Tattering the Safety Net
Here is irony: the people who talk the most about the need for a social safety net (including the president himself!) are cheerleaders for a health reform that is going to shred it.
How is that happening? By means of the Affordable Care Act (ObamaCare).
Through the Medicare and Medicaid programs, the federal government provides billions of dollars in subsides every year to hospitals that see a disproportionate number of patients who are poor and uninsured or who are on Medicaid. In both cases the result is the same: hospital revenues fall well short of the cost of care they dispense.
The shortfall is what people in the health policy world call “uncompensated care” and the payments are referred to as “disproportionate share” money.
Readers can be forgiven if they are naturally suspicious of hospital accounting. Just as hospital charges are for the most part phony numbers, so are most estimates of uncompensated care. Still, the is no denying that hospitals like Grady Health in Atlanta and Parkland Memorial in Dallas would not exist, or would not be able to maintain the current level of service, without a great deal of government money.
That’s where ObamaCare comes in. One of the ways that the health reform is being funded is through cuts in disproportionate share funding for hospitals. The theory was: if more people ― especially low and moderate income people ― are insured, there will be less need for hospital subsidies. That theory overlooked four important features of the reform, however.
First, half the newly insured will be going into the Medicaid program and Medicaid will continue to pay well below the fees paid by garden variety private insurance. Second, once the newly insured are enrolled in Medicaid, they are likely to double their visits to hospital emergency rooms ― especially those of safety net hospitals. Third, about half the states have not expanded their Medicaid programs (as was originally expected) and that means that millions of people won’t even be bringing hospitals Medicaid’s fees. Fourth, the private insurance being offered in the new health insurance exchanges doesn’t look like a standard BlueCross plan. In order to keep premiums down, insurers are offering very narrow networks of doctors and hospitals that will receive rock bottom payments. In fact, these plans are increasingly referred to as “Medicaid Plus.”
Nationwide, the cuts in subsidies will be large. As Sabrina Tavernise reports in The New York Times:
The cuts in subsidies for safety-net hospitals like Memorial — those that deliver a significant amount of care to poor, uninsured or otherwise vulnerable patients — are set to total at least $18 billion through 2020. The government has projected that as much as $22 billion more in Medicare subsidies could be cut by 2019, depending partly on the change in the numbers of uninsured nationally.
This is bad news for safety net hospitals. Grady Health, for example is facing a loss of nearly half of its $100 million in annual subsidies. As Tavernise explains:
“A full third of Grady’s patients have no insurance, and, if that does not change, the hospital will have no choice but to cut services,” said John M. Haupert, Grady’s chief executive. “The hospital’s large outpatient mental health program, which handles 58,000 visits a year and is critical to keeping poor patients with behavioral problems from seeking treatment in the emergency room, would most likely be hit,” Mr. Haupert said.
Memorial Health in Savannah is also facing steep reductions in the subsidies:
Cancer care may be among the services reduced, administrators here said. Memorial is now one of only a few hospitals in the state with a tumor clinic that accepts poor patients without insurance. Many show up coughing blood or having trouble breathing because their cancers have gone untreated for so long.
Almost every proposed solution to this problem involves stopgap, patchwork reforms. Fortunately there is a better way.
For almost two decades now, my colleagues and I at the National Center for Policy Analysis have been proposing an approach that would provide universal coverage and a solution to the safety net problem in one fell swoop. The idea: offer every American a tax credit for health insurance ― in and out of the exchange, at work or away from work. If people turn down the offer and choose to be uninsured, the unclaimed credit would go to safety net institutions in the communities where they live.
When uninsured patients enter hospitals, they would be expected to pay their bills. But if they cannot, unclaimed credit funds would be available to pay for the care.
Under this approach, money follows people. The government would guarantee a certain amount of money for every person. If people choose private insurance, the subsidy would help pay premiums. If people elect to be uninsured, the money would go to the safety net.
Real universal coverage is simple and uncomplicated. It’s the halfway measures that are incredibly complex and that leave victims in their wake.
Is the administration going to say they didn’t see this coming either?
We need to move health insurance from being provided by employers to being paid for by individuals or collectively – or even more elegantly tax all US citizens and provide Medicare For All. Eliminate Medicaid, the VA and move away from private insurance companies who clearly don’t optimize costs for consumers.
I agree with KP however I am not ready to say that private insurance companies provide no value. At the very least, they provide a structure that many Americans feel is safer than a pure government plan. The solution is to proceed with what KP is proposing but allow easy transfer of any individuals health care voucher to a private insurer of the individuals choosing. No losers. if a government plan is truly a better value, the market will gravitate to the central plan. If private insurance brings value, the market will gravitate to the private plans. In either circumstance, the consumer is in charge and will be in the best position to determine the best plan.
A voucher based system has been advocated for some time in the public school system arena, and it has never gained traction as it works to undermine the program. Example would be property owners with no children pay for public schools same as those with children, with the conceptual framework that this works best for all in the end if everyone’s child is educated. Same applies with healthcare. Example would be pregnancy coverage mandated under ACA – while many don’t need it, some do. Same with every condition/illness that exists. Recent news examples of applicants for ACA being untruthful on applications is eliminated if the only questions for coverage are name, date of birth and sex. These are fairly easy to verify for all parties. This said, a viable work around would be mandated basic coverage for all as a basic policy requirement with limited options. These defined basic policies could then be sold by the government plan or by private companies, sort of like we can pick our electricity provider today, while the guts of electricity (generation and distribution) is a monopoly that is likely best handled by a regulator. Today there is virtually no way to do an apples to apples comparison of healthcare insurance policies as the myriad of coverages, deductibles and copays varies so as to obscure comparability. Would it not be great if one could compare apples to apples policies between competitors. Then we’d truly know who is most competitive provider of health insurance, just as we can do with our electricity providers today. Key is having to pay a 25% overhead factor for every health insurance claim dollar handled by a private insurance company is not a low cost provider or in the consumers best interest. Further, the consumer is so far removed from the cost incurred today that he/she is a bit unconcerned about cost of services provided when/if those services are being paid for by the insurance company. In my life this is the only arena in which this happens. It needs to be changed so individuals are responsible and cognizant of costs and actively monitor or have a meaningful advocate representing their best interests.
Of course the voucher system works. You might note the thousands of parents inside Washington, D.C., who clamor for a lucky pick to have their child go to the charter school. As throwout (not actual) figures, the graduation rate from charter there is something like 90% vs 30% for those remaining in D.C. And, BTW, the first (or second) thing Obama did when he got there was to cancel the voucher program. The other thing (first or second) he did was to enroll his daughters in Sidwell Friends, a private school.
No traction? Only because unions, heavily invested in the status quo and teachers (their union), fight any such change every day. Yet change to charter is still slowly coming. The only thing charter schools undermine is bad schools…not undermine, really, but expose. The problem is that “everyone’s” child is NOT being educated in public schools…what is it in Detroit?…something like only 9% of fourth graders being proficient in reading at fourth grade level?
If I were a 45 year old man, single, I would highly resent having to pay premiums for birth control pills, transgender operations, obstetrics.
And, to remind us again, if Obamacare is so great, why did he exempt Congress and the staffs which work i their D.C. offices from it?
Many, but not all public K-12 schools were significantly negatively impacted by busing. This Supreme Court ruling alone contributed more to the decimation of these schools in the US as anything. I never said private schools did not have good outcomes and for those who can afford and elect to opt out of public education, this option will likely always exist. Vouchers do however unequivocally undermine public schools. Trouble with your saying a single man doesn’t want to pay for OBGyn or whatever, then what if I don’t want to pay for your prostate problems cause not everyone has a prostrate, or what if I don’t want to pay for your cancer or whatever. What ends up happening is those who don’t have these coverages either go without care (includes dying), get Medicaid if they qualify which taxpayers pay for and physicians are not adequately compensated for servicing, or get served at the emergency room bankrupting them effectively and when they can’t pay for those services then taxpayers pay their bill in the most expensive delivery modality imaginable. The concept of universal care is sort of analogous to helping your neighbor rebuild his/her barn if it burns down. If you don’t want to think along those lines then you cannot be convinced in all likelihood.
No question that busing was a bad idea, designed to achieve racial balance. Kids were swept out of their neighborhoods and spent an hour or two on a bus daily. It undermined neighborhood schools. It (busing) was later overturned, yet in Denver they kept it up for over a decade past that.
In roughly 1966 in DC a Judge Scalley said that schools could not have the “track” system, where in each grade divisions of each class were made into slow, average, and fast learners. That produced the flight from DC to the suburbs.
Private schools are different from charter, and the parents must have enough money to pay their own taxes (for everyone’s education) plus an additional bill for their children. So Obama sent his daughters to a private (not charter) school, after throwing the DC kids under the bus (intended). His DC edict of canceling charter program was so thoroughly attacked by parents in DC that he was overruled.
Another longstanding aid to education for American children has been the entrance exam plan (e.g. Bronx Science). You may have read of the frenzy in China as students try to get into the next level of education.
I favor the charter school option, as our country must compete in the worldwide market. Studies show we are not as competitive now.
To get back to the focus on health care. Universal health care is socialist, not “helping your neighbor.” I do agree that a basic safety net plan could help all. But what happens in a universal plan, as we see it in the world, is rationing (death panels or IPAB in Obamacare), delays to see physicians, inferior survival results, underpayment of physicians, and a two-tiered system where those who can go outside it do so to get the prompt care they need.
The government will be, then, the single “UNDERpayer.
Most contributors on this site know of the man in Ontario who was faced with an inordinate delay in getting a specialty operation. The judge (2005) opined: The Canadian system does not guarantee care. It only guarantees a place in line.
I’d agree Universal Care is a socialistic solution, as is the police, fire, airports, defense, etc. some things, not all, are simply best handled corporately by governmental entities.
Members of Congress are required to get their insurance from the ACA exchanges, so I’m not sure when you say they were exempted what you mean. I think what you are referring to is that after this was decided, as proposed by Sen Grassley, it was jiggered so that Congress persons and key staff could be paid funds to assist them in paying for their health insurance on the exchange. This was done because as employees of the government they had been getting their health insurance as an employee benefit and this move was simply to adjust their compensation to offset the the transfer to the employee of this cost. Frankly, all businesses should do this in my mind, then individuals would be purchasing their own insurance and not be locked in via their employers plan.
As to Charter Schools and Vouchers – a big problem here is that this tends to work against the melting pot concept of America. Most Charter Schools have as a key element a tribal aspect (ethnic, religious, etc). Thus while Charter Schools have some notable successes, at their core is usually a tribal aspect and that tends to divide us rather than unite us.
I don’t know. Seems all 250 of those charter vouchers from DC, highly sought, are given to black kids. If whites were of any proportion (under 10% now) in DC schools, they’d be a part of that 250 fighting for better education, too. Perhaps the white numbers are just so low that not one white student was selected.
To counter your position…I never noticed that, in our melting pot of America, Catholic schools, which have provided even up to 20% of education, have divided us.
I have heard your exact argument, but don’t recall the counter…which says that “employer” contributions to Congress and staff does not obey the Obamacare law. Perhaps someone on this site can provide the explanation for this view.
I think any smart business today should consider increasing their employees compensation by an amount equal to what they are currently paying for that employees healthcare and let the purchase be made by the individual. Key thing to remember is government wants employers to pay for employees insurance as more people get covered that way. That is why employer plans are tax free to employees while individual healthcare insurance is paid with after tax dollars. This isn’t fair to those in the individual markets today or those on the ACA exchanges that aren’t businesses. Problem is you need to force people to go onto the ACA exchange and get coverage or we go one step forward two steps back. More elegant to simply tax all for healthcare like we do for Medicare and then have everyone have a basic healthcare plan of insurance. Then merge Medicaid and the VA into Medicare and have the VA sell their hospital facilities to for profit companies. Then allow everyone to pay for better and best coverages (private rooms, elective surgeries, etc) using their own after tax funds with no need to buy insurance for such expenditures. No vouchers, no tax credits, no complexity of numerous modes of healthcare delivery for healthcare providers to have to navigate their way through. I’d imagine most physicians could trim their staffs significantly as accounting and collection efforts would be vastly simpler. It could all be done electronically and optimized for consumers and providers.
“For almost two decades now, my colleagues and I at the National Center for Policy Analysis have been proposing an approach that would provide universal coverage and a solution to the safety net problem in one fell swoop. The idea: offer every American a tax credit for health insurance ― in and out of the exchange, at work or away from work. If people turn down the offer and choose to be uninsured, the unclaimed credit would go to safety net institutions in the communities where they live.”
We need to keep throwing this out there. As ObamaCare crumbles around us, people will be more interested in an alternative.
Can’t let a good crisis go to waste, right?
That’s how things get done.
This would require all communities to have a designated safety net. Many do not. Several counties around Dallas do not.
However, this doesn’t mean I don’t like the idea. I do. It is simple and straightforward. (That’s why the politicians won’t/don’t like it.) If you can solve the above problem then you have a workable solution.
A voucher based system has been advocated for some time in the public school system arena, and it has never gained traction as it works to undermine the program. Example would be property owners with no children pay for public schools same as those with children, with the conceptual framework that this works best for all in the end if everyone’s child is educated. Same applies with healthcare. Example would be pregnancy coverage mandated under ACA – while many don’t need it, some do. Same with every condition/illness that exists. Recent news examples of applicants for ACA being untruthful on applications is eliminated if the only questions for coverage are name, date of birth and sex. These are fairly easy to verify for all parties. This said, a viable work around would be mandated basic coverage for all as a basic policy requirement with limited options. These defined basic policies could then be sold by the government plan or by private companies, sort of like we can pick our electricity provider today, while the guts of electricity (generation and distribution) is a monopoly that is likely best handled by a regulator. Today there is virtually no way to do an apples to apples comparison of healthcare insurance policies as the myriad of coverages, deductibles and copays varies so as to obscure comparability. Would it not be great if one could compare apples to apples policies between competitors. Then we’d truly know who is most competitive provider of health insurance, just as we can do with our electricity providers today. Key is having to pay a 25% overhead factor for every health insurance claim dollar handled by a private insurance company is not a low cost provider or in the consumers best interest. Further, the consumer is so far removed from the cost incurred today that he/she is a bit unconcerned about cost of services provided when/if those services are being paid for by the insurance company. In my life this is the only arena in which this happens. It needs to be changed so individuals are responsible and cognizant of costs and actively monitor or have a meaningful advocate representing their best interests.
From the link: “We should never pay more for (subsidize) good behavior than the good behavior’s benefit to us, and we should never collect more from (penalize) bad behavior than its costs to us.”
I agree, and the employer subsidy is a good example of this. But wouldn’t a fixed-value tax credit do the same thing for many people? Especially if the credit is larger than a healthy 25-year-old’s entire annual insurance premium (considering the benefit to society of his being insured is substantially less than his premium).
At least the employer exclusion roughly compensates healthy people for the added cost of HIPAA-compliant, community-rated coverage.
The benefit to society of having individuals purchase risk-priced coverage is certainly not the same for every individual. A fixed tax credit would seem to be wasteful to some, and an inadequate incentive for others.
“First, half the newly insured will be going into the Medicaid program and Medicaid will continue to pay well below the fees paid by garden variety private insurance.”
I don’t think people quite understand how big of a mess this going to be. People will see unprecedented levels of trouble with access.
Right, where are we going to get all of the extra doctors?
I don’t care if you have a million doctors. Doctors have no “cushion” of available money as private insurers have screwed down reimbursements (which they only control) so that a doctor cannot make an on site decision whether to see a no pay patient or a Medicaid one. Doctors lose money on almost every Medicaid patient they see…as I have often commented, like receiving 75 cents a gallon for your gas station customers who have Gasicaid. This Gasicaid example is the comparable rate at which Medicaid pays doctors. Doctors’ overhead is substantial, and it is criminal of the government to expect any doctor to see a patient for whom he/she is not paid at least overhead. Note: As has been suggested in the past (I think Mass has this requirement), govt may try to force doctors to see Medicaid/Obamacaid patients as a condition of holding a medical license. Such a requirement will immediately result in a loss of practicing doctors.
Doctors in private practice never did receive that monetary support to supplement Medicaid patients (as hospitals such as Grady did), so they have always received less per patient than, say, a hospital Emergency Room.
There are so many good ideas out there, some of which are often mentioned on this site (e.g. tax credits for individuals, medical savings accounts, tort reform) that it is outrageous that any bill passed by Congress would not include several of these ideas.
You are right about doctors being treated badly by Medicaid. I heard an executive of Califosrnia’a Medical program state: We decided to allocate funds on the basis of equity (meaning more people to be included) rather than market economics. (What it took to compensate doctors and hospitals fairly for the work.) She assumed that providers would continue to see the patients and absorb the difference. After 47 years of this, the government is probably safe to expect that providers will continue to do this.
Wanda J. Jones, President
New Century Healthcare Institute
San Francisco
“Second, once the newly insured are enrolled in Medicaid, they are likely to double their visits to hospital emergency rooms ― especially those of safety net hospitals. ”
ER use is extremely inefficient. This will cost us a fortune.
A fortune that we don’t have. All of the signs point to disaster, but will people recognize this in time to salvage something?
As a devil’s advocate, I suppose my response is: “OK, hospitals, why do you constantly and consistently lobby for Medicaid expansion? If you lose money on Medicaid, you should demand less, not more, of it!”
So, yes, I am very suspicious of hospitals’ accounting.
On the other hand, I have enough experience in the health sector to know that lobbyists are very good at moving the goalposts and counting on politicians’ and voters’ amnesia to get away with it.
That is, the hospitals likely thought they’d pocket the Medicaid expansion and not complain about the DSH payments during the passage of Obamacare. It would likely not have been possible to score Obamacare as reducing the deficit without cutting the DSH payments.
However, they were likely counting on getting DSH payments restored very quickly. The failure of Obamacare means that they likely will be restored soon, IMHO.
JG–I don’t understand your last paragraph, considering the total incompetence of this administration in administering this program. It is, in fact, much more likely, IMHO, that there will be continuing cuts in DSH money under the reasoning that with more people covered, there is less need for it.
We could use a good lunch together on this and other things… Miss you.
WJJ
What I’m saying is that every group that received a benefit from PPACA and also had to pay for it did not stop PPACA.
They subordinated their criticism to their praise until the bill passed. Then they started to re-emphasize the need for others to pay for PPACA while they pocketed the new revenue.
With respect to hospitals, they cheered Medicaid expansion and HIX expansion, allowing the politicians to trot out their nonsense that more insured people (either via Medicaid or private) will reduce the ER burden.
The hospitals must know better than we do that insurance status does not explain ER use. So, they knew quite well that they could pocket the increased Medicaid and private revenue and also come back later to lobby to undo the DSH cuts.
We can make similar observations about other industries in the health sector. I am surprised that the pharmaceutical industry has not started a campaign to repeal its Obamacare tax.
As a staff member at a small (90 bed) rural hospital the uncompensated care cuts hit us just as hard, if not more so, as the safety net hospitals.
We are seeing a loss of $2 mil from these cuts. Where we were struggling to zero balance our budget with the subsidy we must now find a way to generate $2 mill in savings through staff reductions, program terminations and other necessary services. Granted, $2 mil is nothing compared to the losses you describe but it is substantial for our facility.
We have no nearby facility to refer mental health admissions, so they may occupy ED beds for days or weeks until something opens up elsewhere. EMTALA regs make sure that our hands are tied regardless of patient or family wishes to go elsewhere.
The nearest hospital to our facility is 45 miles away. If we eventually have to close our doors due to subsidy cuts, the community will perish.
How many cities and towns do you know that can attract business, industry or citizens if convenient medical care facilities are not available?
Great post. I have saying for 4 years that cutting DSH payments was a stupid and cowardly way to pay for the ACA. If the ACA needed more revenue, there should have been a tax increase. If a tax increase was voted down, then no ACA.
This is called honest public choice accounting.
There is something else instructive about this post.
Although $2 billion a year in DSH cuts is not a large amount in terms of overall health spending, it has a very large impact on some hospitals. In fact it impacts the very hospitals that were trying to do the right thing and help the poor.
Good post.
Republicans need a concensus plan to publically rally around. Yours is as good or better than others I have heard. If Republicans don’t rapidly coalese around a plan, Hillary will be identified as the only one smart enough and knowledgeable enough about health care to “fix” it. It’s NOW OR NEVER. Thanks for your thoughtful and practical solutions. If only the Republicans would stop talking about repeal and produce replacement legislation.
Republicans have had ideas and presented plans for several years. It just never gets publicized. The tax credit above is similar to a part of John McCain’s plan in 2008. HSAs have been championed by this site for years. The first step should be to repeal all of Obamacare, therefore trying to go back to where we were before this mess, and have a valid discussion by people including practicing physicians, plus these conservative think tanks (this site, Pacific, Galen, Heritage, Independence) instead of a 2700 page bill with lots of sneaky parts that Nancy Pelosi probably hasn’t read even yet.
If a quarterback is being sacked by a 300 pound defensive lineman, the first thing on his mind is not what the next play will be.
John, as an alternative to your tax credit idea, would you wrestle with these ideas: I’d like to see a taxable voucher for everyone, probably age adjusted, maybe income adjusted; taxable so that it benefits the low income much more than the high income, but it has the simplicity of not having to determine eligibility. Somehow I’d like to see the HSA concept used as well, and I like your idea of funds not spent to buy insurance to go into a fund for uncompensated care. I can’t see how to keep the vouchers taxable and still use an HSA. Ideas?
John and Friends,
While this seems simple, it relies on good will, intelligence and diligence on the part of government. Does the ACA not make this doubtful? Lots of ways to fall behind the increases in demand and resource costs.
Regards,
Wanda Jones
San Francisco
Brilliant idea, in it’s simplicity and elegance:
“…offer every American a tax credit for health insurance ― in and out of the exchange, at work or away from work. If people turn down the offer and choose to be uninsured, the unclaimed credit would go to safety net institutions in the communities where they live.”
Of course, Washington politics is neither simple, nor elegant, and therefore they are unlikely to even be able to understand this – or even see it if put right in front of them due to perceptual blindness! (remember, “What The Bleep Do We Know?” – people not seeing simple realities they can’t or choose not to understand)
My impression, real or unreal, is that many hospitals are financially fragile institutions: occasionally borrowing to manage cash-flow. Furthermore, the change in “Disproportionate Share” financing could lead one or more banks to suddenly withdraw from the financing of short-term cash-flow demands for a hospital. With the propect of first one and then subsequently a cascade of hospital closings, the sudden increase in local unemployment would be catastrophic.
I continue to assert that fixing the inefficiency and the severe gaps in effectiveness (e.g., maternal mortality) is more important than universal insurance. We can’t pay for our nation’s healthcare now, why would it be any easier for our nation’s economy with the expense of another grand entitlement?
Many 501c3 hospitals have a serious problem in that they have large profits today. To justify and utilize those profits they are building more facilities. Imagine where this leads.
States like Texas that aren’t taking ACA funds for Medicaid will hasten the day of single payer by stressing funding for Medicaid users. It’s disingenuous to lay the blame for this on ACA. Medicaid reimbursements aren’t adequate today. Work to right that wrong by making these payments equivalent to Medicare reimbursements.
Tax vouchers to fund health care insurance premiums have a fundamental flaw – one has to have a tax liability equal or greater than their insurance premium costs annually.
Insurance companies don’t protect their customers they feed off them. Patients need an unbiased advocate as do physicians and other health care providers. All insurance should be is a financial payments conduit intermediary to rationalize reimbursements based on risk pool insurance risks. Today, insurance companies maximize revenues by tranching coverage risks. Policy holders end up paying exorbitant premiums when a lower cost is obtainable via a single payer substitute that dis intermediates insurance companies. This doesn’t mean government healthcare, rather a return to the old time physician / Patient relationship with an honest financial conduit handling funds and esrptablishing reasonable reimbursement rates and items comprising insurance coverage for basic insurance healthcare plans. Then let people self insure the balance of healthcare issues.