The deal in the wide open

Five months into the North Carolina Republican Party’s total control of State Government for the first time since the 19th Century (Governor’s mansion, State House and Senate), several things are clear.

• First, Republicans have had gotten a lot of what they wanted quickly: voter ID, a soon-to-be repealed racial justice act, and a substantial reduction in unemployment benefit costs that will greatly reduce benefits on July 1.
• Second, getting what they want the most–a tax code reformed to their liking–will be more difficult for a variety of reasons including differences within their party regarding what is ideal, the fact that they now own the budget process and have to make the ‘trains run on time’, and the simple fact that while tax reform is easy in sound bites (lower the rate, broaden the base), it is in reality, very difficult. The bottom line is that it will be difficult for the Republicans to transition to a tax code that is as heavily based on consumption taxes, and away from income taxes (personal and corporate), as they would like.
• Third, the Democratic Party is still struggling to find its footing in opposition, and the reality is that the most focused counter to Republican rule has not come from the General Assembly, but from the Moral Monday protests. Where this energy goes and to what effect is not not yet clear. However, the elected Democrats seem irrelevant.

There is one unlikely issue where the elected Republicans and Democrats could find a way forward that benefits them both and the people of this State: the Medicaid expansion offered via the Affordable Care Act.

For Republicans who want a more regressive tax structure that they say will lead to economic growth and job creation, the negative effects on the poor of such a change could be balanced by spending-side progressivity that would come from moving 500,000 people from the ranks of the uninsured to the insured. Governor McCrory, whose own Medicaid reform plan may already be too far gone with the State’s medical community, desperately needs a face saving way out on this one. The elected Democrats should stand ready to give it to him via a Medicaid expansion and a commitment to move ahead together to reform the Medicaid program.

It is among the worst kept secrets in North Carolina that our State will eventually expand Medicaid, in part because it is the most obvious way forward that doesn’t forestall future reforms, it provides advantageous economic terms for the state, and the hospitals and health systems that are being asked to pay more in tax reform need a practical means of addressing the uninsured problem. And the map of the States that are not undertaking the Medicaid expansion are not the sort of company that a fairly large proportion of (even) Republican voters in this State want to keep. For progressive and liberal North Carolinians, reducing the ranks of the uninsured by half a Million people would be one of the greatest victories of the past 50 years, and would allow a reset of the ongoing Medicaid reform discussion that the Governor desperately needs, and that could invite the Democratic Party and their natural constituencies into the conversation. The Democratic Party has little to lose as it is not going to win on tax reform in any event, and everyone knows the tax code needs to be updated and modernized. The Republican Party has almost certainly seen the peak of their numerical ascendancy, and it is hard to get things done even with veto-proof majorities (or maybe because of them).

The deal is in the wide open. S/he who has ears to hear, let her/him hear.

N.C.’s nascent Medicaid reform-III: Medicare Advantage as a model?

This is the third post in a series on North Carolina’s nascent Medicaid reform, Partnership for a Healthy North Carolina, a reform option being pursued even as North Carolina does not proceed with the Medicaid expansion available in the ACA.

• First post: Logic of the N.C. plan
• Second post: Who is covered by Medicaid?

I am skeptical of the plan, but am granting the benefit of the doubt and trying to work through some key issues and asking questions about it in the hopes of helping to move Medicaid reform ahead. The posts in this series are marked with the tag NC Medicaid Plan.

Hospice HELP Act of 2013

Some quick thoughts on the “Hospice Evaluation and Legitimate Payment Act of 2013″ the so-called HELP hospice Act (h/t for the text to @HospiceAction).

• It is co-sponsored by a Democratic Senator (Ron Wyden of Oregon), and a Republican (Pat Roberts of Kansas). Until the unhinged and fact free death panel rants of August 2009 and continuing, the hospice movement enjoyed bipartisan support, I think because everyone eventually dies and it is in everyone’s self interest to improve the options of those who are acutely facing death. That bipartisanship has been on hiatus since the passage of the ACA. For example, the word palliative care does not appear in the ACO regulations, and the word hospice appears only once. However, these are both crucial in any attempt to deliver care to a defined population of elders with the goal of increasing quality of life/value of care while addressing costs. If the HELP hospice Act goes forward, it will show we have been able to get back to some policy in this general area.
• The bill proposes a modification of the face-to-face encounter re-certification provisions in hospice when a patient uses hospice beyond the first 60 day eligibility period. The big picture is worries about increasingly long stays among long stayers as outlined by MEDPAC. The goal is to right-size the regulation and not make it too burdensome, while making sure use is appropriate.
• Proposes a hospice payment demonstration to replace the 30 year old per diem payment approach.  This would delay the Secretary of HHS’s ability to bring about a new hospice payment system (which cannot be done before October 1, 2013 under the auspices of the ACA), but with the HELP hospice bill it could not be done until October 1, 2017, after the proposed demonstration. Most of the bill details how this demonstration should be done (include at least 15 representative hospice providers, have an evaluation and report, the 2 year demonstration must be budget neutral). Note, this is not the same 15 hospice demonstration that was enabled by the ACA for testing concurrent care, but that has not been funded. However, I read the language of the HELP hospice Act to be broad enough to encompass this concurrent idea.
• Sets up a regular survey requirement for hospice providers by a local of State accreditation agency once every 36 months.

Hospice policy questions used to be dealt with in a bipartisan fashion. It will be interesting to see if we have gotten back to the point at which we can have any health policy legislation move ahead in its own right, and not simply become the next volley in the ongoing meta health policy wars. The hospice tag of this blog will get you much more info on this area if you want it.

How many insurers will sell on the North Carolina Federal Exchange?

The NY Times has a story on an analysis from the White House on how many private insurance companies will sell policies on the federal exchanges beginning in October 2013 (for coverage beginning Jan 1, 2014). The federal Department of Health and Human Services will fully run the insurance marketplace (exchange) under the auspices of the ACA in 19 States, including North Carolina (because our General Assembly and Governor decided they would rather the federal government do this; it was our choice).

The big idea behind exchanges is to provide the uninsured and those working for small businesses the opportunity to comparison shop for health insurance plans, hopefully harnessing competition to reduce the premium while improving quality. So, a key issue is how many insurance companies will decide to offer coverage in each State. The map below shows that many states have a long way to go to have even the chance of competition in the individual insurance market; North Carolina is one of the States shown in red below which means that one insurer had at least 50% of this market in 2012.

Blue Cross Blue Shield of North Carolina (BCBSNC) has a virtual lock on the individual purchase market in North Carolina, with over 90% of such policies being sold by them, and they are the leader in the group purchase market as well, though there have been signs of momentum toward other insurers in some local markets in recent years. The White House analysis says that 75% of the states in red are adding at least one insurer that is newly selling individual coverage as part of that States exchange; it is not clear whether North Carolina is one of these States.

The big idea of consumers making choices is one of the more common ideas in American culture. In health insurance, there are relatively few people who are doing this, with most receiving an insurance plan arranged by an employer, or being covered by Medicare or Medicaid. The ACA is beginning en experiment to change that calculus ever so slightly, starting this Fall.

CBO on Tax Expenditures

CBO has released a new report “The Distribution of Major Tax Expenditures in the Individual Income Tax System.” A few highlights:

• There are myriad tax expenditures (cases where taxpayers are treated differently for some reason; like being able to deduct interest if you have a mortgage, but not being able to deduct rent), but the 10 biggest amount to $900 Billion dollars. That means if you got rid of these 10, the deficit would be lots smaller, and in fact it would mean that we were in surplus (though because of behavioral impacts, you cannot assume a $1 to $1 change, necessarily).
• Who knew it could be so easy! Not. Most of this “tax code spending” flows to higher income households. And guess what, they love it! Have earned it, and deserve it, and are politically powerful, etc.

Easily Governor Romney’s best idea during last Fall’s campaign was his nascent proposal to cap the amount of benefit that a given taxpayer could reap from tax expenditures. This would reduce this tax code spending while avoiding the politically (hard, impossible?) task of trying to get rid of any of the big ones, and also would make tax reform a fundamentally progressive enterprise because you are limiting the flows to higher income persons while not altering them to lower/middle income taxpayers. And such an approach could help to maintain tax expenditures like the Earned Income Tax Credit that are very important to low income persons, as a share of disposable income. There are also backdoor ways to reduce tax expenditures.  Ed Kilgore has more.

Parsing the details of catastrophic health plans

On Friday evening May 24, 2013, an exchange broke out on twitter about catastrophic health insurance plans. It is worth thinking through the details of such a shift, because while catastrophic insurance is often thought of as a simpler approach to health reform, there are many details that would require government action.

I think the Friday discussion began with Megan McArdle (@asymmetricinfo) lamenting that the ACA would kill catastrophic health plans, met with a variety of responses about the relatively large out of pocket maximums that someone could have with a Bronze exchange plan and the existence of the catastrophic under 30 ‘invincible’ plans. Megan correctly pointed out that having, say a $10,000 out of pocket maximum (within a benefit structure where some care has no co-pay, while other care does) is not the same as having to pay the first $10,000 in care before a 0% cost share (all paid by insurance) kicks in, even if the result was the same out of pocket expenditure. The point being that it would take a very different amount of total health care utilization to reach the $10,000 plateau in those two scenarios. Fair enough, lets look closer.

Megan suggested that her preferred solution would be an insurance plan whereby everyone would be responsible for all the cost of care up to 15-20% of adjusted gross income, with 0% cost share above that. She suggested we could keep Medicaid and/or premium support for private gap insurance for the poor, thus providing something closer to first dollar coverage below a certain amount. I have suggested that a political deal between the ‘two sides’ would have universal catastrophic coverage with a deductible of $10,000 for individuals, $15,000 for families, with income based premium support to purchase ‘gap’ insurance. These two ideas are similar, and if you could get a political consensus to do this (which seems impossible) the policy details should be tractable. However, I think the details are more complicated than Megan implies. A few questions/thoughts for any such plan.

• How do you define benefits? Many proponents might say “you don’t” that is the point; the consumer decides what care is needed. Does this mean my gym membership counts toward the deductible? How about my bike? How about an expensive carbon fiber bike? You need a practical way of identifying what expenses count toward fulfilling the maximum out of pocket amount. That is determining benefits.
• How will the unit price for care be determined? If you had all payer rate setting this would be easy. Most wanting a catastrophic approach will want the prices to be determined by the interplay of providers and patients. That is actually a lot easier to say than it is to bring about in practice….there will be tremendous transaction costs if each person is trying to negotiate a separate price for care. Forcing providers to publish prices would help, but it would be a non-trivial shift to move from a system in which most prices are either dictated or negotiated up front by third party payers and providers, and then applied to patients. I realize that is part of the point, but this will be hard.
• Where will the catastrophic insurance come from? This is actually the hardest part of such a proposal. In my book, I suggested using Medicare as the catastrophic insurance vehicle and Medicare prices in the deductible, but of course there are other ways to do it. However, they aren’t as simple as many think and will  involve lots of government. For example, here is Martin Feldstein arguing against the ACA on October 8, 2009 by putting forth a catastrophic insurance scheme in the WSJ. A key reason he advocates his plan instead of the ACA, “All of this [his plan] would happen without involving the government in the delivery or rationing of health care.” But, look at the government actions that would be necessary on the insurance side of his plan. 1. Repeal the tax exclusion of employer sponsored insurance. 2. Won’t some regulation be required to ensure that the $3,500 voucher to be provided for the purchase of private catastrophic plans will guarantee that such coverage will be available to all? Presumably a federal regulation, especially as the proposal is linked to a federal tax reform. 3. Dr. Feldstein further proposes a federal ‘health care credit card’ that would ensure that patients can finance the care they need, and that also ensures that providers will get paid. Consumers would simply ‘run a tab’ and Dr. Feldstein notes that the federal government could then garnish wages given how much information the IRS will have in this tax credit based system to ensure that these bills are eventually repaid.

Anyway, Megan and I have proposed fairly similar things as a way forward (universal coverage, but only for catastrophic coverage, with ways to deal with the poor). It is a simple idea, that is far more technically difficult to bring about than many imagine. These details are a key part of the counterfactual that is “replace Obamacare with a catastrophic insurance plan.”

update: revised for clarity in a few places.

Cadillac tax and the tax treatment of employer sponsored insurance

The New York Times had a piece over the weekend on how common it is to revisit big pieces of legislation, and how impossible that seems with the Affordable Care Act. There was also renewed focus on the so-called Cadillac Tax of employer sponsored health insurance plans that cost more than $27,500 for family coverage, or $10,200 for individual, beginning in 2018 (amount of the plan greater than these amounts is what is taxable). The point of the tax is for employers to down shift rich benefits to avoid this tax from being passed on to employees; it is a tax that is designed to be avoided, so this article describes it as working as intended, over 4 years before it is enacted.

Doug Holtz-Eakin says some things about the Cadillac tax that are technically true, while other parts of his analysis seem bizarre given what he has been for in the past, unless you realize that everything he says has to be premised on the terrors of the ACA. That was a choice made by Republicans a long time ago, and it has greatly hindered the next steps of health reform.

I think this is a more correct overview of the Cadillac Tax. “Republicans have talked for years about altering the tax treatment of employer provided health insurance. The Democrats actually did it as part of the ACA, even though some of those voting for it may not realize it. The Cadillac tax was sold as a tax on insurance companies, but the tax will be passed on, and indeed must, for it to work (and the news stories of this weekend show that it is). An obvious next step for anyone interested in health care cost control in the private insurance market would be to further limit the tax free income provided by the current (and 70 year) treatment of employer provided health insurance by the tax code, most effectively by replacing the Cadillac tax with a capping and gradual decrease of the tax exclusion over time. This would help focus attention on the fact that health insurance is a tax code subsidy that is upside down (those with higher incomes get more). Make no mistake, however, this would impact more people with generous health insurance plans than the Cadillac plan, not less. The hardest parts of health care cost containment will never be done unless both political parties are on board.”

For what it is worth, Chapter 7 of my book (p. 64) says this about the topic:

The bottom line is that that entire health care system has a cost problem, and cost control efforts must focus on all parts of the system. Changing the current tax preference provided to employer based insurance is the most obvious place to start to address costs in the private portion of the system.

Democrats have already voted for a de facto capping of this tax expenditure via the tax on high cost insurance, but the imposition of the tax was delayed until 2018 in the Reconciliation bill that completed the ACA. Moving to directly cap the tax exclusion earlier and making it apply to more policies would increase the cost saving potential of the ACA.

Be clear, that this will be very hard to do politically. In my experience talking about health care costs to many groups, it is easy to get them riled up about the need to “do something to control out of control health care costs” but they hate most anything that has a chance to do so. Just think if the Republican party had focused on changes to the ACA that moved it in their direction instead of the repeal, root, stem and branch approach?

update: revised for clarity