It’s the prices, stupid. Real debate over public option is over Medicare reimbursement rates.

“If there could be an L.A. Care in every county … that would be an improvement, but it certainly wouldn’t be transforming our health-care system overall,” she said. “A national public option that pays providers Medicare rates would have much more dramatic effects on the overall health-care system.”

But many private insurance companies, with some reason, fear that a public option operating on such a reimbursement system would set the country on a path to a government-run, single-payer system. If a public option paid providers that much less, private insurers reason, it could charge much less than they do in premiums and ultimately siphon away most of the insurance market.

Source: What Democrats Can Learn from L.A.’s Public Option – The Atlantic

Why Doctors Still Offer Treatments That May Not Help | The Incidental Economist

“Only a fraction of unproven medical practice is reassessed,” said Dr. Prasad, who is co-author of a book on medical reversals, along with Adam Cifu, a University of Chicago physician.

Dr. Prasad’s work is part of a growing movement to identify harmful and wasteful care and purge it from health care systems. The American Board of Internal Medicine’s Choosing Wisely campaign identifies five practices in each of dozens of clinical specialties that lack evidence, cause harm, or for which better approaches exist. The organization that assessed the value of treatments in England has identified more than 800 practices that officials there feel should not be delivered.

It’s an uphill battle. Even when we learn something doesn’t make us better, it’s hard to get the system to stop doing it. It takes years or even decades to reverse medical convention. Some practitioners cling to weak evidence of effectiveness even when strong evidence of lack of effectiveness exists.

This is not unique to clinical medicine. It exists in health policy, too. Much of what we do lacks evidence; and even when evidence mounts that a policy is ineffective, our political system often caters to invested stakeholders who benefit from it.

Source: Why Doctors Still Offer Treatments That May Not Help | The Incidental Economist

“Priced out” or “fleeing the market.” Whatever the preferred terminology, the economic upshot is the same: market failure.

The non-group market has functioned as a remainder market, a market of last resort for those who don’t qualify for government and employer medical benefit plans that cover about 90 percent of those with coverage. Non group plan issuers have thus labored with comparatively lower economic clout when it comes to negotiating the price of medical care with its providers, additionally hindered by high turnover among plan members that might be expected in a market of last resort.

Historically, that has meant relatively higher premiums and cost sharing that makes non-group particularly vulnerable to adverse selection and its dreaded “death spiral.” The market entered this troubled state starting in the early 2000s as premiums rose and threatened to circle the drain if the adverse selection trend wasn’t quickly reversed. The Patient Protection and Affordable Care Act came to the rescue with a mix of incentives and disincentives to preserve the viability of the non-group market with state health benefit exchanges, a ban on medical underwriting like that employed by life insurers, modified community-based rating, and advance premium tax credit (APTC) subsidies. The latter two reforms however only partially succeeded. Modified community-based rating allowed age to be used in setting premiums, though narrowing the differential between younger and older people. The tax credit subsidies didn’t apply to the entire market, but only for households earning less than four times the federal poverty limit. That exposed a portion of the non-group market to market failure, particularly the demographic aged 50-64 likelier to be in their high earning years and who also face higher premiums by virtue of their years.

The U.S. Centers for Medicare & Medicaid Services (CMS) has issued a report Trends in Subsidized and Unsubsidized Enrollment Report. According to CMS, the most recent year of enrollment data shows average monthly enrollment across the entire individual market decreased by seven percent nationally between 2017 and 2018 at the same time premiums increased by 26 percent. It attributed the drop entirely to those ineligible for APTC subsidies, noting unsubsidized enrollment declined by 24 percent, compared to a four percent increase in APTC subsidized enrollment.

“The report shows that people who do not qualify for APTC continue to be priced out of the market,” CMS stated in a news release today.  CMS reported an enrollment drop of 1.3 million unsubsidized people in 2017 and another 1.2 million unsubsidized people leaving the market in 2018. The declines among unsubsidized enrollees coincided with increases in average monthly premiums of 21 percent in 2017 and 26 percent in 2018, according to CMS.

“As President Trump predicted, people are fleeing the individual market. Obamacare is failing the American people, and the ongoing exodus of the unsubsidized population from the market proves that Obamacare’s sky-high premiums are unaffordable,” said CMS Administrator Seema Verma.  

“Fleeing the market” or “priced out.” Whatever the preferred terminology, the economic upshot is the same: market failure. When any product or service is priced above a level that’s affordable by its intended market, there can be no sustainable market unless prices fall or incomes or subsidies rise — or some combination thereof. The federal tax code allows self employed taxpayers to deduct premiums for non-group plans. That provides some benefit, but doesn’t help with affordability.

California with its larger non-group population is attempting to prop up the weak plank of insufficient subsidies by expanding eligibility limits to households earning 600 percent of federal poverty levels starting in plan year 2020, supported by state income tax penalties levied on those without some form of commercial or government coverage. If it has a meaningful impact on affordability in the challenging older subset of the non-group market, federal candidates in the 2020 election cycle who favor keeping the Affordable Care Act’s reforms of the non-group market intact and/or boosting tax credit subsidies won’t be able to point to the state’s success since the results won’t be in until after the election.

Ultimately, market failure in the older age cohort of the non-group segment may lead federal policymakers to conclude it makes better sense to move forward with proposals to bring that population into Medicare via an early “buy in” option rather than tie themselves in knots trying to create a viable market for a relatively small number of Americans.

Proposed rule mandating public disclosure of negotiated hospital reimbursement rates: deflationary or inflationary?

A rulemaking proposed this week by the Trump administration that would require hospitals to make public reimbursement rates for certain medical procedures is ostensibly intended to help consumers shop around for the best deal. The administration states the rule is needed as deductibles for commercial insurance plans are increasing, requiring consumers to spend more of their own dollars for care. But that’s not likely the true purpose since as a practical matter, many procedures will exceed plan deductibles. And once plan members reach their annual out of pocket maximums all costs are paid by their plan. The proposed rule might make sense if people procured hospital services like others on a fully cash paid basis. But most are not and covered by health plans.

The apparent intent of the proposed rule is to drive down the price of hospital delivered procedures by creating deflationary expectations. Here’s how it might happen: payors and employers could cite the lowest price for a given procedure or procedures and pressure other hospitals to charge the same or less, asking them why they should be paid more for the same procedure. It would blow open the black box of how hospital procedure costs are determined in the context of confidential commercial negotiations between payors and hospitals to establish reimbursement rates in a given metro market.

Both are pushing back. Reformers contend the high cost of medical care in the United States compared to other nations is baked in because payors merely pass along medical costs to employers and plan members, growing their revenues as the cost of care rises. Moreover, a major medical plan trade group, America’s Health Insurance Plans, believes rather than exerting downward pressure on hospital procedure costs, the proposed rule could actually have an inflationary effect, ratcheting up prices of procedures:

“Publicly disclosing competitively negotiated, proprietary rates will reduce competition and push prices higher – not lower – for consumers, patients, and taxpayers…Posting privately negotiated rates will make it harder to bargain for lower rates, creating a floor — not a ceiling — for the prices that hospitals would be willing to accept.”

Under that reasoning, payors could be compelled to pay a premium in order to attract and retain desired hospitals into their provider networks.

However the microeconomics play out if the rule is adopted, it won’t likely impact hospital prices nationwide since there’s no meaningful competition among hospitals in less densely populated regions where there is often only a single hospital — or even none — nearby.