DRG Summary for Medicare Hospital Payments


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SUMMARY – Medicare Hospital Payments 

Medicare does not rely on hospital billings but on data built over decades as to the reasonable cost of services. Some may question the absolute amount of Medicare reimbursements but the relative payment scales are extensively validated by actual data.  Conversely, this analysis shows hospital pricing has inconsistencies that cannot be rationally explained.

However, private insurers negotiate discounts from these hospital pricings. If billed prices are inconsistent, then so are discounts based on them. A major constraint on medical costs will occur when patients can make informed cost decisions at the DRG level, not just for overall premiums and co-pays. Currently, few persons can make those informed decisions.

Many states have enacted legislation for hospitals to be more transparent about their prices, but enforcement is spotty.  This Medicare data suggests that the country would be well served if hospitals posted DRG prices for all to compare.

METHODOLOGY

In May, 2013 Medicare released its most comprehensive set ever of statistical data regarding hospital payments.  The data covered fiscal year 2011 and included the top 100 DRG’s (diagnostic related codes) based on inpatient discharges. Data excludes DRG’s for hospitals with fewer than 11 discharges for that DRG. This allows focus on higher volume services and their financial impact.  The final data set of the top 100 DRG’s results in over 166,000 records of nearly 7 million discharges from over 3,300 hospitals.

The data itself lists for DRG’s for each hospital, the number of discharges, the average covered (billed) charges, and the average total payment including Medicare. Each hospital, also includes its HRR (hospital referral region) which is the method governments use to determine “market areas”.

The chart below from Kaiser Foundation indicates that inpatient hospital is just over a quarter of Medicare spend or about $140 billion annually.

image001

This analysis examines inpatient service pricing. Step one was to reduce the extreme data, both high and low. To minimize billing overstatement, this analysis removed 51 discharges that were high cost outliers. To minimize billing understatement, the smallest states totaling 10 % of the population and which tend to be more rural and variable were skipped. The sample data covers 6.3 million discharges from over 145,000 records of 100 DRG bills and costs. Total inpatient payments are $61 billion or 40% of total spend.

The data itself was analyzed five different ways.

  1. Percent of average paid vs. average billed, grouped by percent paid quartile
  2. Percent of average paid vs. average billed, grouped by state
  3. Variance from average of billed charges, grouped by state
  4. Variance from average of paid charges, grouped by state
  5. Extremes of 15 largest DRG groups expressed as a ratio of the maximum to minimum billed, along with the number of discharges included in each group

DISCUSSION

% average paid vs average billed, by % paid quartile

The graph below shows 5 sets of bars representing four quartiles 0% to 100% plus a small number of DRG’s that paid more than was billed. The left (gold) bar is the average bill for the four quintiles while the right (blue) bar is the corresponding average paid for each group. The right axis shows average dollars per discharge. Total average billed dollars is $36,384 and ranges from $54,000 highest to $11,867 lowest. Total average paid dollars is $9,754 and ranges from $14,481 highest to $9,548 lowest.

Note the inverse relationship of billed versus paid. One might expect higher billings to result in a lower percentage paid. What was not expected is that the actual dollars paid goes up as the overbilling goes down closer to paid dollars. Clearly billings for lower cost DRG’s bear little resemblance to cost.

image002

% average paid vs. average billed, grouped by state

The graph below uses the same payment data above but groups results by state.  And rather than two separate bars for billed and paid, there is one bar representing the percent of bill paid. (i.e. paid/billed) equivalent to the blue bar above.

image003

This graph does highlight the extent of overbilling by state. It does not show either the billed amounts or the paid amounts.  The graph begins with the states with the highest overbilling (and hence lower paid percent) and extends to more realistic levels of overpricing. Maryland at the bottom has billed prices very close to paid, with only a 6% discount to bill.

In the above graph, Illinois payments of 27% billed is the average for these 30 states. States listed above Illinois have more severe overpricing issues than states following Illinois.

“Discounts” from billed rates can have serious side effects. Just to call them discounts is something of a misnomer.  For many, there seems little connection between what it costs and what is billed.  Medicare of course ignores billed prices and pays what the procedures cost plus a margin.  But private insurers do not have the extensive national database that Medicare has. Instead they negotiate “discounts” from billed or list price. But as this graph shows, and as one drills down deeper by hospital, these list prices are all over the map, and that alone can skew private insurance payment amounts.

But two other adverse factors also come into play. The most important is that billed rates are what uninsured people are charged when they require treatment. Most of the uninsured cannot afford the insurance, and should they be hospitalized, things get far worse. Over 60% of personal bankruptcies have medical bills as a significant factor.

Another adverse factor is that hospitals report the amount of uncompensated care that they provide, and are provided tax exempt status if that care exceeds a specific target, and/or get reimbursed for some of these expenses. The computations are far from transparent, and it is quite possible that taxes are avoided or reimbursements received that overstate actual uncompensated care were it calculated as Medicare does.

Variance from average of billed charges, by state

The graph below offers a more close-up view of overbilling. It shows how each state’s average dollar amounts differ from the 30 state billing average of $36,384.

image004

Data is sorted from the most overbilling at the top to the least at the bottom. Note that Massachusetts, which state closely resembles the Affordable Care Act, has less overpricing (though still 50%) than all other states except Maryland.

Variance from average of paid charges, by state

The graph below is the same format as the prior except using paid instead of amounts. Its scale is also much lower. In the former graph, Maryland had the least overbilling. But as shown below, Maryland has the second most expensive payments following only slightly behind California.

This graph, more than any other highlights the cost-of-living differences between different parts of the country. Larger urban states tend to have higher costs than smaller less urban states. Nevertheless, the $5,000 difference between the extremes reflects costs nearly double from the lowest cost states to the highest.  The financial effect (+30%/-40) seems larger than justified by differences in cost-of-living alone.

image005

The most obvious difference would be intensity where higher cost states are able to justify more services. Another factor could be the use of more expensive equipment and methods.

Extremes of 15 largest DRG groups expressed as a ratio of maximum to minimum billed, along with the number of discharges included in each group

The graph below represents two different data, each with its own range of values.  The grouping is a selection of 15 of the most frequent DRGs. The wider (green) bars have their value scale shown along the top. The wide bar represents the ratio of the maximum billing divided by the minimum billing – in other words, the ratio of maximum to minimum, the extremes of over-pricing. For instance, the second DRG, “Cellulitis” has its highest billing more than 70 TIMES that of the lowest bill. Bad as that is, the extreme for septicemia is over 100 times the lowest billing. These are extreme differences for closely related illnesses. Sure there are differences in how serious the illness is, but high-low factors greater than 50, not even considering ratios greater than 100 are hard to explain.

image006

Then there are the narrow (gold) bars. They represent the number of discharges in each DRG group and whose values are shown below the graph. There are over 3.6 million discharges in the data.  One may reasonably conclude that hospital pricing bears little relationship to costs of service. While deep discounts mitigate some of this, discounting just reduces the magnitude but not the irrational pricing itself.

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Link to Medicare Provider Charge Data

Individual Mandate not necessary – But will you like the alternative?

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SUMMARY

Of all the issues in the Patient Protection and Affordable Care Act (ACA or PPACA), one that has drawn an extraordinary amount of attention is the Individual mandate. Looked at in isolation, it may seem like an overreach. However, a broader view indicates why this provision or similar was included at all.

It is included because another section of ACA prohibits Health Insurers from rejecting people with pre-existing conditions as they do now. Some medical conditions may be avoidable, but the vast majority of pre-existing conditions occur through no fault of the individual. Insurance of all types is to spread risk, and the more skewed the risk the greater the need for insurance. Health costs are extremely skewed making health insurance vital to a modern economy.

ACA mandated that everyone buy insurance and that makes sense. However, the objection is forcing people to buy from a private company. There are several options to resolve that. One is to create a government-run insurer. That would eliminate forcing people to buy from a private insurer. A second is to make payment for any service obtained by an uninsured person a loan similar to student loans that could not be discharged for any reason. They would carry interest and be payable in full no matter the circumstances.

DISCUSSION

The percent of people with pre-existing conditions is small and to the majority of folks without such a condition, it may seem like a trivial matter. However, the number of people with pre-existing conditions is in the millions, and the cost to them has been and can be horrific. Medical expenses for these people have led to thousands of bankruptcies as health care costs sapped all their savings and more.

Insurers soon will be required to insure ALL persons regardless of medical condition. There is the very real risk of some people will avoid buying insurance, and then when they have an injury, or find they have a chronic condition like asthma or diabetes, they would only buy health insurance AFTER they know they have a medical condition.

One would think that any notion of personal responsibility would have all persons get insurance in order to spread health costs risks over the greatest population. The more people that buy insurance, the lower the cost per person. However, experience has shown that some people will NOT buy insurance if they feel they will not get sick or injured.

Fortunately, many employers offer health insurance for their employees, and by law, health insurers covering insurance through work (group insurance) MAY NOT exclude people with pre-existing conditions after some limited period of time, usually less than a year. However, the same did not apply to individuals until health care reform.

Note that employed individuals usually have access to health insurance.  Full time employees, that is. With rising costs, what have many employers done including some of the largest?  They have reverted to greater use of part time employees who do not enjoy the same privilege and access to health insurance as do full time employees. This is putting more pressure on reforming individual insurance plans.

People do not just dream up laws in a vacuum. Most fall into two categories. One is responses to maintain clean food, air and water, or help disadvantaged people, often the result of some abuse (social laws). The second are financial laws, like taxes or efforts to reduce taxes via special treatment for some (loopholes). ACA addresses the former by adding a financial provision, the individual mandate.

Everyone who works pays into social security and Medicare. Since Medicare is health insurance, there already is a mandate for working individuals to buy health insurance from the government. The only distinction is that Medicare is government-run insurance, while the ACA mandate applies to buying insurance from private companies.

ALTERNATIVE ONE

In the state run insurance exchanges to which any health insurer can join, add a government-run health insurer. Then the individual mandate does not require buying from a private insurer. However, if an individual decided against all private insurers they would have to buy the government-run insurance plan, just like Medicare and clearly legal.

However, politics intervened. Draft legislation DID INCLUDE a government-run insurer. They called it the “Public option”. It would operate on the same level field as private insurers and not be subsidized in any way. Private and government insurers would compete for business. Still, critics objected, and politicians stripped this provision from the final bill.

Why the objections?  Perhaps it was fear of competition.  To understand the public option, all one has to do is look at Medicare. Different in that it would cover people under 65 years old. In addition, women over 65 do not get pregnant, so there would be some differences in coverage.

What few know is government manages Medicare entirely through private health insurers. Insurers use a term Medical Loss Ratio (MLR) do describe how much of a premium dollar goes to pay health care costs. For Medicare, the MLR is over 95% meaning over 95 cents per premium dollar goes for health benefits. For private insurers, not so much. Their average MLR is in the low 80% range, and for individual insurance, which Medicare is, the MLR is even lower. How can private insurers compete with someone whose costs are less than one quarter of their own?

The honest answer is they cannot, at least not as currently structured. However, where does the constitution guarantee private enterprise continued profitability or even existence? “Destructive renewal” is a term used by business to explain competition that virtually by definition requires companies to fail as other more efficient companies market their goods and services for less; or whose new goods and services make prior ones obsolete (think cassette tapes).

It is worth noting that private health insurers used to have MLR’s in the mid 90%, but that was 30 years ago when nearly all insurers were non-profit.  Over time, for-profit insurers became more prevalent, and as they did, they had to show a profit for their investors. Some admin efforts were devoted to marketing. Some to reducing costs. Some to profits. The net effect, however, is that far fewer dollars went for health care costs and more went for overhead and profits. Yet some of these same companies administer Medicare contracts for less than 5 cents on the dollar. What is apparent is that insurers could cut back on what it now costs them to weed out people with pre-existing conditions, but more efficiency are needed to compete.

ALTERNATIVE TWO

Set the ground rules for individual insurance similar to that of group insurance obtained through work. If a person elects not to purchase insurance, and gets sick or injured, a person could still buy insurance but the law would allow pre-existing exclusions to extend for one year. Also like group insurance, if a person previously had health coverage, and not more than 60 days elapsed without coverage, then the person could buy health insurance with no waiting period.

This alternative needs to have a bit more teeth to be effective. This is because there is a law that hospitals have to treat EVERYONE, regardless of ability to pay, and a healthy person could delay for years purchase of health insurance. They would only buy insurance when they get sick.

The current Medicare drug program provides a template for solving this issue. If a senior fails to purchase drug insurance, the premium continues to rise for as long as one remained uninsured. One can apply a similar index to health insurance. But how does one provide assurance of payment? Since the person required services, it should be legal to require the person to purchase insurance to pay for those services, and if the person is unable or unwilling to pay, the government could advance a loan similar to student loans.

That loan would bear interest, need to be paid over time (though shorter than for student loans), and could not be discharged by bankruptcy. If not paid by retirement, payments would be deducted from that person’s social security, just like student loans.  Gone is the mandatory requirement. Replacing it is an automatic loan that the individual must repay in full with no exits.

Since the government would initially pay the hospital, it also could determine the ability to pay of the person getting treatment. If that person was indigent, they could be put on Medicaid, and no medical loan would be created.  If the person’s income were within the subsidized amount, they would have been eligible for had they carried insurance, the loan would be reduced by the amount of the subsidy. Since the hospital is paid in full, there would be no cost shifting to those who bought insurance.

ALTERNATIVE THREE

As noted above, a law requires hospitals to treat EVERYONE, regardless of ability to pay. One could rescind that law and force everyone to either have insurance, pay for service, or be denied service. But few would be willing to take that backward step. From a practical standpoint, this is not a viable option.

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Consider Having only two Insured Groups – Self-Insured and Community Rated

Download PDF Report >>> Consider having two insured groups

Anthem’s recent announcement of rate hikes of up to 39% highlights a serious problem with the health insurance industry.  Despite public consternation, Anthem can justify the increase using legitimate risk analysis. The problem is not entirely Anthem. The problem is a marketplace in this country that defies logic, and has done so for decades.  All private health insurers including Anthem are benefiting from this absurdly inefficient market.

The U.S. is not one single homogeneous insurance market. Rather, it is multi-tiered divided between government and private.  Government pays almost 50% of all medical costs for the 30% of population on Medicare and Medicaid.  The private market is further divided into self-insured and risk segments, roughly split 50:50 by population.

The self-insured consist of large enterprises that have so many members that it costs more to buy insurance than to pay medical expenses themselves and have insurers only administer claims.  Insurers make a profit on administrative expenses, but nothing on medical costs.  Medicare operates the same way as self-insured, contracting membership and claims to insurers.  Insurers make nothing on any self-insured claims because the insurers carry no medical risk.

Service fees on self-insured groups of the top 10 insurers average 6% of insured premiums. Medicare overhead runs even less. Adding government and self-insured costs, some 75% of all insured U.S. health care is administered with expense ratios of about 5%.  Continue reading

Key Healthcare Provisions – Kaiser Foundation

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Kaiser Foundation Source

Some of the items that go into effect in the first year include:

NEW HELP FOR SOME UNINSURED: People with a medical condition that has left them uninsurable may be able to enroll in a new federally subsidized insurance program that is to be established within 90 days. The legislation appropriates $5 billion for this, although that may not be enough to cover all who apply; it’s not clear how much consumers would pay as their share of the cost. About 200,000 people are covered in similar state programs currently, at an estimated cost of $1 billion a year, says Karen Pollitz, a research professor at Georgetown University.

DISCOUNTS AND FREE CARE IN MEDICARE: The approximately 4 million Medicare beneficiaries who hit the so-called “doughnut hole” in the program’s drug plan will get a $250 rebate this year. Next year, their cost of drugs in the coverage gap will go down by 50 percent. Preventive care, such as some types of cancer screening, will be free of co-payments or deductibles starting this year.

COVERAGE OF KIDS: Parents will be allowed to keep their children on their health insurance plan until age 26, unless the child is eligible for coverage through a job. Insurance plans cannot exclude pre-existing medical conditions from coverage for children under age 19, although insurers could still reject those children outright for coverage in the individual market until 2014.

TAX CREDITS FOR BUSINESSES: Businesses with fewer than 25 employees and average wages of less than $50,000 could qualify for a tax credit of up to 35 percent of the cost of their premiums.

CHANGES TO INSURANCE: All existing insurance plans will be barred from imposing lifetime caps on coverage. Restrictions will also be placed on annual limits on coverage. Insurers can no longer cancel insurance retroactively for things other than outright fraud.

GOVERNMENT OVERSIGHT: Insurers must report how much they spend on medical care versus administrative costs, a step that later will be followed by tighter government review of premium increases.

Some of the major changes the reconciliation proposal would make to the Senate-passed bill:

HEFTIER SUBSIDIES: Compared to the Senate legislation, the reconciliation bill would provide more generous subsidies to low- and moderate-income Americans to help them buy health coverage.

THE “MASERATI” TAX: The levy on high-cost insurance plans is scaled back and delayed, rendering it more a “Maserati” than a “Cadillac” tax. It would apply only to the portion of plans costing more than $10,200 a year for individuals, up from $8,500, and $27,500 for families, up from $23,000. The tax wouldn’t kick in until 2018, reducing the projected revenue to the government by 80 percent. Over time, however, the tax would hit more and more plans, because the tax’s threshold is set to increase at the rate of inflation while premiums are expected to continue to grow much more quickly than that.

CLOSING THE DOUGHNUT HOLE: Unlike the Senate bill, the reconciliation measure would eventually close the coverage gap, called the “doughnut hole,” for Medicare beneficiaries enrolled in Part D drug plans. (Currently, seniors who hit the gap must bear the full cost of their medications until they spend a certain amount, when coverage kicks back in.)

Under the new bill, seniors who hit the gap this year would get $250 to help cover the costs of their medications. Starting next year, they’d get a 50 percent discount on brand-name drugs, with the cost borne by the drug industry. In subsequent years, the discounts would expand and begin covering generic drugs, with the expense picked up by the government. By 2020, the discounts would reach 75 percent.

SHIFT IN MEDICARE ADVANTAGE PAYOUTS: Government payments to Medicare Advantage, the private-health plan alternative to traditional Medicare, would be cut back more steeply than under the Senate bill: $132 billion over 10 years, compared to $118 billion.

The government currently pays the private plans an average of 14 percent more than traditional Medicare. The new bill, besides reducing payments overall, would shift the funding; some high-cost areas would be paid 5 percent below traditional Medicare, while some lower-cost areas would be paid 15 percent more than traditional Medicare. The Senate’s plan that would have shielded some areas of the country such as South Florida from major cuts was largely eliminated.

A RAISE FOR DOCTORS: Primary care doctors would get a Medicaid payment boost in the reconciliation bill. Beginning in 2013 and 2014, the doctors’ payment rates would be on par with Medicare rates, which typically are about 20 percent higher than Medicaid. The goal is to ensure that there will be a sufficient number of doctors willing to care for the millions of additional people who would become eligible for Medicaid under the health care overhaul.

PUSHING UP THE MEDICARE TAX: The Senate bill adds a 0.9 percentage point to the Medicare payroll tax on earned income above $200,000 for individuals, or $250,000 for couples. Under the reconciliation bill, starting in 2013, people in those income brackets also would face a 3.8 percent tax on investment income, such as interest, capital gains and dividends.

PENALTY FOR NOT HAVING INSURANCE: Under the new bill, most Americans without insurance would face an annual penalty, starting in 2014 at $95 – the same as in the Senate bill. But in following years, the penalties in the reconciliation bill are slightly different. Those without insurance in 2016, for example, would pay the greater of two alternatives: a flat fee of $695, down from the Senate’s $750, or 2.5 percent of their income, up from 2 percent in the Senate bill.

EXPANDING MEDICAID: The reconciliation package differs from the Senate-passed bill in several ways. It would delete a provision dubbed the “Cornhusker kickback” that would have exempted Nebraska from paying any cost of a Medicaid expansion included in the bill. But it would provide full federal funding to all states for newly eligible Medicaid recipients for three years. And it would give additional funding to states like Vermont and Maine that have already moved to cover adults without children, which isn’t required under the Medicaid program.

MEDICARE SPENDING BOARD: The Senate bill would create an independent, 15-member board to recommend ways to control Medicare spending. The board remains in the reconciliation package, but would be expected to produce just about half of its original projected savings of $23 billion in the Senate bill. That’s because the new proposal would make greater cuts in Medicare Advantage plans.

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Fact Check: Provider Consolidation Driving Up Costs

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Fact Check:  Provider Consolidation Driving Up Costs

  • · Massachusetts Attorney General issued a report that: “points to the market clout of the best-paid providers as a main driver of the state’s spiraling health care costs” and “found no evidence that the higher pay was a reward for better quality work or for treating sicker patients”.
  • · According to a new report in Health Affairs, Paul Ginsburg and Robert Berenson found that “providers’ growing market power to negotiate higher payment rates from private insurers is the ‘elephant in the room’ that is rarely mentioned.”
  • · According to a brief from the National Institute for Health Care Management: “With only a few exceptions, results consistently demonstrate that hospital consolidations result in higher prices for hospital services.”
  • · The Federal Trade Commission and the Depart­ment of Justice noted: “Most studies of the relation­ship between competition and hospital prices have found that high hospital concentration is associated with increased prices, regardless of whether the hospitals are for-profit or nonprofit.”

FACT CHECK CHECKED: The above are arguments that America’s Health Insurance Plans (AHIP) included in their response to advocates of reform. What AHIP may not recognize is it has set forth some of the most compelling arguments for a “public option”.

AHIP freely admits that insurers are powerless on their own to control provider costs. Even with anti-trust exemptions, they have failed to combine forces and confront providers.  Short of a government takeover, the only long-term solution is more clout.  The only entity with more clout is the government itself being an insurer, which, by the way, it already is – Medicare.

Medicare doesn’t so much “ask” providers what they charge.  Medicare almost “tells” providers what it will pay. Republicans were so concerned with Medicare’s clout that they wrote into law “prohibiting” negotiated drug discounts.  But discounts will become necessary.

For many Americans, a drastically reformed healthcare system was a non-starter.  The administration politically tried to blend features of the current into the proposed system to reduce upheaval to such a large part of the economy.  Any change can be unsettling, and how you view it is very important.  Is the glass half full or half empty?  At some point, radical cost control will occur, and private insurers will not be leading the charge.

Insurers can look on government as an unreasonable competitor or they can look on government as the only insurer who finally has enough clout to contain provider costs.  It may be that insurers eventually withdraw from the market for “essential medical benefits” and focus their efforts on supplemental policies that go beyond basic.  If they did, they would look a lot like health insurers in Europe and other industrialized countries. Diminished compared to today but not destroyed.

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Summary – Health Care Reform: Separating Wheat from Chaff

Download PDF Report >>> Healthcare Reform Pro-n-Con Smry

Insurance reform has three fundamental goals:

  1. lowering costs,
  2. increasing availability,
  3. maintaining or improving quality.

When reviewing the paths to these “end points” of healthcare reform, the question is, whether they progress toward achieving them (goals) or whether the means to get there are simply different paths with no discernible difference in outcome.

ISSUES ON WHICH THERE IS BROAD AGREEMENT

ACCESSIBILITY:  Insurance policies should (a) not exclude pre-existing conditions; (b) not allow cancellation of an existing policy; (c) guarantee issuance and renewals; (d) extend dependent child coverage to 26 years.

AFFORDABILITY:  Insurance policies should (a) not set lifetime or annual limits on benefits; (b) set reasonable annual limits for deductibles and co-pays; (c) not allow price differentials based on sex; (d) set reasonable restraints on age-related differentials; and (e) create a national high risk reinsurance pool to protect insurers from enrollees who incur extremely high cost medical treatments.

QUALITY:  Insurance policies should (a) not require cost-sharing for basic, preventive health care services; (b) require an essential benefits package that covers all basic health care needs; (c) standardize forms to reduce inefficiency in processing claims and enrollment; and (d) further computerizing medical information.

ISSUES ON WHICH THERE IS LESS AGREEMENT

PUBLIC OPTION: Arguments in favor are that a government non-profit insurer would provide basic insurance with less overhead.  Arguments against are that it adds government insurance into the mix, pulling business and profit margins away from private insurers.  Note: private insurers did not object to government Medicare for seniors which took the lion’s share from private insurers.

ANTI-TRUST: Removing private insurers’ anti-trust exemption increases competition.  Exemptions allow insurers to not only collude on setting premium prices, but also to monopolize markets resulting in higher prices.

SALES ACROSS STATE LINES: There are two ways to sell.  The first is leveling the playing field with a uniform set of rules similar to what CAFE mileage standards do for car manufacturers when mandating “corporate average fuel economy” that apply in all states.  A national exchange is the health equivalent for enforcing uniform standard rules.  The other alternative is to use the credit card “model”, where different rules apply depending upon the insurer’s home state.  The question becomes, would the public prefer insurers to act more like credit card companies (banks) with no federal intervention, or to participate on a level playing field with federal enforcement?

TORT REFORM: Many states already have such reform; this would be a federal cap on non-economic damages.  The argument in favor is there would be less defensive-medicine and overall health care costs would drop significantly.  The argument against is there is minimal relationship between caps and health care costs; that “defensive medicine” has more to do with generating income than avoiding liability.

AFFORDABILITY CREDITS: Affordability credits are a sliding scale subsidy for individuals and families earning less than some multiple of the federal poverty level (FPL).  To fund affordability credits (subsidies), a tax could be levied on individuals with adjusted gross income exceeding $250K ($500K for families), and taxing plans with Cadillac benefits.  Arguments for and against tend to center on the method of funding.

PURCHASE MANDATE: This mandates that all citizens purchase health insurance.  Arguments in favor are that by adding millions of customers, insurers would incur lower average costs.   Mandatory insurance would also have the salutary effect of reducing the number of those without insurance who rely on hospital emergency rooms for non-emergency health care—a very inefficient way to render treatment.  Arguments against include whether such a requirement is constitutional, though it seems similar to Medicare insurance through withholding work; and whether or not insurers will increase premiums for new insurance reforms, like no pre-existing condition barring coverage.

The only way a mandate works is if affordability credits are extended to millions of financially disadvantaged.  Affordability credits will come from government subsidies, and because taxpayers are responsible for these monies, many believe it fair to expect insurers to discount, or reduce, premium charges when setting rates.

MANDATE EXPECTS LOWER PRICES: Insurers are not likely to do this voluntarily.  Price controls are one way to restrain premium rates, but are not viewed as a long term solution.  The current mix of for-profit and not-for-profit insurers has also not been successful in restraining prices.  The best solution remains more competition, and is the impetus behind those advocating a strong public option.

DISCOUNTED DRUGS:  Allow Medicare to negotiate drug discounts and cross-border purchases.  Arguments against are that margins are needed for research into new drugs and that the quality of imported drugs cannot be assured.  Arguments in favor are that the current no discount policy has resulted in U.S. drug prices far above what prescription drugs cost in other industrialized countries.  As for quality, many of the drugs purchased here are the very same that buyers in other industrialized countries purchase.

© 2009 Andrew Kurz and Miles Zaremski

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Nixon’s Comprehensive Health Insurance Program

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Below  is a reformatted version of President Nixon’s Message to Congress on a Comprehensive health Insurance Plan delivered on February 6, 1974.  What is striking is how many similarities there are between it and the Affordability Care Act (ACA). There are, however,  a few key differences between Nixon’s plan and the ACA plan.

  1. In Nixon’s plan, health insurance is mandatory for business to insure full-time employees and optional for individuals. In ACA plan, health insurance is not mandatory for business’ employees but is  mandatory for individuals.
  2. In Nixon’s plan, failure on the part of States to enact the necessary authorities would prevent them from receiving ANY Federal support of their State-administered health assistance plan that includes (current) Medicaid. The ACA plan manages insurance exchange but leaves Medicaid payments to states intact.

A serious problem with the first item is that companies would attempt to minimize full-time employees in order to avoid the mandate. Even without a mandate, employers are currently following this pattern and leaving part-time employees without a safety net. In the second item, the penalty on states for non-compliance is far stricter under the Nixon plan than under ACA. In other words, more power to the federal government and less to the states under Nixon than under ACA.

Democrats at the time opposed this plan and it never became law.

COMPREHENSIVE HEALTH INSURANCE PROGRAM

  1. It offers every American an opportunity to obtain balanced, comprehensive of health insurance benefits.
  2. It will cost no American more than he can afford to pay;
  3. It builds on the strength and diversity of our existing public and private systems of health financing and harmonizes them into an overall system.
  4. It uses public funds only where needed.
  5. It would maintain freedom of choice by patients and ensure that doctors work for their patient, not for the Federal Government.
  6. It encourages more effective use of our health care resources.
  7. It is organized so that all parties would have a direct stake in making the system work–consumer, provider, insurer, State governments and the Federal Government.

THREE PLANS TO OFFER BROAD AND BALANCED PROTECTION FOR ALL AMERICANS

  1. Employee Health Insurance, covering most Americans and offered at their place of employment
  2. Improved Medicare Plan, covering those 65 and over and offered through a Medicare system that is modified to include additional, needed benefits.
  3. Assisted Health Insurance, covering low-income persons, and persons who would be ineligible for the other two programs, with Federal and State government paying those costs beyond the means of the individual who is insured
  • One of these three plans would be available to every American, but for everyone, participation in the program would be voluntary.
  • The benefits offered by the three plans would be identical for all Americans, regardless of age or income. Benefits would be provided for:
    • hospital care
    • physicians’ care in and out of the hospital
    • prescription and life-saving drugs
    • laboratory tests and X-rays
    • medical devices
    • ambulance services
  • There would be no exclusions of coverage based on the nature of the illness.
  • In addition, it would cover treatment for mental illness, alcoholism and drug addiction
  • Certain nursing home services and other convalescent services would also be covered.
  • Home health services would be covered
  • The health needs of children would come in for special attention,
    • preventive care up to age six
    • eye examinations
    • hearing examinations
    • regular dental care up to age 13
  • A doctor’s decisions could be based on the health needs of his patients, not on insurance coverage.
  • Every American participating in the program would be insured for catastrophic illnesses
  • No family would have annual out-of-pocket costs for covered health services in excess of a cap
  • Low-income families would face substantially smaller expenses.
  • A Health-card, similar to a credit card, would be honored by hospitals, nursing homes, emergency rooms, doctors, and clinics across the country.
  • This card could also be used to identify information on blood type and .sensitivity to particular drugs-info which might be important in an emergency.
  • Bills for the services paid for with the Health-card would be sent to the insurance carrier who would reimburse the provider of the care for covered services, then bill the patient for his share, if any.

HOW EMPLOYEE HEALTH INSURANCE WOULD WORK

  • Every employer would be required to offer all full-time employees the Comprehensive Health Insurance Plan.
  • Added benefits may be included by mutual agreement.
  • The insurance plan would be jointly financed, with employers paying 65 % of the premium for the first three years of the plan, and 75 % thereafter.
  • Employees would pay the balance of the premiums.
  • Temporary Federal subsidies would be used to ease the initial burden on employers who face significant cost increases.
  • Individuals covered by the plan would pay a deductible. A separate deductible provision would apply for out-patient drugs. There would be a maximum of three medical deductibles per family.
  • After satisfying the deductible limit, an enrollee would then pay for 25 percent of additional bills
  • There would be an annual max out-of-pocket cost on family’s medical expenses for covered services.
  • As an interim measure, the Medicaid program would be continued to meet certain needs, primarily long-term institutional care.

IMPROVING MEDICARE

  • Medicare’s benefits would be improved so that Medicare would provide the same benefits offered to other Americans under Employee Health Insurance and Assisted Health Insurance.
  • Persons 65 or over, eligible to receive Medicare payments, would pay a lower deductible and a lower separate deductible for out-patient drugs.
  • He or she would also pay 20 percent of any bills above the deductible limit.
  • There would be an annual max out-of-pocket cost any Medicare beneficiary have to pay
  • The premiums and cost sharing for those with low incomes would be reduced, with public funds making up the difference.
  • Those now in the Medicare for the disabled plan would be eligible for Assisted Health Insurance, which would provide better coverage for those with high medical costs and low incomes.

HOW ASSISTED HEALTH INSURANCE WOULD WORK

Assisted Health Insurance is designed to cover everyone not offered coverage under Employee Health Insurance or Medicare, including

  • The unemployed,
  • The disabled,
  • The self-employed,
  • Those with low incomes
  • Persons with higher incomes if they cannot get coverage at reasonable rates including persons whose health status or type of work puts them in high-risk insurance categories.
    • A principal feature of Assisted Health Insurance is that it relates premiums and out-of-pocket expenses to the income of the person or family enrolled
    • Working families with very low incomes, would pay no premiums at all
    • Deductibles, co-insurance, and maximum liability would all be pegged to income levels.
    • Assisted Health Insurance would replace State-run Medicaid for most services.
    • Preempt State mandates, this plan would establish uniform benefit and eligibility standards for all low-income persons.
    • It would also eliminate artificial barriers to enrollment or access to health care.

MAKING THE HEALTH CARE SYSTEM WORK BETTER

To contain medical costs effectively over the long-haul, however, basic reforms in the financing and delivery of care are also needed.

PROFESSIONAL STANDARDS REVIEW ORGANIZATIONS (PSRO’s) would

  • place health services under the review of Professional Standards Review Organizations.
  • These PSRO’s would be charged with maintaining high standards of care and reducing needless hospitalization.
  • Operated ‘by groups of private physicians, professional review organizations can do much to ensure quality care while helping to bring about significant savings in health costs.

STATES would

  • Approve specific plans,
  • Oversee rates,
  • Ensure adequate disclosure,
  • Require an annual physical
  • Assure fair reimbursement for physician services, drugs and institutional services, including a prospective reimbursement system for hospitals.
  • Only with effective cost control measures can States ensure that the citizens receive the increased health care they need and at rates they can afford.
  • Failure on the part of States to enact the necessary authorities would prevent them from receiving any Federal support of their State-administered health assistance plan.

Republican President RICHARD NIXON

The White House, February 6, 1974.

Download PDF Report >>> Nixon Comprehensive Health Plan

Source: Complete speech at Kaiser Health News:  http://www.kaiserhealthnews.org/Stories/2009/September/03/nixon-proposal.aspx