Reading the Manhattan Institute, Part 3

This should be the final segment of my series on reading through Avik Roy’s health insurance and health entitlement proposal.  The major focus will be Medicare.  His major focus is to shrink traditional Medicare expenditures in two ways.  The first is to decrease the incoming population on Medicare by increasing eligibility age by 4 months every year.  In that four month period, some people will die, and more importantly, most people will receive services from other payers instead of Medicare.  The second method of reducing federal fiscal expenditures on Medicare is to dramatically cut benefits for beneficiaries.  Right now, Medicare has an acturial value for median income retired individuals of roughly 80% now that some preventative care is covered and the donut hole is closing.  Traditional Medicare before there are any Medigap or Medicare supplements or Medicare Advantage plans is roughly a solid Gold plan in today’s PPACA plan description language.  Roy wants to make it a weak Silver or a strong Bronze.

His final segment is on healthcare financing and delivery reforms.  There are a couple of pointless shiny objects for conservatives, but also a couple of good ideas that could be worth talking about if there was a rational, policy making inclined faction of the Republican Party that could reliably deliver 100 votes in the House and 20 in the Senate.  That faction at best is turtling like a two-year old scared of potty training, or does not exist nor is it likely to exisit for several more years and presidential election defeats.

So let’s look at Medicare first.

Interesting statement on P. 43

Private health insurance for the nonelderly is also far costlier than it should be, because Medicare’s poor cost controls initially allowed hospitals and doctors to charge whatever they want, knowing that taxpayers would foot the bill.

We know Medicare pays significantly under commercial rates for most procedures.  We know that on an age/health adjusted basis, Medicare has slightly more utilization than commercial plans, but the average cost of care (age/health/risk adjusted) is lower on Medicare than on commercial plans.  So where is this blanket statement coming from?  Also interesting a paragraph earlier that Roy blames half a billion dollars in revenue received by AARP for the use of their name for Medicare supplemental policy branding as the key blocker of any policy reform. Does Roy really want to go there for money as blocking improved policy in politics given who funds him?  Or is this a special case only for notably rare circumstances?

Life expectancy P. 46 :

When Medicare was enacted, in 1965, the average life expectancy at birth was 70.2 years. In other words, it was anticipated that Medicare would cover an average  person’s health expenditures for the last 5.2 years of his life. In 2010, the average American lived to the age of 78.4;

The more relevant comparison from a program income side of things is life expectancy from either age 18 or age 21 (ie when people enter the workforce.)  My kids are absolutely amazing and they produce incredible Ahhh adorable value, but they don’t kick into Medicare yet as FICA does not tax the Tooth Fairy which is my daughter’s primary source of income right now.  From a program expenditure side, the relevant question is how long is someone eligible and how sick are they during that eligibility period.  Interesting that he makes a big claim with handwavingly impressive sourcing without actually showing the relevant data.

Cost savings (P. 46 2nd column) on raising Medicare retirement age:

Over a 30-year period, we estimate that raising the eligibility age for Medicare by four months per year would reduce Medicare spending by $6.6 trillion, with an offsetting increase in exchange-based premium subsidies of $1.5 trillion, for a net spending reduction of $5.1 trillion. These savings would be even larger in future decades.

Of course, it is not difficult to not spend money if the Medicare eligibility age is 75 at the end of the 30 year period.  Most people will die off.  What I find interesting is the $5.1 trillion dollars in net federal spending reduction. Unless Roy is positing massive increases in medical productivity, a massive decrease in elderly medical service utilization and commercial pricing able to get down to Medicare rates, this sure as hell screams a massive reduction in the acturial value of coverage available to seniors.  And that is the case, because Roy earler states that his ideal plans are 40,55, 70 or 85% acturial value on the Universal Exchange.  Furthermore, he removed age rating restrictions for the 21-64 year old population and hinted elsewhere that he wants a Wild West on insurance regulation, so it is safe to ask for clarification on whether there are any age rating restrictions for people who otherwise would have been on Medicare.  My bet is no, so an individual at age 72 will be charged at least a factor of 150% compared to an individual at age 64 who is already, under this plan, getting charged 6 times the premium of a 21 year old.

Send in the bill collectors:

“Currently, Medicare reimburses hospitals and other providers for unpaid deductibles and copays owed by beneficiaries. We recommend gradually putting an end to this practice, which is not mirrored in the private sector.” As a complement to this initiative, Congress should ensure that hospitals have the necessary freedoms to collect unpaid bills that exist in other industries such as credit cards and telecommunications. We estimate 30-year savings from this provision as $128 billion.

What Roy is neglecting is that the Federal government uses Medicare (and to a lesser extend Medicaid) as a means of paying for basic health infrastructure carrying costs.  That is why there were DSH payments, that is why the Feds pay for a good chunk of graduate medical assistance, that is why the Feds are paying some of the co-pays and missed deductibles of beneficiaries; there is a public need for financially viable medical providers and hospitals in poor areas. 

Unified Deductible:

capping  the amount of money that a Medicare enrollee would have to spend out of pocket in a given year. We estimate 30-year savings from this reform of approximately $635 billion.

Right now, Medicare Part A (hospital insurance) has a deductible of $1,206/year with significant co-pays for each day of hospitalization.  Medicare Part B (doctor insurance) has a deductible of $147 per year.  So if a person is reasonably healthy with no hospitalizations, their deductible is pretty low.  Someone hitting the hospital will end up owing Medicare $1,353 before lunch on the first day of admission.  This proposal would combine the deductible.  Looking at Coburn-Lieberman, they proposed a single $550 deductible for medical and hospital services. 

A unified deductible is not inherently a bad idea, it makes things simpler and easier to explain which has significant value.  However, a budget neutral unified deductible would be in the $250 to $400 range.  That would produce winners from the small percentage of the beneficiary pool that is hospitalized every year, and losers among those who are not hospitalized but have more than one office appointment per year.  A deductible of $550 is designed to reduce Federal expenditures and thus is a reduction in the acturial value of Medicare for people who have already seen their Medicare pushed back another 4 months every year. 

Medicare bundled payments:

Congressional Budget Office has also analyzed  the potential of bundling payments for inpatient care and 90 days of post-acute outpatient care. We estimate 30-year savings from this reform of approximately $410 billion.

Good idea.  Can we get this started for next year and can liberals get political cover that these are not death panels. 

WFA:

Stephen Parente and colleagues at Fortel Analytics took a set of algorithms designed by scientists in 1993 to achieve real-time fraud prevention in the credit-card industry, and applied them to Medicare. By analyzing Medicare claims representing 20 percent of all enrollees—and 100 percent of enrollees for a 3 percent sample of all national Medicare providers—they estimated that their approach would have reduced 2009 Medicare waste by $20.7 billion in Medicare Part A, $18.1 billion in Medicare Part B, and $17.5 billion in retrospective recovery.

Good idea.  I personally don’t think the easily recoverable funds will be as large as initially claimed, but let’s eliminate stupidity and let’s eliminate wasteful or abusive billing.  At the same time, can Roy get his allies to crack down on the AMA from screaming too loudly on the crackdown.  Additionally, would Roy support funding more IRS auditors and recovery specialists as we know there is a lot of money that the IRS is owed that is not being reported, so if cracking down on Waste, Fraud, Abuse on healthcare expenditures is a major public policy win (and it is), the same should apply to the tax code.

Increasing the supply of docs

(1) by increasing federal funding of graduate medical education by $6 billion a year starting in 2016, contingent on a corresponding increase in residency and internship slots; (2) by separating federal funding of graduate medical education out from Medicare, Medicaid, and other agencies into a discrete congressional appropriation; and (3) by expanding the number of foreign visas for immigrant physicians who have passed U.S. medical board licensing examinations.

I was surprised that he did not go further.  #2 is straightforward disentangling subsidization of doctor training from operational medical payments.  That makes sense.  Let’s see what we are actually buying with medical dollars and what we are buying with doctor training dollars.  #1 is again straighforward, although there is a decent debate that the number of docs being trained is less dependent on federal dollars than a naive assumption.  As for #3, again, this makes sense, Dean Baker would be cool with it.

The area that I expected to see more was scope of service regulation.  Nurse practicioners (CRNPs) and Physician Assistants are master level clinicians who have very varied levels of allowable practice by state.  Expanding the pool of primary care master level practicioners by expanding scope of service for their skills/training/credentialling seems to me to be both a good approach to reducing the PCP shortfall, and right up the alley of a liberterian.  Most liberal health policy wonks would agree to this in half a second.

Health Finance Section 5

Consolidation and market power:

H OSPITALS HAVE COME TO RECOGNIZE THAT BY consolidating their market power, they can force private insurers to accept higher prices.

And then he proposes that there are fewer restrictions on building new hospitals and an encouragement of medical tourism.  Both are, in and of themselves, not bad ideas.  Dean Baker would probably like them in that they are breaking the limited local monopolies of healthcare by making a metropolitan area based market into national markets.  I’m not quite sure how closing the VA helps this problem.  Opening the VA up to more prioirity groups or the general civilian population could give some additional competition in consolidated markets.  Not a bad idea.

However, the obvious solution is also advanced in a more active federal regulatory role. This is a bit surprising in a good way:

The Universal Exchange Plan would beef up the hospital  industry staff of the FTC, so that the agency could do more to challenge anticompetitive hospital mergers. Expanding staffing at a government agency may seem like a counterintuitive way to increase market competition, but antitrust litigation is an important, and underutilized, tool for combating anticompetitive hospital practices. Furthermore, the Plan would protect private-sector consumers from anticompetitive pricing practices by requiring hospitals in extremely concentrated markets— with an HHI above 4,000—to accept Medicare rates from the privately insured and uninsured. Rural communities, which naturally endure a less competitive hospital environment, might require a higher HHI threshold, such as 5,000.

Trust busting is a good thing.  I would support this in half a second without seeking any other policy trades.  I would anticipate liberals would have to give up quite a bit to conservatives to get an active anti-trust enforcement from the FTC on hospitals and key specialty groups. 

Restrictions on malpractice torts:

The Universal Exchange Plan would cap malpractice damages for any patient receiving a federal subsidy through Medicare, Medicaid, exchange-based coverage, or other federal programs. Other forms of malpractice reform would properly remain the province of the states, due to states’ sovereignty on most issues of  tort law.

If you are poor or old, it doesn’t matter too much if the doctor screws up on you.  The rest of his proposals are based on restricting access to the courts for people harmed by providers and limiting damages.  We saw in Texas that these policies don’t lower malpractice insurance premiums but do lead to more suffering.  The best way to lower malpractice insurance premiums is to reduce the number of incidents that are malpractice or in the fuzzy gray area.  In my opinion, the creation of a national safe harbor that if a provider is following national best practices, they are safe, and if they are not, they are on the hook should lead to a strong incentive structure to move medicine away from folk art with idiosyncratic methodologies to a more rigourously defined process where standards of care are much closer to uniform nationally than a haphazard patch of one hospital preferring intensive interventions while the hospital the town over on the same patient with the same indicators goes to a wait and see approach.