The Coming Two-Tier Health System – The Wall Street Journal

I submitted this WSJ article to several knowledgeable seniors, seeking their opinion. I want to thank these people for their analysis.

I have added their comments at the end of the article, making this a rather lengthy post. But it does explore many more issues than the original WSJ article, and provides both liberal and conservative opinion.

 

Chuck

 

The Coming Two-Tier Health System
http://on.wsj.com/1fuk2hf

Opinion | Apr 30, 2014, 07:01 PM EDT

The Coming Two-Tier Health System
ObamaCare is already creating one class of care for the poor and middle class and another for the affluent.
By Scott W. Atlas

With the unveiling of the Affordable Care Act’s website, the public experienced a painful reminder of the consequences of the government’s new authority over health care. While millions signed up for insurance, millions of others abruptly lost their existing coverage and access to their doctors because that coverage didn’t fit new ObamaCare definitions.

The greatest irony of ObamaCare is what will undoubtedly follow as a long-term, unintended consequence of the law: a decidedly unequal, two-tiered health system. One will be for the poor and middle class, and a separate system will be for those with the money or power to circumvent ObamaCare.

With the Affordable Care Act, the government has dramatically expanded its authority as final arbiter over health insurance and consequently over access to medical care. After the law’s Medicaid expansion and with the population aging into Medicare eligibility, the 107 million under Medicaid or Medicare in 2013 will skyrocket to 135 million five years later, growing far faster than the ranks of the privately insured.

Add to that centralization of power the Independent Payment Advisory Board (IPAB), ObamaCare’s group of political appointees tasked with reducing payments to doctors and hospitals. Even Howard Dean, former chairman of the Democratic National Committee, warned that “The IPAB is essentially a health-care rationing body. By setting doctor reimbursement rates for Medicare and determining which procedures and drugs will be covered and at what price, the IPAB will be able to stop certain treatments its members do not favor by simply setting rates to levels where no doctor or hospital will perform them.”

The hidden truth is just around the corner—those more dependent on public insurance, mostly the poor and middle class, will have limited access to medical care. About one-third of primary-care physicians and one-fourth of specialists have already completely closed their practices to Medicaid patients. Over 52% of physicians have already limited the access that Medicare patients have to their practices, or are planning to, according to a 2012 survey by Merritt Hawkins for the Physicians Foundation. More doctors than ever already refuse Medicaid and Medicare due to inadequate payments for care, and that trend will only accelerate as government lowers reimbursements.

At the same time, ObamaCare is squeezing out the middle class from affordable private insurance that correlates with far better disease outcomes than government insurance. By bloating coverage requirements and minimizing the consideration of risks fundamental to pricing insurance, the law has already increased premiums by 20%-200% in more than 40 states, according to a 2013 analysis by the Manhattan Institute’s Avik Roy and others.

Less widely known is that inadequate reimbursement by government insurance to doctors substantially increases private-insurance prices. According to a December 2008 Milliman report presented by Will Fox and John Pickering, a shortfall of more than $88 billion in payments from Medicaid and Medicare beneficiaries added more than $1,500 extra a year in premiums and $1,800 extra in total out-of-pocket costs to every family of four with private insurance. With increasing enrollment into government insurance, private premiums will undoubtedly rise even more.

Even inside Medicare, two-tiered access will occur. Under political pressure in advance of this fall’s midterm elections, the administration backed off from the ObamaCare plan to eliminate affordable private drug-coverage options inside Medicare, options that all Medicare beneficiaries enjoyed before the law. These substantial cuts will likely return post-election, limiting those choices to more-affluent seniors.

Despite the government’s assertion that the health-care law increases insurance choices, the ObamaCare exchanges do the opposite for those dependent on them and the government subsidies they offer. The average number of plans offered in individual states has decreased from 117 in 2013 to 41 in the new exchanges; consumers in 16 states now suddenly have their choices limited to three or fewer insurers.

ObamaCare is also eliminating access to many of the best specialists and the hospitals for middle-income Americans. To meet the law’s requirements, major insurers are declining to participate in the exchanges, or only offering plans that restrict choice of doctors and exclude many of America’s best hospitals. McKinsey reported a marked narrowing of hospital networks on the ObamaCare exchanges: In 2013, 33% of individual insurance offerings contained narrow or very narrow networks, but this year under the exchanges 68% of options cover only those limited networks.

For cancer care, the overwhelming majority of America’s best hospitals in the National Comprehensive Cancer Network—including MD Anderson Cancer Center of Houston, New York’s Memorial Sloan-Kettering, Barnes Hospital in St. Louis, and the Seattle Cancer Care Alliance uniting doctors from Fred Hutchinson Cancer Research Center, UW Medicine and Seattle Children’s—are not covered in most of their states’ exchange plans.

Meanwhile, concierge practices are increasing rapidly, as patients who can afford it, along with many top doctors, rush to avoid the problems of an increasingly restrictive health system. The American Academy of Private Physicians estimates that there are now about 4,400 concierge physicians, 30% more than last year. In a recent Merritt Hawkins survey, about 7% to 10% of physicians planned to transition to concierge or cash-only practices in the next one to three years. With doctors already spending 22% of their time on nonclinical paperwork, they will find more government intrusion under ObamaCare regulations taking even more time away from patient care.

Unless ObamaCare is drastically altered, America’s health care will also become even more divided, with rising inequality. Just as in the U.K. and other countries where governments take an outsize role in dictating health-care policy, only the lower and middle classes in America will suffer the full consequences of ObamaCare.

Dr. Atlas is a physician and a senior fellow at Stanford University’s Hoover Institution.

 

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Comments on Wall Street Journal Op-Ed: The Coming 2-Tier Health System (4/30/2014)
Review by Rich Teets
Metro Coalition of Congregations Healthcare Task Force Chair
Scott Atlas provided a critique of the Affordable Care Act (ACA) in a recent Wall Street Journal op-ed. There are a number of statements and conclusions in this op-ed that seem wrong or misleading. One overall claim is that the Affordable Care Act (ACA) will result in a 2-tier health system. Nowhere in the op-ed is a discussion of the roughly 50M people in the US who didn’t have health insurance in 2010 when the ACA was passed. Surely that is a serious 2-tier healthcare system. The number of uninsured has been increasing steadily in recent decades. In addition there have been about 30M who were underinsured. (http://www.commonwealthfund.org/Publications/Fund-Reports/2011/Oct/Why-Not-the-Best-2011.aspx chart 49) These people had insurance which was substantially worse than required by the ACA. Based on this information, it seems unreasonable to imply that we have a 1-tier health system that will become 2-tier because of the ACA. Many people would argue that the ACA has reduced disparities by providing an affordable path to quality insurance or Medicaid. (Medicaid is not great insurance, but it is far better than nothing).
The second sentence in the op-ed states “While millions signed up for insurance, millions of others abruptly lost their existing coverage and access to their doctors because that coverage didn’t fit new ObamaCare definitions.” This implies that the net number of uninsured stayed about the same. But the latest CBO report estimates that 6M people gained private insurance, 7M gained Medicaid coverage, and only 1M lost private insurance coverage due to the ACA, for a net gain of 12M. By 2016, the CBO expects the net gain to be 25M. (http://www.cbo.gov/sites/default/files/cbofiles/attachments/43900-2014-04-ACAtables2.pdf
Here is another quote from the op-ed: “By bloating coverage requirements and minimizing the consideration of risks fundamental to pricing insurance, the law has already increased premiums by 20%-200% in more than 40 states, …”. The statement “bloating coverage requirements” seems inaccurate to this reviewer. The ACA requires covering essential health benefits – those that any insurance should include. Possibly the op-ed would consider it wrong to require every policy to include maternity coverage or pediatric dental. All this does is spread the risk over a larger pool of people. This reviewer believes that it is good for society to spread the cost of raising children over the whole society.
When the op-ed says “risks fundamental to pricing insurance”, it seems to be arguing that insurance companies should be able to charge more for people with pre-existing conditions. Prior to the ACA, insurance in the individual market could fragment the market in any way that was economically advantageous to the insurance company. One could sell relatively low cost insurance to healthy people, and exclude unhealthy people. One could put other limitations like an annual cap on coverage or a lifetime cap on coverage. All these allowed healthy people to pay a lower rate, but the unhealthy were stuck with very high premiums, unaffordable out-of-pocket costs, or no insurance at all. The ACA set rules so that quality insurance has to be offered to everyone. This means that the healthy are likely to have to pay higher premiums to help cover the cost of the unhealthy; that is what insurance should do. The op-ed ignores the tax credits (subsidies) that make the insurance far more affordable for many people than insurance was previously. The author of the op-ed apparently thinks insurance companies should be able to fragment the market and charge much more for the people who are unlucky enough to be unhealthy.

The ACA includes an Independent Payment Advisory Board (IPAB) which is an attempt to reduce the rate of increase in Medicare spending. The op-ed argues that this will lead to rationing. Again, there is a need for context and a more complete discussion. There are already forms of rationing in our healthcare system. People who are uninsured have the worst kind of rationing. Insurance companies set rules that are a form of rationing. So rationing already exists. Healthcare in this country is 20% of our GDP, and healthcare inflation is higher than other forms of inflation, so healthcare is consuming ever more of our GDP. The funding for Medicare will be problematic in the future. For these reasons, it is unavoidable that we must reduce the rate of healthcare inflation. The IPAB is an attempt to do this. How well it works remains to be seen. Congress can overrule the IPAB. Given these constraints, this reviewer thinks it is unreasonable to argue that the IPAB should be eliminated to prevent the possibility of rationing.
The op-ed quotes data that imply that underpayments by Medicare and Medicaid increase healthcare spending by a typical family of 4 by $1800 (to make up for the difference). It is hard to be sure of these numbers, but surely an equally significant problem is that private insurance has to help cover the cost for the uncompensated care provided to the 50M people who lacked insurance before the ACA. And the author provides no suggested solution. Does he believe that low income people should go without healthcare? Is he willing to support higher taxes so Medicaid and Medicare can pay more to doctors and hospitals? (The studies that this reviewer have read show that there is no way that private insurance could come close to delivering care at the same low cost as Medicaid and Medicare. So privatizing Medicare and Medicaid would lead to much higher costs. Who would pay that?)
The op-ed discussion of provider networks for insurance sold under the ACA has some merit. Under the old system, insurance companies could offer reasonable cost insurance with reasonably broad provider networks to healthy people. The disadvantage is that unhealthy people could not get insurance, and low income people could not afford any insurance. Under the ACA, all the insurance has to be high quality in terms of what is covered and it has to be offered to everyone. As a consequence, the main way for the insurance companies to compete is to negotiate lower payments to doctors. The lowest cost insurance is likely to have the narrowest provider networks. There certainly is the potential that some insurance will have provider networks that are too narrow both in terms of availability and quality of doctors and hospitals. In metro-Detroit, Beaumont does not take the lowest cost ACA insurance (Humana), but does take the next two low cost ACA insurance (Total Healthcare HMO and Blue Care Network HMO). People can buy insurance with broader networks (e.g. the Blue Cross PPO network), but at a higher price. This reviewer volunteered as a Navigator to help many people sign up for health insurance. Because of the tax credits (subsidies), many people were able to afford insurance for the first time in many years. And many of them signed up for the Total Healthcare and Blue Care Network HMOs. People who had a preference for certain doctors were usually able to find an affordable insurance plan that covered their chosen doctor. For these people, the ACA is providing quality insurance at a reasonable cost, with provider networks that appear adequate. But the effects of these narrower provider networks will need to be examined carefully over time. If the free market works, people should be able to trade off cost for quality of provider networks. Many will be better off under the ACA than they were before it. But with the high cost of healthcare in the U.S., it is quite possible that many will be forced into provider networks that are not as good as they would like.
Much of the rest of the op-ed provides evidence that some people will augment government sponsored healthcare with private dollars. That seems unavoidable as healthcare costs increase. The challenge to all nations will be to provide a reasonably good level of care to all at an affordable price. The US system before the ACA clearly failed to do this. The ACA is an attempted improvement which continues to rely on private insurance (both employer-provided and individual). The ACA also has many features which are intended to reduce costs while maintaining or improving quality. Each of these needs to be carefully considered, monitored, and perhaps modified. But that will require an open-minded consideration of facts, which this op-ed fails to do.
Postscript: the op-ed also states “Under political pressure in advance of this fall’s midterm elections, the administration backed off from the ObamaCare plan to eliminate affordable private drug-coverage options inside Medicare, options that all Medicare beneficiaries enjoyed before the law. These substantial cuts will likely return post-election, limiting those choices to more-affluent seniors.” This reviewer has not been able to find any references that explain this cryptic statement. The ACA actually increases subsidies for drugs within Medicare part D, so that should help seniors.
2nd postscript: some may argue that unhealthy people should pay more for health insurance, because they may have unhealthy lifestyles (smoking, obesity, lack of exercise, risk taking, …). The ACA does allow insurance premiums to be 50% higher for smokers. There is no other risk adjustment allowed. However, the lowest cost insurance has high deductibles and high limits on out-of-pocket spending. So in this way, unhealthy people are likely to pay more than healthy people. But there is a limit on how much extra they have to pay. And there are tax credits (subsidies) that reduce the deductible and out-of-pocket maximum for people making less than 250% of the federal poverty level. In this way, the ACA requires that people have “skin in the game” that will motivate them to make good choices in healthy lifestyles and in choosing doctors and treatments. Of course, some may avoid needed care in order to save money. In this reviewer’s opinion, the deductibles and out-of-pocket limits are higher than optimal.
3rd postscript: Opponents of the ACA sometimes argue that a true free market would bring down the price of healthcare so that everyone could afford it (perhaps with some sort of subsidy for the very poor). This seems inconsistent with the facts. For many years most insurance has had high enough deductibles that people have considerable “skin in the game”. This may have slowed the rise in health costs, but it has not reduced them. Perhaps more transparency in costs could help, but the reality is that few people are capable of knowing which treatments are needed and which are not. And most of the healthcare costs go to the 20% of the population that have serious health problems. Expecting a cancer patient or an accident victim to shop carefully and curb the rise in healthcare costs seems unrealistic. And if one doesn’t control the costs for the unlucky 20%, one cannot seriously hope to reduce overall healthcare costs. (That is also why high risk pools for people with pre-existing conditions are not a low cost solution. These pools require either a very high subsidy or a high cost to the individual).
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Roy Sjoberg, Chrysler retire and Father of the Viper
My experience thus far this year: Florida doctors require payment prior to even examining you based on their estimates, then refund from Medicare if they receive more than their estimate (about $150 refund). N. Michigan the separate funding is being started with “Friends of the Hospital” which is $5000/year, but is charitable deduction (no % basis of AGI deduction), they are thinking concierge, but could be as much as $10,000/year?
Sounds like Mr. Teets supports spreading the costs over a larger body of people? I don’t believe health care is a Constitutional right, but an individual responsibility that needs to be funded when you are healthy. There are exceptions that should be considered, but when a large portion are uninsured taking the risk as they’re young, then it’a a calculated risk, not my risk.

PS. We have the Michigan Teachers retirement health system (Medicare Advantage), but the yearly deductible and % copayments went up this year. Real question is what will happen to Advantage program when Obama Care really comes into play.
Almost sounds like we need a medical opinion. I know my opthamologist retired to avoid Obama Care. The clinic that took over his practice moved from his 32 patients/day to 48, with the same assistants (don’t know their cost structure). Wait times have increased from zero to a half hour, the carryover assistants apologize profusely. The doctor you see varies from week to week as they travel from Traverse City to Petoskey (approx. 1+ hours).
At least in Northern Michigan hospital, insurance payments don’t cover equipment investment costs (MRI’s, etc.), it’s funded by contributions to the Foundation (a new cancer clinic, hospice, etc.- a multimillion dollar venture with a substantial reserve fund, most help are volunteers).
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Bob Swarc, Chrysler retiree and MS advocate
Richard,
Thank you for your well considered and researched comments about the subject od-ed.
I especially appreciated your use of citation of your information. Something the article author both neglected to do as well as using info that is not available to general circulation; I hit a dead-end trying to find his background info.

Please let me add my comments to a couple points:

In your 3rd paragraph you mention “….. it is good for society to spread the cost of raising children….”.
You are very right on several levels. One of my points of sensitivity is our society’s seemingly visceral need to make folks “qualify” or verify a level of “need” for any and all public programs. Where kids are concerned this is sheer lunacy. Such activities for kids including their education and healthcare clearly represent a public and societal need for high quality and total accessibility of the delivery of these basic human conditions. Children’s health and intellectual development are not “rights” but rather responsibilities of both society for delivery and the parents (for their kids) to thoughtfully and thoroughly “consume” those commodities.

You asked for comments about your first PS:
I haven’t heard any such proposal from any quarter to limit or eliminate any prescription drug coverage. Further, I did a fairly thorough review of the original ACA and there was nothing that might impact access to Rx coverage for seniors – privately or through Part D.

Your other 2 PS’s are, like your main note, spot on.

Just after reading your note I got Roy’s comments. I have only occasionally heard of such “pay first” and/or (possibly) concierge-service medical facilities and have never found any locally here in MI.
But I’d rather question the priorities of such a “pay first” provider given that they are clearly stating their first priority is getting paid regardless of the results of their service.
I would be most interested as to what a prospective patient gets for their willingness to pay first. Could it be a geographic phenomenon? Is there some guarantee of better treatment success? Is there some special level of comfort provided for this consideration? In my small world I’ve always received excellent care as has Marcia; all our needs and wants have been met without any special payment devices.

Thanks again,
bob
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David Key – BCBSM retiree and healthcare insurance agency owner

Richard

Thanks for your thoughtful and well researched, and well articulated response to the WSJ article.

I’m pretty much in agreement with your paper.

From a more general point of view, I think that the contention that Government insurance programs such as Medicare, private insurance, and subsidized private insurance will create a two tier health care system, due to the government strings attached is wrong.

In my opinion this contention is false due to the following:

1) Insurance of all types has given much of the population access to the same advanced level of care. In my experience, advanced health care is provided at the same levels to patients at U of M, DMC, Beaumont, and most other institutions, regardless of they had government insurance, private insurance, or if they paid themselves. Accept for those who don’t have insurance, I think that the US health care system is really a one tier system.

2) Advanced technology such as MRI’s, require large capital investments that need a large number of patients to financially rationalize the cost. If a hospital only provided advance care to the ultra rich, it is doubtful that these investments would be made. A large insured population is needed to pay for advanced technology, drugs, etc.

3) Even further most hospitals and most doctors could not survive without insured patients. There are only so many rich patents, willing and able to pay concierge out of pocket coverage and they could not support even the current number of hospitals and doctors

4) Blue Cross Blue Shield plans were originally established by hospitals and doctors in the 1930’s, to give the ordinary person access to health care as well to provide a guaranteed income stream to health care providers. Insurance of all types has made American doctors the highest paid doctors in the world. Before the advent of BCBS plans, Medicare, etc. Medicine was not a highly paid profession. It is a little ironic that some physicians want to return to pre-insurance days. They want to be careful what they wish for.

I can empathize with doctors, who feel that the government regulations are growing more and more cumbersome and even more unreasonable. But just like Seniors, they’re best defense is to develop and/or support existing organizations that will make their voices heard.

Dave