Category: Health Alerts

Obamacare’s Second Open Enrollment Starts in Two Months — and It Is Going to be Awful

A version of this Health Alert appeared at Forbes.

If there is one thing that the Administration and Democratic candidates have in their favor going into the mid-term elections, it is that election day is November 4, and Obamacare’s second open enrollment begins on November 15. If the dates were flipped, there is little doubt that voters affected by Obamacare would wreak havoc on the politicians who imposed the Rube Goldberg contraption of exchanges on them.

Despite having just tossed another $60 million out the window “to help consumers navigate their health care coverage options in the Health Insurance Marketplace,” the Administration will likely face an even more bemused and disgruntled population of Obamacare “consumers” than it did the first time around.

Obamacare enrollment may already be below the 8.1 million trumpeted by the Administration after the first enrolment season legally closed on March 31 (although it actually closed sometime around the middle of April). Because there are special circumstances (for example, marriage, divorce, or moving to a new state) that allow people to change coverage outside enrollment season, that number has changed.

Unfortunately, the Administration has stopped reporting exchange enrollment, which it used to do monthly. The latest evidence, from Amanda Kowalski of Yale University and the Brookings Institution, is that 13.2 million people were covered in the individual market at the end of June, representing an increase of 4.2 million above the pre-Obamacare trend. This includes both on-exchange and off-exchange coverage.

Why Do Large Employers Want to Control Their Employees’ Health Benefits?

There is no doubt that large employers want to offer health benefits to their employees. It does not seem to bother them that each employee is not free to spend his own money on health insurance that suits his and his family’s needs.

The effect of Obamacare on these benefits has yet to be determined. At one extreme, an analyst at S&P Capital IQ concluded earlier this year that 90 percent of employees working at companies in the S&P 500 stock index would lose their employer-based health benefits by 2020. These are the largest companies in the United States.

Nevertheless, these employers continue to commit themselves resolutely to employer-based benefits. In the next few weeks, I will be a guest at two events where large employers will promote how important health benefits are to them. Tomorrow, the Bipartisan Policy Center will host a conference titled Building Better Health: Innovative Strategies from America’s Business Leaders – A Report from the CEO Council on Health and Innovation. Present will be the CEOs of Coca-Cola (Muhtar Kent), Verizon Communications (Lowell C. McAdam), and Bank of America (Brian T. Moynihan), among others.

In October, the Business Roundtable will host a conference which will promote its recent report, Driving Innovation in the Health Care Market Place. This 108-page report discusses evidence that large employers are successful at managing health costs. Much of the evidence promoted comes from so-called “wellness programs.” For example:

Through an innovative program called “Your Health Matters,” AT&T provides the resources and education to help participants grow from health awareness to health improvement. We strive to reduce the risk of chronic illness by increasing engagement with and adherence to clinical protocols.

Indian Patients Suffer from India’s Weak Pharmaceutical Patents

A version of this Health Alert appeared at Forbes.

India’s recently elected Prime Minister, Narendra Modi, will visit the United States later this month. One of the sticking points in the U.S.-India relationship is weakness in India’s laws governing intellectual property (IP). The Global Intellectual Property Center of the U.S. Chamber of Commerce ranks 25 countries in its Global IP Index, and India comes in last place. Indian growth will continue to lag as long as this persists, as researchers have demonstrated the positive relationship between IP protection and a country’s prosperity.

One of India’s weak spots is patent protection for new prescription drugs. New research also shows, counterintuitively, that this limits patients’ access to new medicines. Professors Ernst R. Berndt and Ian M. Cockburn analyzed the 184 new medicines approved by the U.S. Food and Drug Administration between 2000 and 2009. Shockingly, it took more than five years for half of those drugs to become available in India.

Ten years after being launched in the United States or elsewhere, almost one quarter of the new medicines were still not available in India. The authors also compared when the drugs were available in other developed countries. For example, in 2010, 160 of the new medicines were available in Germany, but only 111 were available in India.

Berndt and Cockburn conclude that India’s patent law is to blame for this long lag in access versus the United States and other countries. The authors found that half of the new medicines faced copycats within one year of launching in India, and 85 percent faced copycats within three years. In Germany, by contrast, none of the drugs faced copycats within five years.

Obamacare and Employment

The media cheered a report published by the Urban Institute and the Robert Wood Johnson Foundation, which asserts that Obamacare (“the ACA”) does not explain the high proportion of part-time workers:

This increase in part-time work is fully attributable to an increase in involuntary part-time work. The increase in involuntary part-time work, however, is not specific to the category of part-time work defined by the ACA (i.e., less than 30 hours per week), but applies to part-time work more broadly (also between 30 and 34 hours per week). Moreover, transitions between full-time and part-time work in 2014 are in line with historic patterns. These findings suggest that the increase in part-time work in 2014 is not ACA related, but more likely due to a slower than normal recovery of full-time jobs following the Great Recession.

Perhaps we should celebrate this conclusion from Obamacare’s supporters. Previously, some cheered the theory that Obamacare, which expands Medicaid eligibility and heavily subsidizes health insurance for middle income households, would lead people to voluntarily reduce their working hours. In 2010, then Speaker Nancy Pelosi encouraged people who wanted to be musicians, for example, to quit their jobs and focus on their (as yet undiscovered) talents, because taxpayers would underwrite their health coverage.

This approach was endorsed in the Congressional Budget Office’s conclusion that Obamacare would reduce employment by 1.5 percent in 2017 and 2.0 percent in 2024 (amounting to 2 million to 2.5 million jobs). As the CBO summarized its conclusion: “Also, the ACA’s subsidies effectively boost the income of recipients, which will lead some of them to decide they can work less and still maintain or improve their standard of living.”

“Interoperability” of Electronic Health Data Is a Unicorn

A version of this Health Alert appeared at Forbes.

Having spent $26 billion of taxpayers’ money since 2009 inducing hospitals and physicians to install electronic health records (EHRs), many champions of the effort are dismayed that the EHRs are not interoperable. That is, they cannot talk to each other — which was the whole point of subsidizing the effort.

All this money has achieved a process goal: There has been a significant uptake in EHR adoption. According to a recent review, the proportion of physicians who have at least a basic EHR has increased from under 22 percent to 48 percent. Doctors were motivated by the bounty offered, plus the threat of having reimbursements clawed back in 2015 if they did not adopt EHRs. The proportion of hospitals with EHRs has similarly increased from 12 percent to 44 percent.

But what do these EHRs do? What they do not do is talk to each other. According to the same review, “only 10 percent of ambulatory practices and 30 percent of hospitals were found to be participating in operational health information exchange efforts.”

All those billions of taxpayer dollars are paid out to providers who attest to “meaningful use” of EHRs. However, there are three stages of meaningful use.  Stage 1 was easy: Plug it in and turn it on. Stage 2 was originally supposed to be achieved by 2013, but that has been pushed back until 2016. The hang up is that Stage 2 has a high hurdle for interoperability.

According to the final rule published in September 2012, requirements include “the expectation that providers will electronically transmit patient care summaries with each other and with the patient to support transitions in care. Increasingly robust expectations for health information exchange in Stage 2 and Stage 3 would support the goal that information follows the patient.”

Despite the delay, providers are still complaining that the requirements are too demanding. According to Russell Branzell, president and CEO of the College of Healthcare Information Management Executives: “Now the very future of Meaningful Use is in question.”

Are Medicare Advantage Plans Overpaid and Corrupt?

Medicare Advantage consists of private plans in which Medicare beneficiaries can choose to enroll. They were made more popular by the Medicare Modernization Act of 2003, which also introduced Medicare’s drug benefit (Part D). If not for Medicare Advantage, beneficiaries would be stuck in the traditional Medicare Part A (physician) and Part B (hospital) plans, where the federal government determines how much to pay providers according to bureaucratic formulae. It’s sort of like Gosplan, the old Soviet economic pricing and planning mechanism.

To escape this fate, one third of Medicare beneficiaries now choose Medicare Advantage plans. Obamacare (“the ACA”) was supposed to squeeze those seniors out of their plans in order to finance Obamacare. However, when the time came, the Administration balked. Meghan McCarthy of Morning Consult explains this “Potomac Two-Step“:

The approach, two years in a row, has been that CMS issues a proposed rate in February with very tough reductions, a proposition that rallies insurers and members on both sides of the aisle to vehemently oppose the cuts. After much hand-wringing and commenting, the administration arrives at a much friendlier number in the final release.

Medicare Advantage plans are popular for a number of reasons. Most importantly, they provide better care than traditional Medicare. Joseph Newhouse and Thomas McGuire review this in an academic journal. It is ably summarized by Austin Frakt in the New York Times UpShot blog:

Medicare Advantage plans — private plans that serve as alternatives to the traditional, public program for those that qualify for it — underperform traditional Medicare in one respect: They cost 6 percent more.

But they outperform traditional Medicare in another way: They offer higher quality.

Let’s Add Some Cash to the Copper (and Other) Plans

A version of this Health Alert appeared at Forbes.

Avalere Health has given a budget score to the so-called “copper plan,” a health insurance policy proposed by health insurers that would cover 50 percent of the actuarial value (AV) of the policy. Our colleague Linda Gorman has defined AV as the average amount a plan with a given set of benefits is likely to pay given a standard population. Current Obamacare plans (bronze, silver, gold, and platinum) cover higher actuarial values.

Actually estimating actuarial value in Obamacare is complicated. Nevertheless, to simplify, we can say that if the standard population would cost $8,000 per beneficiary, a copper plan would expect to pay $4,000 of the costs.

One problem with Obamacare’s regulation of these plans is that the AV is forward looking. Different actuaries come to different conclusions. For example, an Obamacare silver plan has an actuarial value of 70 percent. With an out-of-pocket maximum of $6,350, what co-insurance and deductible will result in the standard beneficiary paying 30 percent of the costs? When this question was posed to three highly respected consulting actuaries, they came up with three different answers. Each proposed a 20 percent co-insurance. However, their deductibles differed substantially: $4,200, $2,050 and $1,850.

Another problem, discussed frequently at our blog, is that Obamacare incentivizes insurers to design plans that will attract the healthy and dissuade the sick from enrolling. Because a small portion of any population accounts for most of the health costs, an insurer can design a plan that will have extremely high cost-sharing for sick people. The easiest way is an expensive tier of specialty drugs. Because most of the people will not spend anywhere near their share of the AV, the plan overall will hit its target.

Unfortunately for insurers, their plans are not achieving their goals: Sicker people have piled into Obamacare. So, it is not surprising that insurers want to offer a copper plan with even lower AV, in order to attract more healthy people with lower premiums.

Patient Power Puts Pressure on Prices

A study recently published in Health Affairs describes how price transparency drove down the cost of MRIs by almost twenty percent from 2010 to 2012. Compared to patients who did not have the advantage of transparent pricing, cost per procedure dropped $220. Further, there was a significant shift from hospitals to outpatient facilities.

This result is just the beginning. It was not a result of true consumer-driven health policy, but an intervention by an insurer. When a physician referred a patient for an MRI, the insurer required prior authorization before paying for it. When the patient called for prior authorization, the customer-service rep was able to give the patient the choice of a lower-cost provider in the same area. Importantly, the insurer’s rep was able to tell the patient how much he or she would save by using the lower-cost provider.

This is something that providers resist mightily — for obvious reasons. As a consequence, more expensive providers, especially hospitals, dropped their fees significantly. This resulted in a 30 percent compression of prices.

It is a step in the right direction. The article notes that government dictating price transparency has no effect — something we have discussed previously at our blog. Nevertheless, there is a lot further to go. For example, one third of the patients had zero co-pay or deductible, so were completely insensitive to price. Also, it still requires too much bureaucratic intervention. Why should a patient have to call the insurer to figure out the best price for the service?

For reducing costs, imaging is probably low-hanging fruit. Nevertheless, this experience teaches valuable lessons. Prior authorization alone (when an insurer simply makes a yes or no decision on whether it will pay for a procedure) is a cause of irresolvable conflict between payers and providers. Because the patient remains insensitive to price, if the physician decides to do the paperwork for prior authorization, it does not reduce costs. This was confirmed for Medicare in a Congressional Budget Office estimate in 2013.

Are Patents Leading to Drugs that Cure the Wrong Patients?

A version of this Health Alert appeared at Forbes.

That’s not a headline you’ve read before, I’ll bet. New evidence suggests that drug companies invest too much in therapies targeting diseases at late stages and not enough on prevention or early-state therapies.

It is emotionally satisfying and socially acceptable to say that buying an extra few months of life is priceless, but if resources invested in such drugs could have been invested in drugs that would have dramatically increased the quality or length of lives of other patients, it is not evil to suggest that the resources were misallocated.

Eric Budish of the University of Chicago, and colleagues, have observed that drug companies invest significantly more in researching and developing therapies for late-stage than early-stage cancers. They have identified the patent system as the culprit. As summarized in the Economist’s Free Exchange blog:

The economists find that pharmaceutical companies conduct 30 times more clinical trials for recurrent cancer drugs than for preventive drugs (the effect persists even after adjusting for market size). The authors also show that firms divert their R&D expenditures away from more curable, localised cancers and focus on incurable metastatic and recurrent cancers instead. The patent system encourages pharmaceuticals to pump out drugs aimed at those who have almost no chance of surviving the cancer anyway. This patent distortion costs the U.S. economy around $89 billion a year in lost lives.

To put it (a little too) simply, patents have a term of twenty years. If a drug-maker has to do a clinical trial that lasts ten years until it reaches its endpoints, it will have only ten years of patent life. If a trial for a late-stage cancer only takes one year to reach its endpoints, it will have up to nineteen years of patent life. Here is an example from the study:

What is To Be Done with Health Insurance Exchanges, Post-Obamacare?

Any time a Republican politician suggests that there is anything positive in Obamacare, the media are eager to declare this means the Republican establishment is backing away from repealing the Affordable Care Act and wants to “fix” it instead.

This, of course, is what most businesses and their lobbyists would prefer take place. It is consistent with the Kaiser Family Foundation’s drumbeat of monthly polls reporting that “over half the public has an unfavorable view of the Affordable Care Act (ACA) in July, up eight percentage points since last month,” but that a “majority continues to prefer Congress improve ACA rather than repeal and replace.”

The latest exhibit is a report in the Wall Street Journal that U.S. Senator Bob Corker (R-TN) thinks that “we could build on the exchange concept.” What? Build on a legacy of bloated and broken IT contracts, which swallowed up billions of dollars (including $655 million on three state-based exchanges that shut down after a few months of operation) and failed in so many different ways to enroll people properly?

“Building” on that would be a strange way to “fix” Obamacare. Fortunately, a member of Senator Corker’s staff has told me privately that he meant nothing of the sort. Instead, what he meant was expressed in a rhetorical question reported below the lede in the Wall Street Journal:

“Don’t we really want individuals in our country to have their own health insurance?” Mr. Corker said, backing the ability of individuals to take their health insurance with them as they change jobs and “move away from being dependent on employers where people feel locked in.”