Paul B. Ginsburg

The purpose of HSAs is to encourage consumers to choose insurance plans with more cost sharing at the point of service, for example, through a high deductible. But the Cadillac tax will also push consumers in this direction by changing their employers' behavior. Indeed, the Cadillac tax will do a better job at this since it focuses on getting premiums down rather than on a specific benefit structure that was written into legislation in 2003. When the Cadillac tax takes effect, employers can lower the premium either by increasing deductibles or by a range of other steps, for example, benefit designs that encourage use of lower cost providers, narrow network products or more extensive management of utilization. With the Cadillac tax accomplishing the broad objectives of HSAs, the Congress will then ask itself why a nation with a rapidly growing national debt is extending tax subsidies to services used before a deductible is met--or services not even covered by insurance--in order to achieve an objective that will be achieved by the Cadillac tax.

It should not be surprising that in legislation as complex as PPACA and that did not benefit from House-Senate conference, contraditions would emerge. One notable one is regulation of medical loss ratios (MLR). One of the major purposes of health insurance exchanges is to make the health insurance market for individuals and small groups more competitive. Exchanges do this by facilitating consumers' process of gathering information about plans and making informed comparisons. In contrast, MLR regulation is designed for situations where competition is not possible and approaches more suitable to public utilities must be used. Any need for MLR regulation will clearly be lower starting in 2014 than it is today.

A second contradiction concerns innovation in the organization and delivery of care. Recognizing that we do not have the answers today about how to get care that is higher quality and less expensive, the legislation has numerous provisions designed to increase innovation in this area. Payment reforms strike me as having particularly large potential. Private insu

Health insurance has been becoming more consolidated in recent years. The advantages of being a national insurer or being large in a particular market have increased over time. Although increased insurer consolidation is bad for physicians, especially those in small practices, which have relatively little leverage with insurers, it is not at all clear that it is bad for those who purchase health insurance—employers, employees and individual consumers.

Recognize that health insurers are intermediaries between providers and purchasers. Purchasers engage insurers not just to pool risks and pay claims, but also to obtain more favorable prices from providers. If insurer consolidation leads to lower prices paid to providers, some or all of the savings could be passed on to purchasers. This is most likely in the large group segment, where there is national competition to serve large companies with employees in various locations. Wall Street analyst reports indicate that this segment of the health insurance market is highly competitive and not very profitable for in

Rather than engage in a debate on whether this increase is justified, I want to point out two major “takeaways” from this controversy. First, it is clear that a key element in the Administration’s strategy to rescue comprehensive reform is to attack insurers so fiercely that the public comes to believe that their health insurance is not safe without the federal regulation that comes with comprehensive reform. I wonder if the end game has been thought through, since with a meaningful public option not likely, these private insurers will be depended on to implement the reform effectively.

The second takeaway is the instability of individual health insurance markets. If Wellpoint’s actuarial analysis is correct--that the severe recession has damaged the risk pool for individual coverage through adverse selection--it shows how critical it would be under reform to have strong enforcement of individual mandates (along with large enough subsidies to individuals to make such enforcement politically feasible). With weak mandates, we risk selection spirals that would undermine th

It is unfortunate that so much has been done in recent years to sensationalize the periodic reports from the Office of the Actuary at CMS on spending trends and projections over the next ten years. That the percentage of GDP devoted to health care would increase sharply in a year in which GDP declines should not surprise anybody. This focus unfortunately distracts us from the enormous economic and fiscal challenge of health care spending growing on average by 2 percentage points per year in excess of GDP. Not only will this make insurance unaffordable for more and more people, but it will impose enormous strain on governments that have revenue growth roughly equal to GDP growth. Rather than simply reporting the 2009 headline, journalists should be asking the authors why their long-term projection of the gap between spending and GDP at 1.6 percentage points per year is so much lower than it has been in the past. How much of this is a reflection of the fiction that SGR will reduce Medicare physician payment rates by 21 percent at the end of this month? Beyond SGR, is there a

Health insurance exchanges are one of the key components of the House and Senate health care reform proposals. They have the potential to make the insurance market much more competitive by putting in front of consumers a choice of plans from competing carriers that have been standardized by actuarial value (one offering per carrier for each of the actuarial values). This “head-to-head” competition is likely to lead to lower margins in this market. The exchanges, if done well, would also reduce the costs of distributing health insurance to individuals and small businesses. Given their critical role in the reform, it is important that effective entities be created. State and federal approaches to exchanges each have their inherent advantages. State approaches would provide more innovation, since states could pursue distinct approaches and learn from each other. But state approaches can also lead to some very weak exchanges in some states. It is one thing for states like Massachusetts that have demonstrated their commitment to this approach to be relied on to perform thi

Over years of talking with union leaders and employee benefits managers about the tradeoffs between health insurance contributions and wages, it is clear that both sides perceive that there is a tradeoff between these two types of compensation. So in a future labor negotiation under a Cadillac tax, cutbacks in premiums to stay under the threshold for the tax will go into higher wages (or pensions or other tax-favored benefits). Outside of collective bargaining, I have no doubt that in the long run, lower spending on health benefits will go to other compensation. But that does not mean that there will not be situations where the unpredictable nature of premium increases means that the combination of health benefits and other compensation is temporarily above market and the spur of the Cadillac tax will be enough to lead to lower health benefit contributions not being immediately offset with higher compensation of other types. But like John Goodman, I am convinced that over time, these forms of compensation are completely fungible.

The idea of a Medicare buy-in for the near elderly has long been discussed as a way to augment the rate of insurance coverage for that population. But it becomes a totally different idea in the context of the House or Senate health reform bills. These bills already include solutions for the near elderly’s insurance coverage problems. Those with the lowest incomes would be eligible for Medicaid. Others can go to an insurance exchange, obtain a subsidy if they are eligible, and enroll in a private plan at a very attractive premium. I call the premium “attractive” because under the 3:1 or 2:1 modified community rating, the near elderly will be subsidized by younger people in the pool. In addition, they will not face medical underwriting. So where does a Medicare buy-in fit? Given these alternatives, a Medicare buy-in will not be attractive to many near elderly without a very substantial (and expensive) subsidy. Lower hospital and physician payment rates will not be enough. The idea strikes me as simply an ideological statement about the role of public plans, Medicare

Updated at 9:51 a.m. on Oct. 26. State opt out is appealing to some because political cultures vary across states, thus potentially permitting compromise on what is mostly an ideological issue. What the implications are beyond ideology depends heavily on what type of public option we are talking about. If it is the version where the public plan pays hospitals and physicians at Medicare rates, an extensive pattern of distortions could result. How Medicare rates compare with those negotiated by private insurers varies to a very large degree across geographic areas and also within a geographic area. One result could be that those states with the highest rates relative to Medicare will opt out in response to pressure from providers, substantially diminishing the exercise of purchasing power that some advocates of public plans place a priority on. This could diminish the CBO score for the public option. Distortions could come in populous areas that are divided by state boundaries. For example, if Virginia opted out and D.C. had a public plan, hospitals would get paid much more

Inducing physicians to leave small practices is not the key challenge for getting more integrated delivery through accountable care organizations (ACO). Physicians appear to shifting to larger practices at an increasing rate. Many hospitals are employing physicians or setting up affiliated groups because they see a need to “offer a salaried platform” for young physicians looking to concentrate on clinical work and seeking control over their work hours. Many physicians already in small practices are seeking to affiliate with hospitals or larger medical groups to gain access to higher payment rates from insurers through leverage.

These trends provide hospitals an opportunity to create integrated delivery systems. But I doubt that many will take that initiative without major reform in the provider payment system. Much of today’s alignment from the hospital perspective is motivated by the longstanding strategy of gaining the allegiance of physicians who can be admitters of patients to the hospital. Hospitals learned a painful lesson about what can happe

Our medical malpractice system has long been disfunctional. Most patients injured by malpractice do not receive compensation and those who do have to wait many years and pay a substantial portion of the award to attorneys. A few receive awards way beyond medical costs and loss of income. The system is not an effective way to improve quality and works against systematic initiatives to reduce errors.

The potential to improve both quality and efficiency by reforming the system have never been better. With developing abilities to measure and report quality and increasing development and acceptance of evidence-based medicine, more appropriate standards of care can be developed and the system could differentiate between those providers with good quality records and those without. Indeed, a reformed malpractice system is needed to support initiatives to pay providers on the basis of value. The President’s remarks about demonstrations of malpractice reform raise the possibility of addressing this issue in the context of health reform. If we go beyond capping noneconomic damag