Tag: "Health Care Costs"

Health Goods Prices Rise; Other Prices Fall

Last Friday’s release of the Producer Price Index  for February confirms that prices for health goods and services are rising at a much higher rate than other producer prices, most of which are declining significantly.

As shown in Table 1, prices of goods for final demand actually dropped 4.2 percent over the last twelve months. However, prices of pharmaceutical preparations increased by 7.1 percent; and prices of medical, surgical, and personal-aid devices also crept up.

20150313 PPI

Prices for intermediate goods tell a similar story, with prices for medicinal, botanical, and biological chemicals experiencing higher price growth than other processed chemicals.

Prices for services sends a much less clear signal, being distributed around an increase of 1.2 percent for all demand services. (Health insurance is categorized as both a final and intermediate services, as it is sold both retail and wholesale.)

Prices of services are more important than prices of goods in determining overall health price inflation. Nevertheless, there is no evidence that Obamacare is holding down prices of health services.

(The Altarum Institute has also released its updates of health spending and prices, which show strong growth in health spending of 5 percent in 2014 and high relative price inflation.)

Obamacare’s Second Open Season: Average Premium Up 23 Percent – After Subsidies

With enrollment data through February 22, the administration finally declared Obamacare’s second enrollment season closed and released its report on the results. (Although, people who have to pay Obamacare’s mandate/penalty/fine/tax as a result of information disclosed in their 2014 tax returns will have a special open enrollment in April).

Obamacare’s supporters cheered that enrollment hit 11.7 million people, exceeding the low-ball estimate of 9.1 million the administration made last November. Lost in the enthusiasm for Obamacare’s new high-water mark are a few uncomfortable facts.

First, the average premium — net of subsidies — has jumped 23 percent from 2014. In both years, insurers covering almost nine in ten Obamacare subscribers received subsidies to reduce premiums. The average monthly premium, before insurers receive subsidies, across all “metal” plans, is $364 in 2015. The average subsidy is $263, resulting in a net premium of $101 (Table 6). In 2014, the administration reported an average premium of $346, less an average tax credit of $264, for a net premium of $82 (Table 2). Therefore, the gross premium increased 5 percent but the subsidy declined by a scratch. Due to the power of leverage, this resulted in subscribers seeing an average premium jump of 23 percent.

One Family’s Obamacare Nightmare

One of this blog’s consistent themes is that Obamacare incentivizes insurers to attract the healthy and shun the sick. Pattie Curran is a North Carolina mother of two children born with a rare bone-marrow dysfunction. She reported her experience in the Washington Times:

The co-pay for a medication that protects my youngest son’s kidneys from damage had been $131 for a three-month supply for five to six years before the law passed. In 2011, the medication suddenly more than doubled. We watched in horror as it skyrocketed to $532 by the middle of 2013, while at the same time trying to get a medical-necessity exception. Obamacare not only made everything less affordable, it created more work for families and providers. We have witnessed a corresponding decrease in quality of care because of the extra administrative demands placed on physicians and their staff.

During the past month, some of our sons’ most important medications have been discontinued from coverage altogether.

This is a tragic, but not surprising outcome of a system that gives politicians the power to allocate medical resources. They will allocate them such that the majority of healthy people get “free” “preventive” care, while the truly sick pay the price.

Let Medicare Patients Decide Which Accountable Care Organization to Join

Woman Using Exercise MachineA similar version of this Health Alert appeared at Forbes.

One of the reasons people rebelled against Obamacare was that it financed the growth of government-run health care through drastic cuts to Medicare. According to the Congressional Budget Office (CBO), Medicare spending will see a $455 billion cut over the next decade, which would finance almost half of Obamacare spending.

Most of the Medicare cuts were simply reducing the fees Medicare pays doctors and hospitals. These payment mechanisms would make a Soviet bureaucrat blush. William Hsiao, the economist who designed the Medicare Prospective Payment System, determined Medicare’s fees as follows:

“He put together a large team that interviewed and surveyed thousands of physicians from almost two dozen specialties. They analyzed what was involved in everything from 45 minutes of psychotherapy for a patient with panic attacks to a hysterectomy for a woman with cervical cancer. They determined that the hysterectomy takes about twice as much time as the session of psychotherapy, 3.8 times as much mental effort, 4.47 times as much technical skill and physical effort, and 4.24 times as much risk. The total calculation: 4.99 times as much work. Eventually, Hsiao and his team arrived at a relative value for every single thing doctors do.” (Rick Mayes and Robert A. Berenson, Medicare Prospective Payment and the Shaping of U.S. Health Care, Baltimore: Johns Hopkins University Press, 2006, p. 86.)

Instead of Fee-For-Service (FFS), Medicare planners and their academic supporters endorse various bureaucratic methods of paying for “value” – as perceived by the government. Indeed, Sylvia Burwell, U.S. Secretary of Health & Human Services, recently expressed the – ahem – aspirational goal of tying 85 percent of Medicare’s payments to value by 2016, and 90 percent by 2018.

Obamacare’s Shrinking Costs Should Bring Tax Cuts

debtThe Congressional Budget Office’s March budget baseline updates its estimates of costs and insurance coverage due to Obamacare. The March baseline estimates that the gross cost of Obamacare’s subsidies and Medicaid spending for the years 2016 through 2025 will be $1.7 trillion, $286 billion less than it had estimated in the January baseline.

The CBO calculates a so-called “net cost” by subtracting revenues from businesses and individuals paying the mandate/fine/penalty/tax for not buying Obamacare, the “Cadillac tax” on high-cost health cost insurance, and the effect of changes in taxable compensation. This net cost has shrunk by $142 billion to $1,207 billion.

Even more impressive are the reductions in the cost of Obamacare from the CBO’s original March 2010 score of Obamacare. The two estimates overlap for the seven years, 2015 through 2021. The original estimate was that Obamacare’s gross cost would be $1.4 trillion over the period, and the net cost $1 trillion. These have shrunk to $992 billion and $751 billion, reductions of 28 percent and 29 percent.

When the CBO issues a new baseline, it updates its estimate of Obamacare’s insurance provisions. What it does not do is update its estimate of revenues from the host of other taxes in the Affordable Care Act, such as the medical-device excise tax.

So, it is not immediately obvious that Obamacare’s shrinking cost estimates should open the door to cutting some of those harmful taxes – which they should.

FDA Approves First Biosimilar Drug; Still No Guidance on Names

The Food and Drug Administration has approved the first biosimilar therapy in the U.S.:electronic-medical-record

Many newer biotech drugs cost more than $100,000 per year, and together they account for nearly 30 percent of all U.S. drug spending. Five of the top 10 U.S. drugs by revenue are biotech medicines, according to IMS Health. Since their introduction in the 1980s, biotech drugs haven’t faced generic competition because the FDA did not have a system to approve copies.

In 2012, the FDA laid out a regulatory pathway to approve so-called “biosimilars.” That’s the industry term for generic biotech drugs, indicating they’re not exact copies. For years the biotech industry staved off competition by arguing their drugs were too complex to be reproduced by competitors. (Matthew Perrone and Linda A. Johnson, Associated Press via Denver Post)

The Kline-Ryan-Upton Republican Off-Ramp from Obamacare

Tomorrow is the day the Supreme Court hears oral arguments in King vs. Burwell, and all the talk is about what Congress will do if the Supreme Court directs the Administration to obey the law by not paying subsidies in the majority of states, which have declined to establish their own Obamacare exchanges and defaulted to the federal one.

The Wall Street Journal ran an op-ed (available by subscription) by John Kline, Paul Ryan, and Fred Upton, who chair committees of jurisdiction in the House of Representatives that will be tasked with proposing a Congressional response to this decision. Here’s what they write:

Let people buy insurance across state lines. Stop frivolous lawsuits by enacting medical-liability reform. Let small businesses band together so they get a fair deal from insurance companies.

Obamacare Subsidies Made Up One Fifth of Government Transfer Payments in January

January’s Personal Income and Outlays report from the Bureau of Economic Analysis shows how significant Obamacare’s subsidies are in the scheme of government transfer payments to households, accounting for 21 percent of the increase in government transfer payments in January:

Personal current transfer receipts increased $24.8 billion in January, compared with an increase of $13.8 billion in December. The January estimates of current transfer receipts reflected several special factors…… Other government social benefits to persons was boosted $5.3 billion, primarily reflecting health insurance premium subsidies paid in the form of tax credits to enrollees of the Affordable Care Act exchanges.

The Fall of Government Unions And Slowing Health Costs

An op-ed in the Wall Street Journal (available by subscription) about a recent legal decision on retiree health benefits shines the light on is a reason for optimism about the slow growth in health spending.

As readers know, I look pretty closely at the economic data from various government agencies, and they are starting to show an uptick in health spending and prices. However, a recent Supreme Court decision weakens the power of government unions to demand exorbitant retiree health benefits, according to Robert C. Pozen and Ronald J. Gilson.

Health Spending Chews Through A Weak Economy

Today’s second estimate of fourth quarter Gross Domestic Product (GDP) confirmed what we pointed out from the initial estimate released on January 30: Health spending is chewing up more and more of the weakening economic recovery.

GDP growth was actually revised down from the initial estimate of 2.6 percent to a second estimate of just 2.2 percent. In dollar terms, it was a drop from $106 billion to just $88.1 billion.

Health spending, initially estimated at $20.4 billion was tweaked up a little to $21.4 billion. In other words, health spending devoured one quarter of GDP growth in the fourth quarter.

These are the wages of Obamacare: An increasing share of our prosperity diverted to a health sector that is increasingly frustrating to patients and physicians alike.