First, possibly due to political feasibility, he isn’t pushing for Medicare for All. He wants to keep the Affordable Care Act (the ACA, or “Obamacare”) and fix the parts of it that aren’t working so well.
So let’s take a look at that.
There are many parts to the ACA, but its main thrust was to increase insurance coverage. Here are some 2019 data to show what kind of numbers we’ll be working with in this discussion:
People over age 65 are on Medicare (60,000,000 people), so that’s straightforward.
But for the rest–the under-age-65 people–they fall into one of four insurance groups . . .
Employer-sponsored insurance (160,000,000 people) if they’re lucky enough to work for an employer that provides benefits
Medicaid (70,000,000 people) if they’re poor enough to qualify
Private insurance from the “private market” (10,000,000 people) if they make too much to qualify for Medicaid and don’t have an employer that provides benefits
Uninsured (30,000,000 people) if they don’t get insurance from their employer, they don’t qualify for Medicaid, and they don’t want to fork out the dough for insurance from the private market
Now, how did the ACA work to decrease the number of uninsured people? There were many ways, but here are the two biggest ways:
First, it allowed states to liberalize their eligibility criteria for Medicaid, and it offered federal funds to pay for most of the costs associated with all those new Medicaid enrollees. That accounts for about 12,000,000 of that 70,000,000 number listed above, some of which were previously uninsured, and others of which were previously on private insurance.
Second, it created a tax (also called a “health insurance mandate”) for anyone who didn’t have health insurance. This was to push the uninsured who didn’t qualify for Medicaid to buy insurance. And because everyone was going to be required to buy insurance, they had to make sure it would be affordable for everyone, so they promised to help cover the cost of insurance premiums for anyone under 400% of the poverty level. And to prevent insurance companies from taking advantage of the government’s willingness to help pay for people’s insurance premiums, they made a rule that insurers have to charge everyone the same premium (although that price can be adjusted up or down to a limited extent depending on two factors only: age and smoking status).
So, an easy way to describe the ACA’s second way it was trying to increase insurance coverage is by saying it was attempting to shift uninsured people into that private market. The ACA even created a nice website (healthcare.gov) to make it extra easy for people to shop for insurance plans on the private market by listing them all there side by side in a standardized fashion, and the website went so far as to pull in people’s tax information to calculate their premium subsidy right up front as well.
Unfortunately, most of the uninsured who didn’t newly qualify for Medicaid still didn’t buy insurance, not only because the tax/mandate was initially weak, but because it was subsequently eliminated. But the sick people are still buying insurance in the private market because it’s worth it for them since their premium is the same as everyone else with their same age and smoking status. This has left that private market’s risk pool with horribly high average risk and, therefore, horribly high premiums, especially for anyone who earns more than 400% of the poverty level and therefore doesn’t qualify for any premium subsidies. And that’s why there are still 30,000,000 people who are uninsured.
The natural solution to this would be to restore the mandate and to get rid of the 400% poverty level limit and just decide to subsidize the premiums for anyone whose premium will amount to, say, more than 8.5% of their annual income. This would shift many healthy people back into the private market and bring premiums down a whole lot by lowering the average risk, which would then pull even more people from the uninsured group into the private insurance group.
And that’s exactly what Joe Biden plans to do. Except for the reinstating the mandate part, which would probably not be popular nor even possible. I guess he hopes that if his subsidies are generous enough, he will get more healthy people into the market even without a mandate.
He is making the subsidies extra generous. Not only can anyone qualify now (as long as their premium is going to be more than 8.5% of their annual income), but also the benchmark plan these subsidies are based on are gold level plans rather than silver (meaning out-of-pocket costs, especially deductibles, will be a lot lower). So we will see how many of those 30,000,000 people will be enticed into buying health insurance.
But he’s gone further than that. I think he feels that insurance companies don’t truly competitively price their plans because he’s also going to create a new publicly run insurance company that will offer its own plan (known as a “public option”) in the private market alongside all the other private insurers’ plans on healthcare.gov. If the public option ends up being way cheaper than all the other private insurance companies’ plans, everyone will choose to get on that public option, and it will force private insurers to start pricing their plans more competitively. This should also help to lower prices in the private market, which will price even more uninsured people into the market.
There are lots of other details to his plan (you can read them in last week’s post), but the parts discussed here are what I believe to be the biggest core pieces. Everything else is somewhat peripheral.
I have lots of thoughts about how this plan into fits into/contributes to/detracts from the overall changes that need to be made in our healthcare system, so look forward to those next week.
This is the paper that generated the most media attention, much of which incorrectly asserted that the ACP endorsed “Medicare for All.” So let me, at the outset, clear this up: The ACP doesn’t endorse Medicare for All in this paper. It endorses a couple different options to achieve universal coverage, one of which is a single-payer system. There are many ways to achieve a single-payer system, and Medicare for All is just one way to do that. Maybe this sounds like semantics, but I think it’s important to be accurate here because the term “Medicare for All” carries with it a lot of specific ideas about how a single-payer system should be implemented, and it also carries with it specific political affiliations. The ACP was not committing to any of those specific ideas or political affiliations; the writers were only endorsing the general single-payer system approach as one of two options for how to increase insurance coverage.
Now, on to assessing the details of the paper.
Part 1 of this paper reviews the state of insurance coverage and healthcare spending, which sets the stage for Parts 2 and 3 to talk about ways to expand coverage and lower care costs.
Part 2 is mostly what I want to talk about. First, it asserts unabashedly that the ACP feels that universal health insurance coverage is essential. And since having insurance coverage is pointless if its spending requirements are not affordable or if providers are unavailable, it adds those access details in as also being essential.
Then it lists two options that it sees as being able to achieve that goal: a “single-payer financing approach” and a “publicly financed coverage option.” Let’s look at each one.
Single-payer financing approach. This means a single government-run insurance company provides insurance for everyone in the country. It doesn’t necessarily prevent people from purchasing private supplemental insurance, but it would cover everything considered to be essential. The paper then discusses some of the well-known benefits and concerns that come along with having a single-payer system. The interesting part to me, which makes sense coming from a physician organization, is their particular concern about how this would affect physicians. It could decrease administrative burden and uncompensated care, but it could also decrease autonomy. And the big concern is that if it relies on “Medicare’s flawed payment system,” it would perpetuate a few undesirable things, including bad incentives (such as an over-reliance on fee for service), the overvaluing of certain services (procedures), and unsustainably low reimbursements (that would make some providers go bankrupt). Any prior “Medicare for All” proposal I’ve seen relies on Medicare’s payment system, so this is a good example of why the ACP is not endorsing Medicare for All specifically.
Publicly financed coverage option. Another name for this is a “public option.” Basically it’s a government-run insurance plan that will be offered alongside private insurance plans. It would be available for employees to opt into rather than use their employer-sponsored insurance as well. An essential part of this insurance plan is that it would have premium and cost-sharing subsidies (so that, again, lower-income people don’t end up with useless coverage). Later on in this paper, they say that no matter which option is chosen, it needs to have included with it a mandatory or automatic enrollment component. I’m not sure how premiums would be paid for by people auto-enrolled into the public option plan–possibly through filing their taxes–but isn’t this looking more and more like the Affordable Care Act? Require people to have insurance coverage and subsidize lower-income people to be able to buy it? Yes, that’s the ACA. The one difference is that one of the insurance plans people can select from will be run by the government (which, incidentally, was originally part of the ACA plan).
So those are the two options the ACP supports. They also mention another approach: convert all insurers to non-profits and require everyone to have health insurance (another variation of the ACA, but this time there’s no public option and instead all the insurers are non-profits). But they say there is not enough information on how such a system could be applied to the U.S., so they don’t endorse it. And all the other options for reform that are out there (such as “market-based approaches”) would not achieve universal coverage, so they were eliminated from consideration.
Even though the ACP is politically neutral, you can see that their foundational beliefs and priorities line up much more closely with modern liberal thinking rather than conservative thinking/beliefs/priorities. This is what I expected, and I discussed it in my intro to this series.
Part 3 discusses strategies they support to lower healthcare costs. There are 5 of them: invest more in primary and comprehensive care, reduce excessive pricing and improve efficiency, reduce low-value care, rely more on global budgets and all-payer rate setting, and use more reference pricing.
Rather than get into the merits and drawbacks of these different policies here, lets finish this series with a brief discussion about whether the two options they endorse to attain universal coverage will get in the way of the ideas we talked about in Part 2.
If you will recall, the second ACP paper we discussed gave 6 different recommendations, the two main ones being to (1) give patients price and quality information to help them choose higher-value providers and (2) getting providers to shift to value-based purchasing arrangements (especially different forms of capitation) with insurers.
With a single-payer system, usually the implementation involves setting a uniform nationwide price for each service (adjusted by region for cost of living). This would completely ruin their idea of getting patients to choose providers based on value because the price would be the same for all providers. I will not get into detail on how, but setting a price floor like that completely distorts providers’ innovation incentives. It would kill pretty much any cost-lowering innovation that results in slightly reduced quality, even if the innovation could result in drastically lower cost.
But, on the upside, since there’s only one insurer to deal with, a single-payer system would allow for perfectly uniform incentives for any provider that chooses to enter a VBP arrangement!
With a public option like they have described, there is the exact same problem with distorted/ruined incentives due to uniform pricing, but at least the extent of the problem is limited to the number of patients who are on the public option plan. And, as for providers’ efforts to enter into VBP arrangements, it would probably make it slightly easier to get uniform incentives because I assume VBP arrangements would be harmonized between Medicare and this public option. But any provider who wants to design their own VBP arrangement is going to have to have an even harder time attaining uniform incentives because I suspect they would have to convince the plan administrators of Medicare and the public option independently, which means they’re trying to win over yet another public payer to be able to move forward with their idea.
Am I saying that the ACP’s efforts to accomplish universal coverage will interfere with their efforts to improve the care delivery system? Yes. The two options they endorse don’t necessarily need to be implemented in a way that does that, but I see nothing in what they’ve written that specifies that they should be implemented in a way that mitigates those problems. (For details on how this could be done, see what an optimal single-payer system would look like here and what an optimal ACA-type system would look like here.)
I think different groups of people were working on each paper, and even though they were reporting their findings and recommendations to the same group of ACP leaders for approval, it’s quite a difficult task as one of those ACP leaders to be presented with complex recommendations from two different groups and figure out exactly how they might conflict with each other.
Well, there we have it. The ACP endorsed some things that would be very beneficial, but they fell into the same trap of not thinking about these things from a complete system perspective, so their efforts to get more people into the system will interfere with the changes the system needs to deliver better value over time. This is why any healthcare reformer first needs to have a firm understanding of the core causes of low value and how those can be resolved before deciding on the details of how to enact universal coverage.
But I am happy the ACP jumped directly into this arena. It shows that powerful physician groups are also interested in figuring out how to fix the healthcare system. Maybe the biggest benefit from their efforts of researching and releasing these papers (and then having them critiqued) is that it will make the ACP and other provider groups more likely to recognize and support policies that will truly move us closer to fixing our healthcare system.
In Parts 1 through 6, I explained the Healthcare Incentives Framework, which is useful for clarifying the necessary ingredients of an optimal healthcare system. Those are the pre-requisite readings to understanding this post, and I will not fully summarize or provide the rationale for them here. But, just as a reminder, Parts 1 through 6 culminated in the goal of getting market share to flow to higher-value providers and insurers, which would be enabled through three critical inputs to decision makers/patients: (1) multiple options, (2) the ability to identify the highest-value option, and (3) incentives to choose the highest-value option. As barriers to those three inputs are minimized, any healthcare system will begin to evolve to deliver higher and higher value. This is the only way to unlock sustained value improvement in healthcare systems.
An important point about this framework is that it is, in a sense, welfare-spectrum neutral, meaning the principles apply to healthcare systems that sit at any point on the welfare spectrum, from libertarian-type systems to fully government-run systems.
Now let’s imagine up some concrete examples of what different types of systems might look like if we built them from scratch using the ingredients from the Healthcare Incentives Framework.
A Libertarian-type System
In this system, there are many private insurers all offering creative and innovative health insurance plans. Their efforts are focused on trying to maximize cost-saving prevention so they can lower their costs and then outprice their competitors. This has led to many ways of keeping people out of hospitals and emergency departments. But since health insurance is an inherently complex product, there are some standardized levels of coverage that have been agreed upon to help people compare those plans apples to apples. This standardization has been implemented in a way that maximally improves comparability with minimal limitation on plan design flexibility. Multiple health insurance comparison shopping websites have arisen, all highlighting those standardized coverage levels, differences between plans, and clear pricing.
An important aspect of these insurance plans is that most of them require the enrollee to pay some part of the price differential between providers; this did not need to be mandated because insurers found that they are able to price premiums more aggressively when they have implemented those cost-sharing characteristics. The plans that do not have this feature are much more expensive, but some people prefer them because they don’t ever need to worry about prices when choosing providers.
There is no requirement for people to buy health insurance, but because there is also no guarantee of care if someone without insurance has a catastrophic medical expense, many people are motivated to buy catastrophic coverage. The rest of their care they buy a la carte out of pocket.
Many of the poor, as well as people with chronic expensive medical conditions, are priced out of the insurance market, but private charities have cropped up that assist with this for most of them.
Looking at the provider side, nonprofits have played a leading role in establishing standards in provider quality metric tracking and reporting. These nonprofits also certify the quality information being reported by providers, so patients are able to compare the quality of different providers apples to apples. The quality metrics being reported and certified are determined by what patients find most relevant in helping them decide between providers for each service they are shopping for. Similar to the health insurance shopping websites, there are provider shopping websites presenting those standardized metrics alongside providers’ advertised prices.
Because providers are assured increased market share when their value goes up relative to competitors, there is a great variety of innovation toward crafting high-value care experiences for patients. Most of the value improvements are in the form of cost-lowering innovations because of the downward pressure on price exerted by the uninsured population and the price-sensitive insured population. Providers have particularly found that shifting the location of care to less expensive settings (including even the patient’s own home) and shifting to relying more on narrowly trained provider types (particularly for treatments that are relatively algorithmic) is very effective at lowering costs. Suppliers of healthcare devices have also found that they are more successful as they focus on developing lower-cost devices, even if that means sacrificing some amount of quality or features. And since government regulations have been kept to a minimum, all these innovations have been allowed to progress and flourish quickly. This occasionally results in unsafe practices and devices cropping up, and individuals have been hurt in the process, but people have felt that the rapidity of innovation that has improved so many lives has been worth that cost. And any practice that proves to be unsafe is exposed quickly in this marketplace.
Providers have also found that, when patients are shopping for a provider, they are looking for a specific well-defined service or bundle of services, such as a year’s worth of chronic disease management, a CT scan, a hip replacement (including all the pre-op workup and the post-op rehab), or a diagnostic evaluation. This has led to standardized bundles of services (also certified by those non-profits), which has made shopping for healthcare services easier and also enhanced the ability to compare the prices from one provider to another.
This system is not perfect. Some people choose not to buy insurance and then have to declare bankruptcy when they have an expensive care episode (or end up not getting care due to inability to pay), and some people want to buy insurance but are frustrated that they cannot afford it, although this number is decreasing each year. Providers face challenges dealing with multiple insurance plans with different reimbursement schemes and coverage rules. And unsafe practices or innovations crop up every so often that harm patients. But, overall, the value delivered by insurers and providers increases rapidly as insurers find new ways to prevent care episodes, and, for the care episodes that cannot be prevented, providers find ways to make care safer, more convenient, and more affordable.
A Single-payer System
With the government running the single insurance company for this system, they have been able to easily implement many of the needed aspects of an optimal healthcare system. They automatically cover all known cost-saving and cost-effective preventive services without copays, which includes population-based preventive services but also focuses more and more on targeting extra services to high-utilizing patients to prevent hospitalizations and ED visits. Their cradle-to-grave time horizon has helped this immensely.
The prices the insurer assigns to services are not firm but are rather considered to be the “maximum allowable reimbursement,” so any provider that wants to charge a lower price will have the freedom to do that. And providers who innovate and find ways to charge less win market share because the insurance plan’s cost-sharing policies require people to pay less out of pocket when selecting a less expensive provider. The insurer has also found that paying a single fee for standardized bundles of services has motivated a great deal of provider innovation and cooperation.
Together, all these reimbursement policies help to prevent as many care episodes as possible and minimize the cost of the episodes that are not preventable.
The insurer’s fee schedule also includes a multiplier to adjust for regional cost variations, and they leverage this to increase reimbursement in underserved areas as well, which has especially helped rural areas maintain enough providers.
As a condition of being accepted as in-network by the insurance plan, providers are required to use an electronic medical record that is able to decode and record to the patient’s secure cloud-based personal health record. Providers are also required to report specific quality metrics. These quality metrics are never used for giving bonuses, but they instead focus on the aspects of quality that patients find most relevant when they’re trying to decide between provider options. The insurer operates a single website that lists all in-network providers along with these risk-adjusted quality metrics and each provider’s prices (displayed as the amount the patient will be expected to pay out of pocket).
Providers appreciate this system for many reasons. They only deal with a single insurer, which minimizes insurance-related overhead expenses and gives them a single set of incentives to respond to. They are completely free to build hospitals and clinics wherever they think they will be most profitable. And they can organize care however they want provided they adhere to the safety and reporting regulations.
Now, having seen the main aspects of this system, let us consider the impact of not adhering to the Healthcare Incentives Framework’s requirement of having multiple insurer options. Recall that the jobs insurers are primarily responsible for are risk pooling and cost-saving prevention. And the reason having multiple options is desirable is because—assuming patients can identify and then choose the highest-value insurance plans—insurers will have a profit motive driving them to innovate to find ways to increase the value they deliver, which especially means finding ways to do more cost-saving prevention that will result in more care episodes being prevented, thus lowering the total cost of care and insurance prices. With a single government-run insurer, that innovation and its attendant benefits will be curtailed. Clearly there are many compensatory benefits, including simplicity, reduced administrative overhead, uniform incentives, and a straightforward way of achieving a society’s goal of universal access to insurance. Depending on the priorities of the country, these benefits may outweigh the costs. It is a question of values. But the decision becomes clearer when the costs and benefits of each option are understood.
A Government-run System
This system, like the single-payer system described above, has a single insurer that is run by the government. But here the government also owns all the healthcare facilities and employs all the healthcare providers.
On the insurance side, reimbursement policies are familiar, with “maximum allowable reimbursements,” bundled pricing, differential cost-sharing for patients, and a website reporting the quality metrics and prices (out-of-pocket costs) of providers. The insurer also has a robust department working on preventing care episodes by finding innovative ways to keep people healthy.
But what about the provider side? Initially it may seem that patients only have a single healthcare provider option, but just because a single entity owns all the hospitals and clinics does not mean they are all the same. In this system, the government determines where healthcare facilities will be built and what services they will provide, but it allows great freedom in their operation. At every facility, providers are able to organize care however they like, and they are also free to charge any price as long as it is at or below the maximum allowable reimbursement for each service. They have great motivation to put in the effort required to find ways to lower costs (thereby enabling them to charge lower prices) and improve quality because they receive bonuses that are calculated based on the amount of money they saved the system (the number of patients treated multiplied by how much less than the maximum allowable reimbursement each of those patients was charged).
Because the insurer and providers are all operating under one roof, the billing in this system is particularly simple. Some specific requirements are in place for the purpose of accumulating data that will help track for problems in the healthcare system, but there are no complex billing codes or arcane documentation requirements. When providers document a patient encounter, they do so for the purpose of communicating to other providers what they thought and did.
Government healthcare expenditures in this system are sustainable mostly because providers are actively innovating to improve value—much of which results in them being able to lower prices so they can earn bonuses.
Overall, this system has been organized in a way that, despite the government ownership of providers, maintains the ability to reward value with market share, which drives value improvement. The insurance side also innovates to prevent care episodes by leveraging its cradle-to-grave time horizons and connections with other non-healthcare public health sectors.
There are barriers to provider innovation compared to other systems. Providers face the upside of potential bonuses for doing well, but there is not necessarily much downside risk in providers who are mediocre or worse and still getting paid their stable salary. In any other market, the risk of being forced out of business due to lost market share drives competitors to innovate to improve their value so they can become profitable, but in this system the worst-case scenario is that the government closes their clinic and relocates those providers elsewhere. Additionally, many innovations require new types of facilities or caregivers, or they require cooperation between multiple types of providers, which can be difficult when providers have limited control over facility design, placement, and reimbursement contracts.
The effects of these innovation barriers are difficult to quantify, but they need to be balanced with the benefits of a reduced documentation burden, a simpler billing system, and a more reliable dispersion of healthcare services across the country.
Policy makers overseeing any type of system need to understand their system’s current barriers to the three critical inputs: multiple options, ability to identify the highest-value option, and incentive to choose the highest-value option. (Many of the most common barriers to those three inputs are outlined in Part 6.) They need to understand that those barriers are the primary inhibitors of their healthcare system evolving to deliver increasingly higher value for patients over time. And as they enact policies that eliminate those barriers, they will see a predictable chain reaction of more patients choosing higher-value insurance plans and providers, those higher-value competitors earning more profit, and parties in the healthcare system beginning to innovate to deliver higher value, all of which will result in the healthcare system transformation that is sorely needed the world over. Policy makers who understand this Healthcare Incentives Framework are also empowered to propose and support policies that expand access in ways that do not create new barriers to those three critical inputs.
As healthcare reforms begin to take this focused direction, the innovations and value improvements will be exciting to watch!
In Part 8, I will conclude this series by imagining how the U.S. healthcare system might look with the Healthcare Incentives Framework fully implemented.
Brief preface: Our healthcare system is a mixture of government-run stuff (e.g., Medicare, the VA system) and non-government-run stuff (e.g., the private insurance market, private hospitals).
Often I will read something written by a healthcare expert that says, “Turning healthcare completely over to the free market can’t fix our healthcare cost problems because spending in the private aspects of our healthcare system has been growing at an unsustainable rate.” That statement is often accompanied by its corollary, “And there is also no data that a completely government-run system can solve our increasing cost problem because Medicare hasn’t done so already.”
I’d just like to make explicit the major assumptions contained within those two faulty assertions:
Major assumption #1: The free-market aspects of our current system have no influence on the success of the government-run aspects of our system.
Major assumption #2: The government-run aspects of our current system have no influence on the success of the free-market aspects of our system.
An example: Our free-market system’s pricing is mostly based on the government-administered prices Medicare uses. This definitely hinders the free market’s ability to price things according to their real value to the market, which, in turn, affects what medical device companies and pharmaceutical companies choose to invest in.
Another example: Medicare is limited in how much it can reduce compensation to providers because they will just start rejecting Medicare patients in favor of seeing only private-insurance patients. This definitely hinders Medicare’s ability to price things according to what they view as sustainable.