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All Things to All People?

If you want to infuriate yourself over your morning coffee, read a couple of pages of Steven Brills article Bitter Pill: Why Medical Bills Are Killing Us in Time Magazine on the outrageous costs of healthcare in the United States. (h/t to Margaret Steinfels). The article follows the story of seven well and truly screwed Americans who are among the tens of millions who were un or under insured when they faced some kind of medical crisis (real or suspected). It is the story of twenty dollar aspirins and million dollar hospital stays, contrasted to the relatively small amounts that many of these things would have cost when compared to what Medicare pays for them.During the course of Steinfelss discussion of the article, the question came up of whether Obamacare directly addresses this terribly skewed medical pricing situation. The short answer is no. Obamacare is designed to address the problem of the un and under insured. But I will argue that it is nonetheless a significant move in the right direction of controlling health care costs in America.Before I talk about what Obamacare will and will not do, lets review the pricing for medical services. Like any business, a hospital has a cost to itself for anything that it sells or does. It also has a master list of what it charges to perform its services. This list is, naturally enough, called a charge master. The ratio of costs to charges is called the cost to charge ratio. All but the very smallest (like 6 bed) hospitals mark up their charges by several hundred to a thousand percent. The reason that hospitals mark up their charges so high can be ascertained in how medical pricing works.In general, Medicare (which makes up most of a hospitals business) pays about 98 percent of the costs of Medicare services. (The hospital is required to report its true cost structure to Medicare once a year in order to get Medicare funds). Medicare pays less than 100 percent of costs in order to pressure hospitals to become more efficient and to lower its costs year over year. Despite the whining from hospital administrators, this actually works, but what it doesnt do is produce much if any of a profit margin. In addition, Medicaid pays maybe 60 percent of costs per statute. Charity work, which all hospitals including the for-profit ones do, pays nothing. Then there is the amorphous mass of bills that are uncollectible. These primarily come from people like those in Brills article; people who although workers, are uninsured or under insured and who dont have a couple hundred thousand dollars lying around for a sudden medical emergency.As you can see, all of these categories together leave the hospital with a deficit. In sum total they dont cover costs. So how does a hospital cover costs and make a profit? It makes it off the back of commercial insurance, which pays, say 135 to 140 percent of costs on average, subsidizing the rest and providing what Brill discovered are pretty fat profits for many institutions, including the not-for-profit ones.But why do hospitals make their charge masters so high. Its because that commercial insurance, while paying quite a bit more than costs, is in the business of providing discounts to hospital charges. The 140 percent of costs that your insurance company may be paying is expressed as a percentage of charges and as silly as this sounds, the higher the hospital charges the deeper the apparent discount. When an insurance company negotiates a 140 percent of costs deal, it might be getting a 70 percent discount to charges and 70 percent discounts seem like a wonderful thing, especially if your competitor is only getting a 68 percent discount.Now if you are not insured commercially, by Medicare or Medicaid and if you are not one of the rare people eligible for charity care, you will be billed for 100 percent of charges andSteven Brill may write an article about how you had to liquidate everything that you own to pay for the heart attack that Medicare would have covered for a fraction of the price. Why do hospitals charge the uninsured 100 percent of billed costs?Because it is profitable. Yes, one can negotiate with a hospital (usually), but even if the hospital gives in and reduced the charges by 50 percent, one may still be paying a higher percentage of cost than an insurance company that itself is paying 140 percent of costs on average.Regarding Obamacare, when the single payer Medicare for everyone crowd lost the Obamacare vote, Obamacare moved away from a mandate to control costs at a chargemaster level. The country decided to have a universal insurance plan using private insurers (rather like they do in those socialist workers paradises of Switzerland and Holland). What was then needed was to provide the largest number of people with health benefits while keeping costs stable. Once cost controls were put aside politically, the hospitals dropped out of the political equation and the task became getting the largest amount possible of standard commercial discounts for the greatest number of consumers while keeping prices stable andthe insurance companies whole.What were the risks of Obamacare for the insurance companies? First and foremost, to provide universal coverage the government had to eliminate the individual underwriting of members. Whereas one is now deemed worthy of insurance based on gender and (pre-existing) medical conditions, which causes companies to select against anyone who poses any sort of health risk, everyone is now welcome under Obamacare. Individuals will now be aggregated into giant state sized communities and an average premium will be calculated for everyone in the pool. This is acceptable to insurance companies provided that each company gets an identical share of the risk in the pool. But what if all the sick people for whatever reason decide to only buy my insurance? Obamacare deals with this through a risk adjustment: every member gets a risk score which is then aggregated at the company level. Risk scores between companies are compared and the ones with lower risk scores have to subsidize the ones with higher risk scores so that everyone has the same score, which is to say the same proportion of risk.The second thing that insurance companies worry about is pent up demand. We will be seeing something like 35 million previously un and under insured members entering the market. A lot of them need services that they have been holding off on for years. Wont these people cause costs to skyrocket? (Brill thinks yes.) To prevent this, Obamacare sets up a reinsurance fund especially for high claims costs (which are defined as claims totaling more than $60 thousand.) The $60 thousand is called an attachment point and if a claim exceeds it, the insurance company draws on the fund.The third thing the insurance companies worry about is a sort of wild card. Since insurance companies would be insuring a large population for which they have no claims experience, what if they are wildly off in their pricing? This is uncharted territory for them. This can work two ways. There is the potential to be wildly correct and therefore wildly profitable or wildly incorrect with huge losses. For this Obamacare establishes risk corridors where profits and losses are constrained within a band that caps both. People with profits above the band have to subsidize those with losses below the band. This creates an average profit rate for the whole industry (which is targeted at what the average profit rate is now.)These three things (risk adjustment, reinsurance, risk corridors) are referred to in the legislation as the 3Rs and are designed to work with a few other things to keep prices stable.The uninsured and under insured then get access to the same kind of insurance that other commercial customers get. Yes, commercial insurance, at least in the short term, will still be paying an average of 140 percent of costs. But when everyone has insurance, we can then address the cost problem in the way that the free market has been addressing it all along. If the last sentence made you laugh, keep in mind that Medicare and commercial insurance have been successful in controlling costs. The wild card has been all the uninsured in the system and that will be mostly eliminated. The need for the commercial subsidy will begin to disappear.

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Unagidon.. glad you, not me, is in this ins. business.. Send your analysis to all who complain about the 2000+ pages of Obama care.

Many thanks for posting this, the Brill article, and your own comments, which I will read and digest. Just a quick note: for my sins, I have spent some years on the board of a small rural medical center, which includes a hospital and a nursing home. (I'm there more or less ex-officio, NOT because I pretend to understand such things.) Unlike the egregious examples in the Brill article, both our hospital and the nursing home struggle to pay their bills, a situation made no easier by the new insistence on electronic medical records and the enormous expense that their purchase and implementation entails. (A recent article in the NYT suggested that the rush to EMR was in some part orchestrated by the software companies, to which it has proved a bonanza -- don't know how true that is). Thus I hope that not all non-profits are going to be tarred by Brill's brush. I certainly don't know much about the Affordable Care Act, but I believe that since the beginning, a common complaint has been that it does very little to control medical costs.

Thanks U. From the Department of Clarification, a leading non-profit entity:"[W]hen everyone has insurance, we can then address the cost problem in the way that the free market has been addressing it all along. If the last sentence made you laugh, keep in mind that Medicare and commercial insurance have been successful in controlling costs. The wild card has been all the uninsured in the system and that will be mostly eliminated. The need for the commercial subsidy will begin to disappear."I did laugh! My haphazard attention to this subject (apologies) has led me to think that every reform of the system brings on the counter-reformation. The most interested parties (hospitals, medical suppliers, insurance companies, pharma, etc.) manage to mangle the legislation so as to preserve their own interests. Am I wrong? And how will that change? Of course, doctors and the AMA were once a powerful interested party but seemed to have lost their clout to the bigger money interests. Am I right? How did that happen, if it did?

Ms. Steinfels - you state: "The most interested parties (hospitals, medical suppliers, insurance companies, pharma, etc.) manage to mangle the legislation so as to preserve their own interests. Am I wrong? And how will that change?"Yep - how else would the needle of healthcare reform have been able to be moved?As U states - the first decision was to reject universal healthcare. How could the administration move forward - by aligning itself and getting buy in from the capitalists in the room - insurance companies, durg companies; hospital corporations; AMA; etc. Thus, like most congressional actions, it was a process of making sausage. Insurance corporations bought in because PPACA protects their existence and, quite possibly, brings them millions more in membership; same for pharma. Hospitals got buy in because it was an attempt to address populations that they had to provide care for with no hope of reimbursement.It is a positive step forward but not without issues.

Just another example of how the decision to reject single-payer healthcare has been one huge mistake. And will continue to be.

Health care from office visits to tests to hospitalization should be treated as a public utility---a resource neccessary for the common good.

Unagidon, thanks for this primer. I know you've written about it before, and I appreciate the review. Will it work?Jimmy - it may be that this is the path we have to take to get to universal healthcare. This is what could be done.

One rather forceful writer on these matters has been Karl Denninger, see:http://market-ticker.org/akcs-www?post=218233

Thank you for the very informative link, Carlo. I read the WSJ article itself and appreciate the emphasis on cost shifting and the distortions caused by federal and state laws. What a mess.

Thank you. I appreciate going over all of this again. I just left a job as Consumer Health Advocate and tried to explain some of this to the folks I worked with, about 75% of whom were uninsured-- some with big bills and many I'd simply direct to some fine charity clinics.Any thoughts on hiw the new "accomodation" of HHS re: contraception will affect any of this? I know and appreciate what I've read from many in the past and perhaps that's all been said but "jest askin'"ps

Margaret said:

I did laugh! My haphazard attention to this subject (apologies) has led me to think that every reform of the system brings on the counter-reformation. The most interested parties (hospitals, medical suppliers, insurance companies, pharma, etc.) manage to mangle the legislation so as to preserve their own interests. Am I wrong? And how will that change?

You can be completely sure that hundreds and thousands of people have pored over the PPACA Final Rule looking for a way to game it in some way. It's in the nature of our economy (and is why I have so little patience with people who treat capitalists as dainty hot house roses). Since medical care is so close and personal to everyone, we will have to watch every move that any player makes like a hawk and adapt to it. There will be no "final fix" that will mediate all contradictions.Having said that, insurance companies (and the government) have an interest in pushing medical prices down. Insurance companies have an incentive to do this; it's part of the source of their profits. And right now, only the government and insurance companies have the market information needed to even begin to do this. Unlike Brill's unfortunates, insurance companies and the government know how much things cost the hospital (and how much things should cost). Libertarians like the Karl Denninger mentioned by Mr Lancellotti would like the consumer himself to have this market information. I am not sure how possible this is. But in the meantime, it's the government and the insurance companies and this is what we have to work with.

Of course, doctors and the AMA were once a powerful interested party but seemed to have lost their clout to the bigger money interests. Am I right? How did that happen, if it did?

The AMA didn't lose its clout. It lost a lot of its interest in the Obamacare game when it became evident that Obamacare would not be about fixing prices. We heard some braying of gored capitalists when people started talking about Obama "gutting Medicare" to the tune of billions in part to pay for Obamacare. But these price reductions over time would be happening whether Obamacare existed or not. They are part of the cost cuts that Brill mentions as the system moves to paying for things on a case rate rather than breaking each and every item out for its own price. The AMA would rather have us all pay piece rates for every tongue depressor, but the trend is against this (as it should be). So the AMA, which is just as powerful as it has always been, just got out of the way when it appeared that Obamacare wouldn't affect its interests too much.

Jim said:

Unagidon, thanks for this primer. I know youve written about it before, and I appreciate the review. Will it work?

It will create an new dynamic within which everyone will try to profit, as usual. A side effect will be that tens of millions of people will now have insurance coverage. That's progress. But it will not work to the effect that we consumers can relax our diligence with all the players (and the government for that matter) for a moment.

Carlo said:

One rather forceful writer on these matters has been Karl Denninger, see:http://market-ticker.org/akcs-www?post=218233

A good half-argument well worth the read.Denninger is partially right when he lays out the effect of government intervention in the market. Half right in that he pretty correctly identifies some of the dynamics of our perverse system. But he is a religious believer in the market and I don't think that he quite makes the journey from deregulation to freedom. For example, he points out that EMTALA requires ERs to treat anyone who walks in the door and the effects of this on prices. But to claim that EMTALA somehow led directly to the closing of 600 Catholic charity hospitals is a stretch. What was the mechanism for this? Did they close because they were deprived of a source to whom they could give charity? It doesn't make sense.His whole discussion works the same way. I can argue a particular point with you if you draw one out. But again, he article is definitely worth a read.

David said:

Any thoughts on hiw the new accommodation of HHS re: contraception will affect any of this? I know and appreciate what Ive read from many in the past and perhaps thats all been said but jest askinps

I have stayed entirely out of this discussion because my opinion seems to be so idiosyncratic. But I will lay it out here hoping that this will not derail the general discussion we've started.As a person who believes that we need radical health care reform, I am utterly against the provision of contraception because I think that the system needs to be stabilized around those things that are medically necessary before we start funding stuff that is elective. In other words, I think Jane needs to be sure she can get her chemo before she can start getting her birth control pills. I know that contraception is a tiny thing in the big picture, but nonetheless, first things first.As a rather conservative Catholic I should be opposed to the expansion of contraception in any form. This should be the bishops' approach. But they can't take this approach because they know they can't possibly win; too many Catholics use contraception. So they embrace an alternative approach of "contraception for non-Catholics" and call it a defense of their religion rights, because they believe that they can prevent some of the spread of contraception use if they can deny its coverage to some people. In other words, they have been unable to influence people to make a personal moral choice against contraception, so they want to try to keep people from having to make a moral choice at all.The reason that so many Catholics use contraception is, I believe, because of the perverse way that the Church treats it in the first place. Unlike any other sin, one is allowed to intend to use birth control as long as one uses a particularly inefficient means of birth control (i.e. "natural" family planning). I can't think of another thing called a sin that is laid out like this where one is allowed an intention provided one does not have the means. Since the Church does support family planning, people quite naturally and reasonable prefer to use efficient means to do so. The bishops have no way of mediating this contradiction they have created (except by claiming that "natural family planning" is effective, which only makes the contradiction worse.) Anyway, that's what I have to say about that.

a particularly inefficient meansMy understanding is that, like the pill, it is extremely efficient when used as directed and, like the pill, is not efficient when not used as directed.I cant think of another thing called a sin that is laid out like this where one is allowed an intention provided one does not have the means.Lets say my intention is to feed the hungry. The Church teaches that the natural way to effect that, giving what you have, is good, but the artificial way to effect that, stealing from someone else, is bad.

Thank you for all the explanation....And not to focus too much on doctors, but.... How do you see the news that doctors are increasingly part of group practices bought up by hospitals and/or the move to make doctors salaried affecting the cost question and the political influence of the AMA and physician groups. How will this affect regulations and future legislation?

Mark said:

My understanding is that, like the pill, it is extremely efficient when used as directed and, like the pill, is not efficient when not used as directed.

It's not efficient, which is why using it leaves one "open to conception".

Lets say my intention is to feed the hungry. The Church teaches that the natural way to effect that, giving what you have, is good, but the artificial way to effect that, stealing from someone else, is bad.

I could agree to this if birth control was considered an act of mercy, which it isn't.

Margaret said: And not to focus too much on doctors, but. How do you see the news that doctors are increasingly part of group practices bought up by hospitals and/or the move to make doctors salaried affecting the cost question and the political influence of the AMA and physician groups. How will this affect regulations and future legislation?

The AMA will still maintain its power at the doctors' labor union and its clout in its role to control the overall supply of doctors. Doctors as a small business will disappear and doctors as corporations will enter the discussion (as they are now) as another kind of large and well organized corporation.

"Its not efficient..."Shut up, he explained?"I could agree to this if birth control was considered an act of mercy..."What does being an act of mercy have to do with it? The counterexample has been given. There are right ways to do things, and there are wrong ways to do things, no? Intention is not all.

Mark, it's not me that's saying that "natural family planning" is inefficient. It's the Church, so take it up with the Church. If "natural family planning" was efficient, then it would not open the couple to conception i.e it would be like any other form of efficient birth control.You gave a counter example, but it doesn't work. If I use "natural family planning" I am intending to use birth control just the same as if I decide to us a piece of latex. What's the difference here? "Natural family planning" is inefficient. Your example doesn't work because if I rob a bank to feed the poor, I am intending to rob the bank. Your example would work better if you said that it's all right to rob banks as long as one used an inefficient means, like taking some of the bullets out of the gun.

...its not me thats saying that natural family planning is inefficient.UnagidonOn the contrary, it is indeed you saying that (see your comment at 9:13 am, today). Perhaps the word you were looking for was foolproof rather than inefficient. If thats the case, I would agree with you, but foolproof and inefficient are worlds apart. The rest of your argument relies on the premise that a necessary condition of the Churchs teaching that NFP is a morally acceptable alternative to artificial contraception is that NFP is inefficient. Can you show me where the Church teaches that inefficiency is a necessary condition? From what Ive seen, the Church teaches that is in fact quite efficient! (Though some people may dispute that its efficient)

If NFP is efficient, then how does it open the couple to conception?

"You can be completely sure that hundreds and thousands of people have pored over the PPACA Final Rule looking for a way to game it in some way."Not exactly along the lines Unagidon had in mind re playing the system, but lots of employers who depend on part-time workers are cutting hours to ensure that they're not going to be liable for shucking out employee benefits. My college administrators very precipitously announced workload cuts last week, and there is a lot of general freaking out right now as administrators hustle to hire more part-timers to cover the hours they've cut from current adjuncts.Article from HuffPo about this trend appeared last fall, and I'm sure it's not just academic adjunct, but all part-timers who will experience work disruptions: http://www.huffingtonpost.com/2012/11/20/ccac-obamacare_n_2165383.htmlWas this slashing of hours and dumping of workers onto the dole foreseen in the projected costs of ACA?

Every day and in every way I thank my lucky stars to have access to Kaiser Permanente and the VA .... both good single payer plans, and even one a form of socialized medicine.Bring them on to/for the rest of society.And can we finally, finally, FINALLY (please) stop obsessing about insurance-provided/not provided/whatever contraception? It's here to stay. Move on. Get over it!

Uwe Reinhardt points out that New Jersey protects uninsured people earning less than 5 times the federal poverty level by limiting their hospital charges to 15% more than Medicare pays. People earning more are still in he uncontrolled free market. Five times the povert level is currently $117,750 for a family of four.http://economix.blogs.nytimes.com/2013/03/01/shocked-shocked-over-hospit... has another installment to follow.

If NFP is efficient, then how does it open the couple to conception?You are asking how something can be efficient yet not foolproof. I think thats pretty obvious.

"Mark, its not me thats saying that natural family planning is inefficient. Its the Church, so take it up with the Church. If natural family planning was efficient, then it would not open the couple to conception i.e it would be like any other form of efficient birth control."Sorry, I don't wish to derail the on-topic discussion, either. Hopefully this intervention won't do so.The church doesn't look benignly on natural family planning because it is inefficient or ineffective. There are studies that show that, as a way to avoid pregnancy, it's pretty effective - perhaps not fully as effective as chemical contraception (which may have a 99% prevention rate) but still with an efficacy rate well above 90%. The church's view of natural family planning is that it's a non-sinful way to be prudent about family size. The conundrum for the church is that every sex act needs to be open to conception, but it also recognizes that large families can be a burden. Natural family planning balances these sometimes-competing goods in a way that contraception doesn't. Because the church recognizes that not having too large a family can be a good for many people, it approves of effective but non-sinful ways of bringing that about, and natural family planning seems to fit that bill. It doesn't mind at all if couples find natural family planning to be effective - for the right reasons.In Grant's dispute with Matthew Franck on a different-but-related topic (the HHS mandate), Franck made a comment about the intention of an act that may apply here as well. It has been argued that, under the proposed HHS mandate accommodation for religious employers like Catholic hospitals, an accommodated employer is not participating in the distribution of contraceptives because, although the HHS mandate makes it inescapable that providing group health insurance also means making free contraceptives available to employees and dependents, the employer does not intend the distribution of contraceptives, and so the employer is not culpable. Franck's characterization of this definition of "intend" is, what I really subjectively want to accomplish by this act that has its own objective meaning I choose to ignore.One of the things that many folks seem to find hypocritical about natural family planning is that it seems to be employed in such a way that the couple's subjective intention is to avoid pregnancy; and artificial birth control may also be employed to avoid pregnancy; so, from the point of view of the couple's subjective intention, what's the difference? What Franck alludes to, though, is that an act can have its own objective meaning, regardless of the initiator's subjective intention. And the objective meaning of an "unprotected" sex act is different than the objective meaning of a sex act in which contraception is used. This is true of the unprotected sex act, whether the couple is using natural family planning, or is trying to get pregnant.One way to think about this that may help clarify it is to consider a situation that, I expect, nearly all of us can relate to, even if we've never personally experienced it: the situation in which a couple has "unprotected" sex in the heat of spontaneous passion, and hopes (and, perhaps, even fervently prays) that a pregnancy won't result. This situation lacks the "plan-ahead" element both of contraception and natural family planning. The couple's subjective intention in that situation is that a pregnancy won't result, so from a subjective-intention point of view, it doesn't really seem different from any other sex situation (including with contraceptives in effect, or via natural family planning) in which the couple subjectively intends to avoid pregnancy. But the unprotected-in-the-heat-of-the-moment scenario seems to be morally different from sex while a contraceptive is in effect, because the heat-of-the-moment act is itself objectively open to conception.

Jim Pauwels. I disagree with Franck's characterization of the employer's decision but I don't want to divert the discussion here. I'll wait for a new thread on the HHS mandate.

JimThanks for your recent comment. In terms of breadth, depth, clarity, nuance, its one of the best I have read including my own (haha)!

Mark - thanks for your kind words. John - if any of the Grant / Franck topics haven't fallen off of the first page of dotCom posts, and you'd like to pursue the topic there, I'll check there for your comment.

Jim - the last HHS post is onage two and the last couple of posts are "awaiing moderation" so I think it's come to an end.Franck's proposition is that if the employer provides insurance it can only be because it believes its good intentions allow it to ignore the "objective" reality that providing insurance enables the employees to receive free contraception from others.Franck doesn't recognize that the employer may have made a correct analysis that enabling the employees is at most allowable remote cooperation with evil and double-effect permits it to decide that providing insurance to its employees is better than not providing it.

John H - I agree.

Thank you so much. I now understand something that I never thought I would understand. And so lucidly explained.