Mid-February Update

by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.

From the Week of April 16, 2018

Get Ready to Discuss Things Like “Medicare for Everyone”

Regardless of what you think about a “single-payer” health care program, a debate on the issue will be coming, and coming soon. Due in large part to the political winds that are currently blowing in the direction of Democratic Congressional candidates. If the Democrats take the majority of the House and/or Senate in the upcoming midterm elections, well then, we can expect a hearty debate on a “single-payer” health care program, along with an examination of hybrid “public option”-like programs. Even if the Democrats do not take the majority in either the House or Senate, I believe Democrats will slowly turn-up the volume on the “single-payer” issue as we inch closer to the start of the Presidential campaign season (due in large part to the fact that the Democrats will have a wide-open “primary” season that will likely begin in January 2019). At this stage of the game, “single-payer” and “public option”-type programs are the top alternatives among Democrats when it comes to health care reform. And, with the failure of ACA “market stabilization,” a strong argument can be made that “single-payer” and “public option”-type programs are the ONLY alternatives among Democrats when it comes to improving the ACA.
- Analysis: Another reason we are talking about “single-payer” today is because Sen. Murphy (D-CT) and Sen. Merkley (D-OR) just introduced an interesting proposal that is NOT “single-payer,” but instead, is a hybrid “public”-like program called Medicare Part E. Under this proposal, employers can actually sponsor an employer plan that actually is this Medicare Part E program. In addition, uninsured and “un-subsidized” individuals seeking coverage in the individual market can “buy into” the Medicare Part E program. And, subsidized Exchange planholders can use their premium subsidies to purchase the Medicare Part E plan (actually the proposal increases the eligibility for the premium subsidies to 600% of the Federal Poverty Level (instead of 400%)). The way that I understand the program is that Medicare Part E will cover the same benefits that Medicare covers. But, the program will cover other benefits that Medicare does not cover like maternity and pediatric care. It is also my understanding that – like the current Medicare program – Medicare Part E will NOT pay hospitals and other medical providers at the rates private insurance pays them today. Rather, payments to hospitals/medical providers will be lower. BUT – unlike the current Medicare program – the payments to hospitals/medical providers under Medicare Part E will actually be higher than existing Medicare rates. In essence, this Medicare Part E program will find a middle-ground between (1) what Medicare pays and (2) what private insurance pays. It is more-or-less a price control that proponents of the program hope will satisfy the provider community who always prefer private insurance rates because they are higher than any of our nation’s “public” programs. BTW, I am not sure it is going to convince the provider community to be supportive. But, there is merit to the idea of trying to level-the-playing-field when it comes to payment rates under private insurance and Medicare. But, the provider community still won’t like it because they will want the higher private insurance payment rates to help subsidize the even-lower-than-Medicare-payment-rates in Medicaid. Just sayin.’ Proponents of the Medicare Part E plan argue that employers and individuals should have a choice between (1) private insurance and (2) a Medicare-like plan. These proponents also argue that costs will be less due to Medicare’s low administrative costs (although proponents do not also admit that costs will be less because provider payments will be lower than private insurance). Opponents of this idea argue that this type of Medicare “buy-in” program will kill private insurance. I actually look at things differently. A strong argument can be made that it will be Medicare who could get killed. That is, the lower costing Medicare plan may result in employers dumping their older and less healthy employee populations into the Medicare Part E program. This could skew the Medicare Part E risk pool. Yes, the sheer size of the Medicare Part E risk pool may be so large that it can absorb this dumping. But maybe not. And who might be the loser in the end? Answer: The taxpayer. Because the taxpayer would be asked to pay more in taxes to fund a skewed risk pool, all-the-while the private employer market continues to chug-along unabated. I am not suggesting it will play out that way, but it does make you think. And, it leads me to say this: If the debate over “single-payer” and “public option” programs is going to make its way to the forefront – which I think it will – a counter-weight to this debate is a discussion of how private employers are adopting innovative and creative strategies to help control health costs and improve quality. Employers leading the charge here are primarily large self-insured employers who are adopting various value-based care strategies like employer-run ACOs, bundled payments programs (through, for example, a “Centers of Excellence” program), reference-based pricing, employer-direct-to-provider contracting, and utilizing transparency tools. Look, I recognize that value-based care strategies are not a “silver bullet.” But, paying for quality as opposed to volume will have a beneficial impact on the overall cost of our health care system. In addition, developing more shared risk-models will improve quality and health outcomes. How do I know? Because employers that have already put these value-based care strategies into practice have tangible data that shows tangible savings and positive health outcomes relative to fee-for-service. In my opinion, we need more of these value-based care strategies incorporated into Medicare and Medicaid. Not the other way around (i.e., not private individuals and employers “buying into” Medicare and Medicaid). Just sayin.’

From the Week of April 23, 2018

California Proposes “Price Controls” on the Cost of Medical Procedures and Services Paid Through Private Insurance

For the reasons I discussed in last week’s update (see attached update), I am going to start a “Single-Payer” Update section going forward (i.e., as the “political” season starts to heat up – as we near the mid-term elections and the 2020 Presidential election cycle – I believe we are going to hear more and more about single-payer and “public option”-like programs).
- Analysis: Look, I do NOT think we will ever get to a single-payer system. I believe we are too much of a capitalist society. And, I believe that the stakeholders in the health care industry – with their heavy-weight lobbying – would NEVER let our nation’s policymakers enact a single-payer system. There are also questions about the sustainability. Based on what we have seen in Vermont, California, and Colorado, the cost of establishing and maintaining a single-payer system appear to be unsustainable (that is why none of these States were able to put a single-payer system in place). BUT, it’s not as if government spending under our current health care system is sustainable either. And, employers are getting to a point where there are limited cost-containment strategies they can incorporate into their health benefits offerings to keep costs low. For example, shifting the ever-increasing cost of health care onto employees is reaching a breaking-point (e.g., the increased cost-sharing is itself becoming unsustainable for employees). Wellness programs – while increasing productivity and presenteeism – does not produce material cost reductions when measured against the investment made in these programs. Tele-medicine offerings should help, but we have seen some instances where high fees and over-utilization limits overall savings. You have heard me talk about value-based care strategies like bundled payments, shared risk models, reference-based pricing, etc. Some savings are produced under these types of programs, but these strategies are not a “silver bullet.” So what’s the answer? Single-payer? As stated above, I do NOT ever see single-payer becoming a reality. But what I do see is “shades” of single-payer. What I mean by “shades” of single-payer is this: The program is not true single-payer, but it’s a policy change where the government dictates the terms of the health coverage – in addition to the cost of the coverage – NOT the private markets. As you know, one “shade” of single-payer is some form of a “public option” health plan, where the government is the “payer” of the health coverage, typically at lower payment rates than private insurance. Another “shade” of single-payer is price controls, where the government “sets” the price for various medical procedures and services. We all know there are already variations of price controls throughout our health care system, most notably in our “public” health care programs, but in limited cases for “private” insurance too. For example, many argue that the Medical Loss Ratio (MLR) rules are a form of a price control. But – at least up and until now – the Federal government has not proposed “setting” prices for specific medical procedures and services. Are we on the precipice of government price controls, especially in light of everything I mentioned above?? Well, Maryland is already doing it, and California is now proposing to “set” medical prices for private insurance. Under the California proposal, a State “Board Authority” would regulate prices for medical procedures and services. The “set” prices would represent a percentage of Medicare prices. For example, the price for a doctor visit might be the Medicare price +10%, or the price for an appendectomy might be the Medicare price +15%, or the price for a colonoscopy might be the Medicare price +2%. You get the picture (not literally though). So in essence, while the government would NOT be running a health program and serving as the “payer” for coverage, the government WOULD be regulating the prices for private insurance. And, the “set” price would be payable under every insurance contract to every provider for the same medical procedure or service. No discounted/negotiated prices that often times vary widely from provider to provider for the same medical procedure and/or service. BTW, there is merit to trying to provide more uniformity in prices for the same medical procedures and services. To an extent, this is one the ultimate goals of increasing “transparency” and moving to a value-based health care system that operates based on uniform “standards” and “performance measures.” That is, through increased “transparency,” consumers will know the price they are paying for medical procedures/services, which should promote competition not only on price, but providers will likely compete on “quality” (and therefore – as the theory goes – the bar will be raised on the “quality” of care and “health outcomes”). A value-based health care system also determines payment rates based on “quality” and “health outcomes,” with the hope that these incentives will encourage providers to up-their-game so we have more providers providing better “quality” of care (kind of a-rising-tide-raises-all-boats theory). But that is NOT what California is doing here. Instead, California is pursuing a “shade” of single-payer which is intended to help control overall costs, and provide a much more uniform pricing system for medical procedures and services. But, a strong argument can be made that price controls will NOT improve “quality” or “health outcomes.” Proponents of this all-payer rate setting concept may disagree with me though. Last comment: In my current practice, I have the opportunity to give a lot of presentations and participate in table-talk-type discussions with stakeholders. Often times someone will say, “The reason why premiums and out-of-pocket costs are so high is because the price of health care is so high.” Another person will say, “Well, how do we lower the cost of health care?” Then, there is a deer-in-head-lights moment where no one knows how to respond. Often times I say, “Value-based care is arguably one way to reduce the cost of health care.” But I also say, “Price controls could arguably do it too.” Are we really at a point where the only 2 pathways to lowering health care costs is (1) Value-Based Care or (2) Price Controls? They are 2 vastly different strategies for sure.

“Shades” of Single-Player Update

As Value-Based Care Efforts Lag, Push for Price Regulation Gains Momentum

I forced you to read the above posts to say this: Harris Meyer with ModernHealthcare wrote a really good story highlighting the 2 different pathways – (1) Value-Based Care or (2) Price Controls – that I discussed almost a year ago. The article (embedded in the title above) rightly observes that due to the shift in politics, the idea of Value-Based Care is losing out to the idea of Price Controls. ven the Trump Administration is flirting with “price controls” with HHS’s drug pricing proposal that calls for U.S. drug prices to mirror the cost of prescription drugs sold in European countries.
- Analysis: Also, a recent report issued by CMS’s independent Office of the Actuary adds fuel to the argument that “price controls” are needed. In its report, CMS’s actuary said that health care spending will increase by 5.5% per year over the next decade. Interestingly, the increase in health care spending will NOT be primarily due to utilization. Yes, there will be increased enrollment in Medicare due to baby-boomers retiring and aging onto Medicare – and also increased enrollment in Medicaid due to new States recently expanding Medicaid (e.g., ID, ME, NE, UT, and VA) – BUT, the increase in health care spending will primarily be fueled by the cost of care. For example, CMS’s actuary found that nearly half of the projected 5.5% increase in health care spending over the next decade will be due to price increases, while just 1/3 of the spending growth will result from increased utilization. Another report on health care spending comes from the Health Care Cost Institute (HCCI), where HCCI looked at health care spending growth in private insurance plans. The report also confirmed that increased prices – as opposed to increased utilization – are the drivers. For example, the report found that spending on inpatient care increased by 10% between 2013 and 2017, while utilization decreased by 5% during that same window of time. Similarly, spending on outpatient surgeries during that time increased by 14%, even as the number of surgeries declined by 4%. And, the cost for emergency room visits increased by 24%, while utilization only increased by 10%. Why are health care prices going up when people are using less health care? Many attribute the increase to consolidation within the industry. For example, hospitals buying up physician practices, hospitals merging with other hospitals, and other mergers like CVS-Aetna, Cigna-Express Scripts, and other PBM/insurance carrier marriages. There is merit to this argument. For example, physician practices owned by hospitals increased from 27% to 48% from 2011 to 2016, which researchers found led to a 9% price increase for specialist outpatient procedures and a 5% price increase for primary-care outpatient procedures. Other research has found that hospital consolidation results in inflated prices due to pure market domination. And everyone is still trying to figure out where all the money goes when drug manufacturers negotiate rebates with PBMs. What about cost-shifting? Is cost-shifting the reason why the growth in health care spending for private insurance is driven by health care prices, as opposed to utilization? In my opinion, YES, it is definitely a driving factor, although some seem to argue that there is no cost-shifting going on. My response: Come people, I don’t have to be an economist or an actuary to know that if hospitals and physicians are getting 80 cents on the dollar under Medicare – or say 60 cents under Medicaid – the hospitals and physicians have to make up for the lost revenue somehow. Yes, these providers can make up some of the revenue through volume, as enrollment in both Medicare and Medicaid is going up over the next decade. BUT, an argument can be made that the increased enrollment in Medicare and Medicaid will further exacerbate the loss of revenue due to lower reimbursement rates for all of the beneficiaries that are treated, which will require the providers to further increase the amount of the cost-shift onto to private plans. Soooo, what happens when we have “price controls” and providers are paid, for example, Medicare prices for ALL of the medical services rendered because, for example, we have Medicare-for-All with no private insurance. Providers won’t be able to cost-shift to anything or anyone. That will arguably be good for some consumers (because the costs they will pay will go down), but this will be bad for things like jobs (because in many Congressional Districts around the country, the hospital or health system is the largest employer) and those with private plans may not be happy (because the plan that they generally like will go away). Look, I am not trying to rain-on-the-parade of “price controls.” But, I think there are serious implications that people have to think through, understand, and accept before we agree to “price controls.” I am not sure I believe that members of Congress (even Democratic members) are going to be willing to agree to a policy change that will result in the loss of jobs in their Districts. And, I think a lot of people want to keep their private insurance plan, even though it keeps getting more expensive. BUT, something-has-got-to-give, because come 2030, health care spending will be that much closer to 25% of our economy, which is NOT good. So maybe “price controls” are the only option we have because the value-based care strategies continue to be resisted by a lot of providers.

Medicare-Buy-In Officially Introduced In Congress

We knew it was only a matter of time before we saw legislation that would allow people age 50 or older to buy-into Medicare. Actually, we saw this legislation last year. We also saw this type of legislation during the ACA debate back in 2009. And before that, we saw a Medicare-Buy-In proposal during the Clinton health care reform exercise.
- Analysis: Under the recently introduced proposal, a person age 50 or older buying into Medicare would pay a premium for the coverage. Under the House version, lower-income enrollees could use the ACA’s premium subsidies to pay for all or a portion of the buy-in premium. The sponsors of the proposal argue that the premium payments would fully cover the cost of the health coverage (arguably meaning no taxpayer dollars will be used to pay for the health claims generated by the enrollees). The sponsors also suggest that there could even be enough revenue generated where all or a portion of the excess amounts can be re-directed back to lower-income enrollees to cover their cost-sharing responsibilities. And lastly, the sponsors explain that a Medicare-Buy-In plan would be 40% lower than an existing ACA individual market “gold plan.” In truth, I haven’t seen a recent economic analysis of the proposal, but all of that almost sounds too good to be true (because it really does sound good, doesn’t it?): A low-cost program that will provide “gold”-level health care to “older” people who tend to use more health care services, that will pay for itself, and that will also help lower-income people with their cost-sharing obligations. In my past 2 updates, I questioned whether a Medicare-Buy-In program would kill the ACA Exchanges, and adversely impact the “individual” market. I purposefully asked the question because I knew supporters of a Medicare-Buy-In program would characterize this policy change as a way to “improve” the ACA. And we heard just that as supporters said: “The most important thing to keep in mind is the ACA has not been improved since its inception. This is the next improvement of the Affordable Care Act.” Supporters also argued that: “Younger consumers on the ACA Exchanges could see their premiums go down if the 50-to-64 year-olds are removed from the risk pool.” As I said in my most recent update, maybe these supporters are right – at least about “improving” the individual market – because I agree that if you pull the older and less healthy lives out of the current “unbalanced” risk pool, you are certainly going to have a better risk pool full of a bunch of younger consumers (although we don’t quite know how healthy these younger consumers are). BUT, if the Medicare-Buy-In program sounds as good as it does – and the lion’s share of both the “subsidized” and “unsubsidized” individual market shifts over to this new program (e.g., about 40%+ of the market) – will there be enough “lives” in the individual market for carriers to want to continue selling insurance? If not, then why do you need the ACA Exchanges?Interestingly, the House version of the Medicare-Buy-In program would offer the Medicare plans through the ACA Exchanges so – as the sponsors explain – people can “comparison-shop.” Soooo, maybe the ACA Exchanges will have a purpose after all. Remember, the ACA Exchanges will still be used for Medicaid enrollment, like the Exchanges are generally used today. Are you seeing a trend here? First, the ACA Exchanges will continue to be used to facilitate Medicaid enrollment. And now, Medicare-Buy-In plans would be offered through the Exchanges alongside private insurance plans (that are only available to consumers below age 50). Isn’t the next step to convert these private insurance plans (for consumers below age 50) into a “public option”? What I mean is: Are supporters of the various “shades” of single-payer trying to set up a scenario where consumers below age 50 start demanding something akin to the Medicare-Buy-In plans? After all, it seems natural to me that when consumers below age 50 see a “gold”-level plan that costs 40% less than an existing ACA “gold” plan, these consumers are going to say: “Hey, why are these Medicare-Buy-In plans so much cheaper than the plans I can buy. And, I can’t buy them!! Because I am not 50?!? That stinks!! I want a Medicare-Buy-In plan too.” And viola, public support for a “public option” grows exponentially, and policymakers supportive of a “public option” are elected into office so they can make the necessary change to the law. We will just have to wait-and-see if it plays out this way. But one thing we know for sure: We are so far removed from ACA “repeal and replace” it’s kind of funny.