The Affordable Care act vs. single-payer

1. The Affordable Care act vs. single-payer Stephen B. Kemble, MD Clinical Assistant Professor of Medicine John A. Burns School of Medicine Dept. of Psychiatry Grand Rounds January 10, 2014

2. Definitions • SINGLE-PAYER: Public funding, private and independent care delivery • (Traditional Medicare, FFS Medicaid, Canada) • SOCIALIZED MEDICINE: Public funding and government owned care delivery system • (VA, military medical system, Indian Health Service, Great Britain) Both eliminate private health insurance except for supplemental benefits not covered in single-payer program.

3. The Big Problems with U.S. Healthcare • Cost – Now 17.2%GDP, unsustainable escalation • Inadequate Accessto Care • Uninsured • Underinsured • Insurance that doctors won’t accept • Insurance that obstructs care • Worst for Medicaid, increasingly for Medicare and private insurance • Neither is effectively addressed in the ACA • Contrary to policymakers’ assumptions, restricting access to control cost actually costs more.

4. Health Economics of Countries with National Health Plans • Everyone covered, minimal or no co-pays • Better health outcomes and health indicators • Less rationing • Far less administration • Far less intrusion into medical decision-making • Spend half of what the US spends per capita Achieve both much better access and much lower cost than US, plus better outcomes!

5. Canadian Physicians’ Incomes2010 – 2011 All Canadian physicians: $307,482 Source: Canadian Institute for Health Information

6. Canadian Malpractice Insurance Costs2013 Data. Canadian Dollars (US rates are 2.5-20 times higher) *Ontario reimburses physicians for premiums about 1986 level Source: Canadian Medical Protective Association www.cmpa-acpm.ca

7. How are they able to do that?If they can do that, why can’t we?

8. Health Care Fundamentals • High percent of population has known health risk due to pre-existing conditions and risk factors • Especially for 20% responsible for 80% of health care expenditures • Makes application of insurance model to finance health care very difficult. • High Complexity • Makes measurement of quality and centralized management of care very difficult.

9. What is Insurance? • Insurance = Risk Management. • Designed for risks that are infrequent, expensive, and unpredictable: • Risk pooling is primary means of risk management. • What if risk is predictable? • Adverse selection, “death spiral” • Underwriting (analysis of risk for pricing & to restrict coverage) counters adverse selection, but adds cost and undermines whole purpose of health insurance. • Risk adjustment also adds substantial cost.

10. The Affordable Care Act (ACA) • Keeps Insurance model but with reforms • Limits exclusion on pre-existing conditions • Prohibits cancellation except for fraud • No lifetime limits on benefits • Limits “Medical Loss Ratio” (admin. expenses) • Individual and employer mandates • Expands Medicaid, increases Fed share • Increased funding for FQCHC’s • Gradually closes Medicare D “doughnut hole” • Tax on wealthy, cuts Medicare Advantage, taxes high cost plans after 2018

11. The ACA Does Not: • Eliminate competition based on risk pools • Prevent increasing cost-shifting to patients • Remove insurer incentive to deny care • Prevent deterioration in quality of coverage • Improve patient choice of providers • Reduce administrative complexity and costs • Eliminate costs of profit, marketing, lobbying, managing insurance risk, managed care, etc. • Make health insurance more affordable on average

12. Massachusetts:A Cautionary Tale • Implemented insurance exchange (essentially same as ACA) in 2006 • 94% now have health insurance, BUT: • Access problems: • >5% still uninsured • Many with insurance can’t find doctors • Loss of “safety net” funding  worse access for poor • Cost escalation worse than expected • 9.4% rise in premiums in 2009 • “Connector” (exchange) adds 4% admin cost • Increase in lower value (“bronze”) plans • 1/3 of population can’t afford medical bills • Medical bankruptcies still rising

13. Affordable Care Act: Compromises & Problems • Many states have refused Medicaid expansion • Medical management (managed care) counted as “health care,” not administration, for MLR • Savings from cuts to Medicare Advantage plans have been reversed • Insurance and payment reforms too easy to circumvent, unintended consequences • Pilot ACOs not saving money • Delays in implementation (e.g. employer mandate) • Tortuous complexity & its cost getting worse

14. Affordable Care Act: Anticipated Problems The ACA won’t work well for sick people or control cost: • Website rollout complications due to complexity of multiple plans, means testing, and eligibility determination for subsidies and cost-sharing support • Security problems if data captured by identity thieves • Low actuarial value plans (bronze, silver) that deter needed care and don’t prevent bankruptcy for those with serious and chronic illness: • for individual making only $25,000, up to $7,000 in premiums, deductibles, & co-pays, even with subsidies • Access problems: MD shortage, narrow & ghost networks • Payment reforms will cost more than they save – ACO’s, P4P, bundled payments, shared savings –disruptions, perverse incentives, unintended problems & consequences.

15. Cost Control Strategies – Whose ox will get gored? • Restrict and shift costs to Providers? • Managed Care Strategies • Pay for Performance, Bundled Payments, Shared Savings • Accountable Care Organizations • SGR Medicare payment cuts • Slash safety net payments to hospitals • Restrict and shift costs to Patients? • Limit Benefits (also falls on providers) • Low Value Plans • Increase Patient Cost Share • Shift costs onto Business? • “Cadillac Tax” in PPACA • Or Insurance Industry? Cut administrative waste.

16. Providers - “Bending the Curve?” • Prevention • Electronic Health Records • Chronic disease management • Comparative effectiveness research All these may improve health care, but cost as much or more than they save. Since EHR’s are used for payment as well as patient care, their use and accuracy become corrupted by financial incentives.

17. Providers – Shifting Insurance Risk • Rationale (not evidence based): Rising health care costs are due to “too much care” • Providers delivering unnecessary care due to fee-for-service incentives • Patients demanding unnecessary care because it is covered by insurance (”moral hazard”) • HMO’s, Capitation, Pay-for-Performance, Pay-for-Outcomes, Bundled Payments, Shared Savings, and “Accountable Care Organizations” (ACO’s) – all of these are strategies that shift insurance risk onto providers. • Doctors and Hospitals then get paid more if they succeed in delivering less care.

18. Providers – Shifting Insurance Risk Ethical Problems – Shifting insurance risk to providers incentivizes them to: • Restrict care • Avoid treating sicker, more complex patients (“cherry picking”) • Game diagnoses (up-code severity) to beat risk adjustment • Game documentation to improve reimbursement • Become more focused on money at expense of patient’s welfare • To counter these perverse incentives, health plans must attempt to measure quality and performance and implement anti-fraud programs. • Due to the complexity of health care, these are very difficult, if not impossible, and very expensive.

19. Patients - Limit Benefits & Shift Cost to Patients High deductibles & co-pays: • Deter more necessary than unnecessary care • Interfere with coordination of care • Increased morbidity and mortality for those with serious illnesses • Useless cost control strategy for those with serious or chronic illness • Increase total healthcare costs – especially for poor and elderly who account for bulk or health care spending

20. What About the Insurance Industry?

21. Growth of Physicians and Administrators Growth Since 1970 Physicians Administrators Data updated through 2013 Source: Bureau of Labor Statistics; NCHS; Himmelstein/Woolhandler analysis of CPS

22. Figure 22. Complexity Drains Resources: Total Annual Cost to U.S. Physician Practices for Interacting with Health Plans Is Estimated at $31 Billion1 Mean Dollar Value of Hours Spent per Physician per Year on All Interactions with Health Plans MDs $15,767 Clerical staff $25,040 Nursing staff $21,796 Lawyer/Accountant $2,149 Senior administrative $3,522 Total Annual per Practice Cost per Physician: $68,274 1 Based on an estimated 453,696 office-based physicians. Source: L. P. Casalino, S. Nicholson, D. N. Gans et al., “What Does It Cost Physician Practices to Interact with Health Insurance Plans?”Health Affairs Web Exclusive, May 14, 2009, w533–w543.

23. Saving Billions of Dollars — and Physicians’ Time — by Streamlining Billing Practices • The U.S. system of billing for health care is complex, expensive, and inefficient. • Excessive administrative complexity costs physicians nearly 12 percent of their net patient service revenue. • Streamlining administrative processes associated with the billing and payment of medical providers could save four hours per week of physicians’ time and five hours of support staff time. B. B. Blanchfield, J. L Heffernan, B. Osgood et al., “Saving Billions of Dollars—and Physicians’ Time— by Streamlining Billing Practices,” Health Affairs Web First, Apr. 29, 2010.

24. High U.S. Insurance Overhead: Insurance Related Administrative Costs • Fragmented payers + complexity = high transaction costs and overhead costs • McKinsey estimates adds $90 billion per year* • Insurance and providers • Variation in benefits; lack of coherence in payment • Time and people expense for doctors/hospitals Spending on Health Insurance Administration per Capita, 2007 * 2006 Source: 2009 OECD Health Data (June 2009) * McKinsey Global Institute, Accounting for the Costs of U.S. Health Care: A New Look at Why Americans Spend More, (New York: McKinsey Global Institute, Nov. 2008).

25. ACA/Exchanges vs. Single-Payer ACA and Exchange/Connector: • Preserves competing plans with all their perverse incentives and costs • Attempts to manage competition & improve access to insurance (not necessarily to care) • “Cost control” measures focused almost entirely on providers and patients, not on administrative waste Single-payer: • Access to care based on need • Maximize choice of providers (not choice of plans) • Administrative simplicity

26. Medicaid Managed Care in Hawaii – Do Privatization and Competition Work? Hawaii had unified Fee-For-Service (FFS) Medicaid prior to 1994: • low pay • difficult patients • but low hassles • relatively high acceptance among private sector doctors, including psychiatrists Problems: • Budget somewhat unpredictable • Rising costs (same as national average) • Delayed payment of claims at end of fiscal year

27. Medicaid Managed Care in Hawaii Rationales: (Driven by managed care marketing; not based on any evidence) • “Government inefficiency” • Doctors providing unnecessary care due to fee-for-service • Patients demanding inappropriate care • Care not “coordinated”

28. Medicaid Managed Care in Hawaii Solution: • Contract Medicaid to competing private Managed Care Organizations (MCO’s). • Predictable budget • MCO’s will manage care, identify and stop wasteful and unnecessary care, assure care coordination. • Tools: prior authorizations, formulary restrictions, limited networks of doctors • Competition among plans will make Medicaid more cost-effective.

29. Medicaid Managed Care - Outcomes • Medicaid now much more frustrating– system related obstacles in about 40% of patient encounters • Declining participation by doctors – worst for psychiatrists • 69% had been treating at least some Medicaid patients prior to managed care. Now >2/3 refusing new Medicaid referrals. •  problems with access to care & care coordination • In 2009, Aged, Blind, Disabled (ABD) population (includes most of SMI) converted to managed care and AMHD services cut back30% rise in psychiatric ER and hospital costs from 2009-2013. • Hawaii Medicaid costs rising 2.7% faster than national average since managed care introduced in 1990’s.

30. Based on the evidence – None of the Medicaid managed care rationales and solutions were valid!

31. Colorado: Mesa County v. Rest of CO Rocky Mountain Health Plans, Mesa County, CO • Offered commercial, employer based health insurance • Obtained Medicaid contract for Mesa County • Developed Medicare Advantage plan to capture Medicare • Merged funding for all of these, paid MD’s same blended rate for all. – No access problems for Medicaid patients • Physician-led quality improvement program Average Cost per Medicaid Enrollee for Acute Care Services: FY 2008-09 West D. Mesa County, Colorado, health care: the best health care in the United States. Aurora: Colorado Academy of Family Physicians, August 2009. (http://www.coloradoafp.org)

32. Quality Improvement & Managed Care • It has been estimated that 25% of patients in a typical primary care practice are “complex” • multiple interacting conditions • atypical presentations • unclear diagnoses • serious side effects with preferred drugs • serious complicating psychosocial problems. • Quality in health care is very difficult to measure. Less than 10% of health care is amenable to accurate and meaningful quality measures. The rest is simply too complex, with myriad individual variations and exceptions. Grant, RW, Ashburner, JM, Hong, CC, Chang Y, Barry MJ, Atlas, SJ. Defining Patient Complexity From the Primary Care Physician’s Perspective. Ann Int Med 155, No 12 (2011): 797-804

33. Quality Improvement and Managed Care “Central Management” by health plan policies – • PA’s, formulary restrictions, restricted networks, P4P • Complexity of health care requires many exceptions to central policies, guidelines, standards, and formularies. • Adversarial relationship between health plans and providers • loss of trust, gaming the system, • increased “fraud and abuse” in both directions • Centralized managed care greatly increases administrative costs (counted as “health care” for Medical Loss Ratio). • Managed care obstructions often deter care in the most cost-effective setting • increased reliance on ER’s for care • inappropriate care due to both overtreatment and under-treatment.

34. Quality Improvement & Managed Care Appropriate “Central” Management • Focus management on outlier providers, and drugs, diagnostic studies, and devices shown to be prone to abuse and misuse. Regularly “prune” PA lists. • Make every effort to leave the bulk of providers who are practicing appropriately alone. • Involve practicing physicians in setting managed care policies, keeping policies appropriate and accountable to the realities of patient care (rather than to shareholders and the convenience of health insurance management).

35. Quality Improvement & Managed Care “Peripheral Management” by delivery system – • Quality Improvement founded on professional ethics, not pay-for-performance • Practicing doctors choose measures and QI projects locally, relevant to patient care needs • Reducing variations in practice patterns • Physician “ownership” of keeping care cost-effective • Supports doctors’ efforts to do the right thing for each patient, while also encouraging attention to cost-effectiveness. • MUCH less expensive to administer!

36. Physician Payment & Motivation • Financial incentives (P4P) vs. Professionalism • Behavioral Economics: intrinsic (do the right thing for the patient) vs. extrinsic ($) motivation • Consequences of pay-for-performance (P4P): • Measures for “performance” very inadequate • Gaming documentation for payment, corruption of health care data • Fraud and abuse • Promotes physician greed (“extrinsic” motivation) • Incentive-neutral payment options • Fee-for-service based on time, or salary • Must assure pay is in proportion to training and expertise needed to do what doctors do. • Promote “intrinsic” motivation based on professionalism

37. Single-Payer • Single-Payer is a form of Social Insurance: • Beneficial services necessary for civilized society and quality of life, provided publicly for the entire population, without means testing or eligibility determination. • Everyone is covered for all medically necessary care • Access to care based on need, not means • Insurance risk is managed by risk pooling alone, pooled across entire population – not shifted onto doctors, hospitals, and patients. • Vastly simplified administration • Minimizes centralized management of care & bureaucracy

38. Single-Payer: HR 676 • Universal coverage with comprehensive benefits • No deductibles and co-pays • Private and independent delivery of health care • Doctors paid either fee-for-service or salaried in capitated integrated systems like Kaiser • Hospitals paid with global budgets • S-P system negotiates prices/fees/budgets • Financed with income and payroll taxes • Would cost about 30-40% less than what we now pay for total health care costs in US.

39. Advantages of Single-Payer • Everyone is included, so there is no incentive toavoid covering or caring for the poor and sick. • Incentive for the system is to assure care: Less cost if everyone gets care they need in the most cost-effective setting. • To ensure access to cost-effective care, benefits must be comprehensive, with minimal or no co-pays. • All qualified providers in good standing are included, and patients have free choice of providers. • Universal health care systems have much lower administrative costs. No bureaucracy for eligibility determination & means testing. • Streamlined administration is much easier and less expensive for providers.

40. Advantages of Single-Payer • Health care is independent of employment status. This would be a boon for businesses and entrepreneurs. • Quality improvement and exchange of health information are much easier and more effective under a universal system. • Reduced fraud and abuse – Under a universal system, especially with incentive-neutral payment of doctors, there is less incentive for fraud and abuse, and they are easier to detect. • Public programs (Medicaid and Medicare) would no longer be dumping grounds for the sickest, most expensive populations. A universal risk pool would relieve their fiscal problems.

41. Advantages of Single-Payer • Universal health care can remove health care expenses from medical malpractice, worker’s compensation, and automobile insurance, reducing both need to sue and size of judgments, drastically reducing their costs by ≥ 65%. • Countries with universal health care: • spend around half what we do in the US • cover everyone with comprehensive benefits • have far less administrative intrusion into the delivery of health care between doctors and patients.

42. What Makes Single-Payer So Cost-Effective? • Hospitals on global operating budgets – no billing (20% savings for hospitals) • Incentive-neutral physician pay – fee-for-time or salary • Same fees for all patients, minimal or no co-pays and deductibles • No up-coding and gaming of documentation for payment • Reduced fraud and abuse – less incentive, easy to detect • Eliminates need for most centralized managed care • Vastly simpler billing and coding (12% savings for doctors) • Quality Improvement built on professionalism, not P4P • No distortion of data due to documentation for payment • Single system simplifies data gathering • Much simpler administration, no risk adjustment or withholds and bonuses

43. What Makes Single-Payer So Cost-Effective? • Administration focused on assuring care and payment. • No exorbitant executive salaries, profit, marketing, lobbying, etc. • No eligibility determination, narrow networks, variable co-pays and deductibles, loss or change of insurance with job changes • Care managed peripherally by doctors and hospitals, not centrally by health plan or government • Formulary restrictions and prior authorizations limited to drugs/devices shown to be prone to misuse • About 80% administrative savings for payment system • For patients: much better access to cost-effective outpatient care, reduced ER and hospital use • Drugs and and DME: bulk purchasing, negotiated prices • For entire health care system: ~ 30-40% savings in all

44. Operating Principles for Cost-Effective, Sustainable Health Care Redesign • Universal (single risk pool) • Standardized benefits – all medically necessary care • Simplify administration • Promote professionalism in medicine • Quality improvement (but not pay-for-performance) • Ensure adequate physician workforce (primary care) • Accountability to recipients and providers of care • Separate, sustainable funding for health care