Health Reform – a Framework for California
There are many different ways to get to universal coverage, and there are many different ways to control costs. This is to suggest a public private model, building on existing systems that covers everyone and brings down costs and improves health outcomes.
We can build out from the existing system that covers 93% of Californians to cover the remaining 7% uninsured. We can build on those existing well-organized delivery systems that have their incentives for quality and efficiency properly aligned. The question is whether we have the will, the wisdom and the leadership to do so.
Our existing system is a mix of public and private coverage that leaves a number of Americans uninsured and costs about twice as much as other nations with full, universal coverage; our health outcomes are far worse than in those nations that spend far less and have universal coverage. About half of our costs are in the public programs, and about half are in the private sector. Care in the US is expensive, not because we use so much of it, but rather because we pay very high prices for the care (hospitals, doctors, prescriptions) that we do use. Our citizens are uninsured both because coverage is very expensive and because of easily identifiable and fixable flaws in our systems of public and private coverage. Our outcomes such as life expectancy, maternal and infant mortality are substandard.
Understanding the system as it is
Private coverage has two main forms: employment-based coverage and individual coverage. Public coverage has two main programs: Medicare and Medicaid (MediCal in California). VA (Veterans Administration) health care and IHS (Indian Health Services) are additional programs of public health coverage for veterans and Native Americans, respectively. Workers Comp and auto insurance are also forms of private insurance with a health component for those injured in accidents on the job or in their cars.
Medicare covers seniors and the permanently (after 24 months of disability) and totally disabled. It is paid for by payroll taxes on workers and their employers. Medicaid (MediCal) covers low-income families and individuals and covers long term care and other services for low-income seniors and the disabled; it is paid for by federal and state governments. The Affordable Care Act (ACA) expanded Medicaid to the working poor and to the homeless; the federal government pays for 90% of the costs. This is an option available to states at a very minimal cost to state budgets, and it has been taken by most but not yet all of them. Voter ballot initiatives have been necessary in some states to overcome GOP state legislatures and governors’ reluctance to cover their citizens.
Private employment-based coverage covers many full time workers and their family members. It is subsidized with federal and state tax advantages known as “pre-tax purchasing” – about 1/3rd of the premium. These tax advantage are regressive, meaning they are far more beneficial to covering higher income workers with high marginal tax rates and provide far fewer financial incentives to cover low wage workforces with lower marginal tax rates. Employers typically pay about 3/4s of the cost of the premiums, and individual employees and families pay the remainder through payroll deductions. The Affordable Care Act requires mid sized and large employers (50 employees and up) to offer coverage to full time employees and their families or pay a fine/tax penalty. There is no comparable requirement for small business.
Private individual coverage is available to cover those who don’t get their coverage at work such as the self-employed, the gig workers and their families, some small business employees, part time and seasonal workers, and the unemployed. Coverage is far more expensive to the individual or working family, who must pay 100% of these premiums; as a result many have been uninsured. Coverage or individuals and families with incomes in excess of Medicaid eligibility can now be partially or wholly subsidized through the ACA. The ACA provides premium assistance and cost sharing assistance to reduce the premiums, copays and deductibles for moderate and middle-income individuals and families enrolled in Exchanges (i.e. the Covered California program). These subsidies are not generally available to full time employees who have declined coverage from their employer. Under California law, individuals, who are financially able to do so, must enroll in some form of public or private coverage or pay a small tax penalty.
There are about 30 million Americans who still remain uninsured; 2.7 to 3 million reside in California. California took full advantage of the ACA to cover its residents –dramatically reducing the state’s uninsured from about 7 million prior to the ACA (or about 17%) to about 7% (less than 3 million).
Those remaining uninsured include: people eligible for coverage who have not enrolled, primarily due to costs; people who are eligible but have not bothered or do not want to enroll due to their political leanings or the lack of information; people not eligible to enroll because their state (primarily the large Southern states) has refused to implement the ACA (Affordable Care Act), and people not eligible to enroll due to their immigration status (the undocumented and some other categories of immigrants).
In California due to our large population of undocumented workers, many of the remaining uninsured are undocumented (estimated 1.2 million). The rest are US citizens and legal permanent residents eligible for Covered California and MediCal, most with and some without subsidies.
California has recently made undocumented low-income seniors, the middle aged, young adults and undocumented children eligible for full scope MediCal. Low-income undocumented adults between the ages of 26 and 50 can be eligible for emergency (limited scope) MediCal for emergency care, prenatal care and deliveries. Moderate and middle income undocumented cannot enroll in Covered California, but can and should be covered by their employer; however many work in the shadow economy or in low wage businesses where health benefits are infrequent.
About 800,000 of California’s remaining uninsured are citizens and legal permanent residents eligible for Covered California – some with subsidies and others without. California and the Biden Administration substantially increased the premium assistance available through Covered California to uninsured moderate and middle income Californians. This takes three forms: 1) eliminating premiums for those with incomes less than 150% of FPL, 2) making those with incomes over 400% of FPL now eligible for premium assistance, and 3) increasing the federal contributions for premium assistance between 150 and 400% of FPL. These improvements are through the end of 2022. For the unemployed, enrollment can be premium-free through Covered California during the remainder of this year. Many Americans and many Californians are unfamiliar with these recent improvements, and Congress will need to act to extend them permanently as a part of the proposed Biden social infrastructure proposal.
An estimated 600,000 of California’s remaining uninsured are in fact MediCal eligible, and they can enroll at any time with no premiums, no deductibles and nominal copayments for their services. They are not enrolled due to lack of information, misinformation, disinterest, or fear of the consequences for immigration status (i.e. public charge). Some may live off the grid or be homeless or in severe mental distress. There are no tax penalties for their failure to enroll, and there are no financial barriers to their coverage.
According to national surveys, the Commonwealth of Massachusetts ranks #1 with about 3% uninsured, and the state of Texas ranks #50 with 18% uninsured. California is in the middle with an uninsured rate of over 7%. We certainly should be able to equal Massachusetts’ success rates within existing federal and state policies.
Covering everyone
We could build on public and private coverage programs to get to coverage for every Californian. What options are available to get California to universal coverage?
a) increase subsidies in Covered California
b) increase penalties for the eligible but unenrolled
c) increase educational efforts to explain improved affordability
d) expand MediCal for the undocumented
e) require all employers to offer coverage
f) link small low wage employers and employees with Covered California and
g) auto-enrollment.
To simplify our systems and cover everyone, we should have employment-based coverage for every full time worker, Covered California for the gig workers, the self employed and the unemployed, Medicaid for all the low income, and Medicare for seniors and all the disabled. Once we have clear lines and the expectations that all will be covered, the system would be easy to understand and simpler to administer.
Increase subsidies in Covered California
Covered California is for gig workers, the self-employed, the unemployed, college students and the disabled during the 24-month waiting period before their Medicare coverage begins. It negotiates premiums with insurers and subsidizes coverage. The ACA provides subsidies for individual coverage in two forms: premium assistance and cost sharing reductions. Subsidies in Covered California are linked to an individual’s income and choice of plan. Those with higher incomes pay a greater share of their own premiums. Those choosing the more expensive plans and the more extensive coverage pay the incremental cost differential. Premium assistance Subsidies are the most for those who are middle aged and older because their premiums (without the ACA subsidies) are up to three times higher than the premiums for young adults of comparable income. There is a sliding scale cap on the share of and individual’s income devoted to premiums; at the bottom it is 0%, and at the top it is 8%; this is linked to the “reference plan” (2nd lowest cost silver plan). As contrasted with the regressive tax subsidies for employment-based insurance, the ACA subsidies are progressive, i.e. they help those with the lower incomes the most. The tax subsidies for employment-based premiums help everyone, but the ACA subsidies for individual coverage do not; they are limited to those with moderate and middle incomes. They have been improved through the American Rescue Act, but only temporarily for two years; these changes could be extended as part of the infrastructure package currently being developed in Congress.
To cover the remaining uninsured, we need to further improve affordability of premiums and coverage in Covered California (the Exchanges) to make coverage even more attractive and covered care more accessible. Subsidies are linked to an individual’s income and to the second lowest cost silver plan (reference plan, 70% of expected medical expenses).
o They could be linked instead to the 2nd lowest cost gold plan (80% of expected medical expenses), making the offer of premium assistance and health insurance that much more attractive across the board and more comparable to typical employment-based or Medicare coverage.
o They could be extended so that they pay at least a minimum designated percent of premium costs for all eligible for Covered California – e.g. 1/3rd or ½. One third would put it on par with the average tax subsidy for employment-based coverage. This would make coverage more attractive and more affordable to those who otherwise might be paying up to 100% of premiums – e.g. the young with middle incomes. This would also improve the risk profile of the enrollees and thus reduce premiums in Covered California.
o Premium shares could be reduced to zero for all individuals with incomes up to 200% of FPL (the near poor), and adjusted correspondingly downward for those with higher incomes. The American Recovery Act reduced premiums to $0 for those with incomes of 150% of FPL or less.
o The cap on the percentage of an individual’s income devoted to premiums could be further reduced from 8% of income to 6% of income -- leaving larger families and the middle aged and older, who more often bump up against the cap, in a better financial situation. The American Recovery Act reduced the cap to 8% and eliminated the top income threshold so that more of the middle income qualify.
o Cost sharing reductions could be made available to those choosing bronze plans which otherwise cover only 60% of expected medical expenses. This would improve the value of the bronze tier for those with incomes which qualify for cost sharing reductions – less than 250% of FPL.
Increase penalties for those eligible but unenrolled
The federal tax penalties for not enrolling under the ACA were repealed during the Trump Administration, but several states like Massachusetts, Maryland and New Jersey enacted their own. In California, the state penalties/fines/taxes for those who decline to enroll are: $750 per adult, $375 per child or 2.5% of income, whichever is higher. There are exemptions from the penalty for lack of affordability, lack of insurance for a short duration, and low income. In light of the recent improvemenrs in premium assistance, the tax penalties could be increased for those who still decline to enroll, or they could be transmuted to a health insurance surcharge that pays for an individual’s coverage. The increased penalties/taxes could be paired with auto-enrollment into catastrophic coverage so that the individual paying a tax penalty has at least some coverage. After all, the goal of the ACA is coverage for every American.
Increase educational efforts to explain improved affordability
Many Californians and many Americans are unaware of the recent improvements in affordability in the Exchanges under the ACA – the national deadline for enrollment is the middle of August. After four years of the Trump Administration’s unrelenting efforts to repeal, weaken or strike down the ACA as unconstitutional and the politicization of the program due to Congressional GOP attacks, it is not surprising that potential subscribers are confused as to the program’s continuing viability and vitality. The improvements in affordability now being offered by the Biden and Newsom Administrations respectively have gone under the radar of most but the very well initiated, and they will expire unless Congress takes action to extend them as part of budget reconciliation. California has also expanded MediCal coverage to seniors and the middle aged who do not otherwise qualify due to their immigration status. It is time to get the message out in an effective manner to a citizenry still traumatized, on edge, and increasingly valuing health care and coverage due to the Covid pandemic.
Expanding MediCal for the undocumented
MediCal covers full scope services for low-income, legal permanent residents and US citizens. Medicaid covers emergencies and maternity services for the low-income undocumented; there is no federal financial participation (FFP) for a broader range of services.
California has extended full scope MediCal for low income, undocumented children and for undocumented young adults up to age 26. This year it will cover low income undocumented seniors and middle aged adults over the age of 50. We need to continue our state’s progress as state finances permit. In my view this should be paired with a requirement of employer coverage because the overwhelming percentages of the undocumented are employed.
Require all employers to offer coverage
The ACA requires employers with 50 or more employees to cover their full time employees and dependents. The bar for coverage is set rather low; employers only must pay for 60% of the cost of the premiums for the lowest priced bronze plan (60% of expected medical expenses).
On average, employers pay 82% of the cost of a gold plan for a single employee, and 70% of family coverage. The “offer” rates by small employers vary by the size of the employer, the type of business, and the average wages of their employees. The smallest employers with the highest percentages of low-wage workers are those least likely to offer coverage. The reasons for not offering coverage are affordability, and they can be fixed.
Since most of the nation’s uninsured are workers and their families, and there is an existing tax subsidy for employment-based coverage, it makes sense to build on and extend the ACA’s employer obligation to smaller businesses. This levels the playing field; it can and must be constructed to assure affordability for the low wage small businesses.
It is tough to pass a mandate on small businesses and even tougher as we recover from the pandemic which badly damaged specific small businesses like restaurants and retail. Yet if designed right, it would help these employers to attract the workforces they need to succeed. As we think this through, it is worth keeping in mind that the impacted small employers may range from a small childcare center or a struggling local restaurateur with lower wage workers to a comparatively well-compensated attorney’s office, CPA or doctor’s office. We do have to solve the affordability problem for the low wage small businesses, or it’s counterproductive and simply not worth the effort.
I’d suggest setting a modest “pay or play” tax as a graduated percent of wages offset by any employer expenditures on their employees’ health coverage, and I suggest using Covered California to negotiate the purchase coverage. I also recommend limiting the “pay or play” requirements for small businesses only to coverage of their employees, not to their dependents. Hawaii has had such a policy for many years, and it has worked well for Hawaiians. There could be a three to five year phase in for start-up small businesses to transition to purchasing coverage for their workers.
California would need to carefully design such a policy so that it complies with ERISA (Employee Retirement Income Security Act), which the Supreme Court has held barred states from mandating the content of self-insured employer’s health coverage; that ruling applied to large, self-insured employer health benefit plans. San Francisco designed a “pay or play” tax requirement for smaller employers down to 20 employees that passed muster with the 9th Circuit Court of Appeals.
Link small, low wage employers and employees with Covered California
Covered California already offers coverage to small businesses either for their employees only or for the whole family’s coverage, but with no subsidies. For small businesses, it could be ideal to make employee only coverage affordable and to secure family coverage for their employees by linking up to existing public coverage. The MediCal program’s eligibility for children extends to 266% of FPL, to 322% of FPL for pregnant women and to 138% of FPL for other adults. Covered California’s premium assistance helps pay health premiums for individuals and family members above these levels. Coverage for the employees of small, low wage businesses could be paid by coordinating with existing, available Covered California and MediCal coverage.
Auto-enrollment
A simple way to insure all of the remaining uninsured is to automatically enroll them in coverage and then bill them for their share of the premiums through a health insurance surtax on their state income tax returns. I think that there would be less hostility to a well-designed surtax that pays for your coverage than to a mandate and tax penalty that does not get you coverage.
What coverage? One could enroll those still remaining uninsured in either limited scope (emergency and maternity care) MediCal, or they could be enrolled in catastrophic (copper level) coverage in Covered California that pays for 50% of expected medical expenses. I’m partial to limited scope MediCal because it pays for emergencies and births and prenatal care. Copper (catastrophic) coverage is more problematic: first, the need to pick a plan and a provider network for an individual who has not enrolled and second, the high out of pocket exposure when an individual gets sick.
How do you pay for it? California could collect a share of the premiums towards the costs of their coverage from the remaining uninsured through a health insurance surtax on their state taxes. It could be graduated in increments at 1, 2, 3 and then 4% of incomes in excess of 150% of FPL -- (e.g. 2% for incomes between 200 and 300% of FPL, growing to 3% between 300 and 400% of FPL, and growing to 4% above 400% of FPL).
Alternatively, California could enroll the remaining uninsured in a full scope MediCal managed care plan or in a Covered California silver level plan. A state health insurance surtax could be graduated at 2, 4, 6 and then 8% of incremental incomes in excess of 150% of FPL (e.g. 6% between 300 and 400% of FPL).
One obvious difficulty with auto-enrollment would be determining to which plan and to which doctor(s) to assign those remaining uninsured who have not selected a plan or a doctor. That is why I prefer the emergency MediCal option that limits payments to genuine emergencies, prenatal care and deliveries, but includes all providers. It would reimburse all licensed hospitals and doctors at MediCal reimbursement rates for what would otherwise have been uncompensated care and bad debt.
COST CONTROLS
Controlling America’s high priced health system is even more challenging than getting to universal coverage because of the multitude of interests arrayed in preserving the high-priced status quo. Health costs are a function of prices multiplied by utilization. Our high health costs are not due to over-use of the system, but rather due to high prices for health services, and a badly distorted delivery system with reimbursement incentives poorly designed to achieve good and cost effective health outcomes for patients.
We need to understand it in order to fix it, and it is complex and obscure. In 1965 Medicare was built on the foundations of the prevalent private insurance systems. It was designed and written as a fee for service, reasonable and necessary costs, usual and customary fees, and any willing provider system – meaning any doctor or hospital could participate and the costs plus of the care they delivered would be reimbursed. These are all inflationary design features (for example, fee for services encourages more care and usual and customary encourages higher billing); these incentives were somewhat offset by the fact that the federal government sets the reimbursement rates. There have been many fixes to Medicare since such as DRGs (Diagnosis Related Groupings) and PPS (Prospective Payment Systems) for hospitals, RBRVS (Resource Based Relative Value Units) and SGR (Sustainable Growth Rates) for doctors, or the addition of contracting for prescription drug coverage in Part D Medicare. At its heart, it’s a system to pay for patients who are sick, not a system focused on wellness.
In 1982, California moved sharply away from the Medicare model and instead embraced new approaches to controlling health costs: competition, provider contracting and managed care. Managed care aimed to control excessive utilization; think HMOs. Provider contracting aimed to control high prices through provider price competition, through negotiated rates. This was California’s alternative to provider rate setting, an approach that was adamantly opposed by the hospitals and doctors through their associations and could not pass the California state legislature; they did not have the votes. As one health care executive said afterwards; “we were so busy fighting socialism and got blindsided by capitalism.” Prices and costs did come down for a time, and then they rebounded.
California, today, is mid range in terms of controlling health costs; we have low utilization paired to high provider prices. Our outcomes (e.g. infant mortality, cancer, stroke and heart disease) are pretty good; we don’t smoke a lot, and our residents are less plagued by obesity as compared to other states. We rank in the top five for health outcomes.
Our state’s cost controls are fractured and fragmented. A provider seeing a range of patients experiences a range of different reimbursement rates, incentives and cost controls. Each insurer and each program pays and reimburses differently.
Let’s start with Medicare (4.5 million Californians). Costs are controlled in three ways: rate setting (federal government sets the rates at which providers are paid), out of pocket (you, the patient, pay copayments, co-insurance and deductibles when you use covered services), and lack of coverage (for example dental care, vision care, hearing aids, and most long term care are typically not Medicare covered services).
Medicare Parts A and B offer a full range of doctors, hospitals, and other providers under a concept known as “any willing provider”; in simpler terms, if you are licensed or certified as required, you can readily participate in Medicare. It has weaker controls on utilization of services (fee for service) and tighter controls on the rates they charge to the Medicare program (reasonable and necessary costs), and typically there are limits on what hospitals and doctors can charge extra to their patients (balance billing). Medicare Part D covers prescription drugs provided through multiple competing private insurance plans; the subscriber chooses a plan, then tries to navigate and use its covered prescriptions. Medicare by law is barred from negotiating or setting reimbursement rates for prescription drugs. Rather each participating insurer negotiates them separately with the drug manufacturers or uses an intermediary to do so. Most seniors buy or have supplemental insurance that wraps around Medicare, and this insulates them from the program’s copays and deductibles and other out of pocket costs and negates Medicare’s cost control incentives.
Medicare Part C (Medicare Advantage) offers the same services through private insurance plans with tighter controls on utilization, a broader set of covered services, and a narrower network of participating providers in the plan. Over 45% of California’s Medicare enrollees have chosen Medicare Advantage plans. Medicare regulates the contracting plans and their provider networks to protect patients from excessive costs and inappropriate denials of services.
MediCal offers a wide range of covered services with no deductibles through a limited number of competing health plans with narrow networks of participating providers. This is known as MediCal managed care. There are strong controls on provider rates and fees, on utilization, and on the ability of providers to charge patients extra for their services (balance billing). MediCal was originally based on and used to look a lot like Medicare, but with more covered services (long term care, prescriptions, dental, vision and hearing) and no or nominal patient out of pocket. During the 80s and 90s, MediCal transitioned into the brave, new world of provider contracting and managed care plans. It now looks nothing at all like Medicare. Yet for seniors and the disabled, it is layered on top of Medicare to provide full wrap around coverage. There are about 13.7 million MediCal enrollees; this number fluctuates with the economy; as it improves more people are employed and covered through their jobs.
Covered California offers individuals (now about 1.6 million enrollees) and small businesses a choice of private (and a few public) plans and provider networks with premiums negotiated by a state entity. It is built on the framework of “managed competition”. In other words, the state contracts with a variety of plans; an individual chooses one and pays for it (there is a savings if choosing a less costly plan and an extra cost if choosing a more expensive plan). This is the same model used by the federal and state governments to cover their employees with one key difference; there is no employer payment, but rather a sliding scale government subsidy based on an individual’s income. Enrollment is low as compared to the other major California payers. Therefore, the state purchasing entity has less bargaining power to control the underlying costs of the participating private insurance plans and their networks; however the plans with the lower premiums do attract the bulk of the enrollment. Provider reimbursements are linked to the more generous private insurance offered through employer plans.
About 18 million Californians have private coverage through their or their spouse’s employers; this includes public employees like police, fire or teachers. Employers (except the self-insured) contract with private insurance plans to cover their employees, and they in turn contract with providers. In other words, in contrast to Covered California, there is a substantial disconnect between the beneficiary, the ultimate payer (the employer), and the plans and their provider networks. Private employer plans offer the most generous provider reimbursements of the three major sources of coverage, and they are strongly preferred by most providers. To summarize, private insurance plans are the most lucrative payers in the California market, and they cover the most people.
In California, a mix of HMOs and PPOs offer public and private coverage. Some participate in all the California markets, for example Kaiser and Blue Shield participate in all markets. Others participate only in Medicare or only in the large employer markets, which are the most lucrative markets. A few (principally the public plans) participate only in MediCal managed care. They each offer different financial incentives and different reimbursement rates. They are regulated by different state agencies: the Department of Managed Health Care for the HMOs and the Department of Insurance for the PPOs and other insurers. To add confusion, the self-insured plans are not regulated by the state at all, but rather by the federal Department of Labor.
HMOs like Kaiser have narrow networks, tightly controlled utilization of services, and a better integrated delivery system. HMOs have a far larger share of the California market than in most other states. PPOs like Blue Shield and Blue Cross have broader networks of providers, weaker internal controls on utilization and often rely more heavily on high deductibles and high copayments to control the costs of health care. Some private insurance plans are for profit like United, Cigna, Aetna or Anthem Blue Cross, while others like Kaiser and Blue Shield are non-profit entities. In California some are public plans like LA Care, Cal Optima, Alameda Alliance and Inland Empire Health Plan.
The end result is that providers experience very different reimbursement rates and very different financial incentives from payer to payer and program to program. The carefully tailored financial incentives of the health plan reimbursement rates can be so varied as to effectively cancel each other out at the provider level. Think about it; is the doctor going to do your surgery differently if you are insured by Aetna vs. Blue Cross? They may be more inclined to accept you as a patient in the first place if your insurer pays higher rates, but the key question is whether your procedure is covered at all.
Providers are concentrated in California’s urban and suburban communities. Some see very few or no MediCal and uninsured patients. Others like free and community clinics or public hospitals and clinics see primarily the poor and the uninsured. Some may offer concierge medical care to the affluent; others specialize in care for the homeless. Many see a range of patients from an array of different health plans with conflicting and inconsistent financial incentives. This means no coherent or effective policy of cost controls. For the most part, reimbursements are not linked to patient outcomes, but rather to whether the procedure was done.
Rural Californians have the least access to providers, followed by some of the poorer, inner city communities. There just are not enough practitioners in these regions. Rural Californians also pay very high private insurance premiums for their private coverage. Well-developed managed care organizations like Kaiser are not located and are not delivering care in rural California. The lack of an adequate supply of providers means the competitive approach does not work to reduce health costs, improve quality, and reduce provider prices in provider shortage areas. If we really want to improve access to providers in underserved regions, we may need to pay them more and pay the providers in communities with a surplus of doctors less.
In regions of California, like the Bay Area or Sacramento, large provider oligopolies may also limit the effectiveness of California’s competitive model, resulting in much higher premiums for private insurance in the affected communities.
What are some options to reduce the high prices of care, to improve its effectiveness and get better health outcomes, and to increase access in underserved communities?
a) the public option
b) rate regulation
c) prohibit balance billing and surprise billing in publicly supported coverage
d) develop better alternatives to rising out of pocket copays and deductibles
e) require provider participation in public programs
f) merging/integrating payers
g) integrated delivery networks
h) antitrust enforcement
i) payment reforms
j) expenditure caps.
The public option
The public option refers to “Medicare” -- a rate regulated, fee for service, any willing provider system. The pricing advantages that a public option could offer are due to provider rate setting, as compared to the more generous negotiated rates of their commercial competitors. A public option could also offer lower administrative costs than the commercial counterparts; it would, however, need to incur marketing costs and other administrative costs associated with market competition. When Senator Bernie Sanders and others refer to Medicare for All; they really mean a program closer to Medicaid (MediCal) with no copays, no deductibles, no premiums and a full range of services.
California already has public health plans. They participate in MediCal, and to a lesser degree in Medicare and Covered California. We already have multiple “public options”, managed care plans set up by local governments to participate in the MediCal managed care program. These plans were created to assure participation by safety net providers who have had little experience with managed care insurance. In MediCal, these public plans often perform well, and their quality rankings often exceed their commercial competitors other than Kaiser. Most do not participate in Covered California or in other private markets although some like LA Care do so. Their pricing advantages of MediCal reimbursement rates do not apply to the other markets that they might participate in. One big advantage of California’s public managed care plans is that they can and do reinvest their savings into improving health care and outcomes in their own communities, as contrasted with the big, for profit, commercial plans that redirect their savings (profits) very, very differently.
To add greater price competition into commercial marketplaces, public options would need the built in pricing advantages of Medicare or Medicaid rate setting; they do not have superior negotiating leverage or design features. The features of the “Medicare public option” such as any willing provider or fee for service or a broad network of participating providers may be attractive to prospective consumers, but they do not make the public option more price competitive in commercial markets. This raises the next option worthy of consideration – all payer rate regulation.
Rate regulation
Rate regulation typically refers to the hospital all payer rate-setting system in Maryland. I’m not aware of any state that uses all payer rate-setting for doctors and other practitioners. Maryland is the only system of its kind still extant in the US; it is and has been effective. The other states abandoned their rate setting programs in favor of the competitive model, because state policy makers believed it was more flexible, offered greater potential savings with fewer political headaches, less administration and fewer regulations. Policy makers believed that hospital rates can go down with competition, and they did so in California for periods of time before the hospital industry adjusted.
There are lots of moving parts, making it hard to regulate just one part of a complex system. For example, if hospital prices are controlled, utilization may increase. If both prices and utilization are controlled, services may move out of the hospital into free standing ambulatory surgery centers, birthing centers or doctor’s offices where the prices are not regulated.
As competition was implemented in California, some hospitals closed and others consolidated, eliminating the excess hospital capacity that had given competition such a boost. Some hospitals closed their emergency rooms or trauma centers. The closures occurred too often in the already underserved non-competitive markets in inner cities and rural communities. Hospital consolidations undermined the pricing advantages initially developed through provider contracting, creating more powerful hospital oligopolies that are better able to resist the pricing demands of insurers and can also be more efficient in purchasing supplies or allocating resources.
It may be time for California to reconsider all payer, all provider rate regulation. If so, it would need to be designed with enough flexibility and strong incentives for innovations to lower (or at least not increase) overall prices. We do not want or need a static medical care system; we want and need a dynamic and innovative one.
Prohibit balance billing and surprise billing in publicly supported coverage
Providers can and do bypass the consumer protections of insurers’ negotiated rates by “balance billing” and “surprise billing” to their patients. To understand how this works, it is important to understand the differences between charges, allowable costs and negotiated rates. Hospitals’ charges are three to five times as high as their costs; their negotiated rates are typically for their allowable costs plus a profit. Doctors’ usual and customary fees may also be far in excess of their negotiated rates or allowable costs.
When they are able to do so, hospitals and doctors may bill their patients extra -- for their “charges” or their “usual and customary” fees. The patient then gets caught in the middle with an unfathomably and unjustifiably large bill. Usually this happens when a patient’s provider is out of network, and this creates financial incentives to game the competitive contracting system as some hospitals and doctors have been doing very successfully to consumer’s disadvantage.
Almost every form of public and private insurance coverage is now supported by direct or indirect tax subsidies from the state and federal governments. Medicare and private insurance typically pay either a negotiated rate or some percentage of a provider’s allowable costs – e.g. 70%, 80%, 90%, and sometimes 100%. Subscribers’ liability ought to be limited to that 30%, 20%, 10% or even 0% differential. Any financial disputes should be resolved between the provider and insurer or public entity, and patients ought to be held 100% harmless in their billing disputes.
Out of pocket, out of control
The purpose of copays and deductibles is for patients and doctors to think about ordering a medical procedure of questionable efficacy. It is not to keep the patients from the medical care, which is desperately needed. It should be targeted at elective procedures; for example do you need back surgery or a better exercise regimen? In practice, it has become an ever-increasing barrier to needed medical care, and a cause of major financial distress, especially for lower, moderate and middle income individuals and their family members. These really impact the few patients who get really sick and desperately need the hospitals and doctors’ care. Patients who are sick and with the wrong insurer may encounter a mountain of medical debt.
Insurers have responded to rising health costs by indiscriminately increasing copays and deductibles as part of an effort to keep down their subscribers’ monthly premiums. Federal and state policy makers have designed some programs like HSA’s (Health Savings Accounts) which may insulate some, but simply exacerbate the trend. Covered California bronze plans, for example, which cover only 60% of expected medical costs, have proliferated among subscribers of modest means who cannot afford the more costly coverage. The mismatch between patients’ limited ability to pay, insurers’ failures to develop better ways to control costs and assure access to care, and the providers’ financial offices nearly unquenchable desire to increase their revenues highlights the dysfunction of these high deductible, high out of pocket plans.
This ridiculous state of affairs of American health care was laid bare throughout the pandemic as low and moderate families had the highest infection, hospitalization and death rates, and then too often incurred utterly unpayable medical and hospital bills while getting essential, life saving care during the pandemic. Life expectancy rates plummeted with Latinos and African Americans losing three years of like expectancy. Some were essential workers with high exposure rates on the job, low pay and crowded housing. More affluent communities had less spread, greater and easier access to vaccinations and were able to work from their own homes in greater safety
The Biden and Newsom administrations and the health plans doing business in California need to assure that both health plan premiums and patient out of pocket responsibilities are affordable for low, moderate and middle-income individuals and families. This will require a thorough and likely very contentious rethinking of the role and proper use of copays and deductibles in private coverage through employers and through the Exchanges (like Covered California).
In my opinion, out of pocket should be linked to subscriber’s family incomes. The ACA made an important advance linking a patient’s income to the size of the copays and deductibles, but this applied only to silver plans in the Exchanges purchased by persons with incomes less than 250% of the federal poverty level (FPL) – in other words it applied to a very limited universe. This vitally important advance needs to be expanded to other private insurance products both in and outside the Exchanges to protect individuals and families with moderate and middle incomes.
Require provider participation in public programs
California has experienced increasing problems with low doctor participation (and refusal to take assignment) in Medicare and Medicaid. Low participation has spilled over into some Covered California products as well. Some hospitals and some doctors want little or nothing to do with treating uninsured and Medicaid patients, preferring more lucrative private insurance patients, and they orient their contracting strategies and program participation accordingly. Hospital licensure should be conditioned on the facility’s commitment to seeing all members of the community, regardless of their type or extent of health coverage.
Doctors complete an extraordinary amount of training at great financial cost; many are encumbered by enormous medical debts as they enter practice, others receive large tax supported subsidies to complete their medical educations. There ought to be trade-offs of debt forgiveness for long-term commitments to treat the poor, the elderly, the disabled and others in public programs.
Merging/integrating/standardizing payers
Each public and every private program has different rules; each insurer has different procedures and policies. This adds up to unnecessary administrative costs for providers and ultimately for their patients and the nation’s taxpayers and employers. Without moving to single payer, there is much that can be done to standardize, simplify and coordinate programs and to assure that electronic medical records and telemedicine are widely used and fully interconnected. It would save administrative costs for providers and program administrators and would improve the care we get.
Consider a low to moderate family with two kids on MediCal in one plan, one working parent (a gig employee) covered by Covered California in a different plan, and one parent covered through a separate small business plan at work. Each program may offer a different insurer with a different provider network. The family and their doctors have to navigate three different, disconnected systems when someone is ill or the whole family may get infected. Plans and provider networks should be participating across all lines of business so that patients can have continuity of care and treatment for the entire family.
Or consider a low income Los Angeleno with health problems, a mental illness and substance abuse issues. That person has to navigate the LA Department of Public Health for treatment of their substance abuse, the LA Department of Mental Health for treatment of schizophrenia and LA Care’s managed care plan and its provider network for treatment of diabetes and hypertension. Frequently the patient’s records and the information vital to successful treatment cannot be shared because of these administrative barriers and the patient confidentiality rules attached to each system. These systems ought to be fully integrated for better outcomes for the most vulnerable members of our society.
Integrated delivery networks (IDN’s)
Kaiser is a good example of a well-integrated delivery network (IDN). It is also somewhat different from most IDN’s in that is both a provider network and a health insurer. It must offer premiums and prices that potential subscribers find attractive, as well as deliver services of a quality and accessibility that their patients find attractive.
The Mayo Clinic, the Cleveland Clinic, Geisinger, Northwell, and Intermountain are other well-known and highly regarded IDNs. In theory at least, a well-integrated delivery network provides higher quality care at a lower price. When your IDN’s family doctor refers you to a specialist or orders a prescription, or sends you to physical therapy or refers you to a behavioral health practitioner, it’s all in house and readily accessible within the IDN. All the patient’s information is available to the IDN practitioners giving the needed treatments. With your assent, a nurse practitioner or physician assistant working for the IDN may substitute for a primary care doctor. Phone and e-consults are readily available. As a subscriber, you are contacted and reminded to come in for your flu shot, annual physical or colonoscopy and most importantly now your Covid vaccaination. There are many benefits to high functioning IDN’s.
On the other hand, recent academic literature has found that costs may be greater, and the extent of quality improvements could be minor with an IDN. They are not easy to develop and replicate and require a significant culture change among the doctors and administrators participating. In California the UC hospitals and some county hospitals could transition and become IDN’s, but it is not as yet clear that there is a value in terms of lower prices and higher quality to do so.
Antitrust enforcement
Insurers are consolidating; hospitals are merging; physician practices are being acquired; collaborations are increasing, and mergers are happening even between insurers and the pharmaceutical industry. We already have natural hospital monopolies in small rural communities. Powerful hospital-based oligopolies have been and are being developed in some large metropolitan regions. Antitrust enforcement is one possible remedy and was successful in the case of Sutter Health but only after many years of litigation.
Antitrust could also be misapplied to break up promising collaborations and combinations to improve quality and efficiency. We know too little about the upsides and downsides of all the consolidations and mergers happening in the health care industry. Which ones are improving quality; which ones are reducing costs; which ones are increasing/preserving access in underserved communities; which ones are harming access; which ones are jacking up costs, and how do we tell the differences in terms of initiating and promoting antitrust enforcement? Are we confident and sure that competition is better than collaboration in increasing quality?
Payment reforms
Our nation’s payment system for health care has had built-in inflationary incentives because it is fee for service and based on a provider’s reasonable and necessary costs. It has not been particularly accountable in improving patient outcomes, and we don’t have very good health outcomes in the US as compared to other developed nations. Our payment system puts a higher value on specialty care relative to primary care. It pays doctors more who practice in high priced, heavily populated urban environments than those practicing in rural regions with a dearth of practitioners. Value based purchasing efforts are trying to change this and to transform reimbursements.
California, in contrast to the nation, has far broader and still growing enrollment in HMOs among its employer plans, MediCal plans, and Covered California plans. In HMOs providers’ incentives are very different; capitation and other fixed price and at risk reimbursement models create financial incentives to slow health spending and reduce unnecessary care and improve patient outcomes. California has had some very bad experiences in the 70’s and again in the 90’s with prepaid health plans and HMOs that did not deliver necessary care, did not reimburse their providers and left their delivery systems in ruins. Reforms from both eras put a stop to these shoddy practices.
There has been an effort to adopt payment reforms that align financial incentives to promote improved quality, better health outcomes and greater cost efficiency. These got a boost under the ACA; a range of approaches such as hospital payment reductions, non-payment for never events, blending, bundling, value-based payments, enhanced primary care for the homebound, bulk purchasing, and ACO’s (accountable care organizations) got the green light. Ten years later according to the studies, they have shown modest success (costs are lower and quality improved); however, there have been no really dramatic breakthroughs in cost reductions, nor any dramatic failures.
We now have enough information and IT capacity that we are able to know which hospitals, which physicians, and which treatments get better results for which kinds of patients. Improving accountability of plans and providers to produce better, more efficient patient outcomes, revising provider and plan reimbursements with the right incentives, getting providers to practice in the manpower shortage regions, educating more primary care practitioners, and integrating the delivery of care are the key payment reforms we should be adopting.
Expenditure caps
The ACA enacted expenditure caps for the growth in per capita health spending in Medicare and the Cadillac health benefit plans, but not for Medicaid. Those caps were not implemented and have now been repealed. Massachusetts enacted non-binding expenditure targets for health spending in the Commonwealth, and they have had some success.
In my opinion, we will need to adopt hard per capita caps nationally on Medicare, private insurance and Medicaid as long as health spending, costs and premiums continue to grow out of all proportion to the rest of the economy and most importantly to the rise in worker’s wages. Inflationary expectations are deeply built into American health care, and the tools to curb it have been too weak and ineffectual. Expenditure caps or targets will have to be done at (or at least require the collaboration of) the federal level because states have too little ability to control spending on either Medicare or private insurance for employees (particularly the self-insured employer plans).
Timing
As a nation we right now are in a state of shock, dismay and disbelief, pole-axed by the pandemic that has killed over 600,000 Americans and hospitalized over 2.2 million in the US; 33 million Americans (1 out of every 10 of us) have been infected; shocked at the failures of so many elected leaders and legislators to do their basic jobs for all of us; stunned by the failures of public safety net programs to perform when so many Americans have been in dire need, in awe of those medical professionals who faced the new and unknown disease with courage, compassion, skill and incredible dedication, and in appreciation for the pharmaceutical companies that developed extraordinarily effective vaccines in record time.
We have become badly polarized, and many are distrustful of science and government. We have seen our economic security, trusted institutions and even buildings collapsing unexpectedly before our eyes; so many workers lost their jobs. We have had federal, state and local political leaders who let us down, lied to us and worsened the pandemic’s spread. We are now experiencing a resurgence of Covid that was and is fully preventable if all who are eligible would simply get vaccinated. We are now blaming each other and many other convenient scapegoats, rather than taking the actions needed. We need to take some time to digest this, to learn from it, to make sense of it, to dispel the many lies and misinformation, to make common cause, and then to make critical decisions about the futures of our nation and our health care.
As a state, we can cover the remaining uninsured and get to universal coverage even if the decision makers in the federal government cannot reach consensus. Congress has acted to improve affordability; it’s up to us to implement these changes and to ask for their continuation and expansion as appropriate. As a state and a community it is within our power to adopt more effective cost controls and to improve health outcomes.
We do need, and we should demand, greater flexibility from the federal government to control costs and to assure all Californians are covered. Covering everyone at a more affordable cost will be good for our state’s economy, for California businesses, and for the health and well-being of all our residents.
As we recover together from the events of the last 16 months and search for answers and our ways forward, we must not lose sight of what actually worked during the unparalleled stressors of the pandemic, what did not, and what needs fixing. We will have to hold ourselves, our institutions, and our state, local and federal leaders accountable to make the changes we all need.
Prepared by: Lucien Wulsin
Dated: 7/21/21