Part of the reaction from employers to rising health care costs has been to push more co-payments, higher deductibles and larger out-of-pocket maximums onto employees. This has been viewed as an easier approach than increasing share of premium contribution, even though it has led to severe labor disputes in many cases. Ignore the fact that employment based insurance is a dumb idea–it just happens to be the way it’s done in real life. But what about people going through the process of paying more and getting less from their employer?

A new study from Sally Trude at the Center for Studying Health System Change called Patient Cost Sharing: How Much is Too Much? looks at the hypothetical actuarial impacts of a move towards higher deductibles, OOP maximums and co-pays. As you’d expect, it impacts most on sicker and poorer employees.  In fact for those very rare employees earning below 100% of Federal poverty but actually getting health insurance from their employer (and that must be virtually a null set), 44% of those with a deductible of over $1,000 will be spending more than 10% of their gross income on health care.

According to the Center’s survey research "most Americans, especially lower-income people, are willing to limit their choice of hospitals and physicians in return for lower out-of-pocket costs".  But given the shellacking managed care companies got when they tried that last time, don’t expect too many of those restrictive products to be rushing onto the market any time soon (although Blue Cross is trying to pull it off in California). Trude concludes:

The debate on user fees via the Rand experiment, Evans and Barer at UBC et al, basically concluded that point of service user fees have no impact on overall health care costs but do tend to stop the poor and sick going to the doctor (meaning that minor problems become major). So from a health policy perspective employers ought to be transferring their cost cutting to the front-end–and demanding more cost sharing in premiums.  However, that translates to all employees feeling the pain, rather than just those who are sick feeling it when they are sick.

By the way, I’m currently doing some other work looking into a number of these system problems, so if you have any suggestions about things to look into in the world of clinical or care inefficiencies please let me know.

Occasionally you see a really dumb article.  Not wrong, just dumb.  This one in the NY Times last week asks Who Controls Health Care Costs?.  It wonders why Republicans would promote private plans as a solution to controlling Medicare costs when it’s been shown that both Medicare and private costs increase at roughly the same rate over time. Leaving aside the fact that the Republicans are doing this for ideological reasons, it’s worth taking a little walk down memory lane on health care costs.

The reason costs go up so fast in this country is because of what Alain Enthoven calls "cost-unconscious demand" and a general pattern of Fee-For-Service medicine. Do more, get more, and no one really worries about the cost. That’s more or less what we still have, although it’s become much more sophisticated.   Even after 40 years of health care cost inflation, the same basics apply. There are only three real approaches to change this;

1) Make individuals conscious of the entire cost of the system care–don’t disintermediate it via employers and insurance companies–including either having them pay all their insurance premiums or all cash out of pocket.
2) Make consumers directly responsible for health care via a directly proportional tax (this is how it works in Belgium and is what Vic Fuchs proposed recently).
3) Give responsibility for the cost of the whole ball of wax to someone else who has to manage the bottom line (almost always the government, as in the UK and Canada)

We are nowhere near any of those solutions in the US, so costs will keep going up (as will uninsurance and underinsurance, as there is a what economists call a price effect).

Meanwhile, the leading advocate for my third solution, otherwise known as single payer, Steffie Woolhandler, also got her own interview in the Times.

And for those interested in performance-based reimbursement, a group of health policy wonks who favor a market-based solution, including Enthoven, believe that Medicare could and should change the market by rewarding providers with pay for performance. Not a bad idea, but not realistic in the present climate.

Fresh from triumph in the Senate if not in Baghdad, Bush went out next for medical malpractice reform.  This goes along with the Republican ideology of sticking it to those Democrat-lovin’ trial lawyers improving the climate for business. However, the businesses who tend to get their issues on the front burner with these Republicans are a little more influential to the President’s core base (anyone for energy?) than the AMA.  And the physicians just got a Medicare raise out of the recent bill.  While the actual words malpractice suit stick in the throat of any self-respecting doc like an unswallowed fishbone, there are two cautionary thoughts they might have:

One, malpractice isn’t that big a deal. It’s been a while since I looked at this but by my recollection malpractice costs in all its forms add a trivial percentage to overall health care costs. And a study about a decade ago showed that there was more malpractice than malpractice suits (even though half the suits were about care that wasn’t malpractice). With the IOM reporting on quality in health care not being as amazing as the AMA would have you believe, this is not a shut and dried case in the doctors’ favor.

Two, getting this type of reform passed is very hard.  It just died in Pennsylvania despite the governor’s promise, and the level of political capital required for national reform is unlikely to be expended by the Administration before their 2005 inauguration (which in turn depends on their winning the peace, or lack of it, in Iraq). But that’s not too bad for the Republicans. As Jeanne Scott knows, a lawyer joke always covers an embarrassing pause on the hustings. Of course, you may have noted that one of those potential Presidents on the other side may perhaps also have an interest here!

So a plethera of information about the Medicare bill emerges after the long weekend.  The weekend instant pundit talk shows that I saw claimed it was a triumph for the President, with the odd real conservative crying into his egg-nog. Bush though decided that going on a lay-over at Baghdad would be more helpful to his re-election, and I think the Prez got the issue right (if not the policy–but this is a health care blog, Matthew!) Meanwhile, Milt Freudenheim in the NY Times reminded everyone that the competition aspect of the law is mostly irrelevant and elsewhere they found a ton of seniors in Florida who think they got stiffed. Over at Democrat blog DailyKos the previous ignorance of and about the bill has been replaced by a bitter screed showing that the rural care aspect of the bill takes money from big-city hospitals (serving Democrats) to rural ones (serving Republicans). While you should take a pinch of salt with that analysis, you should also consider what happens if the AAMC gets riled. Those big-city academic names have a lot of clout in American health care.

Elsewhere Forrester research (log-in as a guest allowed) believes that the bill will have  immediate consequence in three other areas

1. More drug discounting via new discount cards. Why? Medicare PBMs wanting to get going in 2006 will give deep discounts now to learn seniors’ online behavior, demographics, and drug history. Allow me some doubt on this one, as the PBMs have shown only moderate interest in cash pay cards so far and seniors have little interest in letting them know about those issues! And even if they knew, where in the bill does it say "restrictive formulary" or "co-marketing arrangement".
2. Redefine the market for hospital services as Medicare requires more quality data. Forrester says this will change hospital behavior and help healthcare IT firms. Maybe. But quality measures have been around and been meaningless before and its the IOM rather than politically maleable CMS that tends to drive this, albeit slowly
3. Not slow the development of specialty hospitals despite the 18 month moratorium. Agreed.
4. See a boom in health savings account (HSAs) and CDH. I’m still very unconvinced that employers are biting at this. And remember that MSAs (same as HSAs) cannot logically contain enough health care spending to be effective in restraining health care costs, whatever optimistic conservative theorists believe.  It’s called "insurance" for a reason even if you are a self-insured employer.

Still, while I often find Forrester over-optimistic on the pace of change, they are doing the right thing, which is looking for wrinkles in the Bill that will start changing behavior of market players. So keep looking into the folds of the bill’s flesh both politically and business-wise.

UPDATE: Harvard Professor Bob Blendon (health care’s leading political analyst) gives his take on NPR.  Overall, young people like what they’ve heard; seniors hate it, but it won’t matter politically until 2005.

My take on the Bill remains the same. The details will see it losing support among seniors, but probably not enough to matter politically. Paul Ginsburg sees it differently and thinks that there might be another 1989 style repeal on the way. Some first comments on senior support that I’ve heard in the media seem to match this article which has feelings among seniors very mixed. Don’t forget that the most politically influential seniors already have drug coverage–they’ll only get really mad if they see their employers dropping coverage and forcing them into the Medicare plan (which is after all voluntary). That’s why there’s so much money in the plan to bribe what Don Johnson is calling "Old America" (employers who offer pensions) into keeping their pharmaceutical benefits alive for now. The rest of the NYT article that quotes Ginsburg suggests that employers will tread gently in moving retirees over to the Medicare drug program, and of course they can’t before January 2006.  Some of you following at home might notice that there’s an election some 13 months before that. Curious, eh, that the program doesn’t start immediately after the election or even just before it? The original Medicare program went into operation in less than 9 months! (You’ll notice that I’m in flippant holiday mode today!)

Frankly I don’t think anyone else in America cares too much about this bill.  Hence this huge change in the second biggest government social program has relatively little impact on the news, and even less around the non-health care blogsphere. (One article in the last three days on Andrewsullivan.com and that one shorter than his post on England’s win in the Rugby World Cup . Not one that I can find on the DailyKos. These are, I believe, the two most visited "right" and "left" blogs in the US).

Talking of Don, he has an interesting piece at The Business Word about how the bill is a response to demands from the "market".  His assessment is bang on, although he shares Karl Marx’s rather than Adam Smith’s definition of a "market" (Betcha no one’s called you a commie before, eh Don?!).  Don also links to non-HC blogger Daniel M Drazner (who claims to be a libertarian Republican–and you thought there were none left!), who has a post with multo-comments from his mainly right wing crowd on the issue.

Elsewhere DB’s Medrants has both a cut down but useful explanation of the details and his own comments which are largely centrist in the "we were never going to get the perfect bill, but this is a workable start" vein. He promises to add more over the weekend (and all you’ll be doing is eating left-over turkey sandwiches!).

Russ at the Bloviator doesn’t hide his true feelings.  He believes that this Bill is  a) responsible for the death of Medicare as we know it and b) that this is a very bad thing. I would slightly agree with him on the death issue other than it is only at the very start of a long slope towards the TDOMAWKI (pron. Tee-Dom-Or-Key), and that the Medicare program will inevitably get some huge dose of reform anyway some time between now and 20010-2 as the baby-boomers move towards it.

Otherwise that seems to be about it for the Medicare postings. I’ll inevitably get stuck into some of the nuances of the business and political implications next week.

Have a great Thanksgiving holiday.

So it’s done. The Medicare bill passed the Senate this morning 54-44 with the votes of enough conservative Democrats to ensure an easy passage. My suspicion is that there’s a lot less here than meets the eye. However, Tom Daschle (who’s continued tenure as Minority leader in the Senate is already in doubt) was the first to notice that 

"This is not the final vote. This is the beginning of the end; it is not the end. We will see many many more votes. I predict that we will be back within the next 12 months. Seniors will demand that we respond to the many deficiencies of this bill, and they will not rest until we address them.”

I don’t think it’s necessarily 12 months, but there’ll certainly be many more attempts to amend Medicare in the next 1-6 years. We won’t see the program left alone as we have for the last 6 years. However as several of the cooler heads in the health care blogsphere have been commenting, the drug benefit is relatively limited, the competition and premium support aspects are minor tinkering (for the moment!), and the boost to the program in terms of budget will eventually need cuts elsewhere or new funding sources. The important questions are:

1. While this is an immediate win for the Republicans, as the news filters out about what’s actually in the program, who wins politically out of this in the next 12 months? My suspicion is that this bill is net bad for enough seniors that the Democrats do. Of course given Iraq et al it may not matter.
2. How much does the pharma and PBM industry benefit? Again this depends on the details of the implementation. Particularly how over time who aggressive will the government force the PBMs to be with the pharmas on price? Volume will clearly go up.  Will prices come down to match or not much?
3. Will employers maintain their drug benefits for their retirees? That’s the question that both matters most politically and also determines to some extent how popular and therefore how expensive the drug benefit will be.

Well, the bill is going to make it.  The dissidents in the Senate led by Kennedy could only muster 29 votes in favor of a filibuster (they need 40).  So the bill will pass tonight. Drug stocks and PBM stocks rallied yet further on the news–here’s Caremark’s performance–note the bump in price and volume around 2pm EST.

So I was wrong about this one.  I thought that it would get past the House easily and die in the Senate.  But in fact it was (almost) the other way around.

This is immediate very good news for a smallish subset of poor sick seniors, rural hospitals, pharma companies and (probably) PBMs.  It’s good-ish news for doctors who got a 1.5% hike as opposed to a 4% cut in Medicare payments for their support, and employers who will now start to get subsidized for something they were doing anyway. It’s not such  good news for Medicare recipients who already have drug coverage and now will probably be pushed by employers into the Medicare system. And, as for the taxpayer, as the conservative Republicans who voted against it claimed, we’re witnessing the birth of another, potentially out-of-control, Federal spending program.

The longer term implications for Medicare depend on the details of the bills that will amend this bill in years to come–and there will be several.  The shorter term implications are about how this will play out for seniors in next year’s elections. Is it "Drug coverage" or "The end of Medicare"?

As I go to bed late, late Sunday night it looks like the Medicare bill is going to avoid a filibuster and get through the Senate.  Go see Don Johnson at The Business Word for the latest news. Meanwhile here’s a chart showing how much impact the bill will have on seniors’ drug costs.  As I remark in some comments over at the Bloviator, it really only helps those poor seniors who are currently paying $2-4,000 a year and are literally deciding between food or drugs–and those with drug costs over $5,000 for whom it is a good catastrophic drug insurance policy.  For the larger majority  of seniors paying less for drugs or those with higher incomes, this bill doesn’t do too much.  It also looks like it’ll reduce employers’ support for Medigap policies. I suspect that the politically unpopularity of that feature of the Bill will come to bite the Republicans in the 2004 election. In any event watch for more vicious politicization of Medicare’s future in its representation to seniors in the coming days and weeks.

And in a rare Saturday posting . . .

After some real hard core arm-twisting, (plus leaving the voting open for 3 hours), at 6am this morning the House passed the Medicare Bill 220-215. It looked like it was going down 218-216 for over 2 hours when finally the Republican leadership got 2 of their holdouts to cave (and then a couple more committed).  I suspect what they say about watching sausage and watching legislation being made applies here!

We should know about the Senate by Monday. My suspicion is that it has the straight up and down votes to win, so it’s a question of the filibuster being used.  Just as it was in the Energy Bill.

It’s impossible in a brief post to capture the full essence of the current Medicare bill. (Although Jeanne Scott’s latest newsletter tries very hard)! In a few days we’ll know whether it has the votes to make it in the House, and whether it’ll survive a potential Kennedy-led filibuster in the Senate.  And of course this doesn’t happen in a vacuum–there’s the small matter of the $25bn barrel of pork known as the Energy Bill that also has to go through the vagaries of the Senate.  However, leading aside the lack of price controls or caps in the pharma section of the bill, it’s worth looking briefly at the two of the most contentious issues. 

Competition: The Republicans want to put Medicare into competition with private plans. This has though been tried before, and after a promising start, it began to die a death. A report from the Commonwealth Fund, suggests that there were many problems with the 1997 attempt to introduce private plans into Medicare, known as Medicare+Choice.  The two most important are that the private sector’s participation is not stable, and that the private plans don’t cost any less than traditional Medicare.  Due to plans pulling out, participation has gone down from 15% of enrollees to only 11%. Realistically it’s impossible to say what the environment will be for the competition slated to be introduced in 2010 in 6 cities.  But there’s no guarantee that it will kill off Medicare as we know it or even that it’ll work.

Cost Containment: Also  buried in the bill is an overall cost containment strategy.  The Bill provides $400 bn over 10 years in increased spending. Via a complex formula, if this limit is broken and if more than 45% of Medicare  funding comes out of the general fund (because Part A via the payroll tax and Part B via premiums are not bringing in enough revenue), then Congress has to either cut Medicare spending or increase taxes. (I hope I got that right, but you can be sure it’ll be changed by the time it happens). The only certainty is that estimates like this will be wrong–original estimates for Medicare spending back in 1965 were something like $4bn a year and very soon they were off by a factor of 10, I believe! However, I’ve seen estimates that the spending cap will hit in 2008-20016, so again this is putting off the real issue into some future never-never land.  But I did notice this report from Health Affairs which suggested that hospital spending will rise 75% by 2012.  I’m unsure as to whether that will get included in the overall spending that triggers the cut, but as hospital spending is what Medicare Part A is for, I assume so. In any event there’ll be a big issue with hospital spending somewhere out past 2010.

Of course the politicos who are voting on this bill will mostly be out of the picture by then, and the bill doesn’t take effect at all until 2006. Its most important political implication–the impact on the senior vote in Florida and Pennsylvania in 2004–will not actually have anything to do with what actually happens, but will hinge on what the perception of the bill’s effect will be. And of course the votes in the next few days will be based on guesstimates of what that perception will be whether the bill passes or not.

For much more go see Don Johnson’s almost minute by minute blogging at The Business Word