A recent Boston Globe article about a possible legal challenge to Masschusetts’ health reform initiative indirectly raised one of the most stubborn challenges in health reform:  The Federal ERISA law.  (See below for more about ERISA.)

The contentious issue in Massachusetts is a proposal to require employers to both pay at least 33% of full time employees’ health insurance premiums and ensure that at least 25% of their employees are covered by their health plan. (The current requirement is that they do one or the other.) So why should this difference be the basis for a law suit?  Actually, there isn’t really any legal difference.  In either case, an employer that provides health benefits to their employees by self-insuring, (rather than directly buying coverage from a health insurance company), could sue based upon the Federal ERISA law that regulates employee benefits.

The real difference between the proposal and the current law is political and philosophical rather than legal – employers are willing to live with the current either/or requirement, but don’t want to be pushed down a slippery slope where the coverage requirements and/or the small penalty of $295/employee for failing to meet the requirements are increased.  And their legal backup is ERISA.

So What is ERISA?  (Without going into too much detail.)
ERISA stands for the Employment Retirement Income Security Act of 1974, and it is a Federal law that governs how companies provide benefits to their employees.  The law is overseen by the Department of Labor, and was originally designed to ensure that pension benefits were properly managed and funded.  However, it also encompasses health benefits – but only for companies that provide the benefits themselves by self-insuring rather than purchasing health insurance for their employees from insurance companies.  The result is that ERISA mostly applies to larger companies which typically self-insure for several reasons:

• They don’t have to comply with state health insurance mandates – which is one reason why large companies can reduce their health benefit costs by self-insuring
• Since many large companies have employees in more than one state, by self-insuring, they can operate a single health benefits plan – under what is called an ERISA exemption – rather offer different health insurance options in each state based upon the states’ insurance laws
• By accepting the financial risk of self-insuring, they can also receive any financial rewards from controlling health care spending.  This also gives them incentives to keep their employees healthy as well as productive

ERISA is a Linchpin for Federal or State Health Reform
ERISA is a crucial part of health reform that is not very well appreciated and generally not discussed outside of very wonkish circles – which is probably why the Boston Globe article doesn’t even mention it.

At the State level – as in Massachusetts – ERISA theoretically precludes state governments from placing requirements on self-insured company’s health benefits programs.  However, ERISA does regulate how the benefits are provided, has requirements about providing information to employees about their benefits – aspects that are consistent with the law’s original focus on pension benefits – and has four coverage mandates:

• Non-discrimination against pregnancy as a medical condition
• Hospital length of stays for women following delivery: 48-hours or 96-hours following a Cesarean
• Parity between mental health and other benefits
• Reconstruction following mastectomy

ERISA has also been changed to require that companies continue to offer health coverage for a limited amount of time to employees after they leave the company (COBRA in 1986), and to limit or ban the exclusion of pre-existing conditions or other factors that might predict their need for future health care needs (HIPAA in 1997).

ERISA coverage requirements has rarely been modified because of the lack of any clear consensus for what changes should be made, and the concern that adding coverage mandates to ERISA would increase costs without expanding the number of people with insurance or improving quality. In essence ERISA is a major obstacle for health reform because it regulates one of the largest and most stable parts of the employer-based health insurance system. For example, the Kaiser Family Foundation’s annual survey of employers has shown that 98-99% of companies with more than 200 employees have offered health insurance to their employees every year since 1999.  Similarly, the percentages of employees who are eligible and who chose insurance coverage have remained relatively stable from 1999-2007:

Large Companies (>199 employees) Offering Health Benefits:
Eligibility, Take-Up and Coverage Rates

[It should also be recognized that health insurance costs are a significant factor for large companies to outsource jobs to small companies or independent contractors here in the US, or to send those jobs overseas to companies that have cheaper labor costs.]

The ERISA Chasm
ERISA is a huge uncrossed chasm for health reform because virtually any state law that places requirements on the health benefits provided by self-insured companies could be subject to a Federal lawsuit.  And at the Federal level – as noted above – nobody has come to a consensus as to what should be done, except for some chipping at the edges with worthwhile requirements.  In addition, the Committees with jurisdiction for ERISA generally have not made ERISA health benefit issues a high priority: In the Senate, jurisdiction for ERISA is shared between the Finance and the Health, Education, Labor and Pension Committees.  Each of these committees has significant other responsibilities, including Medicare, Medicaid, biomedical research and the FDA.  And in the House of Representatives, the Education and Labor in the House of Representatives has jurisdiction for ERISA, which is really their only health related area of authority.

ERISA’s Implications for Obama and McCain Health Reform Proposals
The importance of ERISA and its Federal oversight over all self-insured employer provided health benefits raises the question of how the plans of Senators Obama and McCain would be effected by ERISA?

Senator Obama’s plans clearly call for more Federal regulation of health insurance which could significantly change how health benefits are provided to employers.  This avenue for  creating a more stable system for health insurance/benefits changes would have to involve ERISA. However, his proposals explicitly state that individuals could keep the coverage they now have – which would likely mean limited changes to ERISA, and those changes might not raise too many objections from the large business community.

Senator McCain’s plans are based upon shifting the purchase of health benefits from the company to the employee by moving the tax deductibility from the company to the individual.  (It appears that there would also be a dollar limit on this deduction, and in essence also shifting from the general current situation of health benefits being a “defined benefit” to being a “defined contribution” – something that happened with many pension plans in the last ten years as a means for companies to control or limit their future financial liabilities.)  If a McCain plan required everyone buy their own insurance from insurance companies, then changes to ERISA wouldn’t be required, but it might lead to much more state legislative and regulatory action as millions more people become subject to state laws for both insurance company marketing and plan design.  In addition, one selling point used for McCain’s campaign positions, is that it would enable employees to take their health insurance with them as they went from job to job.  For that to be true across state lines, then tremendous changes to ERISA would be necessary – and probably much more than under the proposals that might come from an Obama Administration.

Conclusions
Sorry about the very long post, but as the title states, ERISA is truly an unbridged chasm.  Many health reform proposals have raced up to its brink only to suddenly stop short at the edge of the ERISA cliff – sort of like the comedy Westerns of the 1950s where the rider gets pitched over the head of the horse into the canyon.  In this analogy, perhaps the public and the politician are the horse, (I’ll let you decide which half is which), and the proposal is the rider – which gets lost in the depths of the canyon because the horse can’t find a way across.

For significant health reform to be achieved, all constituencies and stakeholder groups need to reach some consensus to build a bridge across the ERISA chasm.  Otherwise, no action will likely continue to be everyone’s second and fall-back option.

The focus on Medicare payments to physicians for the last six months has been on the 0.5% increase Congress enacted for the first 6 months of 2008 to replace the 10.1% reduction that would have occurred under Medicare’s Sustainable Growth Rate (SGR) formula. Legislation to continue this rate for the rest of the year failed a required procedural vote in the Senate last week.* This leaves Medicare physician payments after June 30th uncertain – although it is expected that Congress will do something in the next week, or three.

However, beyond the impending Medicare 10.6% reimbursement reduction for all physicians, the Graham Center of American Academy of Family Physicians published a short report on June 13th that expands the analysis to include pending change in how Medicare reimburses physicians in Physician Scarcity Areas (PSAs), and Health Professional Shortage Areas (HPSAs). As the report’s summary table below shows, the PSA 5% reduction would effect about 25,000 primary care physicians and over 7.5 million Medicare beneficiaries. And these payment reductions would be on top of the impending 10.6% Medicare payment reduction.

With the general consensus being that we have a shortage of primary care clinicians, cutting Medicare payments to physicians in underserved areas seems truly unwise. And doing it at the same time that Medicare’s overall reimbursement formula for physicians is being so contentiously debated is really a bad idea.

If the PSA and HSPA programs would benefit by being adjusted to redefine their geographic or other targeted goals, then that should be done as part of comprehensive strategies and plans for improving Medicare’s payment system to ensure Medicare beneficiaries have continued access to physicians – particularly those providing primary care services. Making reductions to the PSA and HSPA programs right now seems like the right and left hands of government don’t know what they are doing.

* This legislation would have also implemented a 1.1% increase for 2009 instead of the SGR formula’s reduction of 5%

Cost Containment
Controlling Healthcare Costs
Reducing Health care Spending
Eliminating Waste, Fraud and Abuse
Creating More Value from Healthcare Spending
Increasing Cost Effectiveness for the Healthcare Dollar

These are the types of headlines and catch phrases that we are going to see over the next 6 months as the healthcare focus in the 2008 elections zeros in on spending and costs.

A couple of weeks ago I wrote about how the economy has become the #1 issues of concern for the 2008 elections. Because of this, costs and spending will be the major focus for the political debate about healthcare reform. The two main traction points within these political messages and speeches will be about how healthcare spending is:

• Draining resources from the rest of the economy
• Increasing the public’s concern about becoming unemployed because it could mean losing their health insurance

As CNN recently pointed out, how to actually reduce spending – or at least lower the growth rate for spending – is the $2 Trillion puzzle. One of the harsh realities is that there is often very little connection between a candidate’s proposals for solving a problem and their ability to actually use those proposals to address the problem – because either the solutions won’t do much, or the politics won’t let them implement their proposals. As H.L. Menken said, “For every complex problem there is an answer that is clear, simple, and wrong.”

While each of the three remaining major candidates’ healthcare proposals has been widely discussed, it will be informative to see how they reposition themselves around reducing costs and spending. The Democratic candidates in particular have focused on increasing coverage, so how they add to or modify their positions will be particularly interesting to see.

It will also be worth watching how different advocacy groups position themselves along the continuum from increasing access to controlling spending ­– and what their proposals actually say.

For example, I noted an ad from the American Medical Association (AMA) that ran in the National Journal a couple of weeks ago, (and I presume in other policy oriented publications), that laid out 4 things they support for “controlling rising healthcare costs”:

1. Disease prevention and wellness programs
2. Comparative effectiveness research
3. Eliminating excessive administrative costs
4. Value-based decision making

These all sound good, but how effective would they be to actual control rising healthcare costs? This obviously would depend upon what time frame you’re using to measure costs, and whose costs you’re measuring. Nevertheless, Professor Stuart Altman – one of the very best health policy people I know – last fall laid out in ranked order ways to limit the growth in health spending. (See page 41 of his presentation) According to his assessment, the effectiveness of the AMA’s proposals range from “Very Limited Impact” for #1, to the better end of “Limited Impact” for #2 and #3, and possibly “Greater Impact” for #4, but I’m not really certain what the AMA means by “Value-based decision making,” because value to whom is always an important question.

Before I leave this issue (for now), I also want to point out that one of the easiest political message points in this area is to propose “reducing waste, fraud and abuse.” Since nobody is for “waste, fraud and abuse” this has great traction with voters, but it is important to remember that eliminating any part of the up to 50% of healthcare spending that is estimated to be wasted, is a lot harder than it sounds for two fundamental reasons. First, these waste calculations often don’t account for the healthcare delivery system’s need for “surge capacity.” For example, rarely do hospital emergency rooms run at truly full capacity, but they need to be staffed most of the time to do so, since emergencies aren’t planned and their treatment can’t be rescheduled for a slower time. Second, what may be considered waste in one analysis is generally someone’s salary, and is represented by an advocacy organization that will resist efforts to reduce the size of their piece of the pie.

I have a friend who thinks that the situation has gotten so bad that the political barriers to a single-payer healthcare system will be breached - since that’s the “best” way to control costs – and that’s what we’ll have in a few years. I don’t agree with his perspectives, and think we’ll have continued rationale migration towards a more efficient and coordinated system – particularly once the economy picks up again.

What are your favorite proposals for reducing healthcare spending?

A year ago the hype in healthcare was about state-based reform initiatives. Massachusetts was implementing its law, and several other states - including California - were considering their own proposals for increasing insurance coverage as a first step towards universal coverage and cost containment.

How things have changed in a year. Not only has California’s initiative crumbled under the expected costs to employers, but the economic downturn has undercut states’ healthcare expansion ideas, and may force them to cut back Medicaid enrollment and/or services. This week’s National Journal has an article titled “State’s Rapidly Shifting Gears,” that discusses these and other issues, including how a few years ago states cut their Medicaid payments to providers, so that on average Medicaid pays physicians 69% of Medicare levels, and how pending Federal Medicaid rules and proposals would reduce funding for State Medicaid programs making it difficult for states to reverse these payment reductions.

The importance of our current economic uncertainty for health reform initiatives is tremendous. Consider the following facts:

• Massachusetts’ Medicaid waiver is up for renewal this summer. If this isn’t successfully negotiated and renewed, it could mean the collapse of the state’s insurance expansion program - which is already running well over budget because of underestimates of the number of uninsured who would enroll.
• As the economy falters, not only do more people end up out of work, but they also end up uninsured - with about 40% of them enrolling in Medicaid or SCHIP.
• Medicaid costs represent about 20-24% of state budgets, and 49 states have requirements for balanced budgets.
• National Journal’s poll of political insiders (April 12th issue) showed that 83% of Democrats and 79% of Republicans believe that the economy is much more important issue national security for the 2008 presidential election. AND, these percentages are WAAAAY up from November 2007, when they were only 35% (D) and 34% (R), and national security were deemed more important at 56%(D) and 59%(R).
• The Kaiser Family Foundation’s analysis of public opinion polls found a similar dramatic rise in voters’ interest in the economy as an issue for the 2008 campaign:

The key factors that I believe will determine the fate of health reform intiatives over the next several years are:

• How deep the economic downturn goes
• How long it lasts
• What actions the states and the Federal government take to preserve or dismantle the healthcare delivery, financing and public health systems
• When the economy rebounds, how well prepared the states and the Federal government are to pursue health reform initiatives, and what resources are available for these initiatives

The economic drain imposed by the ongoing conflicts in Iraq and Afghanistan, and the inflationary ripple rising energy costs are sending through the world economy are also factors that may very well undermine anyones ability to expand coverage, while at the same time, increasing incentives and efforts to control healthcare costs.

As Homer Simpson might paraphrase James Carville from the 1992 Presidential campaign, “It’s the Stupid Economy.”

The US Medicare Payment Advisory Commission (MedPAC) recently released a report on “Creating a Center for Evidence-Based Medicine” that was prepared by an outside analysis group. Before dissecting the MedPAC report, let me just lay out some of the more controversial aspects of evidence-based medicine (EBM):

• How are the results of EBM research used for coverage or payment?
• Are the EBM conclusions based upon reviews of prior studies or on research done specifically for the EBM analyses?
• Are the EBM conclusions relevant only for a clinical research situation, or do they reflect real-world practices?
• All medical practices evolve and “best medical practices” are reflected last in textbooks….. after they appear in journals….. after they have been presented at meetings….. after research has been done to understand these practices. How do EBM analyses account for this timeliness factor and include the latest advances?
• How does the EBM analytical process question the validity of its own assumptions - particularly the perceived benefit by patients, or calculations about the “value” of the outcomes from a treatment?
• And related to the previous question - Do the EBM analyses reflect only the benefits to the individual patient or spending by the health plan, or do they include benefits to other parts of society, i.e. families, employers, etc.

Overall, the question is, how does EBM research translate information about the outcomes produced by various medical treatments into better medical practices? When I was in medical school, this was the purpose of textbooks and professors. If national (or global) EBM organizations can accelerate this process and make it more accessible (possibly using new information technologies), then that’s probably fine. But if its functions are subordinate to the cost reduction agendas of healthcare payers, (and this leads to rationing of healthcare services and products based more upon cost than real value - which has been the case with virtually all existing EBM organizations), then a US Center for EBM will become another part of our healthcare system’s problems rather than a step towards solving them.

Below is some commentary on the MedPAC report and some of the existing EBM organizations it discusses:

The MedPAC report outlines several layers of functions for the proposed Center for EBM:

1. Practice Identification and Review
2. Dissemination (of information and conclusions)
3. Training and Technical Assistance
4. Practice Adoption (via education and working with stakeholders)
5. Clinical Outcome Review

Clearly #4 is the key to making EBM research findings useful, and the report cites three critical issue for the voluntary adoption of practices found to be beneficial via EBM research:

1. Credibility
2. Stakeholder Involvement
3. Viable Economic Incentives

Of these, #3 is the most contentious, and the report notes that, “Since economic incentives often represent a threat to opponents of creating a centralized organization of the type described here, it may be desirable to leave that implementation to policy makers rather than treating it as the role of the organization.”

As noted above, a major controversy about “Evidence-Based Medicine” (EBM) is how it is used to make coverage and reimbursement decisions. The report recommends that EBM research and these decisions be kept separate, but the experience with EBM organizations in other countries, and in US health programs like Medicaid and the VA, has been that this is often not followed in practice. On one end is the Department of Veterans Affairs Medical Advisory Panel (MAP) which - as part of the VA’a National Formulary development process - is tasked with performing evidence-based reviews of therapeutic drug classes “that may or may not lead to national standardization contract initiatives.” While this sounds like a rationale and analytical process, my experience with this process is that the MAP does analyses to justify the inclusion of the least expensive medicines on the VA’s formulary.

Because the VA is only about 5% of the US healthcare market, it doesn’t have a sweeping impact on medical care in the US. However, it often goes on the record saying that its methodologies should be adopted by Medicare and private insurers - something that would have much greater implications.

The MedPAC report also talks extensively about the National Institute for Health and Clinical Excellence (NICE). This is one of the most studied EBM-type organizations. While unlike the VA’s MAP, NICE is not technically part of the UK’s National Health Service (NHS), it is created and funded by the British government - so just as two brothers are not the same person, they receive their allowance from the same parents. While the MedPAC report generally praises NICE, the real world experience of patients and companies is somewhat different, and in the global discussion of healthcare policy and economics, it is often cited as a classic fourth hurdle for accessing treatments, i.e. it has become the NHS’s de facto rationing resource.

And one final note of concern. In a previous post, I discussed the very low attendance at a session on Comparative Effectiveness (a type of EBM research) at the annual meeting of the American Association for the Advancement of Science (AAAS). If at a meeting with thousands of researchers, almost none were interested in this topic, what does that portend for the ability of a national EBM organization to conduct independent and analytically driven research without undue political and financial influences?

Have you seen payers pushing clinical practice recommendations under the guise of EBM when they were clearly financially driven initiatives to limit access to certain treatments (a.k.a. rationing), and would produce lower quality care for patients or just chew up the clinician’s time trying to navigate the additional barrier to getting the best care for patients?

What are your thoughts?

I caught part of the report on NPR this morning about the Presidential candidates’ positions on healthcare. The gist of the story was that Clinton favors more extensive individual mandates than Obama (who only favors mandates to cover children), while McCain favors tax credits to make health insurance more affordable.

Whoever becomes the next President, something will clearly be different starting in 2009. Regardless of the candidates’ campaign/political statements, the next President’s actions on healthcare (unlike in foreign affairs), will largely depend on what they can negotiate with the next Congress - which seems like it will be more Democratic than it is currently, but probably not with 60 Senators to force votes on matters that the minority finds objectionable.

Since individual and business mandates here in Massachusetts have succeeded in significantly increasing coverage, they are now part of the national debate. One of the challenges to the Massachusetts plan will be the Federal government’s renewal of the state’s Medicaid waiver - which is funding a large part of the’ new program. If the waiver is not renewed/extended, then the new healthcare program will face a significant financial crunch.

I think mandates make sense when people (or companies) are able to get something that makes sense. In Massachusetts, the health plan options were crafted in a reasonable and measured way to provide relative affordability, with the phase-in of some factor such as prescription drug coverage. However, other states face additional hurdles to implementing something like Massachusetts mandates because they have many more insurers and populations centers - as well as much higher rates of uninsured….. So just replicating any part of Massachusetts’ plan in other states will clearly not be an easy task - even with Federal financial support. And even Massachusetts hasn’t really tackled the issue of cost containment - although moving towars near universal coverage is a significant step towards being better able to control the growth in healthcare spending.

So what do you think 2009 will bring? How will individual mandates be incorporated into health reform proposals by the next Administration and Congress? Will something significant actual happen? Will budget pressures limit what the Federal Government can do, and will this cause them to punt the actual decisions to the States and entice the States into action with a limited amount of money? And will this play out something like the welfare reform initiative of the Clinton Administration - which has had some successes, but when passed severely upset some more liberal Democrats?