Other LBYMs squeezed out in H'care reform

[toofrugalformycat]

Again, if the profit motive directly led to higher costs, why on earth would so many services cost more with the USPS than FedEx or UPS? Could it be that FedEx and UPS manage costs more effectively because of competitive pressures AND the need to show shareholders a profit?

Apples and oranges. USPS is required to try to pay for their own operation, yet they are required to subsidize the cost of some things (like mailing a letter - try to tell my elderly little old lady friend in Portland that she must pay close to $20 to mail me a letter vs under 50 cents via USPS).

 

[ziggy29]

Everyone seems to be looking for a solution which won't require any sacrifice on their part. It's ludicrous.

It's called "political reality." Every special interest is going to be fighting tooth and nail to protect their fiefdom. And our fearless leaders don't have the courage to tell their favorite and most powerful ones to shut up and share the sacrifice.

 

[Martha]

IMO, the fallacy with this is the assumption is that elimination of the profit motive will guarantee that government can do it cheaper. Maybe they can, maybe they can't, but if experience in other areas is any indication (look at parcel delivery, USPS versus UPS or FedEx), if government-provided services have a higher cost structure than the private "for profit" sector (wages, benefits, waste), some or all of the "non-profit discount" could vanish -- and possibly even be more expensive than for-profit businesses that have to keep overhead costs down to be more competitive and responsive to shareholders.

The one piece of information we have is that Medicare does have a substantially lower percentage of its expenses go to administration rather than care than insurance companies do, even discounting money paid out in profits.

 

[samclem]

The one piece of information we have is that Medicare does have a substantially lower percentage of its expenses go to administration rather than care than insurance companies do, even discounting money paid out in profits.

I've heard this often, but some people claim it is a very misleading metric. Their argument:
Medicare's admin costs may be lower than private insurance when expressed as a % of claims paid, but Medicare costs are higher on a per-patient basis. The lower Medicare admin costs as a % of claims don't reflect any great efficiency on Medicare's part, but just the fact that their average patients are so much sicker that the average cost per patient is higher. Billing costs tend to be fairly fixed per procedure: it doesn't cost any more to process a claim for a $40K procedure than it does for a ten dollar procedure. Medicare patients are old and sick, they have expensive procedures so Medicare can spread their admin costs over a very large expenditure baseline.

From 2005:
- Medicare's average admin cost per enrollee: $509
- Private Insurance's admin costs per enrollee (includes profit): $453.

Here's a groovy chart:

Again, consider the source (Heritage Foundation). Like every thinktank, they frame things to fit their world view, but I've found them to be factually accurate. A "per person" expression of admin costs is likely just as valid as a "percent of benefits paid" metric. If so, there's good reason to doubt that a Medicare-like government program would be a money saver if the program includes younger, less ill, populations.

"There are three kinds of lies: lies, damned lies, and statistics."
-- Benjamin Disraeli (and Mark Twain)

 

[Gone4Good]

IMO, the fallacy with this is the assumption is that elimination of the profit motive will guarantee that government can do it cheaper.

I don't know about cheaper, but you do get rid of this phenomenon as reported in the WSJ today . . .

At least two home insurers in Florida have begun dropping policyholders who filed claims for property damage linked to drywall imported from China. Disputes with insurance companies are increase as a growing number of homeowners file claims for property damage they say is caused by defective drywall. Insurers are fighting the claims and in some instances using the information in them to drop the policies

Or this classic . . .

Lott Sues Over Katrina Damage - ABC News

Profit motive is fine. But for insurance companies, honoring claims is considered a "loss". In other words, the profit motive is in direct conflict with what an insurance company is paid to do.

 

[Martha]

I've heard this often, but some people claim it is a very misleading metric. Their argument:
Medicare's admin costs may be lower than private insurance when expressed as a % of claims paid, but Medicare costs are higher on a per-patient basis. The lower Medicare admin costs as a % of claims don't reflect any great efficiency on Medicare's part, but just the fact that their average patients are so much sicker that the average cost per patient is higher. Billing costs tend to be fairly fixed per procedure: it doesn't cost any more to process a claim for a $40K procedure than it does for a ten dollar procedure. Medicare patients are old and sick, they have expensive procedures so Medicare can spread their admin costs over a very large expenditure baseline.

From 2005:
- Medicare's average admin cost per enrollee: $509
- Private Insurance's admin costs per enrollee (includes profit): $453.

Here's a groovy chart:

Again, consider the source (Heritage Foundation). Like every thinktank, they frame things to fit their world view, but I've found them to be factually accurate. A "per person" expression of admin costs is likely just as valid as a "percent of benefits paid" metric. If so, there's good reason to doubt that a Medicare-like government program would be a money saver if the program includes younger, less ill, populations.

"There are three kinds of lies: lies, damned lies, and statistics."
-- Benjamin Disraeli (and Mark Twain)

I read an economist debunking the Heritage Foundation information and conclusions, but don't have it at hand right now. I'll see if I can dig it up later.

Here is one report: http://institute.ourfuture.org/files/Jacob_Hacker_Public_Plan_Choice.pdf

When you compare apples to apples, medicare to private medicare advantage plans, medicare has far lower admin costs.

 

[samclem]

I read an economist debunking the Heritage Foundation information and conclusions, but don't have it at hand right now. I'll see if I can dig it up later.

Don't spend a lot of time on it, but I'll be interested if you find it. The rationale made sense to me.

And another thing-- If I think private insurance companies are making a big profit, I can get part of that by just buying their stock. There's no "money return route" I can use for the government plan.

 

[samclem]

Here is one report: http://institute.ourfuture.org/files/Jacob_Hacker_Public_Plan_Choice.pdf

When you compare apples to apples, medicare to private medicare advantage plans, medicare has far lower admin costs.

Thanks for the this analysis. As you can imagine, it (the Hacker Report") has drawn a lot of attention and rebuttal. The main two counterarguments are:
-- The comparison populations are not apples-to-apples as the Medicare Advantage population is much healthier (leading to the 'small denominator' reason for the Medicare Advantage having a higher admin % of claims).
For example, the The Medicare Payment Advisory Commission (MedPAC) report from Jun 08 (from Chart 6-2 on pg 62)
Self reported health status of those in the programs:
Regular Medicare:"Excellent/very good" = 24%, "Good/fair"=29%, "poor" = 47%
MedicareAdvantage*: Excellent/very good"= 41%, "good/fair"=38%, "poor"= 21%
(* AKA "Medicare Managed Care")

So, maybe not "apples-to-apples"--the Medicare folks reported they were less healthy by quite a bit

A second point made by Heritage is one I'm not qualified to comment on. As I understand it, the types of things counted as "costs" were very different in the two cases. Hacker's Medicare costs apparently included only the costs to process the claim and cut the check to the provider. It counted none of the costs for admin done in the doctors' offices and by other medical providers (I imagine this includes all the laborious coding and everything else that they do to send the bills, track the paperwork, etc). The Medicare Advantage plans were largely HMOs, and Hacker counted all their back-office costs in his "admin costs" numerator. If I've got this right, it certainly would explain why the Medicare number is so much lower--it's not measuring the same thing. If the costs for the same functions are included, Medicare ends up having higher admin costs even on a "per dollar of services provided" measure and includng hte profits earned by the health insurers. Here's Heritage Foundation's explanation of why they think Hacker misused the GAO numbers:

Since the bulk of Medicare Advantage plans are HMO plans, the 16.7% figure includes both functions of operating a health plan and functions that occur in doctors’ offices and health plans. In traditional Medicare, the fees paid to physicians and hospitals include an amount attributable to their internal administrative costs. For physicians, that amount averages 17.3% of their fees — this is administrative costs in addition to costs incurred at the Medicare program level. Hacker says this comes up to 2%, but is actually 3% or 6%, depending on whether you count just the cost of the Medicare bureaucracy, or include with that cost the costs other government agencies incur in support of Medicare.

Sorry for the wonk-a-thon. I'm fighting well out of my weight class here, so I'll not be surprised if I've misinterpreted a major element.

 

[Martha]

I also just don't know enough to judge the criticisms on both sides, I'll see what else I can find out if I get a chance. It sure shows you though how hard it is to get your arms around this. I can't trust the Foundation's arguments and Krugman doesn't give a response, he just attacks.

 

[ERD50]

I've heard this often, but some people claim it is a very misleading metric.

Medicare's admin costs may be lower than private insurance ...

Color me skeptical also. The words "govt run" and "efficient" in the same sentence just seem hard for me to take. True comparisons are difficult. But if anyone wants to claim that the govt can do this better than a freer market (freer than we have today), I'm reminded of that phrase:

Extraordinary claims require extraordinary evidence. (Carl Sagan)

-ERD50

 

[Martha]

Well, I can't find the original article I read. Here is a discussion on a blog that reinforces the lack of consensus on the issue: Does Medicare actually have higher administrative costs than private insurers? - Statistical Modeling, Causal Inference, and Social Science

It would be interesting to have a non-partisan look at the data, which clearly is complex, to see if this could be pinned down with more accuracy.

Extraordinary claims require extraordinary evidence. (Carl Sagan)

-ERD50

I think that we aren't talking about alien abduction or life after death.

 

[samclem]

It would be interesting to have a non-partisan look at the data, which clearly is complex, to see if this could be pinned down with more accuracy.

It would be useful, but at this point I think we've run out of "non-partisans" to do that analysis. The last one in the building, the CBO, figuratively hopped over the fence with their, well, "extremely charitable" analysis of Chairman Baucus's markup.

Anyway, I learned something about the methodology behind the claims/counterclaims regarding these admin costs, so I'm better for having explored it a little. Thanks for the information.

 

[FUEGO]

I think that we aren't talking about alien abduction or life after death.

Yeah, but unlike government efficiency, alien abductions and life after death have at least a tiny chance of being real...

 

[lets-retire]

But what good do you do by cutting costs if you don't pass those cost cuts to the consumer? Yes, it makes the corporation more profitable, but it doesn't lower cost for us. Profits for health insurers have exploded in the past 10 years, yet premiums keep outpacing inflation. The insurers might have cut costs during the time to boost their bottom line, but have you personally benefited from those cut cutting measures? I know I didn't (well except as a share holder that is).

The bill in the House addresses this exact thing. I don't know about the Bacus bill, but I'm sure if both are passed it would find it's way into the final bill, because nobody has complained about it. In the main bill in the House insurance companies must refund any income over a certain percentage of medical expenses. What exactly the language means is undetermined, because they haven't come up with the definitions of the terms yet. My take and what seems to be to point of the clause is: An insurance company takes in 100 million in premiums. The must refund anything over let's say 20% of medical spending. Using the 100 million figure, if an insurance company spends 50 million on medical expenses they can only keep 10 million in excess of the medical spending. The other 40 million would have to refunded back to the consumer. Nobody knows what exactly is included in medical spending, because the term has not been defined and won't be until after the bill passes. This has some interesting facets also. If the insurance company's admin costs are not included in medical spending then the "director of huge government health control department" can easily force insurance companies to go out of business, or can keep them as profitable as they are now. With this provision in place why do we need a government option to "keep the insurers honest"? Doesn't this clause do that? It seems to me the only reason to have a government option would be so they can put unrealistic earnings caps on health insurers and have the government policy there for everyone to fall into. The government can easily claim that the private health insurers refused to become more efficient and as a result went out of business. Few will believe the health insurers side of the story because health insurance companies are bad. In the end it would be a government take over of how much an insurance company can make. Also nobody knows what the percentages are because they also haven't been defined and won't be until after the bill is signed into law.

 

[samclem]

So we are discussing two approaches to driving down the cost of private insurance:
1) Government controlled pricing for services, overhead, and profit.
2) A "government option" medical care provider to compete with private insurers. But this "competitor" gets the use of free (or very much reduced price) capital, has affiliates that regulate and can fine its private competitors , etc. Not quite a level playing field.

What about a third option?
3) Make changes so the private insurers compete aggressively to provide products that meet the requirements of individual consumers while also meeting the greater requirements of society.

"Requirements of society" might include
1) All policies must provide "free" (i.e. no co-pay) preventive medical services (this is a "societal requirement" becasue these services are very efficient in driving down system-wide costs that frequently get shouldered by taxpayers)
2) All applicants must be accepted at the standard rate (This is a "societal requirement" because the American public now believes everyone should have medical care--even if someone else has to pay for it. ) Inclusion of this "societal requirement" will also necessitate a mandate that everyone buy insurance--I don't think there's any other way to do it.
3) Provide coverage without regard for employment status (this is a "societal requirement" because delinkng medical care from employment makes the labor market more efficient and makes our industries more competitive worldwide)

We know how to facilitate competition: Allow cross-state sales of insurance products, standardize policy types, give consumers access to information about customer satisfaction with the insurers and provide consumers with easy access to information on health care outcomes from various procedures at various providers, etc. We don't have either a free or an efficient market today, which is why prices are high and why profits for health insurers are where they are. Efficient markets always drive down margins, and this is a much more effective method of doing it than government committees. Lots of things make our present market inefficient (opacity of pricing information, layer upon layer of interconnected pricing interdependencies, the existence of a fourth player (the employer) in the already complex three-player market "game" of consumer, health care provider, insurance company).

Let the free market do its magic, but within a confine that serves the needs of society (as presently understood) as well as the needs of individual consumers.

(Editorial: I am not comfortable with this "greater needs of society" requirement, but purists must face the fact that this is where America is headed--it is what people want. Apparently the Constitution, as presently interpreted, does not protect us from building a nanny state. So, let's go there with as little damage to individual liberty as possible)

 

[samclem]

And another thing . . .

Who benefits from a continuation of the present inefficient health insurance market? Insurers benefit for the reasons noted previously, less efficient markets always provide bigger profits. Also, large corporations benefit to some degree. Because they can provide badly needed insurance to their employees at price the the employees could not obtain on their own in the present market, and because these employees often can't quit because they or their family members could not get insurance elsewhere, these employers almost certainly are able to pay these employees far less in wages than they otherwise would. I know large corporations are always screaming about the high cost of health care, but I also believe they benefit from the present system. After all--they could stop providing health insurance anytime they want to. These aren't charities, they are bottom-line focused businesses, and they provide this coverage because they get more value from it than it costs.

 

[Martha]

Some thoughts, though I have a fussy baby distracting me:

* * *
2) All applicants must be accepted at the standard rate (This is a "societal requirement" because the American public now believes everyone should have medical care--even if someone else has to pay for it. ) Inclusion of this "societal requirement" will also necessitate a mandate that everyone buy insurance--I don't think there's any other way to do it.

This is similar to the Swiss. Here, the Finance Committee plan does bar underwriting and provides subsidies. The requirement to buy is rather watered down in current plans. I agree it is a must.

3) Provide coverage without regard for employment status (this is a "societal requirement" because delinkng medical care from employment makes the labor market more efficient and makes our industries more competitive worldwide)

I have favored this idea for a long time. It will help with the dysfunctional non-group market as well.

We know how to facilitate competition: Allow cross-state sales of insurance products, standardize policy types, give consumers access to information about customer satisfaction with the insurers and provide consumers with easy access to information on health care outcomes from various procedures at various providers, etc.

The finance committee plan allows interstate compacts for sales of insurance. Currently, states regulate insurance and the finance committee still contemplates some state regulation. If it was wide open sales then a mechanism would have to be put in place to subject insurance companies to some regulation. (You know, things like soundness of the company, fraud, etc) The finance committee proposal didn't seem too bad of a way of dealing with a complex issue. Policies are standardized to some extent.

We don't have either a free or an efficient market today, which is why prices are high and why profits for health insurers are where they are. Efficient markets always drive down margins, and this is a much more effective method of doing it than government committees. Lots of things make our present market inefficient (opacity of pricing information, layer upon layer of interconnected pricing interdependencies, the existence of a fourth player (the employer) in the already complex three-player market "game" of consumer, health care provider, insurance company).

Let the free market do its magic, but within a confine that serves the needs of society (as presently understood) as well as the needs of individual consumers.

(Editorial: I am not comfortable with this "greater needs of society" requirement, but purists must face the fact that this is where America is headed--it is what people want. Apparently the Constitution, as presently interpreted, does not protect us from building a nanny state. So, let's go there with as little damage to individual liberty as possible)

You really aren't far off from the Baucus plan. Got to go, the baby is crying.

 

[eridanus]

Again, if the profit motive directly led to higher costs, why on earth would so many services cost more with the USPS than FedEx or UPS? Could it be that FedEx and UPS manage costs more effectively because of competitive pressures AND the need to show shareholders a profit?

Or could it be that the USPS has to go to EVERY mailbox to pick up mail, even if nothing is there, while FedEx/UPS only go to a pick-up site when something is to be picked up? FedEx/UPS can also cherry-pick their delivery locations; the USPS can't.

Poor comparison.

 

[ERD50]

Or could it be that the USPS has to go to EVERY mailbox to pick up mail, even if nothing is there, while FedEx/UPS only go to a pick-up site when something is to be picked up? FedEx/UPS can also cherry-pick their delivery locations; the USPS can't.

Poor comparison.

It probably is a poor comparison. I guess you are saying that the USPS uses package delivery to subsidize the cost of mail delivery to each home, so therefore their package rates are higher? Maybe they should charge accordingly, then it would be a closer comparison.

OTOH, I suppose one could argue that the USPS has an advantage - they are *already* going to every door, paid for by daily mail, the packages go along at a small incremental cost. While FedEx/UPS has to make special trips to specific doors.

It is these kinds of "comparisons" that make me cringe when people talk about a public option for health care being more cost effective. With tricky accounting, who will ever know?

-ERD50