Tuesday, January 08, 2019

ACA 2.0 in California: an individual mandate without shame and a move toward all-payer in pharma

Yesterday California's new Governor, Gavin Newsom "announced a series of major, first-in-the-nation executive actions and budget proposals to lower prescription drug and health care costs for all California families and move California closer to the goal of health care for all."

A couple of quick thoughts about the package:

1. The ACA-related proposals are to raise the subsidy cap to 600% FPL while enriching current subsidies -- and to implement a state individual mandate. That pairing addresses the fatal flaw in the ACA individual mandate, which New Jersey's disappointing enrollment performance following passage of a state individual mandate illustrates: subsidies are too skimpy (if available at all) to make the coverage on offer seem like a good deal to many who are required to obtain it.

Try telling someone with an income of $30k that a silver plan with a deductible of $2,500 will cost them $200 a month, or that a bronze plan with a $3k deductible will cost, $137 a month.That was the deal on offer for a 40 year-old in most of Jersey in 2019; in most other states, the deductibles would have been higher, though the bronze premium would in many cases be lower. My duty as an ACA Certified Application Counselor has been light, but I've seen enough to know that that kind of result does not make many prospective enrollee happy* (the case is different at lower incomes -- say, $17-20k for an individual, where strong Cost Sharing Reduction is available).  The case is often much worse for those with incomes above the subsidy threshold. In many states, premiums had risen high enough by 2018 that many people in the 400-600% FPL  income range and above were exempt from the mandate.

It has often been said by healthcare economists that the ACA mandate penalty was too skimpy to be effective. My reflexive reaction has always been: if you're going to enforce the penalty at all, let alone beef up the penalty, you have to offer coverage that feels affordable and usable.* Newsom wants to give that a try.

New Jersey implemented a mandate for 2019 but dared not broadcast it until after Thanksgiving, when it was apparent enrollment was lagging. A state that sweetened subsidies as Newsom proposed -- and as Massachusetts has done -- need not be shy about the mandate penalty.

2. Newsom has issued an executive order that puts one state agency, the Dept. of Health Care Services, in charge of negotiating prescription drug prices for all 13 million enrollees in Medi-Cal, the state Medicaid system; directs all state agencies "to purchase prescription drugs together," as opposed to negotiating one by one; and "charts the path to enable all Californians, including private purchasers, to join forces with public purchasers."

More specifically, the order instructs the state Dept. of General Services to develop a list of drugs prioritized for bulk purchasing initiatives or renegotiation; encourage local governments to participate in the bulk purchasing; and "develop a framework" in which private purchasers -- "including small businesses, health plans and the self-insured" -- can opt in.

The aim seems to be to move the state toward an "all-payer" system for drug purchasing, in which the state negotiates one rate for all payers. Which raises a question: what about moving the state toward an all-payer system with regard to providers of healthcare services? That might be necessary to render the drive toward universal coverage in the state affordable.

For all its progressivity and fully committed implementation of the ACA, California is home to some of the most egregious predatory pricing and harmfully consolidated healthcare markets in the country. In Northern California, the 24-hospital system Sutter Health was sued by state Attorney General Xavier Becerra in 2018 for anticompetitive practices in a suit alleging, among other things, that "hospitals in Northern California’s six most populous counties collect 56% more revenue per patient per day from insurance companies and patients than hospitals in Southern California’s six largest counties" and that acquisitions by Sutter drove much of the outsized price increase. "Since at least 2002," the suit alleges, "Sutter has compelled all, or nearly all, of the Network Vendors operating in Northern California to enter into unduly restrictive and anticompetitive written Healthcare Provider agreements."**

Yesterday, Vox's Sarah Kliff released a bombshell exposing predatory balance billing at Zuckerberg San Francisco General, "the city's only top-tier trauma center," recipient of a $75 million bequest from the Facebook founder. The go-to hospital for Medicaid and uninsured trauma victims, Zuckerberg balance-bills all privately insured patients -- it has contracts with no private insurers -- and charges exorbitant prices -- twelve times Medicare rates in the case Kliff documents.

California has a relatively strong law protecting insured patients from balance billing. But like all such state laws, it doesn't touch people insured in self-funded plans, as most people insured by their employers are. On Twitter, Jon Walker made the point that states could curb balance billing in self-funded plans as well as fully insured plans if it capped provider prices rather than regulating the interaction between insurer and provider:
Of all the dysfunctions of American healthcare, rampant balance billing is probably the most egregious. Subject to out-of-network billing at in-network facilities, almost no one under age 65 is fully insured. If California wants to makes sure not only that nearly all residents have coverage but that "covered" people are genuinely insured, it will need to impose some type of provider pricing discipline.

P.S. These initiatives really shouldn't be discussed without acknowledging the proposal to extend Medicaid eligibility to undocumented young adults (CA already insures undocumented children), which is wonderful. Again, though, proposals for serious new spending call for serious healthcare cost control.

* A person earning $30k from an employer who provides health insurance is likely unaware that the employer is paying hundreds of dollars a month for her insurance. Americans are broadly unaware that health insurance accounts for a large percentage of their compensation. From that perspective, ACA premiums are not out of line (though plan deductibles for those not eligible for strong CSR are major buzzkillers). Per the second point in this post, we all pay through the nose for overpriced healthcare.

** In An American Sickness, Elisabeth Rosenthal delves into Sutter's predatory pricing practices in detail. Big picture (page 214):
in 2009 Sutter Health ended its role of supporting locally owned hospitals and embarked on a statewide merger strategy it called “regionalization.” The plan was to transfer ownership of the affiliate hospitals, many of which were the sole providers for hundreds of miles around, to Sutter-controlled regional corporations. Regionalization led to higher charges: At one point, Blue Cross Blue Shield refused to sign with Sutter, noting that its rates were 60 percent higher than the statewide average. But it ultimately had to surrender because it could not leave patients stranded in huge areas where Sutter was the only option. By 2013 Sutter hospitals represented seven of the ten most expensive hospitals in California, according to California’s Valued Trust,
Re Sutter's rollup of small hospitals, Rosenthal recounts (pp 216-217):

The critical access program was created in 1997, to ensure the survival of small remote hospitals of not more than twenty-five beds. Medicare pays these hospitals more for their services, which are exempt from many of the government insurer’s cost-saving measures. They can, for example, bill full hospital rate for “swing beds,” for if it brings operational efficiencies,” he told me. “But an executive even told us there are no efficiencies in this. It’s about control, pricing, contracts, profits.” (One longtime healthcare executive who was recruited by Sutter but took a job elsewhere told me, “They pay their administrators an enormous amount of money and the appetite for acquisition was enormous.”)...

The critical access program was being manipulated for profit, in the opinion of many Sutter Coast staff doctors. Sutter had already used the program to downsize Lakeside, another Sutter hospital in Lakeport, California, to critical access status, taking advantage of the higher payments. But because of bed shortages at the smaller hospital, emergency transfers from Lakeside increased 300 percent, and patients or their insurers, including Medicare, were left paying massive bills— including charges for air ambulances to fly patients out. The hospital’s twenty-five beds were often filled with elective admissions, patients with nonurgent problems, as well as patients who merely needed rehabilitation occupying swing beds.

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