The Federal budget, the deficit, and provider reimbursement

Fed Chairman Alan Greenspan’s recent gloomy pronouncements about the potential impact of the federal deficit have focused even more attention on entitlement programs. Interestingly, Greenspan specifically mentioned governmental health programs, such as Medicaid and Medicare, noting that their contribution to the deficit may well outstrip that of Social Security.
Pres. Bush’s efforts to rein in Federal expenditures on Medicaid has focused on cutting drug reimbursements; eliminating some of the ways seniors have shifted assets to qualify for governmental funding of long term care; and closing “accounting loopholes. As of today, these recommendations have run into a stone wall, as Republican and Democratic governors alike have strongly resisted any Federal cuts to Medicaid funding. Their resistance, combined with less-than-overwhelming support from Congressional Republicans, make it unlikely that Mr. Bush will get all, or much, of what he desires.
If Bush is unable to cut Medicaid significantly, today’s $300 billion in annual costs will continue to escalate at near-double-digit rates. Combine that bad news with the Administration’s refusal to consider any changes to the new Medicare Prescription Drug program (slated to start next year), and it is clear that any progress in reducing governmental expenditures on health insurance programs will have to come from other sources.
So, who’s going to feel the pain?
In a word, providers.
Doctors are slated to receive an automatic 5% fee cut in 2006. Historically, Congress has eliminated or reduced these cuts in the past


Medicaid battle – White House v. State House, round 1

The White House is seeking a compromise with governors over Medicaid funding, and is rolling out the big guns in an effort to reach agreement this week. At issue is the Administration’s desire to reduce expenditures by some $60 billion while “closing accounting gimmick loopholes” that enable some states to get more than “their fair share” of federal dollars.
In this era of bitter partisanship, Pres. Bush has been able to accomplish what few others have; create agreement between members of both parties on a highly contentious issue.
“Gov. Bob Taft (R-Ohio) said, “I don’t think there are any divisions among governors” when it comes to losing federal funding, adding, “The real issue is it’s governors against the White House and Congress” (AP/Albany Times Union, 2/28). ”
In today’s New York Times, Taft said “Governors are very anxious about signing on to a $60 billion number if we don’t know how you will get there. We like ideas that save money for the federal government and the states through program efficiencies, but we do not support recommendations that would save the federal government money at the expense of the states.”
His comments were echoed by Romney, Republican governor of Massachusetts; “”Governors will argue en bloc that we want our Medicaid funding retained. We don’t want reductions.”
Without the support of Republican governors, and more than a few Democrats, the Adminstration’s version of Medicaid reform is going nowhere. We’ll be watching this for months to come…


Future health care costs

The article referenced in yesterday’s blog entry about health care cost trends is available at Health Affairs. Here’s the abstract…
“National health spending growth is anticipated to remain stable at just over 7.0 percent through 2006, the result of diverging public- and private-sector spending trends. The faster public-sector spending growth is exemplified by the introduction of the new Medicare drug benefit in 2006. While this benefit is anticipated to have only a minor impact on overall health spending, it will result in a significant shift in funding from private payers and Medicaid to Medicare. By 2014, total health spending is projected to constitute 18.7 percent of gross domestic product, from 15.3 percent in 2003.
The slowdown in national health spending growth is expected to continue into 2004, with growth edging downward to 7.5 percent from 7.7 percent in 2003 (Exhibits 1 and 2).1 Over the next ten years, growth is expected to slow to 6.7 percent between 2013 and 2014, well below the peak of 9.3 percent growth that occurred between 2001 and 2002. Despite the anticipated deceleration, these growth rates outpace the milder inflationary experience of the mid-1990s, when growth averaged 5.3 percent from 1993 through 1998. Over the 2003-14 period, national health spending is forecast to continue growing faster than gross domestic product (GDP). The consequence is a projected increase in health’s share of GDP from 15.3 percent in 2003 to 18.7 percent by 2014.”
And here’s the takeaways…
1. Prescription drug costs will be the largest single contributor to growth in public health care costs.
2. Private coverage for drugs will decrease among Medicare eligibles as the Medicare Prescription Drug coverage program goes into effect starting in 2006.
3. While overall medical inflation will remain 2-3 times the overall rate of inflation, private health care plans will very likely see signficantly highertrend rates . As public programs cut expenses, cost-shifting will undoubtedly follow.


Another sign that the apocalypse is on us

When an issue hits the front page above the fold in USAToday, you can be certain it is a crisis. Today’s paper features the looming crisis in health care, noting recent rapid rises in costs have outstripped wage increases.
The article does a good job of presenting the facts and is fairly objective, despite the somewhat alarmist headline. Notably, it does mention that governmental programs will account for just under 50% of total health care spending in 2014 (up from 45% in 2003). This is a scary number, and is the main driver behind the recent activity on Capitol Hill.
USAToday’s source was CMS’ annual report, which was the subject of numerous articles in other papers. According to California HealthLine,, in the report, the CMS analysts said that public health care expenditures in 2014 will represent “a record share that could have important implications for the budget as a whole” (AP/St. Petersburg Times, 2/24). According to CMS analysts, “barring enormous tax increases,” public health care spending in 2014 “would crowd out virtually all other spending except for the military and interest on the national debt,” the Raleigh News & Observer reports (O’Rourke, Raleigh News & Observer, 2/24
Paul Ginsburg, president of the Center for Studying Health System Change, said, “This is going to lead to continued erosion of health insurance coverage,” adding that rather than pay increased health insurance premiums, “low-income workers would just as soon have the money because they can’t afford to spend so much of their income on health care.”
Implications? Several…
In a talk at the Institute for The Future’s annual conference last year, I prognosticated (pessimisticaly) that it would be several years before the US was forced to do something about the uninsured. At the risk of now swinging too far to the “wildly optimistic” side, it appears that the stars may be forcing themselves into an alignment that favors some sort of national debate on the topic of health care costs, access, and coverage. That would be a very good thing.
More pragmatically, it is clear that the government cannot afford, or rather tax payers will not pay, the forecasted amounts. Inevitably this decision will lead to
–more uninsureds,
–slashed provider reimbursements,
–ever higher premiums,
–cost shifting to insureds from providers seeking to recoup lost revenue,
–higher medical costs for those fortunate enough to have private health insurance, and
much higher costs for others whose care is paid by third parties (workers’ comp, auto, liability, etc.)
Not a pretty picture.


Greenspan on Medicare

Testifying before Congress, Fed Chair Alan Greenspan (free registration required) noted that while Social Security is indeed at risk, Congress must address “far larger shortfalls in Medicare”.
However, Greenspan also noted that we are not yet ready to take on the task. According to California Healthline;
“However, he emphasized that despite the larger problems in Medicare, lawmakers “probably ought not to address the medical issue quite yet, until we get much further down the road in the advance in information technology in the medical area,” which could help reduce costs. He added, “If we do it now or even next year, I’m fearful we would be restructuring an obsolete model and have to come back and undo it.”
Greenspan’s comments agree with a report just released by the Employee Benefit Research Institute, which stated that Medicare will soon account for a “greater and rapidly growing share of the nation’s gross domestic product, sending Medicare into insolvency 23 years before Social Security,”.
EBRI says that Medicare’s nearly $28 trillion in unfunded liability is more than seven times Social Security’s $3.7 trillion.
The news here is individuals whose pronouncements are widely followed are finally talking about the real issue facing the economy – health care costs.
GM’s health care costs just went up by over a billion dollars. The uninsured population is increasing every year, and is now over 45 million. Medical trend rates in Property and Casualty insurance are the most significant driver of premium inflation. Health care costs for municipalities are now over $7000 per employee, leading to higher property and other taxes.
David Lazarus in the San Francisco Chronicle puts it this way. It is a “big mistake” that “Americans are talking about problems facing the Social Security system” while paying “little attention” to Medicare, San Francisco Chronicle columnist David Lazarus writes in his “Lazarus at Large” column.
Lazarus adds that most experts “believe that Medicare’s issues can’t be adequately addressed without overhauling the nation’s entire health care system.” (thanks to California HealthLine)
Perhaps, just perhaps, we are nearing the tipping point when real health care reform is possible.


Navigating the health care jungle

HealthAdvocate is a relatively new company that is making a business (and by all accounts a fairly successful one) by helping consumers deal with the increasingly complex, frustrating, convoluted world of health care. I don’t have any personal experience with them, but their approach and business model makes sense.
They sell their services to employers, TPAs, insurers, unions, and other organizations as an add-on to employee benefit programs. The service, which is billed on a per employee per month basis of $1-$4, provides several benefits:
1. assists employees in locating health care providers with specific experience and expertise
2. negotiates with health plans for coverage and payment for specific procedures and treatment
3. facilitates claims handling by working with providers and health plans
As Tom Schell of Paradigm Health puts it, ” this type of service offering will be the norm in several years as companies look to get more bang out of their healthcare dollar — since it enables the users to maximize the coverage they currently have and increase the overall patient satisfaction level.”
I agree. “Consumerism”, patient-directed health care, and all the other “make the patient responsible for their own healthcare” efforts have one major obstacle – people are mystified, overwhelmed, and frustrated by healthcare processes and requirements. And it is not likely to get any better. The worse it gets, the more valuable HealthAdvocate and similar firms will become.


Health care costs are 15.5% of GDP

BU’s School of Public Health just released a study indicating US health care costs will be $1.9 trillion in 2005, an increase of $621 billion over 2000. The study also reported that health care is a major driver in GDP growth, with this sector of the economy responsible for a disproportionally high amount (24%) of the growth in GDP.
Two specific items deserve attention, one related to what we get for what we pay, and the other concerning what drives medical inflation.
“The report found that per capita health care spending in the United States on average is double that of Canada, France, Germany, Italy and Britain, which provide universal health coverage to residents.
The report stated, “Current U.S. spending should be adequate to cover all Americans.”
The obvious question remains, what is driving these astronomical increases? While that question has many answers, according to the LA Times one of the more provocative is “doctors receive or determine how to spend 87% of health care spending, with tests and services ordered by doctors comprising 66% of health care spending and doctors’ fees accounting for 21%. ”
When one strips away all the details and nuance of technology, pharma, hospital increases, nursing shortages, and end-of-life care, it always comes down to the treating physician.

The treating doc is the key to delivering care and managing cost.


A miracle on Capitol Hill

Just when we thought the holiday season was over, the CMS Actuaries gave their biggest gift of the year to the White House, Senate, and House – an accounting change that reduced Medicaid expenses by $73 billion over the next ten years.
To be fair, and who doesn’t want to be fair when dealing with the Feds, the change was triggered when CMS determined that inflation in Medicaid for 2004 was 9%, not the 11% originally forecast. But let’s focus on the implications.
Recall that new HHS Sec. Leavitt was seeking to reduce Medicaid by some $60 billion by eliminating “accounting gimmicks” that states were using to get as much Federal money as possible to fund Medicaid (which is, by the way, a funding requirement placed on the states by the Feds…). The new numbers may make it a little tougher for the Administration to push through drastic changes to Medicaid.
CMS is downplaying the change, noting that “the revision would not affect administration plans to reform Medicaid in the fiscal year 2006 budget proposal that President Bush is set to release on Monday.”
So, any euphoria over the new found savings may well be short-lived. If nothing else, it will make for entertaining Hill-watching, as Governors, battling low state revenues and rapidly rising Medicaid costs, seek to maintain Federal funding. According to California HealthLine reporting on Congressional Quarterly’s story,
“Virginia Gov. Mark Warner (D), chair of NGA, said, “The cuts cause grave concern because the states are still reeling from the budget woes of the last five to six years. To have a major cost shift that simply passes costs from the federal government to the states will really slow the recovery that most states have started to experience” (Adams, CQ Weekly, 2/7).
And it’s not just Democrats…
“Sen. George Voinovich (R-Ohio), a former mayor of Cleveland, is leading a coalition of Republican former governors and local officials in Congress who are prepared to contest Bush’s Medicaid proposals. “We’re going to look at what he proposes. But we are not going to just slash funding for states. We’re not going to rip up the safety net,” Voinovich said. ”


Health care bill processing errors

Peter Rousmaniere passed on a very interesting graphic from the “Wall Street Journal” on group health insurnace claims processing errors.
The article referenced Towers Perrin audits conducted in 2002 and 2003, which indicated 3.3% of claims dollars were paid in error. More disturbingly, 6.6% of claims had financial errors. The Journal requires a subscription for access, thus no url links, but I’ll look for other info and pass it along.


Why is Medicaid growing?

A significant portion of the $75 billion increase in Medicaid expenditures from 2000-2003 is due to increased enrollment. This may be partially due to the drop in employer-sponsored health insurance and/or a decrease in the number of employees signing up for health insurance with their employers.
Regardless, it appears that the price controls put in place for Medicaid in the form of fee schedules, and the utilization controls in effect in many jurisdictions are helping to hold per-enrollee cost increases under that experienced by privately insured individuals.
The implication is a growing population “insured” by the government, fewer people covered by private insurance, and a de facto transfer of risk from employers to the government.
Of course, this leaves out the 45 million under-65 Americans who had no health insurance coverage at some point in 2004; as this population increases it will lead to rising cost shifting to both governmental and private insurers.