How N.H. could save millions in drug costs with an online auction

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On Thursday, a coalition worthy of a wacky ensemble buddy comedy pressed the state not for a subsidy or a handout, but for something much more valuable. Labor unions, business leaders and mayors asked the state to use market forces to lower prescription drug prices.

The state hires a business called a pharmacy benefits manager (PBM) to handle its prescription drug purchases. PBMs negotiate with drug makers to determine what drugs are covered under insurance plans and at what price. Their formulas are complex and opaque, which has made them a ripe political target in recent years.

PBMs can reduce an employer’s or insurer’s prescription drug expenditures by negotiating volume discounts and managing efficiently a large volume of complex drug transactions. But an increasing number of studies (some summarized here) are finding that bad incentives and a lack of price transparency make it hard for customers to produce greater efficiencies and greater savings. 

The answer is to change the incentives in ways that empower purchasers, not sellers and contractors. 

New Hampshire hires its PBM by putting out a request for proposals and having a group of reviewers pick the best one. Last year it used this process to sign a three-year, $212.4 million contract with Express Scripts, one of the nation’s dominant PBMs. 

But there is a better way. Corporations and the federal government have for years employed an online reverse auction to force contractors to bid aggressively to win their business. It works sort of like eBay, but in reverse. The buyer starts the auction, and contractors place their bids. The auction then cycles through multiple rounds, with contractors having the chance in each new round to outbid each other. 

  • MIT marketing professor Sandy Jap found that online reverse auctions “not only save buyers money but also can increase the competitiveness of the supply base. Suppliers that participate in open-bid auctions are able to benchmark competitors and their cost structures, which can lead to greater efficiency for all suppliers.”
  • University of North Texas professors also found in 2004 that online reverse auctions “A large number of studies have demonstrated that ORAs not only improve the buyer’s purchasing efficiency, but also reduce its overall procurement costs” and that sellers “also benefit from new business opportunities to increase their sales.”
  • A 2011 study found that they drive prices down, create efficiencies, save time, produce real-time market pricing, and increase competition. 
  • A GAO report found that they may have saved federal agencies more than $100 million in 2016 alone. 

New Hampshire has the potential to save tens of millions of dollars by creating an online reverse auction process for awarding its new PBM contract next year. 

That’s what the wacky coalition on Thursday pressed the state to do. Public-sector unions and local elected officials correctly see the potential to lower their own drug costs too.

Prescription drug prices continue to rise because our complex web of laws and regulations prevents the creation of competitive marketplaces in which consumers can comparison shop. 

An online reverse auction takes a step in the right direction by employing market forces — not heavy-handed regulations — to reduce state prescription drug expenditures for the state and its employees.

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To fix health care, look to Milton Friedman, not Bernie Sanders

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Following the lead of a self-proclaimed socialist, on Tuesday and Wednesday the top Democratic candidates competing to lead the world’s most successful capitalist country diagnosed the source of America’s health care ills to be… capitalism.

  • Bernie Sanders: “…the health care industry makes tens of billions of dollars in profit…. If you want stability in the health care system, if you want a system which gives you freedom of choice with regard to a doctor or a hospital, which is a system which will not bankrupt you, the answer is to get rid of the profiteering of the drug companies…”
  • Elizabeth Warren: ““The basic profit model of an insurance company is taking as much money as you can in premiums and pay out as little as possible in health care coverage. That is not working for Americans…”
  • Kamala Harris: “Let’s talk about math. Let’s talk about the fact that the pharmaceutical companies and the insurance companies last year alone profited $72 billion, and that is on the backs of American families.”
  • Tulsi Gabbard: “So the core of this problem is the fact that big insurance companies and big pharmaceutical companies who’ve been profiting off the backs of sick people have had a seat at the table, writing this legislation.”
  • Kirsten Gillibrand: “The truth about health care in America today is people can’t afford it. They cannot afford — and the insurance companies for these plans that rely on insurance companies, I’m sorry, they’re for-profit companies. They have an obligation to their shareholders. They pay their CEO millions of dollars. They have to have quarterly profits. They have fat in the system that’s real and it should be going to health care.”
  • Julian Castro: “What I don’t believe is that the profit motive of big pharma or big insurance companies should ever determine, in our great nation, whether somebody gets healthcare or not.”
  • Bill de Blasio: “Yeah, I don’t understand why Democrats on this stage are fearmongering about universal health care. It makes no sense. Ask the American people, they are sick of what the pharmaceutical companies are doing to them.”

The Democratic Party is following the wrong Brooklyn-born Jewish immigrant. 

Tooting “The Internationale” on his pipe, Bernie Sanders is leading the Democratic Party down the dark path toward state control of the economy. His anti-capitalism rantings have shifted the party’s base far to the left. He led the health care debate on Tuesday, and on Wednesday Elizabeth Warren and others danced to his seductive tune.

Wednesday, as it happened, was the birthday of Milton Friedman, “the 20th century’s most prominent advocate of free markets.” Born in Brooklyn 29 years before Bernie Sanders, the Nobel laureate economist became famous for explaining to popular audiences how free markets combat poverty and empower the powerless, as he did here on Phil Donahue’s show.

Sanders’ progressive push for a government-run health care system is based entirely on the notion that health care and health insurance in the United States are controlled by for-profit companies preying upon citizens in an unrestrained free market. It’s an interesting theory, considering that exactly the opposite is not only true but demonstrably true. 

The United States does not have a free-market health care system. In a free market, a seller cannot raise prices with impunity. The existence of price signals and competition would allow consumers to choose alternatives, keeping prices down and service quality high. 

In health care in the United States, the government prevents this from happening. Because of a terrible tax incentive, consumers are locked into health insurance plans chosen by their employers. Those insurers negotiate prices with providers, and consumers have little say in that process. Additional laws prevent consumers from purchasing the lowest-cost insurance plans, instead forcing insurers to pay for routine health expenses and all manner of services that not everyone needs.   

In a classic essay written five years before his death, Friedman identified the structural problems with health care delivery in the United States. 

“Two simple observations are key to explaining both the high level of spending on medical care and the dissatisfaction with that spending,” Friedman wrote. “The first is that most payments to physicians or hospitals or other caregivers for medical care are made not by the patient but by a third party—an insurance company or employer or governmental body. The second is that nobody spends somebody else’s money as wisely or as frugally as he spends his own.”

“No third party is involved when we shop at a supermarket. We pay the supermarket clerk directly: the same for gasoline for our car, clothes for our back, and so on down the line. Why, by contrast, are most medical payments made by third parties? The answer for the United States begins with the fact that medical care expenditures are exempt from the income tax if, and only if, medical care is provided by the employer. If an employee pays directly for medical care, the expenditure comes out of the employee’s after-tax income. If the employer pays for the employee’s medical care, the expenditure is treated as a tax-deductible expense for the employer and is not included as part of the employee’s income subject to income tax. That strong incentive explains why most consumers get their medical care through their employers or their spouses’ or their parents’ employer. In the next place, the enactment of Medicare and Medicaid in 1965 made the government a third-party payer for persons and medical care covered by those measures.”

Is the raw greed of insurers and for-profit health care providers to blame for skyrocketing health care costs?

“A look at the data is instructive. The effect of tax exemption and the enactment of Medicare and Medicaid on rising medical costs from 1946 to now is clear. According to my estimates, the two together accounted for nearly 60 percent of the total increase in cost. Tax exemption alone accounted for one-third of the increase in cost; Medicare and Medicaid, one-quarter.”

Market-distorting government interventions — not greedy corporations — are the real drivers of health care and insurance costs in the United States, where about half of health care spending comes from government. 

“The high cost and inequitable character of our medical care system are the direct result of our steady movement toward reliance on third-party payment. A cure requires reversing course, reprivatizing medical care by eliminating most third-party payment, and restoring the role of insurance to providing protection against major medical catastrophes,” Friedman concluded.

That is the answer because removing those distortions is the only way to create largely efficient, functioning consumer markets in health care that empower consumers. 

That doesn’t require eliminating all regulations. We have functioning food and clothing markets that are subject to some level of regulation. It requires undoing the laws and regulations that deny consumers the ability to shop for health insurance and health care in a competitive marketplace.    

Friedman understood this and explained it well. But one party is choosing to follow Sanders and his nonsensical rantings instead. Maybe Friedman should’ve spent more time waving his arms and yelling.

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Arkansas’ Medicaid Expansion work woes shouldn’t kill NH’s experiment before it starts

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Just as New Hampshire begins monitoring its Medicaid work requirements this month, legislators consider a bill to kill those requirements.

Often cited as a justification for eliminating the work requirements is Arkansas’ experience in 2018. That year, 18,164 Arkansas Medicaid enrollees lost coverage after the state enacted work requirements. But a closer look at the Arkansas experience suggests that poor program implementation and design were the most important factors in the enrollment drop. 

In this Barlett Brief, we look at the reasons for the Arkansas enrollment drop and show that they do not justify killing New Hampshire’s Medicaid Expansion work requirement before it has a chance to succeed.

Find the full brief in PDF format here: JBC-Medicaid-work-requirement-brief.

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Expanded Medicaid’s permanence

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The case advocates make for reauthorizing expanded Medicaid is exactly the same as the case for rejecting it: Nearly 53,000 Granite Staters are now dependent on the program.

Supporters don’t use the word “dependent.” They say people “rely on” Medicaid. Functionally, the meanings are the same, like “inebriated” and “intoxicated” or “asparagus” and “disgusting.” Expanded Medicaid has made 52,726 Granite Staters (as of March 31) dependent on government health insurance.

Of course, as the dart said to the dartboard when it complained about the pain, “that was the point.”

When New Hampshire passed expanded Medicaid in 2014, state Sen. Andy Sanborn, R-Bedford, said “I have never seen, in the political realm, any entitlement program ever end. And I think the suggestion that they would end is frankly ludicrous.”

The votes for expanded Medicaid would appear to bear that out.

In 2014, Medicaid Expansion passed the Republican-controlled state Senate 18-5 and the Democratic-controlled House 202-132.

In 2016, Republicans controlled both chambers. Reauthorization passed 216-145 in the House and 16-8 in the Senate.

This year, with Republicans again in charge, reauthorization passed 17-7 in the Senate and 222-125 in the initial House vote, with the final outcome this week so obvious that the House passed the bill on a voice vote.

Such consistent support can be explained by the program’s constituency of dependents, which reaches every community. Supporters on Wednesday roamed the State House wearing T-shirts that stated how many people in their town were on expanded Medicaid.

It doesn’t matter that the Medicaid population is not static. A UNH study found that 29 percent of New Hampshire’s expanded Medicaid population stayed in the program for two full years. The biggest reason people left was that a rising income made them ineligible. (Watch for this to eventually be the basis for an argument to further expand eligibility.)

What matters is that tens of thousands of people at any given time depend upon the government, rather than the private sector, for their health insurance. That’s enough to make it permanent.

There are only two ways New Hampshire legislators will rethink keeping this program. One is if the federal government announces a reduction in federal support so large and so sudden that the state cannot absorb the cost or reduce eligibility enough to avoid the immediate creation of a massive broad-based tax. Even then, it might stay.

The other is if the health insurance markets are reformed to the point that competition explodes and premium prices collapse, falling to levels that are affordable for low-income families. Again, even then it might stay.

OK, there’s also a third way expanded Medicaid could end. SMOD could strike New Hampshire and destroy everything.

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How Medicaid expansion immediately raids the general fund

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The bill reauthorizing Medicaid expansion passed the state Senate on Thursday when half of the 14 Republicans joined all 10 Democrats in voting to extend the Obamacare entitlement program for five years. This is why the #Headdesk Twitter hashtag was invented.

One of the Republican selling points was that the bill pays for for Medicaid expansion while protecting state taxpayers.

It doesn’t, though.

Some readers (the old, boring ones, you know who you are) might remember the ongoing fight to fund the state Alcohol Abuse Prevention and Treatment Fund (Alcohol Fund) established in 2000. State law long required that 5 percent of the state Liquor Commission’s gross profits go into the Alcohol Fund. Only once — in 2003 — have the people’s elected officials followed that law. Typically they write a suspension of the law into the state budget.

New Futures created this handy chart to show the difference between the law’s required deposits and what was actually put into the account.

The Senate’s Medicaid expansion bill follows this grand 18-year bipartisan tradition and raids the Alcohol Fund.

The raid starts by first requiring that the Alcohol Fund at last be fully funded at 5 percent of gross Liquor Commission profits. (No sense in raiding an empty fund, right?)

This Liquor Commission money is then transferred to a new account created to pay for Medicaid expansion. It’s called the New Hampshire Granite Advantage Health Care Trust Fund. (One dedicated fund is being raided to finance another dedicated fund.)

The bill assures us that this transfer will happen only “provided” the programs financed through the Alcohol Fund “shall be paid for with federal or other funds available from within the department of health and human services.”

To provide a portion of those “other funds,” the bill lets the Alcohol Fund accept “gifts, grants, donations, or other funding from any source.” This magic money is directed to the substance abuse programs the Alcohol Fund can no longer finance because Medicaid expansion just swiped all of its Liquor Commission money.

Yeah, it’s Indiana Jones’ bag of sand trick. But with dollars.

What are the odds that those “other funds” will be made up of gifts and donations vs. state general funds?

Wait, don’t answer that question.

Sorry, Harrison.

The important point is that the Senate bill takes Liquor Commission funds and replaces them with whatever the Department of Health and Human Services has lying around. Like, say, lottery tickets, Funspot tokens or, we don’t know, maybe state general funds.

Even if the department finds bags of federal money in an old vault somewhere, the Senate bill still shrinks the general fund. Think back to what we wrote nine paragraphs and two stupid gifs ago (we know, but try).

The Senate bill first addresses the Alcohol Fund by ensuring that it finally receives its full 5 percent of Liquor Commission gross profits. For 15 years, legislators have been taking for the general fund the difference between that full 5 percent and whatever they decided to put into the Alcohol Fund.

Under the Senate bill, those general fund appropriations will no longer happen. They will go instead to fund Medicaid expansion.

Those are some pretty neat tricks to take general fund money via the Alcohol Fund. They could make for an interesting reception when the bill lands in the House.

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Why Obamacare Is Still With Us

The Josiah Bartlett Center’s Andrew Cline writes in USA Today that to replace Obamacare, Republicans must first agree to make a gradual transition toward a freer market in health care.  (Editor’s note: We did not write the USA Today headline. That was the work of an editor at the paper.)

 

Why Obamacare is still with us

By Andrew Cline 

Republicans in Washington have failed to deliver on a signature campaign promise — to repeal Obamacare — despite controlling the House, Senate and White House. After last week’s flop, the party’s various factions pointed fingers faster than an all-mime production of “Gunfight at the O.K. Corral.” 

The most common accusations — inept management, poor leadership, rogue senators — identify only symptoms of a larger problem. The “root cause,” so to speak, is that the Republican Party does not enjoy the same clarity of purpose on health care that the Democratic Party enjoys. 

On health care, Democrats have two advantages over Republicans. One is a shared purpose: universal coverage achieved through aggressive government intervention. The other is their willingness to achieve that goal incrementally.

Obamacare did not achieve universal coverage. The percentage of uninsured Americans has fallen from 14.6 percent in 2008 to 11.3 percent. But Obamacare moved the country closer to the goal, which brought more strident left-wingers on board. 

Republicans do not share such clarity. There is broad agreement only on the political goal: repealing Obamacare. There is no agreement on the principles, never mind the details, that would guide replacement.

There are two primary reasons for this lack of clarity. One is that the Republican Party does not insist on ideological conformity from coast to coast. Keeping the likes of Sens. Rand Paul and Susan Collins under the tent helps the party win majorities in Congress. But that ideological diversity can make it harder to govern. 

Democrats have a spread, too, but it is narrower. Nearly a third (29 percent) of Republicans say the federal government “has a responsibility to ensure health coverage for all,” while only 14 percent of Democrats say it doesn’t, according to Pew Research data. 

The other reason is that health care does not lend itself to quick “get the government out of the way” fixes. The health care marketplace is thoroughly distorted by government interference (this was true well before Obamacare). These distortions have to be slowly and carefully unwound. Because many of them have grown popular, no majority can be found for quickly abolishing them. 

If there were a quick and easy free-market solution, it would be law by now. But the political reality is that government’s heavy hand will not be removed any time soon — because most voters don’t want it to be. 

Another factor: Medicaid comprised 28 percent of state budgets in 2015, which explains why so many Republican governors pushed back against the last Obamacare repeal bill. (For comparison, elementary and secondary education accounted for 19.5 percent.)

Pew polling shows that only 5 percent of Americans say government shouldn’t be involved in health care. Given the country’s lack of an appetite for a pure free market in health care, Republicans might consider turning to a leader from the past for guidance. Conservative health care analyst Avik Roy reminds Republicans that in his classic 1964 “Time for choosing” speech, Ronald Reagan offered a guidepost, saying “no one in this country should be denied medical care because of a lack of funds.” Taking his lead from Reagan, Roy offers a path forward. 

Roy, who has urged Republicans to bridge their internecine gap, points out that health care is the No. 1 driver of runaway federal spending. With every day that passes under the current system, the country slips into worse financial shape and the country becomes more dependent not just on Washington, but on the bureaucracy itself (see Medicaid). 

Roy offered a plan in 2014 that would cover more people than Obamacare while reducing government interventions and spending. It would replace Obamacare with Swiss-style subsidies for lower-income Americans while transitioning the inefficient government-run Medicaid program toward a more market-oriented system. 

It would be an improvement over the current system, yet it is not even considered because it is not free market enough for most Republicans. Opponents to options such as this one pretend that the alternative is a true free market in health care. It isn’t. There is no appetite for a true free market at the moment. The alternative to a transitional model is the status quo. 

We can either move incrementally toward a freer market, or we can drift toward single payer. Those are the options. If Republicans cannot agree on that, then Obamacare really is here to stay. 

Andrew Cline is interim president of the Josiah Bartlett Center for Public Policy, a free-market think tank in New Hampshire. 

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Countering the Powerful Work Disincentive in Medicaid Expansion

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March 23, 2016

Countering the Powerful Work Disincentive in Medicaid Expansion

Charles M. Arlinghaus

 

The New Hampshire state senate is prepared to ignore economic research and abandon any real effort to include a work requirement in its expansion of Medicaid to able-bodied, childless adults. A proposal that began as a supposed compromise would currently abandon the supposed centerpiece of that compromise effort.

 

New Hampshire’s regular Medicaid has 139,000 enrollees. The effort two years ago to expand Medicaid to the previously ineligible category of childless adults expanded the Medicaid rolls by more than 49,000. As 100% federal funding expires, so does the expansion expire at the end of this year. Supporters of renewing the expansion were able to attract previous opponents by promising to improve the incentives in the program, primarily a work requirement. That promise turned out to be a predictable bait and switch on the part of the sponsors.

 

Traditional Medicaid applied to categorically eligible populations who could not work — children, the elderly, the disabled. The few times before the ACA that states expanded Medicaid to the population of able-bodied childless adults, they found that having public insurance discouraged work and looking for work. In most cases, a full-time job will raise a worker’s income above the level to qualify for Medicaid so he has a strong incentive not to work full-time.

 

The most significant natural test of this theory came in Tennessee. Tennessee had expanded Medicaid to childless adults but quickly found it could not afford the costs. In 2005, 170,000 enrollees lost coverage. Academic researchers from Northwestern, Columbia, and Chicago studied the results. The National Bureau of Economic Research summary of the study said “they find an immediate increase in job search behavior and a steady rise in employment and health insurance coverage following the disenrollment.”

 

NBER’s summary concluded: “The findings suggest there is a powerful work disincentive from public health insurance eligibility.” A similar study by Dague also for NBER similarly found “enrollment into public insurance leads to sizeable and statistically meaningful reductions in employment.”

 

For New Hampshire’s purposes, these and other similar studies suggest that enrollment of childless adults will reduce job searches and employment for the population we newly cover.

 

There exists what researchers call a benefit cliff: one additional dollar of income costs the beneficiary thousands of dollars worth of benefits. They behave rationally by staying on the benefit side of that cliff, avoiding full-time employment that would put them over the edge.

 

To counter-balance that ill-effect, sponsors promised significant and meaningful work requirements of the kind that have made a big difference in welfare programs.

 

Consider that with meaningful work and job search requirements, our main welfare program called FANF has seen caseloads decline from 13,803 in 2011 in the midst of the recession to just 5,307 last month.

 

The federal government would prefer we not institute work requirements and has rejected them in other states. But in each of those other states, there was no risk to the feds in rejecting the requirement. The program was not dependent on them. They were just a stand alone wish.

 

The expansion bill as proposed earlier in the year would have made the program dependent on a work requirement. But sponsors instead imposed a “severability” clause which tells the federal regulators that they can reject our idea with no consequence.

 

Right now, our plan to “negotiate” with the federal government is to say “I know this is perhaps the last time in modern history you will want something from us but we don’t care. We will do everything you want no matter what. You don’t have to do anything we want. You don’t have to do anything we think is a good idea. But gosh it would be nice if you did.”

 

I believe the promoters of the expansion plan honestly believe that expansion will create a work disincentive. They also truly believe that a work requirement is good and important. Sadly, though, they don’t want to negotiate for it. They want to give up and not even try.

 

Making the clause “severable” is the same as neutering it. A more honest approach would be to remove it entirely and dispense with the fiction.

 

Better policy would be to admit to the “powerful work disincentive” that researchers have found and is just plain common sense. No state before us has gone to the federal government explaining that a work requirement is the only way of addressing one very serious problem with the program and that we simply can’t proceed without one.

Charles Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free market think tank based in Concord. He can be reached at arlinghaus@jbartlett.org

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Not all healthcare is created equal

Parker Bolt

August 2014

Canada has one of the most commonly cited single-payer health systems in the world. Many countries are constantly trying to improve their healthcare system, leading to comparisons to perceptually better systems. But before anyone tries to make direct comparisons, they should remember that regardless of its design, no healthcare system was created in one step. Canada’s healthcare system has developed over decades, with the goal of providing equal care to every citizen.

Prior to large changes in the 1940s, private insurance in Canada could be purchased as one saw fit, though most people simply paid their doctor as needed. Doctors privately charged patients based on the service, ability to pay, charging more or less based on the patient’s wealth. The end of WW1 and the subsequent Spanish Flu epidemic motivated the government to consider changes to provide for the mass of sick and injured. Changes to healthcare included setting lower medical costs for the poor and urban dwellers, and encouraging doctors to practice in rural areas that were otherwise short of medical professionals. The medical society in Canada briefly discussed ways of creating a national standard of accessible and affordable care, leading to  the idea of government controlled healthcare. However the idea never gained popular support, and the onset of the Great Depression put a halt to healthcare reform.

The Great Depression changed the mindset of Canada, namely due to the actions of the prime ministers that lead during that time. William King was Prime Minister with the Liberal Party from 1921-30. He believed the economy would right itself without any government involvement. During his administration King adamantly refused to give financial assistance to provinces, believing they should solve their problems independently. Though King did extend the legal powers of the provinces, the fiscal and economic issues they faced were out of their control. His strategy for solving the troubles of the Depression can be exemplified in his saying,  “It is what we prevent, rather than what we do that counts most in Government.”[1] Throughout the Depression, provinces had the legal power and authority but lacked the funds to overcome the problems facing them. During a campaign speech in 1930, King declared he “would not give a five-cent piece” to any province for Welfare relief; proving to the people that he simply refused to aid them in their suffering. King lost the election in 1930 to the Conservative Richard Bennett.

However, Bennett proved to be of a like mind with King with regards to taking action, again leaving provinces to struggle with their own problems. Bennett did not pledge to take strong action until the last year of his first (and final) term. When he did though, he wholeheartedly embraced the ideas of FDR’s New Deal. In 1935 Bennett declared that capitalism was dead and embraced FDR’s New Deal in a radio address that vastly differed from any of his previous speeches. “In the last five years great changes have taken place in the world,” he told his listeners. “The old order is gone. We are living in conditions that are new and strange to us. Canada on the dole is like a young and vigorous man in the poorhouse … If you believe that things should be left as they are, you and I hold contrary and irreconcilable views. I am for reform. And in my mind, reform means government intervention. It means government control and regulation. It means the end of laissez-faire.”[2] However, Bennett’s new promises failed to win him reelection. He lost to William King who campaigned on Bennett’s failings during the height of the Great Depression, with the slogan “King or Chaos”. King returned to the office of Prime Minster towards the Depression’s end, still believing that provincial matters should be solved by the provinces themselves.

Despite Bennett losing the election in 1935 and the government swinging to a Liberal majority, Bennett’s plan was sent to the supreme court, to rule on its constitutionality. However, the proposed federal powers were deemed beyond constitutional limits. The Depression had eroded the wealth of Canadians. Both King and Bennett had made the impression that provinces were on their own when it came to the well-being and health of the citizens.

Saskatchewan in particular had been severely hit by the depression, becoming the epitome of the “dirty thirties.” Its successful farming economy plummeted due to years of drought and a decrease in demand for farm products. In 1928 Saskatchewan’s net income from farming was $363 million, by 1933 it had decreased to a mere $11 million[3]. With such a crippling impact to the population’s finances, basic healthcare services for many became unaffordable.

After World War Two, Canada finally had the time and money to institute social programs and changes.  Saskatchewan had seen the worst of the Depression, and while Bennett and King served, provinces had gotten used to fending for themselves. Under the leadership of premier Tommy Douglas, Saskatchewan was the first to act on healthcare, passing the Hospital Services Plan  in 1947. It focused on guaranteeing accessibility to hospitals. Designed to be simple and affordable, a $5 premium per person to a maximum of $30 per family was supposed to account for all costs and possibly even make the province some money.[4] Those enrolled could simply go to a hospital and receive their care without any hassle of payment.

However, a year-end study found that per-capita costs were twice the original estimate in 1947 at $7.56; leaving Saskatchewan to pay 40% of hospital costs.[5] Subsequent years saw significant increases as costs rose to $11.41 in 1948 and to $13.59 in 1949. Despite the higher cost, the federal government took Saskatchewan’s plan and offered it to every province in 1957 by passing the Hospital Insurance and Diagnostic Services Act. In exchange for a province establishing a hospital insurance system, half of the cost would be covered by the federal government.  British Columbia, Alberta, Saskatchewan, Ontario, and Newfoundland accepted in 1958, but only after each had sent representatives to Saskatchewan to copy their method of organization and payment. By 1961 every province had instituted a hospital insurance plan, giving virtually all of the population hospital coverage.[6]

In 1960 Saskatchewan was on the eve of an election. Douglas promised the next major step in healthcare reform, proposing a universal insurance plan for Saskatchewan. Though this time, the population was starkly divided and the plan became a political talking point for the Liberal party hoping to win control from Douglas’ New Democratic Party (NDP). The vast majority of doctors opposed the plan, citing fears that they would become civil servants and be unable to treat their patients as they thought best. July 1st 1962, the day the law went into effect, 90% of Doctors went on strike. At first, public sympathy favored doctors plight, and the Liberal party used them to highlight flaws in Douglas’ administration. However the strike quickly lost momentum; Saskatchewan brought in doctors from other provinces as well as the U.S. to ensure that care was still being administered, and by mid-July many doctors had returned to work. Despite failing to prevent universal insurance in Saskatchewan, the strike had enough of an impact for a later concession to be added, which allowed doctors to opt-out of the Medicare plan.

In 1966, the Canadian government passed The Medical Care Act (MCA), allowing every province to provide universal insurance, with the federal government paying for half. The MCA also set requirements of affordability, comprehensiveness, accessibility, portability, and universality.[7] By 1971 every province had instituted an insurance plan that fulfilled all requirements.

The federal government was constitutionally unable to directly provide healthcare to citizens. However, the financial power it wielded could assist provinces with health costs they would otherwise be incapable of affording. Federal funds enabled every province to follow Saskatchewan’s example, and continued to support growing healthcare usage. The federal government was legally barred from directly controlling healthcare, they could only offer financial support, which they willingly gave in MCA’s early years.  The agreement involved in every national healthcare law since 1961 had included federal dollar for dollar contributions based on provincial spending. Increasing healthcare costs caused the federal government to limit its payments to provinces, and to give a five-year notification for the cancellation of the hospital insurance plan.

As an attempted solution, the Established Programs Financing (EPF) Act of 1977 moved from cost-sharing to block funding. Block funding gave healthcare providers far greater freedom with respect to billing in an attempt to make provinces fund their own costs. Due to the payment freedom, many doctors began billing directly to patients and extra-billing. Many doctors also opted out of Medicare and returned to a more private method of practice. The federal government was dissatisfied with the prospect of extra-billing, and the possibility that all of the money granted to provinces was not being spent on healthcare. The Canada Health Act, unanimously passed in 1984, altered the existing laws to force provinces to cover 100% of their populations (previously 95%) and prevented any form of direct-billing, extra-billing, or user charges. EPF also allowed the federal government to deduct funds from provinces if any form of extra-billing or direct payment took place. Due to the EPF, the federal government maintains a greater influence over provincial affairs, (a serious point of contention at the time) while paying less than their original pledge.

The changes to Canada’s healthcare system were designed to provide the same care to every Canadian with no differences in access or quality; and to prevent quality and access from being influenced by a patient’s ability to pay. Saskatchewan was the foundation of change for every major healthcare plan, any problems they had (finding adequate funds for hospital insurance in 1947) would carry on to every other province. An issue that many critics of universal insurance or any major social program often mention, is a governments ability to pay into the far future; a prospect which Canada has struggled and continues to struggle.

Canada has a well established system (one that is highly revered and held as a national symbol in its home), and I would be very surprised if it took any major changes in the foreseeable future; but it is not a cut and paste template for every country, nor is it feasible for every country due to its specific goals of equality and billing control over other issues.

Canadian healthcare is where it is today due to decades of pursuit. As Americans seek ways to improve our healthcare, we should follow Canada’s example and focus on creating a system that is unique to our own needs, rather than copying another nations plan.

 

[1] — Mackenzie King, August 26, 1936

[2] Blaming the Prime Minister. http://www.cbc.ca/history/EPISCONTENTSE1EP13CH2PA1LE.html 05/02/14

[3] Encyclopedia of Saskatchewan http://esask.uregina.ca/entry/great_depression.html 6/11/14.

[4] Encyclopedia of Saskatchewan. http://esask.uregina.ca/entry/hospital_services_plan.html 5/19/14/

[5] Encyclopedia of Saskatchewan. http://esask.uregina.ca/entry/hospital_services_plan.html 5/19/14/

[6] Historica Canada: Health Policy. http://www.thecanadianencyclopedia.ca/en/article/health-policy/ 4/29/14.

[7] Parliament of Canada. http://www.parl.gc.ca/content/sen/committee/371/soci/rep/repintmar01part1-e.htm 5/7/14.

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4,715 NH Obamacare Enrollments in February and an Updated Look at the Pool

March 2014

 Josh Elliott-Traficante

5,417 Granite Staters selected an insurance policy on the federal exchange in February. Since open enrollment began in October a total of 21,578 people have selected coverage. Overall, there has been very little change in the demographics of the pool since January, which is to be expected since as the pool grows larger, the harder it is to change the numbers.

Plans Purchased:

Looking at the different polices purchased (Bronze, Silver, Gold, Platinum, Catastrophic) there was only a minor change to the percentage share of Gold level plans, likely due to rounding. Otherwise, the market shares of the other plans remained unchanged.

 

Bronze

Silver

Gold

Platinum[i]

Catastrophic

New Hampshire

23%

59%

17%

N/A

1%

Change over Jan

0

0

-1

N/A

0

 

A Demographic Look:

The New Hampshire pool saw a small increase in the proportional size of the 26-34 cohort, mirroring single percentage point increases in the 18-25 and the 35-44 cohorts realized last month. As with last month, there was also a corresponding decrease in the 55-64 cohort.

The likely cause is, generally speaking, the older the person, the more insurance coverage is valued. Those were the people most likely to select policies in the early months of open enrollment, while younger people have delayed until the final months.

Despite the increase in younger enrollments, the 18-34 cohort saw its share of the pool only increase a single percentage point to 24%. Nationally the share remained unchanged at 25%, still well short the intended target of 40%.

 

<18

18-25

26-34

35-44

45-54

55-64

>65

18-34

New Hampshire

5%

8%

16%

14%

23%

34%

0%

24%

Change over Jan[ii]

+1

0

+1

0

0

-2

0

+1

 

Subsidies:

The percentage receiving subsidies remained unchanged from January, at 74%. For the current pool, that translates to 16,038 receiving a subsidy, while 7,610 are not.

Looking at subsidy data, cross referenced with plan level, there was little change over last month. For those who did not qualify for subsidies, there was roughly an equal distribution between the three metal plans, with a small number opting for a catastrophic plan.[iii] Those receiving subsidies overwhelming continue to choose Silver level plans over the other three options. (Look for a piece coming soon explaining why)

New Hampshire

Bronze

Silver

Gold

Catastrophic

With Subsidies

19%

68%

13%

0%

Without Subsidies

35%

30%

31%

4%

Who Has Paid?

One glaring hole in the data released from HHS is the percentage of people who have paid their first month’s premiums. The law requires insurance companies to carry policy holders for three months without payment before cancelling their policies. For those receiving coverage starting in January, anyone being dropped would not show up in the data until after the open enrollment period ends.

Despite claims from HHS that they do not know how many have paid, insurance industry officials contend that they actually do. Insurance companies estimate that nationally, between 15% and 20% have yet to pay for their premiums.


[i] Note: Anthem does not offer any Platinum level plans in New Hampshire

[ii] Note: Percentages may not equal 100% due to rounding

[iii] Note: Catastrophic level plans are only available for purchase by those age 30 and below.

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Can Medicaid Expansion Decrease the Number of Uninsured in New Hampshire?

By Parker Bolt

February 2014

In New Hampshire, the state’s Medicaid program is designed for parents, children, elderly and the disabled who meet certain financial guidelines. Every year, the state spends 39% ($2.1 billion) of its state budget on healthcare and social services, of which $700 million state funds go to Medicaid.  In comparison, California spends only 33% of its budget providing the same services with a population 29 times bigger than New Hampshire. California provides Medicaid for approximately 30% (6.8 million people) of its population[1], while N.H. provides for around 10% (137,000 participants) of its population.[2]

The Cost of Expansion:

To fully expand Medicaid in NH according to the Affordable Care Act, over seven years it would cost the state an additional $85 million dollars, but it is critical to break down this number on a yearly basis. The first two years save New Hampshire $10 million; this is the period that the Federal government pays 100% of Medicaid costs. After this though, the state first pays 5%, then 10% of the cost. Year six will cost New Hampshire $27 million, and when N.H. settles into its 10% share of the pay in year seven, the cost will be at least $40 million annually[3]. Conversely, if Medicaid is not expanded, over seven years, New Hampshire’s Medicaid costs would be reduced by $65 million-a swing of $150 million. It may not sound like a big increase but considering how much N.H. already spends on Medicaid as a percentage of its annual operating budget (which is 13%), $85 million is quite a large sum. The first 5 years are designed to entice a state into expansion, with savings for the first two years or so, gradually increasing a state’s share to 10% in the seventh year. Looking beyond seven years, the $40 million yearly cost is not simply a onetime expense but a permanent annual increase.

Lessons from Arizona and Maine:

A number of states have previously expanded Medicaid, but Arizona’s and Maine’s expansions are of particular interest because they expanded to the same population of childless adults that Medicaid expansion under the ACA seeks to cover. (Arizona and Maine expanded to 100% of Federal Poverty Level (FPL)[4] while ACA expansion covers up to 138% of FPL.)

When Arizona decided to expand Medicaid in 2000, it estimated that it would cost $2 billion based upon an estimated number of additional enrollees over a ten year period. In 2010, Arizona expected 47,000 parents to enroll; instead, 150,000 enrolled. They also estimated 75,000 childless adults to enroll in the same year, instead 206,000 enrolled[5]. Expansion cost $8.4 billion, just between 2002 and 2008 alone. Childless adults, who are a large part of the population that would be eligible, cost between two and four times as much as parents and children. All of this occurred, even though Arizona also only raised the Medicaid eligibility level to 100% of the FPL as opposed to 138% current proposed.

Arizona spent four times the originally estimated cost and received three times the estimated enrollment, yet the number of uninsured did not drop from pre-expansion levels. In fact, from 2005 to 2010 the number of uninsured actually increased[6]. However, the percentage of the population covered by private insurance sank from 62% in 2002, to 56% in 2010; while Medicaid coverage increased from 13% to 20%.

Similarly, after expansion, Maine’s percentage of population on private insurance dropped from 66% in 2002 to 59% by 2010, while Medicaid rose, and the uninsured stayed at its 2002 levels. Maine’s budget could not sustain the number of Medicaid enrollees, and there are 24,000 people on a waiting list for coverage under the program. Both Maine and Arizona saw a 7 percentage point decrease in coverage by private insurance, and a corresponding 7% percentage point increase in Medicaid. This means that the increase in Medicaid enrollments came from individuals who dropped private insurance and switched to Medicaid, not from the ranks of the uninsured. This phenomenon is referred to as the “Crowd Out Effect.” Of course, the intended purpose of Medicaid expansion is to provide coverage for the uninsured, not to shift people off of private coverage and onto government coverage.

Some argue that if the rate of uninsured by decreased even a single percentage point, then the cost would be worth it, however, in neither Arizona nor Maine did the uninsured decline. Both states independently expanded Medicaid, with the virtuous goal of expanding coverage to the uninsured population, yet both greatly underestimated the cost and were rewarded with a 7% percentage point decrease in the privately insured and no change in the rate of uninsured.

Conclusions:

There are four main points for New Hampshire legislators should ponder when assessing whether to expand Medicaid. First, the cost to New Hampshire must be considered by looking at year seven and beyond and by planning for increased costs due to Crowd Out. The best method to do this is to measure the increased costs and enrollments in Arizona and Maine and to increase our projections accordingly. Secondly, the problem of Crowd Out needs mitigated. Third, what if Medicaid Expansion proves to be unsuccessful? Once the government has promised people access to Medicaid, they cannot in good faith deny them. In practice repealing or scaling-back Medicaid expansion in a state is near impossible, hence we should consider Medicaid expansion permanent. Fourth, can Medicaid Expansion even accomplish its goal? Arizona and Maine did not expand as far as the ACA requirements, and still they encountered greatly increased costs with no drop in the rate of uninsured to show for it. Given the results in Arizona and Maine, the Expanded Medicaid does not accomplish its goal.


[1]Medicaid.gov.  http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-State/california.html

[2]Medicaid.gov. http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-State/new-hampshire.html

[3]Lewin Group. An evaluation of the impact of Medicaid expansion n New Hampshire. http://www.lewin.com/~/media/Lewin/Site_Sections/Publications/NHMedicaid%20Expansion.pdf

[4] Federal Poverty Level is $19,530 a year for a household of three, this is the 2013 level

[5]Medicaid Cure: Policy Brief #3. March 11,2013. Medicaid expansion: We already know how this story ends. http://www.medicaidcure.org/wp-content/uploads/2013/03/Medicaid-Expansion-We-Already-Know-How-the-Story-Ends-Medicaid-Cure-Policy-Brief-31.pdf

[6] Medicaid Cure: Policy Brief #3. March 11,2013. Medicaid expansion: We already know how this story ends. http://www.medicaidcure.org/wp-content/uploads/2013/03/Medicaid-Expansion-We-Already-Know-How-the-Story-Ends-Medicaid-Cure-Policy-Brief-31.pdf

 

 

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