesive philosophical view of the universe.
*These woman would be eligible for emergency coverage of labor and delivery but not the full package of prenatal care before that.
Once again we have some confusion over this health reform law. The culprit now is a paper written by a group of economists and actuaries working at CMS, the agency that oversees Medicare and the federal portion of Medicaid. I'm not entirely sure why their conclusions are being viewed by some as big news, as their core message doesn't differ substantially from an estimate of the law's effects released by the Chief Actuary at CMS in April. The headline here is that in February (pre-reform law) these folks released an estimate of national health care spending--i.e. all the money, public and private, being spent on health care in our economy--through 2019. That was based on then-current law, which didn't yet include the health reform law. On Thursday they released an update to that paper that takes into account the reform law. By their calculations, we as a nation will be spending a little bit more in 2019 when you factor in the reform law:
Relative to our February 2010 projections under prior law, average annual growth in national health spending over the projection period is estimated to be 0.2 percentage point higher than our previous estimate. The health care share of gross domestic product (GDP) is expected to be 0.3 percentage point higher in 2019.
The problem, some have argued, is that reform is supposed to be reducing costs and spending on heath care, not pushing spending up, if only by a small amount. To borrow an exceedingly overused expression from health policy circles, reform ought to "bend the cost curve" downwards, meaning it should stop the runaway health spending that's characterized our economy for decades. At the very beginning of the legislative debate over health reform last year, Gallup released a poll examining public attitudes. As you might imagine, the relative importance of a person's concern about health costs or expanding coverage (i.e. cutting down the number of uninsured) depended on whether or not they had insurance:
Most people do have insurance and you can see that most of them are more worried about their costs than helping the uninsured, which makes sense (though they also tend to fear losing their own coverage).
So we're back at a common complaint: "this law does nothing to control costs, it focuses entirely on coverage." As this is a pretty important allegation, it's worth thinking about in detail. But we need to take a policy-philosophical detour first.
Below you'll see a crudely constructed figure showing what's sometimes called the health policy triumvirate: cost, quality, and access. These are the three key factors that define our health care system. In physics, there's something call the "no-hair theorem" that tells us black holes are completely described by only three physical characteristics: mass, electric charge, and angular momentum. I'll go out on a limb and suggest a health care system is like a black hole in some ways (particularly when it comes to money). We might as well propose an analogue of the no-hair theorem for health care systems: three characteristics--cost, quality, and access--will characterize your system completely.
You can see that, at the risk of possibly violating that principle, I've gone a step further in that graphic--I've started making secondary colors (you know, figuratively). The way the various tips of the triangle interact are themselves noteworthy. If you've got a high-quality health system with widespread access to its facilities, you've probably got pretty good population health, i.e. people in your nation are, on average, pretty healthy. If you have a high-quality system at a relatively low cost, you're getting good value for your health care dollar. The U.S. notoriously has very good care, though still comparable to other advanced nations along many metrics, but pays much more than anyone else to get it. So it's possible to have great care but get relatively little value for your health care dollar. And finally, if you've got a low-cost system in which access to its facilities is widespread, you've got what I'll call equity. It's possible to cut costs by cutting access but that doesn't make for a very equitable system.
Historically, the conventional wisdom about the cost-quality-access triangle has boiled down to two words: "pick two." You can cover everyone in a high-quality system, but it will be prohibitively expensive. Or you can have a low-cost, high-quality system but it won't be very equitable--not everyone gets to play. Or you can have a system with universal access at a low-cost but the care won't be any good.
Somewhere along the line that paradigm has shifted. I haven't been around long enough to know when that began but I do know the date the paradigm shift was enshrined in law: March 23, 2010. The philosophy underlying the health reform law is that we can have it all. Some, no doubt, would dismiss that as naive and mere wishful thinking. But it's a powerful thought.
Contrast that with the thinking underlying H.R. 4038, the "replace" in the Republican repeal-and-replace proposal. I don't want to sell it short--there is, after all, a decent amount of stuff in there--but for me it basically boils down to two things: 1) deregulation and 2) high-risk pools. The form of the deregulation is specific to health insurance and it's something we've looked at on here before: selling insurance across state lines (they literally just lifted the language for that section of their bill out of Shadegg's Health Choice Act). A complaint you'll often hear from the right is that we have too many mandates, insurers are required to provide too many benefits. At the same time, you'll sometimes hear that if only insurance were less expensive, coverage would increase because more people could afford to buy it.
But the limits of that possibility become clear when you realize that the plan is to lower costs by limiting access. What's the underlying principle here? Namely, that less is less: if we find a way to make it easier for insurers to jettison expensive customers and shed benefits (i.e. cover less), insurance will get cheaper. Get rid of consumer protections, sell potentially inferior products, and the products get cheaper. It's not wrong--the CBO score of their bill did find that it will lower average premiums in the individual and small group market. But it won't cover any more people; even with the high-risk pools they include to help the uninsurable gain access to coverage their bill leaves the percentage of the population without heath insurance unchanged. And I suspect it wouldn't be particularly beneficial to population health. But as I said, it's not wrong--that is a way to cut costs, I'm just not attracted to it philosophically. And, at a pragmatic level, I believe there are better options for getting better results. We need not take the Khan Noonien Singh approach, dismissing the uninsured with a helpless shrug and leaving them marooned for all eternity in the center of a dead planet, buried alive.
Most people agree that when it comes to our health care system we have too much: too much fraud, too much unnecessary treatment, too much inefficiency, too many preventable expenses. And that means we're going to have to cut if we're going to contain costs. So let's jump into the two broad philosophies of cost containment--what I'll call the Scalpel and the the Chainsaw--and then we can finally get to the punchline: how health reform promises to contain costs.
The Chainsaw
The Chainsaw is a blunt instrument. It accepts only that we've got to cut and it concedes that it's going to be bloody and imprecise. And, just maybe, employing the Chainsaw won't be good for the health of people in its path. Folks on the right tend to favor the Chainsaw when it comes to reeling in costs. We touched on this a bit above but let's look at exemplary statements from prominent conservatives and bloggers, Statler and Waldorf economist Gary Becker and econo-judge Richard Posner.
The most important needed reform is an increase the fraction of total medical costs that come from out-of pocket expenses in the form of large deductibles and significant co-payments. [...]
The US health care market is over-regulated rather than under-regulated. One example is that families in one state are generally not allowed to buy their health insurance from companies located in other states. Another example is the mandates that states impose on insurance companies, such as coverage of the costs of normal birth deliveries. Such coverage has little to do with insurance against unexpected health costs, whereas coverage of extraordinary delivery costs is a desirable protection against unexpected health care risks.
That second bit is the argument Republicans make: we need fewer consumer protections and less comprehensive insurance. The former is interesting, philosophically, because it assumes people just want extra care because it's cheap--or, rather, that pricing people out of care is the best way to allocate it. Or as blogmate Posner suggests, it's like going to a buffet!
A second demand-related cost effect will result from the fact that insurance,(even with deductibles and copayments, drives a wedge between the cost of a service and its price, and so increases demand. (It’s like a restaurant with a buffet: the marginal cost of eating all you want is zero.) Persons who are uninsured are deterred from consuming medical services in quantity— because of cost (they are billed for such services at very high prices and may be forced into bankruptcy if unable to pay), because of difficulty of obtaining quality service from charity hospitals or other “free” providers, or simply because, though they can “afford” insurance, they prefer to gamble on remaining healthy. These persons, when they become insured, will increase their utilization of medical services, because those services will now be cheaper to them.
I kid, of course, they're making valid points here. But I fundamentally disagree with the premise. Certainly there is an enormous amount of unnecessary care provided in our system (Thomson Reuters pegs the number at $250-$325 billion annually--that's up to 13% of all the money we spend on health care in a year). And I agree that in the absence of higher cost-sharing (an incarnation of the Chainsaw), people will tend to consume more care than they would if they were in the Chainsaw's path. But health care isn't equivalent to mashed potatoes in a buffet line. Gorging at a buffet is enjoyable, for a time anyway, and has no immediate costs (you have to wait until a bit after dinner to encounter the costs of your excess). Receiving care has many costs, be they in terms of time, anxiety, discomfort, and so on. If someone asked me if I'd rather spend an all-expenses-paid evening in a hospital or at a buffet, there'd be no contest. One is pleasurable; one is horrifying.
The reality is that people don't seek excess care because they just love soaking up additional health care resources and low cost-sharing allows them to indulge that default urge; rather, they don't know any better. Which if how you get incoherent responses like these in polls:
Let that sink in for a moment. Roughly half the respondents in this poll recognize that overtreatment--unnecessary care--is a problem in our system (though only 16% responded that they personally had gotten a test or treatment that was probably unnecessary). Simultaneously, 67% believe undertreatment is a serious problem. I suppose you could try and spin that as a recognition or expression of concern about inequality--perhaps some respondents believed lots of people are being overtreated and lots of other people, on some lower tier, are being undertreated. But it seems more likely to me that this is an indication that we, the consumers, don't know what unnecessary care is, we wouldn't recognize it if it was pounding on our chest and defibrillating us. We fear that someday we'll be denied the treatment we need (only 14% of people actually thought this had already happened to them), even as we recognize that other people are probably getting care they don't need. We don't want unnecessary care in the same way we want that unnecessary third helping of prime rib at the buffet, we simply don't know it's unnecessary.
Which is exactly why price signals alone, coupled with individual budget decisions, aren't the best way to cut through this mess. The health care system/market is not even close to being transparent, science-based, and patient-centered enough to allow people to make informed decisions about the best balance between their pocketbooks and their personal health. But the Chainsaw approach doesn't particularly care. More cost-sharing means we've placed a financial barrier in people's way that will discourage them from utilizing care--the Chainsaw lops off that spending and in the aggregate cost growth slows. But note that this individual decision isn't rooted in evidence-based, medical decision making. It's a blunt instrument that invariably cuts more closely the further down the income ladder you travel.
The Chainsaw isn't ideal for equity or population health concerns, but it probably will put the brakes on rising costs. And two of the primary long-term cost controls in the new reform law are forms of the Chainsaw: the excise tax on high-cost group insurance plans and the creation of an Independent Payment Advisory Board for Medicare. The excise tax goes into effect in 2018 and the threshold at which it kicks in will grow with the rate of inflation; however, since medical costs tend to rise faster than that, more and more plans will be affected by it with time. The idea is that it will cause employers to keep plan costs down (i.e. buy less expensive insurance plans) to avoid the tax and shift some of the costs to employees, something that's increasingly happening right now. The IPAB will be empowered to find ways to cut costs from Medicare, most likely by changing reimbursement rates. Luckily, these will be combined with cost control attempts with a bit more finesse.
The Scalpel
While the Chainsaw approach cuts costs in the goriest and most undiscerning manner possible ("less! less! damn the population health consequences!"), the Scalpel approach relies on more delicate instruments. Therein lies the fundamental philosophical shift that reform is institutionalizing: we can meet our cost containment goals by providing smarter and better care. Reform is partnering with efforts that began in last year's economic stimulus package to fundamentally shift our approach to health care. Right now it is too much like a buffet: a disconnected, uncoordinated smorgasboard of treatment dining possibilities with various people scattered around giving conflicting advice, often based as much on personal tastes as anything else. But imagine instead a smarter alternative: a restaurant in which a team of expert foodies is available to you for each course of the meal, each relying on a well-established, Kid-Tested-Mother-Approved™ evidence base for the best food for your particular appetites, and with the efforts of each food expert ultimately coordinated by one server who remains your go-to guy throughout the process. You might call that the patient-centered medical home customer-centered culinary home.
But I digress. And the food analogy becomes incoherent remarkably quickly. Let's go back to the stimulus, because the nexus between the stimulus and the health reform law is hugely important (disclosure: I'm biased--that nexus is primarily where I live now, professionally). The stimulus made two health-related investments that stand to be very significant in the long-run: 1) comparative effectiveness research, and 2) health information exchange. The former refers to building a strong, scientific evidence base to guide clinical decision-making and help us understand what works best for who in which circumstances (notably, one-size-fits-all doesn't necessarily work, which is why understanding of this "treatment response heterogeneity" is important). The latter refers to not only storing health data electronically--on electronic health records--but having the means to transmit and use that data. I'll be writing about that in detail at some point because it's near and dear to my heart. But the moral here is that the stimulus set on us on the path toward embracing data-driven health system improvement. More science, less art. After all, medical knowledge with predictive power is an impressive thing to witness:
The reform law doubles down on comparative effectiveness research, creating a Patient-Centered Outcomes Research Institute to fund and consolidate this research, and it gets specific on ways to improve the way health care is delivered. It tackles the primary incentive in our system for unnecessary care--a payment structure that pays per service, prioritizing quantity over quality--by experimenting with payment schemes that reward quality and limit hospital readmissions. It supports relatively new models of coordinated care, known as medical homes and accountable care organizations. Bundled payment initiatives will further being launched to encourage providers to coordinate care and deliver it in a cost effective manner.
The essential thing to understand here is that while there are dozens of initiatives in the law aimed at determining what works to lower costs and improve quality, they are experiments. That is, they're generally pilot (demonstration) projects operating on some limited scale (e.g. in a handful of states), though, to be clear, there are some things in there that aren't merely demonstrations. These changes, demonstrations or not, occur within the programs over which the government has primary authority: Medicare and Medicaid. But, excitingly, the reform law establishes a Center for Medicare and Medicaid Innovation that will be empowered to rapidly roll out successful experiments on a wider scale within Medicare and Medicaid (the assumption is that successful models will also spread to use in the private sector). We don't know exactly which mechanisms are going to work best, which is why the law takes an FDR-esque philosophy: "It is common sense to take a method and try it; if it fails, admit it frankly and try another. But above all, try something."
The shift here--and this goes back to the point I was making about the increasing emphasis on data-driven improvement--stands to be pretty fundamental: we're stumbling toward a future in which health is priced as an output good. Right now, we generally don't pay for health, we pay for procedures; if they don't work and you end up needing yet another procedure, so much the better for the provider accepting your payments (that's one of the volume-based incentives that drives up unnecessary care). One would think that this sort of shift is a necessary pre-condition for treating the health care market as a well-functioning market, as conservatives like Messrs Becker and Posner might like. But before that can work, we need some big changes in place. We need to start pricing health as an output good, we need transparent indicators (like reliable and accurate quality reporting) to aid shoppers, and we need readily available information on clinical effectiveness to better inform doctor and patient-as-customer alike when it comes to making medical decisions.
And those changes require laying down the appropriate infrastructure. If we're going to pay providers based on what works, we need to know what "working" is, we need the means to evaluate whether the criteria for that (whatever they may be) have been met, and we need doctors themselves to know what's most likely to work for a given patient in a given situation. And that requires an incredible capacity for processing information, whether that be collecting quality indicators from physicians via electronic health records or evaluating the comparative effectiveness of various treatments. But we're about to set off down that path. Exciting. But this law is the beginning of the journey, not the end. We'll need to continually tinker with it, building on its successes and frankly evaluating its failures, tweaking it, adding to it. Vigilance is the price of long-term cost containment.
The Demi-Decade of Coverage and the Long March Toward Cost Containment
And so, at long last, we arrive at the heart of the matter: are my premiums going to go down, are costs contained? As I intimated above, the reform law is extremely ambitious. It goes after the trifecta on the notion that cost, quality, and access can all be addressed without the need to sacrifice one. Access--which here I'm somewhat imprecisely using as a synonym for insurance coverage--is often the odd man out in our country but it's also the low-hanging fruit. Coverage is easier to address than are cost and quality, particularly when the primary strategy for reigning in long-term costs is based on improving the quality of our woefully inefficient system. And in the first decade of the reform law's existence--or, really, the first roughly half-decade, since the law doesn't fully kick in fully until 2014 and we tend to only think as far as 2019--will address coverage in a big way. This period is what I'd call the Demi-Decade of Coverage, because its most visible achievement will be insuring another 30-odd million people, fully ten percent of the American population. There will still be uninsured folks at the end of the decade--some by choice--but substantially fewer than there are today.
Meanwhile, the tinkering will begin. The Chainsaw of the excise tax will begin revving up at the end of the decade (2018) and the Scalpels of various payment and delivery system reforms aimed at constructing a smarter, leaner, more coordinated health system will make their first incisions over the next few years. It will take time for these programs to operate and be evaluated for effectiveness. The stimulus programs for encouraging adoption and meaningful use of electronic health records (i.e. health information) won't wrap up until 2021. All of this means that we can't really expect real cost curve bending to happen until the second decade of the law's existence (the 2020s). The primary cost control items operating over the next few years will be the insurance market reforms--which get all the press anyway--like the construction of the health insurance exchanges mentioned in my last post, which bring transparency and cost competition into state marketplaces. But those gains will be somewhat offset by the influx of newly insured people and the increasing quality of insurance plans available in the marketplace (read: benefit mandates). Which is exactly what the paper from the CMS actuaries that I opened this post with is saying:
For 2015–19, national health spending is now projected to increase 6.7 percent per year, on average—slightly less than the 6.8 percent average annual growth rate projected in February 2010. However, the year-by-year pattern of growth is anticipated to be different (Exhibit 5). Enrollment shifts associated with the Affordable Care Act coverage expansions are projected to continue, contributing to continuing relatively faster spending growth rates through 2016. Thereafter, spending growth is projected to decelerate more substantially as a result of Affordable Care Act–mandated reductions to Medicare provider payment updates and the excise tax on high-cost insurance plans starting in 2018.
The Demi-Decade of Coverage won't see total national spending change substantially, which is actually pretty impressive given the number of people who will be entering the system. Premiums will continue to rise faster than inflation year after year. It won't look like we've done much, except provide care to more people, which in some corners is considered laudable all by itself. But the Scalpels will be behind the scenes, finding the most precise ways to cut. And then the Chainsaw will begin at the end of the decade, giving even more urgency to the mission of the Scalpels--finding ways to ensure that the cuts the Chainsaw will force are targeted, smart, and don't harm population health. Frankly, I'm excited about these two very different cutting tools working together. I love the idea of the Scalpels and I believe that in the long run a number of them will be found to work pretty well, transforming our system into something much better in the process. But I also like that the threat of a buzzing Chainsaw will be lighting a fire under the Scalpels' asses.
But in the end, we'll have to have patient. Going for the trifecta is inherently a long-term process. We could lower insurance costs tomorrow by throwing as many sick people out of insurance pools as we can but I don't think that fits with the vision of what our health care system should--and can--be that many of us have. Too much Chainsaw, not enough Scalpel. So hang in there, the journey's just beginning. And if you've actually read all the way down to this point, I know you do have patience. This much-too-long post is now mercifully at an end.
At the heart of the new health reforms is a structure known as a heath insurance exchange. Or rather, between 50 and 100 of them, since each state will be constructing at least one and possibly two. You can read more about what this is here in a wonderful background piece from GWU's Health Reform GPS ("navigating implementation") project. Exchanges are essentially new, transparent, regulated (i.e. level playing fields) insurance markets.
Health insurance exchanges are designed to help individuals and small employer groups be better positioned to purchase high quality health insurance by creating “organized markets” that simplify the job of selecting and enrolling in coverage and securing performance information about available products. [...]
Health insurance exchanges are designed to overcome a basic problem, namely the lack of a robust, organized market for the purchase of health insurance by individuals and small business. In the absence of an organized market, the price of coverage rises because of the additional costs incurred in marketing to and supporting thousands of small customers. In addition, the lack of an exchange means the absence of an organized group of individuals and small business purchasers across whom the cost of coverage can be spread.
Having been tried before in various places, these aren't an entirely new concept. Some attempts, like the Commonwealth Connector in Massachusetts, seem to be working pretty well. Other attempts, like those made in California, Texas, and North Carolina in the past, have failed for various reasons. States have between now and January 1, 2014 to design their exchanges; the failures of some previous efforts underscores the importance of getting that design right.
Switching gears for a moment, you've got to love the Heritage Foundation. Recently they lauded some health reform experiments Utah has been conducting in this piece: Consumer Power: 5 Lessons from Utah’s Heath Care Reform. Of course, being hacks who they are, they had to get in a gratuitous shot at the federal reform law:
The new federal health legislation is deeply unpopular, highly disruptive, unaffordable, and subject to extensive and growing litigation. As a result, it might be repealed or substantially altered by a future Congress.
Contrast that with the glowing review they give to Utah's reforms:
Utah’s specific model could yield positive results in other states, but states should adapt Utah’s broader approach to their own individual markets and conditions. Utah’s reform agenda provides a blueprint to empower health care consumers through conservative principles of free enterprise and consumerism. Utah’s experience provides general lessons for every state about how to establish an affordable quality health care system.
But what element lies at the center of the reforms in Utah? As you can probably guess from the context of this post, it's a health insurance exchange. In fact, they just took their pilot program statewide a little over a week ago:
Employees of participating Utah businesses can now use the exchange to "shop" for health insurance policies that best fit their individual needs, similar to arming employees with a debit card of sorts, to use for health insurance. If an employee desires a more expensive plan than what the employer covers, the employee would then make up the difference themselves. The defined contribution component, according to Utah's Office of Consumer Health Services spokesman Matt Spencer, is the cornerstone of the exchange system.
Rather than have one or two options that are pre-selected by their employers, workers can choose from more than 60 different plans from four of Utah's largest insurance companies: Humana, Regence, Select Health and United Healthcare.
By state statute, all plans offered through the Utah Health Exchange must meet federal standards for employer-sponsored coverage, which ensures all plans offered provide quality coverage from responsible carriers. It is also expected that the element of consumer choice — employees selecting their plans directly from carriers — will put downward pressure on prices and upward pressure on coverage quality.
They especially like the "defined contributions" aspect of Utah's exchange. That means instead of having an employer choose a plan or small menu of plans for its employees (as my employer does), the employer instead makes a set contribution toward the employee's plan, which the employee is free to choose from any plan offered in the exchange. Under that design, employers still contribute to their employees' plans but the employees have much greater choice and thus the market itself experiences much more competition between plans. I can see why Heritage likes it.
How does this jibe with the federally mandated health insurance exchanges? Well, it depends. Federal guidance is still forthcoming but as this great look at the policy issues surrounding the exchanges can attest, these new exchanges may well operate by exactly the same rules as Utah's exchange:
The ACA sets out in some detail the size of the employers that may participate in the exchange but is less clear as to how exactly employer participation would work. A “SHOP exchange” is identified but not described in the legislation. It could possibly be intended as an exchange in which small employers themselves purchase group plans for their employees. This would seem to be consistent with section 1312(f)(2), which defines a qualified employer as an employer “that elects to make all full-time employees of such employer eligible for 1 or more qualified health plans offered in the small group market through an Exchange.”
Elsewhere, however, the ACA seems to countenance an arrangement under which small employers play a more passive role, simply contributing to the premiums used by their employees to purchase insurance as individuals. For example, the law states: “A qualified employer may provide support for coverage of employees under a qualified health plan by selecting any level of coverage under 1302(d) [bronze, silver, gold, or platinum] to be made available to employees through an Exchange.”143 The provision goes on to say that employees may choose any plan within the tier of coverage chosen by the employer.
If things go as described in the second paragraph, the exchanges in every state will work just like Utah's new exchange. And then we can eagerly await a Heritage piece praising the federal health reform law. Or perhaps scrubbing their website of any positive mentions of Utah's reforms. Reversing (and attacking) their positions once Democrats adopt them wouldn't exactly be new for them.
In 1990, at a time when Democrats leaned toward an employer mandate, Heritage presented an alternative, in line with the conservative catch-phrase "individual responsibility":
The second central element-in the Heritage proposal is a two-way commitment between government and citizen. Under this social contract, the federal government would agree to make it financially possible, through refundable tax benefits or in some cases by providing access to public-sector health programs, for every American family to purchase at least a basic package of medical care, including catastrophic insurance. In return, government would require, by law every head of household to acquire at least a basic health plan for his or her family.Thus there would be mandated coverage under the Heritage proposal, but the mandate would apply to the family head, who is the appropriate person to shoulder the primary responsibility for the family's health needs, rather than employers, who are not. By no longer restricting tax relief for medical care to employer-provided plans, and by restructuring tax assistance to help those Americans most in need, the Heritage proposal significantly would improve the American health system.
And in case you're wondering, this isn't just an idea they toyed with twenty years ago and then dropped. As recently as 2003, the individual mandate appeared in proposals offered by Heritage staffers to Congress:
The current social contract should be replaced with a more rational one. In a civilized and rich country like the United States, it is reasonable for society to accept an obligation to ensure that all residents have affordable access to at least basic health care - much as we accept the same obligation to assure a reasonable level of housing, education and nutrition.
But as part of that contract, it is also reasonable to expect residents of the society who can do so to contribute an appropriate amount to their own health care. This translates into a requirement on individuals to enroll themselves and their dependents in at least a basic health plan - one that at the minimum should protect the rest of society from large and unexpected medical costs incurred by the family. And as any social contract, there would also be an obligation on society. To the extent that the family cannot reasonably afford reasonable basic coverage, the rest of society, via government, should take responsibility for financing that minimum coverage.
The obligations on individuals does not have to be a "hard" mandate, in the sense that failure to obtain coverage would be illegal. It could be a "soft" mandate, meaning that failure to obtain coverage could result in the loss of tax benefits and other government entitlements. In addition, if federal tax benefits or other assistance accompanied the requirement, states and localities could receive the value of the assistance forgone by the person failing to obtain coverage, in order to compensate providers who deliver services to the uninsured family.
Let's hope the "general lessons for every state about how to establish an affordable quality health care system" learned from Utah indeed spread to the health insurance exchanges in every state, facilitated by a Democratic health reform law. I can't think of a better way to make Heritage despise them.
TJ's comment to his post the other day reminded me that we haven't really discussed implementation of the new health reform law yet. There were a number of posts in the run-up to its passage last March but I suppose at some point we should talk about what's happened since then and what happens next. But it would take days to recount all we've witnessed! So, settle in.
There are lots of graphics out there to illustrate how public policy gets made and put into action. I rather like this one:
Many years were spent forming most of the ideas that went into the reform legislation and almost 9 months was spent hammering it into a shape that could pass through Congress (the first of the reform bills was introduced in Congress at the beginning of the summer of 2009 and Obama signed the final law last spring). We are, happily, out of the main part of the formulation phase. We've now proceeded into the realization phase with implementation in full swing. I believe most observers would agree that implementation is the hardest stage on that chart--taking the policy as passed by Congress and making it work on the ground, out in the states is going to be tough. Unintended consequences are going to crop up, mistakes are going to be made, some implementation decisions are going to turn out to have been the wrong ones. So while this is the most challenging and exciting part of the whole process, it's also the one most easily attacked. TJ had asked about the griping that's been going on and we're going to go through that as we look at each piece of the law that's been implemented so far. (What I do, by the way, mostly falls under dissemination with the aim of furthering implementation. But most of it is only incidentally related to reform.)
But first I think it's important to note that, though lost in the sharply defined color scheme of that chart, the distinctions between different stages of phases of the policy process are generally a little murky. The implementation phase we're in right now actually involves quite a bit of policy formulation: in this case, it's called administrative rulemaking.
Legislation is often vague. It knows, in general, what it wants but the nitpicky details are left to someone else: experts in the the executive branch. Let's take an example. I'm sure you know that the legislation allows dependents to stay on their parents' insurance up to the age of 26, so people aren't (as I was and I'm sure some of you were) thrown off their parents' insurance shortly after graduating from college. But what does the law actually say about who counts as a "dependent" (a definition one would think is pretty important to this particular provision)? Nothing:
`(a) In General- A group health plan and a health insurance issuer offering group or individual health insurance coverage that provides dependent coverage of children shall continue to make such coverage available for an adult child (who is not married) until the child turns 26 years of age. Nothing in this section shall require a health plan or a health insurance issuer described in the preceding sentence to make coverage available for a child of a child receiving dependent coverage.
`(b) Regulations- The Secretary shall promulgate regulations to define the dependents to which coverage shall be made available under subsection (a).
The legislation is full of "the Secretary shall"s. Who is the Secretary? It can vary depending on which part of the law we're talking about but for most things it refers to the Secretary of Health and Human Services, Kathleen Sebelius. Sebelius, formerly the governor of Kansas (and daughter of Ohio's 62nd governor, John Gilligan), isn't actually going to sit down and write the definition herself. "The Secretary shall" is just another way of saying "somebody at HHS shall" because this task falls to experts employed by the Department of Heath and Human Services: that's right, bureaucrats!
This is a theme we'll keep coming back to: definitions are hugely important and, as we'll see, it's not just HHS that's formulating them right now. When you control the definition, you can dictate the outcome of the policy you're implementing. And the shape of the dreaded unintended consequence will depend in large part on what the definitions and regulations turn out to be.
The shaping of regulations generally follow a certain formula. First, the relevant agency (for the purposes of this law, usually a subdivision of HHS) writes a proposed rule. This is then publicly posted for some period of time--usually 60 days--and public comments are accepted. That's right, you can weigh in on these proposed rules if you so desire. Once the comment period closes, the agency will review all of the comments, make revisions to the proposed rule as needed, and then release a final rule that then has the weight of law (sometimes they start off by releasing an "interim final rule" which goes into effect and has the weight of law immediately; these rules still have a comment period and are revised, they just happen to be in effect while they're being commented on and revised). If you find all of this as fascinating as Hermes and I do, I encourage you to take a look at the Reg Map, which summarizes the process with a handy graphic.
So let's jump into the specifics of implementing this law. As you can imagine, states and feds alike are very, very busy at this point. Though the biggest parts of the law don't kick in until 2014, lots of things are happening between now and then (not to mention that states need to get prepared for the big ticket 2014 items). You can see many of those things on this timeline. We'll walk through some of the things that have happened so far and look at what certain folks have bitched about with regard to them.
What has happened so far?
Before we get into the meat of this, I'll note one thing: state Medicaid programs (i.e. the government health insurance program for the poor) will be expanding to cover lots more people starting in 2014. States have the option to start expanding now if they so choose. Connecticut is the only state I know that's done so this year. So that's one thing. On to the required stuff.
HealthCare.gov. We'll start with my favorite, HealthCare.gov. The law directs HHS to get a website up and running that allows shoppers to see all the health insurance options to them in every state. This will connect you to a high-risk pool if you're eligible, or Medicaid, or show you all of the private insurance options available to you. Right now it lists all the plans available in your area but it's a work in progress--comparative price information is supposed to be added to it by October so you can see side by side what each insurer will charge you for a policy. The website has much more than that, however. It has all sorts of information on the law itself (the timeline I linked to above is from there) and federal health care improvement efforts in general. And it keeps improving. This week they released a widget that allows you to embed the insurance search feature anywhere on the web you want:
Give it a go. I don't actually think I've heard much griping about this website (a step toward making a more transparent marketplace for health insurance), other than that some conservatives don't think it's necessary. But that's a bit of a half-hearted criticism.
The Pre-existing Condition Insurance Plan. Quite a few people aren't able to buy insurance because they have a pre-existing condition or an otherwise blemished medical history. Some states have historically tried to deal with this population by forming special, heavily subsidized insurance pools for these high-risk populations. Under the reform law, every state is receiving funding to set up high-risk pools which means that states which didn't have high-risk pools (like Ohio) now have one for the first time. States had a choice of whether they wanted to run their state's pool or have the Department of Health and Human Services run it for them. Around 20 states are letting HHS run their high-risk pools and, in those states, applications for the pool started going out at the beginning of July. The states running their own pools were often a little behind schedule; for example Ohio's high-risk pool started accepting applications at the beginning of August. But the bottom line is that these pools are now up and running and formerly uninsurable people are starting to get coverage through them.
Are there gripes to go along with this? Oh my, yes. First, it's important to understand that these pools are temporary. They exist only through the end of 2013. On January 1, 2014 every state will have a new health insurance exchange in which every participating plan will be required to offer coverage to anyone who applies, without any variation of the premium based on medical history. At that point, "uninsurable" people with pre-existing conditions will be able to buy the exact same coverage--at the exact same price--as you and me. In the original health care bills introduced last summer, that was it. Nothing happened between now and the opening of the exchanges (which was in 2013 in the House bill and 2014 in the Senate bill; a version of the latter eventually became law). In order to ease the suffering between now and then (the suffering of both the uninsurable and the Democrats in the two elections that occur before the law goes into full effect), the high-risk pools were funded to exist from last month through the end of 2013.
The problem is that they were given $5 billion to last through 2013. Several experts have suggested that if these pools are to last that long, they should've been given at least three times as much money. As such, the pools have to try and conserve money. At a practical level that means two things: 1) insurance through them isn't cheap (though insurance through a high-risk pool never is), and 2) some people are probably going to have to be turned away. Those were the predictions anyway. Now that the pools are up-and-running (albeit only for a very short time), it looks like (1) might be taking care of (2). New plans for the uninsured are off to a slow start:
About 3,600 people have applied and about 1,200 have been approved so far in state plans that started in the beginning of July, according to data from the states and federal government. Officials say the new plans, although a better deal than anything comparable on the private market, still may be unaffordable for many people. Eligibility requirements are another possible barrier. And states have had little time to publicize the plans.
It’s too soon to gauge the program’s impact. The plans won’t be up and running in all the states until September. But some officials are surprised.
"It’s early, but thus far interest in the program is lower than we expected," said Michael Keough, executive director of the North Carolina Health Insurance Risk Pool, which started July 1. As of Tuesday, 314 people had applied and 158 had been approved.
GettingUSCovered, Colorado’s program, has received 204 applications; 108 people are enrolled. It’s a “very low number given that there are hundreds of thousands of uninsured in the state,” said Suzanne Bragg-Gamble, the executive director.
Are the criticisms justified? Well, ideally the programs would have more money to work with so the coverage could be more affordable and cover more people. They are, however, only a stopgap (and one that originally wasn't even in the laws) to hold us over until the main attraction arrives in 2014 so it's hard to be too down on these programs. But it's not easy to take seriously the people pre-emptively declaring the program a failure, at least if they're Republicans. They forget that in this law, high-risk pools are not a long-term solution for the problem of the uninsured. Yet in the Republican repeal-and-replace law, they are the solution: high-risk pools are set up in perpetuity to deal with the uninsured. Fun fact: the Republican bill would allocate $3 billion to the high-risk pools through the end of 2013, or 40% less than the actual law allocates to them over the same time period (though funding does ramp up a little bit later on in the Republican bill; obviously in the real law these pools won't exist later on because they won't be necessary).
The other gripe leveled at the high-risk pools is that when New Mexico and Pennsylvania were writing their proposals, it looked like both states would potentially allow elective abortions to be funded through their pools. Since the pools are being funded with federal money, this is a big problem. Federal funding--your taxes!--should never go to pay for such morally reprehensible things (on an unrelated note, taxpayers who question the morality of using taxpayer money to kill Afghans are shit out of luck). Of course, this turned out to be a non-story as HHS worked quickly to roll out its regulations, which clarified that elective abortions wouldn't be covered in the federal high-risk pools.
Early retiree reinsurance program. The law also creates a program to help support the health costs of retirees who are older than 55 but not yet old enough for Medicare (i.e. they're under 65). They started collecting applications for it in July. Like the high-risk pools, this is just intended to last through the end of 2013. And, also like the high-risk pools, the primary gripe is that it didn't get allocated enough money and the funds won't last through 2013. We'll have to see.
Tax credits to small businesses. Businesses with less than 25 employees and average wages less than $50,000 are eligible for tax credits to help them pay for some of the costs of offering their employees health insurance (up to 35% of the employer's costs, in fact). The idea is that small businesses employing relatively low-wage workers often don't offer health insurance, so this will help them to do so.
The criticism from some has been that it doesn't target enough businesses (no word on if the people leveling this criticism are the same ones who think the law is too expensive). And here's where we get into dueling figures from business associations. A study commissioned by Small Business Majority (pro-reform) contained good news for small businesses:
Key findings
● More than 4 million (4,015,300) small businesses will be eligible to receive a tax credit for the purchase of employee health insurance in 2010. That’s 83.7 percent of all small businesses in the country (see Table 1 on page 3 of the PDF). ● In 11 states, more than 90 percent of small businesses will be eligible to receive a tax credit in 2010. These states are Arkansas (94.2 percent), Montana (94.0 percent), Nebraska (93.8 percent), South Dakota (93.6 percent), Mississippi (93.2 percent), Indiana (92.9 percent), North Dakota (91.9 percent), Missouri (91.8 percent), Iowa (90.8 percent), West Virginia (90.3 percent), and Maine (90.1 percent) (see Table 1 on page 3 of the PDF). ● Approximately 1,198,700 American small businesses will be eligible to receive the maximum tax credit in 2010 (see Table 2 on page 4 of the PDF).
But the National Federation of Independent Business (not so hot on this law) says the number of eligible small businesses is actually much lower (that link has side by side comparisons of the NFIB and SMB estimates of what percentage of small businesses in each state qualify). Why the disparity? Well, NFIB has a funny (very restrictive) definition of "eligibility." They astutely point out that a small business that satisfies all of the criteria but doesn't offer health care won't be eligible for the tax credit to cover part of its health care expenses. They thus move such a business into the ineligibility column.
But, as I said, one of the aims of the tax credit is to get small businesses that don't offer coverage now, whether due to costs or some other reason, to start. So a huge chunk of the target businesses are just dropped out of NFIB's calculations because they don't offer coverage today. That's a bit like saying a high school senior is "ineligible" for a Stafford Loan because he isn't in college today. Well, sure, I suppose that's technically true. But he will be eligible for a federal student loan the moment he decides to go to college--and you could say that, in part, such loans are intended to help him make the decision to attend college. If you were to use NFIB's understanding of eligibility, the federal student loan program is a complete disaster because every graduating high school senior is ineligible for participation. Makes you wonder how anyone ever manages to afford college...
NFIB also focuses on the requirement that the employer pay at least half of the cost of the employee's health plan in order to qualify for the tax credit. Businesses that don't do so today are considered ineligible for the tax credit. But, again, one of the goals of the tax credit is to alter employers' behavior and give them a reason to shoulder more of the burden of the company's health plan. If you're a small business owner who's otherwise eligible for the tax credit but you only pay 45% of your company plan's health costs today and let your employees pay 55%, are you really not going to increase your share to 50% (or more) in order to have the government pick up 35% of your tab? Small Business Majority would count such a business owner as eligible for the tax credit (even though he has to alter his behavior/practices to claim it), while the National Federation of Independent Business would not. Personally, I think NFIB is trying to pull a fast one with these numbers by playing dumb. Because their argument is dumb.
Gradual closure of the Medicare donut hole. Medicare started paying for prescription drugs a few years ago. But it does a funny thing. If you have medication expenses, you'll pay your deductible and then up to $2,700 Medicare will pay 75% of your medication bill. But then between $2,700-$6,154 they pay nothing. If your expenses go higher than that, they'll meet you on the other side: for expenses above $6,154 they'll pay 95% of your medication costs. But there's a big chunk in the middle where the elderly are on their own. This law will slowly close that hole over the next decade. They started in June by mailing out $250 rebate checks to Medicare recipients who are in the donut hole. That's not much compared to the $3,400 hole but it's something.
The criticism from some has been political: mailing checks to old people in an election year is an attempt to "buy" the election. I wouldn't go quite that far but certainly the Democrats are targeting the elderly, who remain the demographic most suspicious of the reform law. Medicare even put together an ad with Andy Griffith trumpeting the benefits of the new law, which I find kind of funny. Are old people really so stereotypical that all it takes to sway them is the assurances of Matlock?
Premium oversight. A common charge made against this law was that it would (and now the charge is that is already has) send health insurance premiums skyrocketing. But an insurer can't just raise premiums for no reason, or in anticipation of someday having a reason. The law requires insurers to justify "unreasonable premium increases" to the state and the feds (this is one of those key terms that will have to defined by HHS through a rulemaking process). Insurers can be excluded from the health insurance exchanges--i.e. the new individual marketplace in which everyone receiving a federal subsidy to buy health insurance will be--"based on a pattern or practice of excessive or unjustified premium increases."
Various states already have some kind of premium oversight system in place: 26 states and Washington, D.C. can actually reject proposed rate hikes from insurers. Other states at least require advance notice and review, even if they can't actually stop the premium increases. The law offers grants to states to beef up their premium oversight structures in order to keep an eye out for "unreasonable premium increases" (whatever the definition of those turns out to be). HHS awarded the first of these grants to 45 states and D.C. just over a week ago:
States have proposed to use this funding in a variety of ways.
● Additional Legislative Authority: 15 States and the District of Columbia will pursue additional legislative authority to create a more robust program for reviewing or requiring advanced approval of proposed health insurance premium increases to ensure that they are reasonable; ● Expand the Scope of Health Insurance Premium Review: 21 States and the District of Columbia will expand the scope of their current health insurance review, for example by reviewing and requiring pre-approval of rate increases for additional health insurance products in their State. ● Improve the Health Insurance Premium Review Process: All 46 State grantees will require insurance companies to report more extensive information through a new, standardized process to better evaluate proposed premium increases and increase transparency across the marketplace; ● Make More Information Publicly Available: 42 States and the District of Columbia will increase the transparency of the health insurance premium review process and provide easy-to-understand, consumer friendly information to the public about changes to their premiums; and ● Develop and Upgrade Technology: All State grantees will develop and upgrade existing technology to streamline data sharing and put information in the hands of consumers more quickly.
You can get the state-by-state specifics of what states already do and what they're going to do with this grant here (there's that HealthCare.gov again!). I'm not familiar with any gripes about this, other than the standard "big government takeover" thing, generally from people who also complain about unreasonable premium increases.
What's About to Happen?
Lots of provisions are about to kick in for plan years starting after September 23 of this year. That means whenever your health insurance plan renews after that date, the provisions are in effect for it.
Extension of dependent coverage. This is the bit about staying on your parents' plan until you're 26. I don't think the rules for this provision we talked about above are out yet. The gripe is that this makes a mockery of the notion of personal responsibility and extends adolescence into one's late twenties. Note that the Republican repeal-and-replace bill has the same provision.
Free preventive care. After September, certain kinds of preventive care must be free at the point of care (i.e no co-pay). These are evidence-based preventive measures: things with high ratings ('A' or 'B') from the United States Preventive Services Task Force and immunizations recommended by the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention.
The gripes on this one are that this is not cost effective and will raise costs and increase utilization. This is true, premiums are estimated to rise about 1% because of this feature.
Ending rescissions. Rescissions are when an insurance company comes us with a clever reason to cancel coverage and get rid of a potentially expensive individual. This will not be allowed starting in September. I don't believe anyone opposes this (even the Republican repeal-and-replace law ends rescissions).
Eliminating lifetime benefit caps, regulating annual benefit caps. Starting in September, plans can't set a lifetime limit to what they'll spend on you, nor can they put unreasonable caps on annual benefits. Like several of the things we've discussed so far, these are bipartisan ideas and are included in the Republican repeal-and-replace bill.
But the gripes are plentiful on this one. Health plans offered by colleges may be threatened by this provision (and a few other provisions, like the medical loss ratio requirements discussed below), as may limited-benefit "mini-med" plans sometimes offered to low-wage workers.
Coverage for kids with pre-existing conditions. Adults with pre-existing conditions can't be turned away by insurers starting in 2014; until then, they'll have to make due with the high-risk pools. Kids (really, anyone under the age of 19), on the other hand, were protected by so-called "guaranteed issue" rules starting this year. Or at least they were supposed to be. In an embarrassing turn of events, it turned out that the staff lawyers who wrote the text of the bill made a little error so that law, if taken literally, only requires insurers to cover pre-existing conditions for kids they're covering. That's not a real guaranteed issue rule, as it doesn't require them to accept children with pre-existing conditions who are applying for insurance; legally, it seemed, they could still turn children away (until 2014). HHS worked to resolve this, partly through regulations, and largely got agreements from insurers to play ball.
Still, some insurers in Florida announced a month ago they wouldn't be issuing new coverage to kids--any kids. That's a bad unintended consequence (gripe! gripe!). Within a week HHS had issued guidance clarifying that insurers are free to set up open enrollment periods (i.e. issuing new policies for only one month a year and not allowing people to get new policies any time they like). Insurers announced they'd resume the sale of child-only policies.
There are other, slightly smaller provisions rolling out this year and next but there's one more major one I want to hit on:
Medical loss ratios. Under the new law, health insurers will have to spend at least a certain percentage of the money they take in through insurance premiums on actual care (this will be starting next year). This percentage--known as medical loss because premium money that goes toward providing care is considered a loss in the insurance world--will be 85% for the large group market and 80% for the small group and individual markets. If insurers spend less than that percentage of premium revenue on care, they have to send the difference back to their customers through a rebate.
But definitions are everything. HHS ultimately gets to decide, through the rulemaking process, on what counts as care but they're directed to take advice from the National Association of Insurance Commissioners, who are doing the heavy lifting on sorting this one out. Just over a week ago, NAIC approved a definition for what sorts of things will count as medical care. They came out with drafts of the actual forms insurers would have to fill out--known as blanks--to show they're meeting the law's requirements. I think it's actually too soon for anyone to have gotten many gripes in.
Anyway, that should give you a good idea of how implementation has been rolling out. In addition to the more immediate things we've been considering here, states are starting to get going on planning for the big items down the road (namely, the construction of health insurance exchanges and the expansion of their Medicaid programs). Tough stuff but they're working on it.
