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Why Fairness Matters in Federal Reforms

As Congress looks at restructuring two national insurance plans — the American Health Care Act of 2017 and the National Flood Insurance Program — legislators must address the issue of fairness. That is the view of Wharton professors Howard Kunreuther and Mark Pauly, who co-wrote the book, “Insurance and Behavioral Economics: Improving Decisions in the Most Misunderstood Industry.”

In this opinion piece, they argue that considering the issue of fairness in designing these programs is not merely an exercise to aid the old and needy. Rather, it is also to make legislators think about what policies will make premiums less onerous to people with lower risk so they will not be discouraged about getting coverage.

The U.S. is at a critical moment as Congress is attempting to determine how two insurance programs should be structured to help Americans who need protection from physical and financial risk. Both the reauthorization of the National Flood Insurance Program (NFIP) and the American Health Care Act of 2017 raise questions as to whether affected individuals would be treated more fairly under the new legislation than they currently are.

For us, fairness in the context of new legislation means consideration of the impact that a sudden increase in premiums or unexpected changes in the terms of coverage will have on the well-being of the affected individuals.

See also: Flood Risk: Question Is Where, Not When  

When the National Flood Insurance Program (NFIP) was enacted in 1968, there was a concern that high premiums would significantly reduce property values and that this could become an unfair economic strain. For this reason, the NFIP specified that homeowners living in high-risk areas at the time the law was enacted would be charged a subsidized premium.

The same potential conflict regarding fairness applies to health insurance. Is it fair that those with pre-existing medical conditions or those who unexpectedly acquire high-risk conditions might have to pay much higher health insurance premiums than when they were less at risk?  Yet this is what will happen if private insurers are allowed to charge risk-based premiums and politicians decide to provide limited subsidies to cushion those higher premiums.  However, is it fair to impose high premiums on individuals with low risks to finance such subsidies? And is it fair to offer no reward to those who take steps to improve their health status and thus reduce their future health spending risk?

Elected representatives on both sides of the aisle continually espouse the principle of fairness across a wide range of issues, including trade, tax reform and jobs. If they truly want to extend that allegiance to the principle of fairness, they might wish to consider offering some form of financial assistance to help working class families who become high-risk for floods or to help them buy or continue coverage for health care. The choice of the right amount of support regarded as fair is ultimately a political issue where voters’ perspectives may differ.

There are efficient ways to address the fairness problem for both insurance programs that might gain bipartisan support. With respect to health insurance premiums, it is easy to justify assisting low-income and older people who want to buy coverage. Empirical studies of Medicaid programs suggest that individuals care about other people’s health conditions. Many taxpayers are thus likely to support having the public sector cover part of the cost of health insurance for those whose health might be improved by having insurance.

In the case of flood insurance, those subject to water-related damage should receive information on the cost of insurance that reflects their flood risk. If this risk-based premium exceeds a proportion of their income or housing costs, they could be given an insurance voucher or tax credit so they could afford insurance. A new RAND study recommends that those whose total housing costs — including flood insurance premiums — exceed a certain percentage of their income be provided with financial assistance. This would ensure that taxpayers are not subsidizing high-income individuals.

It is important to encourage property owners in flood prone areas to invest in cost-effective, loss-reduction measures. Homeowners could be offered a long-term home improvement loan, tied to the property, to pay for cost-effective ways to mitigate future losses, such as elevating the house or moving utilities to a higher floor, so that the annual cost of the loan, paid all or in part by vouchers or tax credits, would be less than their savings from the reduced risk-based premium. This proposal is not only fair but also encourages property owners to reduce future losses from inevitable disasters. It also avoids using taxpayer dollars to assist uninsured and unprotected victims from hurricanes and floods who will demand and may receive federal disaster relief.

See also: How to Make Flood Insurance Affordable  

In summary, the proposed flood and health insurance programs should be designed with reasonable premiums for high-risk individuals so they will want to purchase coverage that protects them against catastrophic financial losses. At the same time, one needs to be concerned about not discouraging low-risk individuals from purchasing insurance by imposing the subsidy burden on them alone through premiums much higher than their risk rather than on the general population through a broad-based tax. By considering the issue of fairness as an important criterion in designing these programs, we will have taken a major step in enabling high-risk individuals to have coverage while at the same time maintaining the basic principles of insurance.

Republished with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania.

A Way to Reduce Healthcare Costs

As policymakers inside the beltway negotiate the future of the American Health Care Act (AHCA), the focus appears to be on who will pay for healthcare, how it will be subsidized and whether the state insurance exchanges will remain viable. The assumption is being made that access to care is the same as access to high quality care, and the driving force for change to the AHCA are these cost issues.

In this changing marketplace, it is imperative that insurers consider the quality of care being provided, in addition to the finances, because medical errors and poor care cost us all in the long run.

There is good news for insurers in this battle of ideologies. Certified Physician Assistants (PA-Cs) deliver on both fronts, providing high-quality care in a cost-effective manner. A 2016 article in the Journal of Clinical Outcomes Management showed no significant difference over 18 months in patient mortality, hospital readmissions, lengths of stay and consults with specialists when care was led by PAs compared with doctors. Additionally, PA-Cs can help meet the new and still confusing performance metrics designated by the Centers for Medicare and Medicaid services, such as the new Medicare Access and CHIP Reauthorization Act (MACRA).

For these reasons, it is important that insurers and all healthcare stakeholders understand the role and qualifications of Certified PAs in healthcare today, including: education and commitment to lifelong learning; rigorous certification; how PAs are compensated and reimbursed; and the demographics and distribution of PAs around the U.S.

These insights will help insurers understand how PA-Cs can contribute to improved cost management and patient satisfaction metrics while meeting patient needs and regulatory demands.

First, consider the credentials of Certified PAs.

Certified PAs are prepared and proven to meet the needs of patients today through a combination of a graduate level education and a rigorous certification and certification maintenance process.

PA-Cs are educated in the medical model. Like physicians, they maintain certification at the highest level in healthcare. They must earn substantial continuing medical education (CME) credits every two years and sit for a proctored exam that covers general medical knowledge every 10 years to remain certified.

Certification is a hotly debated topic in healthcare today. There is an anti-maintenance of certification (MOC) movement — a belief that initial assessment by exam after graduating from school is sufficient and maintenance of certification should be through CME only.

See also: What Physicians Say on Workers’ Comp  

Periodic assessment helps to ensure that PAs maintain and objectively demonstrate a baseline fund of knowledge that is essential for practice across the health care spectrum. The combination of substantive, relevant CME and periodic assessments ensure that PA-Cs maintain relevant knowledge throughout their careers.

The National Commission on Certification of Physician Assistants (NCCPA) believes this combined approach reinforces the public trust and assures employers and payers that PA-Cs provide the safe, quality care patients should expect and demand.

Who we are; where we practice

NCCPA has the most comprehensive source of workforce data for the PA profession, with input from 94% of the nation’s PA-Cs. From that, we publish four reports annually detailing statistics on: all Certified PAs; those in 22 specialties; PA demographics by state; and on those PAs who were newly certified in the previous year. Here are some key findings:

  • More than 70% of Certified PAs now practice in specialties outside primary care. There are 103 Certified PAs for every 1,000 physicians in the U.S., with notably higher ratios in surgical subspecialties, emergency medicine and dermatology.
  • The median age of Certified PAs is only 38, so they are not nearing retirement age like many physicians. Only 0.6% planned to retire in 2016.
  • The states with the largest number of PAs are New York, California, Texas, Pennsylvania and Florida. However, three of the top five states with the largest number of PAs per capita are Alaska, South Dakota and Montana, indicating that Certified PAs often fill the void for healthcare in rural areas.
  • Certified PAs make an average salary of more than $104,000, which is less than half of a physician, making them an affordable provider who can still meet the clear majority of patient needs.

PA-Cs are everywhere, in every specialty, clinical setting and state, with services running the gamut from providing core medical services to performing surgical procedures, to assisting in complex surgical procedures.

  • Almost 19% practice in surgical specialties like cardiovascular and thoracic surgery and orthopedic surgery, handling pre-ops and post-ops but also performing procedures like vein harvesting, central IV-line placement, lumbar punctures and fracture reduction.
  • More than 14% are employed in emergency medicine, working in every area from fast track to admitting patients to the hospital or referring for follow up to a community physician.
  • Almost 1.5% practice in psychiatry, managing patients with the gamut of mental health issues from anxiety to schizophrenia, providing continuity of care for patients on long-term medications and helping to detoxify substance abuse patients and referring for counseling.
  • They manage complex patients with multiple co-morbidities and conditions such as diabetes, HIV and hypertension.
  • Certified PAs are also improving efficiency in work places across the country, working on task forces to develop telemedicine programs, observation units to reduce hospital admissions and processes to increase patient satisfaction.

How PAs are paid and reimbursed

Most PAs are employed and salaried providers. In some states, Certified PAs can own their own business, with a physician as medical director.

Medicare pays PAs at 85% of the physician fee to perform the same services. Medicare increases that to 100% if the service is “incident to” the physician’s care. To be considered as “incident to,” the physician must perform the full first visit, services must be rendered in the office/clinic and a physician must be onsite when PAs treat the patient. Hospitals that employ PAs bill for their clinical services under Medicare Part B.

Most often, private insurers follow Medicare guidelines. Thus, Certified PAs represent immediate cost-savings for insurers.

See also: Medicare Implements Value-Based Purchasing  

Q. What do MACRA, HCHAPS, PCMH, ACO, ACA have in common?
A. Value-based care!

Whether the ACA is changed or repealed, the demand for quality and cost-effective care will not lessen. Every healthcare model is seeking data to back up its promises. As patients, we all want to see metrics that can be replicated so that we know we are getting the best value care for our money. Solutions need to be refined in everything from clinical setting to workflows. However, as in any business, staff is one of the most significant factors in success—what they do and how much it costs for them to do it.

As Congress debates how we pay for this coverage, and wrangles about the details of exchanges and subsidies, insurers are being asked to reduce the cost of healthcare insurance, while at the same time being true to stakeholders, be they public or private, by remaining profitable.

The simple answer is to reduce the cost of medical care. Employing Certified PAs is one way employers can do that. Knowing they maintain certification at the highest standards in healthcare provides a level of assurance that PAs are a quality solution, not just a lower-cost solution. That should boost confidence in reimbursing Certified PAs who, at the end of the day, are a bargain for payers.

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.