Thursday, December 3, 2009

How to bury a warning to 45 million people

First we have this  article prominently placed in the Washington Post on November 14th, which should  have been the beginning of this report snowballing in importance.   

It describes a report on the effect of House Bill HR-3962 by the Chief Actuary of the Center for Medicare and Medicaid Services, CMS a division of the Department Health and Human Services. From the Washington Post article:

A plan to slash more than $500 billion from future Medicare spending -- one of the biggest sources of funding for President Obama's proposed overhaul of the nation's health-care system -- would sharply reduce benefits for some senior citizens and could jeopardize access to care for millions of others, according to a government evaluation released Saturday.


More generally, the report questions whether the country's network of doctors and hospitals would be able to cope with the effects of a reform package expected to add more than 30 million people to the ranks of the insured, many of them through Medicaid, the public health program for the poor.

In the face of greatly increased demand for services, providers are likely to charge higher fees or take patients with better-paying private insurance over Medicaid recipients, "exacerbating existing access problems" in that program, according to the report from Richard S. Foster of the Centers for Medicare and Medicaid Services.

Two agencies with different dedications to precision, CMS and and CBO

The Actuarial Department of the CMS performs some of the same functions as another more well known agency, The Congressional Budget Office, CBO. It is useful to compare how these two agencies reported on a component of the House Bill, a federally sponsored long term disability program called CLASS.

First the CBO from it's analysis of HR-3962 (pg 13):

As noted earlier, the CLASS program included in the bill would generate net receipts for the government in the initial years when total premiums would exceed total benefit, but it would eventually lead to net outlays when benefits exceed premiums.  As a result, the program would reduce deficits by $72 billion during the 10-year budget window and would reduce it a smaller amount in the ensuing decade....In the decade following 2029, the CLASS program would begin to increase budget deficits.  However the magnitude of the increase would be fairly small compared with the effects of the bill's other provisions, so the CLASS program does not substantially alter CBO's assessment of the longer term effects of the legislation.

Compare this with the actuarial report from CMS
(pg 11)
In general, voluntary, unsubsidized, and non-underwritten insurance programs such as CLASS face a significant risk of failure as a result of adverse selection by participants.  Individuals with health problems wold be more likely to participate than those in better than average health.....a classic "assessment spiral" or "insurance death spiral" ......there is significant risk that the problem of adverse selection would make the CLASS program unsustainable.

The CBO ignores the fact that this program is required to stand alone, precluded from being subsidized by federal funds.  In this way it is similar to the same requirement of the "public option" for general health insurance.  Yet, the CBO scores the revenue from premiums that should be treated as reserves as reducing the deficit,  and then dismisses the anticipated cost when payments to subscribers will be due as "fairly small compared with the effects of the bill's other provisions."   This enables them to ignore the ultimate actuarial inconsistency, and the specific requirement in the bill that this title be evaluated independently.

In contrast the CMS actuarial report describes the program for what it is,  "a classic "insurance death spiral" open to "adverse selection" that would make the CLASS program unsustainable without breaching the stricture of the program standing on its own.   Also not mentioned by either agency, is that because this will require future support, a bailout if you will, the premiums will be cheaper than those of the private insurance industry that are required to be actuarial sound.   This will  increase  the expected growth of this program, and the scale of the bailout when the time comes for it. 

The process of De-Legitimization of the CMS actuarial report

The 27 page actuarial report by Mr. Foster, the product of his 80 person department consisting of economists and actuaries, with additional outsourcing of technical issues, has been excluded from any mention on the CMS, his agencies, website. (After my emailing their Freedom of Information department, after 12 days it was placed on their site) The initial exclusion of this report impeded this valuable report from informing the discussion of this most important legislation. 

Since this report was requested by the Republican Minority in the house, it is only available through their website, and that of "the hill" giving the erroneous impression that this non partisan report is a Republican product. Only the Washington Post and The Hill did a credible job in presenting this report.  The Post article had hundreds of readers comments, including many with the message, "What do you expect from a report requested by Republicans."  The lack of logic doesn't effect the power of the negative association.

The Associated Press Story, picked up by many newspapers including the N.Y.Times, had this headline: GOP Leaps on Study of Rising Health Care Costs, subordinating the content of the report to the "political football" aspect, the slant that dominates all political issues among a mass media desperate for audience share.

AARP, the multi tentacled insurance company-lobbyist has bought into this bill. They are ignoring this actuarial report, not even mentioned on its website.  And as of this writing, the NCPSSM the largest organization dedicated to promoting the interests of medicare beneficiaries does not mention this report on their web site.  This has ironically left promulgation of this report to the extreme right group,, whose spokesman, singer Pat Boone, is almost a parody of radical conservative fundamentalism.   So, the most scientific non partisan report from the government Medicare agency is presented to the public exclusively  in an evolution denying, anti-government package.   

The formality of this actuarial report requires abridgment to be easily understood.  However such translation to the vernacular is made suspect by being placed on a Republican website, along with the report not even being acknowledged by Foster's own agency,  which is under the auspices of the Department of Health and Human Services.  And the TV campaign by is almost designed to associate any actual defects of this bill with the most irrational convictions of the extreme right.  

Incredibly, we are seeing a sharp reduction of Medicare funding by the party of LBJ, one even more abrupt than would be required by demographic shifts over the decades.  The shift by the Democratic party, the creators of this senior safety net, to focus on other groups at the detriment of Medicare clients is both counter intuitive and difficult for the public to accept.  To make the "cognitive dissonance" even greater, it is the Republicans, the party who vehemently fought the original bill, who are publicizing the actual cost to Medicare beneficiaries of this bill..  This transformation, this disconnect between the goals of the two parties is difficult to convey, especially in a bill as monumentally complex as this one.

Limits on ability to prognosticate made clear by CMS actuarial report.

Actually both the WaPo article and the AP version did not report a critical conclusion of the report (pp 4):

The actual future impacts of H.R. 3962 on health expenditures, insured status, individual decisions and employer behavior are very uncertain. The legislation would result in numerous changes in the way that health care insurance is provided and paid for in the U.S., and the scope and magnitude of these changes are such that few precedents exist for use in estimation. Consequently, the estimates presented here are subject to a substantially greater degree of uncertainty than is usually the case with more routine health care proposals.

This is an acknowledgment by this professional that there is no way of knowing to any degree of accuracy what this legislation actually will cost, or how effective it will be. This caveat would apply just as aptly to any estimate by the Congressional Budget Office or other agency. As I personally have written, there is no reason to believe that those entities that will be adversely affected by this legislation will not take action, either by market choices or pressure on Congress to alter the proposed effect.

The CMS report on the bill's effect on Medicare:

(pg 8 par. 4) It is important to note that the estimated savings shown in this memorandum for one category of Medicare proposals may be unrealistic. is doubtful that may institutional providers. acute care hospitals, skilled nursing facilities, and home health agencies, could improve their productivity (to compensate for lower medicare payments)....thus, providers for whom Medicare constitutes a substantive portion of their business could find it difficult to remain profitable and might end their participation in the program, possibly jeopardizing access to care for beneficiaries.

As in warfare, the truism that, "no battle plan survives contact with the enemy," holds true for contact with special interests who are supposed to be conquered, or controlled, by legislation. Actually the above was express by Mr. Foster in formal actuarial language. In this paragraph he describes the expected consequences when additional demand meets fixed supply:

(pp15, par 3)  In estimating the financial impacts of H.R.3962, we assumed that the increased demand for health care services could be met without market disruptions.  In practice, supply constraints might interfere with providing the services desired by the additional 34 million insured persons.  Price reactions-that is, providers successfully negotiating higher fees in response to greater demand-could result in higher total expenditures or in some of this demand being unsatisfied. Alternatively, providers might tend to accept more patients who have private insurance and fewer Medicaid patients  (AR note: This will apply for Medicare patients also, especially if the provision of this bill for parity of payment for primary physicians with Medicaid is implemented) exacerbating existing access problems for the latter group. Either outcome (or a combination of both) should be considered plausible and even probable. 

From a consummate professional actuary who avoids impassioned verbiage, this statement, "Either outcome (or a combination of both) He's talking about shortages and higher prices should be considered plausible and even probable" is the equivalent of shouting a warning to the rafters for all to hear.

"Bending the cost curve of health care" the ultimate goal of this reform

While universal coverage is the goal, President Obama and all experts agree that this will only be possible if costs are lowered from the current rate of twice the general inflation rate. Here's what the report has to say on this vital point (pg 10):
Comparative Effectiveness Research

We reviewed literature and consulted experts to determine the potential cost savings that could be derived from comparative effectiveness research (CER), We found that the magnitude of potential savings varies widely depending upon the scope and influence of comparative effectiveness efforts. Small savings could be achieved through the wide availability of non-binding research, while substantial savings could be generated by a comparative effectiveness board with authority over payment and coverage policies.

Such a board with authority over policy, even as a possibility, has been explicitly excluded by President Obama, as this is exactly what he meant by promising that "nothing will come between you and your doctor"

The report continues giving the estimate based on two important measures, one is the important aggregate of all Medical expenses, both individual and all levels of government called "National Health Expenditures or NHE, the other is the savings in Federal Outlay, which is represented by the national deficit:

Our interpretation of the CER provisions in H.R. 3962 is consistent with the least stringent of these levels of influence (AR note, as promised by the President and in the law that was passed) translating into an estimated total reduction in national health expenditures of $8 billion for calendar years 2010 through 2019......

Thus, according to this report, the centerpiece of this Health Reform Effort, "bending the cost curve" for the first decade will amount to $8 billion dollars. While that may sound like a considerable amount, the total of NHE for this period will be approximately $20,000 billion. To put it in everyday terms that's like someone offering a rebate on a purchase, saying that it will be sizable and make a difference in its affordability; and after you paid a thousand dollars, the rebate, the savings, came to 40 cents. This is the same ratio of "bending the cost curve of medical expense" that is reasonable to expect from all of the cost savings in the Health Care Reform bill as represented by the version passed by the House of Representatives.


This CMS actuarial report will go not only unread but largely unreported.   Those whom this report focuses on, Medicare beneficiaries, will not read about it in their monthly AARP magazine, nor will it be discussed on cable news, as the details are just too complex.   The ultimate insult to a media editor or programmer is not that the content is trivial, or in poor taste, or that it insults the intelligence of the audience.   These  are all acceptable.   The ultimate fear is "eyes glazing over" audience tuning out, or not buying a publication,  because the concepts are too complex and devoid of instant emotional response.

While this report of the House Bill may seem to be superseded by the current debate on the Senate Bill, this is not the case. The two bills from each house of congress must be reconciled, so the House bill will be a major part of any combined bill that must be passed by both houses. Since the Senate bill will be in flux right up to the time it is passed, and the conference committee of both houses work in secret, the final combined legislation will be presented to both houses with little time for serious analysis of such transformational legislation with hundreds interrelated clauses. This inability to provide a serious evaluation of legislation before it is voted on is described in the article from The Hill on this report on the house bill:

Though House Republicans pressed to have this analysis completed before the lower chamber voted on the Democrats' sweeping healthcare reform bill last week, it was not ready until late Friday. Chief CMS Actuary Richard Foster, who prepared the report, recently told The Hill that he and his staff had only a few days to review the bill before it was voted on.

While I focus on the effect of this Health Care Reform Legislation on Medicare, this bill will transform our country in profound ways for all. Shamefully, the Democrats are attempting, with considerable success, in keeping the very best, the most scientific evaluations of the effects of this bill from informing the public debate.

Nothing illustrates this phenomenon more than the short life, and disappearance of this most important actuarial report warning of the danger of debasement of a health care program for retirees that had seemed, only months ago, to be a staple of American life.

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