Small Businesses And The Not So Affordable Care Act

The Affordable Care Act is not so affordable if you own or if you are an employee of a small business. Here is why.

Consider the owner of a small service business with one or multiple outlets (e.g., a large restaurant or a small chain of sit down restaurants, a chain of barber shops, a taxi company.)  The owner has more than 50 employees but the business is still “small” with less than 1000.  It is a service business where the usual wage is about $10 per hour or about $20,000 per year plus significant tips. Many of the staff have been with the company for decades and some prefer to work fewer hours for family reasons.  Let’s also imagine that the company has always offered a quality health insurance plan to those who work full time (greater than 32 hours per week).  The owner selected a plan that has a modest deductible of $200 per year, good catastrophic coverage and a maximum out of pocket expense for each employee of $1,000.  Company policy has always been for staff to pay approximately 50% of the premium.

At the company whose owner I talked with, both the company and a single individual are paying about $2,000 per year in premiums.  Most   of the full time employees are not enrolled.  Some have coverage through a spouse’s employer.  Others are young invincibles and choose to use their wages for other purposes. But the owner encourages all to participate who wish to or to sign a waiver that they chose not to do so. The health care policy is (and has been) consistent with the ACA/Obamacare guidelines for the various essential services that must be covered; it has never been a “substandard” policy. 

In 2014 all of the full time staff must, per the ACA, have insurance or pay a penalty tax.  That means the young invincibles will be required to sign up somewhere.  If they enroll in the company plan and pay their share of the premium, they will have less take home pay – perhaps a hardship.  But every time one more employee enrolls, the business will also have to pay its 50% share of that premium as well.  The owner is pleased that the employee is now covered but this is a new and substantial expense for the company. 

But that is not all.  Beginning in 2015, an employee cannot be required to contribute more than 9 ½% of wages for their insurance.  Since the full timers tend to earn about $20,000 per year, less for someone working say 32 hours per week, a $2,000 per year share of the premium exceeds the 9 1/2 % limit.  To avoid a significant penalty, the business will need to lower the employee contribution amount, adding further substantial expense to the company. 

So what’s the import?  Does it really matter? 

There is general agreement that it is good for everyone to have insurance.  But this company’s prices will have to go up to cover the new expenses.  And a price hike may make the business less competitive because other companies in this business may have less than 50 employees and hence are not affected by the ACA requirements.  What the owner will likely decide to do is preferentially hire part-timers even though having fewer employees who work longer hours each is otherwise preferable. 

So, in the end, all fulltime employees will have insurance; some employees forced to buy insurance will now have a lower take home pay with its consequences; the person who wants to work more hours will be pushed toward less hours with yet lower take home pay; and the customer will pay a higher price for the service. Is this affordable health care or is it is the law of unintended consequences? 

Cheap Drugs From Canada– Good Idea?

The price of drugs comes from a perverse system and what you as a patient pay is equally perverse. Let’s consider a few examples.

Older people often develop actinic keratosis on their scalp as a result of years of ultraviolet rays from the sun. They can progress to skin cancer so it is good to treat them. A dermatologist can remove them with liquid nitrogen or the individual can apply a prescription drug that kills the cells in the AKs. The drug most commonly used for decades is an anticancer drug – 5-flurouracil or 5-FU. Applied topically it can be very effective. 5-FU was developed before I went to medical school which is now 50 years ago. It is obviously off patent and not difficult to manufacture. But the branded topical called Efudex costs about $300 retail. Wow! There is a generic but it is also expensive, albeit at half the price of about $150. It is a large tube and will last a long time but it is a lot of money none the less. It is not a high volume drug and there are only two manufacturers so the competition is minimal enough to keep the price high. And even with the generic, there is a large middleman profit between what the manufacturer sells it for and what the pharmacy ultimately charges you (or your insurer.)

Staying with dermatoligic issues, rosacea can be cosmetically bothersome with redness, papules, acne-like pustules on the face and coarsening of the nose (rhinophyma.) Its cause is unknown and there is no really good treatment. One approach has been to use an antibiotic called doxycycline taken orally in the usual “antibiotic” dose of 100mg. It seems to have an anti-inflammatory effect rather than an antibiotic effect in the skin and often can clear the face. It is a very inexpensive capsule at about 30 cents each. But it can also have an adverse effect on the bacteria in the gut and possibly lead to overgrowth of yeasts. A new approach is a 40mg capsule branded as Oracea which is both regular doxycycline and a sustained release form so that the blood level stays low and relatively constant over the day; perhaps it will have less likelihood of adverse problems. It has been tested and found to be reasonably effective for rosacea and hence approved for market by the FDA. But it is on patent and costs about $10 per dose or $300 per month– a drug that the patient will probably have to take forever to keep their face clear. That adds up – fast. Instead one might consider using the standard 100mg doxycycline but only for a few days whenever a flare-up begins. Low cost and limited side effects, if any.

Steroid creams are commonly used for rashes. I was once given a prescription for betamethasone for a small rash. Why betamethasone rather than over the counter hydrocortisone? “It is stronger and will work faster,” said my doctor. But, since I had a high deductible insurance policy, I had to pay the entire bill which proved to be a remarkable $67. An over the counter tube of hydrocortisone at the same pharmacy, enough to last a whole family for years and years, costs only $1.98. Sometimes it pays to accept a slower cure.

Let’s say you need an acid suppressor for reflux esophagitis [acid reflux or GERD.] There are multiple drugs called proton pump inhibitors on the market, some off patent and now over the counter and others still on patent and only available by prescription. They are all effective. The differences among them are minimal. Your doctor could tell you to go to the grocery store and pickup Prilosec for about $30 for a month’s supply. Or, he or she could give you a prescription for Nexium. It would cost about $150 for a two week supply. But your insurance will pay for it except for your co-pay of, say, $15. So your doctor will probably suggest Nexium since it will cost you less. But the overall system is paying out a huge amount more than necessary. What a perverse system. 

If you are the one paying for the drug because you have a high deductible plan or no plan at all then you start to ask questions. Sometimes you can find a generic equivalent like the fluorouracil example but sometimes the generic is still expensive. That is you might start to look elsewhere. 

What about buying drugs from Canada? Same drug but at a better price. I checked PharmacyChecker.com and found the topical fluorouracil branded Efudex for $75 including $10 for shipping. That is a lot better than the generic price here of about $150 and way better than Efudex at about $300. For the doxycycline, using the same web checker, I found a 50mg dosage (albeit not sustained release) that costs about $17 per month. Oracea 40 mg capsules can be found in Canada for about $2.00 each if you buy more than 50 at a time. Both are quite a difference from $3600 for a year’s supply. Nexium can be found for about $1.00 a pill, way less than in the United States but it is just as easy to go to the local grocery store and buy Prilosec for much less still. As for betamethasone, it is $25 with a $10 shipping fee. A lot less but over the counter hydrocortisone is still only $1.98! 

But buyer beware. We have a very carefully monitored market in the United States through the FDA. We benefit greatly from its regulations and its careful scrutiny of each new drug before it can be marketed. IN the United States, the drug can be traced from the manufacturer to the distributor to the pharmacy to you so you can be certain it is the real thing. And companies that manufacture overseas must follow the same stringent requirements as in the USA in order to sell here. The FDA's concern is not to protect the drug companies profit from competition but to protect us (you and me) from the unscrupulous. The concern is that the drug bought from Canada (or elsewhere) may not actually be the drug it is said to be. Witness the highly expensive drug Avastin used to treat certain cancers. A counterfeit was somehow entered onto distribution in the USA from somewhere else- except that it was not Avastin. It was not a drug at all. A lot of unsuspecting doctors and patients were duped. So it behooves us to carefully balance the pros and the cons.  

Why does it cost less in Canada or other countries for the same drug? Because the other countries tell the drug company that it can only sell the drug at a set upper price limit. If that limit is still within the pharmaceutical manufacturer’s marginal cost per unit of drug, then they will agree and sell at that level. In America, we are effectively paying for the entire R&D cost of bringing a new medication to market along with the company’s marketing cost and still giving it a huge profit potential. Rather than import the drug from Canada, we should just expect the company to sell here for the same price as there. But they do not have to and so they do not. Right now, Americans effectively pay for the R&D costs of new drugs while others get a discount because their governments insist. So should ours. It would bring the price down and negate the need to look to Canada or elsewhere.

How to do that without imposing price controls or getting the government into further regulatory policies. I wrote in the Future of Health Care Delivery that the federal government should simply say that it (through it drug purchases via Medicare, Medicaid, the military and Veterans Administration) will only buy medications from drug companies that sell it for the same price here as overseas. The drug company still can sets whatever price it wants but since the government buys at least half of the drugs sold in the USA, it should have an impact and quickly.

 

Nanomedicine - A Key Component to the Future of Medicine

Nanotechnology is making fast advances in medicine. I have written about it before here and in "The Future of Medicine - Megatrends in Healthcare." A nanometer is one billionth of a meter. New science and technology based on the nanometer refers to the ability to manipulate individual atoms and molecules to build machines on a scale of nanometers or to create materials and structures from the bottom up with novel properties.Nanotechnology, according to the National Science Foundation, could change the way almost everything is designed and made, from automobile tires to vaccines to objects not yet imagined. The concept is to prepare "smart objects" that can invade small spaces and target specific parts of the body. Some researchers expect nanoscience to have a profound impact on the way medicine is practiced.
Here is a an infogram that gives a nice overview, compliments of  its originator, Marcela De Vivo and her sponsor Associates Degree in Nursing.

 

Have You Had Your Colonoscopy Yet? –A Ludicrous Colonoscopy Rule and the ACA

“An ounce of prevention” we all know is good medicine. An example is colonoscopy. It was time for mine so after some lengthy procrastination I called and set up an appointment which I soon found a perfectly good reason to postpone for a few weeks. A common occurrence. The government wants me (and you) to not procrastinate, at least not because of the cost. The Affordable Care Act (ACA or Obamacare) makes an effort to get more people to get preventive care screening by requiring that there be no deductibles or co-pays for defined screening and prevention services. Sounds good. But,  in this Part 8 of my Medicare series, there may be a catch, as I soon learned.

The concept and purpose of colonoscopy is to find a polyp and remove it before it turns into cancer. Colon cancers arise from polyps. Polyps are common but only a minority of polyps progress to cancer. But if removed they obviously cannot become colon cancer. Colon cancer is the third most common cancer in men and women in the USA with about 150,000 new cases per year, behind only lung, breast and prostate cancers. And it causes about 50,000 deaths per year. Prevention obviously makes sense.

On my appointed day I arrived at 8:25am having had clear liquids for 24 hours and the effects of a very strong purgative. I was pleased that part was now over. The receptionist seemed like she already had a long day but was nevertheless efficient. By 8:35 I was in a cubicle getting into my procedure gown. Thelma – a wonderful nurse and nurse administrator who had come out of retirement for the intellectual stimulation of working with people – reviewed my pre-completed history and kept up a patter while another nurse deftly inserted an IV. The senior anesthesiologist came by and then the gastroenterologist, Dr Kester Crosse. I was whisked off to the procedure room, slipped off to sleep and awoke back in the cubicle. Dr Crosse came by to say that the procedure went smoothly, that he found a polyp which looked benign and that he had removed it. The pathology report would be back in few days. Another cheery nurse chatted with me and my wife for about fifteen minutes; her medical purpose was to be sure I did not aspirate before fully regaining alertness. When she was satisfied that I was really awake and alert she let me get up and get dressed. We walked out at 9:32am. Most everyone at Digestive Diseases Associates had been friendly, all had been competent and all had done their job effectively. Very efficient and satisfying to me.

The Medicare and Medigap statement came in a few weeks. Dr Crosse had billed $964. Medicare reduced this to $327.61 as per its formula. In other words, Medicare says a colonoscopy is worth about $328 and it paid its portion of that amount or $262. The doctor is not allowed to “balance bill” me for the rest of what he had originally charged. In order to participate with Medicare he, by contract, has to accept the price Medicare determines. Since Medicare generally pays about 75% of covered services, the bill next went to my Medigap provider (Carefirst Blue Cross/BlueShield in my case.) They did not pay the remainder stating correctly that I have a high deductible policy. So the doctor’s office sent me a bill for the $65.57. I paid it. But what about the new Medicare rule in the ACA/Obamacare that there are to be no co-pays or deductibles for such preventive services?

A check of the www.healthfinder.gov  web site stated that colonoscopy was covered by the ACA and that   “If your doctor finds polyps inside your colon during testing, these growths can be removed before they become cancer.”

I decided to call the doctor’s billing office to check. After the clerk talked to her supervisor she called back to say that I was correct that there was to be no deductible if it was a simple “screening” colonoscopy. But since the doctor had found and removed a polyp it became a therapeutic procedure. Medicare and Medigap (and apparently commercial insurers as well for those under 65) do not recognize this as a preventive screening procedure under the ACA guidelines. Hence I was on the hook for the remaining $65.52. By chance I was at a breakfast shortly after with a senior person at Blue Cross who confirmed that, yes, this was the rule. I also received a facility charge (nurses, procedure room, equipment, cleaning, etc.) of $695; Medicare reduced that to $391. This left a Medigap portion of $78.15 but again it was my responsibility to pay. Finally were the anesthesiologist s’ bills totaling $975. Medicare reduced that to $150, paid $65 leaving me with a bill of $66. So altogether it cost me just under $250 to have the colonoscopy and the peace of mind that all is in order. Not a bad value.

Admittedly $250 was not a huge amount of money but it strikes me as strange, to say the least, for Medicare rules to say that, since Dr Crosse removed a polyp while doing the colonoscopy, then it was no longer a preventive/screening procedure.

As an aside, I happen to be a big believer in high deductibles. I think that Medicare should be totally changed so that everyone (except the financially challenged) should be required to have a high deductible. That would engage patients into more dialogue with their physicians and lead to better quality at lower cost. I have posted and written an op-ed in the Washington Times about this concept.

But that is not what Congress set into law in the ACA, i.e., Medicare recipients would not pay deductibles for specified preventive screening, including colonoscopy. The whole point and purpose of the colonoscopy is to look for polyps and to remove them if found. It makes little common sense to claim that polyp removal changes the procedure from screening to therapy and therefore not eligible for the no deductible rule. Admittedly, my argument can be challenged. For example, a screening test for cholesterol would have no deductible but the drug treatment for high cholesterol would of course be another matter. Similarly, if a mammography detects probable breast cancer, the subsequent treatment would not be covered with no deductible. But in the colonoscopy example, the procedure is underway, the doctor finds a polyp and, as part of the process, removes it. Maybe there should be a separate bill just for the polyp removal part and a deductible for that portion. The facility charge would be the same except for sending the specimen off to pathology and I doubt the anesthesia was any longer or more complicated as a result of the polyp removal.  So most of the deductibles would be eliminated as per Congressional intent.

I wonder what our elected representatives really intended – or maybe they never really thought about the details.

 

A “Grand Bargain” To Improve Quality and Decrease Medicare Costs

There are just a few key reasons why Medicare has become inordinately expensive. There is no end in sight for cost escalation. But there are some obvious solutions and they all begin with chronic illnesses.

Chronic illness – diabetes, heart failure, cancer, chronic lung disease, etc. – are increasing at exponential rates; are caused largely by lifestyle behaviors; and consume 70-85% of all claims paid. Medicare enrollees tend to have chronic illnesses; 85% have at least one and 50% have three or more and many are taking 5-7 prescription medications. Any attempt to control costs must begin with chronic illnesses. 

Is there a good solution to the Medicare cost rise issue? Are there approaches that could be instituted now that would have an immediate impact on improving quality of care and thereby reduce costs? There are and could be the basis of a “grand bargain.” Here are five workable suggestions. 

1) The first recommendation is to recognize that one is never too old to benefit from sound preventive measures. Most chronic illnesses are related to excess calorie consumption, lack of exercise, chronic stress and tobacco. And aging leads to impaired mobility, vision, hearing, dentition and cognition. So Medicare should strengthen the wellness, health and preventive programs with specific funding to PCPs to engage in detailed, in depth preventive care. The new annual preventative care session built into the Affordable Care Act (ACA/Obamacare) is a good start in this direction but it must be augmented since a single yearly session is not sufficient to deal with the serious lifestyle issues leading to and exacerbating these chronic illnesses. This will improve health now and substantially bring down costs in the longer term.

2) The second recommendation is to recognize that older individuals with multiple chronic illnesses on multiple prescription medications who may have visual, hearing, mobility and cognitive impairments cannot be effectively diagnosed and treated in short time periods. There must be time – to listen, think, prevent and treat. This means adequate reimbursement per visit to spend the time required. And it means Medicare must pay the PCP sufficiently and specifically to provide chronic illness care coordination. This must be done in a way that is a quid pro quo – higher reimbursements but only in return for the care the patient needs and deserves. This will markedly improve quality, substantially reduce costs and do so immediately. It means the PCP must substantially reduce his or her case load from today’s 2000 plus to no more than 1000 (and preferably substantially less) so as to have the time required for each patient. (Many believe that it best to convert from a fee for service to a fixed reimbursement system, capitation system or a salaried approach. That is probably a good idea but only if the system grants the PCP the critical needed time per patient, i.e., assignment of a limited number of patients or a large enough payment per year per patient so as to keep the total number of patients under care low enough to give the time needed.)

3) The third recommendation is that Medicare should reconsider its approach to hospital care alternatives. For example, today a patient becomes eligible for nursing home care only if he has been hospitalized for three or more days. Costs could be dramatically reduced if a patient could be sent directly to a well-qualified nursing home by his PCP who certifies in writing as to appropriateness. Similar consideration should be given to home antibiotic administration and other home care alternatives which mean better quality and lesser costs. 

4) The fourth recommendation, somewhat of an alternative of the second, begins with the realization that primary care is generally not expensive. Indeed when Medicare originated, it was the patient’s responsibility to pay for primary care and should be again. Medicare should institute high deductibles with the opportunity for a health savings account (HSA) to pay for primary care with tax advantaged dollars. Patients begin to ask questions and challenge recommendations when they are paying for primary care directly. They can request more time per visit and pay for it through their HSA. Both have the result that the care quality goes up and the overall cost to Medicare goes way down because the patient gets the time needed by the PCP to give good care, avoid excess testing and avoid the reflex to refer to the specialist unless really appropriate. The patient-doctor relationship is corrected to being a direct contractual relationship leading to better care at much lower cost. Most studies suggest that the deductible needs to be high enough to be meaningful, often about $1000 or more. This could be reduced for those of lesser means. Given the importance of preventive care, that might be excluded and continued to be paid for by Medicare. High deductibles will be politically difficult. But high deductibles are available thought the private plans for Medigap and for the Part D prescription drug policies so the precedent is there. This would lead to a much more responsible use of the entire system with better care and much reduced costs.  

Meanwhile, many PCPs are switching to a direct pay system where they no longer accept Medicare and either expect to be paid per visit by the patient or be paid a flat annual amount (retainer). Medicare is losing these physicians now who are providing better care but at a cost to the patient. Better that Medicare reexamines its policies and adapts now. 

5) The fifth recommendation relates to end of life care. Americans believe in individualism and the right to whatever care is available, damn the expenses. And physicians are trained to treat death as an obstacle to be surmounted rather than to be accepted as ultimately inevitable. This plays out eventually towards the end of life where “one last” drug, procedure, etc. is proposed or requested or both. Generally this occurs because the physician has not engaged in a constructive, honest and empathetic conversation with the patient well ahead of time and ongoing. This is fundamentally irresponsible use of the medical care system by both patient and doctor. Much better is reasoned, empathetic discussion between patient (and family) and the doctor followed by humane, compassionate active support and emotional care – in other words, death with dignity. End of life discussions are not only logical but humane. And it must be stressed that this recommendation has nothing to do with so called “death panels” or some nefarious means of rationing care. 

Each of these recommendations incorporates a balancing of rights and responsibilities. The first offers the enrollee added wellness and preventive services but it must come with the responsibility to use them effectively. The second grants the PCP added revenue per patient but only for the commitment to take the needed time with patients and of offering extensive preventive services and chronic illness care coordination. This of course means limiting the total number of patients under care per PCP. The third grants a new approach to paying for alternative care but only provided that it is certified as appropriate. The fourth places the responsibility for first dollar coverage on the patient/enrollee but with it must come a right to a better doctor-patient contractual relationship – one that the patient can void if the response is not adequate for the dollars expended. And the fifth recommendation places a responsibility on patient and doctor alike to have in depth and rational discussions regarding end of life options and needs while expecting Medicare to pay not only for the discussion time but also for the option selected. 

These five recommendations could have a major impact on Medicare expenditures, beginning immediately. The real benefit of course is that these recommendations will improve health care quality while leading to more satisfaction by patient and doctor alike. It would be a valuable “Grand Bargain.”

 

 

Medicare and the Continuing Loss of Primary Care Physicians

Primary care physicians (PCPs) have been marginalized by Medicare for decades with low reimbursement rates for routine office visits which has led to the 15-20 minute office visit with 10-12 minutes of actual “face time” and a panel of patients that well exceeds 2000.  

Is there a good solution to the Medicare cost and quality issues? Setting aside either the Democrats’ approach to basically enact price controls by ratcheting down reimbursements or the Republican’s plan to re-structure Medicare to a defined contribution plan, albeit not for ten years, are there approaches that could be instituted now that would have an immediate impact on improving quality of care and thereby reducing costs? There are, but in this Part 6 of my Medicare series, we first need to understand one of the major issues facing Medicare today – the crisis in primary care.  

A 10-12 minute interaction means no time for the PCP to truly listen, no time to prevent, no time to coordinate and no time to just think. This has in turn meant that whenever a patient has a slightly more complex issue, one that is not easily recognized in a short time frame, then the PCP is quick to refer to a specialist. It is this very act that dramatically drives up expenditures with added tests, imaging and procedures along with the specialist’s fees. Medicare has been exceptionally short sighted in this regard and as a result is the prime culprit in the rapidly rising costs of care.  

Further, this lack of time being reimbursed means that two critical quality care needs area left largely unattended. The first is offering extensive preventive care and the second is coordinating the care of the patient with chronic illness. Recall that 85% of Medicare enrollees have at least one chronic illness and 50% have three or more. These are mostly the result of years of adverse behavior patterns but it is never too late to begin preventive care so time spent here is valuable for better health quality and ultimately reduced costs. And those with a chronic illness need to have their team of caregivers coordinated – every team needs a quarterback and the PCP is the obvious choice. But Medicare does not reimburse for this critical function which when done correctly means less reliance on specialists, tests, procedures and prescriptions. The result of this low reimbursement for routine visits and lack of reimbursement for either extensive preventive care or chronic care coordination over the years is a PCP shortage, many current PCPs no longer accepting Medicare, and the remaining PCPs trying to see 24 to 25 patients or more per day, each for 15 minutes despite the patient’s complex problem list. And this means less than stellar patient care in many instances. 

The result is a real problem facing Medicare right now - the rapid loss of primary care physicians (PCPs) who will no longer accept Medicare. In 2009 there were 3700 physicians that opted out of Medicare; the number rose to 9500 in 2012 according to CMS in a Wall Street Journal article; this on top of the shortage of PCPs across the country, with no end in sight. The ACA does include an extra 10% increase to primary care providers but this will probably be too little, too late. And if the mandated 27% across the board physician cut in reimbursement is ever implemented by Congress (it probably never will be but Congress refuses to clarify itself) then it is reasonable to expect that there will be a mass exodus from accepting Medicare reimbursements by all physicians, not just PCPs. 

What is the fix? As long as fee for service predominates in the payment system, Medicare needs to increase its reimbursement of PCPs in a manner that ensures that they will offer the patient more time per visit. Time to listen, to prevent, to coordinate and to think. And in a capitated system, Medicare (or its agent) needs to pay enough per patient per month/year to insure that each PCP does not have more than a maximum of 1000 patients (even fewer if the practice is largely geriatric) so that there can be adequate time per patient encounter. 

The next post will highlight some specific recommendations for Medicare to enact that would improve quality and reduce costs.

 

 

Republicans’ Medicare Fix – Defined Benefit Becomes Defined Contribution

The Republicans’ proposals for Medicare are quite different than the Democrats’ in that they begin with fundamental structural changes that will convert Medicare from a defined benefit to a defined contribution plan. The Democrat’s plan, see my last post, approaches the fix mainly with price controls.  

Politicians realize that Medicare will not be able to continue on its current track. Something has to change since the country will simply not be able to afford the inexorable growth and expenditures. But politicians do not like to take away entitlements so proposals generally are couched in vague terms and often with positions that are unrealistic.  

Congressman Paul Ryan, chair of the House Budget Committee and the Republication Vice-Presidential nominee in 2012, presented a proposal about two years ago embedded in the House budget proposal. It was passed in 2011 in the House with all no votes from Democrats and died in the Senate. But then, after negotiations with Senator Ron Wyden, a Democrat, they offered a joint bipartisan plan, one that few other Democrats have endorsed. The essence is to allow individuals to stay with original Medicare or select a plan from a private insurer that offers the same benefits as Medicare. It has no effect until 2023, i.e. only affecting those less than age 55 today. At that time, the age of Medicare eligibility would gradually rise over ten years from age 65 to age 67. Second, each beneficiary could choose to remain with traditional Medicare or chose a plan from a private insurer. The government would pay a set amount (“premium support”) towards either original Medicare or the private plan; the individual would have to pay any overage. The amount of premium support, according to the proposal, would be equal to the second lowest plan among the competing insurers, including Medicare, during the first year. Individuals of limited means would be able to purchase at discounted rates. The annual rate of rise of premium support would be limited to the rate of rise of the GDP plus 0.5%. This means that if expenses and hence premiums rose at a greater clip, the individual would have to shoulder the excess. In short, the Republican (or the  Wyden-Ryan) plan counts on competition in the marketplace to drive down costs. In practice, this is very similar to the way the Part D drug benefit works today. Thus Republicans point to the success of Part D to bolster their claim. The Democrats fault this plan in that if costs are not controlled, the onus falls on the enrollee, the one most vulnerable, especially in older ages, and not the insurer nor the government. 

Since the Republicans also state that they would repeal or largely repeal the ACA, then the added benefits to Medicare enrollees found in the ACA such as the annual health and wellness review and the preventive care/screening at no cost would presumably be repealed along with the IPAB and the enhanced reimbursement to PCPs. Presumably although silent on the issue, the Republican plan would also be to cut physician reimbursement by the formula driven 27% (or whatever amount is calculated in the future) of the SGR although, again, it is is very unlikely that either Republicans or Democrats will ever allow this to  happen. 

The end result of the Republican’s plan (or Ryan-Wyden bipartisan plan) would be to cut the rate of growth of Medicare to about 3.5%, the same as the Democrats’ plan but using a much different methodology. 

Two approaches, two very different methodologies, each attempting to achieve some slowing of the rate of rise of Medicare cost escalation. Both have pros and cons. Some thought that after the 2012 election, the parties would come together and develop a widely bipartisan plan endorsed by many on each side of the aisle but that has not happened nor has there even been reasoned attempts at bipartisan compromise – too bad because it is surely needed. Our elected representatives should come together to find a path forward rather than bicker and look for “points” to score against each other. That is not governing nor is it what they were elected to do.  

The next post will describe how Medicare could improve primary care quality and reduce costs beginning immediately.

 

 

Democrats Fix For Medicare –Price Controls

The two party’s approaches are quite different. The Democrats’ plans are contained generally in the Affordable Care Act (ACA) and for the most part are based on rate or price controls. This is Part 4 of my series on Medicare.  Politicians realize that Medicare will not be able to continue on its current track. Something has to change since the country will simply not be able to afford the inexorable growth and expenditures. But politicians do not like to take away entitlements so proposals generally are couched in vague terms and often with positions that are unrealistic. 

The most commented upon action today from the ACA/Obamacare is that the payments to Medicare providers will be reduced over ten years by $716 billion. These include reductions in hospital reimbursements and reductions in payments for Part C plans (Medicare Advantage.) 

These cuts were instituted to free up dollars for other aspects of the ACA. Some would call this “robbing Peter to pay Paul.” But others would argue that it is simple prioritization of the funds available; kudos to those who accepted the responsibility for making the difficult decision. Basically these are “price control” mechanisms but price controls rarely work; Medicare has used them for decades with obvious inadequate results. And as demonstrated over the years, providers will make up the difference with more visits, procedures, hospitalizations, etc. The proponents note that the plan only reduces payments to the providers; it does not cut benefits. How reducing provider payments will not ultimately result in less for the beneficiaries is a legitimate question. 

Physician payments were scheduled to be cut by about 27 percent December 31, 2012. This was based on a formula established in 1997 called the Sustainable Growth Rate. It goes into effect unless Congress explicitly exempts it. Over the years, Congress has repeatedly given such an exemption but only for a short time, allowing themselves to claim that eventually they would enact the cuts and use them to offset budgets. And true to form, Congress (Republicans and Democrats alike) – after the election –created another short term exemption. Hardly a satisfactory way to govern.   

The ACA recognizes that there is a shortage of primary care physicians (PCP) and that PCPs are under reimbursed. To this end, PCP reimbursements will be increased by about 10% over a few years’ time. Just how this increase corresponds with the 27% reduction or whatever number in the future is unclear. 

The ACA also creates some new benefits for enrollees. Chief among them relates to prevention and wellness. Each enrollee is allowed an annual extensive preventive medicine evaluation with no deductibles and no co-pays. Medicare also pays the full cost of screening such as mammography and colonoscopy, cholesterol tests, etc. along with appropriate vaccinations. An interesting sidelight – if a colonoscopy detects a polyp which is removed during the procedure, that converts it to a therapeutic procedure with deductibles and co-pays.  

The ACA created the Independent Payment Advisory Board (IPAB) whose job it will be to recommend steps to save dollars within Medicare without reducing benefits or without expecting beneficiaries to pay more - a tall order. They will be nominated by the President, ratified by the Senate, have prolonged terms and their recommendations become effective unless Congress votes them down en bloc, i.e., no cherry picking. Republicans have criticized this plan as allotting too much power in a small group of individuals not accountable to anyone. Democrats counter that the structure allows them to be honest brokers unaffected by competing constituencies.  

Recently, there has been controversy within Democratic circles. Howard Dean, a physician, former presidential primary candidate and Democratic Party chair, recently wrote an op-ed in the Wall Street Journal that the IPAB should be repealed because it will not control costs, will become essentially a rationing organization and will lead to much added bureaucracy in medical care delivery. He added that rate setting has never worked in the past forty years. Within two days, Peter Orszag, former director of the Office of Management and Budget for President Obama retorted to the contrary on Bloomberg View. Clearly it is controversial.  

Altogether, the Democrat’s plan is projected to reduce annual Medicare cost escalation from the currently expected about 4% to about 3.5% per year over the coming decade. This may not seem like much but compounded each year it really adds up. 

In my next post, the Republicans’ plan – quite different from that of the Democrats.

 

 

Medicare Is Not Free, As Many Would Believe.

A retired couple can expect to spend about $6000 per year (or more) for Medicare. And since Medicare does not “cover” all costs, there will be added expenses as well. 

Part A, generally for hospitalization, is paid fully by the Medicare Trust Fund supported by the Medicare tax described in my last post, which you paid into all of your working life.  Part B, generally physician fees, is paid 50-50 by the individual and the federal government from general tax revenues, not the Trust Fund. In 2013 the enrollee fee is $105 per month, progressively higher for those of greater income.  

Since Medicare Part A and B pay for about 75% of covered services, most individuals purchase a Medigap policy sold by private insurers. There are multiple “levels” of Medigap coverage as specified by the government, each level costing more. Medigap policies only pay toward the part of covered services that Medicare does not pay for. Hence Medigap polices do not assist with services that are not covered by Medicare. [Those with a defined benefit federal, state or local government, company or union pension often have built in health care coverage which means that they have Medicare Part A plus pension-paid Part B and a pension-sponsored supplement that may also pay for non-Medicare covered services such as drugs, vision and hearing plus some or all of the various Medicare deductibles and co-pays.]  

Non-covered services would include extended stays in the hospital, many complementary medicine practitioners, certain at home care such as IV antibiotics, etc. In addition, Medicare (as with almost all commercial insurance) does not cover indirect healthcare expenses such as travel to a specialty center, overnight accommodations, parking, mileage, etc. Not to suggest that Medicare should pay for these expenses but of course these are costs nevertheless that may eat into a retired person’s savings rapidly. 

Part D, the drug coverage program, is paid jointly by the federal government out of general tax revenues and by the individual. Basically, the government gives private insurers a set amount per enrollee (“premium support”) which is equal to about 75% of the expenses of running the program and the insurer then collects whatever is needed to make up the difference from the enrollee. By offering different levels of coverage, an individual can spend more or less that the remaining 25%.  Part D premiums per person have a wide range among participating insurers with an average in 2013 of about $40 per month. However, the costs can still be high for the average person who needs multiple prescription drugs. Generics may be fully covered or have only a low co-pay. But brand name or newer medications may require very high co-pays or are not covered at all. And once a threshold of $2970 in total drug costs has been reached, Part D offers only partial coverage (the coverage gap) until an individual has reached a total out of pocket cost of $4700 after which “catastrophic coverage” kicks in and Medicare then pays 95%. This has been called the “donut hole” and is being largely eliminated over time by the ACA/Obamacare legislation.  

Thus Medicare is not free. A retired couple can expect to spend about $6000 per year (or more) for Part B ($1200/year X2), Part D ($500/year X2) and a Medigap policy (about $1200/year X2). Add to this the cost of non-covered services, deductibles and co-pays and uncovered drug costs and the total costs of care can be quite high. Indeed over 10% find they are spending over $8000 per year related to Medicare-covered services, perhaps substantially more for other services.  

There is another Medicare option known as Medicare Advantage or Part C. Basically private insurers provide the same coverage as traditional Medicare in a managed care approach with a limited physician and hospital network. Urgent and emergent care must be covered no matter where provided. The insurer receives an amount of money per enrollee from Medicare that approximates what Medicare calculates the average beneficiary would consume under Part A in a given year for that geographic area plus a bonus amount. This extra amount is set to decrease over time as a result of the ACA legislation. Private insurers then charge for Part B and have found that they can offer the Medicare-mandated coverage and have enough money left over that they can also offer added coverage such as dental, vision, hearing, etc. Usually these programs offer drug coverage at much lower rates than Part D or even no added cost to the individual. So a person can often save on what they would have paid for Medigap and Part D insurance and still have broader coverage.  

About 25% of Medicare enrollees have opted for Medicare Advantage, finding that they get more coverage yet spend the same amount or actually save money. Removing those with pension-related assistance with Medicare (see above), the percentage who opt for Medicare Advantage is very high. As fewer and fewer Americans will retire with defined benefit pensions in the future, it is likely that the numbers using Part C will increase much further. 

So, at $6000 or often substantially more, a retired couple may end up contributing a substantial amount of their annual income toward their health care insurance coverage. With rising annual health care expenditures per capita, and with seniors having many expensive-to-treat chronic illnesses, it can only be expected that the premium costs for Medicare Part B and Part D will continue to rise. There is nothing in the ACA or any other pending legislation that would significantly reduce these annual expenditures. The critical issue is to find ways to reduce health care costs so that insurance costs can be reduced or at least be maintained level. Some recommendations to do this will be offered in later posts.  

The next two posts will describe the opposing approaches of the two political parties.''

 

 

“Why Are Medicare Costs Rising So Fast? – It’s Actually Not Complicated”

My last post was the beginning of a primer on Medicare. Medicare covers about 50 million older Americans for general health care and covers about 75% of covered services or 50% of total health care costs of these seniors. Medicare, as the largest single insurer, sets the standard for reimbursement rates across all insurers. It tends to pay slightly less than costs, leading hospitals and doctors to cost shift or charge others a higher rate. Medicare costs are increasing at about 4% per year and will reach $1 trillion by 2022, an unsustainable cost to the government (tax payer). 

There are multiple “parts” to Medicare. Part A is principally for hospital care; Part B is for largely for physician costs and Part D is the prescription drug benefit. Part C or Medicare Advantage is a private insurer managed care alternative to Part A which incorporates Part B and often Part D into one plan. 

Each of us and our employer pays 1.45% (total of 2.9% combined or for a self-employed worker) of earned income into the Medicare Trust Fund each year for Part A. Beginning in 2013, the tax is 3.8% on earned and unearned (i.e., salary or wages plus interest, dividends and capital gains excluding interest on municipal bonds) income above $200,000 for a single person and $250,000 for a married couple. The money paid in is not invested and set aside for use when the individual reaches 65. Mostly it goes to pay for the hospitalization costs of today’s beneficiaries – it is a generation transfer tax. As the population continues to age and continues to live longer, there will a relatively smaller working population to pay the annual bills. It is estimated that the current 50 million enrollees will expand to 80 million by 2030 and the ratio of workers to enrollees will drop from 3.7/1 to 2.4 /1. So the combination of rising healthcare costs, more beneficiaries living for longer times and a relative shrinking of the taxable base means that the Trust Fund will ultimately become insolvent.  

Medicare enrollees tend to have chronic illnesses; 85% have at least one and 50% have three or more. Aging brings on chronic impairments (“old parts wear out”) such as impaired vision, hearing, mobility, dentition, bone strength and cognition. Additionally, enrollees also suffer from the chronic illnesses largely but not entirely the result of life styles. These include obesity, hypertension, heart disease, diabetes, chronic lung disease, cancer and many others.  Chronic diseases are inherently difficult to manage, will last a lifetime (some cancers excepted) and are expensive to treat. Chronic illness results in over 70-85% of claims paid. 

But these chronic illnesses consume more than they need to for a few very clear reasons.  First has been a lack of quality preventive care and attention to wellness. Second has been the lack of careful care coordination. These patients need a full multi-disciplinary team of providers to assure complete care (e.g., the diabetic patient will need an endocrinologist, nutritionist, exercise physiologist, podiatrist, ophthalmologist and others over time). But any good team needs a quarterback and the logical choice, the primary care physician, has been marginalized by Medicare for years. The result is that PCPs only allot about 15 to 20 minutes per patient visit (which translates into about 10-12 minutes of actual face time) – not nearly enough time to deal with multiple chronic issues, multiple prescriptions let alone take the time to call a specialist to explain the rationale for a referral and seek a prompt appointment for the patient. 

These are the basics of Medicare and the major reasons for continuing cost escalations. The increasing costs mean that it makes little sense to promise “Medicare as we know it” to persist in its current state into the future. Change is mandatory. The question is not whether there will be change but how to make changes in a manner that protects the medical and the financial health of the beneficiaries both today and into the future while keeping the benefits affordable. The Democrats and the Republicans both agree that change is mandatory but they offer widely divergent approaches to cost containment.  

The next post will evaluate the actual costs of Medicare for the average retired couple.

 

 

Will “Medicare As We Know It” Persist Or Will It Change?

With the nomination of Congressman Paul Ryan last summer as the vice presidential candidate of the Republican Party, Medicare became front and center in the political discussions and, although there is less attention just now, it will return with a vengeance once again to dominate. To understand the dialogue requires an understanding of Medicare, how it works, where the money comes from, how it is spent and why there is such concern for its future costs. Here is an overview in a few bite sized pieces spread over 8 parts.  

Medicare was designed in 1965 to serve as “major medical” insurance to cover the unexpected large expenses of, say, surgery or hospitalization. Individuals paid out of pocket for routine care. Medicare has morphed over the years; it now covers preventive care, screening, annual exams and most routine care. This broadening of coverage, the relentless rise of healthcare costs and huge enrollee additions by baby boomers will continue to increase Medicare expenditures.  

Medicare covers about 50 million older Americans for general health care insurance and another approximately 8 million with coverage for disabilities and end stage renal disease.   

Medicare pays about 75% of covered services and about half of the total costs of health care for older Americans, i.e., it pays for only certain specified medical services or “covered” costs. The remaining 25% of covered services as defined by Centers for Medicare and Medicaid Services (CMS) is paid for either via a private Medigap policy and/or out of pocket by the beneficiary. Since 2004, prescription drugs have also been covered.  

Interestingly, Medicare is not true catastrophic insurance. For example, it pays in full for the first 60 days of hospitalization but then there is a co-pay of just under $300 for each of the next 30 days. There is no coverage after 90 days although each person is allotted a lifetime reserve of 60 days, each with a co-pay currently of just under $600 per day. 

Medicare is such a large part of the health care insurance market that it establishes two critical parameters for all of health care reimbursement. First, it sets the standard level for reimbursement which all other insurers ultimately follow.  

Second, Medicare does not pay it full share of the costs it does cover. Basically it pays some percentage below actual costs leading the providers – hospitals, doctors, or other  - to cost shift, i.e., charge their other patients who have commercial insurance a higher amount than costs to make up for what they did not receive from Medicare. What this means for the young person who has either a company sponsored health insurance plan or buys it directly in the individual market, is that he or she paying a “Medicare tax” over what the insurance would have otherwise cost. This is on top of the Medicare Trust Fund tax of 2.9%. 

Government estimates are that Medicare will increase its expenditures over the coming decade at a rate of about 4% per annum. This is greater than both inflation and the GDP rate of growth. Medicare which now accounts for about 15% of the federal budget will rise from almost $600 billion per year now to about $1 trillion per year by 2022 – levels that will severely strain the capability of the system. Indeed, it a growth rate that is just not sustainable; it will eventually bankrupt the federal treasury.

Next – Where the money comes from and why it costs so much.

 

 

The Strength To Accomplish Incredible Things

Illnesses, like cancer, can be devastating but hope springs eternal and love and caring can be healing no matter what the final outcome. Fortunately in this family crisis, the outcome was incredibly positive in many ways and led to the strength to accomplish incredible things. My posts are usually my own work. But I am posting this very beautiful and positive story sent by a husband turned caregiver. 

“Lessons Learned through Caregiving

In August of 2005, my family changed forever. Our daughter, Lily, was born, and my wife Heather and I could not have been more excited to be new parents. However, three months later, our lives changed again. On that day, Heather was diagnosed with malignant pleural mesothelioma, and I got a new, unexpected job. I became a caregiver for a cancer patient. Instead of dealing with the chaos of the holiday season as planned, we began to deal with a new type of chaos – fighting cancer.

My life as a caregiver began as soon as Heather was diagnosed. Completely overwhelmed, shocked and unable to make any decisions, Heather looked at me for help. I knew I had to be there for her as best I could, and I made the first essential decision, that of where Heather would receive treatment. We were given several options, but one in particular stood out.  It was Dr David Sugarbaker, a mesothelioma specialist in Boston, known for his work with patients with my wife’s type of cancer. I told our local doctor to get us to Boston. 

I had to cut my hours in my full-time job, and Heather left her job. Instead of working my 9-5, I turned into a full time caregiver. I scheduled our trips and drove to doctors’ appointments. I was also still a full-time dad, caring for three month old Lily.

Life became a challenge. Everything was turned upside down, and I was often uncertain and worried. My to-do list turned into a whirlwind of overwhelming emotions, and I couldn’t just give up. I let myself surrender to the bad days, but I never gave up hope. Although I often felt helpless, I knew I had to stay strong for Heather. The support we received made me feel hopeful. People we didn’t even know were offering all kinds of help, giving us less to be anxious about. That outpouring of support helped keep me sane.

All of our hard work, perseverance, and refusal to give up paid off. After surgery and multiple treatments for mesothelioma, Heather beat the odds as this short video demonstrates and defeated this awful disease, a rare feat accomplished by far too few. After seven years, she is still cancer free, and has been able to see Lily grow into a beautiful young lady. 

I have since been able to balance the tasks of going back to school while raising a family. Being a caregiver and standing by my wife through cancer gave me the strength and the courage to pursue this dream of mine, two years after Heather’s diagnosis.  The stress and time management skills that I learned helped me to succeed and graduate with high honors.  I was even given the great privilege of speaking at graduation. During my graduation speech, I shared the greatest lesson that I learned as a caregiver to someone with cancer. I told the audience that within each of us is the strength to accomplish incredible things, as long as we never give up hope, and always keep fighting for the ones we love.”  

Cameron Von St James, July 17, 2013