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Paying for the Medicare “Doc Fix”

doctor-xray-2The Medicare Sustainable Growth Rate (SGR) formula was passed as part of the Balanced Budget Act of 1997 to reduce the growth in Medicare spending. The so-called SGR was designed to collectively penalize physicians for exceeding the benchmark expenditures established by Congress. The SGR automatically reduces physician payments under Medicare by a proportion that will lower spending back to the designated growth rate. However, the SGR has not reduced spending primarily because Congress has continually postponed the cuts year after year rather than reform Medicare in sustainable ways. Since 2003 Congress has postponed the cuts 17 times. Beginning in April, physician fees will be cut by 21.2 percent if Congress does not kick this can down the road an 18th time. Congress has not repealed the SGR mostly because it would cost $140 billion over 10 years and require offsets.

The SGR clearly isn’t working; the reason Congress won’t allow the cuts to take place is because too many seniors would lose access to physicians willing to treat them. What is needed is fundamental reform. But a good first step down that road would be to repeal the SGR and pay for it with several costly offsets. Two good ideas that President Obama has supported in the past include: 1) reducing the percentage of Medicaid provider taxes that states are allowed to use to qualify for a federal match; and 2) eliminating some of the Medigap Supplemental Plans that everyone agrees leads wasteful spending.

Government Bailouts Business Strategy for Obamacare Health Insurance Co-ops

The insolvent Iowa-based health insurance cooperative, CoOportunity Health, had to be taken over in December by Iowa insurance regulators.  Iowa and Nebraska’s Guarantee Associations — and state and federal taxpayers — are now on the hook for millions in claims the insurer could not pay.

CoOportunity Health wasn’t a traditional health insurer.  Rather, it was a taxpayer-funded, non-profit health insurance cooperative (co-op) established under the Affordable Care Act (ACA). The co-op program is plagued by numerous flaws. When co-ops were established, they had no customers and no historical actuarial data to assist in setting plan premiums.  Startup funds and cash reserves were mostly borrowed from taxpayers. According to industry data only one of the 23 co-ops was profitable last year (a 24th co-op located in Vermont failed before it even got off the ground). While some of the remaining co-ops are losing money because of small size, others appear to have the strategy of losing money to gain market-share at taxpayers’ expense.

Prior to its first open enrollment, chief operating officer (COO) Cliff Gold told the Lincoln, Nebraska Journal Star that ‘CoOportunity would be a market disruptor,’ and ‘we’re nonprofit, we have absolutely no profit motive.’ Apparently Gold’s comments were meant to be taken literally; CoOportunity lost around $163 million in 2014 — its first year selling health insurance.  An attorney hired to help liquidate the firm says doctors/hospitals are still owed some $100 million.  Unfortunately for Gold, even nonprofit health insurers need to earn a profit to avoid bankruptcy. The Iowa Insurance regulators shuttered the failing insurer once it became clear CoOportunity would not receive another government emergency solvency loan and its anticipated $126 million risk corridor (bad-risk) bailout would be reduced by about half.

Sicker-than-average Iowa and Nebraska residents flocked to the CoOportunity’s generous benefits. It offered large provider networks and rich benefit packagesall for a low premium. This sounds great if you’re an Iowa or Nebraska resident with chronic conditions.  But it’s not so good for taxpayers who have to bailout the losses. CoOportunity didn’t just suffer adverse selection — a situation where it attracted costlier-than-average members. It played a game of chicken with other insurers, when it purposely designed plans and set premiums it knew would disrupt the market.  Indeed, The Wall Street Journal referred to it as Fannie Med, in reference to Fannie Mae, the infamous government-supported mortgage insurer whose risky investment strategy contributed to the financial crisis that tanked the U.S. economy.

A Better Idea: Let Workers Use HSAs to Save for Sick Days

In his State of the Union speech, the president emphasized the plight of 43 million American workers whose employee benefits do not include paid sick leave. Presumably, many of them feel they cannot afford to take a sick day to convalesce after an illness or to care for a sick child. However, the President’s solution was a bad one: he proposed to force employers to provide up to seven days of paid sick leave to workers (and their families) annually. Imposing another costly employer mandate is a bad idea. Instead, the president should have proposed expanding health savings accounts (HSAs), allowing workers to replace income lost to sick days (more on this further down).

Bad Idea: Mandating Sick Pay. To some, mandating paid sick days may sound benevolent, but it would hurt the people it’s intended to help.  One problem with the president’s proposal is that it’s unrealistically generous. Of the 100 million jobs that provide some paid sick leave, most likely don’t provide seven days annually. Obama also appears ignorant of the fact that his own health adviser, Jonathan Gruber, published academic research back in the 1990s showing workers themselves wind up paying the cost of mandatory benefits through lower wages. Thus, if employers are forced to provide seven paid sick days for each worker every year, employers will adjust workers’ pay downward to compensate for the cost. This would inhibit pay raises, and it would impact paid vacation days.

What Gruber and other economists have found is that fringe (and mandatory) benefits are just one portion of total compensation. In other words, many workers willingly forgo higher cash wages in return for other types of employee benefits. For instance, many workers prefer to spread 50 weeks of pay over the 52 week year to allow them to take 10 vacation days and still receive a paycheck for the two weeks they take off work. Paid vacation days are not free; they are merely a way to smooth cash flow. Paid sick leave is similar.

The NCPA Fact Checks Obama’s Health Policy Address during SOTU

Paid Family and Sick Leave for Workers

The president emphasized the plight of the 43 million American workers who do not have paid sick leave. Many of them feel they cannot afford to take a sick day to convalesce after an illness or to care for a sick child. He proposes to mandate that employers provide seven days of paid sick leave to workers each year.

The president didn’t mention that an estimated 100 million workers who have paid sick leave likely don’t get seven days annually. He also didn’t mention that his own advisor Jonathan Gruber has research showing workers themselves wind up paying the cost of mandatory benefits through lower wages.

Thus, if employers are forced to provide seven paid days off of work for every worker, employers will adjust worker pay to compensate for the cost. This will inhibit pay raises, and it will impact paid vacation days. It could even harm the employment prospects of workers most likely to stay home and care for a sick child.

The president should have called for expanding Health Savings Accounts (HSAs) to all workers, allowing them to set aside funds for medical needs. The president could have also proposed allowing workers to use HSAs to compensate for income lost to sick days.

Currently, workers who have HSAs can use funds from their accounts to replace income lost due to sick days. However, this is considered a non-medical use and exposes workers to a penalty of 20 percent, plus ordinary income taxes.

Asian Firm to Launch Innovative TeleMedical Service in U.S.

An American entrepreneur has spent two years building a telemedicine business in Singapore and is ready to enter the U.S. market. RingMD is a web-based physician referral, telemedicine website and smartphone application. Prospective patients select doctors by viewing physicians’ profiles, locations, insurance acceptance, ratings or specialties. The software draws information from 543 medical conditions to connect patients with physicians from 17 different specialties. Patients just enter their symptoms (and preferences), and the website app will list qualified physicians who meet their criteria.

Participating physicians charge for consultations by the minute, and their prices vary. Some providers only charge $1 per minute, while others charge $5 per minute. It’s a competitive market with dynamic pricing. Patients select a provider and only pay for the time they need. Currently, most of RingMD’s physicians are based in Asia, but the firm is adding doctors from all over the world.

The 22-year-old CEO of the organization reports he is now considering entry into the U.S. market. But the question remains: Why did a Silicon Valley entrepreneur choose to start his Health Tech venture in Singapore? The Singapore government was impressed enough with the idea that it invested $500,000 through its National Research Foundation to help fund the tech startup. But there must be other reasons.

The Singapore health care system is often touted by conservatives as a model for health reform in this country. Singaporeans have been required to set aside a portion of their income into a Medisave account (6.5 percent – 9 percent) to fund their current and future health care needs since 1984.  Medisave accounts are a type of health savings account (HSA), while MediShield is an insurance scheme that functions similar to a major medical or high-deductible plan.

Medicare Should Revoke Drug Dealers’ License to Steal!

Nearly 39 million Medicare beneficiaries, including seniors and the disabled, have subsidized drug coverage thanks to the Medicare Modernization Act (MMA) of 2003. Medicare drug plans are popular with seniors. Although subsidized by Medicare, Part D plans are offered by private insurers and compete with each other for seniors’ patronage.

When Congress passed the Medicare Part D drug program back in 2003, it inadvertently created a license to steal. Prescription drug abuse costs health plans nearly $75 billion per year — about two-thirds of it from public programs such as Medicare and Medicaid. That makes Uncle Sam the biggest illicit drug dealer in the country! Prescription drug fraud and abuse also drives up seniors’ premiums as well as boosts costs for taxpayers and health plans that administer seniors’ drugs benefits.

Questionable drug use typically involves addictive painkillers that create a heroin-like euphoria. More than 16,000 people die annually from abusing pain relievers — double the number that die abusing cocaine and heroin combined. For every death, there are 10 people admitted to a treatment program for substance abuse and 32 emergency room visits. For each person who overdoses, 130 chronically abuse prescription drugs and 825 casually use them for nonmedical purposes.

The HHS Office of the Inspector General (OIG) reports that some individuals themselves are abusing the drugs. In other cases, they attempt to obtain drugs they don’t need in order to profit by reselling them. This is especially true of narcotic pain relievers derived from opium poppy plants. Substantial numbers of narcotic pain relievers are diverted to the illicit market where their “street value” far exceeds their pharmacy costs. For instance, the OIG reports the “street” price of Oxycodone is a dozen times the normal retail price at a pharmacy. Its agents report that a bottle of Oxycodone is worth $1,100 to $2,400 per bottle if sold on the streets of Northern California.oxy

Haha Gotcha! Medical Pricing

By almost any measure, the U.S. health care system remains dysfunctional. If you apply some of its common practices to other industries, they sound ridiculous. Consider this hypothetical thought experiment. Suppose you made an appointment at a local dog kennel for them to keep your dog, Bowser, while you were on vacation. You asked if they could bathe and groom Bowser just prior to your return. As is standard practice, you probably had to sign a consent form agreeing to pay for the boarding and any additional fees insured. Maybe the grooming fees weren’t guaranteed ahead of time, but you were assured they were nominal and normal for the services. Among the forms you were asked to sign, there was some fine print that said should your dog become ill, the services of a veterinarian would be arranged at your expense.

During his stay Bowser seemed lethargic and a little anxious — and he wasn’t very interested in his food. Maybe you assumed this is normal for a dog left at a kennel for a week. But Doggie Spa & Canine Resort cannot take any chances. It called in a pet behavioral therapist to assess Bowser’s condition. The doggie shrink brought along a colleague for a second opinion. The pet behavior therapist recommended Bowser be walked twice a day to lift his spirits. However, another veterinarian — an orthopedist — had to assess Bowser’s gait to make sure he was healthy enough to be walked. A pet nutritionist analyzed Bowser’s diet and assessed his food intake. She sent a stool sample to a lab for analysis of food absorption. She ultimately decided that spoon-feeding Bowser might encourage him to eat.

Upon your return you pick up your dog expecting to pay for boarding, bathing and grooming. You know Bowser was well-taken care of, but the fees were much higher than expected. Within days of your return, itemized bills from vendors begin to arrive. The person who bathed your dog sent a separate bill from Doggie Spa’s bathing fee. A different bill from the person who applied the shampoo is in your stack of mail. Yet another bill arrives from the groomer. You discover the groomer also brought along an assistant groomer. She too submits a bill. The pet nutritionist and the lab both sent bills. A bill even arrived from another person who walked your dog twice a day while you were away. Spoon feeding Bowser twice a day for a week incurred 14 separate dietitian charges. Indeed, the pet behavioral therapist swung by Doggie Spa on his way home every night to make sure Bowser was doing OK — and you got charged for each visit. Worse, you discover some of the people who sent you a bill charged far, far more than the pet resort’s regular vendors. The on-call vendors called other vendors to assist. But these out-of-network vendors are not bound by Doggie Spa‘s standard rates, they can charge anything they want. You discover Doggie Spa actually encouraged these upcharges so it too could bill a separate facilities fees for them. Arranging for the dog activity therapist to assess your dog; that generated a separate charge for both the Doggie Spa and the dog walker.

Narrow Networks Found to Save Money

National health expenditures are rising faster than the economy. Most economists believe this is due to perverse incentives that encourage unnecessary medical spending. More than 30 years ago the RAND Health Insurance Experiment showed that patients spend nearly one-third less when exposed to significant cost-sharing. Yet, health plans continually look for new ways to save money in the absence of a health care market where patients act like consumers.

One such cost-saving method is the increasing use of so-called narrow networks, where health plans restrict the choice of providers in return for lower premiums. Narrow networks are sort of like when you were in high school and your mother took you to Walmart to buy a pair of jeans. She may have refused to shop for jeans at the mall where she knew they would be more expensive. Obama Administration advisor, Jonathan Gruber, wrote about the use of narrow networks in Massachusetts health plans. He found that patients used fewer resources when required to see general practitioners rather than specialty care. According to Gruber:

For Sale Cheap: Your Private Medical Information

Have you ever gone to a party and had the urge to peek inside your host’s medicine cabinet? (Neither have I!) Imagine what could be of interest in there. For those nosy souls who are tempted, you don’t even have to attend a party! It’s all for sale online. Bloomberg published an article about how Big Data is snooping in your medicine cabinet and selling the information to marketers. Here’s the gory details:

Dan Abate doesn’t have diabetes nor is he aware of any obvious link to the disease. Try telling that to data miners.

The 42-year-old information technology worker’s name recently showed up in a database of millions of people with “diabetes interest” sold by Acxiom Corp. (ACXM), one of the world’s biggest data brokers. One buyer, data reseller Exact Data, posted Abate’s name and address online, along with 100 others, under the header Sample Diabetes Mailing List. It’s just one of hundreds of medical databases up for sale to marketers.

Pesky Patients Asking Awkward Questions: Doc, Do I Really Need That?

A recent New York Times article lamented that employers are increasingly offering employee health plans that cover few medical expenses until a fairly high deductible has been met. About one-third of large employers offer only a high-deductible plan. Many other employers encourage enrollment in high-deductible plans by offering low employee contributions. As a result, more employees are covered by high-deductible plans and workers increasingly have to reach for their wallet before insurance kicks in. As news stories often do, the article used a tear-jerker of an anecdote to drive home its point. The subject of the story was Anita Maina. Although her monthly premiums were only $34 per month, her deductible was $6,000 and her health savings account not well-funded. Here’s the story:

Anita Maina was working on an arts and crafts project she found on Pinterest — creating a table out of wood and cork — when she ripped off a fingernail while removing staples from a piece of wood.

But she ultimately skipped the [office] visit since she had not met the $6,000 deductible on her health plan, and she knew she probably did not have much left in her health savings account…

The New York Times article even included a photo of Ms. Maina with her injured finger! es