The Conundrum of Health Care Reform- Expressed in a Single Local News Article

Southcoast Hospitals, a network of 3 hospitals in southeastern Massachusetts, has announced 93 layoffs (1 1/2 % of staff). The article in the local newspaper includes the following lines:

• Southcoast Hospitals Group today announced it is eliminating 93 positions in a restructuring triggered in large part by lower expectations for state and Medicaid managed care reimbursements.
• Southcoast also announced ...[it] will continue to reevaluate its health insurance benefits, which after wages is the single largest item in its budget, costing about $35 million annually
• [Southcoast is] the region’s largest employer with some 6,000 employees

So - the hospital is being hurt by lower reimbursement rates -- but its health insurance budget is strained by the weight of high reimbursement rates. Those high rates are most likely charged in part by ... Southcoast Hospital, since many employees get their care from local providers. Further, the hospital system is the largest employer in the area.

My conclusions:

1) Providers face a paradox. They want and need high rates to sustain their costs of care delivery, but chafe at paying high rates for their own employees. In this way, health care providers look just like all other employers.

2) It's painful to take a big bite out of rates, because hospitals are a major employer in every community that has a hospital. Remember the 30% of health care costs that could be eliminated when we reduce variation and decrease waste? That will cost a lot of jobs.

Right now we have a special problem in the US. States are running short of money, and they are cutting Medicaid reimbursements, which can be devastating for hospitals serving poor neighborhoods. Things are worse still for "safety net" hospitals in Massachusetts, where we just about eliminated the uncompensated care pool -since so many fewer people are uninsured. But it turns out that uncompensated care at these hospitals has not decreased as much as policymakers had hoped.

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RAND estimates of Massachusetts Cost Savings 2010-2020

Massachusetts' Division of Health Care Policy and Finance released a 244 page summary of RAND's evaluation of 21 initiatives which have been proposed to save health care costs. RAND started with 75 potential initiatives, narrowed this down to 21, and did literature reviews and developed projections based on optimistic and less optimistic scenarios for total savings possible over the 10 year period from 2010 to 2020 for Massachusetts health care excluding Medicare. The projections take into consideration the lead time required for many changes - and the results will surprise some.

1) The most impressive initiative would be effective bundling of payments. This could save as much as 5.9% of total costs

2) Three much-touted methods of saving money in health care showed estimates of increased costs with the less optimistic projection. This includes implementation of health information technology, disease management, and implementation of medical home.

3) Two of the initiatives, to decrease reimbursement to academic medical centers, are more applicable in Massachusetts than other areas with lower penetration of AMCs.

4) The RAND projections suggest middling to no savings from hospital rate regulation. Next month's Health Affairs will have a report from Maryland that might change this point of view.

RAND did not offer projections on 9 of the 21 initiatives - stating that either the literature was not promising in terms of cost savings or that there just wasnt' enough data.

In some ways - this is disappointing. Policymakers, insurers, providers, employers - pretty much everyone - wants a magic bullet. This set of projections suggests that payment reform should be part of the equation of efforts to manage health care costs. It also offers a well-referenced critical review of how difficult it will be to achieve meaningful cost savings.

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A Black Eye for Health Insurers - and Why We Need Group Health Plans

Anyone who is wondering why the Obama administration is demonizing health insurance plans should listen to Act 3 of This American Life from late July “The Fine Print.” [The piece is around minute 33 of the radio show.] Host Ira Glass interviews Congresswoman Jan Schakowsky, and plays selected clips from her subcommittee, which interviewed CEOs of insurance companies that offer individual policies. The first patient interviewed was a woman whose individual health plan was rescinded (recission) because she had not divulged seeing a dermatologist for acne prior to applying for the policy. Her aggressive breast cancer was not excised for a few months while she fought the insurer – she believes the cancer spread during that time.

The insurance company executives argued that they needed to protect all of their policyholders from fraud – and that these recissions allowed them to offer less expensive policies. The execs argued that they gave the boot to only 1/10 of a percent of policyholders. However, this represents a significant financial boost for these plans. The top ½% of patients represent about 20% of costs in a commercially insured population – so it doesn’t take many recissions to boost a bottom line. The personal cost is enormous for patients with serious illness having to battle their illness and an insurer simultaneously.

I believe that there will be increased regulation of insurers stemming from the problem of recission. This might be a good idea, but doesn’t address the root cause.

The underlying problem here is that individual health insurance policies are subject to gaming on both sides. People with illness wish to hide their illness to gain coverage, and people with no illnesses take the gamble and don’t pay for coverage. Health insurance should be the transfer of wealth from healthy people (who pay premiums and get little benefit) to sick people (whose premium payments will never cover their illness). This requires large, stable insurance groups, such as employers, so that individuals with known illnesses can maintain coverage. Optimally this also requires an individual mandate, so that the Americans who have already won the “health lottery” by being healthy continue to pay into the system. Some have advocated individual policies so that patients (aka consumers) have skin in the game. Recissions of individual policies shows the need for stable insurance groups to maintain equitable affordable coverage.

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