Feb 25, 2016
THE AFFORDABLE CARE ACT VS. SINGLE-PAYER
Stephen B. Kemble, MDClinical Assistant Professor of MedicineJohn A. Burns School of MedicineDept. of Psychiatry Grand RoundsJanuary 10, 2014
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,
Both eliminate private health insurance except for supplemental benefits not covered in single-payer program.
The Big Problems with U.S. Healthcare
• Cost – Now 17.2%GDP, unsustainable escalation • Inadequate Access to 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.
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 capitaAchieve both much better access and much lower cost than US, plus better outcomes!
Source: Canadian Institute for Health Information
Canadian Physicians’ Incomes2010 – 2011
Internal Med $361,551Pediatrics $270,073Psychiatry $214,702
Dermatology $398,410All Canadian physicians:
Specialty IncomeOB-GYN $449,121General Surgery
*Ontario reimburses physicians for premiums about 1986 level
Source: Canadian Medical Protective Association www.cmpa-acpm.ca
Canadian Malpractice Insurance Costs2013 Data. Canadian Dollars (US rates are 2.5-20 times higher)
Specialty Ontario* Quebec Other Provinces
FP/GP/Psych $2,268 $1,386 $1,344
Cardiology $4,080 $3,217 $1,608
Anesthesia $7,812 $6,199 $4,296Neurosurger
y $42,216 $28,240 $19,836
OB-GYN $49,416 $43,295 $17,904
How are they able to do that?
If they can do that, why can’t we?
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.
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.
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
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
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
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
Affordable Care Act: Anticipated ProblemsThe 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.
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.
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.
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.
Providers – Shifting Insurance RiskEthical 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.
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
What About the Insurance Industry?
Growth of Physicians and Administrators
Data updated through 2013Source: Bureau of Labor Statistics; NCHS;
Himmelstein/Woolhandler analysis of CPS
01970 1980 1990 2000 2010
Figure 22. Complexity Drains Resources: Total Annual Cost to U.S. Physician Practices for Interacting with Health Plans Is Estimated at $31 Billion1
Nursing staff $21,796
Clerical staff $25,040
Senior administrative $3,522
Total Annual per Practice Cost per Physician: $68,274
Mean Dollar Value of Hours Spent per Physician per Yearon All Interactions with Health Plans
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.
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.
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
* 2006Source: 2009 OECD Health Data (June 2009)
Spending on Health Insurance Administration per Capita, 2007
* 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).
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
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
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”
Medicaid Managed Care in HawaiiSolution:
• 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.
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.
Based on the evidence –
None of the Medicaid managed care rationales and solutions were valid!
Colorado: Mesa County v. Rest of CORocky 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 2008-09Colorado Mesa County
FQHC’s $160.00 $1.19MD & EPSDT $525.74 $212.85
Pharmacy Rx’s $543.83 $149.93Inpatient Hospital $749.87 $340.05Outpatient Hospital $374.25 $169.70
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)
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
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.
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).
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!
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
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 &
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.
Advantages of Single-Payer• Everyone is included, so there is no incentive to avoid 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.
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.
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.
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
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
Operating Principles for Cost-Effective, Sustainable Health Care Redesign1. Universal (single risk pool)2. Standardized benefits – all medically necessary
care3. Simplify administration4. Promote professionalism in medicine5. Quality improvement (but not pay-for-
performance)6. Ensure adequate physician workforce (primary
care)7. Accountability to recipients and providers of care8. Separate, sustainable funding for health care