Understanding Obamacare– Will There Be Limits on Medical Treatment?

Burke J. Balch, J.D.

Robert Powell Center for Medical Ethics

October 19, 2013

Understanding Obamacare– Will There Be Limits on Medical Treatment?

Two Questions

1. Should the federal government limit what private citizens are allowed to spend on health care to save the lives of their family?

2. Should the federal government limit how much life-saving medical

treatment doctors are allowed to give their patients?

Fundamental Issue

Obamacare based on erroneous assumption: that in order to provide an adequate health care safety net, especially for previously uninsured

Government must enforce limits on all health care spending/ including what private citizens and their employers spend to save lives and foster health

This talk will

1. Describe 4 ways Obamacare limits what we’re allowed to spend to save the lives of our family members and what treatment doctors can provide

2. Argue that America can afford unrationed health care

3. Show how we can both provide an adequate health safety net and avoid government-imposed rationing

1. 40% Tax on “Excess Benefit” Health Insurance

If health insurance employers provide has a value of more than $8500 for an individual or $23,000 for a family, the “excess” value is taxed at 40%

The limits increase by general but not medical inflation

Understanding Inflation

CPI is an AVERAGE Price rise/decline of individual

categories of goods & services varies

Understanding Inflation

Compare classroom grades: if average is C+, some get A’s and some get D’s

Primarily because HC is labor-intensive, medical inflation consistently higher than average inflation across all sectors

Since 1990, on average, annual Medical Inflation 3.3% higher than CPI

Medical vs. Average Inflation

Compounding annually, gap grows wider and wider

Politico article(September 30, 2013 )

“[The level at which taxes kick in will] be linked to the increase in the consumer price index, but medical inflation pretty much always rises faster than that . . . . David Nather, “How Obamacare affects businesses—

large and small” (September 30, 2013), http://www.politico.com/story/2013/09/how-obamacare-affects-businesses-large-and-small-97460.html

Politico article(September 30, 2013 )

“Think of the Cadillac tax as the slow-moving car in the right lane, chugging along at 45 miles per hour. It may be pretty far in the distance, but if you’re . . . moving along at a reasonable clip in the same lane – say, 60 miles an hour—and you don’t slow down, you’re going to run smack into it.”

Politico article(September 30, 2013 )

Although the excess benefits tax does not apply until 2018, the Politico article reports, “Towers Watson found that more than six out of 10 employers said the fear of triggering [it] would influence their health care benefit strategies in 2014 and 2015. . . .

Politico article(September 30, 2013 )

“For one thing, the thresholds were set in 2010, and even though the law has a method for raising them if there’s a lot of growth in health care spending, employers are still concerned that they’ll get busted for offering fairly standard plans.”

2. Medicare Limits

$ 555 billion cut from Medicare over 10 years

But will the government allow senior citizens to make up the difference from their own funds?

2. Medicare Limits

BEFORE: Older Americans permitted to add their

own money, if they chose, on top of the governmental payment, in order to get insurance plans less likely to ration.

(Known as Medicare Advantage private-fee-for-service plans.)

2. Medicare Limits

UNDER NEW HEALTH LAW: HHS given standardless discretion to

reject any Medicare Advantage plan. HHS can limit or eliminate ability to add

own money to obtain health insurance less likely to ration seniors’ health care.

3. Exchange Limits on What People Can Pay for Insurance

New state-based insurance “exchanges”

At first, individuals & small business employees

Later, all employees

3. Exchange Limits on What People Can Pay for Insurance

Government officials will exclude health insurers

Whose plans inside or outside the exchange

Allow private citizens to spend whatever gov’t officials think is an “excessive or unjustified” amount on their own health insurance

4. Independent Payment Advisory Board

Present public focus is on impact on Medicare

4. Independent Payment Advisory Board

LITTLE ATTENTION TO MUCH MORE FAR-REACHING ROLE IN RATIONING:

4. Independent Payment Advisory Board

IPAB directed to make recommendations every 2 years, starting in 2015

“to slow the growth in national health expenditures” – i.e., nongovernmental spending

Below the rate of medical inflation

IPAB Must Limit HC Spending Growth to the LESSER OF:

Year Limit

2015 Halfway between medical and general inflation

2016 Same

2017 Same

Later Years

Nominal GDP per capita + 1% [President Obama has proposed lowering to Nominal GDP per capita + .5%]

Year % below projected spending

2015 .5 %

2016 1%

2017 1.25%

2018 1.5%

Later Years

1.5%

5. Independent Payment Advisory Board

The recommendations are to include those that federal Department of Health and Human Services “can implement administratively”

How will HHS enforce limits?

HHS empowered to impose “quality measures” on hospitals, doctors, & other health care providers

One uniform standard of care specifying under what circumstances treatment can – and cannot – be given

Enforcement

Physicians who give treatment not permitted by “quality” measures disqualified from contracting with “qualified” insurance plans

What if IPAB members not named?

Republican leaders have said will not name members they’re authorized to; may resist confirmation of Presidential appointees

BUT law provides that HHS given duty and authority to substitute if IPAB doesn’t

4. Independent Payment Advisory Board

IPAB Push private HC spending below med. inflation Recommendations every 2 years

HHS Imposes “quality” standards Doctors must comply or lose insurance contracts

Patients Can’t get HC exceeding standards

New Health Care Law’sRoutes to Rationing

1. 40% Tax on “Excess Benefits” 2. Medicare Limits 3. Exchange Limits on What People

Can Choose to Pay for Insurance 4. Independent Payment Advisory

Board & “quality and efficiency” standards

CAN America AFFORD Unrationed Health Care?

The Paradox

Appearance: HC spending eats up ability to pay

for other goods and services (ultimately unsustainable)

Reality: Rising productivity in other goods

and services is freeing up resources to use to save lives and preserve health

**The HC, food, clothing & shoes, housing, and combination charts are versions, derived from updated data, based on Figure 4.3 in Sherry Glied, Chronic Condition: Why Health Reform Fails (Cambridge MA & London: Harvard Univ. Press, 1997), p.103.Data Source: (CEA 1991, 2011.) Available at http://origin.www.gpoaccess.gov/eop/tables09.html

Food, Clothing & Shelter Combined as a % of the Family Budget

What the Family Spends on 1. Essentials and 2. Essentials & Healthcare Combined

American Health Expenditures and Per Capita Gross Domestic Product

19602009

2040

76 % Increase for Non-Health Expenditures

279 % Increase for Non-Health Expenditures

Health Expenditures

Non-Health Expenditures

94.7%82.4% 70%

30%17.6%

5.3%

Sources: available on request to bbalch@nrlc.org

Sherry Glied• Former Assistant Secretary for Planning and Evaluation• Department of Health and Human Services in Obama

Administration• Chronic Condition: Why Health Care Reform Fails (1997)

Glied Is Not Alone . . . • William J. Baumol, “Do Health Care Costs Matter?” The

New Republic, Nov. 22, 1993, Professor of Economics at New York and Princeton Universities

• David F. Bradford, Professor of Economics and Public Affairs, Princeton University Woodrow Wilson School of Public and International Affairs

• Edward Wolff, Professor of Economics, New York University

• Eli Ginzberg, A. Barton Hepburn Professor of Economics, Columbia University

• Joseph P. Newhouse, John D. MacArthur Professor of Health Policy and Management, Harvard University

Conclusions

NOT that American health care system is ideally efficient and can’t be improved

BUT if improvements are made in cost-effectiveness, we shouldn’t necessarily expect growth in health care spending to abate – we might just get more and better health care

Bottom Line:• As long as American productivity keeps increasing (in the

long term), America can afford to continue to increase the resources used to save lives and preserve health

• Real problem: providing safety net for those whose incomes are not average, and its implications for government budgets

The Real Problems • REAL: Distribution of income increases not equal

• Those with less-than-average income increases have genuine difficulty coping with health care cost increases

• Number of uninsured rises among low income• GOVERNMENT ACTS TO HELP: Medicaid, CHIP, now PPACA

But government does not benefit equally with private sector from productivity increases in areas other than health care – the productivity increases that reduce the resources needed and free up resources for health care

What the Family Spends on 1. Essentials and 2. Healthcare Combined

PRIVATE SECTOR SPENDING- GDP

17.6 % (spent on H.C) 2011

30% (spent on H.C) 2040

51% growth in economy by 2040

GOVT. SPENDING- FEDERAL BUDGET

H.C. Deficit – 7%

15.1% tax rate to fund the Federal Budget

23% (spent on H.C) 2011

30% (spent on H.C.) 2040

51% growth in government 2040

Understanding Private Sector Cost-Shifting• Faced with unsustainable health care cost increases,

government actors tend to avoid unpopular benefit cuts, and focus on limiting the reimbursement rate for health care providers

• Many health care providers assert they are then forced to charge higher rates to privately insured patients to make up for what they lose on governmentally insured patients (and on the uninsured EMTALA requires hospital emergency rooms to serve)

140

120

100

13130

80

90.1% 89.0%

60

40

20

0

0 10 20 30 40 50 60 70 80 90 100

Uncompensated Care 6.1%Percent of Hospital Costs

Source: American Hospital Association and Avalere Health, Avalere Health analysis of 2009 American Hospital Association Annual Survey data, for community hospitals, Trendwatch Chartbook 2011, Trends Affecting Hospitals and Health Systems, March 2011, Tables 4.5-4.6 at http://www.aha.org/research/reports/tw/chartbook/ch4.shtml

Cost=

Payments

Hospital Cost Shifting- The Hidden Tax (as of 2009)

134.1%

Private Payers 36.6%

Medicare39.4%

Medicaid 15.9%

140

120

100

13130

80

91.3% 85.8%

60

40

20

0

0 10 20 30 40 50 60 70 80 90 100

Uncompensated Care 6.1%Percent of Hospital Costs

Source: American Hospital Association and Avalere Health, Avalere Health analysis of 2009 American Hospital Association Annual Survey data, for community hospitals, Trendwatch Chartbook 2011, Trends Affecting Hospitals and Health Systems, March 2011, Tables 4.5-4.6 at http://www.aha.org/research/reports/tw/chartbook/ch4.shtml

Hospital Cost Shifting- The Hidden Tax (as of 2009)

130.3%

Private Payers 36.6%

Medicare39.4%

Medicaid 15.9%

Private Sector Cost-Shifting as a Solution

• Key advantage of private sector cost-shifting is that it can grow proportionately with the resources the private sector allocates to health care

• I.e., yields a % of what is actually spent on health care

Private Sector Cost-Shifting as a Solution

• Regardless of extent to which it presently occurs• Provides a basis for understanding feasibility of providing

for those with low incomes without governmentally imposed restraints on growing allocation of private resources to health care

PROPOSED SOLUTION: COST-SHIFTING AT THE LEVEL OF THE INSURER

To make easier to understand• Begin with abstract, but unrealistic, approach --- to make

the concept clear• Move to more complex, but practical, concrete plan

Problem with Cost-Shifting by Providers• Suburban hospital with low number of uninsured,

Medicaid patients• Inner city hospital with low number of privately insured,

high number of uninsured and Medicaid patients

• SOLUTION: cost-shifting among insurers instead of providers

Proposed Solution:Cost-Shifting at the Level of the Insurer• Analogy of high-risk pools for automobile insurance in

many states• Could require health insurers to offer (sliding scale)

discounted health insurance to those unable to afford in proportion to insurer’s market share

• Insurers pass along costs of subsidizing insurance in premiums for all -- private sector cost-shifting

PRIVATE SECTOR SPENDING- GDP

17.6 % (spent on H.C) 2011

30% (spent on H.C) 2040

51% growth in economy by 2040

GOVT. SPENDING- FEDERAL BUDGET

H.C. Deficit – 7%

15.1% tax rate to fund the Federal Budget

23% (spent on H.C) 2011

30% (spent on H.C.) 2040

51% growth in government 2040

15.1 % Taxes

Government Expenses

Amount for Health Care

Government Expenses

Amount for Health Care

15.1% Taxes

Private Sector Spending GDP

Private Sector Spending GDP

17.6 % (spent on H.C) 2011

30% (spent on H.C) 2040

15.1% tax rate to fund the Federal Budget

MORE REALISTIC APPROACH

Proposed Solution:Cost-Shifting at the Level of the Insurer• Require health insurers to offer (sliding-scale) discounted

health insurance to those unable to afford in proportion to share of market

• Provide sliding-scale vouchers based on existing levels of government funding for health care (e.g., Medicaid, CHIP)

• Insurers pass along additional costs in premiums for all

15.5% Taxes

Government Expenses

Total Amount for Health Care

Government Expenses

Total Amount for Health Care

X dollar Amount for HC

Same X dollar Amount for HC

Private Sector Spending GDP

Private Sector Spending GDP

15.5% Taxes

17.6 % (spent on H.C) 2011

30% (spent on H.C) 2040

How Employers Decide• Health insurance too costly – can go bankrupt• Health insurance too meager – can lose workers to

competitors• Balance costs and benefits

The Virtuous Use of the Free Market• When cost of insuring those who cannot afford it passed

on to those who can• Employers unconsiously factor in their share of

subsidizing those who can’t afford insurance in their cost/benefit balancing

ADVANTAGES

• Funding is tied to what people who can afford to do so themselves choose to pay for health insurance rather than being tied to government budgets. This:• Keeps health care costs to what people collectively,

through individual decisions, decide they can afford to pay

• Does not limit health care below what people, through such decisions, are willing and able to pay

Consequence• America wouldn’t spend more than it can afford on health

care• America WOULD spend AS MUCH as it COULD afford on

health care• Physicians would not be artificially constrained by

government limits on what treatment they, in their medical judgment, provide their patients

CONCLUSION

•We CAN afford health care without rationing!

•We CAN provide help for those who themselves cannot afford to pay for adequate health insurance without rationing care for all!

•There IS an alternative to Obamacare

For Documentation & Further Info:• FOR COPY OF SLIDES

• Send email with subject “NY Health Care PowerPoint”• To: bbalch@nrlc.org

• For documentation :• 1. www.nrlc.org• 2. Click on Issues• 3. On drop-down list:

• 4. Click on “Euthanasia/Assisting Suicide” for:• Healthcare rationing [Obamacare]• Involuntary euthanasia by providers

Conclusion• Soberly face reality of government limits on what

treatment you will be allowed, especially from about 2016 on

• Challenge for both those on the political left and political right

• On the right –• Emphasis is on using more competition to reduce HC spending• How does this square with allowing free market to allocate

resources where people choose to put them?

• On the left – • Emphasis is on government limits on what people spend on HC• How does this square with better HC for all, including those with

low income?

CAN HEALTH CARE SPENDING BE LIMITED WITHOUT RATIONING?

The Claim that Greater Efficiency Will Avert Rationing

“Dartmouth Atlas” – compares what different hospitals spend per patient on those in last months or years of life

Claim: some hospitals spend much less with same outcome (death), so we can limit payments to the level of the most efficient hospitals without harm

The Claim that Greater Efficiency Will Avert Rationing

“Dartmouth Atlas” – compares what different hospitals spend per patient on those in last months or years of life

Claim: some hospitals spend much less with same outcome (death), so we can limit payments to the level of the most efficient hospitals without harm

NY Times article 12/22/09

The Obama Administration’s former director of the Office of Management and Budget, Peter Orzag, attacked the fact that the Ronald Reagan University of California at Los Angelos [UCLA] Medical Center spends more than Rochester, Minnesota's Mayo Clinic.

NY Times article 12/22/09

Orzag: "One of them costs twice as much as the other, and I can tell you that we have no idea what we’re getting in exchange for the extra $25,000 a year at U.C.L.A. Medical. We can no longer afford an overall health care system in which the thought is more is always better, because it’s not."

NY Times article 12/22/09

BUT: “[T]he hospital that spent the most on heart failure patients had one-third fewer deaths after six months of an initial hospital stay.”

Difference between looking forward and looking back

ANOTHER N.Y. Times article 6/14/2010

“The atlas’s hospital rankings do not take into account care that prolongs or improves lives. If one hospital spends a lot on five patients and manages to keep four of them alive, while another spends less on each but all five die, the hospital that saved patients could rank lower because Dartmouth compares only costs before death.”

Life ExpectancyThe 2012 CDC report (relying on the latest data from 2010) says Americans

are living longer than ever now – 78.7 years.

Are We Getting More for Our Money?

62646668707274767880

1950 1960 1970 1980 1990 2000 2010

Ave. Life Expectancy

Are We Getting More for Our $?

Cancer Survival RatesAccording to the American Cancer Society in

a 2009 report the number of cancer deaths has steadily declined in the United States over the past 15 years, saving a possible 650,000 lives.

The cancer death rate (the #2 cause of death) fell by 19.2 percent for men and 11.4 percent for women between 1990 and 2005.