Tag Archives: Alan Katz

So Here’s an Idea on Healthcare Reform

If you spend any time writing or speaking about healthcare reform, eventually you’re asked the magic wand question: What would you do? Well, there’s an idea I’ve been thinking about. It’s not a Big Fix. It’s merely something that would improve whatever system is in place – I think – by making the system more simple and transparent. I’m sure it’s riven with problems. And maybe it’s a hot topic, but I’ve missed those articles. In any event, here it is. Please let me know what you think I’m missing.

The Mechanics

The idea is to have providers (physicians, hospitals, clinics, laboratories, etc.) publicize what they charge using a multiple of what Medicare pays. If Medicare pays $100 for a procedure and a doctor charges $300 for the same procedure, this doctor is a 300% provider.

Carriers, meanwhile, will set what they reimburse providers as a percentage of Medicare, as well. If an insurance policy pays as much as $250 for this same procedure, it’s a 250% policy.

See also: The Math of Healthcare Reform  

The key is that this percentage doesn’t vary based on the procedure. Once a provider or carrier sets its multiple, that figure defines the cost for all treatment and services. Consumers gain two bits of information they lack today: what their provider is charging (300% of Medicare in this example) and what their health plan pays (250% of Medicare here).

There’s two advantages to using Medicare as the benchmark for pricing. First, it’s already in use today. Second, it assures both providers and payers are using the same measurement. When you say “300% of Medicare,” doctors and insurers know what you mean whether they’re in San Francisco or San Antonio. (If you’re from elsewhere, it means take the Medicare rate, and multiply it by three).

Compare this with today, when all they know is that the carrier pays in-network services on a mysterious discount and out-of-network services based on an unknowable formula. What is reasonable and customary? Under my proposal, however, consumers know what the carrier will pay and what they’re responsible for before they walk through the door for medical care.

If the proposal were implemented today, a number of things would remain unchanged. Deductibles, co-insurance and co-pays: still allowed. The Affordable Care Act’s essential benefits: covered. Preventive care: not subject to deductibles and co-insurance.

How emergency treatment is reimbursed will need to change to a standard multiple of Medicare for all payers regardless of the facility’s usual percentage so consumers aren’t subject to balance billing.

Simplicity and Transparency

As noted, this idea overlays the current system; it’s not a substitute. This is an overlay, however, that delivers substantial simplicity and transparency. Consumers know up front which providers they can afford. There would be no networks, so there would be no surprises from out-of-network charges, Consumers choose any doctor fully aware of how much of their bill is covered by their health insurance. If they want more covered, they simply choose another provider.

Physicians wouldn’t have to guess what carriers will pay them. They’ll reduce their costs as a lot of unnecessary paperwork goes away. However, they’ll also have to compete with other providers in their community. If a doctor is going to charge a lot more than everyone else, she better have a good reason.

Hospitals could no long hide behind their charge masters– a menu of prices they charge for services that no one ever sees and few hospitals can explain or justify. These inflated costs are the starting point for pricing negotiations with carriers, so few people ever see them. (Steven Brill wrote a special report for Time magazine in 2013 that explains charge masters and should be required reading for anyone attempting to reform American healthcare).

Consumers and their brokers will be able to compare the value of plans on an apples-to-apples basis. If a 400% policy is more expensive than a competitor’s 500% policy, the carrier better be able to explain why. Consumers won’t face unexpected charges, either. They’ll know if their policy will cover all of a given provider’s expense or if they’ll need to pay a portion of the costs. And they can choose their providers accordingly.

Carriers benefit from this proposal, too (unless you’re employed in the networking department). Actuaries will have more certainty in determining the reimbursement required under each plan, regardless of whether the provider is in- or out-of-network. With better information on their exposure, carriers can price more accurately. The simplicity of the system will also reduce operating costs, and that’s critical for carriers needing to meet a legally required medical loss ratio.

An Improvement, Not a Revolution

I know this idea doesn’t fix America’s healthcare system. The goal is to inject greater simplicity and transparency into whatever system is in place. If transparency advocates are right, this will revolutionize healthcare. I’m not sure I buy into the idea that transparency is all that game-changing, but, to the extent it is, this proposal dramatically increases transparency throughout the healthcare system.

Single-payer advocates will not be impressed by this idea. However, I believe, in spite of its current momentum, single payer is a long way away. Single-payer proposals cost too much, impose too much centralized control and are too disruptive. The ACA cost Democrats Congress (and arguably the White House), and Obamacare is far less radical than any single payer plan out there. Imagine the political blowback at a government-run insurance program by voters already fearful of death panels and distrustful of Washington?

See also: A Way to Reduce Healthcare Costs  

ACA supporters should like my approach. A common criticism is that the ACA doesn’t do enough to make healthcare or healthcare coverage affordable. Simplicity saves money. Transparency empowers consumers to reduce their healthcare costs. The ACA plus a Medicare-pegged healthcare system will help the ACA keep its affordability promise.

Advocates of reference-based pricing should also be happy. I’m proposing reference-based pricing on a nationwide scale with everyone using the same reference: the Medicare reimbursement schedule. This goes further than most of the reference-based pricing proposals or implementations I’ve seen, but it’s a logical expansion of the concept. And because both the provider and the payer are referencing the same benchmark, litigation — a too-common result of current reference-based efforts — is unnecessary.

This proposal isn’t a panacea. The question is, is it a practical improvement? Please let me know what you think – and what I’m missing here – in the comments.

This article first appeared on the Alan Katz Blog

Can Trump’s Math Work in Healthcare?

When it comes to healthcare reform, it’s all about the math.

The First Element: Trump and Winning

President Trump hates to lose. He’s about winning until we’re all sick of winning. (His words, not mine.) The American Health Care Act, Republicans’ attempt to replace the Affordable Care Act, also known as Obamacare, failed. Support was so scarce that Speaker of the House Paul Ryan and the president didn’t even bring it to a floor vote in March.

The press said Trump lost. Given his vocal support and strong lobbying for the bill, this assessment was accurate, but one the president cannot, and, apparently will not, accept. He sent his team to try to salvage the bill before the April recess. They failed. Which was a bit surprising given that Trump seems more focused on passing a bill – any bill – than on the substance of legislation.

This is the first number in our healthcare reform equation: Trump wants to win and doesn’t care how.

The Second Element: Divided Republicans

It takes a simple majority to pass a bill out of the House. With 434 current members (the elevation of Jim Price to Secretary of Health and Human Services leaves one seat vacant), 218 votes are required to pass legislation. There are currently 246 Republicans in Congress. Having already shut Democrats out of the process, Trump needs all but 28 members of the GOP caucus to pass a bill; a 29th Republican “no ” vote, and the bill fails.

There are about 40 members of the House Freedom Caucus, a group of the chamber’s most conservative lawmakers. The majority of the caucus united in opposition to the AHCA. In March, Trump blamed them for the bill’s defeat. In April, he sent his emissaries to get their votes.

The Freedom Caucus demanded elimination of some of the ACA’s most popular provisions as the price of their support. These provisions prevent carriers from excluding coverage for pre-existing conditions and require health plans to include certain essential benefits, like maternity coverage. The White House reportedly considered acquiescing to these demands.

The problem, however, was that accepting the Freedom Caucus’ demands resulted in (relatively) moderate GOP members abandoning the AHCA. Gaining conservatives votes doesn’t help if the cost is an equal number of moderate votes. There may be a path to pass the AHCA solely relying on solely on Republican votes, but, given the divide between conservative and mainstream Republicans, it’s hard to find it.

Which provides the second number for our equation: Republicans can’t pass healthcare reform on their own.

See also: The Math of Healthcare Reform  

The Third Element: Democrats Want Repair

Democrats believe the ACA has been good for America, especially for those who, but for the ACA, would have no healthcare coverage. Most liberal Democrats think the ACA doesn’t go far enough. They won’t be satisfied with anything less than a single-payer system.

Many Democrats, however, think the ACA is generally fine, but in need of critical tweaking to keep it working. Some liberals will hold out for their dream of “Medicare for All,” but even many in their ranks will take a repaired ACA over a broken system or what Republicans are offering.

Which is why Democrats united against the Republican plan. Not that it mattered. Republicans never sought Democratic votes for the ACA.

Democrats want to fix the ACA. That’s the third and final number in our healthcare reform equation.

The Math of Healthcare Reform Compromise

If Trump wants to win, he needs to move beyond a purely Republican formulation. Otherwise, as shown above, the math doesn’t work. Republicans need the larger numbers that Democrats provide to pass healthcare reform legislation.

How does this math work? Let’s say a healthcare reform package reaches the floor of the House that attracts 164 Republicans – just two-thirds of their caucus. However, it gains support from 54 Democrats – only one-third of their caucus. The bill moves on to the Senate. In short, it’s easier to find 218 votes among 434 members than from among 246.

This path makes the challenge before the president straightforward, if difficult: find a legislative package that attracts enough Democratic votes to offset the Republican votes it loses. In the old days (before Washington because hyperpartisan), pragmatists from both parties would meet and hammer out a compromise. That’s what’s needed now. Significantly, there’s plenty of common ground to be found.

There are ACA taxes that neither Republicans and Democrats like. Eliminate them. The Shared Responsibility Payments that penalize Americans for going without coverage are universally acknowledged to be ineffective. Fix it. Both Democrats and many Republican want to keep the ACA’s Medicaid expansion. Preserve it.

The path to a compromise won’t be easy, but the equation is simple addition: Trump wants to win and doesn’t care how PLUS Republicans can’t pass healthcare reform on their own PLUS Democrats’ want to fix the ACA. The result: compromise.

See also: Stigma’s Huge Role in Mental Health Care  

Political Cover

The biggest obstacle to achieving healthcare reform is not the math, it’s the politics. Incumbents in both parties dread being “primaried” – Republicans fear being challenged from the right, Democrats from the left.

This is not paranoia. The extremes of both parties will seek vengeance on their less pure teammates. Party leaders and the administration will need to give these members extensive cover in terms of messaging, campaign money and resources to beat back these attacks. Or they will need to convince the public that failing to achieve healthcare reform is a worse outcome than the compromise.

This is where Trump proves he deserves to win. He must demonstrate his self-proclaimed negotiating prowess and his proven marketing acumen to create a political environment where compromise on healthcare reform doesn’t doom incumbents.

In other words, for Trump to win he needs to make sure that members of Congress win, too.  Otherwise, he loses. That’s politics—and math.

For curated articles on healthcare reform, check out the Alan Katz Health Care Reform Magazine on Flipboard.

Is U.S. Healthcare Ready for ‘All Payer’?

Congress is debating the American Health Care Act, the first of three steps in Republicans’ march toward repealing and replacing the Affordable Care Act. Things are not going smoothly. GOP conservatives, which have considerable clout in the House of Representatives, want the bill to repeal more and replace less. More moderate Republican Senators, of which there are enough to block any legislation, argue the legislation goes too far in some respects. Attempts to mollify one side hardens opposition on the other. And so far, no real effort has been made to entice Democrats to do more than watch Republicans fight one another.

It’s possible President Trump, Speaker Paul Ryan and Senate Majority Leader Mitch McConnell can corral enough votes in each chamber to push the AHCA through Congress. It’s possible, but I’m skeptical. And what if they can’t?

See also: What Trump Wants to Do on ACA  

Well, they could do nothing, leaving enough uncertainty lying about that the individual market, at least, collapses. That could make 2018 a tough election year for Republicans. Or they could offer AHCA version 2.0 and hope for better results. Wishful thinking is a great pastime but hardly a vehicle for making public policy.

All of which argues for doing something outside the proverbial box. Maybe Congress could even address the core problem facing America’s healthcare system: the cost of medical care. What might that look like? One option would be to look at an idea that’s been around since the 1990s, if not longer: an all payer system. It would certainly be an interesting debate.

To oversimplify, under an all payer system, providers and payers (usually the government) establish a price for each medical treatment and service. Every provider accepts this rate as payment in full, and every payer (government, private insurance, self-funded plans and individuals) pays this rate.

As noted by The Hill, several states experimented with one version or another of all payer systems in the 1990s, although today only Maryland’s remains. As recently as 2014, academics at Dartmouth proposed using 125% of Medicare reimbursement rates for a national all payer program. Pricing transparency advocates like all payer systems because everyone knows the cost of care – the ultimate transparency. And this system eliminates the wide variance in pricing for identical treatment so prominent today.

A pure all payer system would be difficult to pass, however. Free market Republicans will not accept the government setting the price for all medical care payments. And pharmaceutical companies, doctors, hospitals and other providers are not going to take kindly to having anyone set a one-size-fits-all cost structure. But there are variations on the all payer theme that might make such a system more palatable — and allow for a healthy (and entertaining) debate..

For example, consider an all-payer system in which Medicare reimbursement rates are simply a starting point — the benchmark used by all providers in setting their costs and all payers in determining their reimbursement levels. No more Alice in Wonderland pricing by hospitals and other providers. Each service provider would describe its fees as a multiple of Medicare. Insurers would offer plans that cap reimbursements at different multiples of Medicare. If the doctor’s charges are at a lower or the same multiple as an insurance policy’s, that provider would be fully reimbursed by the carrier, and no charges beyond co-payments, deductibles and co-insurance (if any) would be required of the patient. If the practice has set a higher Medicare multiple than a patient’s policy covers then the patient is liable for the additional cost. The key, however, is that the consumer would know this before incurring the charge. (Which is why emergency care would be treated somewhat differently).

See also: Letter to Congress on Replacing ACA  

An all payer system requires higher cost providers to justify the extra expense. It eliminates the helter skelter of ever-changing networks. Health insurance premiums would reflect reimbursement rates and would correlate with the number of providers whose services would be covered in full.

Conservatives can’t claim all payer systems is a government takeover of healthcare. On the contrary, the only role Medicare plays is providing the baseline for reimbursement … a common language all providers and payers speak. What they do with that baseline is up to them. Liberals won’t like that insurance companies remain in the healthcare system and will object to limiting, as a practical matter, poorer Americans to low reimbursement policies.

Right now, all attention is on the American Health Care Act. That’s as it should be. After all, it’s not dead yet. But, given that there’s a good chance the legislation will crash and burn, there’s no harm in thinking about what could come next. I’m rooting for something that isn’t just a rehash of the 2009 debate, but rather something bolder. An all payer proposal is just one idea, and there are no doubt many better ones.

What’s your favorite?

This article first appeared at the Alan Katz Blog.

The Math of Healthcare Reform

The House Leadership’s plan for repealing and replacing the Affordable Care Act is now public for all the world to describe, dissect and debate. For articles on what it does, please check out my Flipboard magazine.

To call the legislation dead on arrival is unfair. However, the proposal is looking under the weather.

See also: What Trump Wants to Do on ACA  

As I’ve posted previously, what Speaker Paul Ryan and the Republican leadership put forward is highly unlikely to be what emerges from Congress … assuming healthcare reform does emerge from Congress.

Which may be a good thing. Because the American Health Care Act fails to address in any meaningful way what should be a critical goal of any healthcare reform proposal: making health care affordable. Washington is fixated on how Americans get health care coverage. Should there be government exchanges? Should premiums be subsidized? Should there be restrictions on how insurers set premiums for coverage? And so on. All of these are vital issues. But they’re playing around the edges of public policy when the real solution is at the core.

This isn’t just opinion. It’s math. Consider: The Affordable Care Act requires carriers to spend the vast majority of every premium dollar they collect for medical care. In the individual and small group markets, 80% of premiums must go to cover medical care, or carriers must refund enough premium to reach that level. For larger employers, the medical expense target is 85% of premium. The remaining premium dollars are what carriers can use for paying claims, customer service, negotiating discounts with medical providers, advertising, legal expenses, staffing, HR departments, distribution costs, profit (or retained earnings for non-profits) and any other administrative costs. (Incidentally, I don’t see any reference in the new proposal to these provisions of the ACA, which, I assume, means they stay in place. If I’m wrong, please let me know in the comments section.)

If lawmakers want to make health insurance coverage affordable, they’re going to have to make medical care affordable, because that’s where the money is. Zero out insurers’ operational expense, and overall premiums would go down less than 20%. That’s a sizable amount. However, in three or four years we’re back where we are today thanks to medical inflation. And there’s no way to eliminate all administrative costs. Someone has to process the claims or answer consumers’ questions. And those people expect to get paid. And someone has to pay for their phone, desk and computers. And someone has to support their equipment. And so on.

Medical care represents 80% to 85% of health insurance premiums. Reduce this side of the ledger by 20%, and premiums fall 17% — roughly the same as eliminating 100% of insurers’ operational costs.

See also: Letter to Congress on Replacing ACA  

If President Trump and Congress are serious about reducing the cost of health insurance, they need to figure out how to reduce the cost of medical care. There’s plenty of ideas out there (a topic for a future post). And, to be fair, they’ve mentioned a few. But there’s a political reality that explains why most of the rhetoric around Pennsylvania Avenue concerns the cost of coverage: No one has lost an election by attacking health insurance companies. They’re one of the safest pinatas in American politics. On the other hand, doctors and hospitals are politically dangerous to take on. Voters actually like them.

Regulating health insurance so consumers get a fair deal is important. Lowering the cost of medical care is critical. It will also reduce insurance premiums. It’s just harder. Perhaps that’s why the Republican proposal is called the American Health Care Act. It would be wrong to use the word “affordable.”

This article first appeared at the Alan Katz blog.

What Trump Wants to Do on ACA

President Trump’s speech to a joint session of Congress on Feb. 28 covered his commitment to repeal and replace the Affordable Care Act. What did he say, what did he mean and what will be the impact on the ACA?

What He Said

The president said, “I am also calling on this Congress to repeal and replace Obamacare with reforms that expand choice, increase access, lower costs and, at the same time, provide better healthcare.”

Then, he proclaimed, “We must act decisively to protect all Americans. Action is not a choice — it is a necessity. So I am calling on all Democrats and Republicans in the Congress to work with us to save Americans from this imploding Obamacare disaster.”

He cited five principles that “should guide the Congress as we move to create a better healthcare system for all Americans.

“First, we should ensure that Americans with pre-existing conditions have access to coverage and that we have a stable transition for Americans currently enrolled in the healthcare exchanges.

“Secondly, we should help Americans purchase their own coverage through the use of tax credits and expanded Health Savings Accounts — but it must be the plan they want, not the plan forced on them by the government.

“Thirdly, we should give our great state governors the resources and flexibility they need with Medicaid to make sure no one is left out.

See also: What Trump Means for Health System  

“Fourthly, we should implement legal reforms that protect patients and doctors from unnecessary costs that drive up the price of insurance — and work to bring down the artificially high price of drugs and bring them down immediately.

“Finally, the time has come to give Americans the freedom to purchase health insurance across state lines — creating a truly competitive national marketplace that will bring cost way down and provide far better care.”

What He Meant

I hesitate to try interpret what the president means when he, well, uses words. We’re talking a moving target here. However, given the gravity of the speech, I assume what he said was thoroughly vetted and intentional. So, I’ll go try to interpret the president’s message. Full disclosure, however: Republicans are already fighting over the meaning of his five healthcare reform principles, so there’s clearly room for differing interpretations.

Pre-existing Conditions:

In the past, Trump has expressed the desire to keep the ACA’s guarantee-issue provisions that prevent insurers from declining coverage because of a consumer’s health status. Last night, however, he used different wording, stating that pre-existing conditions should not bar Americans from having “access” to coverage. These are two different things. The ACA requires that carriers accept consumers, even those with expensive medical conditions, into any plan for which the consumer is eligible. Calling for access means that, as an alternative, these Americans could be shunted into high-risk pools or plans designed specifically for high-cost insureds.

Offering access to high-risk pools means Americans with existing medical conditions would have fewer choices and limited benefits and would pay higher premiums than their healthier neighbors. In testimony before a California legislative committee, I once referred to high-risk pools as “a ghetto of second-hand coverage.” The author of the legislation establishing the state’s pool sat on the committee. Oops! But I stand by my description.

The president’s indicating a willingness to accept high-risk pools was good news for House Speaker Paul Ryan, who supports them. However, there are millions of Americans with pre-existing health conditions. How will they react to being removed from the “normal” market? And how will they, and their family and friends, express those feelings at the polls?

Tax Credits and HSAs:

Health Savings Accounts have long been a staple of Republican healthcare reform proposals. In a draft of Speaker Ryan’s Obamacare replacement bill, tax credits are the primary means of making health insurance premiums affordable. Conservatives have pushed back against tax credits, calling them a new, non-means-tested entitlement program. The president’s backing of this approach will give the speaker some leverage in negotiations with these members of the GOP caucus in the House.

Medicaid:

President Trump’s call for giving governors more say in how their states implement Medicaid seems to support efforts to move federal payments for the program into block grants, which aligns the White House with Republicans in the House. Currently, states receive funds based on Medicaid enrollment (subject to a host of adjustments for a variety of factors, but let’s keep it simple for now). Block grants would give states a fixed amount to spend within very broad federal guidelines. This approach enables the federal government to cap their spending on the program and leaves it to states to manage the program.

Lowering the Cost of Care:

Too often, the debate over health insurance affordability ignores a harsh reality: The major driver of health insurance premiums is the cost of medical care. Most of the president’s principles concerning healthcare reform focus on healthcare coverage. But he’s also seeking to lower costs through malpractice reform and through taking steps to drive down the cost of prescriptions. That the president is addressing medical expenses at all is a good thing. Let’s hope that, as a replacement to the Affordable Care Act moves through Congress, there will be an even greater emphasis placed on reducing the cost of medical treatments and services.

Interstate Sales:

Trump and many Republicans invoke letting consumers buy out-of-state coverage with the same passion as Hogwarts students learning their first spells. Republicans proclaim out-of-state coverage will increase competition and lower premiums across the country. Like that school of witchcraft and wizardry, however, this proposal is, unfortunately, a fantasy. I’ll write a post on why soon, but for now consider just one factor: Virtually all health insurance policies sold today rely on discounts offered by “in-network” doctors, hospitals and other providers of care. Plans sold in State A may look good to a consumer in State B, but if that carrier doesn’t have a strong network in State B, what good is that policy?

The Impact

Let’s assume I’ve interpreted what the president said correctly. What will be the impact of his position on whatever Obamacare repeal-and-replace bill emerges from Congress and lands on his desk to sign?

See also: Is the ACA Repeal Taking Shape?  

First, it is very significant that the president’s healthcare reform principles align as closely as they do with those of Speaker Ryan. This gives the speaker a powerful card to play when herding his splintered caucus behind his preferred legislation.

Second, it seems to signal that the White House is ceding the responsibility to develop an ACA replacement to Congress. The president carved out no bold vision for what he wants, nor are his principles in conflict with longstanding Republican positions. The only exception is his call for federal action to lower prescription drug costs. But would Trump veto a bill that meets all of his principles except for this one? Doubtful.

Third, we’re only at the beginning of a long, arduous march to reforming or replacing the Affordable Care Act. Many more parties will be heard from, including Senate Republicans, insurers, pharmaceutical companies, doctors, hospitals and other special interest groups. The public will have a lot to say on this subject, too. Plus, any reform package will likely require support from Democrats, and negotiations for those votes have not yet begun.

As I’ve written previously, what Republicans are putting forward now may bear only a passing resemblance to the healthcare reform we will get at the end of what will be a very long, messy slog.

This article was originally posted on Alan Katz’s blog.