Should healthy peo­ple have to pay for chronic dis­eases?

Health-care economist David Cut­ler says Paul Ryan wants to shift the bur­den, but that wouldn’t con­trol costs

The Washington Post Sunday - - OUTLOOK - David Cut­ler is the Otto Eck­stein pro­fes­sor of ap­plied eco­nomics at Har­vard Univer­sity. He was an eco­nomics ad­viser to Pres­i­dent Bill Clin­ton and a health-care ad­viser to Barack Obama’s first pres­i­den­tial cam­paign. Twit­ter: @Cut­ler_e­con

House Speaker Paul Ryan re­ceived a con­sid­er­able dose of crit­i­cism for his com­ment that “the fa­tal con­ceit of Oba­macare” is that “the peo­ple who are healthy pay for the peo­ple who are sick.”

“This is lit­er­ally how all in­sur­ance works,” Charles Pierce wrote for Esquire, call­ing Ryan a “rube.” The Huff­in­g­ton Post of­fered a les­son in “In­sur­ance 101” for Ryan, ex­plain­ing that “younger peo­ple, who tend to be health­ier than older peo­ple, pay for health in­sur­ance like ev­ery­one else. They’ll rely on it when they need it, prob­a­bly more when they’re older and there are younger, health­ier peo­ple fil­ing in be­hind them.”

Crit­ics were prob­a­bly too quick to dis­miss Ryan’s re­marks as ig­no­rant. What he said re­flects a long-stand­ing vi­sion of many on the right about who should pay for the chron­i­cally ill. Spread­ing the costs so that healthy peo­ple pay more than what their own care in a given year prob­a­bly will war­rant is one op­tion. But that’s not the so­lu­tion Repub­li­cans have tra­di­tion­ally fa­vored. Their an­swer for health care, as for old-age sup­port, is to put a greater bur­den on in­di­vid­u­als to pay for the costs they in­cur. In that mode of think­ing, the un­rav­el­ing of risk pools is a virtue, not a vice.

Even un­der this phi­los­o­phy, though, Ryan’s Amer­i­can Health Care Act is fa­tally flawed: It does noth­ing to ad­dress the high and ris­ing cost of chronic ill­ness.

Al­though dis­cus­sions about health care often in­volve talk about un­cer­tainty and risk, the re­al­ity is that a large share of med­i­cal costs are pre­dictable. Con­sider the mil­lion-plus peo­ple in the United States with rheuma­toid arthri­tis. RA, as it is known, is an au­toim­mune dis­ease. It is much less com­mon than its more preva­lent name­sake, os­teoarthri­tis, but the symp­toms are ev­ery bit as bad: pain, stiff­ness, swelling and loss of func­tion in af­fected joints. There is no cure for RA, but treat­ment can re­duce pain and im­prove func­tion­ing. The drugs of choice cost $10,000 to $30,000 an­nu­ally (most are still patent-pro­tected), with prices ris­ing at dou­ble-digit rates. Not sur­pris­ingly, the cost of treat­ing RA is soar­ing. More than $100 of the pre­mium paid by ev­ery en­rollee in the Af­ford­able Care Act’s ex­changes goes to­ward treat­ment of in­flam­ma­tory dis­ease, in­clud­ing RA and re­lated con­di­tions.

Health care is a se­ries of RAs: se­vere ill­nesses that are ex­pen­sive and un­sur­pris­ing. Eighty­four per­cent of med­i­cal spend­ing is for the 50 per­cent of peo­ple with at least one chronic dis­ease; half of spend­ing is for the 16 per­cent with three or more chronic con­di­tions. Peo­ple with chronic dis­eases know they will have them for­ever; those with­out have a low chance of con­tract­ing one in any year. Nearly half of peo­ple who are in the top 10 per­cent of spend­ing in one year are in the top 10 per­cent the next year.

The cen­tral ques­tion for health pol­icy is who should pay for the pre­dictably ex­pen­sive. Healthy peo­ple may be asked to pay more than their own sit­u­a­tions war­rant — through higher in­sur­ance pre­mi­ums, taxes for Medi­care and Med­i­caid, or markups on the drugs and ser­vices they re­ceive. Doc­tors, hos­pi­tals and phar­ma­ceu­ti­cal com­pa­nies may be asked to shoul­der costs through lower pay­ments. Or the chron­i­cally ill them­selves may be asked to pay what they can — and to go with­out care they can’t af­ford.

Amer­ica has never had a co­her­ent pol­icy for the chron­i­cally ill. The el­derly are cov­ered by Medi­care, which has ex­panded pe­ri­od­i­cally in re­sponse to the grow­ing costs of chronic dis­ease; wit­ness the ad­di­tion of the Medi­care drug ben­e­fit in 2003. In the non-el­derly pop­u­la­tion, the chron­i­cally ill were his­tor­i­cally cov­ered through em­ploy­ment-based health in­sur­ance, which had all work­ers pay roughly equal amounts for cov­er­age. Pool­ing em­ploy­ees is a nat­u­ral way to share the cost bur­den — firms hire both healthy peo­ple and sick.

But as fewer busi­nesses of­fered gen­er­ous ben­e­fits, or any ben­e­fits at all, that model for cost-shar­ing went into de­cline. More peo­ple found them­selves need­ing to buy health cov­er­age on the in­di­vid­ual mar­ket, where in­sur­ers were able to dif­fer­en­ti­ate healthy peo­ple from chron­i­cally sick peo­ple and charge the sick more. It’s not that in­sur­ers nec­es­sar­ily be­lieve the sick should bear the bulk of the cost bur­den. But if they don’t of­fer healthy peo­ple cheaper plans, those peo­ple will leave for an in­surer with a more com­pet­i­tive rate — or drop out of the health in­sur­ance mar­ket al­to­gether. The result is a sys­tem very much in the con­ser­va­tive mold, where peo­ple mostly pay for their own care.

More-lib­eral states strug­gled against this be­fore Oba­macare but were only mod­er­ately suc­cess­ful. When pre­mi­ums for sick and healthy were com­pressed, the healthy dropped out. Some states es­tab­lished sub­si­dized high­risk pools for the chron­i­cally sick, but the costs for state gov­ern­ments were so high that most wound up putting lim­its on en­roll­ment. In other cases, Med­i­caid and fed­eral dis­abil­ity in­sur­ance be­came the in­sur­ers of last re­sort.

The Af­ford­able Care Act is based on the idea that pooled in­sur­ance is a bet­ter way to ad­dress the chron­i­cally sick. Some of us are for­tu­nate and oth­ers are not. If we all pay into the sys­tem, the costs for the less for­tu­nate are spread across ev­ery­one. The ACA ac­com­plishes this through a se­ries of co­or­di­nated poli­cies. First, in­sur­ers are re­quired to cover all their cus­tomers at the same price, with rea­son­ably gen­er­ous ben­e­fits. Sec­ond, ev­ery­one is re­quired to have cov­er­age. The healthy are not al­lowed to free-ride if they hap­pen to need care, or to avoid the costs of the less for­tu­nate. Third, taxes on high-in­come peo­ple were in­creased so in­sur­ance pre­mi­ums and out-of-pocket costs could be re­duced.

Repub­li­cans re­ject each of th­ese prin­ci­ples. Their ob­jec­tions to the in­di­vid­ual man­date are long-stand­ing, and the AHCA would re­peal it.

Many Repub­li­cans also take aim at riskpool­ing. Sim­i­lar to Ryan’s idea that the healthy shouldn’t have to pay for the sick, Rep. John Shimkus (R-Ill.) ques­tioned whether men should have to pay for health in­sur­ance that cov­ers preg­nancy. And the new ad­min­is­tra­tor of Medi­care and Med­i­caid ar­gued in her con­fir­ma­tion hear­ings that ma­ter­nity cov­er­age should be op­tional. The GOP has long railed against “man­dated ben­e­fits” such as re­quire­ments to cover men­tal health care and pre­scrip­tion drugs.

Since Repub­li­cans are try­ing to pass the AHCA through the bud­get rec­on­cil­i­a­tion process, that lim­its the scope of the leg­is­la­tion to spend­ing pro­vi­sions only, and it means rel­a­tively lit­tle can be done to re­duce pool­ing for now. The AHCA would re­peal the “ac­tu­ar­ial value” re­quire­ment that in­sur­ers have to cover a min­i­mum share of costs, but it would leave in place the es­sen­tial ben­e­fits that must be cov­ered and the out-of-pocket max­i­mum that in­sur­ers can make peo­ple pay. Costs would in­crease for peo­ple with chronic ill­ness, but not as much as a whole­sale re­peal of the ACA would al­low.

The lim­its of rec­on­cil­i­a­tion bills are one of the main rea­sons peo­ple would lose cov­er­age in the near term un­der the AHCA. With­out the man­date to buy in­sur­ance, but with the re­quire­ment that in­sur­ers cover ex­pen­sive peo­ple at the same rate as the healthy, the Con­gres­sional Bud­get Of­fice projects that 6 mil­lion peo­ple (most of them healthy) will choose to leave the Oba­macare ex­change mar­kets.

Repub­li­cans promise more changes over time to lessen the need for the healthy to sub­si­dize the sick. The Trump ad­min­is­tra­tion has pledged to mod­ify the “es­sen­tial health ben­e­fits” through reg­u­la­tion, while Ryan has promised ad­di­tional leg­is­la­tion to re­duce manda­tory risk-pool­ing. The CBO fore­casts a re­turn of some young and healthy peo­ple to the non­group mar­ket over time.

But re­duc­ing the pay­ments for the healthy nec­es­sar­ily in­creases them for the sick. If in­sur­ance is al­lowed to ex­clude the “spe­cialty drugs” taken by peo­ple with rheuma­toid arthri­tis, peo­ple with RA could be stuck with bills of $30,000 an­nu­ally. With op­tional ma­ter­nity cov­er­age, preg­nancy might come with a $15,000 bill — a difficult way to start life with a new­born. And there is already worry that peo­ple with men­tal health and sub­stance abuse dis­or­ders will be un­able to ac­cess care, even as the opi­ate cri­sis con­tin­ues to rage.

With­out good ex­change options, many of the chron­i­cally ill would prob­a­bly seek to en­roll in Med­i­caid. But here is where the third Repub­li­can ob­jec­tion comes in — the ob­jec­tion to gov­ern­ment spend­ing more on health care. The cur­rent ver­sion of the AHCA would cut Med­i­caid se­verely; af­ter a decade, spend­ing would be 25 per­cent lower. Already, Med­i­caid pay­ments to providers are less than those for Medi­care and pri­vate in­sur­ance. There is no es­ti­mate of in­ef­fi­ciency in Med­i­caid that any­where near this high.

Med­i­caid cuts would be par­tic­u­larly harm­ful to the chron­i­cally ill, who ac­count for two-thirds of the pub­licly in­sured pop­u­la­tion. Pay­ment rates to doc­tors and hos­pi­tals would fall, and el­i­gi­bil­ity cri­te­ria would be tight­ened. The CBO re­port es­ti­mates that 14 mil­lion peo­ple would lose Med­i­caid cov­er­age over the next decade.

Be­yond the moral im­pli­ca­tions, the cuts to Med­i­caid would set up a cruel choice. With qual­i­fy­ing in­come lev­els for the pro­gram likely to fall and dis­abil­ity in­sur­ance already lim­ited to those in­ca­pable of much work, many chron­i­cally ill will sim­ply drop out of the la­bor force.

Those who re­main em­ployed will be in­creas­ingly unin­sured. Of course, this does not re­lieve so­ci­ety of the prob­lem of pay­ing for at least some of their costs. The unin­sured often re­ceive “free care” from hos­pi­tals, doc­tors and some phar­ma­ceu­ti­cal com­pa­nies. As even con­ser­va­tives can at­test, how­ever, free care is never truly free. The in­sured pay for it through markups of med­i­cal bills, and tax rev­enue gets di­rected to the poor. In the AHCA, for ex­am­ple, there is $31 bil­lion for ad­di­tional Med­i­caid pay­ments to hos­pi­tals that see a large share of low-in­come pa­tients; that money was not needed un­der the ACA.

The only way so­ci­ety can avoid the an­nual $10,000-$30,000 drug costs for the rheuma­toid arthri­tis pa­tient is to re­duce the cost of care, not just shift the cost from the healthy to the sick. In the case of RA, this means low­er­ing drug prices. For dis­eases such as di­a­betes and heart dis­ease, it means preven­tion as well as treat­ment.

The Af­ford­able Care Act posits that cost sav­ings can come from pay­ing physi­cians not to pro­vide more care but to pro­vide bet­ter care. With re­im­burse­ment based on value and not vol­ume, preven­tion is a way for doc­tors to earn more. The AHCA would not re­peal th­ese val­uere­lated pro­grams, but nei­ther would it fur­ther them. The Trump ad­min­is­tra­tion has not said how it plans to ad­dress the value-based pur­chas­ing move­ment.

The most com­mon idea for cost sav­ings that Repub­li­cans tout is to al­low in­sur­ers to sell in­sur­ance across state lines, with the idea that com­pet­i­tive com­pa­nies will fig­ure out how to bet­ter han­dle the costs of the chron­i­cally ill. Be­cause of the rules of rec­on­cil­i­a­tion, this pro­posal is not in the AHCA; Repub­li­cans have promised to bring it up later (with the changes in re­quired ben­e­fits). Alas, ev­i­dence sug­gests that this pol­icy would have no or min­i­mal ef­fect on med­i­cal spend­ing. In­deed, it could lead to higher costs for the per­sis­tently ill, as state reg­u­la­tions re­quir­ing cov­er­age of ex­pen­sive med­i­ca­tions would be over­rid­den by fed­eral law.

An­other idea Trump sup­ports is to lower costs by hav­ing Medi­care ne­go­ti­ate drug prices with man­u­fac­tur­ers. This would have an enor­mous im­pact on peo­ple with rheuma­toid arthri­tis, a good share of whom are on Medi­care. Not sur­pris­ingly, this pro­posal is more pop­u­lar among Democrats than among Repub­li­cans, who fear the weak­en­ing of in­cen­tives for re­search and de­vel­op­ment of new drugs. It is un­clear if Trump can get his party to re­con­sider its po­si­tion.

Democrats and Repub­li­cans agree that we should do ev­ery­thing we can to re­duce the preva­lence of chronic ill­ness. But be­yond that, fi­nanc­ing health care in­volves difficult choices. The prob­lem with the AHCA is that by pre­tend­ing ev­ery­one can have ev­ery­thing, it avoids the need to grap­ple with per­sis­tently high costs. As any ther­a­pist can at­test, avoid­ing trade-offs does not make them go away.

In the end, that eva­sion is what the CBO ex­posed, es­ti­mat­ing that 24 mil­lion peo­ple would lose cov­er­age un­der the GOP re­place­ment plan in the next 10 years and mil­lions more would face higher costs. The fail­ure to ad­dress the per­sis­tently ill — a moral and eco­nomic fail­ure — is the rea­son no amount of tin­ker­ing, reg­u­la­tion or sub­se­quent leg­is­la­tion will ever fix what is wrong with Ryan’s plan.


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