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Bob Kocher

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The great healthcare economic contradiction


For Kaiser Health News

In many ways, the healthcare industry has been a great friend to the U.S. economy. Its plentiful jobs helped lift the country out of the Great Recession and, partly due to the Affordable Care Act (ACA), it now employs 1 in 9 Americans—up from 1 in 12 in 2000.

As President  Trump seeks to fulfill his campaign pledge to create millions more jobs, the industry would seem a promising place to turn. But the business mogul also campaigned to repeal the ACA and lower healthcare costs—a potentially serious job killer. It’s a dilemma: One promise could run headlong into the other.

“The goal of increasing jobs in healthcare is incompatible with the goal of keeping healthcare affordable,” said Harvard University economist Katherine Baicker, who sees advantages in trimming the industry’s growth. “There’s a lot of evidence we can get more bang for our buck in healthcare. We should be aiming for a healthcare system that operates more efficiently and effectively. That might mean better outcomes for patients and fewer jobs.”

But the country has grown increasingly dependent on the health sector to power the economy—and it will be a tough habit to break. Thirty-five percent of the nation’s job growth has come from healthcare since the recession hit in late 2007, the single-biggest sector for job creation.

Hiring rose even more as coverage expanded in 2014 under the health law and new federal dollars flowed in. It gave hospitals, universities and companies even more reason to invest in new facilities and staff.  Training programs sprang up to fill the growing job pool. Cities welcomed the development—and the revenue. Simply put, rising health spending has been good for some economically distressed parts of the country, many of which voted for Trump last year.

In Morgantown, W.Va., the West Virginia University health system just opened a 10-story medical tower and hired 2,000 employees last year. In Danville, Pa., the Geisinger Health System has added more than 2,200 workers since July and is trying to fill 2,000 more jobs across its 12 hospital campuses and a health plan. Out West, the UCHealth system in Colorado expanded its Fort Collins hospital and is building three hospitals in the state.

In cities such as Pittsburgh, Cleveland and St. Louis, healthcare has replaced such  industries as coal and heavy manufacturing as a primary source of new jobs. “The industry accounts for a lot of good middle-class jobs and, in many communities, it’s the single-largest employer,” said Sam Glick, a partner at the Oliver Wyman consulting firm in San Francisco. “One of the hardest decisions for the new Trump administration is how far do they push on healthcare costs at the expense of jobs in healthcare.”

House Republicans, with backing from Trump, took the first swipe. Their American Health Care Act sought to roll back the current health law’s Medicaid expansion and cut federal subsidies for private health insurance. The GOP plan faltered in the House, but Republican lawmakers and the Trump administration are still trying to craft a replacement for the ACA.

Neither the ACA nor the latest Republican attempt at an overhaul tackle what some industry experts and economists see as a serious underlying reason for high healthcare costs: a system bloated by redundancy, inefficiency and a growing number of jobs far removed from patient care.

Labor accounts for more than half of the $3.4 trillion spent on U.S. healthcare, and medical professionals from health aides to nurse practitioners are in high demand. But the sheer complexity of the system also has spawned jobs for legions of data-entry clerks, revenue-cycle analysts and medical billing coders who must decipher arcane rules to mine money from human ills.

For every physician, there are 16 other workers in U.S. healthcare. And half of those 16 are in administrative and other nonclinical roles, said Bob Kocher, a former Obama administration official who worked on the ACA. He’s now a partner at the venture capital firm Venrock, in Palo Alto, Calif.

“I find super-expensive drugs annoying and hospital market power is a big problem,” Kocher said. “But what’s driving our health-insurance premiums is that we are paying the wages of a whole bunch of people who aren’t involved in the delivery of care. Hospitals keep raising their rates to pay for all of this labor.”

Take medical coders. Membership in the American Academy of Professional Coders has swelled to more than 165,000, up 10,000 in the past year alone. The average salary has risen to nearly $50,000, offering a path to the American Dream.

“The coding profession is a great opportunity for individuals seeking their first joband it’s attractive to a lot of medical professionals burned out on patient care,” said Raemarie Jimenez, a vice president at the medical coding group. “There is a lot of opportunity once you’ve got a foot in the door.”

Some of these back-office workers wage battle every day in clinics and hospitals against an army of claims administrators filling up cubicles inside insurance companies. Overseeing it all are hundreds of corporate vice presidents drawing six-figure salaries.

Administrative costs in U.S. healthcare are the highest in the developed world, according to a January report from the Organization for Economic Cooperation and Development. More than 8 percent of U.S. health spending is tied up in administration while the average globally is 3 percent. America spent $631 for every man, woman and child on health-insurance administration for 2012, compared with $54 in Japan.

America’s huge investment in healthcare and related jobs hasn’t always led to better results for patients, data show. But it has provided good-paying jobs, which is why the talk of deep cuts in federal health spending has many people concerned.

Linda Gonzalez, a 31-year-old mother of two, was among the thousands of enrollment counselors hired to help sign up Americans for health insurance as the ACA rolled out in 2014. The college graduate makes more than $40,000 a year working at an AltaMed enrollment center, tucked between a Verizon Wireless store and a nail salon on a busy street in Los Angeles.

In her cramped cubicle, families pull up chairs and sort through pay stubs and tax returns, often relying on her to sort out enrollment glitches with Medicaid. As the sole breadwinner for her two children, ages 9 and 10, she counts on this job but isn’t sure how long it will last.

“A lot of people depend on this,” she said one recent weekday. “It’s something I do worry about.”

Julie Rovner: Replacing the ACA: Where there’s a will there’s a way



Kaiser Health News

Now that the GOP effort to repeal and replace the Affordable Care Act is in limbo, is there a way to make it work better?

Democrats and Republicans don’t agree on much when it comes to the controversial federal health law, but some party leaders from each side of the aisle agree it needs repairs.

“No one ever said the Affordable Care Act was perfect,” said Senate Minority Leader Chuck Schumer (D.-N.Y.) on the Senate floor March 27. “We have ideas to improve it. Hopefully our colleagues on the Republican side do as well.”

A day later, Speaker Paul Ryan (R-Wis.) said, “We all want a system in healthcare where everybody can have access to affordable coverage, where we have more choice and competition.” And several GOP senators have moved away from the party’s long-held call for a total repeal and are offering bills that would amend the measure.

Health-policy analysts say that some of the health law’s marketplace problems could be improved with a bipartisan spirit. Here are some of the possibilities:

Stabilize the Insurance Market

Insurance companies have only a matter of weeks before they must tell the federal government and/or individual states whether they plan to offer coverage in 2018 on the health law’s online marketplaces, which serve customers who don’t get job-based or government insurance.

As of now, many companies say the uncertainty of what the market will look like — or the rules under which they will operate — is making that decision difficult. At least one insurer, Humana, has already said it would not offer coverage.

Two key moves that insurers are looking for from the administration are a promise to continue providing certain subsidies for those with lower incomes and enforcing the requirement for most people to either have insurance or pay a tax penalty.

The subsidies — known as “cost-sharing reductions” — are different than the tax-credit subsidies that many marketplace customers get to help pay their premiums. The cost-sharing subsidies help those with incomes between the poverty line ($20,420 for a family of three) and nearly 2½ times that ($50,400 for that same family) pay their deductibles and other out-of-pocket costs. The House  sued the Obama administration in 2014 for providing the subsidies without a formal congressional appropriation for the money, and a federal judge sided with the lawmakers.

The Obama administration appealed the decision, but if the Trump administration were to drop that appeal, the subsidies would disappear. At a House hearing March 29, Health and Human Services Secretary Tom Price, M.D. would not say what the administration plans to do about the lawsuit or the subsidies.

“I’m a party to that lawsuit and I’m not able to comment,” he said. But Ryan, who is also a party to the suit, said March 30 that he believes the administration should continue paying the subsidies until the lawsuit is resolved.

The administration has been similarly quiet about how strictly it will enforce the “individual mandate” that requires most people to have health insurance or pay a fine. On his first day in office, President Donald Trump issued an executive order directing federal agencies to “minimize the unwarranted economic and regulatory burdens” of the health law. But other than the IRS backtracking on a plan to enforce the mandate more strongly, little has happened on that front.

Yet those two provisions together — the cost-sharing subsidies and the individual mandate — could result in 25 to 30 percent increases in premiums if they were to disappear, said Andy Slavitt, who oversaw the health law for the final years of the Obama administration. Assuring that the subsidies will remain and the mandate will be enforced “would send a strong signal to (insurance companies) that they should continue to participate in the market,” he added.

Some GOP health policy analysts — including economist Gail Wilensky, who previously ran the Medicare and Medicaid programs — have proposed replacing the individual mandate with penalties for signing up for insurance late, which is what Medicare does. Republicans did that in their proposed replacement bill, by adding a 30 percent premium surcharge to those with a break in coverage longer than two months. But insurance actuaries and the Congressional Budget Office said that might eventually prompt fewer people to enroll because it would encourage healthy people to remain uncovered.

Entice People to Enroll

Getting young and healthy people to sign up for coverage is not just a benefit for them. If there are not enough healthy people in the insurance pool, then premiums rise for everyone, because risk is being spread across a mostly sicker population. And someday even the healthy people will need medical care.

But it takes more than just the requirement for coverage to get people to enroll. Slavitt said it requires a real effort by both federal and state officials to reach people and help them understand that having health insurance is a good thing, even if they are healthy. “What they should be doing is increasing marketing and the outreach budget,” he said. “You’re trying to reach people who are uninsured and are unsure how it all works, and it does take a lot of hand-holding.”

So far, however, the administration’s only move on that front was to cancel ads encouraging people to sign up at the end of the enrollment period that overlapped with Trump’s first days in office. The HHS Inspector General is now investigating the results of this action. Some analysts have estimated canceling the last-minute push lowered enrollment in the exchanges by as much as a half-million people.

Help Offset Insurer Losses

Democratic lawmakers who wrote the Affordable Care Act knew that the market might be hard for insurers to navigate for the first few years, and they built in several programs to help reimburse those who lost money.

Republicans, however, blocked funding for one of the major programs, which was intended to reimburse insurance plans that enrolled sicker-than-average populations for the first three years of the marketplace operations. Republicans called the money “insurer bailouts.” The loss of that money was a major reason for the collapse of many of the nonprofit insurance co-ops created under the law and some other insurance companies said it contributed to their decisions to leave the marketplaces.

Now, however, there are indications that Republicans might support some efforts to provide more funding for insurers.

On March 13, Price sent a letter to governors encouraging them to apply for waivers of the ACA rules in order to make insurance more affordable and available in their states. Among the state innovations singled out in the letter is a “reinsurance” program in Alaska that helps insurers pay for extremely high-cost patients. That plan, said Price, “significantly” offset what was a projected 40 percent premium increase in the state, and might be an option elsewhere under the waivers, which could allow states to get federal funding for such a program.

And the GOP health bill, the American Health Care Act, included $100 billion for a “Patient and State Stability Fund” that states with limited insurer competition could use to lower costs and help encourage insurers to stay in the market.

“They have a potential fix staring them in the face,” said Larry Levitt of the Kaiser Family Foundation of the GOP proposal for a stability fund. “It was a clever mechanism because the states could use it for any of a variety of purposes.” (Kaiser Health News is an editorially independent project of the Foundation.)

Assist Patients With High Out-Of-Pocket Costs

Democrats and Republicans agree that people who buy their own insurance are paying too much out-of-pocket, in premiums as well as deductibles and cost sharing.

Democrats mostly want to increase federal subsidies to help with affordability — something Republicans are not likely to embrace.

But there are other ways to lower consumer spending.

For example, Sabrina Corlette of Georgetown University’s Center on Health Insurance Reforms, calls for “smarter, not skimpier benefit design.” One way to do that is to set federal rules to push insurers that offer coverage with high deductibles to add more benefits that would be available without paying thousands of dollars first, like a few trips to the doctor or urgent care center or a few prescriptions. She writes that could keep people from dropping coverage because they feel they are not getting any value for their premiums. And if those mostly healthy people feel they are getting benefits they might use, they are more likely to continue to purchase coverage, thus reducing premiums for everyone.

Another potential way to lower insurance costs is to lower health care costs. Even if there are multiple competing insurers in an area, if there’s one dominant hospital system, it can pretty much charge whatever it wants.

“There’s no other price in the U.S. economy that’s growing as fast as a hospital price,” said Bob Kocher, a former Obama administration health official now at the venture capital firm Venrock. And in areas with not much hospital competition, “prices are 30 to 50 percent higher for everything.”

But how to get hospital prices down is almost as hard as regulating insurance. Kocher said one way would be for federal regulators to be more discriminating about approving hospital mergers, which tend to give hospitals more negotiating power over insurers.

More controversial would be to require hospitals that dominate their markets “to just accept Medicare prices” from marketplace insurers, Kocher suggested. While that would tend to bring prices down, it’s not likely to fly with free-market Republicans.

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