Tuesday, July 22, 2008

Wrong math

I have great respect for Jim Stergios and the Pioneer Institute he heads. The Institute has been an important force in Massachusetts public policy debates for many years. But I think Jim has the wrong policy prescription in an op-ed published in today's Boston Globe.

Citing the higher than expected costs of the Massachusetts Healthcare Reform Act of 2006, Jim proposes that there should be a reduction in payment to Boston Medical Center and Cambridge Health Alliance, the two largest hospital providers of care to the poor in the Boston metropolitan region. To be fair, Jim is not the first to propose this. Over the years, there have been periodic attacks on BMC and CHA for their special payments. Several years ago, for example, many of the community hospitals complained that they were subsidizing these urban safety net facilities.

Beyond ignoring the history of these hospitals in our city and the special role they play in the health care system, Jim's proposal puts the focus of the financial problem in the wrong place.

The reason for the higher than expected costs of Chapter 58 is pretty simple. The costs were underestimated at the start. More people than expected signed up for state-subsidized health insurance. And, lo and behold, once people had insurance, they actually used it for medical care. The actuarial estimates of the dollars per person covered were wrong.

That does not suggest that the Act was ill conceived. Not at all. It was a law designed to provide greater insured access to health care. The theory, which will play out over time, is that people with insurance will make better use of primary care and will have better health over time than when they would wait until they were really sick and show up at emergency rooms. But in the meantime, for example, those poor women who had not had mammograms in 20 years will now have them, and some percentage will be diagnosed with breast cancer and will begin treatment. In short, it is entirely reasonable to expect a bulge in health care costs among the population that previously did not have insurance.

If we want to keep this new system in place, there are only three sources of revenue for these costs: The taxpayers, the insurance companies and through them their subscribers, and the hospitals. None of these have tremendous political support, and there will be interesting political debates and compromises on Beacon Hill as this is figured out. I am afraid, though, that Jim has mistakenly chosen to avoid the first two and then focused his solution on a subset of the last one.


Brian Rosman, Health Care For All said...

Two comments/corrections to Paul's great post.

First, the key reason health reform costs are exceeding projections is due to higher-than-expected enrollment. It's not true that "The actuarial estimates of the dollars per person covered were wrong." In fact, the Connector was able to keep costs per person below the initial projection. The Connector's budget assumed a $359 monthly cost per enrollee. Actual costs were $352 a month. So we've saved a good bit on a per-person basis.

The price we're paying is due solely to the success achieved in finding and enrolling low-income uninsured people. Forecasting enrollment for a brand-new program is tricky, and no one should be surprised that the projections were off.

Second, we think there's another source of revenue in addition to taxpayers, insurers and hospitals. The state survey of large firms found that around 1,450 firms have 50 or more employees getting state health benefits. These companies are getting a substantial benefit from the state, costing taxpayers $372 million.

We think it's only fair to make these employers pay a portion of the cost of the benefit they are receiving from the state. Their workers are healthier and more productive, thanks to the state. The companies ought to give back a little to cover some of the benefit they receive.

Thanks again Paul for the great post.

Paul Levy said...

Thanks, Brian, for the correction.

However, I get a different story from the insurers on the actuarial point. They say that the amount they can charge the Commonwealth, which was set early in the program, is not sufficient to cover actual costs and that they were promised in the Act that there would be a reconciliation for undercollections. If that is true and you are saying that the current shortfall does not include that additional amount, then there is still another bill to be paid someday.

I read the reports on the 1450 firms, and let's just leave it for now that I am not sure I agree with the conclusion you draw from that survey. But we can leave that discussion for your blog some day!

J said...

Paul, I liked the start of your blog entry. And, you, my friend, are one of our best public managers we have. I'd like you on my side on this one, but you can't always get what you want. I did notice a touch political spin in the fastball you threw my way in suggesting that I am in the long line of “attacks” on BMC and CHA.

But, on this one, quite simply my math differs from yours:

· I don’t disagree that the expected costs of Chapter 58 are due to costs being underestimated at the start, but that does suggest that there was, while not ill conceived, at least structured poorly. We should be willing to touch up the math so it works – we should not put the reform at risk.

· You cite the law’s purpose as providing “greater insured access to health care.” That is only half of the reform. The other half was how to get there—and, again, the reform was a move from supporting institutions to supporting individuals. Prior to the reform, I would not quibble with the extra support needed for BMC and CHA. I would not even quibble with some level of support even today being needed for these institutions. I just don’t think it is close to the $180 million it currently stands at.

· You cite insurers and taxpayers as needing to foot more of the bill. I appreciate your pushing this off to the insurers, but it would be constructive to hear what they can do besides provide affordable plans. I’ll wait to hear more on this. As far as the taxpayers are concerned, they are tapped out on health care: The proportion of the budget dedicated to health and human services is burying all other core services. As far as businesses are concerned, they are tapped out on health care and the recent increases in fees and other levees under Governors Romney and Patrick.

· As Rick Lord of AIM was quoted in the Lowell Sun over the weekend, "What we've failed to do in a serious way is address the cost of health insurance and unless we do that health care reform won't be sustainable in the long term." You live and breathe this stuff, so you know far better than I do that there are other things we can and must do over the long term. Those perhaps include some flexibility on mandates and some clarity on outcome and pricing data to consumers (in an easy to understand way). But in the short term, there is little else we can do to get this waiver through.

· Finally, and most importantly, while I agree with you that there is a mouse going through the proverbial snake in terms of pent-up demand for services like mammograms by individuals heretofore uninsured, it is also true that there are more people signed up at this point than the crafters of the legislation foresaw. That should mean that there are fewer people accessing hospitals without insurance. Shouldn’t that mean that the overall costs to the hospitals of providing this care (which they had been providing to "free riders”) should be more predictable and less expensive for the BMC and CHA? Doesn't that raise the question of whether we should reduce (note that I never said cut completely) the extra payments to these institutions? The reasonable answer is yes.

Tim F said...

Actually, there is only one source of funding for any of this and it is the taxpayers and residents of the state of Massachusetts.

Unless economics have changed since I was in college (admittedly a while ago!), the state dervies all its money (ultimately) from taxation which is individual taxpayers or corporations which pass the increased cost of doing business on to consumers (i.e. taxpayers).

A bigger assessment on hospitals will lead them to ask for higher rates from Blue Cross, Harvard, Tufts, et al and this increase will be passed along to the people insured by these plans (i.e. consumers and taxpayers) either directly in premium increases or in higher prices as companies past on the higher cost of doing business.

Ditto for any assessment on the insurance companies themselves. This is just another cost of business they will pass on in their rates (meanwhile someone will inevitably accuse them of being "inefficient" because that money is not going directly to care but is "overhead").

I enjoy reading this blog, but let's not kid ourselves. If Massachusetts wants to have universal coverage for health care, the only way to do it i through the Robin Hood method of taking fram those that have to give to those who have not and that cost will be borne by the taxpayer and no one else.

Paul Levy said...

Thanks to Jim and Tim,

Please note that I carefully did not advocate for a particular source of revenues to solve this problem. You think I'm crazy enough to do that? Some of my best friends are -- taxpayers, insurance companies, businesses, hospital execs -- fill in the blank. Rather, I did not agree with Jim's approach to stick a relatively big chunk with BMC and CHA.

Tim, of course, is correct that ultimately all flows back from the taxpayers. The policy choice before the Legislature is whether you want to collect that as a direct tax or an indirect tax. Most likely, we will see it hidden as an indirect tax, for the obvious reasons!

I want you to know that it is SO refreshing to take a break from medical errors and get criticism on a public policy issue for a change. Wait, medical errors and poor quality care are a major source of extra costs in the health care system. Oh no, the topic will not go away . . . .

Paul Levy said...

FYI, I am lifting this comment from Universal Hub, http://www.universalhub.com/node/15643, submitted by ShadyMilkMan:

"The Cambridge Health Alliance is a pretty big network in some urban areas that really need quality care. Even with our new regime there are going to be shortfalls and I think we should think twice before cutting off people who are providing care for those who need it most. Cambridge Health Alliance in particular took on a risk by stepping in to prop up Whidden hospital in Everett which services a diverse community with many of the patients being from poor back grounds. They have put lots of money into places where the free market with no government help may not have allowed the money to flow before."

Anonymous said...

Paul - It is the feds that are raising these political payments to BMC and CHA in relation to the Medicaid waiver that funds much of this free healthcare handout in Massachusetts. Obviously, the Patrick administration is floating this message to BMC and CHA on the Globe op-ed piece because the feds are, correctly, not relenting and these political payments will have to be decreased significantly to get the other hundreds of million of federal, taxpayer dollars in the waiver. Also, what about the people getting the free care paying more? How many have money to have a cell phone, have cable TV, smoke a pack a day and play the lottery? How rigorous is the check of what people can pay and what they CHOOSE to pay for for their own fulfillment? The taxpayers get soaked to give thousands free healthcare while these same people have money available for cell phones, cable and lottery tickets. This whole thing is just a massive free handout of health insurance paid for by taxpayers and is totally unsustainable given the deteriorating economy, rising unemployment and out of control costs.

jstergios said...

Paul and Shady MilkMan:

Question for both of you. Why special payments for BMC and CHA when we do not provide Mercy Medical Center or Bay State Medical in Springfield with the same level of supplemental subsidy? Nor do we provide St. Luke’s in New Bedford with the special payments? There are other providers in highly urbanized areas that are much poorer than Cambridge.

Once you go down the road of special payments, you need to be fair. And if you go down that road, you will break the bank. No matter whether you tap businesses, taxpayers or hospitals.

Stick to the reform and focus on funding the consumer.