The Part Time Unemployment Rate

Jason Shafrin at the Healthcare Economist blog has a very interesting post up discussing the September jobs report, the jump in part time work that drove the unemployment rate number, and the cost of health insurance. The whole article is worth reading, but the most salient point is that the cost of health insurance may be a driver towards the rise of part time employment even though it is not the most efficient way to employ workers.

Single Payer Sclerosis

The Economist has an interesting article on innovation in health care (h/t John Goodman) focusing on a dashboard approach to ward by ward performance in an English hospital. While the utilization of the dashboard is an interesting application of real time information management, the real bite of the article is at the end where the inherent difficulties of innovation diffusion in a single payer system is discussed.

Cost Control Is Inevitable

In the United States, the ACA, will succeed in increasing demand but it does not have any significant cost control mechanisms. Sooner or later cost controls will need to be enforced.  As the payment mechanism for US health care becomes increasingly federalized the US system will look increasingly like a single payer system. The UK single payer is system is under significant cost constraints, or austerity measures to use the new buzz phrase. Or, to look at a different single payer system, Canada, where cost controls are implemented through waiting list rationing (see the latest Frasier Institute report). As The Economist points out, innovation is driven by competition, not by government control.

Quality Measures as Constraints

In a single payer system quality measures, once enacted, will ossify. Any attempt to update or change them will result in costs to providers and will inevitably become subject to political pressure. We have often discussed here that the bureaucratization is care is inevitable once federal standards for quality are implemented. Any change to a quality measure will result is some group losing reimbursement. All care will be focussed on meeting a particular measure.

Single Payer Inevitabilty

Whether it takes a couple years or a couple decades, the ACA will lead the United States down the path to a single payer system. Will this result in a better society or in a decrease in innovation that we see in other country’s health care systems?

High Deductible Health Plans, EBRI Ruins A Good Note

Paul Fronstin, writing the June Note for the Employee Benefit Research Institute (EBRI), presents some interesting survey data about about medication adherence and delays/avoidance of health care distributed by type of health plan and income level.

He breaks down the various plans levels into:

  • traditional – meaning a plan that has a deductible of less than $1,000
  • high deductible (HDHP) – deductible $1,000 or higher without a funded HSA/HRA
  • consumer directed (CDHP) – deductible $1,000 or higher with a funded HSA/HRA

Not surprisingly, there is a statistically significant difference in medication adherence by plan.

Members who had a HDHP plan had a higher incidence of not filling prescriptions or avoiding some medical care than those in a traditional plan, with the CDHP members in between the two groups. These relationships held when the survey data was sorted by those who had a self reported health problem versus those without a health problem. And, again, when the sorting was done by household income of below $50,000 versus $50,000 and above.

Where There High Deductible Options?

One item that the note does not address is whether the individuals and families in each high deductible plan had other options when selecting their plan. I am assuming here that we are talking about employer offered plans in the note since there is discussion about employer contribution to HSA accounts. If someone has the ability to choose between plans, I would be curious how this effects the results reported. A person picking a high deductible plan over a traditional plan because of cost would seem more likely to skimp on prescriptions and other care.

Is There A High Deductible Learning Curve?

A very interesting result reported was the performance of individuals and families in the CDHP plans, those plans with funded HRA/HSA accounts. There is a increase in prescription adherence with members that had their accounts for over three years. This change was not seen in the high deductible only group. Does this indicate that over time as members start to fund their accounts and learn that they can purchase health care items with tax free money? Does it mean that high deductible plans need a savings account to be usefull?

What Constitutes Access?

The one issue that I have with this note is Fronstin’s use of the word ‘access’ to characterize health system usage around prescription adherence.

Prescription adherence is a very common problem, for example see this recent talk on the issue. Cost is only one factor and there is no indication of whether the respondents were given multiple reasons to select for non-adherence.

In addition, access is a politically charged word for what are economic decisions by individuals. I may have only $100 in my pocket for gasoline, but I decide to pay my cable bill instead of buying gas to take a short trip. Do I have an access problem with gasoline?

What Did $80b Buy PhRMA?

On May 31 the Republicans on the House Energy and Commerce Committee released a report and associated emails reviewing the negotiations between the pharmaceutical trade group (PhRMA) and the White House in developing terms of the ACA. While the Republicans are trying to ‘count coup’ by pointing out the lack of promised transparency, what is more interesting is the business decision process by PhRMA.

What PhRMA Gave Up

The advertised number is that PhRMA agreed to $80b in rebates to provide ‘savings’ in the ACA. This a hard number, not a percentage, not changeable due to usage or pricing.

In addition, PhRMA agreed to helpful advertising, Harry and Louise are for reform this time.

What PhRMA Gained

In return, PhRMA got an agreement that the WH would not support price negotiation in Medicare Part D, and that the WH would block efforts to allow the importation of overseas drugs.

In short the WH agreed to no cost control for pharmacy expenses in healthcare in return for a number to claim savings in the ACA.

Best ACA Related Quote Ever

Quote from PhRMA VP Bryant Hall email (slightly expurgated):

“But the WH is f***ing this up. These guys deal w the numbers like they’re real. It isn’t smart”


The political calculation of this deal is interesting. Did PhRMA believe that if they didn’t support the ACA that is would pass anyway? And, if that happened they would be subject to price negotiation pressure fro CMS?

And regardless of the SCOTUS ruling on the ACA will PhRMA be under pressure from Republicans in Congress for the their support of the ACA?

ACA Employer Tax Incentive – Not Interested

A recent GAO report looked into the employer tax incentive program that was in the ACA to motivate more small employers to offer health insurance. The performance of the program fell short of expectations. Several interesting questions on reading the report:

170k Signed Up Out Of?

When a piece of tax credit legislation is proposed, there has to be an estimate of eligible recipients in order to quantify the budgetary impact. When the employer tax incentive was put into the ACA the estimates of the number of business that this could potentially help was between 1.4m and 4m. We’ll pass over what the extraordinary imprecision of this measurement says about the people framing this program and move onto the actual performance. Depending on what part of the range of eligible you want to highlight is, the take up rate was between 4% to 12%. Why the low level of interest?

How Hard Can It Be, the IRS is Involved?

Part of the GAO report looks at the IRS form and information needed to claim the tax credit. Quoting from the report:

“Any credit that needs a form that takes 25 lines and seven work sheets to build those 25 lines is too complicated” attributed to a tax preparer

Other complaints had to do with how to calculate FTEs and insurance premiums associated with those FTEs. Remember this tax incentive program was focussed on small employers with low wages, traditionally a higher turnover population.

We Get How Much?

Another problem with the employer tax incentive program was the amount of the credit itself and the the extent that it is available. In order that the credit was not used to over buy health insurance, the IRS used a credit cap of the average health insurance premium in each state. Several participants in GAO surveys questioned whether the IRS caps were too low. And finally, the tax credit itself has a phaseout provision, which means that from a planning perspective the small business has to estimate whether it can continue to afford health insurance when the credit expires.

* * *

The way that the employer tax incentive program in the ACA was written and operationalized once again points to the lack of understanding on the Federal level of the problems that small business faces in the health insurance market.

Agent Compensation Decline and Small Employer Health Insurance

One of the most contentious areas of rule making in the ACA was the definition of what was included in the MLR (medical loss ratio) target that health insurers have to meet. In the end, it was decided not to include agent commissions in the allowed claim or quality improvement expense category. This forced insurers to dial back the available level of compensation for the agent. While the independent agent working in the small employer health insurance market was probably an easy political target for the Administration, the down stream effect of this decision will be another reason for small employers to stop offering health insurance as part of their benefit packages.

As anyone who has had to purchase small employer health insurance knows, the agent often becomes an unofficial HR consultant to the employer. Coverage questions and claim problems that employees bring to the employer are facilitated through the agent. Without the assistance of the agent, the employer has to take time away from running their business and deal with employee benefit problems. With the cost of small employer health insurance continuing to rise, and now the non-premium expense increasing, when does the benefit become too expensive?

What evidence do we have that this will be the case? A recent survey by the National Association of Insurance and Financial Advisors (h/t John Goodman) indicates that this will exactly be the case. Most agents have reported a decrease in commission income. For those that are staying in the business, the primary area where they are cutting back is in client service activities.


Provider Pricing Power and the Cost of Health Insurance

In an post discussing a recent Health Affairs paper, Avik Roy echoes our previous discussion about provider pricing and the tax treatment of employer based health insurance.

Worth the read.

Healthcare Spending and Provider Cost in the US

In a new report from The Commonwealth Fund comparing healthcare spending in the US versus 12 other industrialized countries (h/t HealthPopuli) it is striking how much more it costs in the US for the same sorts of procedures – and NO, quality is not that much better.

A few examples. The average income during 2008 for a primary care physician in the US was $186,582, in France it was $95,585. The average income during 2008 for an orthopedic physician in the US was $442,450, in France it was $154,380. The average hospital discharge cost adjusted for cost of living during 2008 in the US was $18,142; in Canada $13,483; and, in Australia $8,350. There are several other examples in the report of these sort of striking differences.

The main difference between the US and the other countries is the strong use of government price controls to control healthcare spending. In the US there are some soft price controls through Medicare and Medicaid, however these are subject political pressure. Many observers would say that only through a single payer system would price controls be effective because the private health insurance system has been unable to accomplish cost control.

However, I contend that the real crux of the problem is the tax deductible nature of employer based health insurance. The US market based system is ineffective in controlling healthcare spending when the purchaser of the product is relatively price indifferent (as opposed to an individual health insurance purchaser who gets no such tax break). The removal of the employer health insurance tax break would go a long way towards forcing price discipline without resorting to overt government price control.


CBO and the ACA – New Estimates of Costs and Employer Compliance

The CBO this week released a couple of updates to it’s budget scoring for the ACA.

New CBO Cost Estimates

For anyone who is not aware, the standard CBO process of estimating cost and budget impact for any proposed program is to estimate over a 10 year period. That is why there were many provisions in the ACA that started with premium collection in within the initial 10 year period, but did not start paying benefits until after the the initial 10 year period had expired. Using these budget games, the initial bill was scored at costing less than $1 trillion. Needless to say, that number is now over $1 trillion.

Peter Suderman on the site has a good write up of the math involved and and where the true end number may end up for a full decade of the ACA. In addition, a quick review of the CBO note does not mention the effect of not implementing the CLASS Act. As we have discussed before, that program seems to have served a budgetary service only, and the refusal of the administration to agree to rescind it keeps it in the budget for now.

New CBO Estimates of Employment Based Health Insurance

The original CBO estimate was that about 3 million people getting insurance through their employer would end up migrating to Medicaid and the insurance exchanges. The CBO now estimates that number at 3 to 5 million. In reading the CBO report however, it is clear that this is all guess work at this point. Another interesting point in the report, is that it estimates that budgetary impact of more people losing their employer based coverage and being potentially subsidized through Medicaid or the insurance exchange is minimal. This is based on the assumption that most employers will raise taxable wages to the extent that they remove premium payments from the employee’s benefit package. That seems to be a rather large assumption. See Avik Roy, for a discussion of this.

More Money For Health Insurance Exchanges

Avik Roy notes yesterday that the administration has raised the budget request by $111b for the insurance exchanges needed in the ACA to provide premium subsidies. You will remember that last summer when the McKinsey report came out predicting that more employers would dump their health insurance plans than assumed in the original budget proposals that the administration attacked this prediction. This additional budget request for the insurance exchanges would seem to give more credence to that expectation.

What might be the drivers for employees dropping health insurance plans leading to increased demand in the exchanges? They come from the ACA itself.

Benefit Requirements in the ACA will Raise Premiums

In order to meet minimum benefit requirements for credit as a qualifying health plan, many small employers will need to purchase  a more expensive health plan than they do now.

Loss of Agent’s Compensation in the MLR

In deciding what was included in the medical loss ratio targets for health plans, agent compensation was not included. This means that agent compensation will begin the decline, leading to less service per client than now from those agents that stay in business. The role of the agent, especially for small businesses, as an unofficial HR consultant has been overlooked by many commentators. In house insurance company service providers cannot provide the level of service that the agent provided to the employer. This will cause the employer to have to deal with with more insurance related problems on a day to day basis.

In the end, the small employer will realize that it is much easier to simply write the penalty check for not offering health insurance than to deal with the inevitable bureaucracy, the higher cost, and the non-business related problems.

As more employers drop their plans, any stigma associated with not offering a health insurance plan to potential employees will fade away.