Healthy questions about health insurance

By Julián Urrutia

I recently attended a presentation by Bernard Black about a study he is working on where he evaluates the effect of health insurance on overall mortality and health among the near-elderly through an observational study using the Health Retirement Survey. He found that health insurance, in general, was not associated with differences in health outcomes, except for public insurance, which he found to be associated with higher mortality.

Black concluded that we would be better off without health insurance because it has either no effect, or perhaps even a negative effect, on population health. I’m not sure the observational study design he relies on supports such a strong causal inference, despite the sophisticated econometrics he employs.  But I’ll leave the discussion about the internal and external validity of Black’s findings to the statisticians. I want to focus on his research question itself.

I find the question “what is the effect of health insurance on the health status of the near elderly” somewhat puzzling. In my view, health insurance is not a public health intervention or a healthcare service that is primarily meant to improve the health of any recipient; it’s really just a financial tool. Unlike iodizing salt or health education campaigns, we have no reason to expect that health insurance itself will improve the health of the average person.

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Could the Patient Protection and Affordable Care Act Have a Legitimacy Problem?

Public skepticism about the Patient Protection and Affordable Care Act could in a sense turn out to be self-fulfilling.  The success of the Exchanges will depend in large part on how many people enroll in them, that is, how many people comply with the individual mandate and sign up for insurance rather than take the tax penalty.  That is why we are starting to talk more and more about how many people will wind up enrolling; it’s important.  (For further reading in that vein, see Seth Chandler’s interesting post at his blog doubting that enrollment will reach projections, and John McDonough’s cautious predictions based on experience with the Massachusetts health insurance mandate.)

Many have based their projections on the Massachusetts experience, which is an interesting comparison for several reasons, for me none more than this one: the Massachusetts mandate was relatively uncontroversial.  One survey showed 64% approval for the law in general and 52% approval for the mandate.

It goes without saying, but the PPACA has not enjoyed that kind of popular support, for a variety of reasons.  According to a recent poll, the law enjoys only 40% approval in general and only 34% approval for the individual mandate.

In theory the law is the law, so the fact that the Massachusetts mandate was more popular than is the PPACA’s individual mandate should not affect compliance.  Rather, that should be determined by the difference between the monetary penalty for non-compliance and the cost of a complying health plan.  (Under the PPACA in year one, the penalty is $95 or 1% of your taxable income, whichever is higher; under the Massachusetts law in year one, it was $219.  So the PPACA’s penalty is higher for those making more than $21,900 in taxable income.  I haven’t compared the premiums of complying plans in Massachusetts year one to the premiums of plans on the Exchanges.)

But there is research that suggests that the controversy surrounding the law could matter for compliance.   Read More

Great piece on ER pricing

By Nicholson Price

The New York Times has posted another installment of its excellent series, “Paying Till it Hurts,” by Elisabeth Rosenthal, this time on the astonishingly high costs of emergency room visits.  The piece is worth a read in full for its infuriating detail—really, I think the whole series is—but the message is pretty clear.  I’d also be remiss in not noting that the basic message, with its own set of excruciating details, was laid out in Steven Brill’s piece in Time magazine back in March.  But it’s such a big issue that it deserves this kind of attention.

The basic point is that the costs charged by hospitals are incredibly high, highly variable, and invariably opaque.  Hospitals price procedures, products, and everything else based on the typically secret (but not in California!) “chargemaster,” which lists sticker prices for everything.  Hospital executives speaking about the chargemaster say no one pays sticker price.  That may be true, but the discounts from sticker are almost totally opaque, which hampers the market’s cost-checking role (the Times piece describes Sutter Health contracts as having “gag clauses” so that insurers who negotiate with Sutter can’t tell the employers who are paying for the insurance what rates have been negotiated).  In addition, lots of locales are dominated by one or two hospital systems, which consolidate then raise prices without worrying much about competition.  Finally, most people aren’t comparison shopping for an ER visit anyway – even if they could.

The effect of opacity and consolidation looks to be pretty regressive—even if no one plays the sticker price, the people paying closest to it are those without insurance, who have no prenegotiated discounts and no one to argue on their behalf.  Cal. Pacific’s CEO, Dr. Warren Browner, argues for opacity for pseudo-progressive goal of fleecing rich foreigners (“You don’t really want to change your charges if you have a Saudi sheikh come in with a suitcase full of cash who’s going to pay full charges.”), but that seems a lot rarer than near-poor coming in to ERs uninsured and getting billed full fare (especially if, a la a certain recent presidential candidate, ERs are our health care system for the uninsured).

As in the rest of the US health care system, higher costs appear to be totally divorced from quality of care or outcomes (national variation here (pdf), international comparison here).

It’s hard to see what effect PPACA/ACA/Obamacare might have on this problem.  The Independent Payment Advisory Board has lots of power (or will once it has members), but is still Medicare-focused.  Cost-savings in Medicaid or Medicare payments might spill over into the private insurance market, but if the opacity and market power mechanisms remain, it’s not obvious to me how and why that would really happen.  Medicare is already paying by care episode much more than private insurers, who are still usually fee-for-service.  More competition and transparency might help (More vigorous antitrust enforcement?  Required disclosure of billed/paid costs? (maybe, but maybe not)).  Maybe the fact that more people will be insured will make a difference; if the biggest burden is borne by the uninsured, who have little leverage, lowering that numbermight lower the burden.  But it could also just make it even more unfair for those who remain outside the system.

[UPDATE 12/5/13: I missed Section 9007 of the act, which requires charitable hospitals to publish their chargemasters and prohibits charging chargemaster rates to individuals who qualify for financial assistance (instead, they’d be charged insurer-negotiated rates).  Unfortunately, the implementing regulations haven’t been promulgated by HHS or Treasury, so these provisions aren’t yet applicable.  But eventually they may help, once they’re implemented.  Steven Brill has a piece on this here, and Sarah Alder here.]

In any case, the Times piece is worth a read.  And so are the previous four entries (on colonoscopies, pregnancy, joint replacement (with a nice discussion of medical tourism), and prescription drugs).

Delay of the Small-Business Health Insurance Exchange Launch May be a Good Thing

By Allison Hoffman

The Obama administration announced last week that the federally-run small-employer health insurance exchanges (or “SHOP” exchanges) will be delayed for a year, until November 2014.  This announcement, like others regarding delays in PPACA implementation, generated a flurry of negative reactions from the media and some members of the business community.  Critics lament that the lack of an online marketplace for small businesses in some states this year will make it more difficult for those businesses to compare options and to access tax credits (available to those with 25 or fewer employees and an average wage up to $50,000).  Their bottom line stated fear is that these impediments will deter some small businesses from offering their employees coverage at all.

But this delay – and any reduction in small-employer health insurance uptake – might not be all that bad.  To the extent this delay sends employees of small businesses into the individual-market exchanges instead, it might be a good thing in the long run, for both employees and employers.  I outline the reasons why in detail in an article published in the Iowa Law Review Bulletin, An Optimist’s Take on the Decline of Small-Employer Health Insurance.  In short, in the individual market, many employees will be able to buy good coverage at lower overall costs to them and their employers.  Many small-business employees would receive tax subsidies and will find as good or better risk pools.  Plus, their individual-market options are likely to be as good or better than the insurance they would get if covered through their jobs.  Small businesses won’t have to bear the burden of health insurance costs and administration and are exempt from employer penalties under the Affordable Care Act.  If businesses save money overall, it could slow the trend of income stagnation driven by increasing health care costs.  My article addresses other reasons why the decline of small-employer health insurance might be more socially efficient and equitable.

Paul Downs, a small business owner in Philadelphia, describes anecdotally cases where some of these reasons play out in an insightful November 25th New York Times blog post, Seven Conclusions About Small-Business Health Insurance (see especially his numbers 6 and 7).