Truth Squad: The Insurance Industry Spreads Misinformation about What a Public Sector Plan Would Mean For Your Family
Claim: Recently, Karen Ignagni, president and chief executive officer of America's Health Insurance Plans (AHIP), has been trying to put the industry’s best foot forward, arguing that when it comes to reform, healthcare insurers have been the most cooperative members of the healthcare industry.
After all, insurers have agreed to stop shunning sick patients: They will no longer turn away customers who, through no fault of their own, suffer from pre-existing conditions such as breast cancer. Graciously, insurers have said that they will refrain from dropping paying customers because the insurer suddenly “discovers” a pre-existing condition --after the customer is diagnosed with MS. Finally, insurers have pledged to stop charging sicker patients sky-high premiums. Instead, everyone in a given community will pay the same premium for the same plan. (This is now the law in some states).
Truth: What the industry has agreed to hardly represents a “concession”. They have consented to do what insurance companies are supposed to do: cover not just the young and healthy, but those who might actually use the policy.
But Ignagni is right on one point: Insurers are more enthusiastic about reform than most in the healthcare industry. This is hardly surprising. Universal coverage—with a mandate that everyone buy insurance--will bring them as many as 47 million new customers, government subsidies in hand.
What’s not to like?
Granted, insurers are going to have to alter their business plan. But, without reform, the alternative was to go out of business altogether. With the cost of health care spiraling (insurers’ reimbursements have been levitating by 8 percent a year for the last ten years), employers scaling back on benefits, and more and more self-employed Americans discovering that they cannot afford to buy insurance in the individual market, for-profit insurers are in financial trouble. (If you don’t believe that, check out the price of the stocks: UnitedHealth Group, for instance, is trading at $26 and change; eighteen months ago, the company’s shares fetched $57. )
Claim: What the insurance industry is not willing to do is compete with a public insurance plan. The for-profit insurance industry wants a monopoly over all of those new customers. Of course private-sector insurers will have to vie with each other for market share, but thanks to consolidation in the industry, a few major players will be the big winners—as long as they don’t have to go head-to-head with a public sector plan. They know that the public plan would be less expensive because it won’t have to provide profits for shareholders, pay executives multi-million dollar salaries, or spend a fortune on marketing, advertising and lobbying.
While they are willing to compete with each other, they don’t want to go head-to-head with a public sector plan that would definitely cost less and, as I explain below, plans to build on Medicare reforms to offer customers higher quality care.
Claim: Janet Trautwein, CEO of the National Association of Health Underwriters (NAHU), made this very clear earlier this week.
“We all have a stake in achieving meaningful reform that both preserves Americans' freedom to choose their doctors and lowers long-term health care costs. A public option will accomplish neither,” claimed Trautwein, who represents more than 100,000 licensed health insurance agents, brokers, consultants and benefit professionals nationwide.
Then she went out on a limb, and told what I have to call a Big Lie about the public option: "A new government-run health plan will raise costs for Americans with private insurance by systematically underpaying doctors and hospitals, our country's existing public plans -- Medicare and Medicaid--raise the average family's premiums by $1,800 a year. A public option will only exacerbate this problem--and make insurance more expensive."
Let’s break down Trautwein’s allegatins, one by one:
Claim: The NAHU supports reform that preserves our freedom to choose our doctors. A public option would not do that.
Truth: No American would be forced to choose the public option. This means that if your doctor doesn’t participate in the public plan, you could choose whatever private sector insurance he accepts. (Low-income and middle-income households that qualify for a subsidy from the government could use that subsidy to help pay for the private sector plan.).
But most likely your doctor will be part of the public plan. No doctor would be forced to sign on with the public sector option, but the majority will probably take both private sector insurance and public sector insurance—just as the vast majority now take both private insurance and Medicare. As noted below, under the House bill, both Medicare and the public sector plan will hike fees for the lowest-paid physicians.
Claim: The NAHU supports a plan that would “lower long-term costs.” The public option would not do that.
Truth: The public insurance plan would incorporate Medicare reforms (already proposed in the House legislation) that would not only trim spending but enhance the quality of care. The recommendations in the House bill encourage Medicare to realign financial incentives, rewarding providers for higher quality care, rather than volume. (If you are confused about what is actually in the House bill go to “Sustainable Middle Class” where John Freeland offers a lucid summary. Scroll down to the sections headlined: “Modernization and improvement of Medicare,” and “Innovation and delivery reform through the public health insurance option” It’s worth noting that, before he read the House bill, Freeland was not a fan of the public sector option.)
The House bill dovetails nicely with a White House proposal that an Independent Medicare Advisory Council (IMAC) set Medicare fees with an eye to paying more for services that provide the greatest benefit to the patient. Monday, White House budget director Peter Orszag’s office released a letter, signed by 13 healthcare experts--including nine members of the Congressional Budget Office’s Panel of Health Advisers endorsing the idea.
What makes this letter so interesting—and perhaps critical to the debate over reform--is that although CBO director Douglas Elmendorf has expressed reservations about whether the House bill would rein in runaway healthcare spending this group of highly-respected economists—including nearly half of CBO’s own panel of health advisers -- declared that they believe that IMAC could “reduce the rate of growth of health expenditures substantially” as long as it has “the authority to propose changes to Medicare payment rates for services whose prices do not accurately reflect value. It would also be able to recommend more general policy reforms, such as implementation of value-based purchasing [and] bundling of payments.” These initiatives, which change the way Medicare pays for services, were already included in the House bill.
When the public insurance option becomes available in 2013 it would take advantage of Medicare’s reforms. It is critical that everyone understand that the public sector insurance plan will be modeled on a new, improved version of Medicare that incorporates many of the changes that the non-partisan Medicare Payment Advisory Commission (MedPac) has been writing about for years. During the eight years of the Bush administration, these reports were ignored. Now President Obama and White House Budget director Peter Orszag as well as progressive Senators like Jay Rockefeller (D-WV) are determined to implement MedPac’s advice—counsel that focuses on doing what is best for the patient.
Claim: "A new government-run health plan will raise costs for Americans with private insurance. By systematically underpaying doctors and hospitals, our country's existing public plans--Medicare and Medicaid--raise the average family's premiums by $1,800 a year. A public option will only exacerbate this problem -- and make insurance more expensive."
Truth: First, if someone lumps Medicare and Medicaid payments together in order to suggest that Medicare underpays you can be certain that person is lying to you. Medicaid is an entirely separate program for the poor and, unlike Medicare, it is administered by the states. Medicaid pays significantly less than Medicare. The House bill addresses the problem by raising Medicaid payments for primary care to Medicare levels—but everyone agrees that Medicaid payments to specialists and hospitals remain too low.
By contrast, the idea that Medicare “systematically” pays too little just doesn’t square with the facts. Granted, there is a consensus that Medicare underpays primary care doctors and others who practice “cognitive medicine” (listening to and talking to the patient) too little. But the House bill specifically raises Medicare payments for family practitioners by 5% to 10% (paying more in areas where there are greater shortages), while also recommending bonuses for doctors who form accountable care organizations or succeed in managing chronic diseases. In addition, the House plan greatly expands scholarships and loan forgiveness for students who decide to go into primary care.
When it comes to Medicare payments to specialists and hospitals, the situation is far more complicated. Many hospitals insist that they lose money on their Medicare patients. But when the American Hospital Association testified before the Senate Finance Committee earlier this year, it acknowledged that, in 2007, 42 percent of U.S. hospitals turned a profit while serving Medicare patients.
Meanwhile, a 2006 article in the Journal on Health Care Financial Management reports that from 2002 to 2004, Medicare reimbursements for certain patients were very high—though Medicare wasn’t paying enough for patients who wound up in intensive care units (ICUs). While the cost of ICU stays rose, Medicare reimbursement shrank which translated into an average loss of $2700 for each ICU patient. Meanwhile, average Medicare reimbursement for patient not requiring an ICU stay increased by nearly 10 percent. As a result hospitals made money on these Medicare patients.
The report also revealed that just 23 percent of Medicare patients drive hospital losses, and most of these patients were admitted to an ICU. In the end when you combine the high-cost patients with the low-cost patients, 23% of the Medicare patients led to an overall loss of $387 per admission on all Medicare patients.
This suggests that, Medicare was not “systematically underpaying for all patients", though it was paying too little for ICU admissions.
The next question of course is this: why did it cost hospitals so much to care for ICU patients? On closer analysis, researchers discovered that “the pharmacy, supply, and laboratory departments accounted for more than 40 percent of the total costs” for ICU patients. “Rather than being directly related to medical services provided to the patient these areas are sources of incremental items that support patient care.”
Everyone has heard of ICU patients being subjected to a battery of tests; one wonders how many of those lab reports helped the patient? Were they all necessary? The report suggests that “hospitals need to address their costs--particularly in pharmacy, supply, and laboratory departments.”
What is certain is that across-the-board hikes—or cuts—for Medicare make little sense.
Return to the fact that not all hospitals lose money on Medicare: 42% of all U.S. hospitals manage to turn a profit on total Medicare’s reimbursements. This is something that hospitals do not like to talk about.
They know that some hospitals stay in the black when treating Medicare patients simply because they are more efficient. In private conversation, hospital CEOs have confirmed this. Medical Centers such as Mayo Clinic, and the accountable care organizations that Atul Gawande wrote about in the June 1 New Yorker provide better care at a lower cost. Meanwhile, other hospitals make a profit on the majority of their Medicare patients. They should analyze where they lose money and why. Maybe Medicare does need to increase payments for certain patients—while slicing overpayments in other areas. Or, maybe the hospital needs better system management to improve the way it delivers care.
The bottom line is this: as MedPac has pointed out in earlier reports, when private insurers pay hospitals more than Medicare does, too often, private insurers are simply rewarding inefficiency. It costs these hospitals more to care for patients because it takes them longer to make a diagnosis, or because their patients are more likely to acquire an infection, and so stay longer. Some hospitals overtreat—putting patients in an ICU who really need much less expensive—and far kinder—palliative care. Many hospitals run unnecessary tests. When private insurers pay for inefficiency and waste they pass the cost along to all of us, in the form of higher premiums.
Today or tomorrow HealthBeat will be publishing a guest-post that clarifies many of the mysteries of Medicare payment. Look for it—it’s excellent.
