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Posts Tagged ‘Medicare’

Originally published at caesarrodney.org

The cost of healthcare in Delaware is again rising rapidly.  It is looming as a major budgetary issue for the State of Delaware current employees and pensioners. Delaware’s Medicaid budget is increasingly strained. There is a steady flow of articles in the News Journal about the rising cost of health insurance, the rising cost of pharmaceuticals, and the rapid rise in both co-pays and deductibles for patients. There are, however, a few elements in play that have been overlooked, and may have significant effects in the short-term on the overall costs of both insurance and actual healthcare delivery.
While it is abundantly obvious to everyone that utilizes healthcare services that both co-pays and deductibles have risen in an effort supposedly to keep the cost of the overall premium down, the complaint has been made that this discourages the use of health insurance for routine care because of the high out of pocket cost. This is only a part of the problem.
While it is true that discouraging the use of healthcare services saves money for the insurance carrier, there is another side to this disincentive. I am referring to a phenomenon that we see frequently in medicine. Patients, who are usually quite economically aware of the deductible are also very aware that once the deductible has been met, all further healthcare is essentially free for the rest of the year until their deductible resets.
As a consequence, those who have had some healthcare incident recently often then seek out other elective healthcare treatments, medications, and surgery they might otherwise postpone. “I might as well get it done now under this year’s deductible.” Whenever there is an uptick in elective medical services, there is also an uptick in the sheer number of expensive adverse outcomes, although the percentage still may be very small.
Thus costs to the insurer go up. We are seeing this more frequently in our office this year and it is very common toward the end of the year that our services for elective surgeries become highly demanded. In common terms, the patients want to get the elective surgery done before the end of the year when their deductible resets. This is a strong economic motivation.
Quite obviously this will cause a substantial increase in overall costs to Medicare, Medicaid, and the health insurance industry.  All three of these entities have responded to the increasing costs of expanded coverage of the population by increasing the scrutiny over authorized services and increasing the frequency of denials of authorization, in short, rationing services.
The former of these two phenomena, elective utilization of health services after meeting the deductible, tends to raise overall spending on healthcare. The latter, rationing, of course, does the opposite and tends to lower overall expenditure. The question of which will be the dominant effect will be answered by the insurance actuaries when the next year rates are published. Most anticipate substantial rate increases.
There is, however, another phenomenon that we are seeing increasingly. This is the absolute lack of access to physicians. Increasingly, fairly young physicians are retiring from practice for a host of reasons. Dr. Ezekial Emanuel, one of Obamacare’s chief architects, famously said last year on television when asked about this phenomenon that “They will have to work. We will make them”. It turns out not to be true. What turns out to be reality is that doctors will not work under those circumstances and it further turns out that many doctors, especially those who are older and more experienced, easily have the wherewithal to retire.
In addition to this there is the phenomenon of “Community Care Plans”. These are Medicaid plans offered through the Obamacare exchange. In our office we have been getting dozens of phone calls from people asking whether we participate in these plans and if we know anybody who does participate in these plans. The truth is there is a very thin panel of doctors. By my count, looking at the Delaware panel of doctors for United Healthcare “Community Care”, fully one third of the listed entities were either not doctors, were duplicate listings, or were the names of facilities. Most of the family practices on the list are closed to new patients.
In my specialty, Orthopaedics, there are six surgeons listed who are all based at Crozier Chester Hospital in Pennsylvania. In short, there is very limited access to contracted physicians and surgeons. The net result is that the patient’s have a heavily subsidized health insurance card which is not capable of giving them access to healthcare except under convoluted circumstances, usually the Emergency Room. This is of course a very effective mechanism for United Healthcare to control its costs and continue to receive subsidies from both the federal government and the State of Delaware who offers these plans. The State can then say it has expanded the pool of people with health insurance even though that insurance is unusable.
The actual number of previously uninsured people now receiving preventative care is surprisingly small. As the Oregon experiment demonstrated with over a decade of data, the addition of Medicaid insurance to the uninsured population does not change their pattern of choice of the emergency room for their care. In fact, the net result was quite the opposite, emergency room utilization increased. It is not yet clear if that is happening or will happen in Delaware but similar efforts in both Massachusetts and Vermont have had identical outcomes to Oregon.
The news is not bad for everyone. Large hospital systems are suddenly thriving because their previously uninsured patients are now covered by Medicaid. The insurance industry is consolidating and the large carriers are reaping windfall profits from subsidies. For the moment, Delaware continues to have its state Medicaid insurance program subsidized by the federal government.
Soon enough though, federal Medicaid subsidies to Delaware will cease and the full burden of cost will return to the Delaware budget. The insurance industries will be squeezed by the “Death Spiral” as healthy patients decline to purchase the ever more expensive policies and only the expensive chronically ill remain in the insurance pool. In 2018 penalties, fees, and taxes are set to essentially end the health insurance industry as we know it.  Medicare has not yet been reformed and its insolvency has been accelerated by almost a decade. Small hospital systems will consolidate into large systems but will become de facto accountable care organizations, responsible for all community health, but presumably with highly restricted budgets based upon an insolvent single payor. Hospital care is costly and limited access to care is inevitable.
The “Affordable Care Act”, clearly misnamed, appears to be yet another example of “The Uncannily Predictable Law of Unintended Consequences”. Acronym TUPLUC.
C.D. Casscells, MD
Director, Center for Healthcare Policy

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As of April 1, 2015, CMS stopped payments to doctors for Medicare beneficiaries. As of April 13, CMS announced that it would begin processing claims, as required by law, but at an average 21% reduction across the board. The net effect for many physicians offices is that certain services, such as injections and medications are now being reimbursed by CMS less than the wholesale cost to the providers. Quite obviously, those treatments are no longer going to be offered to Medicare patients.

This is the long predicted adverse and unintended consequence of a poorly designed law known as SGR, past almost 2 decades ago but only now being implemented as of April 1. While the Congress has past by part ascending supported legislation to fix the problem, the United States Senate went on an extended Easter vacation for 2 weeks in yet another shocking demonstration of dysfunctional government.

The rationing of of healthcare to the Medicare population has begun in earnest.

-Dr. Casscells, Director

Center for Healthcare Policy

From Reuters, April 15:

“Congress on Tuesday approved a bill to repair the formula for reimbursing Medicare physicians, marking a rare bipartisan achievement just in time to head off a 21 percent cut in the doctors’ pay.

The bill would replace a 1990s formula that linked Medicare doctor pay to economic growth, with a new formula more focused on quality of care. It also would require means-testing of Medicare beneficiaries so higher income people pay higher premiums.

One of the government’s largest social safety net programs, Medicare is health insurance that serves 54 million elderly and disabled people.

The old formula for paying Medicare doctors has been a problem for years as health care costs outpaced economic growth. Congress had repeatedly addressed the problem with a long series of temporary “doc fix” patches. The new formula is intended to be a lasting change.

The federal government warned Congress last week that it must act before April 15 or thousands of Medicare doctors nationwide would face a 21 percent pay cut under the old reimbursement formula.

The measure passed the House overwhelmingly in March but because it expands the federal deficit, it was greeted skeptically by deficit hawks in the Senate.

They labeled the bill irresponsible because it would add an estimated $141 billion to the U.S. debt over the next 10 years, according to the Congressional Budget Office (CBO).”

What does this mean for healthcare, particularly for the elderly? For the longest time, Congress has been forced to pass the annual “doc fix” because they decided the way to “cut spending” on Medicare was not to means-test the program, ensure that only qualified persons were using the program, and ensure that actual spending was kept under control, they decided to cut the reimbursement to healthcare providers.

Medicare and Medicaid pay far below what a provider can get from a health insurance company or from a fee-based service. This is why patients who use these services consistently have trouble getting great care.

Consider this hypothetical scenario: a general practitioner owns a small clinic. He generally expects to earn $100 an hour for his own salary and for his business. A Medicare or Medicaid patient walks in and he realizes that to spend an hour on this patient will net him only $25 per patient. He has, for argument’s sake, one hour right now. Given the low reimbursement, instead of charging two patients $50 each for a half hour each, he needs to see four patients an hour at $25 in order to earn his income. The doctor must now  choose: give less time to the Medicare patients, or accept a lower fee per hour.

There are those who will say the doctor is “greedy” if he doesn’t accept the fee cut, and point to the Hippocratic Oath and the part which says, “I will remember that I remain a member of society, with special obligations to all my fellow human beings, those sound of mind and body as well as the infirm.” This will be used to say they should consider it a privilege to help their fellow human being, even if the doctor derives no benefit from doing so.

Let’s remember that doctors are people too; they have families, bills, expenses, debt, and other obligations like everyone else. Pretty much every doctor would agree that treating patients without regard to difference or ability to pay is fundamental, which is why many doctors perform charity care for the poor. However, this attitude that doctor should be lucky to treat people is arrogant, and usually put forth by non-providers who think they are entitled to things.

Thus, the problem with the fix is that every single year this charade happens: Congress ‘patches up’ the gap, to stave off already-harsh cuts to reimbursements for providers, who can make more money if they don’t treat Medicare and Medicaid patients, and have the benefit of not having the wrath of government on them if they err in filing paperwork (they feel the hassle of dealing with the insurance companies, but at least the insurance companies can’t give out fines or prison sentences for paperwork filing violations or ‘over-billing’ scenarios).

CRI, together with the Medical Society of Delaware, are the only Delaware organizations advocating for physician and patient driven health care, in opposition to socialized medicine. We want to see the power of healthcare decisions shift towards  the patients and their immediate providers, as well as the immediate costs. Doing this will mean a big step forward in getting healthcare costs under control and improve quality by encouraging innovations and cost-lowering for providers to offer patients. We see this in other sectors of our economy, so why not healthcare?

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Happy Thanksgiving! We hope you have a happy and safe holiday.

For this week’s post we are going to respond to the post of blogger Lyman Stone, a grad student at George Washington University’s Elliott School. In his November 21 blogpost titled “North Dakota, Illinois, and Delaware: A Boom State, a Struggler, and a Winner”, he wrote about Delaware’s migration and why the state has had an overall increase in people from 2000-2010 (source: U.S. Census). His top four points and our response:

1. “Many of the people Delaware loses, as I’ve already shown, are richer people. That is to say, Delaware is exporting its richer people (many of them retirees) to states like Arizona, Florida, Virginia, and Texas. Meanwhile, it is inundated with floods of lower-income, somewhat less-educated individuals. Delaware’s in-migration includes very high rates of retiree migration and migration of the young.”

Delaware lost roughly $480 million in net wealth from 2000-2010, predominately from New Castle County (source irs.gov). Some of that wealth went across the border to Chester/Media, PA; many of the top 1% retired to Florida or Arizona, but many people did stay in Delaware and moved to Kent or Sussex Counties where property is even cheaper and cost of living is lower than New Castle County. Delaware’s low property taxes attract retirees mainly from DC, MD, NJ, and NY. Young people move to New Castle County for the corporate jobs. But Lyman is missing this point: Families with school-age children tend not to stay in Delaware. (see here and here). Unless the parents can afford a private school or get to a good charter school, the parents more often than not leave for PA. A graph within the presentations in the links shows a huge drop-off with parents with at least one child aged 5 or older leaving for places like Valley Forge or Media while parents with children 0-4 stay in Delaware. So it’s like “come when you’re young, leave when you have a family, return when you’re ready to retire”.

2. “Once again, like Illinois, Delaware has lots of high-traffic borders and nearby border metro areas, thus we can fruitfully look to policy variables as one part of the explanation. Delaware has income taxes at a similar rate to most of its regional peers (though much higher than Virginia’s) and is in the minority of states in that it still has an estate tax. In that regard, it is peculiar that so many retirees would choose it.

That is, until we recall Delaware’s three most salient tax features: it has no sales tax (thus reducing cost of living), among the lowest property taxes in the nation (reducing cost of living), and funds its infrastructure through tolls and user fees more than any other state (reducing burdens on people who drive less: young and old). Its taxes overwhelmingly fall on businesses, but it attracts businesses by offering highly favorable legal and regulatory conditions.”

Delaware has a gross-receipts tax, a tax on business revenue BEFORE profit and loss is considered. Only Virginia has both a gross receipts and income tax, both of those rates are lower there than Delaware. The result has been that Delaware has had more businesses closing than opening and we are 51st in the country in jobs created by existing firms (Source: deconfirst.com). This means no state or DC is worse than Delaware at getting businesses already here to hire more people. The state is very good at helping start-ups but not good at helping established businesses, especially medium-sized businesses.

Delaware’s Court of Chancery is known for its fairness, and incorporation laws are lax. This is favorable to larger businesses to want to headquarter here, which is why the Wilmington area has so many corporate offices with high-paying administrative jobs. This is a good thing for the state but again, this benefits larger businesses and not small- or medium- sized businesses.

3. The net result of Delaware’s policy choices is that “New Economy Index” produced by the liberal-leaning Progressive Policy Institute ranks the 2nd best in the nation, the conservative-leaning American Legislative Exchange scores 27th in their “Rich States, Poor States” publication, the business-backed Tax Foundation (disclosure: my former employer) ranks 14th-best, and even the libertarian Mercatus Center identifies as 17th “most free” in their Freedom in the 50 States report. A report by 24/7 Wall Street found Delaware to be the 13th best-run state in the nation, and academic measures of state corruption rank Delaware no worse than middle-of-the-pack. In fact, it is a real challenge to find any organization that scores Delaware poorly on any major policy metric or index.

Corruption in Delaware is not as bad as it is in places like Illinois, Rhode Island, California, or Louisiana. But saying it’s “good” is more on an indicator of how corrupt those states are. Delaware’s small size means “everyone knows everyone” attitude impacts the government but the state is not very forthcoming with state pension data or with how education dollars are being spent. That said, we are better than every other Mid-Atlantic state besides Virginia. We posted on the Tax Foundation’s analysis.

4. Likewise, Delaware has one of the lowest average price levels of any state in the region (except Virginia), and that price level is lowest in southern Delaware, where in-migration is highest.

I’ve repeatedly cast Delaware as a state that’s providing opportunities: for the young, for the less educated, and also for regional retirees who may not have the money for a bigger relocation to Texas or Florida (or who may not want to pay property and sales taxes in those states). That’s because Delaware’s migration record is simply the strongest across the most different categorizations of almost any state, especially among states without major oil and gas reserves. I’d love to hear more from people familiar with Delaware on how the state attracts people: beaches with rising popularity? corporate headquarters? retirement communities? strong university recruitment? sprawl from Philadelphia?

To Lyman’s final point, Delaware IS a very attractive place between Philly and Baltimore/DC. We are a train ride or short drive from all three cities and only three hours from New York City. The Beaches draw in tourists and retirees, and there is some Philly sprawl in the Claymont area. But Delaware is beginning to lose our status is a “tax haven”, now that Nevada and North Dakota are competing with us for our corporate business. The state spends way too much money and like most states will suffer from having to choose between Medicaid and public education once the federal government cuts back on its Obamacare obligations by 2019. Our three casinos are losing money and, barring a change in visitor habits ore legislative policy, will go out of business; 6% of our state’s revenue comes from casino taxes. We have a state carbon tax and cap-and-trade system (Regional Greenhouse Gas Initiative) which is costing so much money CRI’s Energy Policy Director Dave Stevenson and our board member John Moore are suing DNREC to prevent a new carbon tax fee from being imposed on residents and businesses.

Delaware’s population is aging at a faster rate than the nation as a whole; right now half the state receives Medicare or Medicaid. By 2030 that number will be closer to 67% at current migration rates. Sussex County is already 25% senior citizens and that number grows ever year. As much as we at CRI love our seniors, someone has to help pay for Medicare/Social Security/ public housing assistance/public transportation, and other quality-of-life benefits seniors need to enjoy their retirement since we know the Feds won’t meet their future obligations.
Because of its strong migration record in a highly competitive area, other states could benefit from studying Delaware’s experience and determining which policies they can adopt for their own states.

Please don’t pass a gross receipts tax or block natural gas pipeline from reaching your states. We have high electricity prices and a mediocre public education system. Don’t be so aggressive and seizing abandoned property, even down to the Amazon gift cards which went unused. End the prevailing wage and establish a Right-to-Work law if your state doesn’t have one yet.

What do you think about Lyman’s blog post or our response?

Please consider eliminating your state’s sales tax and lowering property taxes, and have a court system which is seen as quick, efficient, and fair.

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