The Death of Objectivity
by Michael Turpin - NYT - January 2, 2018
For veterans of the healthcare industry, the current debate over the future of the Affordable Care Act – and proposed changes that would fundamentally alter Medicaid and individual market exchanges – is a frustrating battle of ideologies with the future of healthcare at risk. Our debate over who should be eligible for expanded coverage and how we reform reimbursement is often laced with self-preservation, which in our case means preserving an employer-sponsored system that is riddled with inequities, opacity, dubious middlemen and weak public and private sector fiduciary oversight. Those who provide, pay for and/or consume healthcare are drowning under rising per capita costs while many in the middle of these transactions grow fat.
As brokers, consultants and advisors, we have to face an inconvenient truth: we have presided over and benefited from a system in crisis. Not everyone believes our industry’s purpose is noble or necessary.
Health system stakeholders long to deal direct with employers. Many professional benefits managers hate being on the end of the latest pitch from their advisor to sell a project or broker to hawk a new product to increase commission income. In the digital age, there is a heavy bias in favor of disintermediation and the elimination of distribution costs that are often not easily rationalized.
How does one grade the contribution of a sentinel? How does a client know whether the advisor who is paid a commission or fee is acting out of self-interest or as a trusted change agent?
How one makes money is as important as how much one makes in certain industries. There are ethical implications to anyone who adds cost to a healthcare system fraught with waste, fraud and abuse. This expense translates into higher cost and erodes the ability for employers and public entities to finance care for those that are often most in need.
In the last two decades, ineffective regulatory and advisory oversight of the financial and healthcare industries has allowed abuses to take place in the form of mergers and protected opacity in pricing.
Sentinels – insurers, brokers and other intermediaries – often take the position that things could have been alot worse had they not provided oversight of procurement and payment. Yet, it feels like the cop who is asking to be congratulated because only half the suspects got away.
It’s actually hard to find a healthcare stakeholder who does not feel disabused for the role they play in this broken system. Everyone has a chip on their shoulder.
Doctors routinely wave out-of-network, out-of-pocket and steer patients to outpatient clinics and/or in office therapies to maximize reimbursement. Not-for-profit hospitals and outpatient clinics purchase drugs under special non-profit 340B provisions, affording them steep discounts from drug manufacturers and then significantly inflate pricing to patients while pocketing the difference.
Reserves at many non-profit insurers are as high as 400% of required capital reserves — and growing again. For-profit insurers engage in a range of obfuscation practices to preserve profit per member by leavening margin across a range of services they provide. When once asked how they could live with their business practices, a wry CEO remarked to me, “we’ll keep hiding the Easter eggs and you keep looking for them.”
Perhaps the worst offenders are certain larger Pharmaceutical Benefit Managers ( PBMs ) who engage in opaque pricing, formulary manipulation and contractual games of semantics to maximize their share of profit from drugs they neither produce nor consume. The roster of enablers magnifies the problem with consultants, brokers and agents who charge for services that they often cannot deliver in managing RX benefits. Caveat emptor to the generalist HR buyer who, in good faith, hires a generalist broker to manage a highly complicated pharmacy contract with an educated PBM.
Employers are often more focused on avoiding disruption than acting as responsible fiduciaries to drive market reforms. By abdicating to their insurers or a less than qualified advisor, employers have failed to drive fundamental market reforms that would otherwise slow or reverse the inevitable march toward a single payer system as a means to escape the unsustainable consumption and financing of healthcare. Market reform requires change agents and reformers. Its seems that only when faced with regulated or market based disintermediation does the brokerage and consulting community wake up to the need to change the system.
Greed Is Not Good
While insurers and other third party players in the healthcare system argue their role as sentinel is invaluable to prevent abuses in overtreatment, waste, fraud and abuse; one might argue the fee-based advisor should be the purest form of intermediary in our business. We exist in a world of carnivores and while it does not serve any purpose to malign any for profit firm’s focus to maximize profit; we should develop a thicker skin when those same stakeholders get angry at our efforts to affect their profiteering.
We cannot condone practices that unnecessarily inflate healthcare cost. Rising costs reduce corporate earnings, affect jobs, bonuses and GDP. It is a sin of omission that many intermediaries don’t understand and we have to accept that many ineffective advisors are part of the problem.
The role of benefits and risk advisor is that of a physician. The Hippocratic Oath of “first do no harm” should apply to everything that we do. To successfully eliminate egregious pricing, non transparent business practices, waste, fraud and declining public health by structuring a thoughtful plan of health and benefits for any employer is to serve a nobler purpose. We need to have a major voice about national reform and not only take an interest when our own industry is at risk. We should take an interest and have a position on Medicare and Medicaid which impact almost 150M Americans – including friends, family and parents. We live in a symbiotic ecosystem. If a bomb goes off in Economy, people in Business Class go down with the plane.
Sadly, the barriers to entry to the advisory business are ridiculously low. Unlike other industries where size and expertise is paramount to success and barriers to compete are limited for new entrants, any individual can pass a simple life and health exam and be licensed to advise clients on healthcare procurement. Size is not a determinant of capability. I’ve seen highly qualified competitors successfully hang their own shingle to start their own business. Some of my heroes and mentors in our business are idealogues and change agents who get offended by the status quo. They make enemies by simply doing their jobs.
Across a 35-year career, I’ve witnessed countless acts of self-interest and unselfish service. It comes down to incentives, the culture of the firm and its people. When I meet a prospectibe employer paying $750,000 for healthcare advisory services to a life agent when $200,000 is adequate to cover my services, I resist the temptation to shadow price the compensation arrangement that is tantamount to highway robbery.
When I give a speech on the need for reform, I risk offending people who honestly believe they are not part of the problem.
We Serve a Noble Purpose
We are the last line of defense in the fourth quarter of healthcare in America. It’s even odds that within a decade we will have a single-payer system as a result of runaway health care inflation and the lack of private sector appetite to drive market-based reforms. If the pie shrinks, everyone’s share gets smaller. In a time where firms are looking to give 10%-15% ROE to investors, low single-digit organic growth means consolidation and job losses to increase economies and reductions in expenses (which are largely comprised of human capital). In the end, being liked could cost you your job. Being tougher with all stakeholders could end up saving your own skin.
The most valuable person in this frenetic landscape of self-preservation is the objective agent, broker or consultant. To be guided by a higher purpose and to understand every dollar saved and excessive dollar of margin eliminated is a job saved, a bonus rewarded or an investment in capital equipment and improved earnings for clients.
It’s our job to help prevent crises and “kick the can down the road” politicians from reneging on retiree medical and pension commitments made to public employees in lieu of wage increases. It is advocating for the least among us. It is preventing excessive profiteering and insisting on affordable healthcare for all Americans. It’s standing up to your own political party, your own boss or a senior industry executive and not blinking.
Humility isn’t thinking less of yourself, its thinking of yourself less of the time. In our zealousness to promote and protect employer-sponsored insurance, we need to do a better job as cops and regulators of free market solutions. We need to push clients to do the right thing. We need to be less cozy with vendors and fulfill our fiduciary obligations. We need to be more comfortable with transparent fees and tying our performance to outcomes instead of activity.
We are cops and evangelists. We are an imperative and essential last line of defense but if we are sleeping with the enemy, we can’t be objective enough to have the hard conversations required to change the system.
My mentor once told me that if you do not see yourself as a change agent, you aren’t one. No one said it would be easy nor fun to be the heavy or the bad cop in the conversation, however the best and brightest in our industry see themselves as zealots for change. They may not be always liked but they are respected. They don’t rant like maniacs demanding reductions not justified by a client’s experience, but they are thoughtful advocates who are always sitting on the client’s side of the table and content in the knowledge that every dollar they save, helps the market reform itself, improves public health and reinforces the integrity of an employer-based system. It can succeed if we develop a more symbiotic system based on natural tension, trust and social responsibility.
Michael Turpin is a 35 year veteran of healthcare and employer sponsored insurance. He has served as CEO of Oxford and United Healthcare Northeast as well as a national practice leader for Mercer, USI, Marsh and Johnson & Higgins. He is a published author of three books and a frequent speaker and contributor to public and private forums.
Amazon, Berkshire Hathaway and JPMorgan Team Up to Disrupt Health Care
By Nick Winfield, Katie Thomas and Reed Abelson - NYT -
SEATTLE — Three corporate behemoths — Amazon, Berkshire Hathaway and JPMorgan Chase — announced on Tuesday that they would form an independent health care company for their employees in the United States.
The alliance was a sign of just how frustrated American businesses are with the state of the nation’s health care system and the rapidly spiraling cost of medical treatment. It also caused further turmoil in an industry reeling from attempts by new players to attack a notoriously inefficient, intractable web of doctors, hospitals, insurers and pharmaceutical companies.
It was unclear how extensively the three partners would overhaul their employees’ existing health coverage — whether they would simply help workers find a local doctor, steer employees to online medical advice or use their muscle to negotiate lower prices for drugs and procedures. While the alliance will apply only to their employees, these corporations are so closely watched that whatever successes they have could become models for other businesses.
Major employers, from Walmart to Caterpillar, have tried for years to tackle the high costs and complexity of health care, and have grown increasingly frustrated as Congress has deadlocked over the issue, leaving many of the thorniest issues to private industry. About 151 million Americans get their health insurance from an employer.
But Tuesday’s announcement landed like a thunderclap — sending stocks for insurers and other major health companies tumbling. Shares of health care companies like UnitedHealth Group and Anthem plunged on Tuesday, dragging down the broader stock market.
That weakness reflects the strength of the new entrants. The partnership brings together Amazon, the online retail giant known for disrupting major industries; Berkshire Hathaway, the holding company led by the billionaire investor Warren E. Buffett; and JPMorgan Chase, the largest bank in the United States by assets.
They are moving into an industry where the lines between traditionally distinct areas, such as pharmacies, insurers and providers, are increasingly blurry. CVS Health’s deal last month to buy the health insurer Aetna for about $69 billion is just one example of the changes underway. Separately, Amazon’s potential entry into the pharmacy business continues to rattle major drug companies and distributors.
The companies said the initiative, which is in its early stages, would be “free from profit-making incentives and constraints,” but did not specify whether that meant they would create a nonprofit organization. The tax implications were also unclear because so few details were released.
Jamie Dimon, the chief executive of JPMorgan Chase, said in a statement that the effort could eventually be expanded to benefit all Americans.
“The health care system is complex, and we enter into this challenge open-eyed about the degree of difficulty,” Jeff Bezos, Amazon’s founder and chief executive, said in a statement. “Hard as it might be, reducing health care’s burden on the economy while improving outcomes for employees and their families would be worth the effort.”
The announcement touched off a wave of speculation about what the new company might do, especially given Amazon’s extensive reach into the daily lives of Americans — from where they buy their paper towels to what they watch on television. It follows speculation that the company, which recently purchased the grocery chain Whole Foods, might use its stores as locations for pharmacies or clinics.
“It could be big,” Ed Kaplan, who negotiates health coverage on behalf of large employers as the national health practice leader for the Segal Group, said of the announcement. “Those are three big players, and I think if they get into health care insurance or the health care coverage space, they are going to make a big impact.”
But others were less sure, noting that the three companies — which, combined, employ more than one million people — might still hold little sway over the largest insurers and pharmacy benefit managers, who oversee the benefits of tens of millions of Americans.
“This is not news in terms of jumbo employers being frustrated with what they can get through the traditional system,” said Sam Glick of the management consulting firm Oliver Wyman in San Francisco. He played down the notion that the three partners would have more success getting lower prices from hospitals and doctors. “The idea that they could have any sort of negotiation leverage with unit cost is a pretty far stretch.”
Even the three companies don’t seem to be sure of how to shake up health care. People briefed on the plan, who asked for anonymity because the discussions were private, said the executives decided to announce the initiative while still a concept in part so they can begin hiring staff for the new company.
Three people familiar with the partnership said it took shape as Mr. Bezos, Mr. Buffett, and Mr. Dimon, who are friends, discussed the challenges of providing insurance to their employees. They decided their combined access to data about how consumers make choices, along with an understanding of the intricacies of health insurance, would inevitably lead to some kind of new efficiency — whatever it might turn out to be.
“The ballooning costs of health care act as a hungry tapeworm on the American economy,” Mr. Buffett said in the statement. “Our group does not come to this problem with answers. But we also do not accept it as inevitable.”
Over the past several months, the three had met formally — along with Todd Combs, an investment officer at Berkshire Hathaway who is also on JPMorgan’s board — to discuss the idea, according to a person familiar with Mr. Buffett’s thinking.
The three chief executives saw one another at the Alfalfa Club dinner in Washington on Saturday, but by then each had already had dozens of conversations with the small in-house teams they had assembled. The plan was set.
Mr. Buffett’s motivation stems in part from conversations he has had with two people close to him who have been diagnosed with multiple sclerosis, according to the person. Mr. Buffett, the person said, believes the condition of the country’s health care system is a root cause of economic inequality, with wealthier people enjoying better, longer lives because they can afford good coverage As Mr. Buffett himself has aged — he is 87 — the contrast between his moneyed friends and others has grown starker, the person said.
The companies said they would initially focus on using technology to simplify care, but did not elaborate on how they intended to do that or bring down costs. One of the people briefed on the alliance said the new company wouldn’t replace existing health insurers or hospitals.
Planning for the new company is being led by Marvelle Sullivan Berchtold, a JPMorgan managing director who was previously head of the Swiss drugmaker Novartis’s mergers and acquisitions strategy; Mr. Combs; and Beth Galetti, a senior vice president at Amazon.
One potential avenue for the partnership might be an online health care dashboard that connects employees with the closest and best doctor specializing in whatever ailment they select from a drop-down menu. Perhaps the companies would strike deals to offer employee discounts with service providers like medical testing facilities.
“Each of those companies has extensive experience using transformative technology in their own businesses,” said John Sculley, the former chief executive of Apple who is now chairman of a health care start-up, RxAdvance. “I think it’s a great counterweight to what government leadership hasn’t done, which is to focus on how do we make this health care system sustainable.”
Erik Gordon, a professor at the University of Michigan’s Ross School of Business, predicted that the companies would attempt to modernize the cumbersome process of doctor appointments by making it more like booking a restaurant reservation on OpenTable, while eliminating the need to regularly fill out paper forms on clipboards.
SEATTLE — Three corporate behemoths — Amazon, Berkshire Hathaway and JPMorgan Chase — announced on Tuesday that they would form an independent health care company for their employees in the United States.
The alliance was a sign of just how frustrated American businesses are with the state of the nation’s health care system and the rapidly spiraling cost of medical treatment. It also caused further turmoil in an industry reeling from attempts by new players to attack a notoriously inefficient, intractable web of doctors, hospitals, insurers and pharmaceutical companies.
It was unclear how extensively the three partners would overhaul their employees’ existing health coverage — whether they would simply help workers find a local doctor, steer employees to online medical advice or use their muscle to negotiate lower prices for drugs and procedures. While the alliance will apply only to their employees, these corporations are so closely watched that whatever successes they have could become models for other businesses.
Major employers, from Walmart to Caterpillar, have tried for years to tackle the high costs and complexity of health care, and have grown increasingly frustrated as Congress has deadlocked over the issue, leaving many of the thorniest issues to private industry. About 151 million Americans get their health insurance from an employer.
But Tuesday’s announcement landed like a thunderclap — sending stocks for insurers and other major health companies tumbling. Shares of health care companies like UnitedHealth Group and Anthem plunged on Tuesday, dragging down the broader stock market.
That weakness reflects the strength of the new entrants. The partnership brings together Amazon, the online retail giant known for disrupting major industries; Berkshire Hathaway, the holding company led by the billionaire investor Warren E. Buffett; and JPMorgan Chase, the largest bank in the United States by assets.
They are moving into an industry where the lines between traditionally distinct areas, such as pharmacies, insurers and providers, are increasingly blurry. CVS Health’s deal last month to buy the health insurer Aetna for about $69 billion is just one example of the changes underway. Separately, Amazon’s potential entry into the pharmacy business continues to rattle major drug companies and distributors.
The companies said the initiative, which is in its early stages, would be “free from profit-making incentives and constraints,” but did not specify whether that meant they would create a nonprofit organization. The tax implications were also unclear because so few details were released.
Jamie Dimon, the chief executive of JPMorgan Chase, said in a statement that the effort could eventually be expanded to benefit all Americans.
“The health care system is complex, and we enter into this challenge open-eyed about the degree of difficulty,” Jeff Bezos, Amazon’s founder and chief executive, said in a statement. “Hard as it might be, reducing health care’s burden on the economy while improving outcomes for employees and their families would be worth the effort.”
The announcement touched off a wave of speculation about what the new company might do, especially given Amazon’s extensive reach into the daily lives of Americans — from where they buy their paper towels to what they watch on television. It follows speculation that the company, which recently purchased the grocery chain Whole Foods, might use its stores as locations for pharmacies or clinics.
“It could be big,” Ed Kaplan, who negotiates health coverage on behalf of large employers as the national health practice leader for the Segal Group, said of the announcement. “Those are three big players, and I think if they get into health care insurance or the health care coverage space, they are going to make a big impact.”
But others were less sure, noting that the three companies — which, combined, employ more than one million people — might still hold little sway over the largest insurers and pharmacy benefit managers, who oversee the benefits of tens of millions of Americans.
“This is not news in terms of jumbo employers being frustrated with what they can get through the traditional system,” said Sam Glick of the management consulting firm Oliver Wyman in San Francisco. He played down the notion that the three partners would have more success getting lower prices from hospitals and doctors. “The idea that they could have any sort of negotiation leverage with unit cost is a pretty far stretch.”
Even the three companies don’t seem to be sure of how to shake up health care. People briefed on the plan, who asked for anonymity because the discussions were private, said the executives decided to announce the initiative while still a concept in part so they can begin hiring staff for the new company.
Three people familiar with the partnership said it took shape as Mr. Bezos, Mr. Buffett, and Mr. Dimon, who are friends, discussed the challenges of providing insurance to their employees. They decided their combined access to data about how consumers make choices, along with an understanding of the intricacies of health insurance, would inevitably lead to some kind of new efficiency — whatever it might turn out to be.
“The ballooning costs of health care act as a hungry tapeworm on the American economy,” Mr. Buffett said in the statement. “Our group does not come to this problem with answers. But we also do not accept it as inevitable.”
Over the past several months, the three had met formally — along with Todd Combs, an investment officer at Berkshire Hathaway who is also on JPMorgan’s board — to discuss the idea, according to a person familiar with Mr. Buffett’s thinking.
The three chief executives saw one another at the Alfalfa Club dinner in Washington on Saturday, but by then each had already had dozens of conversations with the small in-house teams they had assembled. The plan was set.
Mr. Buffett’s motivation stems in part from conversations he has had with two people close to him who have been diagnosed with multiple sclerosis, according to the person. Mr. Buffett, the person said, believes the condition of the country’s health care system is a root cause of economic inequality, with wealthier people enjoying better, longer lives because they can afford good coverage As Mr. Buffett himself has aged — he is 87 — the contrast between his moneyed friends and others has grown starker, the person said.
The companies said they would initially focus on using technology to simplify care, but did not elaborate on how they intended to do that or bring down costs. One of the people briefed on the alliance said the new company wouldn’t replace existing health insurers or hospitals.
Planning for the new company is being led by Marvelle Sullivan Berchtold, a JPMorgan managing director who was previously head of the Swiss drugmaker Novartis’s mergers and acquisitions strategy; Mr. Combs; and Beth Galetti, a senior vice president at Amazon.
One potential avenue for the partnership might be an online health care dashboard that connects employees with the closest and best doctor specializing in whatever ailment they select from a drop-down menu. Perhaps the companies would strike deals to offer employee discounts with service providers like medical testing facilities.
“Each of those companies has extensive experience using transformative technology in their own businesses,” said John Sculley, the former chief executive of Apple who is now chairman of a health care start-up, RxAdvance. “I think it’s a great counterweight to what government leadership hasn’t done, which is to focus on how do we make this health care system sustainable.”
Erik Gordon, a professor at the University of Michigan’s Ross School of Business, predicted that the companies would attempt to modernize the cumbersome process of doctor appointments by making it more like booking a restaurant reservation on OpenTable, while eliminating the need to regularly fill out paper forms on clipboards.
Can Amazon and Friends Handle Health Care? There’s Reason for Doubt
by Margot Sanger-Katz and Reed Abelson - January 31, 2018
The announcement on Tuesday that Amazon, JPMorgan Chase and Berkshire Hathaway would be joining forces to create a health care company moved stock markets and prompted optimistic predictions of major reform in a notoriously complex industry.
But while the three companies bring successful management, technological expertise and substantial capital to the venture, many health industry experts expressed doubts about whether their results would match their ambition.
Here are a few reasons that experts suggest we temper expectations.
It has been tried before
Over the years, faced with rising costs, employers have banded together to try novel approaches to health insurance benefits. Some have pioneered strategies like working directly with health systems or have achieved significant savings compared with competitors. But none have made a major dent in overall health care spending.
“They contribute in the small wins,” said Jonathan Kolstad, an associate professor of business at the University of California, Berkeley. “But those tend to be swamped by growth in health care, which is so high. They’re not silver bullets.”
Health care is very local, and companies have traditionally had a hard time preventing hospitals and doctors from raising prices or delivering mediocre care, because they don’t have enough leverage to force health care providers to do things differently.
“The part that is the most difficult is trying to influence the underlying system,” said Michael Thompson, the chief executive of the National Alliance of Healthcare Purchaser Coalitions, which represents employer groups. “Any single company, even broad coalitions, have a hard time.”
Technology giants have attempted health care innovation before. Google and Microsoft started health ventures in recent years to a lot of fanfare, with little success.
None of these players have expertise in health care
The three companies don’t have much direct experience in providing health insurance or services. Chase has invested in the industry, and Berkshire Hathaway has owned insurance companies, but none have worked extensively in health benefits or in managing doctors, hospitals or pharmaceutical companies.
“Just because you know an industry is underperforming and you have a lot of money doesn’t mean you have a successful strategy,” said Leemore Dafny, a professor at Harvard Business School, in an email. Ms. Dafny said she was excited to see such serious players take on this problem, but noted there were numerous examples of outsiders trying, and failing, to succeed in the health care system.
Health care is a business that requires a lot of regulatory compliance and negotiation with established players. A new entrant could bring innovative approaches to old problems, but it may also become stymied by the industry’s complexity. The entrepreneurs who launched Oscar Health, one of the insurance start-ups to sell policies under the Affordable Care Act, wanted to create something radically different from the competition. But it has had a difficult time living up its initial hopes and has lost substantial sums in what has proved to be a very challenging business.
Classic disruption rarely applies in health care
Most disruptive companies enter a market with a product that is lower in value than that of market incumbents, but much lower in cost. That’s the model for classic disrupters, like Southwest Airlines, MP3s or Japanese carmakers. Health care tends to be different, because consumers don’t usually want to settle for a lower-quality product, even if it is substantially cheaper.
Amitabh Chandra, a health economist at Harvard, said that perhaps the easiest way to squeeze a lot of dollars out of the health care system would be to reduce what he called “low-value services” — health care treatments that are expensive, but only slightly more effective than cheaper options.
But reducing their use is hard because many people still want the better therapy, even if it’s not a particularly good value. Highly compensated employees, like those at Chase or at Amazon headquarters, may be particularly attracted to cutting-edge cancer treatments or the latest prescription drugs, he noted. A health plan that cut out such services might hurt the ability to recruit and retain workers needed to succeed in other parts of the business.
“If there was pure inefficiency, I think it would be a lot easier to make progress,” he said. “The problem is that all of this stuff has some small benefit.”
There are some ways that a smart company might seek to wring real inefficiencies out of health care. It could, say, lower the prices paid to monopoly hospitals, eliminate services that have no value or tighten the supply chain for drugs. Optimists about the venture say, if the company succeeds, it will most likely do so by finding strategies that improve care and reduce cost.
These are really different companies, with different priorities
The three companies are each large but also very different, and they may have different priorities about how to structure their health benefits.
JPMorgan Chase is a financial services company, based in New York, with highly compensated employees. Berkshire Hathaway is a consortium of companies, spread throughout the country, in a variety of industries. And Amazon is a technology company with a hub of highly paid workers in Seattle, and with lower-wage workers spread in warehouses around the country. Will they all want or need the same sort of health plan?
In general, companies with a lot of highly paid workers tend to offer generous benefits. Health insurance is not taxed in the same way as other forms of compensation, so an investment banker may prefer a health plan that covers everything instead of one with a big deductible that she has to pay out of her post-tax salary. A lower-wage worker in an Amazon warehouse, by contrast, may want a skimpier health plan and more wages.
There is not a clear strategic incentive to sell whatever they learn
Big stock market moves after the announcement suggest that investors think that whatever the companies develop could become broadly adopted, undermining the business of existing health care players, and transforming health insurance across the country. This is consistent with some of Amazon’s previous strategies, like expansion of its web services business, which was begun as an internal product, and has become dominant in the industry.
But savings on health care would accrue directly to the companies’ bottom lines, allowing them to hire more workers or increase their profits relative to their competitors. That means selling such services to their competitors would need to be profitable enough to make up for giving competitors that business edge.
“It’s not going to transform the economy unless they then share all of those ideas and best practices with their competitors,” said Craig Garthwaite, a health economist who teaches corporate strategy at the Kellogg School at Northwestern. “That would not be good for long-term shareholder value for their firms.”
Bezos, Buffett, Diamond, the Latest Newbies on the Health Care Block
by Bob Laszewski - Health Care Policy and Marketplace Review
I found it incredible that health care stocks tanked on Tuesday in response to an announcement from the Amazon, Berkshire Hathaway, and JPMorgan Chase CEOs that they were, as employer payers, going to become game changers in the health care market.
I have seen this movie before. Dozens of times over the last twenty-five years. The first time was when the leading employers in the Minneapolis-St. Paul market began the same effort in the early 1990s. That, and any other such initiative I have seen over the decades, went essentially nowhere.
But, this week, reporters were agog with the notion that these titans of business were going to wade in and change the health care world. After all, together these companies had a combined population of a million-people covered under their health benefit programs.
That is about as many people as Rhode Island and Delaware Blue Cross combined cover. So, I am not quite sure how these CEOs will bring a game changing critical mass to any provider bargaining table.
The CEOs announced to all of us that the place to start is with data.
The health care world figured that out about thirty years ago. Remember the Dartmouth Atlas?
By comparison, UnitedHealth, through its Optum data technology subsidiary, has detailed health care utilization information on over 115 million consumers, four out of five hospitals, 67,000 pharmacies, 100,000 physician practices, 300 health plans, and government agencies in 34 states and D.C.
But on the announcement, UnitedHealth's stock tanked with the other major managed care players, whose capabilities in the arena arguably rival United's.
What's my reaction to all of this?
After a few years of high profile press releases and trade association presentations this one will end up in exactly the same place all of the others have. Nowhere.
Where is the answer?
First, needs to come the realization that long ago we reached the point of diminishing returns attacking utilization. If this were the big answer, we'd have solved all of our health care problems years ago. After thirty years of chasing utilization the meager results we are seeing today from accountable care/value-based purchasing efforts in Medicare should be putting the final nails in that coffin. Expecting providers to cut their income voluntarily by enticing them with little incentive payments is the height of naivete.
If we compare the U.S. systems' costs to the more affordable costs in other industrialized nations, the glaring difference is price not utilization (Uwe was right fifteen years ago, "It's the Prices, Stupid").
Unlike the other industrialized health care systems, the U.S. health care system is the victim of decades of virtually unfettered supply side-economics. The providers had access to unlimited money and kept building it––we all came until we had created a huge self-perpetuating health care industrial complex demanding more and more cash.
By comparison, the other industrialized nations decades ago put and kept their systems on global budgets that have kept their costs affordable.
The market by itself, no single health plan or employer coalition, has proven large enough to put even a dent in the cost march.
What's the solution?
"Global" U.S. budgets that would likely take decades to methodically wean the existing health care industrial complex back down to an affordable and sustainable level.
Does that mean single-payer Canadian-style health insurance is the only answer? That is one way to budget but there are others that could preserve the best of the market with its choices and competition. The amazingly successful Medicare Advantage product is one such example of a private market within a global budget, as is the Medicare Supplement product built on Medicare's utilization and fee schedule chassis. Another is managed Medicaid where most states have turned to health care companies to manage almost 49 million beneficiaries.
On this question of how to implement global budgets is where we should be searching for answers. Clearly our political system is nowhere near the point of being able to have a constructive conversation on this. But it will eventually have to if for no other reason the long walk off a short pier our entitlement costs are currently on.
In the meantime, somebody should tell these newbies their ideas about health care data are already ancient.
I have seen this movie before. Dozens of times over the last twenty-five years. The first time was when the leading employers in the Minneapolis-St. Paul market began the same effort in the early 1990s. That, and any other such initiative I have seen over the decades, went essentially nowhere.
But, this week, reporters were agog with the notion that these titans of business were going to wade in and change the health care world. After all, together these companies had a combined population of a million-people covered under their health benefit programs.
That is about as many people as Rhode Island and Delaware Blue Cross combined cover. So, I am not quite sure how these CEOs will bring a game changing critical mass to any provider bargaining table.
The CEOs announced to all of us that the place to start is with data.
The health care world figured that out about thirty years ago. Remember the Dartmouth Atlas?
By comparison, UnitedHealth, through its Optum data technology subsidiary, has detailed health care utilization information on over 115 million consumers, four out of five hospitals, 67,000 pharmacies, 100,000 physician practices, 300 health plans, and government agencies in 34 states and D.C.
But on the announcement, UnitedHealth's stock tanked with the other major managed care players, whose capabilities in the arena arguably rival United's.
What's my reaction to all of this?
After a few years of high profile press releases and trade association presentations this one will end up in exactly the same place all of the others have. Nowhere.
Where is the answer?
First, needs to come the realization that long ago we reached the point of diminishing returns attacking utilization. If this were the big answer, we'd have solved all of our health care problems years ago. After thirty years of chasing utilization the meager results we are seeing today from accountable care/value-based purchasing efforts in Medicare should be putting the final nails in that coffin. Expecting providers to cut their income voluntarily by enticing them with little incentive payments is the height of naivete.
If we compare the U.S. systems' costs to the more affordable costs in other industrialized nations, the glaring difference is price not utilization (Uwe was right fifteen years ago, "It's the Prices, Stupid").
Unlike the other industrialized health care systems, the U.S. health care system is the victim of decades of virtually unfettered supply side-economics. The providers had access to unlimited money and kept building it––we all came until we had created a huge self-perpetuating health care industrial complex demanding more and more cash.
By comparison, the other industrialized nations decades ago put and kept their systems on global budgets that have kept their costs affordable.
The market by itself, no single health plan or employer coalition, has proven large enough to put even a dent in the cost march.
What's the solution?
"Global" U.S. budgets that would likely take decades to methodically wean the existing health care industrial complex back down to an affordable and sustainable level.
Does that mean single-payer Canadian-style health insurance is the only answer? That is one way to budget but there are others that could preserve the best of the market with its choices and competition. The amazingly successful Medicare Advantage product is one such example of a private market within a global budget, as is the Medicare Supplement product built on Medicare's utilization and fee schedule chassis. Another is managed Medicaid where most states have turned to health care companies to manage almost 49 million beneficiaries.
On this question of how to implement global budgets is where we should be searching for answers. Clearly our political system is nowhere near the point of being able to have a constructive conversation on this. But it will eventually have to if for no other reason the long walk off a short pier our entitlement costs are currently on.
In the meantime, somebody should tell these newbies their ideas about health care data are already ancient.
Amazon Wants to Disrupt Health Care in America. In China, Tech Giants Already Have.
BEIJING — Amazon and two other American titans are trying to shake up health care by experimenting with their own employees’ coverage. By Chinese standards, they’re behind the curve.
Technology companies like Alibaba and Tencent have made health care a priority for years, and are using China as their laboratory. After testing online medical advice and drug tracking systems, they are now focused on a more advanced tool: artificial intelligence.
Their aggressive push underscores the differences between the health care systems in China and the United States.
Chinese hospitals are overburdened, with just 1.5 doctors for every 1,000 people — barely half the figure in the United States. Along with a rapidly aging population, China also has the largest number of obese children in the world, as well as more diabetes patients than anywhere else.
The companies’ technological push is encouraged by the government. Beijing has said it wants to be a leader in A.I. by 2030 and pledged to take on the United States in the field. While officials have emphasized the use of artificial intelligence in areas like defense and self-driving cars, they have also aggressively promoted its use in health care.
Alibaba and Tencent, which already dominate China’s e-commerce and mobile payments sectors, are at the forefront. Among their goals: building diagnostic tools that will make doctors more efficient.
Amazon and its partners, JPMorgan Chase and Berkshire Hathaway, see technologyas a way to provide simplified, affordable medical services. Although the alliance is still in the early stages, it could create online services for medical advice or use its overall heft to negotiate for lower drug prices.
“It’s fair to say that across the board, the Chinese tech companies have all embraced being involved in and being active in the health care space, unlike the U.S., where some of them have and some have not,” said Laura Nelson Carney, an Asia-Pacific health care analyst at Bernstein Research.
“Few of them have made moves as big as in China,” Ms. Carney said, referring to Alibaba and Tencent’s American rivals.
Those big moves have had varying degrees of success.
In 2014, Alibaba announced a “future hospital” plan intended to make treatment more efficient by allowing patients to consult with doctors online and order drugs via the internet. But two years later, Chinese regulators stopped the sale of over-the-counter drugs on Tmall, Alibaba’s e-commerce website. They also suspended a drug-monitoring system that the company had created. And last year, the search engine company Baidu scrapped its internet health care service, which allowed patients to book doctors appointments through an app, in a bid to focus solely on A.I.
But some of the more recent initiatives have made inroads. Last year, Alibaba’s health unit introduced A.I. software that can help interpret CT scans and an A.I. medical lab to help doctors make diagnoses. About a month later, Tencent unveiled Miying, a medical imaging program that helps doctors detect early signs of cancer, in the southwestern region of Guangxi. It is now used in nearly 100 hospitals across China.
Tencent has also invested in WeDoctor Group, which has opened its own take on Alibaba’s “future hospital” in northwestern China. The service allows patients to video chat with doctors and fill their prescriptions online.
Advances in artificial intelligence have already been transformative for China’s overworked doctors.
Dr. Yu Weihong, an ophthalmologist at Peking Union Medical College Hospital, said she used to take up to two days to analyze a patient’s eyes by scrutinizing grainy images before discussing her findings with colleagues and writing up a report. Artificial intelligence software currently being tested by the hospital helps her do all that dramatically faster.
“Now, you don’t even need a minute,” she said.
The software has been developed by VoxelCloud, a start-up has raised about $28.5 million from companies including Tencent and the Silicon Valley venture capital firm Sequoia Capital. It specializes in automated medical image analysis, helping eye doctors like Dr. Yu screen patients for diabetic retinopathy, the leading cause of blindness among China’s working-age population.
There are just 20 eye doctors for every million people here, a third of the proportion in the United States. In April, Beijing announced an ambitious plan for the country’s 110 million diabetics to undergo eye tests.
“It’s impossible for one person to read that many images,” said Dr. Yu.
Ding Xiaowei, whose grandparents were doctors, founded VoxelCloud in 2016, three months after completing his doctorate in computer science at U.C.L.A. The company, which has offices in Los Angeles and the Chinese cities of Shanghai and Suzhou, is awaiting the green light from China’s version of the F.D.A. for five diagnostic tools for CT scans and retina disease.
The sheer size of China’s population — nearly 1.4 billion people who could provide a vast number of images to feed into their systems — provides a potential advantage for the development of artificial intelligence. Also helping: China has fewer concerns about privacy, allowing for easier collection of data that could result in smarter and more efficient A.I. systems. Regulation here isn’t as strict as in the United States, either.
In all, more than 130 companies are applying A.I. in ways that could increase the efficiency of China’s health care system, according to Yiou Intelligence, an industry consultancy based in Beijing. They range from behemoths like Alibaba and Tencent to domestic champions iFlyTek, which invented a robot that passed a Chinese medical licensing exam, and an array of smaller start-ups.
Money is flowing in. As of last August, venture capitalists such as Sequoia and Matrix Partners had invested at least $2.7 billion in such businesses, according to Yiou. Analysts at Bernstein estimated that spending in China’s health tech industry will reach $150 billion by 2020.
Behind this push is a realization that the country’s health care system is in crisis. With no functioning primary care system, patients flock to hospitals in major cities, sometimes camping out overnight just to get treatment for a fever. Doctors are overworked, and reports of stabbings and assaults by frustrated patients and their relatives are not uncommon.
Yunfeng, the personal investment fund of the Alibaba founder Jack Ma, has invested in one company, Yitu, that hopes to address the shortfall of resources. Yitu is working with Zhejiang Provincial People’s Hospital, the best medical facility in eastern Zhejiang province, to develop software that automates the identification of early stages of lung cancer.
While it initially focused on facial recognition, Yitu has branched out into more complex image-recognition challenges, like cancer scans. Lin Chenxi, who left Alibaba to establish the company in 2012, said he hoped to use the technology to ensure equal access to medical treatment across China.
“In China, medical resources are very scarce and unequally distributed so that the top resources are concentrated in provincial capitals,” he said. “With this system, if it can be used at hospitals in rural cities, then it will make the medical experience much better.”
Trying to identify cancer nodes — shifting black-and-white splotches that look something like a Rorschach test — is grueling work, and China’s doctors have far less time and resources than their counterparts in the United States and elsewhere. Gong Xiangyang, the head of the hospital’s radiology department, likened the process to a factory, where burnout and mistakes from overwork can happen.
“We have to deal with a vast amount of medical images everyday,” he said. “So we welcome technology if it can relieve the pressure while boosting efficiency and accuracy.”
Employer Health Insurance: Often-Hated, Sometimes Pioneering, and Now on Amazon’s Radar
Everyone likes to complain about our company-based system, but there have been real examples of innovation.
by Margot Sanger-Katz - NYT - February 1, 2018
In the United States, most working-age people get their health insurance through work. It’s a weird, kludgy system, largely an artifact of history. Economists, politicians and workers alike complain that the setup is inefficient and maddening.
Now, three very big and powerful companies — Amazon, JPMorgan Chase and Berkshire Hathaway — plan to use that system to transform health care, at least for their million-plus combined employees.
This idea is not as revolutionary as it might first seem. Some experts view the employer health system, despite its flaws, as a force for innovation and reform. Aggressive employers have pushed for experiments in health benefits, and they have tested ideas that the government and private insurance companies have shied away from.
It was companies, not insurers, that began experimenting with paying extra for intense primary care for the sickest patients. Companies first developed on-site health care for their workers: Kaiser Permanente was born as a medical clinic for workers building the Colorado River Aqueduct. Companies, including Lowe’s and Walmart, pioneered programs that paid for patients to travel to premier centers for very expensive operations. California has tried tying insurance coverage to the price of a high-quality provider for state workers. Each of these efforts has been tied to measurable reductions in the cost of medical care.
“To the extent that you have seen innovation by insurers, it’s often at the behest of employers,” said Jonathan Kolstad, an associate professor at the University of California, Berkeley, who studies the industry.
The announcement on Tuesday by Amazon, Chase and Berkshire, though short on details, generated a lot of hope and investor enthusiasm. There are reasons to be skeptical that the companies will be able to make a big dent in their workers’ health spending. But if the companies succeed, they will be harnessing the advantages and opportunities of a much maligned part of American health care.
Companies started offering health coverage broadly during World War II, when the government imposed wage controls. And the system was cemented when the Internal Revenue Service decided that health insurance was not subject to income taxes, making it a particularly valuable way for employers to improve compensation for their workers.
Critics point to numerous problems with the system: It relies on company leaders to pick health insurance for all workers, even though C-suite executives might have preferences different from their lower-wage employees. It diminishes incentives to reduce costs, by insulating workers from the full price of their benefits. It discourages changes that could displease even a small number of workers, creating incentives to minimize disruption. “I don’t see any reason for the employer to be doing this,” said Fiona Scott Morton, a health economist at the Yale School of Management.
But the employer system also has points in its favor. For one, proponents note employers have multiple incentives to get health insurance right. They want their workers to be happy with their full slate of compensation — an employer that offered deceptive plans, for instance, might not hold onto good employees for long. Employers also want workers who are healthy and productive, able to work hard and to focus on their work.
Employers tend to be insulated from the political considerations that can make it hard for government plans or large insurers to try new strategies.
Large companies are able to pool risks, since they tend to cover both healthy and sick employees and family members. Because employers pay a large share of insurance premiums, most workers tend to sign up for plans even if they’re healthy. Employers with people who stick around a long time — think police departments or universities — have an additional incentive to prevent their workers’ health from deteriorating over time.
Insurance is also very hard for individuals to buy. A long list of studies has shown that consumers struggle to understand basic insurance concepts like deductibles, have difficulty selecting a good health plan, avoid shopping, and often choose a plan that is clearly inferior to other options.
Large employers have the resources to hire human resources professionals and benefits consultants to shop for their health plans. At least theoretically, those people should know more about how to pick a good health insurance plan that will serve the needs of the company’s workers. And the bigger the companies, the more they can pay to hire people really good to do that work, since their salary gets split many times over.
Have employers used these advantages to find huge savings? Not over all. Employer health insurance tends to be more expensive than public insurance, and its growth has traditionally followed the trajectory of other parts of the health industry. Some employers simply select from standard offerings, essentially outsourcing any innovation potential to notoriously risk-averse insurance companies.
But there is also a robust history of employer experimentation. Some employer ideas have paid off — and spread. Others have flopped. Amazon and friends would be building on this tradition.
Arnold Milstein, a professor at Stanford Medical School, spent several years with the benefits consulting firm Mercer developing unconventional benefit products with companies.
“There is a segment of them that is willing to take the same risk tolerance that characterizes their core business and move it into the health benefit space,” he said, noting that many employers “are pretty wary, but there is a subset that has been more bold.”
There have been less successful innovations. Workplace “wellness” programs, which provide financial incentives for lifestyle changes, were initially built and bought by employers. But a growing body of evidence suggests they haven’t delivered much in the way of results.
Amazon, Chase and Berkshire Hathaway have said they’re experimenting with new health care models for their workers. If they crack the notoriously hard nut of high health care costs, we can thank the country’s weird and unloved employer health system for their discovery.
Urging Dems to Stop Playing Defense, Warren Says Medicare for All 'Goal Worth Fighting For'
by Julia Connelley - Common Dreams - January 25, 2018
"There is no reason on earth for us to continue to allow the healthcare of the American people to be held hostage by an industry that both attacks any new healthcare proposals and at the same time refuses to do anything to fix it."
Sen. Elizabeth Warren (D-Mass.) called on her fellow Democrats on Thursday to "go on the offense" to improve the country's healthcare system instead of focusing on simply defending the Affordable Care Act (ACA), also known as Obamacare.
Speaking at a conference for the pro-Obamacare group Families USA, the senatornoted that while the ACA has been credited with insuring 20 million Americans who previously had no health coverage, 28 million people remain uninsured nearly eight years after the law was passed.
Watch:
"We need to build on that progress and do more to hold America's insurance companies accountable," said Warren, who is considered a potential challenger to President Donald Trump in the 2020 election.
The senator also touted her support for Sen. Bernie Sanders's Medicare for All proposal, saying it provides a plan "to give every single person in this country a guarantee of high-quality coverage."
"This is a goal worth fighting for and I am in this fight all the way," she added. "For too long giant insurance companies have pretty much run the show."
Since the ACA passed in 2010, insurance companies have restricted the doctors patients are able to see, raised premiums, and dropped coverage for certain prescriptions with no warning.
Many insurance companies left the state-run health insurance exchanges in 2017, complaining of financial losses as they were covering people with more health issues than they had before the ACA, and as Trump ended cost-sharing payments for coverage of low-income households.
When companies leave, said the senator, Congress should "call their bluff" and "replace their policies with public alternatives."
"Private insurance companies are failing the American people," Warren said. "There is no reason on earth for us to continue to allow the healthcare of the American people to be held hostage by an industry that both attacks any new healthcare proposals and at the same time refuses to do anything to fix it."
The madness of American medical billing, in one woman’s tweets
by Sarah Cliff - VOX - January 23, 2018
A day before a long-scheduled surgery, Aminatou Sow got an unexpected phone call: Her hospital wanted her to pay her share of medical bill before the operation took place.
Sow has a $4,000 deductible, and the hospital representative asked for that entire amount upfront. The representative suggested that she provide a credit card number that could be charged.
Sow, who hosts the Call Your Girlfriend podcast, recounted the experience on Twitter:
The hospital representative she spoke with warned her she might not be able to get the surgery if she didn’t pay upfront, Sow told me over email.
Sow had expected to pay her deductible this year. She knew the surgery was expensive. She just didn’t think it would happen like this, with a call 18 hours before surgery requesting payment with little warning — and tethering that upfront payment to her ability to get medical care.
Her experience is, frustratingly, a relatively common one in the American health care system. Doctors are increasingly asking patients to prepay their medical costs. This even happened to me recently: In January, I received a bill for a small medical procedure that won’t happen until June — six months away.
As NPR reported two years ago, some doctor offices are even exploring keeping their patients’ credit cards on file — something akin to a bar tab, except instead of drinks, people are buying medical care.
This can, as Sow points out, leave low-income patients in a bind if they don’t have the cash on hand for an upfront payment, especially when they only learn of the costs hours before a scheduled surgery.
And with deductibles on the rise, the costs that patients are expected to pay are on the rise too. The average deductible for Americans who receive insurance at work is now $1,478 — 63 percent higher than it was in 2011, according to the Kaiser Family Foundation.
Deductibles in the individual market are typically much higher, more in the range of Sow’s $4,000 deductible. And that plan is still expensive: Sow told me she pays a monthly premium of $668 for her coverage.
These high deductibles are, in part, what’s driving hospitals to increasingly ask patients to pay their bills in advance. They’re worried about providing services and never getting paid, now that patients — rather than insurance companies — are responsible for a good chunk of their payment.
Patients could try to protest the upfront payment, but they have little leverage. Those who have coverage through federal government programs like Medicare can refuse upfront payment. The rules for private health insurance that covers most working-age Americans aren’t nearly as clear-cut. And the situation often leaves patients with little leverage, if any, when needed medical care is on the line.
https://www.vox.com/platform/amp/policy-and-politics/2018/1/23/16920768/medical-billing-prepay-surgery
Preventive Care Saves Money? Sorry, It’s Too Good to Be True
by Aaron Carroll - NYT - January 29, 2018
The idea that spending more on preventive care will reduce overall health care spending is widely believed and often promoted as a reason to support reform. It’s thought that too many people with chronic illnesses wait until they are truly ill before seeking care, often in emergency rooms, where it costs more. It should follow then that treating diseases earlier, or screening for them before they become more serious, would wind up saving money in the long run.
Unfortunately, almost none of this is true.
Let’s begin with emergency rooms, which many people believed would get less use after passage of the Affordable Care Act. The opposite occurred. It’s not just the A.C.A. The Oregon Medicaid Health Insurance experiment, which randomly chose some uninsured people to get Medicaid before the A.C.A. went into effect, also found that insurance led to increased use of emergency medicine. Massachusetts saw the same effect after it introduced a program to increase the number of insured residents.
Emergency room care is not free, after all. People didn’t always choose it because they couldn’t afford to go to a doctor’s office. They often went there because it was more convenient. When we decreased the cost for people to use that care, many used it more.
Wellness programs, based on the idea that we can save money on health care by giving people incentives to be healthy, don’t actually work this way. As my colleague Austin Frakt and I have found from reviewing the research in detail, these programs don’t decrease costs — at least not without being discriminatory.
Accountable care organizations rely on the premise that improving outpatient and preventive care, perhaps with improved management and coordination of services for those with chronic conditions, will save money. But a recent study in Health Affairs showed that care coordination and management initiatives in the outpatient setting haven’t been drivers of savings in the Medicare Shared Savings Program.
There’s little reason to believe that even more preventive care in general is going to save a fortune. A study published in Health Affairs in 2010 looked at 20 proven preventive services, all of them recommended by the United States Preventive Services Task Force. These included immunizations, counseling, and screening for disease. Researchers modeled what would happen if up to 90 percent of these services were used, which is much higher than we currently see.
They found that this probably would have saved about $3.7 billion in 2006. That might sound like a lot, until you realize that this was about 0.2 percent of personal health care spending that year. It’s a pittance — and that was with almost complete compliance with recommendations.
One reason for this is that all prevention is not the same. The task force doesn’t model costs in its calculations; it models effectiveness and a preponderance of benefits and harms. When something works, and its positive effects outweigh its adverse ones, a recommendation is made.
This doesn’t mean it saves money.
In 2009, as part of the Robert Wood Johnson Foundation’s Synthesis Project, Sarah Goodell, Joshua Cohen and Peter Neumann exhaustively explored the evidence. They examined more than 500 peer-reviewed studies that looked at primary (stopping something from happening in the first place) or secondary (stopping something from getting worse) prevention. Of all the interventions they looked at, only two were truly cost-saving: childhood immunizations (a no-brainer) and the counseling of adults on the use of low-dose aspirin. An additional 15 preventive services were cost-effective, meaning that they cost less than $50,000 to $100,000 per quality adjusted life-year gained.
But all of these analyses looked within the health care system only. If we really want to know whether prevention saves money, maybe we should take a wider perspective. Does spending on prevention save the country money over all?
A recent report from the Congressional Budget Office in the New England Journal of Medicine suggests the answer is no. The budget office modeled how a policy to reduce smoking through higher cigarette taxes might affect federal spending. It found that such a tax would cause many people to quit smoking — the desired result. In the short term, less smoking would lead to decreased spending because of reductions in health care spending for those who had smoked.
In the long run, all of those people living longer would lead to increases in spending in many programs, including health care. The more people who quit smoking, the higher the deficit from health care — barely offset by the revenue from taxing cigarettes.
But money doesn’t have to be saved to make something worthwhile. Prevention improves outcomes. It makes people healthier. It improves quality of life. It often does so for a very reasonable price.
There are many good arguments for increasing our focus on prevention. Almost all have to do with improving quality, though, not reducing spending. We would do well to admit that and move forward.
Sometimes good things cost money.
The Connection Between Retiring Early and Living Longer
by Austin Frakt - NYT - January 29, 2018
You may not need another reason to retire early, but I’ll give you one anyway: It could lengthen your life.
That’s the thrust from various research in recent years, and also from a 2017 study in the journal Health Economics.
In that study, Hans Bloemen, Stefan Hochguertel and Jochem Zweerink — all economists from the Netherlands — looked at what happened when, in 2005, some Dutch civil servants could temporarily qualify for early retirement.
Only those at least 55 years old and with at least 10 years of continuous service with contributions to the public sector pension fund were eligible. Men responding to the early retirement offer were 2.6 percentage points less likely to die over the next five years than those who did not retire early. (Too few women met the early retirement eligibility criteria to be included in the study.)
The Dutch study echoes those from other countries. An analysis in the United Statesfound about seven years of retirement can be as good for health as reducing the chance of getting a serious disease (like diabetes or heart conditions) by 20 percent.Positive health effects of retirement have also been found by studies using data from Israel, England, Germany and other European countries.
That retirement promotes health and prolongs life isn’t obvious. After all, work provides income and, for some, health insurance — both helpful for maintenance of well-being. It also can provide purpose and camaraderie. Evidence is mounting that loneliness and social isolation are linked to illness, cognitive decline and death. One study of American retirees found them less likely to be lonely or depressed.
Some work involves physical activity, which can help keep bodies healthy, too. One study found that those accustomed to getting exercise through physically strenuous jobs — like construction or landscaping — are more likely to become obese upon retirement than those who don’t have such jobs.
But for many people, work can be stressful, take time away from exercise, and promote bad habits like excessive alcohol consumption. The Dutch study found that half of the mortality reduction associated with retirement is attributable to cardiovascular and digestive system diseases. Obesity, smoking and alcohol consumption, as well as reduced exercise and stress, can all contribute to these. If you drive to work, that’s another life-threatening risk.
Teasing out the causal effect of retirement on health isn’t straightforward. After all, some people retire precisely because they are in declining health. Without careful analysis, you might conclude that retirement causes poor health and an earlier death.
Indeed, some studies find retirement associated with worse health and reduced longevity. One found that retirement raises the risk of cardiovascular disease and mortality. Another found higher risks of cardiovascular disease and cancer. But another such study found that poor health outcomes were more pronounced among retirees who were unmarried, reduced their physical activity, and had less social interaction. In other words, it isn’t retirement itself that affects health, but what you do in retirement.
Keeping active and developing healthy habits are good ideas. Physical activity is associated with prevention of disease and reduced mortality in older people. Lack of time, perhaps due to work, is a chief reason many adults don’t exercise. Retirees are more likely to exercise, and those who do are better off for it. One study found retirees get more sleep and spend more time doing household work and gardening — both of which are more active than a desk job. Another study found that better health in retirement may be because of the reduced likelihood of smoking.
The age for full Social Security retirement benefits is on a schedule to increase gradually from 65 to 67. Those working longer as a result are in worse health than earlier cohorts. To retire, they’d have to rely more on their own savings.
But according to a recent national survey by the Board of Governors of the Federal Reserve System, many Americans don’t have the resources to retire. About 20 percent of Americans over 44 years old have no retirement savings. Half of Americans are at risk of being unable to maintain their standard of living in retirement. If you want to retire, whether for health benefits or otherwise, you’ll have to start preparing when you’re still young.
After uproar, state rescinds plan to limit health insurance options for public workers
The state agency that oversees health benefits for hundreds of thousands of public employees, retirees, and their families on Thursday abandoned a plan to limit coverage options, bowing to the demands of angry workers but largely leaving unanswered the question of how to rein in costs that are squeezing the state budget.
The about-face capped a tumultuous two weeks for the Group Insurance Commission, which came under attack soon after making the surprise changes to public workers’ health insurance carriers. The move relieved workers but also raised the prospect that some future changes — such as higher out-of-pocket expenses — might be required to control costs.
“Every time we get a pay raise, it’s absorbed by the increases in health insurance. I fear that they will jack the rates up a lot,” said Thomas Nigrelli, president of the Association of County Employees, reflecting the worries of other workers around the state.
“There’s still a real fear for me about cost hikes,” said Janelle Quarles, an employee at University of Massachusetts Boston and president of the Classified Staff Union there.
The Group Insurance Commission, in an 8-5 vote on Jan. 18, decided to cut costs in part by eliminating popular commercial health plans from Harvard Pilgrim Health Care, Tufts Health Plan, and Fallon Health. The change would have forced about 200,000 state and local employees and their families to move to coverage under three lesser-known health insurers.
Public workers, labor unions, and elected officials blasted the move, which they said came with little or no warning. Many people — including Governor Charlie Baker — said the commission’s process was flawed and caused mass confusion.
Following the backlash, commission officials said that they would reconsider their decision. On Thursday, commissioners voted unanimously to reverse course and keep all six commercial health insurers that are currently available to teachers, firefighters, bus drivers, social workers, and other public workers who get their benefits through the state.
The decision means that public workers will continue to have access to six commercial plans when they renew their coverage for July 1: Harvard Pilgrim, Tufts, Fallon, Neighborhood Health Plan, UniCare, and Health New England. Retirees with Medicare plans will be able to choose from four insurers.
Rates will be set in the coming weeks.
Commissioners acknowledged Thursday that they needed to communicate better with public workers after the blowup.
“We have to build trust with our constituents, and it has to start now,” said Valerie Sullivan, chairwoman of the commission.
But Sullivan and other commission members appeared torn about how the commission should respond to concerns from the public. They said their role is to offer high-quality benefits while reining in the premium and out-of-pocket costs that so many workers have found hard to bear.
The commission’s initial plan, which included cutting the three popular insurance carriers, would have saved an estimated $20.8 million in the first year for public workers and the state. By nixing that plan, they are expecting to save much less, about $1 million.
The taxpayer-funded Group Insurance Commission has an annual budget of some $2 billion and is the largest purchaser of health insurance in the state. Its initial plan to eliminate some insurers resulted in one company raising the prospect of layoffs.
“It’s important that we don’t lose sight of what the goal of the GIC in this process was. . . . We were trying to make sure we got the most out of the money we were spending,” said Eileen P. McAnneny, a commissioner and the president of the Massachusetts Taxpayers Foundation.
GIC commissioners are appointed by the governor. A minority of them represent labor unions.
The commission has been in the process of selecting health insurers for several months. Commission officials said they long discussed the possibility of “consolidating” insurance carriers. But they didn’t release specific details until shortly before the Jan. 18 vote. That rankled public workers and union officials, who said they needed more time to digest the changes.
Labor representatives were in the audience as the commission met Thursday morning in the State Transportation Building in downtown Boston.
“We’re certainly happy with the outcome of the vote,” said John Drinkwater,
The commission has not yet explained precisely what benefits will be covered and exactly how much workers and retirees will have to pay. Those details are expected in the coming weeks.
“I just want to make sure my deductibles and copayments don’t go up,” retiree George Krauskopf said before Thursday’s meeting. “I still have health insurance, but it’s even more important because my income is fixed.”
Commission officials said they’re continuously working to keep coverage affordable. But they indicated that goal will be harder to accomplish now after scrapping their original plan, which would have saved costs in part by eliminating some carriers.
Union officials say the commission should not try to slash costs for the state by requiring workers to pay more out of pocket.
“There’s got to be another way to save without shifting more onto workers or placing an unreasonable burden on them,” Drinkwater said.
1332 Waivers Are Easier To Approve For 2019
by David Anderson - Health Affairs - January 30, 2018
Since mid-October, two major realities of the Affordable Care Act (ACA) have changed. These changes make budget neutrality easier to achieve for states that file comprehensive 1332 waivers. These waivers are innovation programs that allow states to experiment with customized changes to their individual market. The federal government is willing to send the state all of the subsidy funds that would have been spent on standard ACA exchange buyers to spend on the state’s customized program.
The federal government has four critical guardrails for 1332 waivers. As compared to coverage that would have been provided under the ACA, states must:
- Provide coverage that is at least as comprehensive in covered benefits;
- Provide coverage that is at least as affordable (taking into account premiums and excessive cost sharing);
- Provide coverage to at least a comparable number of state residents; and
- Not increase the federal deficit.
The current guidance has strict rules on budget neutrality. These criteria partially led to Iowa withdrawing its revised Iowa Stopgap Measure 1332 application. However, two developments—the repeal of the individual mandate and the replacement of eliminated cost-sharing reduction payments by higher advance premium tax credits (APTC)—both increase net federal costs under the ACA; they thus increase the amount of pass-through funds available to states implementing 1332 waivers.
Changed Reality Number 1: The Repeal Of The Individual Mandate
Under the individual mandate, most Americans were required to purchase health coverage or pay a tax. But starting January 1, 2019, there is no penalty associated with the individual mandate. The Centers for Medicare and Medicaid Services (CMS) indicated that the Iowa Stopgap Measure pass-through amount would have been reduced by the amount of individual mandate tax revenue that the federal government would have lost. CMS assumed that lower off-exchange premiums would lead to more people being insured and therefore fewer people paying the individual mandate tax. The Rand Corporation estimated that this would have decreased the total possible pass-through amount by 19 percent on an early draft of the Iowa plan.
Since there is no longer any federal revenue associated with the individual mandate, there is no revenue loss to be scored against Iowa or any other state whose 1332 waiver increases the insured population. This makes designing a budget neutral 1332 waiver significantly easier.
Changed Reality Number 2: The “Baking In” Of The Loss Of Cost-Sharing Reduction Subsidies
The federal government paid cost-sharing reduction (CSR) subsidies to insurers to reimburse them for reducing deductibles, copayments, and coinsurance for low-income exchange purchasers as mandated by the ACA. President Donald Trump halted these payments in October of last year. As a result of decisions by state regulators and insurers, insurers have “baked” most of the costs of losing these subsidies into the baseline premium rates of silver plans. Higher pre-subsidy silver-plan premiums relative to all other plans mean greater federal baseline costs, and thus more pass-through revenue, because under the ACA, APTCs are determined by the cost of the second-lowest-cost silver plan. (If the higher premiums were due to higher claims expenses, 1332 waivers would not be easier to file for 2019, since states would have to pay for those higher expenses under their waivers. That is not the case.)
The Congressional Budget Office estimated in August 2017 that loading the costs of lost CSR payments on to silver-plan premiums would cost the federal government a net $194 billion dollars over a decade. Some of that increase would be due to higher enrollment due to lower net-of-subsidy premiums. Most of the increased federal spending would be because CSRs were a tightly focused and highly means-tested subsidy that only went to silver buyers earning between 100 percent and 250 percent of the federal poverty level ($12,020 to $30,050 for a single individual). APTCs are a broader and far less means-tested subsidy that is available to anyone earning between 100 percent and 400 percent of poverty ($12,020 to $48,080) buying any metal plan.
For example, an individual who earns $25,000 is eligible to purchase a silver plan with a 73 percent actuarial value. If CSRs were paid directly, this person would receive no benefit since his or her income would be too high to receive the CSRs. However since CSR payments are now silver-loaded (in the form of higher pre-subsidy premiums), this individual receives a significant benefit in the form of lower premiums after the larger APTC subsidy is applied.
Looking At The Numbers: The Case Of California
Therefore, CSRs being silver-loaded creates opportunities for states. Steven Chen in an earlier Health Affairs blog post sketched out the implications of a CSR waiver using California’s 2016 data:
“The federal government paid $750 million in CSR payments in 2016 to reimburse, but if it were to defund CSR payments, not only would it not receive any savings, it would incur an additional $976 million in APTC spending. Using these figures as illustration, if the federal government had terminated CSR payments in 2016 and if California had provided CSR payments through a 1332 waiver, under this scenario California would have to pay $750 million in CSR payments, but it would receive $976 million from the federal government in lost APTC payments—payments California would have otherwise received without waiver—ending up with a total net profit of $226 million!”
The incremental wedge—in this case $226 million—may be used for reinsurance, to increase the subsidy threshold to 500 percent of poverty, for invisible risk pooling, or for anything else that a state wants to do. The money is effectively free from the state’s perspective, as a 1332 waiver is evaluated against current law, the strangeness of the silver-load workaround notwithstanding.
On a pragmatic level, people who are currently subsidized and are getting great deals on bronze and gold plans may be worse off under 1332 waivers, even as non-subsidized buyers are better off. If premiums are uniformly reduced by a fixed percentage, the distributional impacts are straightforward. Subsidized buyers who purchase plans that are less than the benchmark silver plan are worse off as the gaps are compressed. Subsidized buyers who buy plans that are more expensive then the benchmark are slightly better off with lower baseline premiums. Non-subsidized buyers are much better off.
Achieving Budget Neutrality Has Gotten Easier, But Time Is Short
Submitting a complex 1332 for the 2019 policy year has gotten much easier with these two major policy changes. However, time is limited. Current law gives CMS 210 days after the receipt of a completed 1332 waiver to approve or deny a waiver. CMS is planning to use its normal timeline for the plan certification and data load process next year. Open enrollment starts on November 1, 2018. Final contracts are signed with insurers on September 25, 2018. February 27, 2018 is 210 days before the contract due date. States that want to have sufficient time to guarantee an acceptable application will need to submit complex applications earlier.
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