Bare Bones Health Plans – Inadequate Coverage and Threat to Exchanges

Today’s Managing Health Care Costs Number is $100

The Wall Street Journal reported Monday that some employers are considering or adopting “bare bones health plans” to minimize their costs under the Affordable Care Act. 

What’s a bare bones health plan?

One that pays for preventive care, but limits hospitalization coverage to, let’s say, $100 per day.  (In Boston, that is unlikely to purchase an hour at a hospital –never mind an entire day!) Some plans don’t provide coverage for x-rays, surgery, or prenatal care!

How could this be legal under the Affordable Care Act, which is supposed to standardize health plans to allow for easy comparison shopping (as noted yesterday this helped pressure two Oregon plans to petition to lower their premiums)?

The ACA strictly regulates health plans that are fully insured –although even here the standard is the average percentage paid out of pocket (i.e. a “silver” plan covers on average 80% of cost, leaving patients on the hook for 20% of cost on average). The act is much more “hands off” for self-insured plans where employers themselves pay the ultimate costs.   Self-insured plans cover 130 million of the total 160 million Americans with private coverage.   The ACA mandates coverage of preventive care and prohibits lifetime and annual limits – but isn’t prescriptive about what is credible coverage.  The Obama administration has left this to the states. 

Some states are pursuing vigorous regulation to prevent sales of inherently defective insurance policies, which would be highly likely to leave those with serious illness in financial ruin.   Other states intend to “let the market decide.”   The federal government, however, is much less strict.  The federally-administered exchanges will not require insurers to have consistent and comparable benefit plans, and will it hold competitive bidding – but rather simply will allow insurers who meet a minimum threshold to be listed in the exchange.  That’s easy to  administer – but means critical consumer protections will not be in place.  The federal government will operate exchanges in 34 states.

The ACA won’t penalize companies the across-the-board $2000 penalty for not offering insurance at all if they offer one of these defective plans.   However, employers could still be on the hook for a $3000 per employee penalty for employees who opt out and accept federal subsidies for the exchange products.  

The employers would gladly pay this penalty, because those opting out would be especially expensive – and the penalty would be cheaper than paying for their legitimate medical costs. Worse still, this will lead to adverse selection making health plans on the exchanges very expensive.

Bare bones health plans

-          Provide inadequate health insurance, especially for low wage workers

-          Allow employers to shift adverse risk to the plans sold on the exchange

-          Threaten to cause exchange rates to be unsustainably high due to this adverse selection, which could threaten the viability of the exchanges.

Just like the “mini-med” plans before them, which capped total payments at a few thousand dollars, these bare bones health plans give the illusion of coverage – which is whisked away just when the member really needs it.   Regulators should take notice, and create a regulatory structure that does not provide advantages to employers who design such defective plans.

No, Insurance Competition Alone Won’t Cure Health Care Cost Crisis

Today’s Managing Health Care Costs Number is 15%

Source  Note that both Providence and Family Health Plans have petitioned for rate decreases by at least 15%

The Oregonian reported last week that when the state exchange published insurance rates, two major insurers immediately petitioned to lower their rates (H/T to Kaiser Health News).   Yesterday, Sarah Kliff of the Washington Post said “One key premise in the health care law is that, when insurance companies compete on an evening playing field, premiums will drop.”

But competition among insurance companies cuts two different ways.   Sure – when insurers see that they have priced their health insurance at twice what other companies are asking – they have second thoughts.   Government regulations which standardize offerings, allowing meaningful comparisons, help.  Publishing this information is critical. 

BUT – let’s look at how health insurers can lower costs of insurance.  Health plans can

1)      Decrease administrative costs, like marketing and customer service and claims payment costs

2)      Implement programs that lower utilization.   (However, health plans spend few resources performing these programs – and these probably have small impact)

3)      Use their leverage to lower provider unit prices

There is a fourth way insurers can lower their costs – which is careful population selection to attract only the healthiest of patients. The Affordable Care Act makes this more difficult, since standardization makes it difficult for insurers to design products that only appeal to the healthy.

More insurer competition likely raises administrative costs – especially marketing and sales.  Hello, billboards at Fenway Park!  More competition could encourage more effective medical management programs.  However, more insurer competition can dramatically decrease health plan leverage, which can lead to much higher unit prices. 

Michael Porter got it right in 2004 when he wrote that “competition in the health care system occurs at the wrong level, over the wrong things, in the wrong geographic markets, and at the wrong time. “  Competition among health plans with undifferentiated networks isn’t going to lower overall costs.  We need meaningful competition among providers of health care services.

Which brings me to hospital chargemasters.  Hospitals have high “rack rate” charges for numerous reasons – including now-changed IRS regulations that allowed them to claim community benefit for all charges written off for the uninsured.   But a very large reason for high hospital charges is that some low-leverage insurers have been unable to obtain contracts based on fee schedules, but rather pay based on “percent of charges.”   Imagine how much happier the CFO of Bayonne Hospital in NJ is with such contracts!  When you charge $121,000 for an admission with congestive heart failure, Medicare pays under $7100.  But there are a few insurers out there who felt lucky to get a 60% discount –  so the hospitalization would be reimbursed at almost $50K.    That will cover a lot of bad press about high prices!

Financial engineering will not by itself lower health care costs.  These costs are driven by the high costs in the delivery system.

Maternity Care Around the World: Two Steps Forward and One Step Back

Today’s Managing Heath Care Costs Indicator is 37

Death during childbirth or neonatal period is a major cause of years of potential life lost across the world – and three countries have been in the news recently for their care of pregnancy and delivery.

The Economist this week highlights a new innovation in Bangladesh.   Childbirth is bloody, and it can be hard for lay midwives to know how much blood is normal, and when they should rush their bleeding patients who just delivered at home to a medical facility.    Mat Red is a childbirth mat that can absorb up to 400 cc (under a pint) of blood.  If the mat is saturated and the woman continues to bleed, she should be rushed  to the hospital.  The cost of the new mats is about 50 cents, and distributing 77,000 of them appears to have saved 37 lives.

Uhuru Kenyatta, the newly elected President of Kenya, announced in his inauguration speech

 …We will ensure that maternity fees are abolished and that all citizens of Kenya are able to access government dispensaries and health centers free of charge.

That’s right – free maternity care at medical facilities.  Up to this point, a majority of Kenyan women in rural areas deliver at home with little access to medical care.     This is a step forward, although Kenya now lacks the physical capacity to move all deliveries to facilties.  The trick will be to avoid medicalizing low risk deliveries which can be performed safely and cost-effectively in homes, while providing excellent hospital or birthing center access to those at high risk.  Stay tuned.

Brazil, a country that has navigated the transition from being a developing to a developed country, has an 80-90% Caesarian section rate among middle class women who deliver at private hospitals.  NPR reports that Caesarian sections are a status symbol. Further, physicians are paid more for C-sections, and

…doctors don't have to interrupt what they are doing with other patients to assist a natural birth.

Here in the US, maternal death is rare, but we continue to overmedicalize births.  We have only just started focusing a spotlight on elective induced deliveries at less than 38 weeks without medical indication, and we deliver a third of births by C-section – more than twice the WHO recommendations.   NPR quotes a doula (birth coach) who says that “Brazil essentially copied the North American obstetrical model.”    A very dangerous American export indeed. 

Food Carts and Health Care Policy

We were talking in a Harvard School of Public Health Class the other day about why disruptive innovation is so difficult in American health care. We don’t have the $99 MRI (Japan), or anti-HIV drugs for under $100. Nurse practitioners face restrictions on their practice in many states, and in some states only licensed nurses and doctors can draw blood.  We don’t use handheld ultrasound machines routinely – we send our patients for ultrasonography using complex machines that give incredibly vivid images.  When we do report on hand-held ultrasounds, it’s to replace stethoscopes rather than replacing expensive and complicated machines.

Adam Davidson of Planet Money was thinking the same thing in this week’s New York Times Magazine column – but he was thinking of food trucks in New York rather than health care.    He writes

As I was walking through Prospect Park recently, I wanted to find a healthful snack for my son and something for me. The only options, though, were the same sort of carts that my dad took me to in the ’70s: Good Humor ice cream, overpriced cans of soda and overboiled hot dogs sitting in cloudy water. This seemed ridiculous. In the past few decades, food in New York City has gone through a complete transformation, but the street-vendor market, which should be more nimble, barely budges.

A little like health care – except in health care you can find new fancy stuff,  but too few health care organizations are innovating to make health care more affordable.

Davidson’s diagnoses:

1)      Many overlapping and often conflicting regulations, from different governmental agencies.  (Sound like the FDA, the FTC, CMS, HHS, and state health departments, insurance departments, and boards of medicine and nursing?)

2)      Regulations that were written decades ago – when the population of New York was much smaller.  (Sound like many local rules that restrict new market entrants in health care?  Some communities have zoning that explicitly grants hospitals ability to nix competing health care businesses in their communities)

3)      The biggest winner is commissaries, which every food vendor must use – but which have no competition and thus sell the same old tired hot dogs and commercial popsicles.  (Not exactly an analog for Boards of Registration – which are usually well-meaning and certainly not for profit –but which make many innovations in health care like telemedicine substantially more difficult)

4)      Restaurants hate food carts – and they have considerable political clout. (Reminiscent of established physicians, hospitals, medical device companies, and pharmaceutical companies who are quite happy with our current system!)

We can’t change the fact that disruptive innovation is painful for incumbents – and it’s understandable that they will oppose changes that threaten their livelihoods (3-4).   But better regulations (1-2) can lead to far more disruptive innovation – which means better food trucks to serve lunch downtown.    The above photo is from SOMA in San Francisco earlier today.  Irish-Eritrean food.  You can’t find that kind of food cart with the stodgy regulatory structure in New York.  

When Should We Give Up?

Today’s Managing Health Care Costs Number is 0.57 kg

Last week’s Radiolab podcast was entitled 23 weeks, 6 days.  It’s about a premature baby born at just under 24 weeks – the zone where survival is doubtful, and even survivors face potential long-term developmental problems.  The baby was less than 600gm (1 pound, 4 ounces).  To put this in perspective,  babies less than a kilogram (1000 gm) were so unlikely to survive when I was in training that they were rarely resuscitated.  It’s a moving episode, filled with drama and narrative that never lets us forget the parents’ point of view.

The comments on the website demonstrate that this episode is polarizing – many of the early commenters complained about the pricetag ($2.4 million – and that’s just for the NICU and over 6 months of hospitalization), and some said that the mom was being irresponsible for having a baby in her late 30s.   There are also many comments from parents with healthy children who went through the hell of severe prematurity, and have children who suffered, endured, and have even succeeded.

A Beth Israel Deaconess medical resident, Haider Warraich, wrote last week in the NY Times about a “cancer of optimism,” where we don’t level with our patients about their  poor prognoses – which leads them to choose expensive, invasive and dangerous therapy that doesn’t benefit them at all.

He wrote:

Our judgment becomes clouded as we build relationships with patients, share their fears and anxieties, cherish their small victories and celebrations and hope that there may still be a way, however unlikely, they can make it to their grandson’s bar mitzvah.

It’s easy to talk in theory about not investing dollars in the care of the hopelessly ill. Futile care hurts the patient, prolongs family suffering, and empties our coffers.   But  when reality hits – it’s entirely different.   Last week’s Mad Men had an ad agency partner diagnosed with pancreatic cancer in 1968.   His colleague said “You’re going to fund a wing at Sloan Kettering and beat this cancer.”   Pretty unlikely.

Our desire to live – to impart lives to newborns and add a few months or a few years for each of us – is enormous.  We need to focus on how to lower the costs of care we deliver, as well as how to make better decisions not to deliver truly futile care.   But futile care yesterday might become routine and successful tomorrow.  Some major advances for those with the most devastating illnesses would never have occurred if physicians and others didn’t push the envelope and try to do what others had previously declared futile.    

We should not fool ourselves into thinking we can control health care costs by just making better discretionary decisions about who to try to save, and who to let go.

Do Hospital Chargemasters Matter?

Today’s Managing Health Care Costs Indicator is 4.3

I stayed in a boutique hotel in Chicago this week, and paid $123 on Hotwire.    The hotel web site says that the lowest charge is almost twice as high.  Illinois doesn’t require hotels to post maximum prices; if it did,  I would guess the maximum “rack rate” for that room could have approached $1000.   Does that matter?

CMS released hospital charges for 100 common procedures on Wednesday.   It’s a great database- full of rich opportunities to graph the laughable differences between charges hospitals levy for the same procedures.  The New York Times and others have been all over this.  Hip replacement costs range from $25,600 to $117,00 – and that’s just in Virginia! The range nationally is from just over $5000 (OK) to over $220,000 (CA)

Steven Brill’s much-acclaimed Time Magazine article also focused on hospital charges. 

Hospital charges are an easy target because

1)      They are easy to find because hospitals send a lot of bills

2)      They are not so jealously guarded allowable rates, which most payers consider highly proprietary

3)      They are egregious

But they are the wrong thing to look at.  What we really want to know is how much was paid – and we really want to know the allowable amount (that allowed from the payer and the patient), not merely the amount paid by the health plan.  Patient responsibility is a higher portion of total costs now that the percentage of the population on high deductible plans has skyrocketed.

No one except the rare foreign billionaire pays the list price.

I’ve graphed above the billed charge and the allowed amounts for the stroke DRG in metro Boston. You can see that charges differ more than four-fold, and allowable amounts differ by less than a factor of 2. 

The CMS database tell us about the actual cost- which is great.  It also gives us volume.  Cambridge Hospital treated under 20 people with this diagnosis in 2011, while Mass General treated almost 200.  Information about relative volume has previously been quite hard to come by.  There is a lot of valuable information here – much more than is evident from just reading the headlines.

Genomic Test Won't Lead to Large Cost Savings

Today’s Managing Health Care Costs Indicator is $23,875

Prostate cancer is a conundrum.  It’s common as men age – and the vast majority of those with prostate cancer will die of something else, often suffering no symptoms from their latent cancer.  Decades of aggressive screening have left a trail of incontinence and erectile dysfunction – and saved lives, but just a handful.

The Wall Street Journal reported this morning that a new genetic test (actually a bundle of 17 of them) can help distinguish the aggressive prostate cancers from the indolent ones . Genomic Health, the company with the patent, says that this will allow more men to be treated with “watchful waiting” rather than  surgical, radiation, or hormonal therapy.    

The cost of the new test: $3820.  The market for this test, with 220,000 new prostate cancer diagnoses each year in the US, could be $840 million!

Genomic Health states that this test will allow 26% of men to just watch their prostate cancer  - as opposed to 10% currently.    At a 16% increase in watchful waiting, this means the test will cost $23,875 per additional patient who is watched with no immediate intervention.   The mean cost of surgical prostatectomy was under $10,000 (2004), and the cost of surgery even with robotic assistance remains under $15,000.

Radiation therapy with IMRT and especially with proton beam therapy would be substantially more expensive. 

I’m taking the company’s assertions at face value, too.   New tests like this usually perform more poorly in “real world” use than in initial trials. It’s likely the test would increase watchful waiting by less than these projections.

This is a great illustration of why genomic medicine is unlikely to lead to huge cost savings in our current health care financing system.     The innovators with a patent on this test that can reduce costs have priced the test so that they capture a substantial portion or even all of the savings.  No objection – if that’s the value they are creating, why shouldn’t they price the test that way?   Since Genomic Health is grabbing a large a portion of the value of the test, relatively little remaining value is available to lower the cost of health care.

This test can make health care better - by saving men from incontinence and erectile dysfunction.  Let's just not count on it lowering the cost of health care!