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You are here: Home / Anderson On Health Insurance / Prices and income in the healthcare space

Prices and income in the healthcare space

by David Anderson|  April 27, 20218:57 am| 13 Comments

This post is in: Anderson On Health Insurance

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The Kaiser Family Foundation has released two new reports that estimate what would happen if the Medicare qualifying age was dropped from 65 to something lower. The key insight is in the second report:

Second analysis shows that people in their late 60's (on Medicare) actually have substantially *lower* health spending than people in their early 60's (on employer coverage), despite the fact that health care use increases with age.
Why? It's the prices. https://t.co/oUCw8b8y92

— Cynthia Cox (@cynthiaccox) April 27, 2021

people in their late 60’s (on Medicare) actually have substantially *lower* health spending than people in their early 60’s (on employer coverage), despite the fact that health care use increases with age. Why? It’s the prices.

Medicare uses its great mass of demand to get amazingly good rates. Medicare Advantage uses its administratively linked pricing power to get rates that are tightly clustered around what Medicare pays (sometimes a smidge more, sometimes a smidge less).

It is not unusual at all for private insurers to pay anywhere from 160% to 200% or more what Medicare pays for a given service. ‘

Medicare payments are part of the payer mixture for clinical providers. Medicare pays reasonably quickly with fairly predictable rules and for a massive number of procedures. However, the difference in profitability between otherwise similar provider groups will be the payment mixture. Groups that serve more privately insured individuals will have a lot more revenue per unit billed.

We talked about this in 2016:

I just want to re-iterate a very simple point. Most liberal health policy goals have a very simple summary: get more people on insurance that pays providers rates that are closer to Medicare rates than commercial large group rates.

This is the fundamental challenge. Any savings that accrue to the consumers or society in general comes out of someone’s income. If we think about how hospitals and provider groups conceive of their group interest, they have a clear interest in moving people from low payment to them insurance statuses to high payment to them insurance statuses. This means supporting Medicaid expansion as it moves people from cash, hope and a prayer payment level to mostly reliable and mostly on-time-ish Medicaid payments. It also means being neutral or indifferent to policy proposals that redesignate people within the same payment strata. It really means being willing to go to the mat in opposition to policy changes that move people from high payment strata to lower payment strata.

We saw this in ARP. One of the big policy planks on the healthcare side was the federal government paying 100% of COBRA for six months. COBRA is an extension of large group insurance. Someone who is not on COBRA is likely to move to either Exchange, Medicaid, or uninsured status. Exchange pays either at the local average group rate or well below it if there are narrow networks in a competitive market while Medicaid or uninsured both pay way less than typical commercial group rates. COBRA keeps people in plans that pay standard commercial group rates.

There is a policy justification for subsidizing COBRA instead of Exchange but it is thin:

The policy rationale can be boiled down to seamless transitions and a judgement about the nature of employment loss. We know that people fall through the cracks and starting new relationships impose significant individual and system level costs…If we think that most of the people who are losing their jobs are losing their jobs temporarily because of short term shutdowns and slowdowns BUT that those specific jobs for the people who are specifically eligible for COBRA are going to come back quickly, then minimizing the number and pain of insurance transitions makes a ton of policy sense….

The political take is simple — people don’t like navigating new systems of coverage and the population that likes COBRA relative to Exchange are fairly high propensity voters who would be seeing a very explicit and large policy that makes their lives a lot easier.

The public option in 2009-2010 was killed by intense lobbying by numerous state hospital associations. They are trusted and they are powerful. They saw their interests to be for an expansion of public coverage to massively shrink their bad debt problem without having the vast majority of the coverage expansion occurring at administratively set prices of either Medicaid Expansion or Medicare linked public option prices.

I think that a similar lobbying campaign will occur if there is a serious push to move Medicare age eligibility from 65 to 60 or 55. And I would bet on the hospitals winning as they have a definitive, particular and large point of pain while the benefits are far more diffuse.

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Reader Interactions

13Comments

  1. 1.

    Another Scott

    April 27, 2021 at 9:12 am

    Re your next to last paragraph, I saw this on LOLGOP yesterday. It seems important.

    ?? Most medical debt in the U.S. can be forgiven immediately.

    The health care industry doesn’t want you to know this, but the process is straightforward and we explain exactly how you can do it today.

    Please RT/share to spread the word. pic.twitter.com/oP9nHKuAN1

    — More Perfect Union (@MorePerfectUS) April 26, 2021

    Thanks.

    Cheers,
    Scott.

  2. 2.

    Spanky

    April 27, 2021 at 9:24 am

    @Another Scott: That’s got a “one weird trick” vibe. Me suspicious.

  3. 3.

    Wapiti

    April 27, 2021 at 9:29 am

    Cynthia Cox tweet: That savings could translate to lower premiums and/or higher wages.

    “Could” is such a useful word.

  4. 4.

    Another Scott

    April 27, 2021 at 9:32 am

    @Spanky: Agreed.  And it apparently only works with non-profit hospitals and I don’t know how many of those still exist.  But if it does exist, then people should know and use it.

    Cheers,

    Scott.

  5. 5.

    Wapiti

    April 27, 2021 at 9:33 am

    The hospitals as materially involved political influencers made me think of an article in today’s WaPo, which highlights the ineffectiveness of civilian police review boards because the police are political influencers.

  6. 6.

    artem1s

    April 27, 2021 at 10:17 am

    @Wapiti:

    Cynthia Cox tweet: That savings could translate to lower premiums and/or higher wages.

    “Could” is such a useful word.

    yea, I’m guaranteeing it with my employer.  not gonna happen.

    Also, the changes in usage between 60 and 65 has a lot more to do with the user’s ability to pay for supplemental coverage.  I really wish these discussions about Medicare expansion also included a reminder that anyone on Medicare who can afford it is also paying for supplemental insurance on the private market.  That’s a huge problem for anyone facing retirement.  Medicare doesn’t have caps on charges.  A million dollar treatment is going to carry a $200K out of pocket price tag for someone at a time when they are on a fixed income and completely unable to reenter the workforce.

    Medicare for All sucks as an idea until you address the issue of needing supplemental coverage to cover catastrophic health care events.  So really thanks, but no thanks to encouraging my employer to force me into Medicare and retirement even earlier than I can afford it.

  7. 7.

    ProfDamatu

    April 27, 2021 at 10:46 am

    One other justification I can see for subsidizing COBRA over directing folks to the Exchange is OOP costs. I mean, yeah, doing that costs society more, but switching from ESI to an Exchange plan means that cost-sharing re-sets. Seems like pouring salt in the wound to ask people who just lost their jobs to plan on coughing up what will likely be several thousand dollars worth of deductible and coinsurance costs, even if they’ve already met their deductible on their ESI, should they get sick. (This is especially an issue in markets like mine, where only a handful of Exchange plans have deductibles under $5000 – and yes, I do mean deductibles, NOT OOP maxima.)

  8. 8.

    Butch

    April 27, 2021 at 10:47 am

    @artem1s: And since we’re paying for a pretty much useless Bronze ACA plan for my self-employed spouse the idea that we’d add on another bill for a Medicare supplement for me is out of the question.

  9. 9.

    GoBlueInOak

    April 27, 2021 at 2:16 pm

    At some point, somebody is gonna need to go to war with the hospitals and insurance companies.  The costs must be reduced.  We cannot afford the current path we are on.  Worse outcomes for more money is a stupid way to go through life boy.

  10. 10.

    Ronp

    April 27, 2021 at 3:36 pm

    Is this post saying subsidizing Cobra for those age 60-65 is acceptable to the hospitals because they will continue to earn the same revenue, but the hospitals do not want medicare expanded because they will lose revenue compared to the status quo?

  11. 11.

    quakerinabasement

    April 27, 2021 at 3:42 pm

    This is the fundamental challenge. Any savings that accrue to the consumers or society in general comes out of someone’s income.

    Right there is your headline.

    Sometimes it’s the same person, just moving money into one pocket from another.

  12. 12.

    Formica

    April 27, 2021 at 6:29 pm

    @David Anderson:

    Lo, these many years, your posts have taught me more about our fucked up repugnant backward great private/public hybrid system than any other resource on the internets. On that note, I feel like there’s something missing from today’s explanation. I know this post is old, so I will probably email you too in hopes you might comment. Anyhow, you said that:

    Medicare uses its great mass of demand to get amazingly good rates. Medicare Advantage uses its administratively linked pricing power to get rates that are tightly clustered around what Medicare pays (sometimes a smidge more, sometimes a smidge less).

    It is not unusual at all for private insurers to pay anywhere from 160% to 200% or more what Medicare pays for a given service.

    My further understanding is that the large pool of lives insured by Medicaid creates another “block buy” phenomenon where hospitals and other providers are incentivized to accept Medicaid reimbursement rates, which vary but are often lower than Medicare rates by percentage.

    The result, as I understand it, is that hospitals and providers are forced to recover costs incurred accepting Medicaid and, to a lesser extent, Medicare patients by increasing rates or more aggressively billing private insurance, making the much higher prices that privately insured Americans pay being a de facto subsidy of the the two largest public systems. Is this an accurate description, or an oversimplification?

    All of that said, if you total up all the spending – Medicare, Medicaid, the VA, Tricare, Federal Employees, Tribal Healthcare, and all the other stuff that can be considered “publicly funded” – and add it to the amount spent on private healthcare, premiums and co pays and out of pocket, we are still paying way more of our GDP for significantly shittier outcomes, correct?

    Sorry if I’m not making sense, I just really want to make sure I have this straight, and it’s complicated.

  13. 13.

    Bob Hertz

    April 28, 2021 at 7:31 am

    Expanding Medicare down to age 60 sounds good at first, but the budget results are daunting.

    There are about 20 million persons in this five year age bracket. One can surely debate how much they would cost on Medicare, but at $10,000 per covered life the federal budget hit would be $200 billion a year.

    Corporations with older employees would receive a lot of financial relief if this happened — but there is no politically feasible way for the government to recapture those savings.

    One small quibble, Dave:

    Medicare does not get low rates because of its “great mass of demand.” Medicare just publishes rates and providers work around them. There are no mass bargaining sessions.

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