High-Deductible Health Plans Are Growing Rapidly

High-deductible plans are gaining market share.

Here’s another important fact from the Kaiser Family Foundation’s recent survey of the employer health insurance market. As shown in the chart above, health insurance plans with high deductibles and a saving option (HDHP/SO) have been gaining market share rapidly. Only 1-in-25 enrollees were in such plans in 2006; today that figure is more than 1-in-6.

The increased popularity of these plans–which involve Health Savings Accounts (HSAs, created by the 2003 tax law) or Health Reimbursement Arrangements (HRAs)–has come at the expense of health maintenance organizations (HMOs, down from 21% in 2005 to 17% in 2011), preferred provider organizations (PPOs, down from 61% to 55%), and point-of-service plans (POS, an unfortunate acronym, down from 15% to 10%).

When paired with HDHPs, HSAs and HRAs are often called consumer-driven health plans because they give the patient / consumer more direct responsibility for health spending. In return for lower premiums, beneficiaries face higher cost-sharing. To help cover those out-of-pocket costs, beneficiaries make contributions to tax-advantaged saving accounts.

Bottom line: The employer market is moving toward more consumer-driven plans. Big question: Will translate into lower health spending?

Health Reform and Skyrocketing Insurance Premiums

Family health insurance premiums surged 9% in 2011 according to new data from the Kaiser Family Foundation. That’s the fastest health insurance inflation since 2005:

Insurance premiums (in red) thus outpaced both general inflation (gray) and worker earnings growth (blue) by a wide margin.

That scary spike raises an obvious question: Is health insurance more expensive because of the health reform enacted last year?

Kaiser crunched the numbers and says yes, but only modestly:

The two provisions in the Affordable Care Act likely to have the greatest effect on the premiums for employer-sponsored health coverage in 2011 are allowing children up to age 26 to remain on their parents’ plans and requiring plans that are not grandfathered to provide preventive services with no patient cost-sharing. Our analysis, based in part on estimates provided by federal agencies when regulations implementing these provisions were issued, suggests that these provisions are responsible for 1-2 percentage points of the 9% increase in family premiums in 2011. (emphasis added)

Stripping out those two specific ACA effects, premiums would still have increased by 7-8% according to Kaiser’s estimates.

But that isn’t the end of the story. A remaining question is whether other aspects of the ACA might also have contributed to the premium increase. Kaiser argues, plausibly, that the two factors it considered were the most direct link between the ACA and 2011 premiums. But perhaps there were indirect links as well?

I expect we will hear critics of the ACA make exactly that argument in the days ahead. Somewhat surprisingly, though, the first example I found came from the Administration. Writing on the White House blog, health adviser and deputy chief of staff Nancy-Ann DeParle pins some of the blame for higher premiums on insurance companies overestimating what their costs would be:

[2011 health insurance] premiums were generally set in 2010, when insurance companies thought medical costs would be significantly higher than they turned out to be. The Bureau of Labor Statistics found that the health insurance employer cost index (a measure of the price of health care services) was the lowest it has been in over 10 years in the first half of 2011. Additionally, some insurers assumed  that the Affordable Care Act would dramatically raise their costs. In the end, both assumptions were wrong – but insurance companies still charged high premiums and earned impressive profits. Wall Street analysts’ review of results from the first quarter of 2011 found that 13 of the top 14 health insurers exceeded their earnings expectations, with profits that were over 45 percent higher than estimated. (emphasis added)

DeParle thus believes that the ACA did lead to higher premiums in 2011–beyond what can be explained by direct cost increases–but only because insurers overreacted. In other words, the ACA did cause premium increases beyond what can be explained by costs (since insurers would not have made the mistake about ACA costs otherwise), but the ACA doesn’t deserve the blame for those premium increases.

Without any numbers, we don’t know, of course, how much such misestimates might have contributed to the 7-8% rise that isn’t explained by the direct effects of ACA. Any such mistakes will, one hopes, be corrected in setting 2012 premiums. If so, that would soften health insurance inflation in 2012.

One Man’s Cost is Another Man’s Income

The latest must-read New Yorker piece by Atul Gawande describes recent efforts to cut costs and improve quality by coordinating patient care – in particular that of the most expensive patients. In “The Hot Spotter” (gated), he follows several innovators, including Rushika Fernandopulle, who directs a clinic-based program in Atlantic City, New Jersey. Fernandopulle and his team face many challenges in managing costs and improving the care of his patients. But:

Their most difficult obstacle, however, has been the waywardness not of patients but of doctors-the doctors whom the patients see outside the clinic. … The Atlantic City casino workers and hospital staff … had the best-paying insurance in town. Some doctors weren’t about to let that business slip away.

Fernandopulle told me about a woman who had seen a cardiologist for chest pain two decades ago, when she was in her twenties. It was the result of a temporary, inflammatory condition, but he continued to have her see him for an examination and an electrocardiogram every three months, and a cardiac ultrasound every year. The results were always normal. After the clinic doctors advised her to stop, the cardiologist called her at home to say that her health was at risk if she didn’t keep seeing him. She went back.

The clinic encountered similar troubles with some of the doctors who saw its hospitalized patients. One group of hospital-based internists was excellent, and coordinated its care plans with the clinic. But the others refused, resulting in longer stays and higher costs.

Any guesses which internists were on salary and which were fee-for-service?

Commentators often worry that third-party payment leads to moral hazard and overconsumption by patients. That’s true, but we should also keep an eye on the providers. Payment reform is one of the key challenges in future health care reform.

Why Does It Cost $230 Billion to Repeal Health Reform?

Last spring, the Congressional Budget Office estimated that the new health legislation would reduce the deficit by $143 billion over ten years. Yesterday, CBO estimated that repealing that legislation would increase the deficit by $230 billion over ten years.

What gives? Why would it cost $87 billion more to repeal the law than was saved by enacting it?

The main reason is that the 10-year budget window moved. The health debate started in 2009, so CBO used a 10-year window that ran from 2010 to 2019. It’s now 2011, so the repeal law will be judged against a 10-year window that runs from 2012 to 2021. The $230 billion figure reflects that longer window. Through 2019, the cost would be $145 billion.

The second reason is that the legislation President Obama signed last spring wasn’t the final word on health reform. In December, Congress was struggling to find a way to pay for the infamous Medicare “doc fix”, which now runs through the end of 2011. To do so, Congress decided to cut $15 billion from the subsidies created by the health legislation. Because those cuts reduced future subsidies, it is now $15 billion more expensive to repeal the overall health reform.

The third reason is that the original health legislation wasn’t just about health policy. It also included fundamental reforms to the way the government subsidizes college loans. The repeal bill wouldn’t undo those changes, which resulted in budget savings of $19 billion over 2010 to 2019.

Finally, the original health reform included about $7 billion in net budget costs during 2010 and 2011. It’s unlikely (to say the least) that the health repeal bill would be enacted in time to avoid those costs.

Bottom line: CBO estimated that the original legislation would reduce deficits by $143 billion over 2010-2019. CBO now estimates that repeal would increase deficits by $145 billion over the same period; the slight difference reflects the education provisions in the original legislation, the 2010 and 2011 costs that can’t be avoided, and the December 2010 changes to the law. The jump from $145 billion to $230 billion then reflects the addition of two years to the budget window.

P.S. The $230 billion figure is preliminary and subject to change once CBO has an opportunity to update its calculations to reflect the latest information about the economy, health care markets, etc.

P.P.S. Aficionados of the health debate will recall that many differences of interpretation surround CBO’s cost estimates for health reform. You can see some of my discussion here.

We’re Still #1 (Unfortunately)

The Bureau of Economic Analysis rewrote history on Friday. Along with GDP data for the second quarter, BEA also published revisions to its GDP estimates since the start of 2007.

Bottom line: The recession was worse than originally thought. The economy contracted by 4.1% from peak to trough (Q2 2008 to Q2 2009), up from the 3.9% previously estimated.

The Great Recession has thus solidified its position as the worst downturn since World War II:

As painful as it has been, the recession remains a far cry from the Great Depression, when economic activity plummeted almost 27%:

Which raises an important question: Just how close did the Great Recession get to being the Great Depression 2.0?

Mark Zandi and Alan Blinder took a crack at that question in a paper released last week.  Their answer: If it weren’t for aggressive monetary and fiscal policy responses, the U.S. economy would have contracted more than 12% during 2008, 2009, and 2010 — about half a Great Depression (and arithmetically, but not economically, comparable to the demobilization after WW II).

The Budget Uncertainties of Health Reform

Back in March, the Congressional Budget Office (CBO) estimated that the new health legislation would reduce the federal budget deficit by about $140 billion over the next ten years and by about 0.5% of gross domestic product in the decade after that. Ever since, analysts have been debating whether we should believe those estimates. Some say the legislation will deliver much larger budget savings than those modest estimates suggest, while others insist it will greatly increase future deficits.

That debate reflects two types of uncertainty about the legislation’s fiscal impact.

The first is technical. As physicist Niels Bohr (not Yogi Berra) once said, prediction is difficult, particularly about the future. CBO had to make hundreds of educated guesses about future health costs and how consumers, employers, providers, insurers, state governments, and federal officials will respond to dramatic changes in the insurance market. Some of those assumptions will be wrong. But observers disagree on which ones and in what direction.

The second uncertainty is political. The new law will change the landscape for future health policy debates. Those changes (which rightly fall outside the scope of CBO cost estimates) may make it easier or harder for future policymakers to address our long-run budget challenges. I suspect that these political uncertainties are the main reason that optimists and pessimists disagree so strongly on the law’s budget impact.

Pessimists argue that to pay for coverage expansions, the legislation ate up budget savings that could otherwise have been used to address our long-run fiscal challenges. By “emptying the quiver” of some desirable policy options, the health law thus indirectly worsened the long-run budget outlook in a way CBO could not capture.

The pessimists also predict that future Congresses will water down or eliminate some budget savings. To make the budget numbers work, lawmakers combined a large helping of dessert (most notably health insurance for an additional 31 million Americans) with a large serving of spinach (for example, a new excise tax on “Cadillac” insurance plans and cuts in Medicare provider payments). History suggests, however, that policymakers often lose their appetite for the greens (see, for example, physician payments in Medicare).

The optimists believe that the fiscal impact will turn out better than CBO predicted. They note the law includes numerous experiments aimed at uncovering ways to rein in health costs while maintaining or improving quality. Among them: restructuring provider payments, increasing funding for comparative effectiveness research, and creating a new independent board to review Medicare payments. We don’t really know how to reduce medical costs today, but by trying many different approaches and learning from their results, the law will eventually enable future Congresses to adopt the most promising reforms.

Successful health reform may also improve future budget politics. Some past proposals to reduce federal involvement in health care – such as increasing the Medicare eligibility age or rolling back the enormous tax subsidy for employer-provided health insurance – have foundered on fears that some people would lose insurance. But by covering millions of uninsured, the health law reduces that risk, and policymakers may be able to take hard steps that until now have been politically impossible.

It’s hard to know how these political uncertainties will balance out. The law did indeed remove some arrows from the policy quiver, and it is easy to imagine policymakers backing down from scheduled spending cuts or tax increases. So the pessimists have a strong case. But the optimists are also right that if the new law succeeds, it will open new ways to rein in federal health spending. I certainly hope so.

This post first appeared on TaxVox, the blog of the Urban-Brookings Tax Policy Center.

The Second Rule of Hospitals

The first rule of hospitals is to try to stay out of them. Unfortunately, that rule must sometimes be broken. So let me suggest a second rule: no one should be alone in a hospital.

Hospitals can work miracles, saving lives and improving quality of life. But they can still be dangerous and (ironically) inhospitable places. Patients need someone by their side not just to provide comfort, but often to monitor their care and act as their advocate.

A natural corollary is that patients should be free to choose as their companions and advocates whomever they most trust in those roles.

I thus find it astounding that, at least until last night, hospitals could refuse to honor advance directives in which a patient had specified who they wanted to have visitation rights and the power to make decisions on their behalf. As President Obama wrote in a memo to HHS Secretary Sebelius:

Yet every day, all across America, patients are denied the kindnesses and caring of a loved one at their sides — whether in a sudden medical emergency or a prolonged hospital stay. Often, a widow or widower with no children is denied the support and comfort of a good friend. Members of religious orders are sometimes unable to choose someone other than an immediate family member to visit them and make medical decisions on their behalf.

Also uniquely affected are gay and lesbian Americans who are often barred from the bedsides of the partners with whom they may have spent decades of their lives — unable to be there for the person they love, and unable to act as a legal surrogate if their partner is incapacitated.

The President’s executive order forbids this conduct for any hospitals that receive Medicare or Medicaid money:

It should be made clear that designated visitors, including individuals designated by legally valid advance directives (such as durable powers of attorney and health care proxies), should enjoy visitation privileges that are no more restrictive than those that immediate family members enjoy.

You should also provide that participating hospitals may not deny visitation privileges on the basis of race, color, national origin, religion, sex, sexual orientation, gender identity, or disability. The rulemaking should take into account the need for hospitals to restrict visitation in medically appropriate circumstances as well as the clinical decisions that medical professionals make about a patient’s care or treatment.

Sounds right to me.