Sponsors create price-elastic demand. Next, the sponsor must
seek to create price-elastic demand. (A seller faces inelastic
demand if the seller can increase revenue by raising price, and
elastic demand if the seller increases revenue by reducing price.)
For there to be an incentive for health plans to cut price, demand
must be so elastic that the additional revenue gained exceeds the
additional cost of serving more subscribers. Managed competition is
about creating such price elasticity.14
is absolutely classic in terms of the intellectual fraud practiced
by Economists. The only way to increase revenue while reducing
price would be to pressure suppliers to reduce their price which
forces suppliers (providers in this case) to reduce quality since
the minimum level of services is fixed. The only alternative
for the insurers is to increase the price on the premium benefit
plans that subscribers must pay for personally. Ultimately,
this will cause the insurance companies to raise the prices for the
premium plans until the point when the attrition level of
subscribers exceeds the necessary level of subscriber base to make
the plan economically viable. In other words, it's a squeeze
play to cause the phase out of health insurance as we've known it.
At that point, the "competition" would be on the base level of
services which would force a decrease in quality of service.
And that's why I called this the "managed decision" system - not
On Page 9
of Enthoven's paper, under the section of price-elasticity, he
describes the "tools" for accomplishing price-elasticity. In
those paragraphs, he says some very notable things concerning his
coverage contract. Standardization should deter product
differentiation, facilitate price comparisons, and counter market
segmentation. (Deception again -
if there is no product differentiation then the subscribers will
have to choose based on image of the facilities because that's the
road the providers will take. They will create the illusion of
quality while "going cheap" on the internal costs of operation.
On the issue of the market segmentation that he wants to "combat"
the goal is eliminate subscriber choice in terms of covered benefit
options so that the only decision will be on price. That's why
this is a "managed decision" system and not managed competition.
His last reason for requiring standardization was very difficult to
parse so I had to write it out as a complete thought and then
is his exact statement:
"The fourth is that biased risk selection can reduce demand
elasticity for health plans that enroll a favorable mix of risks."
Rewrite: The reason for as much standardization as possible is
biased risk selection selection of subscribers
based on health status can reduce demand elasticity
the ability of health plans to increase revenue while reducing price
for health plans that enroll a favorable risk mix
all persons without regard for pre-existing conditions.
use of the term "biased risk selection" is misleading. A
normal translation of biased risk selection would be that the
insurance companies exclude people with pre-existing conditions
because they already know that their costs would increase if these
people were offered insurance so the bias is against people with
health problems. He is using the term "biased risk
selection" in the sense the bias is in favor of people with health
problems - which means actually unbiased risk selection on the part
of the insurers. And he did the same kind of inversion
on the "favorable risk mix" phrase. Favorable to whom?
In this context, favorable would mean the unbiased offer of
insurance to all eligible applicants.
effect, what he is saying in that very brief statement is that the
reason for standardization is so that the insurance companies won't
get hurt by taking all applicants without regard to pre-existing
conditions. Implicit in what he said is that the standard
package of benefits will be on the "sure thing" services.
Those services would be the "wellness" services. The annual
physical, the pap smear, vaccinations for the kiddies, etc.
And I know that's true from my
2008 research on the Healthy Americans Private Insurance (HAPI)
Plan and the Healthy Americans Act (HAA!) both of which were
incorporated into the last health care reform package that was
the rules for managed competition (decisions) will do is to cause
provider groups to shift patients with chronic conditions to
specialty providers for the care of specific chronic conditions.
Examples would be diabetes, asthma, obesity, etc. This
aggregation of patients by condition is a kind of pre-sort isolation
of patients that will facilitate their use as guinea pigs for
genetics research which is being billed as "personalized medicine"
information. People will be reluctant to switch from Plan A to
Plan B to save $20 per month if they have no information that Plan B
is safe for their health. The Jackson Hole Group proposes creation
of a national Outcomes Management Standards Board that would set
standards for outcomes reporting.15
Sponsors should play a role in making such information accessible to
the local market. Sponsors are also the appropriate agencies to
survey their sponsored populations regarding experience with health
plans and to publish the results for consumers.
Control of information is control of perception. The survey's
will be meaningless because for most people, their encounters will
be for the "wellness" services. With the triage of patients
with serious conditions and the "Outcomes Management Standards
Board" setting the standards for reporting, it's pretty safe
to assume that "the standards" won't include any information on the
services of the chronic condition specialties that are external to
the "wellness" providers. If they do include information, the
information will be limited in scope and content.
Page 9 - Choice of plans at the individual level &
Sponsors manage risk selection.
These two "features" of
managed competition need to be analyzed together.
(4) Choice of plans at
individual level. Sponsors should structure the market to offer
annual choice of plan at the individual subscriber level, not the
employment group level. Limitation of choice to the group level is a
major barrier to price-elastic demand. (Effective managed care plans
are linked to specific doctors. Because some people have strong
attachments to their doctors, it is much harder to persuade a whole
group to change plans and doctors to obtain lower premiums than to
allow individuals who are willing to change to choose to do so.)
There are other
opportunities for sponsors to exercise ingenuity in making demand
curves for health plans more price elastic. For example, an alert
sponsor might create a system to inform all patients of primary care
physicians who contract with more than one health plan about which
plan has the lowest premium so that patients can switch to the
lowest-priced plan covering their doctorís services. Combined with
standardized benefits, this could greatly increase peopleís
willingness to switch plans to save money.
Finally, current income
and payroll tax laws create a heavy tax on cost containment. These
laws must be changed so that a health plan that cuts its premium by
a dollar sees the full dollar transmitted to the subscriber, as an
incentive to select that plan. This gives the health plan the full
marketplace reward (more subscribers) for cutting price. Thus there
must be a limit on tax-free employer contributions at a level that
does not exceed the premium of the lowest-priced plan. This is
beyond the scope of the sponsor and is mentioned here only for the
sake of completeness.
first paragraph makes no sense if the definition of "sponsor" is the
employer as Enthoven originally defined it. It only makes
sense if the sponsor is a third-party under contract with employers.
An example of a third party - and I believe what Enthoven had in
mind, would be a group insurance cooperative, the HIPC.
In effect, what Enthoven is suggesting is that the "group model" of
insurance be broken - replaced by an "individual model" as packaged
and managed by the HIPC with the employer simply being a 'pass
through'. This conclusion is supported by the third paragraph
in which he notes that the income tax laws have to be changed to
allow an employer deduction only for the standard benefit package
and the elimination of the tax-free insurance benefits to employees
over and above the standard benefit.
second paragraph is really key to decoding Enthoven's objectives.
Specifically, "opportunities for sponsors to exercise ingenuity...
an alert sponsor might create a system to inform patients of primary
care physicians who contract with more than one health plan about
which plan has the lowest premium so that patients can switch to the
lowest-priced plan". If the sponsor is an employer, they
aren't going to do that. There is no percentage in it for
them. A group insurance cooperative (HIPC) that is interested
in steering patients towards a specific provider group however,
would have incentive to do it. So effectively, the HIPC is the
logical sorter - steering individuals towards one plan or the other
which squares with the next element of Enthoven's managed decision
Sponsors manage risk selection. Finally,
in managed competition, the sponsor must manage the problem of
biased risk selection. The goal here is to create powerful
incentives for health plans to succeed by improving quality and
patient satisfaction, not by selecting good risks and avoiding bad
ones. This is a crucial and complex issue. Here I describe the
general outlines without getting into technical detail.
An employer can't manage risk
selection. The only entity that could manage and distribute
risk would be a third party intermediary that has information on the
pools of risk and the distribution of high risk among the health
plans and consequently to the provider groups. So that is
conclusive proof that Enthoven's plan is for the HIPC's to be the
insurance market managers. This is further supported by the
"coordinated strategy for the sponsor to follow:
Single point of entry.
Subscribers notify the sponsor of their choice and the sponsor
notifies the health plan. The health plan must accept all
Standardized coverage contract. Coverage
contract features can be a powerful tool for selecting risks.
(3) Risk-adjusted premiums.
The general idea is as
follows. Health risks are likely to fall differently among the
different plans, either by design or by accident. The
characteristics of the population enrolled in the different plans
(for example, age, sex, family composition, retiree or disability
status, and diagnosis) should be measured and translated into
estimates of expected relative medical costs, independent of plan.
Each plan can be assigned a relative risk index, for example, 1.01
for a plan with unfavorable selection that makes its expected costs
1 percent above the whole group average. Then a dollar value is
assigned to one percentage point of risk. For example, that might be
1 percent of the premium of the lowest-priced plan or the
average-priced plan. This is a policy choice; there is no single
mathematically correct answer. Surcharges are then applied to
premiums of plans that received favorable selection; subsidies are
given to plans that received unfavorable selection, to compensate
for risk selection. This takes selection out of the competition.17
This is very insidious.
It's the key to the "managed competition" model. It gives
dictatorial power to control the market to the third-party sponsor.
The power to adjust premiums based on some nebulous calculation of
pooled risk to mitigate subscriber choice is the power to steer
subscribers (patients) to select specific plans and it's the power
to dictate to both the insurers and providers via price-control
mechanisms of reward or punishment - behind the scenes.
Since the idea of the Sponsor is also to have the function of the
cooperative to act as purchasing agent for individuals, it will
allow them to define the plans of coverage, to select the providers,
set the price and the risk adjustment factor. Together, all of
which means they are actually managing the health insurance market
and the providers.
Take note of the
paragraphs that follow the risk-adjusted premiums paragraph.
Enthoven describes risk adjustment models based on diagnosis (the
avoidance of which is supposed to be one of the objectives of
managed competition) and extra payments to providers on behalf of
people with costly diseases but with the source of funds for those extra
payments are not discussed. But if one factors in the
possibility (I believe probability) that the real intent of this
overly complex "game" design is to facilitate the creation of
population pools by disease category for steering into particular
HMO's for the purposes of applied genetics research, then the
third-party sponsor - manager of the distribution and market makes
sense because the population pool could be distributed in such a way
that the research can be carried on surreptitiously with nobody the
wiser. Who would make the extra payments? The
pharmaceutical companies and the national laboratories could use
their research grants - and again, nobody would be the wiser.
Insurance Purchasing Cooperatives
this section he states that large employers can be their own sponsor
or they can cooperate with other large employers but actually, it's
clear from the preceding paragraphs that the objective of managed
competition is to break the model of the employer-supplied health
insurance group; to be replaced by the purchasing cooperative and
individual subscribers which ultimately will be the demise of the
health insurance system as we've known it. And
it's because of this section of managed competition model that we
know that Enthoven's plan is being implemented: 'HHS
awards $22.5M in contracts to health info exchanges'.
[Enthoven] HIPCs would
select the participating health plans. Some would favor a rule that
a HIPC must offer all health
plans that achieve federal certification and that wish to be
offered in the HIPCís territory. Whether or not market forces would
resolve the problems arising from this arrangement is a
debatable proposition about which reasonable people can differ. I
would prefer to see that HIPCs have some authority to select and
drop health plans. The presumption should favor competition.
Thus it would make sense for
a HIPC to encourage participation by all provider groups in the
territory, but some discretion might be appropriate for the
the above paragraph, Enthoven slips in that he starts by talking
about health plans - but then he goes to provider groups. That
means that what he has in mind is HMO's which squares with the idea
that the purpose of Enthoven's game is to eliminate health insurance
as we've known it.
[Enthoven] HIPCs would
administer health benefit contracts. The HIPC should act like a
competent, effective employee benefits office servicing beneficiary
inquiries and complaints. It should interpret the contracts for
beneficiaries, stand behind patients in disputes with health plans,
and resolve disputes on terms that are fair to beneficiaries. This
should be much more efficient than taking disputes to litigation.
The HIPC also should monitor what is happening in the health care
settings. It should survey consumer experience and make the
information available for consumers. It should investigate
complaints and should aggregate complaint data to identify problem
areas. HIPCs should not bear risk. Health plans should bear all risk
for medical expenses,
Role of Organized Systems
Managed competition is not
based on a mere hope that the market will somehow generate better
models of care. It is based on demonstrations of successful,
high-quality, cost-effective, organized systems of care that have
existed for years. To date, the strongest evidence of their economic
superiority relates to prepaid multispecialty group practices. For
example, the RAND Health Insurance Experiment found that Group
Health Cooperative of Puget Sound cared for its randomly assigned
patients for a cost 28 percent below that for comparable patients
assigned to a fee-for-service plan whose care was paid for entirely
by insurance or with 25 percent coinsurance (up to an annual
out-of-pocket limit of $1,000).22
The evident marketplace success of Kaiser Permanente, now serving
over 6.5 million people, reinforces this finding. Successful
large-scale HMOs based on individual practice styles have emerged in
recent years. These HMOs carefully select participating physicians
and arm physicians and management with strong information systems
about practice patterns.
above is the real objective of Enthoven's game of managed
competition - to eliminate independent health care providers and fee
for service. The system that Enthoven and Ellwood want is the
HMO model where the HMO will have total control over your health
care decisions. The rest of his paper is devoted to
justifications for his system of managed-decisions so this is the
end of analysis.