Archive for June, 2011

Direct primary care could revolutionize private health care finance

Silicon Valley is internationally noted as a technology innovator.  Now it’s home to another form of innovation, this time in medical care with something known as direct primary care. Direct primary care involves patients pre-paying for routine medical services.  In the case of Silicon Valley startup primary care company MedLion, patients pay $49 per month and $10 per visit. “MedLion is able to provide high quality medicine at a price point nearly any family can afford,” notes David Chase on the TechCrunch blog.

I’ve opined that with burgeoning health care costs and their hyperinflationary effect on premiums for insurance and managed care plans, we could see a bifurcation of the market where these traditional forms of medical coverage are used only for major, unexpected expenses and not routine care such as provided by direct primary care providers.  In that respect, it’s back the future when “major medical” coverage of decades past was designed to cover only what its name denotes to protect people from financial catastrophe.  After all, that’s the key benefit of any form of insurance.

The direct primary care model could be embraced by both employers that have been shifting more risk to employees in the form of higher deductibles and co-pays as well as individuals seeing monthly premiums starting to rival the size of mortgage payments.  If this happens, it would represent a major realignment of the private health care finance system.  It could also lead small employers and individuals to opt for “bronze” level qualified health plans that state health benefit exchanges must offer beginning in 2014 under the Patient Protection and Affordable Care Act.  Such plans must be cover 60 percent of an individual’s actuarially projected medical costs and would offer lower premiums than qualified plans covering 70, 80 and 90 percent of expected losses.  With the current level of growth in premium rates, by 2014 bronze level plans may be the only ones that are affordable for many, as I’ve speculated in a previous post.


What’s likely driving state challenges of PPACA coverage mandate

The constitutionality of the so-called “individual mandate” of the Patient Protection and Affordable Care Act (PPACA) — the law’s requirement that all Americans have a public or private third party payer covering most of their medical bills starting in 2014 — is under review in multiple U.S. Circuit Courts of Appeal.

Opponents of the mandate — including more than two dozen state attorneys general — contend the law is unconstitutional because it impermissibly forces someone to engage in commerce when they purchase coverage if not covered thorough their employment or a government program.

One of the more interesting arguments raised in the mandate’s defense this week in the 11th Circuit is based on EMTALA — the Emergency Medical Treatment and Active Labor Act of 1986.

Acting U.S. Solicitor General Neal Kumar Katyal noted the rationale behind the coverage mandate is to more equitably allocate the costs of medical care provided for those not privately covered or in a government health program by those who incur them.

“You can walk out of this courtroom and be hit by a bus,” Katyal told the court.  Without medical coverage, he argued, the treating hospital and the taxpayers will have to pay the costs of the emergency care, he added.

Under EMTALA, the hospital is required to assess and medically stabilize that bus accident patient regardless of medical coverage or his/her ability to pay.

Katyal is correct the hospital could end up eating some of the cost of providing the hypothetical bus accident victim’s care.  Hospitals also write off a significant portion of unreimbursed medical care as uncollectible debt or charity care.  That’s in large part why emergency room bills for those paying on their own are so stratospheric.

However, Katyal’s argument that taxpayers also foot the bill is questionable.

In December 2006, the New America Foundation (NAF) estimated that about 10 percent of California health care premiums are comprised of unreimbursed medical costs incurred by those without medical coverage.  The foundation’s study of this so-called “hidden tax” or “cost shift” is significant given that California is not only the nation’s most populous state, but also has more medically uninsured people than nearly all other states.

Bottom line: The burden of uncompensated medical care is borne privately, not by taxpayers.

That point aside, I suspect the real concern driving the challenge of the individual mandate derives from playing it out several years into the future.

Requiring everyone to have coverage may provide a temporary respite for the smallest and most troubled source of medical coverage: the individual market.  It’s already circling the drain of adverse selection. Bringing more individuals into the risk pool expands its ability to spread risk and generate premium dollars to offset rapidly rising medical treatment costs.

However, those rising costs are passed along as higher premiums.  That could well lead to some — most likely people under age 40 or 45 — to conclude they’d be better off paying the penalty for not having coverage and dropping out of the pool.

Then the individual market would be quickly be back on the brink of adverse-selection driven collapse where it stands today.  That in turn could lead the states and/or the federal government to step into the breach with a government run risk pool or by expanding Medicare/Medicaid for those unable to obtain affordable coverage on the individual market.

Either outcome likely has the states worried.  Recession-hammered states are strapped fulfilling their current obligations as well as meeting their share of state Medicaid programs. They probably don’t relish the prospect of maintenance of effort requirements for a new federal/state insurance program that would take the place of a defunct private individual insurance market.

Health insurance rate regulation advances in California — but will it really hold down premiums?

With the advance this week of California legislation that would subject premiums for health insurance and managed care plans to prior rate regulatory approval, the New America Foundation’s Micah Weinberg correctly notes in a Sacramento Bee op-ed article that regulating insurance rates is a piecemeal solution.

From a logical standpoint, regulating premium rates makes sense insofar as only a handful of insurers and managed care plans control about 90 percent of the market in California.  That’s not a robust competitive market that will work to hold down premiums.

Even so, Weinberg correctly suggests, these companies are not the ultimate market makers for health care.  Insurance and managed care is a risk spreading and pre-payment mechanism, respectively, that doesn’t ultimately price the cost of health care.  Instead, insurers and managed care plans act as intermediaries, passing along the increased costs of health care utilization to their policyholders and members.  That’s why they strongly opposed the California rate regulation measure — out of well-justified fear of being squeezed by increasing costs for covering their customers at the same time regulators pressure for lower premiums.

Some states including Maryland recognize this and have responded — as some nations have done — by imposing price controls on medical providers.  Weinberg notes Massachusetts is considering legislation that would allow regulators to bar rates charged by hospitals to payers as excessive.

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